Author Archives: jdingel

What does "for" mean? The US-European dispute over multi-function IT products

The United States and Europe are in a high-tech dispute. Their conflict lies in determining the difference between a LCD computer monitor and a flat screen television, and a WTO decision may wind up turning on the meaning of “for.”

But first, some background. The 1996 Information Technology Agreement (ITA), a plurilateral agreement adopted under the auspices of the WTO by the world’s major IT-producing nations, lowered those members’ MFN tariffs on information technology products to zero by 2000. Since 1996, another 42 WTO members have joined the original 29 signatories.

Yesterday, the United States, Japan, and Taiwan filed a request for a WTO dispute settlement panel to review the European Union’s compliance with the ITA. In the USTR’s words:

The EU in the past several years has adopted a series of measures that resulted in new duties on imports of specific high-tech products – cable boxes that can access the internet, flat panel computer monitors, and certain computer printers that can also scan, fax and/or copy… These products were included in the ITA… However, the EU claims it can now charge duties on these products simply because they incorporate technologies or features that did not exist when the ITA was concluded.

Of course, the European Commission sees it differently:

The EU, as required by WTO law, bases its customs classification exclusively on the objective characteristics of the products. Where changes in technology have given a product multiple functions – for example, a digital photo camera that also records large amounts of high-quality video – then these products in many cases are objectively different products falling outside of the original product categories covered by the ITA and are classified as such by the EU and others. The US claims this is a violation of the ITA. But both the spirit and explicit provisions in the ITA make it clear that extension to new products to reflect technological change would not be automatic, but based on periodic review by signatories…

Is it a LCD monitor or a flat screen TV? The ITA gives duty-free treatment to computer monitors, not to monitors for consumer electronics such as TV or DVD players. What the US claims are LCD computer monitors are in fact screens equipped with a Digital Visual Interface to allow use with consumer electronics such as DVD players. They are therefore properly classified as video monitors and not covered by the ITA. Incidentally, the classification of such products by US customs is similar to EU practice.

It’s a little unusual to see a WTO dispute about product classifications – usually conflicts revolve around how to calculate duties, the eligibility of safeguard mechanisms’ application, etc. Why can’t we just match a Harmonized System code from the text of the ITA to the EU tariff schedule and make sure the the latter number lies below the former?

First, the Information Technology Agreement was negotiated under the HS1996 product classification scheme. High-tech products have certainly evolved by leaps and bounds since then (should we just say an iPod is a CD player for tariff purposes?) and the HS2007 revisions were dedicated to information technology and communication products. Unfortunately, it is difficult to translate HS1996 tariff agreements into HS2007 tariff schedules:

The WCO Members agreed as a primary goal of the third HS review to conduct an overhaul of the provisions in the technology area in the HS2007 amendment…

In order to assess the impact of HS2007, and to serve as guidelines in transposing the schedules of concessions, the ITA participants asked the Secretariat to prepare a model list in HS2007 through a technical transposition which, like the methodology used for schedules of concessions, maintains the actual product coverage of the new list strictly identical to the original one. However, it goes without saying that several of the above-mentioned divergences in classification would not be solved through this technical exercise.

If ITA participants decide to strictly adhere to the original product coverage, the list in HS2007 cannot take advantage of the improved HS structure on IT products. In many cases, the new HS2007 subheading cannot be directly included in ITA lists because these subheadings normally combine previous “ITA” with some “non-ITA” subheadings. In order to exclude these non-ITA parts, many ex-outs and complicated descriptions need to be introduced by the Secretariat in the HS2007 model list, even though those non-ITA parts sometimes consist of only a minor part of the subheading and represent a very small amount of trade.

But more importantly, the Information Technology Agreement didn’t even use HS1996 codes in many cases!

[P]roducts were specified in two attachments of the Ministerial Declaration: Attachment A and Attachment B. Attachment A consists of two lists of categories of products legally defined by their HS1996 codes. Attachment B is a list of legal product descriptions without reference to their HS codes; restrictions on these products shall be liberalized “wherever they are classified”. Although these lists have provided a good guidance in terms of product coverage, there are still some ambiguities due to the lack of clear HS classifications…

[F]or the products listed in Attachment B and a number of items in Section 2 of Attachment A, consensus was reached only on the textual description of the products, but not on the corresponding HS codes. The ITA participants need to designate national codes based on their own interpretations and classifications.

A WTO committee that was supposed to add new products to the original coverage never reached any agreements.

Flat panel displays fall into Attachment B, which also specifically excludes TVs:

Flat panel displays (including LCD, Electro Luminescence, Plasma and other technologies) for products falling within this agreement, and parts thereof… The agreement does not, therefore, cover televisions, including high definition televisions.

So the LCD monitor needs to be for an automatic data processing machine, as computers are known under the ITA. And the European Commission’s description of the US tariff schedule seems to be right. LCD computer monitors entering the US under tariff line 8528.61 are duty-free, as they are projectors “of a kind solely or principally used in an automatic data processing system of heading 8471.” But tariff line 8528.69.50, for “other projectors, color, with a flat panel screen, display diagonal exceeding 34.29cm” applies a tariff of 5%. Flat panel televisions (8528.72.72) also face a 5% duty.

How will the WTO dispute panel evaluate the difference between a LCD monitor and a flat panel TV? Will the panel have to think hard about the meaning of “for”? I leave any further analysis to the good folks at the International Economic Law and Policy Blog, who may actually be qualified to predict where this case is going.

It seems unavoidable that product innovations will outpace their regulatory classification, especially in trade agreements that must be negotiated between governments. Are trade conflicts resulting from that lag equally unavoidable?

Costas Arkolakis: Big icebergs melt slower

In a short two-page note, Yale’s Costas Arkolakis shows that you can introduce non-standard transport costs into the Dixit-Stiglitz monopolistic competition set-up and get clean results. You might call the transport costs “variable icebergs”:

t(q) = Τqa

where a < 0 so that the unit cost of shipping the good is decreasing with the size of the shipment.

Arkolakis shows that consumers’ demands and firms’ mark-ups come out cleanly in the usual CES fashion, so that this formulation is tractable and isomorphic with the usual iceberg approach in some respects. In the Melitz (2003) formulation, you preserve Pareto distributed outcomes, they just have a different coefficient.

Why high oil prices will dampen international trade

Contra Paul Krugman, who says that “higher fuel prices are putting the brakes on globalization,” David Jacks, Christopher Meissner, and Dennis Novy argue in their Vox column on trade costs that oil prices won’t have much impact:

In their survey of trade costs, Anderson and van Wincoop (2004) find that the tariff equivalent of international trade costs is about 74%. Transport costs only make up a third of these trade costs. The rest consists of border-related costs such as informational barriers, tariffs and red tape. Even if oil prices directly feed through to transport costs, the impact on overall trade costs is limited.

Here are Anderson and van Wincoop:

We combine 9-percent time costs and 10.7 percent U.S. average direct transport costs for our representative full transport cost of 21 percent (1.107∗1.09-1).

Both costs are relevant, as higher oil prices have caused container ships to cut their top speed by 20% to save fuel. The 10.7% figure for direct transport costs comes from a paper by David Hummels, in which he estimates an all-commodities trade-weighted average transport cost for freight shipping. The US average is 10.7%.

But Hummels’ estimates are the product of a cross-sectional data set for 1994. Back in those days, oil was about $15 per barrel. There is no reason to believe that freight costs will remain confined to an approximately 10% share when the price of oil increases tenfold!

Jeff Rubin, author of a widely cited CIBC study, says that “the cost of shipping a standard, 40-foot container from Asia to the East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel.”

Jacks, Meissner, and Novy may be right that demand for shipping will induce productivity-enhancing technological innovations, but I thought that was the story of The Box. In the short run, at least, high oil prices mean that international trade will shrink – the world is bigger and spikier.

Turning nativism into a case for poverty

Daniel Griswold spots some anti-humanitarian arguments from an anti-immigration group:

[T]he Center for Immigration Studies released a report this morning with the headline, “Immigration to U.S. Increases Global Greenhouse-Gas Emissions.” The report argues that immigration “significantly increases world-wide CO2 emissions because it transfers population from lower-polluting parts of the world to the United States, which is a higher-polluting country.”

What the CIS study is really arguing is that rich people pollute more than poor people, so the world would be better off if more people remained poor.

I suspect the Center for Immigration Studies is more concerned about immigration than climate change, so they’d be happy if more people became rich, provided they stayed out of the United States. Concerns about pollution are just a cover. CIS: “Immigration helps people, so we’re against it.” Sheesh.

Banana independence!

Robert Higgs:

If we were talking about bananas, everybody would see immediately the foolishness of seeking “banana independence.” Nobody would fall for half-baked arguments about our addiction to foreign bananas or our love affair with banana bread. It’s obviously uneconomic to grow millions of bananas in this country; it could be done, but doing it would entail much greater costs than buying them from producers in places better suited to their production (that is, places where they can be produced at lower opportunity cost).

There might be some good reasons to be skeptical of free trade in oil, but I doubt those are what politicians have in mind when they urge us to “break our addiction to foreign oil.”

[HT: Arnold Kling]

Millennium Development Goals: Who’s in charge here?

The table in today’s Vox column by Helmut Reisen illustrates the lack of accountability in development assistance — when everyone is responsible, no one is.


Table 1 Unclear institutional assignment to the MDGs

Selected multilaterals working on the Millennium Development Goals
MDG / Thematic area Main multilaterals Other multilaterals with a role
MDG1: Eradicate extreme poverty and hunger UNDP, World Bank, AfDB, AsDB, IFAD, EC, FAO, WFP CGIAR, IADB
MDG 2: Achieve universal primary education World Bank, UNICEF, UNESCO UNFPA, UNRWA
MDG 3: Promote gender equality and empower women UNDP, World Bank, UNIFEM, UNICEF UNFPA
MDG 4: Reduce child mortality WHO, UNFPA, UNICEF World Bank, WFP, UNRWA
MDG 5: Improve maternal health WHO, UNFPA World Bank, WFP
MDG 6: Combat HIV/AIDS, malaria, and other diseases UNAIDS, World Bank, WHO, UNDP, UNFPA, UNICEF UNIFEM
MDG 7: Ensure environmental sustainability UN Habitat, World Bank, AsDB, UNDP CGIAR, UNIDO
MDG 8: Develop a global partnership for development World Bank, EU, UNDP, UNIDO, ILO, UNCTAD UNDP
Human rights OHCHR UNIFEM
Conflicts and humanitarian emergencies UNCHR, OCHA, ECHO, WFP, UNICEF, WHO UNDP

Source: OECD Development Centre, “Financing Development: Whose Ownership?”, Paris, 2008, Chapter 2.

Millennium Development Goals: Who's in charge here?

The table in today’s Vox column by Helmut Reisen illustrates the lack of accountability in development assistance — when everyone is responsible, no one is.


Table 1 Unclear institutional assignment to the MDGs

Selected multilaterals working on the Millennium Development Goals
MDG / Thematic area Main multilaterals Other multilaterals with a role
MDG1: Eradicate extreme poverty and hunger UNDP, World Bank, AfDB, AsDB, IFAD, EC, FAO, WFP CGIAR, IADB
MDG 2: Achieve universal primary education World Bank, UNICEF, UNESCO UNFPA, UNRWA
MDG 3: Promote gender equality and empower women UNDP, World Bank, UNIFEM, UNICEF UNFPA
MDG 4: Reduce child mortality WHO, UNFPA, UNICEF World Bank, WFP, UNRWA
MDG 5: Improve maternal health WHO, UNFPA World Bank, WFP
MDG 6: Combat HIV/AIDS, malaria, and other diseases UNAIDS, World Bank, WHO, UNDP, UNFPA, UNICEF UNIFEM
MDG 7: Ensure environmental sustainability UN Habitat, World Bank, AsDB, UNDP CGIAR, UNIDO
MDG 8: Develop a global partnership for development World Bank, EU, UNDP, UNIDO, ILO, UNCTAD UNDP
Human rights OHCHR UNIFEM
Conflicts and humanitarian emergencies UNCHR, OCHA, ECHO, WFP, UNICEF, WHO UNDP

Source: OECD Development Centre, “Financing Development: Whose Ownership?”, Paris, 2008, Chapter 2.