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INTERNATIONAL ECONOMIC LAW AND POLICY BLOG


EXPERT COMMENTARY ON THE LAW, POLITICS AND ECONOMICS OF INTERNATIONAL TRADE AND
INVESTMENT

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BEGGAR-THY-NEIGHBOR VS. PROTECTIONISM AS FRAMEWORKS FOR THE TRADING SYSTEM

In a recent piece, Dani Rodrik argues that current global trading rules
interfere too much with domestic regulation and that "the world economy
desperately needs a clear normative framework to determine the rules of the
road." In this regard, he distinguishes between two options: (1) "policies with
adverse cross-border spillovers"; and (2) "policies that truly are
beggar-thy-neighbor." He says that "[i]t would indeed be hopeless – and
counterproductive – to try to discipline all policies of the former type," and
argues for establishing disciplines that focus on "beggar-thy-neighbor"
policies.

I agree with him that "policies with adverse cross-border spillovers" is very
broad and wouldn't work well as the basis for the trading system. It's worth
noting here that, for the most part, this is not, in fact, the current basis for
the system, although I do think there are interest groups who try to push the
existing rules in this direction: If a foreign regulation hurts their business,
they try to convince their government to challenge it as a "trade barrier," even
if the regulation has a similar impact on their foreign competitors.

But I don't think "beggar-thy-neighbor" is the best alternative.
"Beggar-thy-neighbor" is a well-known term from economics, but what exactly does
he mean by it? He illustrates the concept as follows:

> Consider two policies in particular. First, when the Chinese government
> subsidizes research and development that enhances the country’s
> competitiveness in high-tech products and lowers their prices on global
> markets, the US and other advanced economies are hurt, because these are the
> areas of their comparative advantage. Despite the harm, however, we would not
> consider it proper to ask China to remove such subsidies, because our
> intuition tells us that supporting R&D is a legitimate tool to promote
> economic growth, even if others incur losses.
> 
> The second policy is an export ban on rare earths or other critical minerals
> for which China is the principal global supplier. China benefits by increasing
> prices on world markets and making its exporters more competitive, owing to
> their access to cheaper inputs. But this is a clear instance of a
> beggar-thy-neighbor policy. China’s gains are the result of an exercise of
> global monopoly power that forces losses onto foreign producers.
> 
> A policy is beggar-thy-neighbor when the benefit provided to the domestic
> economy is made possible only by the harm that it generates for others. Joan
> Robinson coined the term in the 1930s to describe policies such as competitive
> devaluation, which, in a situation of generalized unemployment, shifts
> employment from foreign countries to the domestic economy. Beggar-thy-neighbor
> policies are generally negative-sum for the world overall.

I see what he is getting at, but speaking as a lawyer, I don't think the concept
works very well as a basis for disciplining domestic policies. I'm not sure how
you would write a rule that looks at "when the benefit provided to the domestic
economy is made possible only by the harm that it generates for others." How
would you determine whether there is a "benefit" here? Does this mean an overall
benefit, or just a benefit to a particular interest group? And how would you
demonstrate the connection between that benefit and the "harm that it generates
for others"? What exactly is "made possible by" here?

Fortunately, we do not need to agonize over crafting such a rule, because we
have existing concepts that work better. Rather than try to make
"beggar-thy-neighbor" happen, we can rely instead on the concept of
"protectionism," which I think of as a policy that has the objective of giving
an advantage to domestic firms over their foreign competitors. GATT Article
III:1 captures this idea pretty well:

> The Members recognize that internal taxes and other internal charges, and
> laws, regulations and requirements affecting the internal sale, offering for
> sale, purchase, transportation, distribution or use of products, and internal
> quantitative regulations requiring the mixture, processing or use of products
> in specified amounts or proportions, should not be applied to imported or
> domestic products so as to afford protection to domestic production.

There are some nuances to deal with here, including situations where the
advantage being given relates to competition in a foreign market. But the
general principles are well understood, and can be applied fairly easily by
trade adjudicators. Of course, in practice we have debates about burdens of
proof,  "aims and effects" tests, and the meaning of "necessary" in the
exceptions. And there are carveouts from the principle for ordinary tariffs,
trade remedies, and public policy and security exceptions (all of which make it
clear that protectionism is not prohibited, but rather the system simply sets
out mutually agreed constraints on it). But the debated issues are fairly clear
and we just have to pick an approach. With "beggar-thy-neighbor," by contrast,
we would be starting from scratch, and I'm not even sure where exactly we would
be starting.

Posted by Simon Lester on October 27, 2024 at 07:16 AM in Dani Rodrik |
Permalink | Comments (0)


JAKE SULLIVAN ON THE INTERNATIONAL ECONOMIC AGENDA, PART 2

In April 2023, White House National Security Advisor Jake Sullivan gave a speech
at Brookings on the Biden Administration's international economic agenda, and I
had some comments in response. Yesterday, Sullivan returned to Brookings to, as
the event page describes it, "reflect on the progress and challenges of the past
18 months and respond to the variety of responses and criticisms of his April
speech." I don't have as much to say this time, but I did have two reactions.
The first relates to the money available for the administration's international
industrial agenda; the second relates to whether there are alternative
approaches that would achieves the administration's goals.

What happens when the money runs out?

In his remarks, Sullivan explained that the administration's industrial
investment agenda was a cooperative one that could be implemented in conjunction
with other friendly countries:

> As more and more countries adopt this approach, we will continue to build out
> the cooperative mechanisms that we know will be necessary to ensure that we're
> acting together to scale up total global investment, not competing with each
> other over where a fixed set of investments is located. ...
> 
> All of this high tech investment and development hasn't come at the expense of
> our partners. We've done it alongside them. We're leveraging Chips Act funding
> to make complementary investments in the full semiconductor supply chain, from
> Costa Rica to Vietnam. ... Simply put, we're thinking about how to manage this
> in concert with our allies and partners and that will make all of us more
> competitive.

If I understand the administration's international economic policy agenda
correctly, a central feature is to spend lots of money to subsidize advanced
U.S. production, and then also to subsidize less advanced parts of the
production process in certain allies. In this regard, you can read more about
the semiconductor efforts with Costa Rica here, here, and here (the second link
states that Commerce Secretary Raimondo "welcomed Costa Rica’s efforts to
elevate the country as a key market for semiconductor assembly, testing, and
packaging"; the Vietnam efforts use similar language).

Regardless of whether or not this is good policy, it is clearly dependent on the
U.S. spending a lot of money, and for now that's still happening. But history
tells us that the spending will come to an end. It may end through a new
administration that has different priorities and approaches, but it may also
just end because deficits/debt get too high and/or an economic downturn arrives.
U.S. fiscal policy is strange, because basic economics tells us to balance the
budget during a strong economy and then run deficits during a recession to
stimulate the economy, but in recent decades U.S. politics has sometimes given
us a pro-cyclical fiscal policy in which we increase deficit spending when the
economy is doing well and try to rein in deficits during recessions. Right now
we are in an expand deficit spending when the economy is doing well phase, but
when the inevitable downturn comes, I suspect there will be some fiscal panic
and a call to cut spending. In that event, what happens to the Biden
administration's spending on these policies? Money given to production abroad is
likely to be the first batch to dry up.

Are there alternative approaches?

In defending the Biden administration's policies, Sullivan says that critics
should offer alternatives:

> Anyone who says, well, this isn't quite the answer, I think, does have
> responsibility to come forward and lay out, how do we meet the challenges I
> laid out, which I think are basically indisputable. Challenges relating to the
> clean energy transition, to the rise of a massive non-market economy that
> distorts global economic integration, challenges of geopolitical competition,
> challenges of fractured supply chains and economic coercion. So those are all
> challenges we've seen, all challenges we need to deal with. So if this isn't
> the answer, you have to have an alternative answer. ... and that answer has to
> be sustainable economically, geopolitically, and politically, actually, also
> in this country and in many countries around the world. ...
> 
> I believe that what we have put forward can contribute to that, particularly
> to outcomes at a crucial moment of technological change and the clean energy
> transition. But I acknowledge the risks that come with it, and the need for us
> to be clear eyed and how we deal with them. The argument I would make is,
> people pose these questions and in posing these questions, I think they also
> need to develop an answer that says, if not this, then X. And to me, the X of
> let's just go back to the status quo in light of what we have seen is not
> going to work.

Challenge accepted! I would go with a carbon tax, non-discriminatory consumer
subsidies, and trade liberalization of clean energy goods and services for the
clean energy transition; and I would use WTO complaints to address non-market
practices and economic coercion. On supply chains, strategic stockpiling
probably makes the most sense. (Geopolitical competition is a foreign policy
problem, and I'm not going to weigh in on that one for the moment.)

But wait, you might say, do those suggestions meet Sullivan's test of being
politically sustainable? It's a fair point, but I may wait to come back to it
until after we find out in a couple weeks if the Biden administration's approach
has been sustained politically.

Sullivan also says he doesn't think we should go back to "the status quo," but
I'm not sure which status quo he has in mind. What specifically does he not like
about past eras of international economic policy? For the most part, I wasn't
particularly happy with past U.S. international economic policy either, although
probably for different reasons. So on that point, I think I'll just agree with
him that we shouldn't go back to the status quo, although we probably disagree
as to what it is we're not going back to.

Posted by Simon Lester on October 24, 2024 at 08:25 AM | Permalink | Comments
(0)


DO FOREIGN DIGITAL REGULATIONS "DISCRIMINATE" AGAINST U.S. FIRMS? THE CASE OF
KOREA

Just about everybody agrees that "non-discrimination" is a core principle of the
trading system, but what exactly do we mean by it? What is the role of intent
and effect? Governments who feel like their companies are being hurt by a
foreign regulation often focus on the effect, while governments who are
regulating prefer to talk about their intent. One way to get some clarity is
through cases that adjudicate the issues, and the U.S.-South Korea conflict over
digital trade regulations that I wrote about with Haeyoon Kim could be a good
one if it goes to litigation: 

> New legislation introduced in the US Congress suggests that a major US-South
> Korea digital trade dispute could be unfolding, with Korea’s recently proposed
> regulation of online platforms in the crosshairs of US policymakers. Despite a
> shift by the Korea Fair Trade Commission (KFTC) from its earlier regulations,
> tensions remain, mainly stemming from conflicting views and misunderstandings
> regarding the goals of Korean regulators. While US critics highlight the
> negative effects on US tech companies, Korean regulators emphasize that the
> intent of the proposed law is neither discriminatory nor protectionist but
> instead aims to address challenges in the Korean digital market today.
> 
> ...
> 
> Despite the KFTC’s announcement of a more measured approach, pushback from
> major US policy voices persists. Much of the debate is framed within the
> US-China competition, with claims that South Korea’s new regulation could
> disadvantage US tech companies and benefit Chinese ones. In this regard, there
> have been arguments in Washington that Seoul is targeting and discriminating
> against US tech companies.
> 
> This view was stated during a recent congressional hearing by Representative
> Carol Miller (R-WV), who expressed deep concern that a key ally like South
> Korea is “pursuing economic policies that target and discriminate against US
> technology companies” while “welcoming state-owned Chinese companies with open
> arms.” On September 27, she introduced legislation, titled the U.S.-Republic
> of Korea Digital Trade Enforcement Act, to “stop the Korean government from
> implementing these blatantly discriminatory laws that will cause an
> unnecessary irritant to such a vital relationship [between the two
> countries].”
> 
> The bill notes that South Korea is considering “additional discriminatory
> digital regulations that would unduly burden United States businesses while
> benefiting Chinese technology companies.” To “ensure a fair and
> nondiscriminatory regulatory environment,” it requires the United States Trade
> Representative (USTR) to report to Congress if Korea enacts laws or
> regulations that “predesignate or post-estimate a United States online or
> digital platform operator and impose discriminatory business restrictions.”
> The report will include a determination of whether a US entity was negatively
> impacted, if any trade agreement violations exist, and whether the law or
> regulation burdens or restricts US commerce as outlined in Section 301 of the
> Trade Act of 1974. Following the report, USTR may take action to protect US
> commerce, such as initiating a WTO dispute, a Section 301 investigation, a
> KORUS FTA dispute, or reaching an agreement with Seoul to mitigate the impact.
> 
> ...
> 
> At the heart of the potential US-South Korea dispute lies a fundamental
> question: what is discrimination? US officials contend that South Korea’s new
> regulation disproportionately affects US tech firms compared to Chinese and
> Korean ones, which they believe constitutes discrimination. However, Korean
> antitrust authorities argue that the regulation is designed neutrally and
> lacks any discriminatory intent, thus not meeting the criteria for
> discrimination. Ultimately, in their view, the regulation is essential to
> ensure a fair and anti-monopolistic digital environment, without fear or favor
> over company nationality.
> 
> ...
> 
> ... the KFTC Chairman responded to Representative Miller’s bill [by saying]
> that the Korean competition law “has historically been enforced without
> favoring domestic operators.” He added that the upcoming amendments “will also
> be applied without discrimination between domestic and foreign businesses,”
> reflecting Seoul’s desire to provide a balanced treatment of large platforms,
> regardless of nationality.

Posted by Simon Lester on October 23, 2024 at 06:38 AM in Digital Trade,
Non-Discrimination Standards | Permalink | Comments (2)


MORE (AND MORE AND MORE) TRUMP ON TARIFFS

As I mentioned last week, Trump constantly talks about tariffs, but that hasn't
led to voters thinking of tariffs and trade as a top policy issue. After I did
my post, Trump gave an interview in which he talked about tariffs even more than
usual. (Normally I provide full text quotes, but in this case there was just too
much, so you can watch the video here if you are interested.) And while there
wasn't anything particularly new and interesting about what he said, but rather
just more of the same thing, it nevertheless triggered a few thoughts from me.

To start, Dmitry Grozoubinski has written a whole book on "Why Politicians Lie
about Trade," and I can imagine some people will think Trump is lying when he
talks about this issue. But as best I can tell, Trump actually believes his
arguments. He's wrong, in large part because he misunderstands the causes of
trade deficits (I'll get back that in a moment), but that doesn't change the
fact that he believes it. 

As an alternative (or complementary) explanation, some people present this as
Trump "negotiating," and I acknowledge that it's possible he thinks his remarks
constitute some sort of negotiating tactic. In his mind, when he threatens these
tariffs, other countries will be likely to make trade (or other) concessions,
perhaps because of the general economic and security leverage the U.S. has over
them or perhaps because he thinks the U.S. trade deficit means that trade wars
will hurt others more than they hurt us. But I think he is mostly wrong about
this. The reality is that other countries have domestic politics too, and
political leaders in other countries can't go to their public and say "we
totally caved to Trump." As a result, major changes to the balance of existing
trade commitments based on this negotiating tactic seem unlikely at the moment.
In his first term, Trump was able to get tweaks to the USMCA, KORUS, and
US-Japan trade arrangements. (On China, there was the Phase One deal, but it's
not clear to me that it had an impact on Chinese policies and practices.) But
going back to the same countries with follow-up demands is not likely to achieve
much. At a certain point, for the domestic political reasons noted, they just
have to say something like, "fine, withdraw from the agreement or impose tariffs
if you want, but we can't keep conceding things."

Part of the reason for the difficulty with renegotiating the existing balance of
trade arrangements, which Trump and his advisers seem to think is unfair to the
U.S., is that a lot of people would say it is actually unbalanced in the favor
of the U.S., pointing to things like the TRIPS Agreement as an example. So why
do Trump and his trade advisers see things differently? In large part, it's
because they fundamentally misunderstand the trade deficit. For them, the U.S.
trade deficit is, in and of itself, evidence that the existing trade
arrangements are unfair to the U.S. In their view, foreign protectionism and
unfair practices must be the main cause of the trade deficit. I think they are
wrong about this, and I agree with the consensus view of economists that
macroeconomic factors are the most important driver of the trade deficit, but
unfortunately I have had no success in getting anyone from the Trump side to
engage on this issue. I would ask them this question: In a world where the U.S.
has a relatively low savings rate and the dollar is the reserve currency, how do
they expect the U.S. not to have a trade deficit? I'm baffled by their views,
and aside from them offering vague and general denials that macroeconomic
factors are the cause, I've never heard any of the trade deficit hawks address
this.

Another point that occurred to me when listening to this Trump interview is that
if you are thinking about how Trump might govern on trade, certainly we should
all expect lots of new tariffs, but at the same time it's worth noting that
there is likely to be an internal Trump vs. his administration debate on trade
policy. Some people he hires will be looking to pry open foreign markets a bit
(and even Trump indicated during the interview that he was worried about foreign
regulations that affect U.S. companies), which cuts against him imposing the
full range of tariffs he has proposed, as foreign retaliation is certain to be
the response to his tariffs. A related point here is that in his remarks in this
interview, Trump seemed to suggest, as he has before, that he would be OK with
Chinese-owned factories in the U.S. But many other Republicans (and a few
Democrats) seem adamantly opposed to that. Who would win that internal battle?

Posted by Simon Lester on October 20, 2024 at 06:52 AM in 2024 Presidential
Campaign | Permalink | Comments (1)


IS TRADE POLICY ON THE BALLOT IN THE U.S. PRESIDENTIAL ELECTION?

A recent AP piece on U.S. Trade Rep. Katherine Tai's trade policies is entitled:
"Top US trade official sees progress in helping workers. Voters will decide if
her approach continues." It then leads off with this:

> As the U.S. trade representative, Katherine Tai is legally required to avoid
> discussing the presidential election. But her ideas about fair trade are on
> the ballot in November.
> 
> Voters are essentially being asked to decide whether it is best to work with
> the rest of the world or threaten it. Do they favor pursuing worker
> protections in trade talks, as Tai has done on behalf of the Biden-Harris
> administration? Or should the United States jack up taxes on almost everything
> it imports as Donald Trump has pledged to do?

I'm not sure this tells the full story. I do agree that there is a difference
between the approach of Trump and his Trade Rep. Bob Lighthizer on trade policy,
on the one hand, and the Biden/Tai approach, on the other (although I don't
think the article captures the differences very well), and therefore it is true
that the election will decide the near term future of U.S. trade policy.

However, the piece makes it sound like these issues are of crucial importance
for the election, as it states: "Voters are essentially being asked to decide
whether it is best to work with the rest of the world or threaten it." While
voters are certainly being asked to choose a president, I doubt this choice will
tell us much about voters' trade policy views. Polling indicates that trade is
not a top priority for voters and I'm skeptical that it will have much impact on
who wins this election. Very few voters are likely to base their choice of Trump
or Harris on the distinctions between the trade policies pursued by Lighthizer
during Trump's time in office and those pursued by Tai now. I find it noteworthy
that tariffs and trade are one of the few issues that Trump seems to genuinely
care about, but even though he talks about them constantly voters still aren't
particularly interested.

Trade policy is not totally irrelevant in this election, of course, and could
affect a few votes here and there. But I think there are many more important
issues. As an example, an issue that I think is clearly "on the ballot" is
immigration, where the Republicans and Democrats are far apart. This is an issue
that voters say matters to them, and is one of the key policies that will decide
the election. I think it's fair to say the voters' decision on who should be
president will tell us something about which direction they want to go on
immigration (the electoral college distortion of these preferences
notwithstanding). However, I doubt the election will tell us much about their
preferences on trade policy.

Posted by Simon Lester on October 13, 2024 at 01:33 PM in 2024 Presidential
Campaign | Permalink | Comments (0)


GUEST POST: COMMERCE DEPARTMENT REGULATIONS ON “CONNECTED” VEHICLES: POTENTIAL
IMPACTS ON CHINESE, MEXICAN, AND OTHER AUTOMOTIVE IMPORTS TO THE UNITED STATES

This is a guest post from David A. Gantz, JD, JSM, Will Clayton Fellow for Trade
and International Economics, Rice University’s Baker Institute for Public
policy, Houston and Michelle Michot Foss, PhD, Fellow in Energy, Minerals and
Materials, Baker Institute

Introduction: The Proposed Regulations

On Monday, September 23, The U.S. Department of Commerce (DOC) issued
wide-ranging regulations which, when finalized, likely before the end of 2024,
would significantly restrict U.S. imports of software and hardware for
“connected vehicles,” whether separately or imbedded in either electric (EV) or
internal combustion engine (ICEV) powered vehicles (Connected Vehicles Proposed
Regulations). The ban applies to software or hardware originating in either
 China or Russia, although we are not aware of any such products currently
imported from Russia. “Connected" is a term of art that typically refers
primarily to the sophisticated computers that are essential for control of EVs,
but they are also found in one form or another in most modern ICEVs. The EV
computers are more sophisticated than most systems in gasoline powered vehicles
and can, if properly programmed, update the vehicle’s software as well as record
and transmit driver data and photos (e.g., of military bases, ports or electric
power plants) to the manufacturer (or perhaps others such as agents of the
Chinese Communist Party). Tesla and some other US-made EVs already have such
systems. For example, Tesla uses them to transmit software exports to Tesla
vehicles and to receive driver data.

Baker Institute non-resident fellow Simon Lester has provided an excellent
summary of what the notice provides. It would:

 * (1) prohibit VCS [Vehicle Connectivity System] hardware Importers from
   knowingly importing into the United States certain hardware for “VCS
   hardware” . . .
 * (2) prohibit connected vehicle manufacturers from knowingly importing into
   the United States completed connected vehicles incorporating certain software
   that supports the function of VCS or ADS (VCS and ADS software are
   collectively referred to herein as “covered software,” as further defined
   below);
 * (3) prohibit connected vehicle manufacturers from knowingly selling within
   the United States completed connected vehicles that incorporate covered
   software; and
 * (4) prohibit connected vehicle manufacturers who are owned by, controlled by,
   or subject to the jurisdiction or direction of the PRC or Russia from
   knowingly selling in the United States completed connected vehicles that
   incorporate VCS hardware or covered software. (China Trade Monitor Summary).

Vehicles made by American companies in China and exported to the United States
(e.g., Tesla, General Motors and Ford) whether EVs or ICEVs would presumably
incorporate VCS hardware that is not capable of Chinese spying in the United
States. However, many owners and prospective owners of passenger vehicles
capable of directly communicating with the manufacturers may be concerned about
potential violations of operator privacy. Such concerns seem justified in light
of the revelation earlier in 2024 that General Motors was using its “Onstar”
communications system to record driver data and sell it to insurance companies
(Your car is spying on you).

It seems wise of the DOC to focus on imports of software and hardware for
"connected" vehicles, rather than just the vehicles themselves. The new
regulations could cut a wide swath, including, for example, the Buick ICEV SUVs
that GM has been importing for several years and Tesla vehicles coming into the
U.S. from China. (Those imports are likely to cease anyway because of the
recently ordered 100% tariffs) (White House Fact Sheet). However, the proposed
regulations, because of the grace periods, noted below, do not appear to
effectively address Volvos (both ICEVs and EVs) and Polestars (EV only) produced
in South Carolina, with both brands controlled by Chinese auto maker Geely
(Polestar and Volvo US Production).

The EV import numbers for both brands are apparently very small at present, but
our understanding is that about 128,000 Volvos (almost all ICEVs) were sold in
the US last year (Volvo's US sales). Some were made in South Carolina and some
in the EU and a few in China but all have computer systems and are potentially
under the ultimate influence of Geely and thus potentially the Chinese Communist
Party.  Thus, all or nearly all of those vehicles are capable of recording data
and communicating it to Volvo (whether or not they are actually doing so), and
some will have cameras, although we of course have no way of knowing whether any
of the computer systems are or will be used for suspect purposes.

The proposed regulations, when adopted later in 2024, would not be effective for
software until the 2027 model year and the hardware for them 2030 model year.
The lead time is probably necessary for the industry to make sourcing changes
but if Polestar sales increase now that they are being assembled in SC a lot
more vehicles potentially capable of spying could be on the road in the next
several years. 

One does not need EVs to be concerned about connectivity (or autonomous driving
if that is the end game). Late model ICEVs are loaded with technical equipment
that seems to fly under the radar, so to speak, since no one pays much attention
to it. Others worry about cybercrime and have tried to bring attention to those
potential vulnerabilities.

The Biden administration, in Executive order 13873,  is acting under authority
of the International Emergency Economic Powers Act (IEEPA), “to deal with any
unusual and extraordinary” foreign threat to the United States’ national
security, foreign policy or economy, if the President declares a declares a
national emergency…(Proposed Rulemaking)

These bans on connected automotive technology issued on national security
grounds will have broad bipartisan support, including Biden/Harris and Trump,
although some critics would have liked to see action sooner. A prohibition of
this kind could arguably be justified under the USMCA Article 32.2 exception,
which permits a Party to take actions to protect its “own essential security
interests.” The US could decide without any review by other parties or in a
USMCA panel. Otherwise, it would probably be a USMCA violation. (National
Security under USMCA) The US use of Section 232 to restrict steel and aluminum
has survived several court challenges.

Mexico and Other Potential U.S. Suppliers of Connected Vehicles, Software and
Hardware

For the time being—at least until the beginning of 2026 and probably
longer—there will be no Chinese EV production in Mexico. It also seems
exceedingly unlikely that the Chinese origin software or hardware relating to
the “connected” technology covered by the regulations is or will be produced in
Mexico, although trans-shipment may be a potential concern.

This DOC proposed action is focused on China rather than on Mexico or other
potential exporters of Chinese made EVs to the United States, although the
prospect of manufacturing of EVs for export to the US by BYD or other Chinese
manufacturers is obviously of serious concern to the US auto industry and
policymakers (Mexican EV threat). As noted above, a ban on such imports based on
national security grounds would be difficult to attack under the USMCA. (Among
other reasons, Lopez Obrador has cited national security as a broad basis for
attacking objections to constructing the Mayan Tourist train) (National security
for Mayan train).

Despite the global breadth of the regulations, Mexico may ultimately be affected
more than any other U.S. trading partner, except China. The Mexican auto/auto
parts industry has been the most significant driver of Mexico's manufacturing
sector since before NAFTA went into effect in 1994 and established an integrated
North American automotive market, amounting for about 22% of total trade under
the USMCA, and 17.4% of total world auto production (North American auto
industry).

Still, the trade situation goes way beyond Mexico and will probably frustrate
other auto-producing governments. For United States and European original
equipment auto manufacturers, these US restrictions remind many of the flooding
of US and EU markets by Japanese and Korean auto producers on steroids,
recalling in particular the  huge inroads made in the United States market by
major Japanese auto producers and the various steps the United States took 40
years ago  to protect the U.S. automotive industry (US-Japan Auto Deal 1985).

If nothing else, the likelihood that the next US president will impose high
duties on imports of EVs made by Chinese firms in Mexico or elsewhere (see
below) may convince BYD that their proposed Mexican facility should be further
postponed. It is uncertain whether Elon Musk could convince Donald Trump that
Tesla vehicles from Mexico could be imported at low duty rates into the US;
otherwise, the proposed Tesla Nuevo León plan might also be abandoned
altogether, after having been postponed once already.

It is worth keeping in mind that many Chinese auto parts imported into or
manufactured in Mexico are routinely used in producing autos sold in the US,
without any apparent concern by the US government (or even Mr. Trump). Under the
USMCA rules of origin, up to 25% of a vehicle's components (down from 35% under
NAFTA) can come from outside North America, e.g., China, India, Korea or
elsewhere) (USMCA automotive sector).

U.S. Tariffs and Presidential Uncertainties

At this writing, a few weeks before the U.S. Presidential election, policies in
2025 toward US imports of EVs will depend in major part on who is president,
although the Biden administration’s 100% tariffs on EVs from China and the DOC
regulations banning software and hardware imports from China and Russia would
probably be continued in force. If one can rely on campaign rhetoric—which is
always problematic—a second Trump administration is likely to affect US motor
vehicle imports,  both ICEVs and EVs, and parts and components, from every U.S.
trading partner, given that the proposed across the board 10%-20% new tariffs
would apply to autos and auto parts as well  as other goods (10-20% Proposed
Trump Tariffs). Whether these tariffs if imposed would survive court challenges,
even if national security were cited, or possible Congressional challenges, is
uncertain.

Trump promised on September 23 that if elected he would impose 100% customs
duties on all passenger vehicles imported from Mexico, both ICEVs and EVs
(although he may not know or care about the full implications) (100% tariffs on
Mexican autos). The objective stated by Trump apparently has nothing to do with
national security. He says he would be delivering jobs to the US. Such duties
particularly against Mexico alone would be illegal under WTO, USMCA, and US
customs law, and likely would be enjoined by the Court of International Trade, a
federal court which has exclusive jurisdiction over trade and customs cases.
However, one can question whether the proposal would survive beyond November 5.
Mr. Trump is beholden to many executives in the US automotive industry and their
lenders, so it so it seems to us unlikely to be implemented.

Ms. Harris if elected would probably impose 100% duties on Chinese/Mexican EVs
to match the Chinese tariffs (if they have not already been imposed by Biden),
which could probably be done on the same national security grounds as the DOC
regulations discussed herein. Once final DOC regulations are published, probably
by December 2024, “connected” EVs, including Mexican EVs with imbedded
“connected” software and hardware made by Chinese-owned factories, will be
banned from the US. One could argue that with the US ban on imports of connected
vehicle software and hardware the 100% tariffs are not necessary, but a Trump
administration typically loves tariffs, and a Harris administration could take a
“belt and suspenders approach.” Separately, Harris has complained that the USMCA
negotiated by Trump has made it “far too easy” for auto companies to outsource
jobs and promised (without providing any details) to address her concerns in the
2026 USMCA review (Harris on auto rules). Her pronouncements, like Trump’s 100%
tariff proposal, do not distinguish between ICEV and EVs.

It might also be considered advisable by Harris to apply the 100% duties to
potential Chinese-produced EV imports into the United States from Turkey, the
EU, Thailand and Brazil among others, where Chinese-owned EV factories are or
will soon be producing EVs. (ICEVs made by Mercedes, BMW and Audi also have
sophisticated computer systems, although EU privacy rules may limit their scope,
and their spying capabilities are far less suspect.) As far as we can tell,
there has been some handwringing about potential spying within the EU, but the
proposed penalty duties of up to about 40% are focused on Chinese subsides and
protecting the EU industry and its workers (EU auto tariffs).

With current imported Chinese-origin EV sales in the EU accelerating, it is
probably too late for the EU to respond effectively. The EU reportedly imported
about 300,000 EVs from China in 2023, although more than half of were made by
Tesla or BMW, Renault and other EU-controlled facilities in China (EU imports of
Chinese EVs). If we were the US military, we would not want any of those EVs
visiting the many U.S. bases in Europe, and US policy makers should be wary
about re-export of some of those EVs to the United States.

Finally, if one is sufficiently cynical, one can argue that a Harris
administration, even if would never impose 100% tariffs on all autos imported
from Mexico, would generally favor a “Buy American-invest in America-Employ
Americans” policy that may not differ in major respects from Trump’s except in
tone.

The 2026 USMCA “Review and Revision”

EV rules of origin will very likely be on the agenda for the mandatory 2026
USMCA "review and revision," at the request of the United States or the other
Parties although it seems unlikely that the US would wait until 2026 to deal
with this critical trade issue. Based on their statements to date, it seems
likely that either a Harris or a Trump administration would be pushing for rules
of origin that are even more favorable to the US than those negotiated in the
USMCA and subsequently advocated by the United States, even though some
observers have urged increased flexibility on automotive trade rules within
North America (Looking Forward). We recall that when the Trump administration
was negotiating a replacement agreement for NAFTA, its original auto rule of
origin proposal was for 85% North American content, of which 50% would have had
to be US content.

In any event, it seems unlikely that the Parties (with the US demurring) will be
able to agree in 2026 to extend the USMCA for 16 more years due to disagreements
on autos or other key issues. More likely, there will be no agreement on changes
in 2026, making another review necessary in 2027 and perhaps thereafter, until
2036, when the USMCA would terminate unless the Parties agree on a 16 year or
any other extension which would have unanimous support (USMCA article 34.7). We
believe this is the most likely case whether Harris or Trump is president from
2025-29.

Conclusions

The prospective regulations banning US imports of “connected” software and
hardware, whether imported alone or imbedded in vehicles, should greatly assist
the US government in protecting the United States from the dangers of the
presence of such vehicles in the United States. The delay in imposing the bans
until the 2027 and 2030 model years is somewhat troubling but probably
inevitable. U.S. policy in this area has been far more proactive than in the EU
and is welcome.

That said, the rapidly expanding ability of adversarial interests to attack
microelectronics like those in vehicles in order to undermine and threaten
economic and national security in the United States and among allied nations
currently exceeds our abilities to invoke broad, economy-wide anti-tampering
tactics. Strategies are needed at the materials science level (and are being
addressed at Rice University), for “smart materials” research and development,
to harden critical systems. As well, there are huge considerations beyond autos
when it comes to market penetration of electronic devices with telecommunicating
capacity that present any number of both competitive and security concerns and
rivalries. Whether ICEVs or EVs, a goal is “vehicle to everything” or V2X
systems integration, which increases the need for anti-tampering and other
hardening even more. We doubt that the United States has the capacity, anywhere,
to handle all of this, even if our inertia could easily be overcome. Thus, going
forward we expect these fragilities to become deeply embedded in politics and
policies surrounding international trade, well beyond that in automotive
vehicles.

With the USMCA, it is problematic whether the agreement would survive four more
years of Mr. Trump if either the 10%-20% increased tariffs on all goods
including autos and auto parts were imposed, let alone the 100% tariffs on all
auto imports. The Harris proposals to date raise fewer concerns, since it has
been widely assumed for some time that no U.S. administration would permit the
importation of connected vehicles into the U.S. from Mexico or anywhere else.
While USMCA tariffs are zero if a product meets the rules of origin, the MFN
tariff otherwise applicable to passenger cars imported into the United States
(except currently from China) is only 2.5% (other than China), and an
insignificant barrier to auto imports from Mexico, Europe or elsewhere (US
import duties).

The combination of US concerns about Chinese origin connected vehicles, U.S.
“Buy American” policies and Mexico's return to an autocratic, single-party state
with an anemic rule of law (Judicial "Reform" and the rule of law) could
together become a devastating blow to the Mexican economy in general, leading to
the worst recession in many years. This has serious negative implications for
the United States as well, particularly with regard to controlling illegal
immigration, but also to the continued global competitiveness of the North
American automotive sector.

Posted by Simon Lester on October 09, 2024 at 05:23 PM | Permalink | Comments
(0)


GUEST POST: A TRIBUTE TO FRIEDER ROESSLER FROM WERNER ZDOUC

This is a guest post by Werner Zdouc. The piece will be published in a
forthcoming issue of the World Trade Review.

A universalist, shaping destinies, staying true to himself

Werner Zdouc

Frieder Rössler was a principled pragmatist, who throughout his career never
compromised on his high intellectual and ethical standards. He strove for
himself and others to thrive in intellectual and professional freedom,
creativity, happiness, and as years passed, serenity.

Two universities, more than others, marked his academic upbringing: The
university of Freiburg, Germany, renowned for its ordoliberal school in
economics, shaped his economic thinking. The Fletcher School in Boston widened
his horizon on political science, the rationality and emotionality of political
processes and the policy aspects of law. Since his childhood most striking for
his intellectual and professional drive was the catastrophic experience of his
and his parental generation of Germany morally, economically and politically in
shatters after Nazism. He often said to me, the mission of his generation was to
work for a multilateral system built on rules, ethical standards, human rights,
social welfare, equity and inclusiveness so this could never happen again. Early
in his life he was convinced that he had to leave Germany to learn abroad from
other political, legal, economic and cultural systems, which was somewhat
unusual at this period of the country’s reconstruction. 

Frieder mastered legal science and economic theory but equally tried to explore
and question political paradigms and to comprehend both rational and irrational
realities of political processes and international negotiations. Fully mindful
of these realities throughout his international career, he was convinced being
passive was not an option. Relentlessly, he tried, wherever he could, to shape
these processes and make them more driven by legal and economic science, facts
and data, and fundamental rights standards. He was not content to be a witness
or bystander of change, he felt a mission to actively co-shape the transition
from the GATT 1947 to the WTO multilateral trading system and at the Advisory
Centre for WTO Law to empower developing and least-developed countries to take
their destiny in their own hands. When he felt he had reached the limits of
steering the system and making a difference in a function he held, he did not
hesitate to jump ship, work for a different international organization, join
academia or engage in capacity building. He left a mark in whatever he touched.

It is generally known but nevertheless under-researched mystery of the WTO
Marrakesh Agreement that some of its most powerful features seemed not to emerge
from thorough reflection and fully transparent, inclusive discussions. By the
end of the Uruguay Round negotiations, the single-undertaking idea was of course
on the table, but quite a number of countries were convinced they would be able
to pick and chose from the many covered agreements those that served their
interests most, while abandoning those agreements that they considered obstacles
to economic development. Had the single-undertaking approach been a certainty
throughout the Uruguay Round, many developing countries and LDCs would have
approached the negotiations differently, invested more time and efforts in the
discussion process and insisted on different rules for key agreements like TRIPS
or Agriculture. Some claimed they had not been fully aware that WTO Members
(with extremely few plurilateral exceptions) would not be able to pick and
choose from the agreements resulting from the Uruguay Round.

Like India, also other developing countries thought of a creative way out:
Invoking the non-discrimination clauses of GATT 1947 would allow them not to
sign up to some or most WTO covered agreements, while being entitled to the
conferral of all the benefits of the WTO Uruguay Round results by the trading
partners ratifying the full package, by virtue of GATT 1947. In other words,
Members not signing up to all Uruguay Round agreements could take a free ride on
the commitments and obligations which Members ratifying all Uruguay Round
agreements would be required to extend on a non-conditional MFN basis. The
consequence of those attempts are known. With Frieder’s expert advice as GATT
Legal Division Director, a legal solution was found whereby GATT Contracting
Parties and Uruguay Round negotiating parties adopted all the results of the
Round as a single package, including GATT 1994 being a part of the covered
agreement. At the same time, they terminated the GATT 1947 to prevent such
free-riding. Some developing countries felt trapped and protested such “coup” by
the powerful countries that deemed the WTO covered agreements an inseparable
package.

When I joined the WTO Secretariat in September 1995, this was still the talk of
the day. Frieder was profoundly convinced that this was legally, politically and
historically the right solution but he was visibly affected by the reaction of
some Members. For him this was not a matter of using a legal construct to help
the powerful impose their will through a single package of agreements; for him
this was innovative institution-building of historic dimensions. In the “window
of opportunity” period right after the fall of the iron curtain the unique
chance arose for the world trading system to take a big leap forward towards
bindingness and rule-orientation. In the longer run, this would protect
developing countries and the less powerful better than ad hoc opting out from an
innovative, rule-based package of agreements confronting the realities of trade
in goods, services and trade-related intellectual property rights towards the
end of the 20th century. Perennializing the provisional application of GATT 1947
with partially grandfathered protectionism when the ITO failed was in Frieder’s
conviction ultimately much more damaging for developing and least-developed
countries.

Frieder was a relentlessly creative, visionary thinker, questioning and
reinventing constantly his viewpoints. Contrary to other contemporaries, he did
not lose his youthful approach to intellectual curiosity as he aged and advanced
professionally. He never stopped thinking about the challenge of reconciling –
within an internationalized binding system – trade  liberalization  with the
pursuit of  legitimate “non-trade” objectives by governments and citizens. Long
before the term “regulatory space” was coined, having spent all of his GATT life
fostering rule-orientation through  dispute settlement and assisting in
rule-making by negotiators, he often said when the Uruguay Round outcomes
started taking shape, that the exceptions of GATT Article XX was not sufficient
to resolve the regulatory challenges Member governments and societies faced in
the 20th century. He felt  the objectives listed were too limited and the burden
of proof applicable under exceptions too burdensome. For him, the Tokyo Round
Technical Barriers to Trade Agreement was a first step in the right direction,
but as the breadth and depth of WTO rules gained momentum through the Uruguay
Round, his dialectic mind prompted him to incessantly look for ways to preserve
regulatory autonomy.

Just before the WTO Agreement had entered into force, Frieder passionately
embraced the aims and effects test developed by the panel in the US - Taxes on
Automobiles case. Some critics at that time wondered why this approach had been
proposed when US Congress deliberated on whether to approve or reject the WTO
Marrakesh Agreement with its impressive number of covered agreements and debates
centered around the superpower’s regulatory sovereignty. It is common knowledge
that kind of “aims and effects” was almost passionately rejected by subsequent
panels and the Appellate Body. I am nevertheless convinced that Frieder (and
those who thought alike) anticipated, if not steered, subsequent developments in
the jurisprudence. They asked the right question, being mindful that increased
judicialization and adequate regulatory space are two sides of the same coin.
There were good reasons for rejecting the test endorsed by the US-Autos panel,
but the underlying rationale may well have paved the way for the legitimate
regulatory distinction test under the TBT agreement and other twists and turns
in Appellate Body jurisprudence under GATT Articles I, III and XX. In
Japan-Alcohol, EC-Bananas III and later, the Appellate Body eloquently voiced
criticism rejecting the test under the GATT and GATS non-discrimination clauses,
much to Frieder’s chagrin. However, the Appellate Body changed course, inter
alia, in EC-Asbestos and Dominican Republic-Cigarettes, realizing it may have
gone too far. It modulated its prior approach largely excluding regulatory
motivations and design under the less-favorable treatment step of the analysis.
For example since the Dominican Republic-Cigarettes case, measures that did not
distinguish between products on the basis of the origin benefited from more
simplified scrutiny in discrimination claims. In EC-Asbestos, the Appellate Body
compared the entire categories of imported with domestic products  and widened
the horizon of analysis of consumer perceptions to include regulatory
motivations and design. In this way, raising such concerns was no longer
limiting to justification under the exceptions of Article XX. Frieder felt
vindicated, but still struggled with the Appellate Body’s caution in refining
its jurisprudential course.

The US-Autos Gas Guzzler tax case was the lawyers’ talk in town when I appeared
for my job interview in 1994 in Geneva. Frieder impatiently drew the questioning
to hearing my opinion on the US-Autos panel report. I expressed the way the aims
and effects test had been designed and executed by the panel under the
analytical steps of likeness and less favorable treatment was suboptimal. The
test seemed twice to perform very similar analyses of aims and effects, thereby
making the two-step analytical process under national treatment, and
importantly, also the analysis of objectives and the way challenged measures
were implemented under Article XX and its chapeau partially or wholly redundant.
I raised my criticism but Frieder – at least in the hiring interview scenario –
was carefully listening and did not insist on being right that this test was for
him the solution to the production and processing (PPM) problem and the limited
and arguably incomplete list of legitimate policy objectives in Article XX. He
wanted to hear how I would plead and stand my ground based on my line of
reasoning in addressing his concerns about regulatory space in alternative ways
under a “traditional” line of analysis under GATT Articles I, III and XX.
Despite such disagreement and me being inexperienced, fresh from graduate law
school he hired me eventually. But when I finally joined the Legal Affairs
Division (LAD), he had already - literally - sailed away on his boat across the
Atlantic to join Georgetown university.

Frieder told me he strongly felt it was the right thing to hire staffers with
their own legal mind, regardless of the extent or nature of prior experience.
While he considered GATT-insider knowledge an asset, it was far less important
to him than creative legal analytical and genuine oral and written
argumentation. And he had lived what he said. When I joined, I was amazed by the
unique characters and brilliant minds populating the small Legal Division at the
time. His successor as the director, Bill Davey at times also seemed
shell-shocked by the collection of characters Frieder had bequeathed to him, and
I don’t hesitate to count myself in here. Both Bill and Frieder led this team
with serenity, passion, intellectual curiosity and self-confidence. Frieder had
surrounded himself with a range of extremely different personalities, some
stubborn, others not, some great drafters, others not, some great thinkers,
others not, some policy-prone, others principle-oriented, some academically
interested, others pragmatic and suspicious of too much academic tendency in the
division. In management class, they tell to beware of the mistake that
supervisors often tend to hire their likes, when managers should hire staff that
complement their skills and those of incumbent staff. Frieder certainly followed
this advice, hiring the broadest range of different, creative, sometimes
outright peculiar legal minds and practitioners, because his thirst for
intellectual debate and incessant self-reflection would be best served in a
professional environment of diversity, creativity, modesty, passion and
innovation. This legacy undoubtedly strongly influenced me later when striving
to build a similar kind of intellectually free and stimulating environment at
the Appellate Body Secretariat.

The diverse LAD composition stretching vast skills and experiences would in
Frieder’s view strongly benefit those participating in dispute settlement
proceedings and ultimately the WTO Membership at large. Frieder treated
ambassadors and delegates not differently than his staff and panelists. For him,
it was no doubt indispensable to know what different Member representatives
thought, but this neither constrained his thinking, nor determined his actions;
he rather listened to them with intellectual curiosity, often taking their
wishes as interesting starting points for debate, much to the surprise, and
sometimes exasperation, of delegates, especially those from the most powerful
Members, who were inspired by the mantra of the Member-driven organization. But
those delegates could also be sure that Frieder would not lightly agree, and
rather reflect, and stimulate debate with other delegates holding opposing
views. This was not the easiest way to establish his strong reputation of
independence, coupled with competence, foresight and serenity, but it was
effective in building his unmatching standing among Members and at the
Secretariat.

Some most powerful Members though, were less impressed with so much freedom of
thought, panel reports perceived as unduly promoting trade liberalization and
insufficiently accounting for fair trade concerns. When I last met Frieder in
spring, he admitted he questioned himself when the responsibilities for dispute
settlement were divided and the Rules Division was created with the competence
of handling trade remedy cases, servicing relevant committees and engaging in
capacity building with national trade remedy authorities. It was staffed with
civil servants of certain trade remedy authorities and specialized practitioners
with great depth but less breadth of knowledge, sometimes righteous and with
political acumen, different from Frieder’s way of composing a team. The price
for this structural change was increased numbers of unadopted panel reports
under GATT 1947 and Tokyo Round Codes. In hindsight, Frieder said he came to
terms with this decision of senior management and Members because being taken
out of line of fire on trade remedy disputes, he could experiment and break new
ground in other areas of trade law and dispute settlement, publish and pursue
academic interests, which eventually led him to academia.

When Frieder felt he had done his job supporting the creation and transition to
the WTO and the new DSU at the Legal Affairs Division, he quit for academia and
then for the new Advisory Centre for WTO Law (ACWL). The ACWL was the epitome of
his cherished career, at an age when others enjoy calm retirement. He often said
that none of his previous positions prompted so much rewarding feelings and
positive feedback as empowering developing and least-developed countries.
Frieder again hired a diverse, multi-skilled and strongly motivated group of
lawyers passionately advancing the ACWL’s mission and vision. It is fair to say
that Frieder “made” the ACWL, building its reputation from scratch, investing
his own personal stature in the new venture. The ACWL enormously benefited from
Frieder’s reputation of competence, independence and wisdom in its first years.
While nobody (openly) questioned the need for capacity building and ensuring
that developing countries should be at par in dispute settlement proceedings,
some donor governments were criticized openly by others why they would fund and
sponsor an institution that would train developing countries to sue them.
Frieder’s answer was short and sweet: since developed countries would
undoubtedly always strive to act consistently with WTO law, there was no reason
to fear developing countries having a better (legal) voice. To the contrary,
they would know better how to act consistently with WTO law in litigation and
negotiations.

When only few dispute settlement cases were initially raised before the ACWL,
Frieder temporarily shifted this new-found mission in life to focusing on expert
legal opinions advising Member governments. Thanks to Frieder’s making, the ACWL
first made its name by being diametrically different from a litigative law firm,
sometimes telling its clients to refrain from initiating a panel case and
instead autonomously repairing WTO-inconsistent domestic regulation. This
impressed ambassadors and delegates, even the Indian ambassador at the time, who
once told me, he tried to explain (not always successfully) to capital and
constituencies how many millions they had saved by following Frieder’s advice
not fighting lost cause cases. Maybe precisely because the ACWL and the legal
advice given was often non-litigious and not profit-maximizing, it was
well-regarded and the Centre built the unmatched reputation it enjoys today.

During my final visit to Frieder last spring in Perroy overlooking Lake Geneva
he said that sailing epitomized what he cared most about, ultimately, freedom:
He spoke of the freedom to decide when, on which pathway, and which destination
to reach – in  sailing and in legal discourse. He was the only visiting
professor who ever sailed on boat across the Atlantic to Georgetown University.
Developing this image further, sitting on his favorite bench overlooking
vineyards, lake and the port with his boat, Frieder said, sailing demonstrates
that the freedom the ocean promises is not without limitations. When currents,
winds and weather change, the breeze turns into storms, the captain may hold
against, but ultimately has to oblige to what cannot be controlled. Though, this
is not the end of the story for a seasoned captain: what appears unpredictable
and uncontrollable to the layperson, if the captain studies navigation,
technology and meteorology, he can learn to influence and master what seems at
first uncontrollable: humanity has learned to sail even against the wind. But
this takes skills, competence, experience, motivation, stamina and serenity.
Frieder was convinced what is true for a captain navigating a boat, is also true
for the director of a division, institution or system.

Sailing gives you the time to think, when winds recede and calm reigns the
ocean. Then there is plenty of opportunity to reflect and question entrenched
viewpoints. Pristine waters and expanses of the ocean liberate the mind to think
outside established patterns, to break new innovative intellectual grounds. But
when the tides turns and storms take over, the captain needs to turn
multi-faceted reflections quickly into effective action, implement conclusions,
and achieve instant, potent results, or capsize and drown. True for the sailor
and for the WTO.

Frieder, in my belief, will somehow continue doing exactly that, inspired by the
spirituality he found again in recent years at the interreligious Romainmôtier
monastery that for more than thousand years propagated from the Jura mountains
values in symbiosis with Frieder’s.

Requiescat in pace, they say in Latin. Se vidimo nad zvezdami (we’ll see each
other again above the stars) we say in Slovenian.

Posted by Simon Lester on October 08, 2024 at 05:34 AM | Permalink | Comments
(2)


TRADE BALANCES AND TRADE INTERVENTIONS AND TRADE PROTECTIONISM

Last week, finance professor Michael Pettis spoke at an event about a new paper
he co-authored. From what I can tell, Pettis has had some influence recently on
the U.S. trade policy debate, but I have found his views hard to decipher. He
and I have interacted a bit on Twitter, but none of the exchanges provided much
clarification. After listening to him at this event, though, I feel like I might
have a better understanding of why it's so hard, as someone in the trade policy
field, to figure out where he is coming from: It's because what he is saying
doesn't have much to do with trade policy as it is generally understood.

That's not to say the issues he raises aren't interesting. However, they are not
closely tied to the debate over protectionism vs. free trade, which is at the
core of trade policy. (Unless I missed it, the term protectionism did not even
come up at his event).

That's fine, of course. He doesn't have to be interested in protectionism. But
that's what trade policy is about: The never ending battle between export and
import interests over where we end up on the free trade-protectionism continuum.

Instead, his focus is on trade balances, and he focuses on them in a way that
mostly excludes a discussion of protectionism. What he's talking about is
interesting as a separate economic policy matter, but it doesn't help us much in
thinking about the core trade policy issues.

Let me illustrate all this through some quotes from the event.

Pettis suggests early on that he is for "free trade," in some sense of that
term: "The point of our booklet is that free trade is a great idea, but we are
nowhere near that ideal. And so in that case, policies that are implemented in
order to push us closer towards that ideal are actually free trade policies."
That sounded like it might be going somewhere good, but then as he continues
with this thought, he does not seem particularly concerned with protectionism.
Instead, he focuses on trade balances: "Those are the kind of things that we
should be doing. Ultimately, they mean reducing the deficits of the persistent
deficit countries, which, by definition, means reducing the surpluses of the
persistent surplus countries." Getting more specific, with regard to these
surpluses, he elaborates as follows:

> And I think one of the great genius of Keynes was that he recognized the
> problem is the surpluses, right? It's one of the big criticisms I have of the
> WTO. We define the problem very narrowly and very incorrectly, so we never
> really solve the problem. So we say tariffs are trade interventions, so you
> can't implement tariffs without going through all of these various hoops. And
> what Keynes would have argued, and certainly what we argued is, yeah, tariffs
> are trade intervention, repressing interest rates are trade intervention,
> subsidizing research is trade intervention, putting downward pressure on
> wages, breaking up unions as trade intervention, China's hukou system is trade
> intervention. All of these things effectively intervene in trade, because
> anything that changes the balance between savings and investment domestically
> is automatically a trade policy. And since it's impossible to identify all the
> different ways you can distort trade, all the different forms of industrial
> policy, we need to go back to Keynes's argument, which is, you see, whenever
> there's a problem, you see the problem in the trade imbalances. So go after
> the trade imbalances.

As part of his argument for going after surpluses, he offers the concept of
"trade interventions," which, as he lays it out, includes a wide range of
domestic policies. I don't doubt that policies such as the ones he mentions
affect trade in some way. I just don't think it is very useful to try to create
a category of domestic measures that affect trade. Just about all domestic
measures will do so to some degree, so what do we gain by having this category?
To me, calling something a trade intervention just doesn't tell you much. And it
ignores the categorization that tells you a lot: Is a measure protectionist?

Getting back to the trade imbalances, which he says he wants to "go after," as I
understand it, the view of most economists is that if you want to have more
balanced trade, you would need to address the macroeconomic factors affecting
levels of savings and investment, which are the actual cause of the imbalances.
Here, Pettis tries to make the case that this is something he wants to address,
but based on the example he offers related to Germany, I'm not convinced. In
this regard, he had an exchange with Greg Ip of the Wall Street Journal, and it
left me thinking that he may not actually be willing to deal with issues such as
differences in savings rates between countries. Here was Greg's question: 

> You've identified a lot of distortions in the book that have led surplus
> countries to run very high saving rates, all associated with China, but
> there's a lot of countries that persist with large surpluses that do not have
> those distortions. Germany, most notably, arguably, the currency, part of a
> common currency, might fall into the category of undervalued currency, but
> none of the others apply. Germany is a very liberal economy, no restrictions
> on mobility, no restrictions on interest rates, etc. And even South Korea and
> Japan have evolved considerably to get rid of most of those distortions, yet
> still run surpluses. So I guess my question is, even if you moved to a world
> where the distortions you identify were eliminated, aren't there underlying
> marginal propensities to save and consume, that would result in the
> persistence of deficits, including in deficit countries like the United
> States, and doesn't that therefore suggest that there are things the United
> States must do in its own domestic policy framework to correct these
> imbalances?

Pettis answered as follows:

> Well, see, I would disagree that those economies don't have distortions. They
> have all sorts of distortions. You can argue that the euro is a huge
> distortion for all of the economies of Europe, including Germany, because the
> euro is an undervalued currency for Germany, it may not be for other
> countries. Remember, inflation in Germany -- after the adoption of the euro --
> inflation in some countries of Europe was much lower than inflation in other
> countries. So what that means is that the real value of the currency in those
> other countries went up, and the real value of the currency in Germany went
> down. Why does an undervalued currency matter? Because an undervalued
> currency, like everything else in economics, is simply a transfer. An
> undervalued currency hurts importers and it helps exporters, and households
> are all net importers, and the manufacturing tends to be exporters.
> 
> But Germany is even a clearer case, because before 2003 German savings rates
> were much lower and Germany ran a deficit. We forget that, but in the 1990s
> Germany was running current account deficits. So what happened in 2003, 2004,
> 2005 that shifted Germany into, at one point, the highest surpluses in the
> world, maybe in history? And we all know what it was. It was the Hartz labor
> reforms. ... before the labor reforms, as German GDP went up, German wages
> went up just as quickly. After the reforms, as German GDP went up a little bit
> more slowly, German wages flatlined. So notice what happened in Germany. The
> household share of GDP after the labor reforms declined, right? And as the
> household share declined, not surprisingly, the consumption share declined.
> And as the consumption share declined, by definition, the savings share
> soared. And everyone started talking about those thrifty Germans. If you look
> at household savings, it didn't change at all. The reason savings went up is
> because wages went down and business profits went up. And business profits are
> savings, right? So the famous savings of the German people was really caused
> by a labor reform that transferred income from German workers to German
> businesses. German business profits went up 50% in a couple of years right. So
> I would argue that that was a policy issue.

I think Greg nails a key problem with Pettis's argument here, and I don't think
Pettis gave a convincing response. In particular, Pettis doesn't seem willing to
deal with the basic point about "underlying propensities." Cultural factors are
real, and I'm not sure why he is so reluctant to acknowledge this. Germany has
been famous for its thriftiness for a long time, not just since 2003-2005,
something that comes out clearly in the data. With regard to the 1990s, what I
think Pettis may be missing here is the impact of German reunification, which
led to increases in spending, but I'd have to look into this more. Regardless,
saying that Germany started being thrifty in 2003 seems clearly wrong. So, this
isn't very credible as it relates to Germany, and it ignores Greg's point about
U.S. savings rates as well. Pettis is very focused on reducing the surplus in
surplus countries, but I'm not sure he's willing to support the changes in
deficit countries that would be required.

Also on the Germany vs. U.S. savings issue, a new essay from Andreas Freytag and
Phil Levy has some interesting insights:

> The question of why savings are low can often be answered by examining an
> economy’s demographic structure (Box 3).

> BOX 3

> Demographic trends and savings
> 
> The individual savings rate tends to be a function of age. Most people are net
> savers during their years in employment or self-employment (i.e., between 15
> and 64 years). During their early, formative years before joining the
> workforce, they live on other people’s savings (e.g., parents, grandparents,
> or credit institutions) to pay for education. Once their working years are
> over, they dissave to finance their retirement. This implies that a younger
> population will save less than an aging population.
> 
> In the United States, which has a relatively younger population than other
> Western nations, people tend to save a smaller share of their income. On the
> same token, a young and growing population needs capital. Thus, the business
> sector tends to invest at a higher level. The resulting shortage of savings
> relative to investment demand drives the current account deficit.
> 
> Germany, in contrast, is more of an aging society. The supply of labor and
> human capital is in relative decline, while the savings rate remains high, at
> least as long as most people remain below retirement age. As members of an
> aging society, Germans invest a larger part of their savings abroad, creating
> net capital outflows and a trade surplus. The differing trade balances between
> the United States and Germany, therefore, have nothing to do with
> competitiveness or unfair trade practices.
> 
> Like the regular US current account deficit, the German current account
> surplus is the rational result of underlying economic and demographic factors.

As a final, and mostly unrelated, point, Pettis has this to say about Japan,
Germany, and South Korea and their surpluses:

> If you look at Japan, if you look at Germany, South Korea, if you look at the
> surplus economies, their manufacturing share of GDP is higher than the global
> average, and if you look at the advanced deficit economies, it's lower than
> the global average.

It is certainly true that Japan, Germany, and South Korea manufacture a lot.
It's worth noting here, however, that this is an unsurprising result given their
relative lack of natural resources and farm land. If they had oil, for example,
they would probably spend more time on extracting that oil and less time on
manufacturing.

Summing up, there are a whole bunch of trade policy fights going on right now,
and the issue of trade balances is often thrown into these fights in unhelpful
ways. Some people seem to want to see the trade balance as a scorecard of who is
winning and losing in international economic relations, but that's not what it
is. Trade balances are mostly driven by macroeconomic factors, and my sense is
that international coordination on those issues will be extremely difficult,
with governments of both surplus and deficit countries not very eager to make
changes.

Posted by Simon Lester on October 06, 2024 at 05:11 PM in Trade Balance |
Permalink | Comments (4)


SEMINAR ON LEGAL ARCHITECTURE OF REMEDIES IN THE WTO AGREEMENT

Announcement:

> Interested WTO lawyers are invited to a one-hour academic feedback seminar on
> Zoom, hosted by Prof. Geraldo Vidigal, University of Amsterdam, to comment on
> a draft article by Lothar Ehring, written to pay tribute to Frieder Roessler.
> The paper explains the legal architecture of remedies in the WTO Agreement and
> how certain parts of it importantly depart from the standard GATT Article
> XXIII model. These differences have been disregarded in a majority of relevant
> cases in the practice of WTO adjudicative decisions.
> 
> This could be of interest to WTO litigation practitioners and other WTO
> lawyers who are sufficiently interested in these intricacies. The draft paper
> and the connection details will be shared with the participants ahead of the
> session, which is planned for Monday, 7 October at 2 p.m. Brussels time. After
> a rapid summary of the findings, the participants will be invited to share
> their remarks on the draft paper. To participate, please register in advance
> for this meeting:
> 
> https://uva-live.zoom.us/meeting/register/tZIqduCsrTktH9OIgsz1ao3InY63e_Tlhfd6 
> 
> After registering, you will receive a confirmation email containing
> information about joining the meeting.

Posted by Simon Lester on October 03, 2024 at 03:29 PM | Permalink | Comments
(0)


THE EU-SINGAPORE DIGITAL TRADE AGREEMENT: EXPERIMENTATION WITH DATA FLOWS
OBLIGATIONS AND EXCEPTIONS CONTINUES

Over the past couple years, I've been looking at how digital trade agreements
set out data flows obligations and exceptions. I've got a new one to examine, as
the EU has published a pre-legal scrub version of its digital trade agreement
with Singapore, building on their previously signed FTA. In prior posts, I've
looked at the EU-Japan trade agreement and the EU-NZ trade agreement provisions
in this area, so I'll throw in some comparisons to those agreements.

First off, I'll just note quickly the appearance of the right to regulate in
Article 3 of the EU-Singapore digital trade agreement:

> The Parties reaffirm their right to regulate within their territories to
> achieve legitimate policy objectives, such as the protection of public health,
> social services, public education, safety, environment or public morals,
> social or consumer protection, privacy and data protection, and the promotion
> and protection of cultural diversity.

I'm skeptical that these provisions have much impact, but someone seems to like
putting them in there (the EU-NZ agreement has one too).

Now we get to the core data flows obligations:

> ARTICLE 5 - Cross-border data flows
> 
> 1. The Parties are committed to ensuring the cross-border transfer of data by
> electronic means where this activity is for the conduct of the business of a
> covered person.
> 
> 2. To that end, a Party shall not adopt or maintain measures which prohibit or
> restrict the cross-border transfer of data set out in paragraph 1 by:
> 
> a. requiring the use of computing facilities or network elements in the
> Party's territory for processing of data, including by imposing the use of
> computing facilities or network elements that are certified or approved in the
> territory of the Party;
> b. requiring the localisation of data in the Party's territory for storage or
> processing;
> c. prohibiting storage or processing of data in the territory of the other
> Party;
> d. making the cross-border transfer of data contingent upon use of computing
> facilities or network elements in the Party’s territory or upon localisation
> requirements in the Party’s territory; or
> e. prohibiting the transfer of data into the territory of the Party.

In the same Article, we then get an exception for "legitimate public policy
objectives":

> 4. Nothing in this Article shall prevent a Party from adopting or maintaining
> a measure inconsistent with paragraph 2 to achieve a legitimate public policy
> objective FN1, provided that the measure:
> 
> a) is not applied in a manner which would constitute a means of arbitrary or
> unjustifiable discrimination or a disguised restriction on trade; and
> b) does not impose restrictions on transfers of information greater than are
> necessary to achieve the objective. FN2
> 
> FN1: For the purpose of this Article, “legitimate public policy objective”
> shall be interpreted in an objective manner and shall enable the pursuit of
> objectives such as to protect public security, public morals, or human, animal
> or plant life or health, to maintain public order, to protect other
> fundamental interests of society such as social cohesion, online safety,
> cybersecurity, safe and trustworthy artificial intelligence, or protecting
> against the dissemination of disinformation, or other comparable objectives of
> public interest, taking into account the evolving nature of digital
> technologies and related challenges.
> 
> FN2: For greater certainty, this provision does not affect the interpretation
> of other exceptions in this Agreement and their application to this Article
> and the right of a Party to invoke any of them.

The structure of data flows obligations and exceptions here looks a little more
like the EU-Japan version than the EU-NZ one, with standalone public policy
exceptions embedded directly within the data flows obligations Article.

One thing that was noteworthy about the EU-NZ digital chapter was the separate
Article on "Protection of personal data and privacy" that seems to be a broad
exception-like provision, of a scope that is a bit uncertain to me. The
EU-Singapore agreement also has something that is perhaps along these lines:

> ARTICLE 6 – Personal data protection
> 
> 1. Parties recognise that individuals have a right to privacy and the
> protection of personal data and that high and enforceable standards in this
> regard contribute to trust in the digital economy and to the development of
> trade.
> 
> 2. Each Party shall adopt or maintain a legal framework that provides for the
> protection of the personal data of individuals.
> 
> ...
> 
> 4. Each Party shall ensure that its legal framework under paragraph 2 provides
> non-discriminatory protection of personal data for natural persons.
> 
> ...
> 
> 11. Nothing in this Agreement shall prevent a Party from adopting or
> maintaining measures under its respective legal frameworks referred to in
> Paragraph 2 that it deems appropriate, including through the adoption and
> application of rules for the cross-border transfer of personal data, provided
> that the law of the Party provides for instruments enabling transfers under
> conditions of general application for the protection of the data transferred.
> 
> 12. Each Party shall inform the other Party about any measure it adopts or
> maintains according to paragraph 11.

The wording here is different from the EU-NZ one, with the EU-Singapore version
reading more like a traditional trade agreement exception ("Nothing in this
Agreement shall prevent ..."), but the "deems appropriate" language in para. 11
perhaps gives it a similar scope to what we saw in EU-NZ, with a broad exception
for privacy and personal data protection.

And then finally, in case the various exceptions and exception-like provisions
set out above don't give the respondent what it wants, some of the exceptions
set out in the EU-Singapore FTA apply to these digital trade agreement
obligations as well, so you can try them too:

> ARTICLE 29 – General exceptions
> 
> Articles 2.14 and 8.62 of the Free Trade Agreement shall apply mutatis
> mutandis to this Agreement.
> 
> ARTICLE 30 – Security exceptions
> 
> Article 16.11 of the Free Trade Agreement shall apply mutatis mutandis to this
> Agreement.

I have no idea whether we are ever going to see litigation under any of the
digital trade texts that are proliferating these days, but if we do, making
sense of the provisions of any particular agreement, given the context of all
the textual variations in other digital agreements, is going to be a challenge.

Posted by Simon Lester on September 29, 2024 at 03:15 PM in Digital Trade |
Permalink | Comments (1)


WILL USMCA BE RENEWED IN 2026?

At a Baker Institute event last week, C.J. Mahoney, who was a Deputy U.S. Trade
Representative during the Trump administration, argued that renewal of the USMCA
under the Article 34.7 review clause was unlikely to happen in 2026. He first
provided some background on the provision:

> ... USMCA is up for renewal in the summer of 2026. Unlike prior trade
> agreements, USMCA has a fixed term of 16 years. But at the six year
> anniversary mark, the parties have the opportunity to extend the agreement for
> another 16 years. If they fail to do so by July of 2026, a 10 year clock will
> start to run for the eventual termination of the agreement.
> 
> The idea behind this provision, which I maintain was a sound one, was to
> create an incentive for policymakers to continue to upgrade the agreement
> periodically, so that we never find ourselves again in a situation like we
> were in 2017, with an agreement that was badly outdated and politically
> unpopular.

And then here is his argument about why it is unlikely USMCA will be renewed in
2026:

> [Regardless of who is elected president,] next year will be dominated by
> domestic issues, mainly taxing and spending. I therefore expect that a year
> from today, the negotiating agenda for the United States will be unsettled and
> the fate of USMCA uncertain. My best guess is that the chances for an
> immediate renewal are quite low.
> 
> Mexico and Canada, which are heavily dependent on trade with the United
> States, would renew the agreement tomorrow, preferably with no changes. But
> from the US perspective, the costs of not renewing the agreement at the six
> year anniversary mark are relatively low. The agreement would still have 10
> years to run. US leverage in the negotiations arguably would increase rather
> than decrease during that period. Yet for both a president Harris and a
> President Trump, the political costs of renewal would be non-trivial.
> 
> The passage of USMCA was, in my view, one of the great political hat tricks of
> recent years. ... name the last time that the AFL-CIO, the Teamsters,
> steelworkers, the Business Roundtable, Chamber of Commerce, the Farm Bureau,
> Nancy Pelosi, Mitch McConnell, Joe Biden and Donald Trump agreed on something.
> It was USMCA. Unfortunately, I don't see that same political constellation of
> stars aligning anytime soon.
> 
> ...
> 
> So if I'm right, we are headed towards an anti-climax in the summer of 2026.
> The parties will miss the renewal date, at which point the slow clock towards
> the theoretical termination of the agreement will start to run.

Finally, he put forward some things that might change this assessment:

> Now what could change the dynamics? I can think of a couple things.
> 
> One is the attitude that Mexico and Canada take to the negotiations. ... the
> typical [negotiating] playbook is for the parties to take very extreme
> positions at the beginning and hold all concessions to the end. I would
> suggest to my friends in Mexico and Canada that that would be an unwise
> strategy in this instance. The biggest challenge that Mexico and Canada will
> face in urging a swift renewal will be getting the attention of the next
> administration. An indication to move in the US direction early on, on issues
> like energy, labor, dairy, auto rules of origin, just might grab the attention
> of White House. This is an unusual approach, but unique times call for novel
> strategies.
> 
> The second way to break the impasse would be if the next administration sees
> USMCA as a way to reset US trade policy generally. That could be done by
> expanding the scope of the agreement to strengthen the critical minerals
> supply chain in North America, adding new disciplines on AI governance, export
> controls and inbound investment restrictions, and, perhaps most intriguingly,
> opening the door to new members of USMCA. The two most promising candidates,
> in my view, would be Australia and the United Kingdom. Think of it as a merger
> of USMCA and AUKUS. ... it would allow the United States to bring its closest
> security and economic partners together under a common umbrella. In time, this
> bloc might use its combined leverage to negotiate with other techno
> democracies, like Japan, India and the EU. One might see this perhaps as the
> start of a new global trading system, at least one for the US and its allies,
> that could eventually take over, or at least supplant, the WTO. This vision
> might strike one as farfetched, but I think that outside of the box thinking
> will be necessary if we have any hope of an immediate or even near term
> renewal of USMCA.

Just a couple quick thoughts on his suggestions for how to get USMCA renewed in
2026. First, I'm not sure it makes sense for Canada and Mexico to give up so
much to get a renewal of USMCA in 2026. It's true that they rely heavily on
trade with the U.S., but if the deal starts to look unbalanced, the Canadian and
Mexican governments will have a hard time defending it to their own citizens,
and that puts them in a bad political position domestically.

On the expansion of USMCA, I can imagine some new rules being added, although
that could be tricky because there is disagreement within the U.S. on what the
rules on issues such as AI governance should look like, so it might be hard to
negotiate them internationally. On the possibility of adding new USMCA members,
I hear a fair amount of talk about some sort of trade club of allied
democracies, but it's hard to see Trump getting on board with that because it
would involve liberalization. I suppose Harris might consider it though.

Meredith Lilly of Carleton University later weighed in to agree with Mahoney on
the prospects for renewal in 2026:

> C.J. set this up very well, talking about the review clause. We didn't have
> one of those in NAFTA. It was an ongoing agreement that would last forever.
> And so this review clause actually is less than a page of text in the overall
> agreement, yet it actually stands to potentially really, really jeopardize it,
> frankly. And so, as C.J. outlined, if all three countries don't agree to renew
> the agreement in 2026, then we go into this period of annual reviews. I agree
> with him, that I don't think we're going to see a renewal in 2026. There are
> absolutely zero reasons for politicians to do that. And so I do think we're
> going to be in a world of annual reviews every year for 10 years.

Tony Payan of the Baker Institute then expressed some surprise about these
assessments and also some reluctant acceptance:

> This is the first time ... that I hear that the renewal of the USMCA is not a
> given. I thought it was 99%, but now I'm beginning to think, oh-oh, there's a
> lot of political interests underneath that, and there's a lot of different
> dates that don't make it politically convenient for renewal.

I was where Tony was on all this. I thought renewal in 2026 was very likely
under a Harris administration (less so under Trump, as he would try to extract
more concessions), and I was surprised to hear this skepticism. But the more I
thought about it, the more I thought the skeptics may very well be right. At the
same time, it's hard to say anything with much certainty until we see the
results of the 2024 U.S. elections, the 2025 Canadian elections, and how new
Mexican President Claudia Sheinbaum governs.

And just to restate my (politically unrealistic) position on all this, I would
use the 2026 review process to remove the existing Article 34.7 and replace it
with one that involves more frequent reviews (maybe every two years rather than
no reviews for the first 6 years) but no automatic termination mechanism (there
are separate provisions under which the parties are able to amend the agreement
and to withdraw, so there is no need for this termination provision). In
addition, on the U.S. domestic side of things, I would make the withdrawal
decision a joint one by Congress and the President, with U.S. withdrawal
contingent on support from both branches.

Posted by Simon Lester on September 22, 2024 at 08:52 AM in USMCA Sunset/Review
Clause | Permalink | Comments (0)


NEW DISCUSSIONS OF APPEAL/REVIEW IN THE DS REFORM PROCESS

In July, I mentioned that the the WTO Dispute Settlement Reform Process is
underway, and that people can follow it a few weeks behind the actual
developments, as meeting minutes are derestricted.  The Minutes of the Heads of
Delegation meeting from July 18 are now available.

Focusing on the Appeal/Review aspects of the discussions, here are some excerpts
from the report by Jessica Dickerson (Australia), on behalf of the Co-Convenors,
on the technical work under the DS reform process:

> I will turn now to our recent discussions on Appeal/Review. Since our last
> update, experts have discussed the following sub-topics:
> 
> a. Reducing or changing incentives to appeal,
> b. Clarifying Members' expectations of adjudicators,
> c. Form of the mechanism, and
> d. Access to the mechanism.
> 
> At each of the meetings, Mr. Joel Richards (Saint Vincent and the Grenadines)
> and I – as the responsible Co-Convenors – provided a summary of the previous
> discussions and ideas from the informal process under each of these
> sub-topics, noting the direction from our Ministers and the Facilitator, to
> build on the progress already made.
> 
> In the discussion on reducing or changing incentives to appeal, many Members
> underscored their interest in preserving the right of appeal so as to correct
> legal errors. This notwithstanding, several Members also emphasized the
> importance of establishing guardrails to reduce tactical or frivolous appeals.
> Further, it was noted by some Members that there needed to be a degree of
> caution and some balance in not reducing legitimate incentives to appeal.
> Against this backdrop, there appeared to be some shared interest in exploring
> how Members could address incentives to appeal through:
> 
> a. making better use of interim review at the panel stage;
> b. a political commitment to reduce appeals;
> c. adjusting the reasonable period of time (RPT) for compliance; and
> d. establishing parameters for the scope and standard of review.
> 
> With respect to clarifying Members' expectations of adjudicators, several
> Members agreed that it was important to clarify expectations with respect to
> timeframes, word limits, as well as the output expected from adjudicators. In
> this regard, several Members expressed the view that it was important to
> ensure that timelines were met, and that adjudicators' reports focused only on
> what was being argued by the appellants. Furthermore, several Members thought
> that it would be beneficial to build on the work from the informal process
> such as with respect to issues of precedent and judicial economy, which can be
> applied to appeal/review adjudicators.
> 
> In the discussion on the form of the mechanism, Mr. Joel Richards and I
> encouraged Members to focus on interests and solutions, rather than on whether
> there should be a two-tier or single-tier dispute settlement system. Many
> Members underscored that a standing adjudicative body met their interests,
> which included correctness of decisions, legitimacy, efficiency,
> predictability, and consistency. However, another perspective expressed was
> that a standing body did not guarantee correct decisions, and created a
> perception that the body had greater authority and legitimacy than other
> adjudicators such as panellists. It was suggested that it could be fruitful to
> consider the different features of the institutional design of the
> appeal/review mechanism, with a view to identifying potential reforms. To give
> an example of one such feature, experts could consider the appointment process
> for appeal/review adjudicators.
> 
> Regarding access to the mechanism, we again encouraged Members to focus on
> their interests by responding to some discussion questions. Many Members said
> that automatic, compulsory access was essential to meet their interests. It
> was noted by several Members that such access protected them against power
> dynamics and was particularly important for developing Members. Some Members
> observed that compulsory jurisdiction was vital for the system's legitimacy
> and for Members' trust in the system. An alternative view expressed was that
> automatic access to an appeal/review mechanism was not essential to have a
> system that supported parties to resolve their disputes. Under this view, the
> parties could decide the features of the system would be useful to them, which
> would go towards addressing a concern about the perceived superiority of the
> second tier and the consequences flowing from that perception. In view of the
> difficulty of finding a middle ground on this sub-topic, it was suggested by
> some Members that it may be more beneficial to focus on other ideas, including
> those that would reduce incentives to appeal/review, and by establishing
> guardrails with respect to the scope and standard of review. In this
> connection, some Members also considered it important to assess the overall
> package of reforms and not view the issue of access to the mechanism in
> isolation.

This is a useful summary, but it leaves me wondering about the prospects for
success here. The report mentions "another perspective" and an "alternative
view," and presumably that is the United States. So what are the chances that a
solution can be found here? Can this question only be answered after we know the
results of the U.S. presidential election?

Posted by Simon Lester on September 20, 2024 at 08:17 AM in WTO DS Reform |
Permalink | Comments (0)


ANZSIL INTERNATIONAL ECONOMIC LAW INTEREST GROUP: CALL FOR PAPERS

This is from the ANZSIL International Economic Law Interest Group (IELIG):

> 2024 Workshop
> 
> The 2024 IELIG Workshop will be held via Zoom on Friday 29 November 2024. Its
> aim is to provide an informal setting for discussion of topical issues and
> works in progress.
> 
> We are honoured to have Prof Em Thomas Cottier as this year’s keynote speaker.
> 
> Thomas will speak on ‘The Impact of the Multi-Party Interim Appeal Arbitration
> Arrangement’. We invite paper proposals from ANZSIL members, practitioners in
> the field as well as staff from MFAT, DFAT, and the Attorney-General’s
> Department. We encourage PhD students and early career practitioners and
> academics to submit a proposal. Paper proposals may be on any topic within the
> work of the IELIG. All speakers are invited to submit their paper following
> the workshop to the Australian Year Book of International Law or the New
> Zealand Yearbook of International Law for possible publication. We also invite
> ANZSIL members and MFAT/DFAT/AGD staff to attend the workshop even if not
> presenting a paper.
> 
> Submission of proposals
> 
> If you wish to submit a paper proposal, please submit an abstract of 300 words
> by email to christian.riffel@canterbury.ac.nz by 10 November 2024. Please
> include the heading on your email message ‘ANZSIL Conference IELIG Workshop
> Proposal: [Your Name]’.
> 
> Best wishes,
> 
> Prof Chris Riffel (University of Canterbury) and Mr Jose-Miguel Bello
> Villarino (University of Sydney)
> IELIG Co-Chairs

Posted by Simon Lester on September 20, 2024 at 08:01 AM | Permalink | Comments
(0)


DESIGNING AN ECONOMIC SECURITY SAFEGUARDS MECHANISM TO REFORM THE WTO SECURITY
EXCEPTION

During the WTO Public Forum, the TradeExperettes published a report entitled,
Ten Quick Wins for: Re-globalization and Resilience in Trade. The report
captures a collection of terrific trade analysts (who happen to be women) short,
policy briefs that capture ideas and potential solutions for urgent issues for
the multilateral trading system – from investment facilitation, AI, and climate
adaptation. Please do check them all out!

My contribution (reproduced below) carries forward my work on economic security
and is a (very) short snapshot of a working paper of mine on reimagining
safeguards (though consistent feedback I receive is to not call these
safeguards, for it folds in WTO safeguards jurisprudence). A consistent theme of
the WTO Public Forum was how to think about rules reform in light of members'
industrial policies, which may or may not have to do with defence concerns. This
mechanism focuses on how to preempt economic security problems; before risks
turn to damage. The solutions governments take need not be limited to production
subsidies. A goal is for open, inter-connected cross-border cooperation to sift
security out - and to enable members to design and evaluate their policies in
light of spillovers.

*    *    *

Responding to the perception that aspects of international trade create economic
security risks, some WTO members have implemented unilateral, trade-inhibiting
measures that lack clear endpoints. Members may justify violations of trade
rules by invoking the WTO security exceptions, provided all requirements are
met. However, security exceptions are not a long-term solution for persistent,
unpredictable challenges and may even preclude multilateral approaches to
anticipate and mitigate economic security risks. It is time to view security as
more than an exception to WTO rules and principles. Members should build a new
mechanism for economic security issues using the WTO’s safeguards procedures as
a model.

A new Economic Security Safeguards (ESS) mechanism could create ‘breathing
space’ for protecting domestic industries that are strategic to economic
security objectives while setting limits on the duration and the extent of
remedy. When designing such a mechanism, members should decide how to
characterize economic security safeguards and deliberate on a framework for
evaluating risks. Members may agree that traditional wartime interests do not
characterize economic security or that the assessment of economic security
should strictly control how a product could indirectly contribute to a member’s
defense capabilities .

While existing WTO safeguard rules require a demonstration of injury to
industries caused by increased imports, the ESS could instead target industry
risks associated with economic security. ESS implementation would thus depend
upon improved information sharing concerning economic security risks rather than
strict causation analysis. Practically speaking, knowledge of risk may be
hard-to-observe for applying the ESS, as supporting evidence establishing chains
of cause and effect may be difficult to show.

To resolve this tension, Members could coordinate their strategic foresight
practices that examine future government planning and contingencies and weigh
their implications. As part of this, members could the short-term and long-term
risks for economic security. They would need to agree on an approach that
assesses how imports create supply dependencies and related risks in relation to
domestic manufacturing capacity and consumption. Finally, the WTO could work
with the OECD’s risk likelihood and impact framework to design an ESS impact
assessment based on different risk levels. Domestic authorities would rely on
this risk assessment to evaluate the relevant factors for the right to impose
trade restrictions. For example, to reduce uncertainty or early mitigation of
risks, members could prioritize source diversification and set a high standard
for imposing limited trade restrictions. In contrast, for vital products at high
risk of severe impacts, members could set a deferential standard for evaluating
the situation of the domestic industry. On this basis, there may be scope for
members to choose between ESS that apply universally to all imports or moderate
risk exposure from specific sources.  Members could carefully circumscribe ESS
usage by conditioning the duration of ESS implementation with a ‘corrective
action’ plan.

WTO security exceptions for extraordinary circumstances may still be required.
However, to address ongoing concerns with economic interdependence, the ESS
could allow members to advance economic security goals as part of, and not
exceptional to, members’ long-term commitments to work together.

Posted by Mona Paulsen on September 17, 2024 at 02:52 AM in Development,
Economic Statecraft, Exceptions, Shameless Self-Promotion, Trade and Security,
WTO Negotiations | Permalink | Comments (5)

Tags: economic security, safeguards, security exceptions, WTO


GUEST POST: A TRIBUTE TO FRIEDER ROESSLER FROM PETROS MAVROIDIS

This is a guest post by Petros Mavroidis of Columbia Law School. The piece will
be published in a forthcoming issue of the World Trade Review.

An Uncommon Mind: Frieder Roessler’s Legacy

Petros C. Mavroidis*

*Columbia Law School

1. Doubts, Persistent Doubts

“U-huh”. This is what I recall being Frieder’s routine reaction whenever he was
exposed to an argument. He rejected nothing, but at the same time he agreed to
nothing right away. He needed his time to process, and would reach his
conclusions only at a later stage. He applied this standard to his own,
spontaneous thinking which might have sounded entirely convincing to me when we
were working together, but not to him. “Let us think this issue through” he
would say to me, a literal translation of the German “durchdenken” that we on
occasion spoke together.

The scope of his intellectual endeavors was breathtaking. With his often
interlocutor, Bob Hudec, he shared the urge to transcend the ostensible. Nothing
was taken for granted irrespective who the source of information was. “Nullius
in verba”, as the motto of the Royal Society dictates. I recall numerous
discussions about what some might have considered obvious. Frieder was never shy
to confront well-established dicta, and bring to light inconsistencies and
errors. He was irreverent towards the past, but in an honest, intellectually
challenging manner.

Nothing in my view exemplifies his strive for improving on past knowledge than
his contributions to the understanding of non-discrimination in the GATT
(General Agreement on Tariffs and Trade).

2. Likeness in GATT: the House That Frieder Built

GATT case law did not seriously delve into the question of “like products”, the
foundational element in understanding non-discrimination, until the end of the
1970s. For reasons eminently explained in Baldwin (1970), and Jackson (1969),
the “bite” of behind-the-border policies was hard to assess (and anyway a
concern of secondary order) in presence of high import duties. Japan-Alcoholic
Beverages I emerges as the first panel report that provided a comprehensive
discussion on this score adopting what later became known as the “marketplace”
test: consumers would define “likeness”.

The theoretical underpinning of this interpretation was the construction of
Article III of GATT (where the term “like products” appears) as an instrument to
avoid concession diversion. Were it left to governments to decide on likeness,
they might be led (for political economy reasons) to adopt an understanding of
the term that would reduce the value of tariff concessions. Trading nations, so
the thinking goes, would not sit idle. For what is the purpose of reciprocally
reducing the level of tariffs if protection can reemerge through the back door
under the guise of unilateral regulatory distinctions? Consumers’ choices on the
other hand, are heavily guided by scarcity of economic resources, hence buying
national is definitely not the cardinal preference for the critical mass of the
citizenry.

There you go. A sound rational basis for substantiating a plausible outcome. Who
would disagree with this construction?

At that time (1978), Frieder was not dealing with panels. Indeed, there was no
GATT Legal Office back then to start with.[1] But he understood only too well
the importance of the question, as well as the potential shortcomings of the
approach adopted in the aforementioned case. In his subsequent writings, namely
Roessler (1996), (2003), after he had left the GATT/WTO, Frieder left no doubt
that he was siding with the approach developed in the two reports I discuss
next.

2.1 Change (the House that Frieder Help to Build)

US-Malt Beverages[2] was an odd case. A tax distinction favoring a variety that
only seldom appears and was present in the territory of the regulating state,
was challenged for violating non-discrimination. The outcome is irrelevant for
the purposes of our discussion. What matters is §5.25 of the report:

> The purpose of Article III is thus not to prevent contracting parties from
> using their fiscal and regulatory powers for purposes other than to afford
> protection to domestic production. Specifically, the purpose of Article III is
> not to prevent contracting parties from differentiating between different
> product categories for policy purposes unrelated to the protection of domestic
> production. The Panel considered that the limited purpose of Article III has
> to be taken into account in interpreting the term "like products" in this
> Article. … While the analysis of "like products" in terms of Article III:2
> must take into consideration this objective of Article III, the Panel wished
> to emphasize that such an analysis would be without prejudice to the "like
> product" concepts in other provisions of the General Agreement, which might
> have different objectives and which might therefore also require different
> interpretations.[3]

This paragraph provided the impetus for what became known as the “aims and
effect” test to define likeness. The advent of this test did not wait for long.
In US-Taxes on Automobiles,[4] the panel held in §5.10:

> The Panel then proceeded to examine more closely the meaning of the phrase "so
> as to afford protection." The Panel noted that the term "so as to" suggested
> both aim and effect. Thus the phrase "so as to afford protection" called for
> an analysis of elements including the aim of the measure and the resulting
> effects. A measure could be said to have the aim of affording protection if an
> analysis of the circumstances in which it was adopted, in particular an
> analysis of the instruments available to the contracting party to achieve the
> declared domestic policy goal, demonstrated that a change in competitive
> opportunities in favour of domestic products was a desired outcome and not
> merely an incidental consequence of the pursuit of a legitimate policy goal. A
> measure could be said to have the effect of affording protection to domestic
> production if it accorded greater competitive opportunities to domestic
> products than to imported products. The effect of a measure in terms of trade
> flows was not relevant for the purposes of Article III, since a change in the
> volume or proportion of imports could be due to many factors other than
> government measures.

The regulatory aim pursued emerged the centerpiece of the analysis of
“likeness”. As Frieder used to say, governments may very well make legitimate
distinctions across goods that consumers treat as “like products”. What is wrong
with that?

Indeed, what is wrong with that? And yet, this understanding of “like products”
flies against the previous understanding of “likeness”, does not it? Can they
both be right?

It defies the purposes of this short paper to analyze in more detail Frieder’s
thinking. The house that he built, like all ideas that he was consistently
willing to discuss and debate, was not meant to be a permanent edifice. Frieder
wants to bring in a platform, a more complete background that would host new
ideas so as to build a better house than the one before. And so he did. 

2.2 Onto the WTO

WTO case law rejected the aims and effect analysis as practice in the first
likeness dispute. But it did not dismiss the relevance of regulatory aim in
deciding on likeness out of hand. Few have observed that in Japan-Alcoholic
Beverages II, the panel conspicuously added that Japan had advanced no
regulatory justification for its tax differential between sochu (a predominantly
Japanese drink) and a series of predominantly Western drinks. This report then,
adopted the marketplace-test when dealing with a domestic tax differential for
which no (plausible) justification had been advanced.

And of course, the Agreement on Technical Barriers to Trade (TBT) explicitly
endorsed the legitimacy of distinctions based on the process of production of
competing goods.[5]

I would not be far off from the truth stating that the basic intuition of
Frieder (the relevance of regulatory aim in likeness-analysis) has gained pace
over the years. The manner in which it has been practiced has been rightfully
(in my view) criticized.

3 Frieder and Me

It is hard to over-estimate Frieder’s influence on my thinking. He hired me in
the GATT Legal Office in 1992, and did not lose time to realize that he had seen
too much in me. But he gave me the time and space necessary for me to understand
the basic logic of the system, by asking me to continue the excellent work of
Friedl Weiss in updating the GATT Analytical Index. He then threw me to panel
work, and involved me in a various of his discussions with luminaries in the
field: Bob Hudec, John Jackson, David Palmeter, and Ernst-Ulrich Petersmann were
his preferred “Stammtisch” and he generously offered a seat at that people to
the “Nachwuchsgeneration” including me. My years next to him were the best
complement I could have hoped for to add to my years in various schools.

In my eyes, he did everything right. He even picked the most able and suitable
successor in Bill Davey who headed the Legal Office during the first years of
the WTO, and picked up from where Frieder had left.

As years passed by and I started forming my own opinions on the issues we had
discussed in the early nineties, I came to realize that he was secretly proud of
all of us as we developed through time. And it is not the case that we all
agreed.[6] What mattered to him most I discovered, was the internal coherence of
the argument. The external validation could wait. For Frieder was a legitimate
intellectual. 

I never managed to pay him back. I did (and continue to do) try to pay forward.
I know that this is the way he would have liked it anyway.

Frieder lived during good times, or maybe times back then were good because
people like Frieder made them good. While preparing this short note, I turned
back to a re-reading of the reports I mention above (and a few other where
Frieder was involved as legal advisor to panels). At the risk of waxing lyrical
here, I was overwhelmed with nostalgia. I would kindly ask the reader to focus
on the choice of words in the cited passages. And then take a step back and
reflect on the logical construction permeating the quoted paragraphs.

These passages reflect a deep thinking about the most fundamental issues
circumscribing trade integration. They also embed a coherent approach when
expressing these ideas: how understand agreed contractual terms in context? What
is the most plausible across competing interpretations? Why is it the case? In a
few pages, a solution to a dispute is provided, and its intellectual
underpinning is explained as well. I dread the moment when a new report is
issued these days, as I know I am in for a repetition of platitudes, a
concatenation of empty sentences and lengthy citations the usefulness of which
is hard to discern.

When thinking about Frieder and his generation, I am reminiscent of Benjamin
Franklin, the American polymath and Founding Father. When asked during the
negotiations that led to the enactment of the US Constitution about the choice
of regime that he and the others had made, he replied (almost stoically):

    - A Republic, if you can keep it.

Frieder and his generation bequeathed us with a Republic. I am afraid this is
not what we will leave to those who come next.

References

Baldwin, Robert E. 1970. Non-Tariff Distortions in International Trade, The
Brookings Institution: Washington, D.C. 

Charnovitz, Steve. 2002. The Law of Environmental PPMs in the WTO: Debunking the
Myth of Illegality, Yale Journal of International Law 27: 59–109.

Grossman, Gene M., Henrik Horn, and Petros C. Mavroidis. 2013. Domestic
Instruments, pp. 205-345 in Henrik Horn and Petros C. Mavroidis (eds.), Legal
and Economic Principles of World Trade Law, ALI, The American Law Institute
Reporters’ Studies on WTO Law, Cambridge University Press: New York City.

Hudec, Robert E. 1998. GATT Constraints on National Regulation: Requiem for an
Aims and Effect Test, International Lawyer, 32: 619-649.

Hudec, Robert E. 2000. “Like Product”: The Differences in Meaning in GATT
Articles I and III pp. 101-123 in Thomas Cottier and Petros C. Mavroidis (eds.),
Regulatory Barriers and the Principle of Non-discrimination in World Trade Law,
101–123, University of Michigan Press: Ann Arbor, Michigan. 

Jackson, John H. 1969. World Trade and the Law of the GATT. Bobbs-Merrill:
Indianapolis, Indiana.

Marceau, Gabrielle (ed.) 2015. A History of Law and Lawyers in the GATT/WTO,
Cambridge University Press & the WTO: Geneva, Switzerland.

Mavroidis, Petros C. 2019. Last Mile for Tuna (to a Safe Harbour): What is the
TBT Agreement All About? European Journal of International Law, 30: 279–301.

Petersmann, Ernst-Ulrich. 2000. International Trade Law and International
Environmental Law: Environmental Taxes and Border Tax Adjustment in WTO Law and
EC Law, pp. 127-165 in R. Revesz, P. Sands, and R. Stewart, (eds.),
Environmental Law, The Economy and Sustainable Development, 127–165, Cambridge
University Press: Cambridge, United Kingdom.

Roessler, Frieder. 1996. Diverging Domestic Policies and Multilateral Trade
Integration, pp. 21-64 in Jagdish Bhagwati, and Robert E. Hudec (eds.), Fair
Trade and Harmonization, vol. 2: Legal Analysis, 21–64, Cambridge University
Press, Cambridge, United Kingdom.

Roessler, Frieder. 2003. Beyond the Ostensible: A Tribute to Professor Robert
Hudec’s Insights on the Determination of the Likeness of Products under the
National Treatment Provisions of the GATT, Journal of World Trade, 37: 771–781.

 

[1] Marceau (2015) edited an excellent volume tracing the history of the Legal
Office of the GATT/WTO.

[2] https://www.wto.org/english/tratop_e/dispu_e/gatt_e/91alcohm.pdf

[3] On this last issue, see Hudec (2000).

[4] https://www.wto.org/english/tratop_e/dispu_e/gatt_e/93autos.pdf

[5] Even though case law has turned the logic behind Arts. 2.1 and 2.2 TBT to
its head, as I have argued in Mavroidis (2019). See also Charnovitz (2002), and
Petersmann (2000).

[6] In Grossman et al. (2013), for example, while we see the relevance of
regulatory aim, we take distance from the “aims and effect” test as practiced.

Posted by Simon Lester on September 16, 2024 at 09:41 AM | Permalink | Comments
(1)


TRUMP THE CHINA TRADE DEFICIT HAWK AND CHINA SECURITY DOVE?

Trade policy came up at last week's presidential debate, with a somewhat
traditional discussion of tariffs at the start, and then a shift at the end to
security-related issues.

Kamala Harris started it off by referring to Trump's proposed universal baseline
tariffs as a sales tax:

> ... My opponent has a plan that I call the Trump sales tax, which would be a
> 20% tax on everyday goods that you rely on to get through the month.
> Economists have said that Trump's sales tax would actually result for
> middle-class families in about $4,000 more a year because of his policies and
> his ideas about what should be the backs of middle-class people paying for tax
> cuts for billionaires.

She has been consistent in criticizing his tariffs, going all the way back to
when she was running for president in 2019.

Trump then responded as follows:

> First of all, I have no sales tax. That's an incorrect statement. She knows
> that. We're doing tariffs on other countries. Other countries are going to
> finally, after 75 years, pay us back for all that we've done for the world.
> And the tariff will be substantial in some cases. I took in billions and
> billions of dollars, as you know, from China. In fact, they never took the
> tariff off because it was so much money, they can't. It would totally destroy
> everything that they've set out to do. They've taken in billions of dollars
> from China and other places. They've left the tariffs on. When I had it, I had
> tariffs and yet I had no inflation. 

(Let me interject a couple points here: 1) Trump continues to misrepresent who
pays tariffs; 2) I would like to hear what Harris has to say about keeping some
of Trump's tariffs in place; and (3) saying there was "no inflation" is a
distraction from that fact that prices rose for the goods on which the tariffs
were imposed.)

Moderator David Muir then asked this follow-up:

> Mr. President, I do want to drill down on something you both brought up. The
> vice president brought up your tariffs, you responded, and let's drill down on
> this because your plan is what she calls ... essentially a national sales tax.
> Your proposal calls for tariffs as you pointed out here, on foreign imports
> across the board. You recently said that you might double your plan, imposing
> tariffs up to 20% on goods coming into this country. As you know many
> economists say that with tariffs at that level costs are then passed onto the
> consumer. Vice President Harris has argued it'll mean higher prices on gas,
> food, clothing medication arguing it costs the typical family nearly four
> thousand dollars a year. Do you believe Americans can afford higher prices
> because of tariffs?

Trump responded with more of the same:

> They aren't gonna have higher prices, what's gonna have and who's gonna have
> higher prices is China and all of the countries that have been ripping us off
> for years. ... I was the only president ever, China was paying us hundreds of
> billions of dollars and so were other countries and you know if she doesn't
> like 'em they should have gone out and they should have immediately cut the
> tariffs but those tariffs are there three and a half years now under their
> administration. We are gonna take in billions of dollars, hundreds of billions
> of dollars. I had no inflation, virtually no inflation, they had the highest
> inflation, perhaps in the history of our country because I've never seen a
> worse period of time. ...

Muir then asked Harris the question I had in mind about Biden keeping some of
the tariffs: 

> Vice President Harris, I do want to ask for your response and you heard what
> the president said there because the Biden administration did keep a number of
> the Trump tariffs in place, so how do you respond?

In response, Harris criticized Trump's tariffs in general terms, and then,
interestingly, turned this into more of a China security issue:

> Well, let's be clear that the Trump administration resulted in a trade
> deficit, one of the highest we've ever seen in the history of America. He
> invited trade wars, you wanna talk about his deal with China, what he ended up
> doing is under Donald Trump's presidency he ended up selling American chips to
> China to help them improve and modernize their military, basically sold us out
> when a policy about China should be in making sure the United States of
> America wins the competition for the 21st century. Which means focusing on the
> details of what that requires, focusing on relationships with our allies,
> focusing on investing in American based technology so that we win the race on
> A.I. and quantum computing, focusing on what we need to do to support
> America's workforce, so that we don't end up having the, on the short end of
> the stick in terms of workers' rights. ...

Trying to figure out what Trump thinks can be a challenge, but it seems to me
that his big concern on trade is the trade deficit, and the fix he wants to use
is tariffs. (He misunderstands both of these issues, but let's put that aside).
By contrast, he does not appear to be particularly concerned about the security
issues related to China that most Republicans and many Democrats in Washington
are worked up about these days. For example, Trump has said several times that
if Chinese companies want to sell autos in the U.S., they should produce them
here. But I'm not sure many other national Republican politicians would want to
let such investments happen. And while a lot of people in Washington are focused
on winning the technology race with China, Trump seems to envision the economic
contest as one over older industries such as steel and traditional autos, rather
than advanced tech. I don't think I've ever heard him talk about the Chinese
accessing Americans' data, which many other people in Washington worry about and
which is why there are concerns with Americans driving Chinese autos full of
software that can gather data.

More broadly, I'm not sure Trump thinks of China as much of a security threat.
The main threat that he sees -- from China, the EU, and others -- is a trade
threat. He thinks their trade policies and our trade policies, working together,
have cost American jobs. His analysis is all wrong here, but that seems to be
what he thinks.

Having said all that, I wouldn't say this means a Trump administration would not
have a security focus. In all likelihood, Trump will hire a lot of people who
share the security concerns that most Washington policymakers have.

Posted by Simon Lester on September 15, 2024 at 07:17 AM in 2024 Presidential
Campaign | Permalink | Comments (0)


TARIFF HISTORY EMERGES AS A KEY ISSUE IN THE U.S. PRESIDENTIAL CONTEST (JUST
KIDDING!)

As the culture wars have dominated the political debate in recent years, it
feels as though the quality of the economic policy discussion has suffered. Some
of the economic topics that keep coming up are of little interest to most
voters, and are being talked about in a way that is disconnected from reality.
Here's an illustration from a recent speech by former president Trump, in which
he makes reference to some events in U.S. tariff and economic history:

> Under my leadership, America will encourage domestic production instead of
> punishing it. As you know, our country's vast manufacturing wealth was created
> at a time with very little domestic taxation, few regulations, and most
> revenue came from tariffs from other countries. That was when we were at the
> wealthiest ever. Proportionately, we were the wealthiest country ever during
> those days. That was before income tax came along. Now we foolishly do the
> opposite. We impose lower tariffs and no tariffs on foreign producers. We have
> the lowest tariffs of any nation in the world, and we relentlessly punish our
> own companies for doing business in America. You do business in America,
> you're punished tremendously. I had many, many companies come to me, sir, I
> can't compete. They're sending kitchen cabinets, washers and dryers,
> everything ... motorcycles, they're sending them here, sir, we can't compete.
> And I made it so they could compete and thrive. Every one of those people, we
> should get them up and talk to you one day, because every one of those people
> comes up to me, and every time I see them, they hug me, they kiss me, they
> love me, because I saved their businesses.
> 
> I intend to reverse this model and once again turn America into the
> manufacturing superpower of the world. We can do that just with being
> intelligent. The key to this effort will be a pro-American trade policy that
> uses tariffs to encourage production here and bring trillions and trillions of
> dollars back home. ... My plan is that if you open your factory in Wisconsin,
> Pennsylvania, Michigan, Minnesota, anywhere else in our country, you don't pay
> a tariff tax, you don't pay a tax. You make the product here. But if you move
> your production outside of the United States and send it back here, which
> people are doing now, and I stopped it, stopped it cold. But they've changed
> that already. Then you'll have to pay a very substantial tariff to get your
> product back into the country. The result will be that everybody in the world
> will want to be here, and they'll want to produce here. They're going to want
> to produce their product in America. It's going to say made in the USA. We
> will be able to build ships again. We will be able to build planes again. We
> will be able to build our military again from within, all from within. We will
> create the biggest, greatest and strongest middle class in the history of our
> country. We will have 10s of millions of high paying jobs in manufacturing,
> transportation, defense, as well as all of the sales and support of export
> jobs. Our auto industry will be the biggest beneficiary.
> 
> In short, it will be a national economic renaissance just by using our heads,
> by being smart, by not letting other countries take advantage of us. They've
> been doing it for so long. It's so sad to see, and I know them all, and they
> laugh at us behind our back. They can't believe how stupid our leadership has
> been for so many years.
> 
> We will ensure that the United States has a giant steel industry, and aluminum
> industry, a manufacturing base and a defense base. We want a industrial base
> that can take care of our defense needs 100%.
> 
> And you can call it what you want. Some might say it's economic nationalism. I
> call it common sense. I call it America first. This is the policy that built
> this country, and this is the policy that will save our country. In the words
> of a great but highly underrated president, William McKinley, highly
> underrated, the protective tariff policy of the Republicans has ... made the
> lives of our countrymen sweeter and brighter. It's the best for our
> citizenship and our civilization, and it opens up a higher and better destiny
> for our people. We have to take care of our own nation and her industries
> first, in other words, take care of our country first. This is when we had our
> greatest wealth. He was assassinated, and he left his group of people that
> followed him. Teddy Roosevelt became a great president spending the money that
> was made by McKinley. So McKinley got a bad deal on that one. He built
> tremendous wealth.
> 
> They had the Tariff Act of 1887, and they had a committee that studied, what
> are we going to do? They had a big problem, a problem like I hope to have with
> this country someday, so much money was coming in from foreign countries that
> they didn't know how to spend it. They had no idea. So they set up a
> committee. We'll set one up with the people in this room. How do we distribute
> the wealth that we have? And Roosevelt built dams and built railroads and did
> national parks, but he did it with the money that was made with tariffs from
> McKinley. So you have to remember that very highly underrated, a very
> underrated president, let's give them both credit. Smart tariffs will not
> create inflation. They will combat inflation. I had almost no inflation, and I
> had the highest tariffs that anyone seen. They were going a lot higher.
> Foreign nations will pay us hundreds of billions of dollars, reducing the
> deficit and driving inflation down to largely reduce our deficit. In my first
> term, we imposed historic tariffs with no effect on consumer prices or
> inflation.
> 
> The anti-tariff people, many of them, I believe, honestly, work for these
> other countries in some form, get tremendous amounts of lobbying money and
> other money, because it doesn't make sense what they're saying.

As you might expect, I have some reactions. It's hard to know where to start
with this, but maybe let's go with McKinley's tariffs, which Trump has been
talking about for many years. One thing to note here is that the McKinley Tariff
took effect in October of 1890 while McKinley was in Congress, whereas during
McKinley's presidency the big tariff increase was implemented through the
Dingley Act in 1897. It's not clear whether Trump realizes this. Anyway,  some
people have studied these issues in great depth. In Clashing over Commerce, Doug
Irwin points out that Teddy Roosevelt, who Trump mentions, was not happy about
the impact the McKinley Tariff had on the tariff-supporting Republican party in
the 1890 midterm elections, saying: "The overwhelming nature of the disaster is
due entirely to the McKinley bill." (Irwin also notes that "[t]he perception
that high tariffs protected monopolistic big businesses and trusts also
contributed to the unpopularity of the McKinley Act.")

With regard to Trump's references to the relative wealth of the U.S. during that
period, for anyone who has this sort of nostalgia, there are some things you may
want to consider because they complicate the more simplistic hot takes. For
those on the right who are anti-immigration as well as being protectionist, keep
in mind that this was a period of very open immigration, which helped drive
economic growth. And for anyone who likes Social Security and Medicare, note
that those programs didn't exist at the time, which is why the relatively low
amount of revenue brought in by tariffs could fund the much smaller level of
government spending from this period. If Trump wants the tax system to rely on
tariffs for revenue rather than on income taxes, that would almost certainly
mean the end of those programs.

Turning to the impact of Trump's first term tariffs on U.S. prices, Trump says
they had no impact, but numerous economic studies show otherwise. (And obviously
"foreign nations" don't pay tariffs, but rather importers do.)

As to whether the U.S. has the "lowest tariffs in the world," the WTO tracks
this data. I would first note that New Zealand, Australia and a few others
actually have lower MFN applied average tariffs. In addition, it's worth noting
here that trade remedy tariffs don't get tracked as part of this calculation,
and with the U.S. being such an active user, I'm not sure the U.S. tariffs would
look as low in relative terms if trade remedy tariffs were included, although I
haven't seen a calculation that takes this into account (it would be great if
someone did one!)

On the issue of the role of lobbyists in trade policy, just about all policies
have lobbyists on both sides, but I don't think there is much doubt that it is
lobbyists (corporate and union) that are the driving force pushing for tariffs.
It's nice for them that Trump believes in their cause, and may save them some
lobbying money, but it's pretty clear that lobbying is and has always been the
main source of support for tariffs.

And finally, there's the matter of retaliation by other countries, which
happened before with Trump's tariffs and will happen again. Trump seems to think
the U.S. could start exporting more manufactured goods such as autos (which does
not seem particularly likely at the moment), but regardless of whether the U.S.
production and export mix shifts away from agriculture, natural resources, and
services and towards manufacturing, U.S. trading partners will have plenty of
possible targets for retaliation.

There was also this:

> China was built on doing exactly what we're going to be doing, and what I
> started doing four years ago.  What we're putting forward is the most
> pro-American manufacturing and jobs policy in modern history for any country.
> This plan will bring jobs and growth into our country at levels never seen
> before. Every business on earth will flock to America, from Europe, Asia, the
> Middle East and all over the world. By contrast, comrade Kamala Harris wants
> to sacrifice our wealth, kill the economy and drive jobs overseas to punish
> businesses, more businesses will leave.

So on the one hand, Trump admires what he thinks are the tariff policies of the
Chinese Communist Party and wants to emulate them (although in reality, China
actually reduced its tariffs considerably as part of its accession to the WTO),
but on the other hand he is suggesting that "comrade Kamala" is a communist.
That's a hard one to get my head around.

Posted by Simon Lester on September 09, 2024 at 09:51 AM in 2024 Presidential
Campaign | Permalink | Comments (0)


WHY THE US SHOULD RESPOND HONESTLY TO CHINA'S WTO COMPLAINT

Why the US Should Respond Honestly to China's WTO Complaint

Comments by Steve Charnovitz

Federal Register m0n-2px7-nq3f

3 September 2024

China has properly lodged a lawsuit (DS623) against the United States (US) at
the World Trade Organization (WTO) regarding the domestic content conditions of
US subsidies granted in 2022 in US Public Law 117-169.  Such unfair,
discriminatory regulations are a blatant violation of the law of the WTO
Agreement on Subsidies and Countervailing Measures (SCM Agreement).  SCM Article
3.1(b) prohibits "subsidies contingent, whether solely or as one of several
other conditions, upon the use of domestic over imported goods."  During the
Biden-Harris Administration, the US has increased its reliance on nonmarket
economic nationalism to the detriment of the US economy and the broader
interests of all WTO Members.

Environmental instruments need not be, and should not be, protectionist.  In
1992, Rio Declaration reiterated the norm that governments should use economic
instruments "without distorting international trade and investment" (Principle
16).  For the climate regime, the United Nations Framework Convention on Climate
Change (UNFCCC) articulated the climate law principle that "Measures taken to
combat climate change, including unilateral ones, should not constitute a means
of arbitrary or unjustifiable discrimination or a disguised restriction on
international trade" (Article 3.5). Thus, the discriminatory US measures
detailed in China's complaint are anathema to both world trade law and global
climate law. 

Although subsidies can be appropriate policies to lessen climate change,
subsidies are much less likely to reduce emissions than first-based policies of
carbon taxes.  Unilateral subsidies are also inferior policies because climate
change is a global problem that necessitates multilateral solutions. Without
effective transborder environmental solutions, trade disputes can ensue.

The US overcapacity in dollars allows the US to engage in excessive
subsidization. Most other countries with their budget constraints cannot afford
to bestow subsidies on the same scale that the US does.  Yet because the
effectiveness of any US climate measure depends on the measures being taken by
the rest of the world, the US overreliance on subsidization sets a bad example
for other countries, particularly developing countries.  This dysfunction could
be corrected in part by more generous US government funding of climate
investments in developing countries, but those US programs are pathetically
small. 

Whatever unilateral US climate subsidies could accomplish will be further
diminished when US subsidies are conditioned on import substitution policies. 
Such a beggar-thy-neighbor scheme raises the costs of clean energy domestically
while making it more difficult for many other countries to grow their clean
energy input sectors through exports.  Supply chain resiliency — even for the
largest economies — is more likely achievable through economic integration than
through dogmas of autarky. 

Although the Office of the US Trade Representative (USTR) has falsely claimed
that China's lawsuit "seeks to undermine US efforts to address the global
climate crisis...", the truth is that the protectionist US efforts in dispute
make it harder for the US and other countries to address the global climate
crisis.  China seeks to challenge the lack of cooperation by the US to use
nondiscriminatory measures in addressing the worsening global climate crisis.
China is right to seek to hold the US accountable to respect both international
trade law and international climate law.  China recognizes that the
effectiveness of US climate efforts (and indeed the efforts of all countries) is
impeded by unjustified US trade discrimination.  While WTO law does not prohibit
a government from lavishing financial benefits on politically favored
beneficiaries, WTO law does prohibit granting subsidies in a manner that
externalizes costs on other countries. 

In lodging this WTO case against the US, China seeks to encourage US
policymakers to respect the rule-based international order.  China (but not the
US) appears to understand that governments need not violate international trade
law to achieve multilateral environmental objectives.   Thus, China's cause of
action against the US functions as a public good in the international legal
system. China's bold lawsuit should be applauded by everyone who supports the
transnational rule of law

With China's overdue litigation against the US now going forward, the
Biden-Harris Administration should stop undermining the WTO judicial system by
blocking the appointment of WTO appellators.  If the US is unwilling to stop
despoiling the Appellate Body —even though the lack of effective judicial review
continues to imbalance the WTO — USTR should pledge to the WTO Dispute
Settlement Body that the US will (join China to) support immediate adoption of
the panel report.  During its time in office, the Biden-Harris Administration
has shown bad faith in appealing four (!) WTO cases that the US has properly
lost knowing full well that the appeal cannot be heard because of the US
sabotage of the WTO appellate tribunal (see DS 539, 544, 552, 556, 562, 564,
597).

Because China's SCM Art. 3.1 claim against the US is correct in WTO law, the US
should not engage in facetious (and time-wasting) defenses as USTR frequently
does.  Since the SCM Agreement does not contain an environmental exception, USTR
should not assert an environmental defense which, in any event, would be
unjustified because the UNFCCC makes clear that discriminatory trade measures
must not be used.  Since the SCM Agreement does not contain a national security
exception, the US should not assert a national security defense as the US did
unsuccessfully in the Steel and Aluminum Products case.  (That bogus US claim
was rightly dismissed by the WTO panel.)  Since the SCM Agreement does not
provide for reverse SCM Article 29 defenses, the US should not assert that it
needs to discriminate against China because the US is in the process of
transformation from a market, free enterprise economy into a centrally planned
economy. 

Because China is acting responsibly to uphold the multilateral trading system
and to challenge US illegality in a peaceful way, the US should cooperate by
facilitating the rapid response mechanism envisioned in the DSU for the
adjudication of trade complaints.  Let the panel do its job to call out the US
for engaging in a cadence of protectionism that flagrantly violates WTO law.  

If the US stopped treating China unfairly in trade — including for example,
cancelling the WTO-illegal US Sections 301 and 232 tariffs — China might become
more willing to act cooperatively to address the most pressing global problems. 

Posted by Charnovitz on September 03, 2024 at 06:54 PM | Permalink | Comments
(0)

Tags: international law, public comments, USTR


GUEST POST: A TRIBUTE TO FRIEDER ROESSLER FROM ERNST-ULRICH PETERSMANN

This is a guest post by Ernst-Ulrich Petersmann, emeritus Professor at the
European University Institute, Florence (Italy), and legal consultant at the
World Trade Organization (Geneva); former professor of European law at Geneva
University, and of international economic law at Geneva’s Graduate Institute of
International Studies

Frieder Rössler (1939-2024): International civil servant, academic teacher, and
Socratic explorer

Frieder and I met in 1981 in the GATT Secretariat following my appointment as
first ‘assistant legal officer’ ever employed by the GATT Secretariat, and
Frieder’s return to his GATT office (as Secretary of GATT’s
Balance-of-Payments-Committee) from an academic leave at Washington University.
We realized commonalities in our careers: both of us had studied law and
economics at Freiburg University and at Geneva’s Graduate Institute of
International Studies; we admired the ‘Austrian school of economics’ (like
G.Haberler, F.A.Hayek) and ‘constitutional economics’ (like J.Buchanan,
J.Tumlir); we had both published on international monetary, trade and economic
development law using our professional experiences in international
organizations like the World Bank. As both of us were sailors (notwithstanding
my lack of ambition to emulate Frieder’s repeated crossings of the Atlantic and
the Mediterranean Seas in his own yacht together with his family) and enjoyed
our GATT offices overlooking Lake Geneva, we started a tradition (lasting more
than four decades) of joint ‘philosopher walks’ along the Lake of Geneva
discussing our shared belief in the need for transforming the ‘anti-legal
pragmatism’ cultivated among GATT diplomats into a rules-based multilateral
trading, legal and dispute settlement system. Yet, our two worldviews often
differed, which transformed our regular discussions into mutual learning
processes: both of us admired Hayek’s theory of knowledge (e.g. using markets
and competition as decentralized information, coordination, sanctioning and
‘cybernetic steering mechanisms’) and Hayek’s arguments for ‘evolutionary
constitutionalism’ (e.g. in his books on The Constitution of Liberty and his
three volumes on Law, Legislation and Liberty); but Frieder had been less
engaged than myself in the successful ‘construction’ of European integration law
and of its ‘ordoliberal foundations’ justifying systemic legal limitations of
‘market failures’ (e.,g. through competition, environmental and social rules and
institutions), ‘governance failures’ (e.g. to protect human rights, democratic
input-legitimacy and republican output-legitimacy of multilevel governance of
public goods), and ‘constitutional failures’ (e.g. justifying Europe’s
multilevel democratic, republican and cosmopolitan constitutionalism protecting
transnational public goods like Europe’s common market, ‘social market economy’
and ‘democratic peace’).

Frieder as an international civil servant

Frieder belonged to the post-1945 generation of young Germans traumatized by two
World Wars and committed to public service protecting human rights,
constitutional democracy and transnational rule-of-law among ‘open societies’.
As his professional work inside the World Bank at Washington had not satisfied
these ambitions, he returned to Geneva’s Graduate Institute of International
Studies and accepted an offer by Professor O.Long to work inside the GATT
Secretariat. Like the first GATT Director-General W.White, the second GATT
Director-General Long had been a lawyer emphasizing the ‘limits of GATT law’ and
the need for ‘pragmatic dispute settlements’ in view of the only ‘provisional
application’ of the General Agreement on Tariffs and Trade (GATT 1947). After
the US Congress had refused ratifying the 1948 Havana Charter for an
International Trade Organization (including GATT 1947), the 1947 Protocol on the
Provisional Application of GATT 1947 continued to include ‘grandfather clauses’
exempting legally binding ‘existing legislation’ from the GATT disciplines, thus
creating only a legally weak framework for reciprocal trade liberalization and
politicized ‘trade diplomacy’ subject to GATT-inconsistent trade legislation and
power politics (like ‘voluntary export restraints’ for cotton, textiles,
agricultural and steel products). When the parliamentary ratification and entry
into force of the 1979 Tokyo Round Agreements transformed this ‘soft law’ into a
‘hard law’ trade regime with increasing criticism of its ‘pragmatic diplomat’s
jurisprudence’ and legally inconsistent GATT dispute settlement findings, the
third GATT Director-General A.Dunkel succeeded in persuading the major trading
countries to consent to the establishment of a GATT Office of Legal Affairs in
1983. An experienced GATT diplomat (A.Lindén) was nominated director, and
Frieder and myself offered legal advice as legal counsellors in GATT dispute
settlement panels (e.g. in the drafting of their legal findings) and, since
1987, in the Uruguay Round Negotiating Groups mandated to elaborate the new WTO
agreements, the WTO Dispute Settlement Understanding, and the transition from
the old GATT to the new WTO legal system. As the first Director of the new GATT
Legal Division established in 1989 as well as of the new WTO Legal Division
since 1995, Frieder was rightly credited as one of the intellectual founding
fathers of the successful GATT and WTO dispute settlement systems and related
jurisprudence of GATT and WTO dispute settlement panels.

Cooperating with Frieder inside GATT’s Legal Office and Legal Division remained
an intellectual adventure based on mutual trust, frank criticism and
decentralized, independent work of the small group of GATT lawyers assisting
GATT dispute settlement panels, other GATT institutions and negotiating groups.
The dozens of GATT and WTO agreements include numerous rules with indeterminate
terms and principles (like GATT Article XXIII:1 differentiating between
‘violation complaints’, ‘non-violation complaints’ and ‘situation complaints’
with diverse state responsibilities and dispute settlement procedures).
Interpreting and clarifying indeterminate trade rules and the more than 60’000
pages of WTO law coherently required good knowledge of general international law
(like the customary rules of treaty interpretation and state responsibility),
which most GATT/WTO diplomats lacked. The political pressures leading to the
establishment of a new ‘Rules Division’ in 1991 (notably for administering
anti-dumping, subsidy and countervailing duty rules and disputes) curtailed the
jurisdiction – and politicization - of the GATT Legal Division; the
establishment of the WTO Appellate Body in 1995 and its ‘appellate
jurisprudence’ changed the dynamics of the WTO dispute settlement system and
promoted its progressive ‘judicialization’. Frieder’s independent and
self-assured leadership and cooperation with both the Rules Division and the
Appellate Body ensured mutual synergies promoting the transformation of the
GATT/WTO dispute settlement system into the world’s most frequently used,
worldwide dispute settlement system. When Frieder retired from the WTO and
accepted to serve as Executive Director of the Advisory Center on WTO Law at
Geneva (2001-2015), he enjoyed serving the WTO legal and dispute settlement
system from a different perspective enabling Frieder to devote also more time to
teaching WTO law and policies to trade diplomats from all over the world.

Frieder as an academic teacher and professor of law

Frieder regularly combined his practical work as international legal advisor
with academic teaching of students, for instance as visiting professor at the
University of Lyon and during repeated ‘academic leaves’ at George Washington
University and Georgetown Law School in Washington. As director of the GATT and
WTO legal divisions, he cultivated close contacts with all academic researchers
in the field of international trade law and policies, notably with his friends
Professors Robert Hudec and John Jackson from the USA. During his work in the
World Bank, as secretary of GATT’s Balance-of-Payments Committee, and as
director of the GATT and WTO Legal Services, Frieder published a large number of
articles and book contributions criticizing problematic legal practices and
ideologies (e.g. for a ‘New International Economic Order’). His close
cooperation with GATT Director-General Arthur Dunkel and with the successive
directors of GATT’s Economic Research Division (like J.Tumlir, R.Blackhurst)
prompted Frieder to emphasize the ‘Constitutional Functions of International
Economic Law’ for improving domestic policy-making, as illustrated by the legal
ranking of ‘optimal policy instruments’ in some GATT/WTO agreements, or by the
‘domestic policy functions’ of international legal guarantees of equal freedoms,
non-discriminatory conditions of competition, transnational rule-of-law and
national sovereignty for promoting transparent policy-making,
non-discrimination, legal accountability, welfare-enhancing policies and
rule-of-law protecting general consumer welfare.[1] During his studies of law at
Freiburg University, Frieder had not attended the economics lectures of
Professor F.A.Hayek; he never perceived himself as a disciple of the ordoliberal
Freiburg school of law and economics. His views on the need for protecting
democratic input-legitimacy and republican output-legitimacy in trade policies
(e.g. by judicial protection of rule-of-law in conformity with the WTO
agreements ratified by parliaments) were rather informed by insights from
‘constitutional economics’ and ‘public choice’ explanations of the risks of
welfare-reducing interest group politics redistributing domestic income through
discriminatory import restrictions undermining democratically ratified trade
agreements.[2]

In his recent book on Vienna – How the City of Ideas Created the Modern World
(2024), the historian R.Cockett acknowledged the historical contribution of
Frieder to the transformation of the ideas of G.Haberler and F.A.Hayek for a
liberal trading system into GATT/WTO law. Contrary to Q.Slobodian’s description
of Frieder (in his 2018 book on Globalists – The End of Empire and the Birth of
Neoliberalism), Frieder was never a ‘neoliberal advocate’ for a self-regulatory
market order but shared the ordoliberal belief in the need for legally limiting
the ubiquity of market failures, governance failures and constitutional failures
so as to better protect citizens and their human rights. Many international
trade lawyers and trade diplomats openly acknowledge their intellectual debt to
Frieder’s deep insights into the economic, political and legal logic underlying
world trade law. As the WTO’s Centre William Rappard and Geneva’s Graduate
Institute of International Studies are located only a few hundred meters apart,
Swiss trade diplomats (like W.Rappard, O.Long, A.Dunkel, F.Blankart) and
GATT/WTO officials (like Frieder) promoted a vibrant ‘Geneva school of
ordoliberalism’. The history of this close intellectual cooperation in creating
the post-war world trading system remains to be written. After Frieder’s death,
finding an informed author will become more difficult.[3]

Frieder as a ‘Socratic explorer’

Most people having discussed with Frieder recall his Socratic method of
explaining problems by asking pertinent questions and demonstrating why the
arguments of his interlocutors may not be fully convincing. Similarly, when
Frieder was informed of his illness, he practiced Socrates’ Stoic approach by
accepting what he could not change; and by detaching from other life projects
(like his hope to follow the example of his father who died at the biblical age
of 99). As a sailor, Frieder loved his personal freedom to cross the
Mediterranean Seas with his family on his sailing boat. The family went ashore
also on the island of Ithaca, the home of the legendary Greek king Odysseus;
Frieder’s eldest daughter Tina called her son ‘Ulysse’, and Frieder undertook
his last sailing trip together with Tina laying to rest some of their earlier
family disputes. Homer’s epic poem ‘The Odyssey’ – describing the conflict
between Odysseus’ desire to return to a happy family life and the forces
impeding him to realize this goal during many years – symbolizes also Frieder’s
heartbreak following his divorces from his first and second spouses; marrying
Kristina Schellinski enabled Frieder to enjoy a happy family life during his
last two and a half decades in their wonderful home at Perroy. In April 2024, in
the vineyard in front of their home, Frieder and I continued our last
discussions on a little wooden bench. Breathing the fresh wind, overlooking the
Alps and the Lake of Geneva, and ‘reconnecting’ with this uniquely beautiful
landscape reflecting all building elements of life helped us understand the
Latin term ‘re-ligio’ underlying the word religion. Frieder felt privileged by
the beauty and harmony surrounding his family home at Perroy, and by his decades
of exploring and promoting sustainable development in the near-by Centre William
Rappard. He was an intellectually inspiring friend and engaged advocate for
international rule-of-law and more social justice, albeit fully aware of our
human weaknesses and disagreements in constructing a liberal rules-based
international order. Frieder’s kindness, intellectual curiosity and courage to
defend his views for making this world a better place will be missed by all of
us. My last personal advice to Frieder was to listen to, and reflect on, the
wise ‘Anthem’ sung by Leonard Cohen a few years before his death: 

            ‘The birds they sang at the break of day. Start again I heard them
say. Don't dwell on what has passed away or what is yet to be. Ah, the wars they
will be fought again. The holy dove, she will be caught again. Bought and sold
and bought again. The dove is never free. Ring the bells that still can ring.
Forget your perfect offering. There is a crack, a crack in everything. That's
how the light gets in.’

Frieder had the courage to ring many bells; he enjoyed seeing the light entering
through the many cracks in our imperfect human lives.

[1] Cf Frieder’s seminal contribution on The Constitutional Function of the
Multilateral Trade Order to: M.Hilf/ E.U.Petersmann (eds), National
Constitutions and International Economic Law (1993), 53-62 (based on a joint
publication by A.Dunkel and F.Rössler in French language and citing publications
by GATT’s former chief economist J.Tumlir explaining the economic theory of
‘optimal intervention’ justifying the legal ranking of policy instruments in
GATT law). As market failures and governance failures can be corrected most
effectively by non-discriminatory domestic regulation, GATT and WTO legal
restraints on non-transparent, discriminatory trade policy instruments tend to
strengthen democratic constitutionalism rather than to circumvent democracy; nor
does GATT law impose laissez faire policies and free trade, or prevent social
policies redistributing income. As GATT rules regulate primarily conflicts of
interests within - not among – nations, their ‘constitutional functions’ can be
rendered more effective by making precise and unconditional GATT rules legally
and judicially enforceable inside domestic legal systems.

[2] Rössler’s conception of GATT/WTO law was strongly influenced by GATT’s chief
economist J.Tumlir, who explained the need for protecting non-discriminatory
trade and market competition through democratic constitutionalism and
multilateral trade and economic integration rules limiting market failures,
governance failures and constitutional failures. For a summary of Tumlir’s work
on ‘economic policy as a multilevel constitutional problem’ see the
contributions by H.Hauser and E.U.Petersmann to: ORDO Jahrbuch für die Ordnung
von Wirtschaft und Gesellschaft 39 (1988), 219-255 (in German with English
summaries).

[3] On the ‘Geneva school of ordoliberalism’ promoting an interdisciplinary
‘Geneva consensus’ for political, legal and economic cooperation among the UN
and GATT/WTO institutions at Geneva see E.U.Petersmann,  Transforming World
Trade and Investment Law for Sustainable Development (2022, chapters 4-5);
P.Lamy, The Geneva Consensus. Making Trade Work for All (2013). William
Rappard’s initiatives for founding Geneva’s Graduate Institute of International
Studies (IHEI, 1927), for inviting Austrian economists and lawyers (like von
Mises, Haberler, Hayek, Kelsen), German ordoliberals (like Röpke), British
liberals (like Gerard and Victoria Curzon) and other members of the Mount
Pèlerin Society to teach at the IHEI on the need for promoting liberal
international trade, human rights and labor laws and policies (e.g. as explained
in Rappard’s book on The Future of Peace according to Cordell Hull, 1944) were
continued since the 1960s by the Swiss GATT Directors-General O.Long and
A.Dunkel, and by other Swiss politicians (like F.Blankart) and lawyers (like
T.Cottier), for instance by promoting the teaching of GATT economists (like
J.Tumlir, R.Blackhurst) and GATT lawyers (like E.U.Petersmann) at the IHEI. The
‘Geneva ordoliberals’ cooperated closely with other Swiss institutions like the
University of Geneva, the World Trade Institute at the University of Bern, and
the Institute for International Economic Relations at the University of St.
Gallen.

Posted by Simon Lester on September 03, 2024 at 06:28 AM | Permalink | Comments
(5)


CALL FOR PAPERS: GEOECONOMICS, TRADE AND INVESTMENT: WHAT ROLE FOR LATIN
AMERICAN COUNTRIES?

This is from the Latin American Network of International Economic Law:

> Third Edition of the Global Jurist Award
> 
> Call for Papers (CfP) - Deadline extension
> 
> Geoeconomics, Trade and Investment: What role for Latin American countries?
> 
> The Law Faculties of Universidad Externado (Colombia) and the Federal
> University of São Paulo, along with the Latin American Network of
> International Economic Law (Red LATDEI), with the support of the World Trade
> Institute at the University of Bern, are pleased to present the 3rd Edition of
> the Global Jurist Award under the title Geoeconomics, Trade, and Investment:
> What Role for Latin American Countries?
> 
> ...
> 
> The 3rd edition of the Global Jurist Award seeks to receive papers
> contributing to developing International Economic Law (IEL) and exploring its
> response to current world dynamics. With a temporal perspective spanning a
> decade, the award aims to acknowledge authors providing precise assessments of
> the current institutional status of IEL and offering compelling proposals on
> the role of Latin American countries in this new geopolitical landscape.

The deadline for submissions is September 6. More details here:
https://redlatdei.blogspot.com/2024/04/third-edition-of-global-jurist-award.html 

Posted by Simon Lester on September 01, 2024 at 06:54 AM | Permalink | Comments
(0)


CALL FOR SUBMISSIONS: TRADE, LAW AND DEVELOPMENT

The journal Trade, Law and Development has issued a call for submissions for its
Winter 2024 issue (Vol. 16, no. 1). The theme is: "Navigating the Murky Waters
of Economic Treaties in International Trade."

The deadline is October 1, 2024. [update: the deadline has been extended until
November 16, 2024]

Posted by Simon Lester on September 01, 2024 at 06:52 AM | Permalink | Comments
(0)


CALL FOR PAPERS: ASIL INTERNATIONAL ECONOMIC LAW BIENNIAL CONFERENCE

This is from ASIL’s International Economic Law Interest Group:

The next ASIL International Economic Law Biennial Conference will be held on May
16-17, 2025, at Michigan Law, in Ann Arbor, Michigan. Applications are now open
for paper and panel proposals, and the deadline by which to submit a proposal is
October 15, 2024. To learn more about how to submit a proposal, please see the
Call for Papers, available here. We look forward to seeing you in Michigan next
May!

Posted by Inu Manak on August 30, 2024 at 11:58 AM | Permalink | Comments (0)


J.D. VANCE ON TARIFFS

It was not a particularly productive discussion, but here is a transcript of
NBC's Kristen Welker talking to J.D. Vance about tariffs last weekend:

> Welker:
> 
> Vice President Kamala Harris, in making her case, said that the tariff plans
> Donald Trump is proposing will hurt the middle class. Here's what she said
> specifically: "he intends to enact what in effect is a national sales tax,
> call it a Trump tax, that would raise prices on middle class families by
> almost $4,000 a year." Now the estimates vary, but how do you respond to that
> charge that Trump's tariffs would hurt the middle class?
> 
> Vance:
> 
> If you step back a little bit, Kristen, there's this whole thing that Kamala
> Harris did at the convention where she made a bunch of claims about what would
> happen and not enough actually reflection on what already happened, right?
> Because Donald Trump was already president. He used tariffs to bring
> manufacturing jobs back to our country. And I think he'll do it again. And he
> did it while keeping prices extremely low. Because if you go back to the Trump
> presidency, we had 12,000 factories that were built during Donald Trump's
> presidency, inflation never really ticked above 2% his entire administration,
> in fact, it was sort of around one and a half percent most of the time that he
> was president. So when Kamala Harris says, if we do the thing that Trump
> already did, it's going to be way worse than it was last time, I just don't
> think that makes a lot of sense.
> 
> Welker:
> 
> Well, let's talk about Trump's record during his first term. He did impose
> rounds of tariffs, and it cost Americans nearly $80 billion in new taxes. Do
> you acknowledge that imposing more tariffs will ultimately cost consumers?
> 
> Vance:
> 
> Well, what it really does is it penalizes importers from bringing goods
> outside the country into the country. And I think that's just a necessary
> thing. We know that China and a number of other countries are using
> effectively slave labor to undercut the wages of American workers. Donald
> Trump thinks that has to stop. And again, what Kamala Harris here is saying,
> Kristen, is that if you do this, you're somehow going to cause skyrocketing
> inflation. In reality, Donald Trump already did it. He brought a lot of jobs
> back, and it didn't cause inflation.
> 
> Welker:
> 
> But it caused consumers to pay more. They paid more in taxes, $80 billion
> worth. Do you acknowledge that consumers ultimately will pay more if there are
> more tariffs?
> 
> Vance:
> 
> I think economists really disagree about the effects of tariffs, because there
> can be a dynamic effect, right? So what some economists will say is, what you
> just said, that it will actually raise costs for consumers. But what other
> people say, and I think the record supports this other view, is that it causes
> this dynamic effect where more jobs come into the country. Anything that you
> lose on the tariff, from the perspective of the consumer, you gain in higher
> wages, so you're ultimately much better off. You have more take home pay, you
> have better jobs, and also you have more reliance. Because one of the things
> we learned during covid -- I don't, by the way, blame Democrats for this --
> but one of the things we learned during covid Kristen is that if our supply
> chains are really brittle, if we depend on the Chinese to make too much of our
> stuff, then prices can skyrocket at a time of crisis. The economists who say
> the tariffs are bad, they don't take that into account. We've all learned at
> the hard way.
> 
> Welker:
> 
> And it is economists across the board, really. I mean, the Wall Street Journal
> says economic data show that Donald Trump's trade war with China did not
> achieve its objectives of reversing the declines in US manufacturing, or
> reshoring factory jobs. I hear what you're saying. It's a complicated picture.
> But just on that bottom line point, you can't guarantee that Americans won't
> wind up paying a penny more, can you?
> 
> Vance:
> 
> Well, I think what you can guarantee is that if you don't bring more
> manufacturing jobs back into this country, you don't make our supply chains
> more stable, you're gonna cause higher prices over the long term. I think that
> is what is absolutely true ...
> 
> Welker:
> 
> But you acknowledge they could wind up paying more?
> 
> Vance:
> 
> What I acknowledge, Kristen, is that unless we bring more manufacturing jobs
> back to this country, we are going to end up paying more in the long term.
> Remember the whole promise -- again, this was a bipartisan thing. My own party
> was as wrong about it as Democrats were, and Donald Trump was right about it
> -- what they said is that if you shift all of our manufacturing to East Asia
> and to Mexico, Americans would pay lower prices. Well, here we are now, and
> Americans are paying higher prices. And just one more thing on this, Kristen,
> because it's really important to go at what Kamala Harris actually said her
> convention speech. She says that she wants to stand up to China on behalf of
> American workers. If you're not willing to impose tariffs on companies that
> are manufacturing in China using slave labor in China, you're not standing up
> to the Chinese and Americans are going to suffer.

I'm going to make a few points here.

First, over on social media, plenty of people piled on to debunk his suggestion
that economists disagree about the effect of tariffs. As they noted, there
really isn't much disagreement that tariffs raise prices for consumers. And
there is little support for the idea of the "dynamic effects" of tariffs (if
Vance has anything he thinks is evidence from the "other people" he referred to,
he should cite to it).

Second, the cost figures Harris was referring to are based on the 10-20%
universal baseline tariffs proposed by Trump. The $4,000 figure could be derived
from the following studies: "The Center for American Progress released
a report concluding that costs for American families would increase by $3,900
per year if Trump were to impose a blanket 20 percent tariff on imports, while
the National Taxpayers Union estimated in February that Trump’s original
suggestion of a 10 percent tariff would cost households $3,942 per year." In his
response, Vance focused mainly on China, which ignores the point that Harris was
making about the universal tariffs, and therefore his comments don't add much to
the discussion of Trump's proposal to impose these tariffs.

With regard to China, I think it's worth noting that Trump's tariffs on China
have not changed China's non-market practices, if anybody has that in mind as a
goal (it's not clear to me how many people do -- there seem to be a mix of
opinions on this at the moment).

As to Chinese labor issues, there is a whole system in place for addressing
certain aspects of this, and as far as I can tell the various tariffs that have
been imposed on China have little to do with this issue and little impact on it.

And as a general point, I think people would be shocked at the price rises that
would result from Trump's recent tariff proposals, and that would put an end to
the debate about tariffs. But I hope we don't have to actually experience this
to learn that lesson.

Given the prominence of the tariff issue due to Trump (and Vance) constantly
raising it, it would be nice if some media folks would press the candidates on
the specifics a bit more. Based on the exchange above, I'm not hopeful that
these discussions will be very informative, but you never know for sure until
you try.

(The Harris/Walz campaign responded to Vance's remarks with this.)

Posted by Simon Lester on August 29, 2024 at 06:42 AM in 2024 Presidential
Campaign | Permalink | Comments (2)


U.S. LEADERSHIP ON TRADE AND CLIMATE POLICY

In a recent Foreign Affairs piece entitled "The Case for a Clean Energy Marshall
Plan," Brian Deese -- the Director of the White House National Economic Council
from 2021 to 2023 and a current economic adviser to Kamala Harris -- sets out a
vision for how a Harris administration might lead international action against
climate change. My overall reaction was that I'm not sure how well some of his
arguments will be received in other countries, in particular in the developing
world. I'm going to focus on two points in particular.

First, if I understand Deese correctly, he is trying to make the case that the
U.S. should take the lead in manufacturing clean energy products and then sell
these American-made products in developing countries (and provide subsidies to
help people in developing countries make these purchases). Deese starts out by
offering up the Marshall Plan as a blueprint:

> ... the clean energy transition remains the most important planetary
> challenge. It also presents the greatest economic opportunity: it will be the
> largest capital formation event in human history. And it presents the United
> States with a chance to lead. Thanks to its still unparalleled power and
> influence, Washington maintains a unique capacity—and a strategic
> imperative—to shape world outcomes.
> 
> In 2022, the United States recognized these opportunities when it passed the
> Inflation Reduction Act, the world’s largest-ever investment in clean energy
> technologies. This transformative industrial strategy was a crucial first step
> for the United States in positioning its economy for success by accelerating
> the clean energy transition at home. Now is the time to take this leadership
> to the global stage, in a way that promotes U.S. interests and supports
> aligned countries. But the United States need not create a new model for doing
> so.
> 
> Seventy-six years ago, also facing a fractured world order and an emerging
> superpower competitor, U.S. President Harry Truman and U.S. Secretary of State
> George Marshall launched an ambitious effort to rebuild European societies and
> economies. Although often associated with free-market neoliberalism, the 1948
> Marshall Plan was hardly laissez-faire. It was, in fact, an industrial
> strategy that established the United States as a generous partner to European
> allies while promoting U.S. industries and interests. Generations later, the
> Marshall Plan is rightly understood as one of the great successes of the
> postwar era.
> 
> Although today’s challenges are undoubtedly different, the United States
> should draw lessons from that postwar period and launch a new Marshall Plan,
> this time for the global transition to clean energy. Just as the Marshall Plan
> assisted those countries most ravaged by World War II, the new Marshall Plan
> should aim to help countries most vulnerable to the effects of climate change:
> the United States’ partners in the developing world. Developing countries and
> emerging markets will need access to cheap capital and technology to
> transition away from fossil fuels quickly enough to halt global warming.

This idea sounds plausible in general terms, although it would be politically
difficult domestically for a number of reasons. But when he gets to the details,
the plan takes a turn towards economic nationalism, as he appears to suggest
that U.S. products will be the only/dominant ones sold in developing countries:

> The United States again has the chance to help others while helping itself.
> Putting its own burgeoning industries front and center in the energy
> transition will generate further innovation and growth. ... By creating global
> markets for its own clean energy industries and innovators, the United States
> can scale these economic gains and strengthen domestic support for an energy
> shift that has not always been an easy sell to voters.
> 
> The fracturing world order and the ominous climate crisis lead some observers
> to focus on the potential tensions between those two developments. But they
> also provide an opening for the United States to deploy its innovation and
> capital in a generous, pragmatic, and unapologetically pro-American way—by
> launching a Clean Energy Marshall Plan.
> 
> Like the original Marshall Plan, a Clean Energy Marshall Plan should meet
> other countries’ development needs while advancing U.S. interests. In this
> case, the goal is to speed the adoption of low-cost, zero-carbon solutions,
> such as the manufacture of batteries, the deployment of nuclear and geothermal
> energy, and the processing of critical minerals. This approach reflects the
> basic intuition that, as useful as it can be to make carbon pollution more
> expensive by putting a price on it, the most credible way to accelerate the
> adoption of zero-carbon technologies is to make that technology cheap and
> widely available.
> 
> ...
> 
> Implementing a Clean Energy Marshall Plan won’t be easy, but the process must
> begin now. As after World War II, the United States can be generous as well as
> pro-American in its approach. It can promote U.S. interests by scaling its
> industries to meet global needs while winning greater influence in this new
> geopolitical landscape. And it can meet developing countries where they
> are—supplying them with the energy they need to expand their economies and the
> innovation they need to decarbonize efficiently.
> 
> ...
> 
> The United States should begin with a focused investment and commercial
> diplomacy effort, akin to that of the Marshall Plan. The Marshall Plan had a
> straightforward aim: subsidize European demand for U.S. products and services
> needed to rebuild Europe. Today, the United States should establish a Clean
> Energy Finance Authority with an updated mission: subsidize foreign demand for
> clean energy technology and put American innovation and industry at the front
> of the line.
> 
> ...
> 
> The Clean Energy Finance Authority should be capitalized with a significant
> upfront commitment of money—enough to generate market momentum that tips the
> balance of clean energy investment toward the private sector; ultimately the
> private sector, not the public sector, will need to provide the majority of
> the financing the energy transition needs over the coming decades. If this new
> authority is set up and deployed properly, U.S. companies and innovators would
> gain more foreign demand, on favorably negotiated terms, and new market share.
> Foreign consumers, for their part, would gain access to new channels of cheap
> clean energy technology. For emerging-market countries and major emitters—such
> as Brazil, India, and Indonesia—the United States could act with both
> generosity and its own interests in mind.

He later adds: "... the [U.S.] needs to turn to foreign markets to boost demand
for U.S. products."

The first problem I see here is that many developing countries -- he mentions
Brazil, India, and Indonesia -- want to be producing these products themselves.
They aren't going to like a plan that makes them dependent on the U.S. for these
products. There are producers in the U.S. that complain about subsidized
imports, and there are producers in these other countries that will do the same.
As a result, I don't think the reaction to Deese's plan will be to thank the
U.S. for the subsidies and happily rely on U.S.-made products. Rather, I think
these countries are more likely to adopt policies that attempt to stimulate
their own domestic production and to limit competition from subsidized U.S.
producers. 

Now, as this blog's readers know, I'm not a fan of this type of tit-for-tat
protectionism/industrial policy, either from those who start it or those who
respond to it. Nevertheless, as a matter of political reality, I think this is
where we would likely be headed under a U.S. approach such as this one.

Another problem is that producers in Europe, South Korea, Japan and other places
will have their own objections, and are likely to respond with subsidies or
trade complaints of their own. Subsidy races of this kind end up being
contentious, and trade wars are not a very efficient way to expand these
industries.

In addition, this kind of subsidized production designed to supply the rest of
the world appears to be similar to the overcapacity the U.S. has been
complaining about in relation to China. The U.S. government has been struggling
for years to come up with an effective response to Chinese non-market practices,
and this plan might make the issue even more difficult: Why would China change
if the U.S. is now doing something very similar?

Having said all this, I do think there is room for international cooperation on
reducing carbon emissions. However, if the goal is to get developing countries
on board with U.S. efforts, I think there's going to have to be acceptance of
the idea that developing countries can make these products as well. It's worth
noting that more competition has the benefit of bringing prices down and helping
adoption by consumers happen more quickly.

Second, Deese wants to use tariffs as a tool to promote the fight against
climate change:

> As part of the Clean Energy Marshall Plan, Washington must level the global
> playing field through the active yet measured use of trade tools such as
> tariffs. Doing nothing and being resigned to China’s statist approach is
> neither economically nor politically sustainable. And using blunt tools to
> effectuate what amounts to a unilateral retreat is dangerous. Former U.S.
> President Donald Trump's call to essentially end all imports from China within
> four years is a cynical fantasy playing on populist fears. In 2022, U.S. goods
> and services trade with China amounted to over $750 billion. It is not
> practicable to decouple from any major economy, let alone the United States’
> third-largest trading partner. Global trade delivers important benefits,
> whereas unilateral, asymmetric escalation would leave the United States
> isolated and vulnerable.
> 
> The right approach is to harmonize more active trade policies with like-minded
> countries. Indeed, Brazil, Chile, India, South Africa, Thailand, Turkey, and
> Vietnam, among others, are all investigating or imposing tariffs on Chinese
> dumping practices. China is now the object of twice as many retaliatory
> measures as it was four years ago. This growing pushback represents a chance
> for the United States to address the Chinese-driven global trade imbalance by
> crafting a global coalition to galvanize a coordinated response while creating
> more global trade in clean energy goods and services.
> 
> To accomplish this, the United States must use expanded, stronger, and smarter
> trade authorities. For example, Washington should build into its tariffs on
> imported goods an assessment of how much carbon was used to produce them.
> Tariffs should be determined by the emission intensity of the trading
> partner’s entire industry, rather than company by company, to avoid “resource
> reshuffling,” whereby countries try to dodge penalties by limiting their
> exports to only products manufactured with clean energy instead of reducing
> their emissions overall. These tariffs should be aimed at all countries, but
> given its current production practices, China would be hit the hardest.
> 
> This form of tariff regime could be coordinated with what other countries are
> doing on the same front. The effort should begin with the steel sector.
> Chinese-made steel is two to five times as carbon-intensive as U.S.-made steel
> and is being dumped in markets around the world. The United States has been
> working on an arrangement with the European Union to harmonize tariffs on
> steel and aluminum. But the EU need not be the United States’ first or only
> partner in this initiative. There is a global appetite to enact a common
> external tariff regime on China to respond to its overproduction and
> carbon-intensive practices. Washington should work to pull this group together
> through the G-7 and G-20.
> 
> ...
> 
> A carbon-based tariff, or a carbon border adjustment, should further motivate
> climate action by exempting countries that are hitting their nationally
> determined goals under the 2016 Paris climate agreement or those that fall
> below certain income and emission thresholds. To complement the Clean Energy
> Finance Authority, the tariff could be lowered in exchange for foreign
> procurement of clean energy technologies or of clean products made in the
> United States. For many developing countries, the tariff would act as a
> powerful accelerant to their energy development plans.
> 
> This approach would allow the United States to transition from its current
> indiscriminate, broad-based tariff regime to a more comprehensive carbon-based
> system that more accurately targets Chinese overcapacity and trade imbalance
> concerns. And the United States should leave the door open to cooperating with
> China in this context, as well.
> 
> Policymakers will have to reimagine existing trade rules—and be willing to
> lead the World Trade Organization and other international institutions in
> thinking about how trade can accelerate the clean energy transition. The WTO’s
> objective was never just to promote free trade for free trade’s sake; its
> founding document includes a vision for sustainable development. The WTO must
> reform if it is to deliver on that vision, but in the meantime, the United
> States shouldn’t cling to old trade conventions when more targeted and
> effective approaches exist.

I'm skeptical that tariffs on products associated with high carbon emissions
will have the impact Deese thinks. The main reaction I would expect from the
developing world is annoyance and resentment. From their perspective, the U.S.
is much more of a problem in terms of carbon emissions, so why should the U.S.
be trying to punish them through tariffs on their exports? Some people in the
U.S. like to focus on carbon emissions related to manufacturing, but for people
elsewhere that just feels like cherry-picking to make the U.S. look better. And
with regard to whether this tariff and a possible exemption would motivate
countries to take action on climate, it's worth noting here that even if they
could avoid this particular tariff, U.S. trade remedy tariffs are likely to be
used against them if their exports reached a significant level.

In addition, the reports of an increase in trade remedy actions by other
countries against China are a bit misleading. As Huan Zhu and I explain on China
Trade Monitor, there has been a pretty steady use of these measures dating all
the way back to China's WTO accession. It may turn out that there is a slight
increase in trade remedy measures against China in 2024, but this isn't really a
big new development. Rather, it's just a core feature of the trading system
since I've been involved in it (and a lucrative feature for trade lawyers!). Can
these measures be ratcheted up and coordinated? Maybe. But past usage was
already pretty strong.

What I might suggest, instead of an emphasis on punishing others with tariffs,
is a more positive approach, perhaps along the lines of the new Agreement on
Climate Change, Trade and Sustainability (ACCTS). Deese talks about reimagining
trade rules so as to promote the clean energy transition. That, I would say, is
what the ACCTS negotiators have done, and it would be interesting to see
Harris's reaction to some of the ideas in there.

Posted by Simon Lester on August 26, 2024 at 02:23 PM in Trade and Environment |
Permalink | Comments (0)


GUEST POST: ARE THE REVISIONS TO THE EU’S ‘BOLAR’ SYSTEM COMPATIBLE WITH TRIPS?

This is a guest post from Maarten Meulenbelt, Chris Boyle, Lauren Shapiro,
Maryanne Kamau, and Alix Vermulst of Sidley Austin. The full article on which
the post is based is available here.

In the EU, much has been written about the so-called “Pharma Review” proposals,
published  by the European Commission (“Commission”) on 26 April 2023.  One of
the main goals of the Pharma Review (set out in a proposed Pharmaceutical
Directive and a Pharmaceutical Regulation) is to steer investment into areas of
unmet medical needs by reducing and “modulating” the main intellectual property
(“IP”) and regulatory rights – such as regulatory data protection (“RDP”) and
orphan market exclusivity – and to speed up generic and biosimilar market
access.[1]  The Pharma Review is currently going through the legislative
process.[2]

One of the proposed EU measures to speed up generic and biosimilar market access
deserves particular attention from an international IP law perspective: the
proposal to expand the so-called “Bolar exemption”.  This wide-reaching proposal
raises significant concerns under international law, as it is likely
incompatible with the EU’s obligations under the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights (“TRIPS”).  

Currently, the EU’s Bolar exemption exempts from patent infringement the
“necessary studies and trials” conducted by generic/biosimilar applicants and
“consequential practical requirements” to obtain a marketing authorisation.  As
part of the Pharma Review, the Commission’s proposal seeks to expand the scope
of the Bolar exemption to include, inter alia, situations where a reference
medicinal product is used to generate data for an application for pricing and
reimbursement (“P&R Bolar”).  If amended as proposed by the  European Parliament
on 10 April 2024, the P&R Bolar would allow, potentially years before  the
relevant patent expiry date (“Day 1”), any activity reasonably related to
pricing and reimbursement (“P&R”) procedures or approvals at Member State level,
including negotiations with payors on prices and quantities (and potentially
listing) of generic and biosimilar products. There has been no published impact
assessment for these proposals. They offer no mechanism to determine the “Day 1”
date, no clear safeguards, and no clarity on whether the “signalling” function
of P&R steps would be preserved for the enforcement of patents.

The present article is limited to assessing the consistency of the P&R Bolar
with TRIPS, as applied to patents (Supplementary Protection Certificates are not
discussed).  We find strong arguments that the proposal is inconsistent with the
EU’s obligations under TRIPS.

There is no doubt that the P&R Bolar encroaches upon the rights set out in
Article 28.1 of TRIPS (“Rights Conferred”).  Indeed, the sole purpose of the P&R
Bolar is to permit any generic or biosimilar applicant seeking a marketing
authorisation (“MA”), a health technology assessment (“HTA”) or P&R to engage in
activities that would otherwise be reserved to the patent holder during the
patent term.  The EU would bear the burden of proof of justification of this
infringement under the three cumulative conditions of Article 30 of TRIPS
(“Exceptions to Rights Conferred”).

The EU is unlikely to be able to meet this burden of proof under Article 30 of
TRIPS.  Given the wide scope of activities permitted, and the lack of definition
of the core concept of “Day 1” market entry, the P&R Bolar can hardly be called
“limited”.  The P&R Bolar interferes with “normal exploitation”, especially
where it would permit offers for sale before the expiration of the patent.  The
“legitimate interest” of patent holders does not appear sufficiently protected,
and there is no consensus view in society that generic and biosimilar companies
should be able to engage, for an undefined period of time before the expiration
of the patent, in any activities including offers and negotiations of
post-expiry supplies to obtain P&R.

The P&R Bolar also appears inconsistent with Article 27.1 of TRIPS (“Patentable
Subject Matter”) because it unjustifiably imposes differentially disadvantageous
treatment to inventions in the field of medicinal products relative to
inventions in all other fields of technology.  The P&R Bolar differs from the
measures examined in the Canada – Pharmaceutical Patents case in this respect:
the Canadian laws at issue in that case were not, as the P&R Bolar, limited to
medicinal products.

By adopting the P&R Bolar, which we find to be inconsistent with the relevant
requirements in Articles 27.1, 28.1, and 30 of TRIPS, the EU would not be giving
effect to all provisions of TRIPS – and is contravening certain provisions of
TRIPS – in violation of Article 1.1 of TRIPS.

 

[1] The  Pharma Review should be assessed together with the Patent Package,
published by the Commission on 27 April 2023, which includes proposals on
Supplementary Protection Certificates, Compulsory Licensing and Standard
Essential Patents.

[2] See
https://goodlifesci.sidley.com/2024/03/19/eus-overhaul-of-pharma-legislation-amended-with-uneasy-ip-compromises/.

Posted by Simon Lester on August 25, 2024 at 07:02 AM in Trade and Intellectual
Property | Permalink | Comments (0)


GUEST POST: WHY COULDN’T THE RUSSIA-UKRAINE BIT BE USED TO CLAIM COMPENSATION
FOR WAR DAMAGE AND FROZEN RUSSIAN ASSETS TO SATISFY THESE INVESTMENT AWARDS?

This is a guest post from Csongor István Nagy, Professor of Law at the
University of Galway, Ireland, and at the University of Szeged, Hungary, and
research professor at the HUN-REN Center for Social Sciences, Hungary

At first it may raise eyebrows. But think it over! Why couldn’t the
Russia-Ukraine BIT (RUBIT) be used by Ukrainians to claim compensation for war
damage in certain cases? And why couldn’t a part of the frozen Russian assets be
used to enforce these investment awards? In my paper forthcoming in the
University of Pennsylvania Journal of International Law I argue that both are
possible. The pre-print version is available at SSRN.

The key issue of applicability is territorial scope. In the Crimea cases,
arbitral tribunals consistently applied the RUBIT to Russian measures and
treated Crimea (strictly for the purpose of the BIT!) as the territory of Russia
on account of de facto control and legal incorporation. This is a question of
treaty interpretation (one may say a contractual dispute and not a quiet title
action!) and the foregoing principles should be valid outside Crimea in cases
where Russia occupies a territory and/or unilaterally incorporates (annexes) it.
And if these territories can be treated as a territory for which Russia bears
responsibility under international law, Ukrainians may be able rely on this
responsibility.

The Crimea arbitral awards’ notion of territorial scope is not unprecedented in
international law at all. For instance, in Loizidou v. Turkey and in Cyprus v
Turkey, the European Court of Human Rights applied the European Convention on
Human Rights to Turkey by reason of its occupation of Northern Cyprus. In
Al-Skeini v. United Kingdom, it found the Convention applicable to the UK’s
operations in Iraq on account of the occupation of the country.

Legal title, effective control (occupation) and unilateral claim (incorporation)
generate the following matrix of scenarios for the territorial applicability of
RUBIT.

 1. Ukrainian territory controlled by Ukraine and neither claimed, nor
    controlled by Russia;
 2. Ukrainian territory controlled by Ukraine and claimed by Russia (those parts
    of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts that are not
    occupied by Russia);
 3. Line of contact (line of battle) on Ukrainian territory claimed by Russia
    (the line of contact in the above four oblasts);
 4. Line of contact on Ukrainian territory not claimed by Russia (the line of
    contact during the offensive towards Kyiv);
 5. Ukrainian territory controlled but not claimed by Russia (e.g. the areas
    captured during the offensive towards Kyiv, such as Bucha);
 6. Ukrainian territory controlled and claimed by Russia (e.g. Crimea, occupied
    parts of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts).

The applicability of the RUBIT is not an academic question. Russian assets of
enormous value were frozen throughout the world. It is highly dubious if these
can be used for the purpose of war reparations under international law.
Nonetheless, a good part of these assets can be used to enforce (investment)
arbitral award. Although “non-commercial” assets, such as the property of
diplomatic missions, military assets, cultural property, items displayed at an
exhibition and, most importantly, the property of the central bank are immune
from enforcement due to sovereign immunity, sovereign direct investments,
airplanes, ships and the assets of persons attributable to the state can be used
to satisfy investment awards.

Although the RUBIT was recently terminated by Ukraine, it remains in force until
January 27, 2025, and has a “continuing effects” clause in Article 14(3), which
sustains investment claims for ten years after termination.

Posted by Simon Lester on August 22, 2024 at 02:54 PM | Permalink | Comments (0)


NON-MARKET ECONOMY STATUS AND INDUCING MARKET-ORIENTED REFORMS

For the purposes of U.S. anti-dumping/countervailing duty law, the Commerce
Department maintains a list of non-market economies. Vietnam is one of the
economies on that list. A March 2024 Congressional Research Service paper on
"Vietnam’s Nonmarket Economy (NME) Status" notes that the government of Vietnam
"has long sought to remove the designation, arguing it may hinder closer ties."
Vietnam officially submitted a removal request in September 2023, and on October
30, 2023, the Commerce Department initiated a review of Vietnam’s NME status.

On August 2, the Commerce Department announced its determination that "Vietnam
will continue to be classified as a non-market economy (NME) country for
purposes of calculating U.S. antidumping duties (ADs) on imports from Vietnam."
While acknowledging "Vietnam’s substantive reforms made over the past 20 years,"
Commerce nevertheless concluded that "the extensive government involvement in
Vietnam’s economy distorts Vietnamese prices and costs and ultimately render
them unusable for the purpose of calculating U.S. antidumping duties."
Therefore, Commerce "will continue to use market-based prices and costs from a
country at a comparable level of economic development to Vietnam that produces
comparable merchandise to calculate ADs."

In terms of the practical impact of this determination, the Congressional
Research Service paper explains that "Commerce’s usual practice of applying
alternative methods when calculating dumping margins in antidumping
investigations involving NMEs generally leads to higher tariffs in affirmative
determinations."

Commerce's full reasoning on this issue can be found in a memo entitled "Review
of Vietnam’s Status as a Non-market Economy Country." In the memo, Commerce
explained that:

> Vietnam has implemented notable market-oriented economic reforms for nearly
> two decades under a broader economic initiative known as the “Doi Moi” (often
> translated as “renovation” or “innovation”). Those reforms aimed to transition
> Vietnam out of an economic system that relied on intensive government
> direction and intervention, which Commerce characterized as an NME for
> purposes of U.S. AD laws when it last reviewed Vietnam’s NME status in 2002.

However, Commerce said, "based on the assessment of the record evidence,
persistent structural and institutional issues in Vietnam remain," as "[t]he
extensive and pervasive government involvement in Vietnam’s economy that
pertains to the six statutory factors Commerce relies upon in making a market
economy determination distorts Vietnamese prices and costs, and ultimately
renders them unusable for purposes of calculating U.S. AD duties." The six
factors considered were:

 * The Extent to Which the Currency of the Foreign Country is Convertible Into
   the Currencies of Other Countries
 * The Extent to Which Wage Rates in the Foreign Country are Determined by Free
   Bargaining Between Labor and Management
 * The Extent to Which Joint Ventures or Other Investments by Firms of Other
   Foreign Countries are Permitted in the Foreign Country
 * The Extent of Government Ownership or Control of the Means of Production
 * The Extent of Government Control Over the Allocation of Resources and Over
   the Price and Output Decisions of Enterprises
 * Such Other Factors as the Administering Authority Considers Appropriate
   (here, rule of law and corruption)

Commerce said its determination to maintain Vietnam’s status as an NME country
"is the result of a collective analysis of all statutory factors, and not any
singular issue or statutory factor."

It's interesting to read this analysis, but it leaves me wondering about the way
forward on the big picture related to the structure of Vietnam's economy.

The Commerce Department seems happy with the reforms Vietnam has undertaken so
far, but disappointed that it has not gone further. So what might cause Vietnam
to adopt further reforms? Will this updated NME classification for AD purposes
induce Vietnam to make additional reforms and become more market-oriented? Or is
the NME classification simply designed as a defensive mechanism while Vietnam
remains an NME, without any sense that it will lead to additional reforms?

If the NME classification will not push Vietnam in a market-oriented direction,
what might do so? One option is to make use of the commitments Vietnam made in
its 2006 WTO Accession Protocol and Working Party Report. For example, on the
issue of the price and output decisions of state-owned enterprises (see factor 5
above), the Working Party Report states:

> 78. The representative of Viet Nam confirmed that Viet Nam would ensure that
> all enterprises that were State-owned or State-controlled, including equitized
> enterprises in which the State had control, and enterprises with special or
> exclusive privileges, would make purchases, not for governmental use, and
> sales in international trade, based solely on commercial considerations, e.g.,
> price, quality, marketability, and availability, and that the enterprises of
> other WTO Members would have an adequate opportunity in accordance with
> customary business practice to compete for participation in sales to and
> purchases from these enterprises on non-discriminatory terms and conditions.
> In addition, the Government of Viet Nam would not influence, directly or
> indirectly, commercial decisions on the part of enterprises that are
> State-owned, State-controlled, or that have special and exclusive privileges,
> including decisions on the quantity, value or country of origin of any goods
> purchased or sold, except in a manner consistent with the WTO Agreement and
> the rights accorded to non-governmental enterprise owners or shareholders. The
> Working Party took note of these commitments.

(Not all explanations and statements in the Working Party Report are
incorporated into the Accession Protocol as binding commitments, but paragraph
527 of the Working Party Report notes that paragraph 78 is, and para. 2 of the
Protocol states: "This Protocol, which shall include the commitments referred to
in paragraph 527 of the Working Party Report, shall be an integral part of the
WTO Agreement.")

The commitments in paragraph 78 are a good start, but from what I could see,
many of the other factors relied on by Commerce are not mentioned in the Working
Party Report/Accession Protocol. That suggests additional rules may be needed.
Given the difficulty of negotiating rules at the WTO, one way to approach this
is with a bilateral or regional trade agreement through which Vietnam agrees to
make structural changes to its economy in exchange for concessions or
commitments of some sort from the U.S.

How the U.S. government approaches this issue going forward depends on its
goals. Is it a priority to push trading partners with high levels of state
involvement in the economy in a more market-oriented direction? On balance, this
would be good for both them and us, but there has been a reluctance to pursue
this objective recently. U.S. government officials express concern about foreign
non-market practices in various ways, but few concrete actions are taken. It
often feels like restrictions on trade are the U.S. priority these days, and
that may mean no action is taken on Vietnam beyond the Commerce Department NME
determination.

(And yes, to state the obvious, the logic above does apply to China as well,
although the geopolitical considerations are different of course. I will have
more to say on this at some point.)

Posted by Simon Lester on August 15, 2024 at 07:19 AM in Non-Market Economies |
Permalink | Comments (1)


WHAT DO AMERICANS THINK ABOUT TRADE POLICY?

Scott Lincicome and some Cato Institute polling experts have worked with YouGov
to put together what I think is the definitive work on Americans' views of trade
policy. For me, two of the most important findings are: (1) American voters
think of trade as much less important than other policy issues; and (2) they are
mildly pro-trade, but their views on trade policy are complex and a bit hard to
pin down.

Let's go through a couple of the questions/responses. First up is the importance
(or lack thereof) of trade:



Maybe the role of swing states makes trade slightly more important in
presidential elections, as Pennsylvania, Michigan, and Wisconsin are states
where competition with foreign manufacturing matters more than average. But
overall, trade is clearly not a top issue for voters.

Nest up is a question about "free trade," which people seem to like:



Of course, there are endless debates on what exactly is meant by "free trade,"
but it would be difficult to get that much nuance into these questions, and what
we have is a clear majority that sees free trade favorably.

Turning to a question about tariffs, even though people are strongly pro-free
trade, they are somewhat pro-tariff as well, which is hard to make sense of:



The breakdown by particular demographic category is also interesting on these
last two questions. Democrats, Republicans, and Independents were all favorable
towards free trade, with Democrats slightly more in favor; and Democrats,
Republicans, and Independents were all favorable towards tariffs, with
Republicans slightly more in favor.

With actual trade experts involved in crafting the questions, they could get a
bit more sophisticated with the questions than is usually the case with polling.
Here's an example related to tariffs, where the question offers information on
the costs of tariffs and distinguishes between fair/unfair trade:



For those who are in to these issues, it's worth taking a look at the full
survey as well as the crosstabs. 

Posted by Simon Lester on August 08, 2024 at 06:55 AM in Public Views of Trade |
Permalink | Comments (1)


TIM WALZ ON THE FOREIGN POLICY / TRADE POLICY RELATIONSHIP

After Kamala Harris announced Tim Walz as her running mate yesterday, there has
been a lot of discussion of Walz's policy views. Vice-Presidents don't typically
take the lead on trade policy, but nonetheless I thought it was worth mentioning
something Walz said in a speech back in 2007 on the interaction of foreign
policy and trade policy (starts at 12:50):

> So this focus on the global war on terror has distracted and is teaching the
> next generation of leaders that that is all that matters, that is how foreign
> policy is carried out. And I say this because I think there's some glaring
> examples where we're missing opportunities, and I'd like to share a couple of
> those. One thing is, this administration has been very aggressive, very
> outgoing, and I think there's a positive side to this, and it's a realization
> that the world is very globalized. And they've gone out with a lot of trade
> agreements, reaching out. Well, I think there's one that shows something very
> interesting that's a lack of this. And this should be a very close ally of
> ours and a very close trading partner, but unfortunately, they're not, and
> that is New Zealand. New Zealand has failed to be included in some of these
> trade agreements. Whether it's Australia, we're getting ready for the
> Caribbean Basin, we just signed one on April 1 that'll come to Congress on
> South Korea. But New Zealand is missing from this. And I think when I look at
> this, there is really only one factor. There's a possibility, there's great
> markets there, there's great ability to trade, there's a common heritage.
> Everything seems to say New Zealand should be a much broader trading partner
> than they are. But many of you in this room know probably what the reason for
> that is. New Zealand has a very strong stance, and if you can remember back in
> the 90s, when they made the decision, they have refused to allow our nuclear
> submarines and our warships to dock there. So New Zealand doesn't play a role
> in this so called strategy theory or this security theory of our foreign
> policy. So New Zealand was kind of left out, and I think it's an interesting
> omission.

The role of foreign policy in setting trade policy priorities doesn't always get
the attention it deserves, and I appreciate Walz pointing out the link between
the Bush administration's foreign and trade policy tradeoffs. Walz seemed to
doubt the wisdom of excluding New Zealand from the Bush administration's FTA
efforts, and I think he was right to be skeptical.

On more general trade policy issues, Walz said this in 2015 after voting against
Congressional authorization of Trade Promotion Authority:

> I’m for trade as long as it’s fair trade, but we can’t ensure that is the case
> if we fast-track this agreement and keep Congress—and constituents—in the
> dark. Trade can be a powerful tool for good, but as we’ve seen in the past
> with agreements like NAFTA, sometimes these agreements work against the
> American worker. We need a trade deal that’s fair, that restricts currency
> manipulation, promotes ‘Made in America’ manufacturing, and opens foreign
> markets for our agricultural products. Unfortunately, TPA—and by extension
> TAA—by its very nature, makes it so Congress cannot ensure that is the case,
> which is why I voted against these measures today.

This particular variety of trade skepticism is fairly typical among
Congressional Democrats. However, the position of Democrats in the Executive
branch tends to be different from those in Congress, because they represent all
Americans rather than just their constituents, and also international relations
plays a bigger role for them. As a result, someone's views as a member of
Congress may not carry over directly to their views as President or
Vice-President. It may be unlikely that Walz as VP would play much of a role in
trade policy, but nonetheless it will be interesting to see if there is any
shift in his views if the Harris/Walz ticket is elected.

Posted by Simon Lester on August 07, 2024 at 09:14 AM in 2024 Presidential
Campaign | Permalink | Comments (0)


IS THE U.S. GOING TO PROPOSE SECURITY EXCEPTION REFORMS?

During a DSB meeting in January 2023, the U.S. indicated that it would be
seeking an "authoritative interpretation" of the GATT security exception:

> The United States believes that Members need to deepen their collective
> understanding of this issue that is so critical to all of us. We intend to
> raise this fundamental issue as part of our discussions on reform of the WTO
> dispute settlement system. Ultimately, we believe Members need to clarify and
> adopt a shared understanding of the essential security exception, and we
> therefore intend to seek an authoritative interpretation of Article XXI of the
> GATT 1994, pursuant to Article XI of the WTO Agreement.

In April 2023, I tried to press Ambassador Tai about when we would see a formal
proposal, but didn't get anything definitive (although she did make a good
joke!).

Now it appears that the security exception is one of the holdups to U.S. support
for the Agreement on E-Commerce that WTO Members are working on. This is from
the U.S. statement on the E-Commerce Agreement text that was released on July
26:

> as the United States has repeatedly communicated to the co-conveners and
> participants, the current text falls short and more work is needed, including
> with respect to the essential security exception.

The security exception in that text states: "For the purposes of this Agreement,
Article XXI of the GATT 1994 and Article XIV bis of the GATS shall apply,
mutatis mutandis."

So my question is, with security exceptions getting in the way of progress, are
we going to see anything from the U.S. on what its authoritative interpretation
of Article XXI (and related exceptions) would look like? Is there one floating
around in Geneva that hasn't been leaked yet?

To me, this seems like an area where more U.S. engagement would be helpful.
Everyone understands that the U.S. objects to recent WTO panel interpretations
of GATT Article XXI, and of course everyone also has a general sense of the
interpretation preferred by the U.S. based on its arguments in various WTO
disputes and statements at DSB meetings. But it would still be useful to see the
precise wording of how the U.S. would want to see Article XXI (and the other WTO
security exceptions) interpreted, if it has something in mind here (as it
suggested it did). Some specific and clear positions could help everyone
evaluate the possibilities for moving the discussion forward on this and related
issues.

At this point, I'm not sure what the chances are for achieving a breakthrough on
the broader issues in WTO dispute settlement reform. However, it is worth noting
that in the context of security exceptions in particular, in the USMCA and
various FTAs the U.S. and other governments did agree to what is arguably a
broader security exception. But those situations were different in a number of
important ways, including fewer countries being involved.

Posted by Simon Lester on August 04, 2024 at 08:24 AM in National Security |
Permalink | Comments (1)

Next »


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