Category Archives: WTO

How PTAs may segment regulatory systems

Back in April, I wrote:

One such danger is that FTAs might be a means for the US or EU to try to lock in first-mover advantages in shaping regulatory standards (such as technical barriers to trade). While preferential tariffs can be undone relatively easy by further tariff cuts, plurilateral agreements that promulgate the adoption of a larger economy’s preferred technical standard might serve to determine which standard is later adopted multilaterally. A first mover might gain at the expense of others if its preferred standard is worse for world welfare.

A new WTO report tackles this very issue:

Director-General Pascal Lamy, in launching the World Trade Report 2011 on 20 July 2011, warned that preferential trade agreements (PTAs) “may lock in their members to a particular regulatory regime reducing the potential for trade to prosper with countries outside the arrangement”. “The new challenge posed by deep PTAs to the multilateral trading system is one of market segmentation because regulatory systems, which can become divergent, have now more importance on trade flows than tariffs,” he added…

In fact PTAs of today are less about tariff preferences and more about regulatory measures that were once considered the domain of national rather than international economic policy.  This change is occurring partly because of changes in the way production is being organized internationally with the rise of global production networks.  To prosper, these production networks require an enabling regulatory environment that provides stronger investor protection, better infrastructural services, freedom of movement of corporate personnel, protection to intellectual property rights, and facilitation of trade.   The demand for governance in these policy areas is being met by the supply of deep PTAs…

Another idea would be that we should not ignore the potential difficulties that deep PTAs can give rise to on the regulatory side.  One can observe in the sprawl of agreements what can only be called “families” of PTAs, with each family adopting a particular approach to important policy areas such as technical barriers to trade or competition policy.  The peril here is that PTAs may lock-in their members to a particular regulatory regime reducing the potential for trade to prosper with countries outside the arrangement.

In a nutshell, the new challenge posed by deep PTAs to the multilateral trading system is one of market segmentation because regulatory systems, which can become divergent, have now more importance on trade flows than tariffs. This is not a statement about the legitimacy of these regulatory systems. It is a factual assessment of their impact on economies of scale, which is what the WTO should care about.

The report, titled “The WTO and preferential trade agreements: From co-existence to coherence”, is available online.

Revenue-neutral tariff cuts are tricky business

Sallie James:

[B]ecause implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.

Scott Lincicome:

But “customs fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation…

[A]ssuming that the agreement would raise US customs users fees (or implement new ones) in order to generate revenue for the federal government, it would probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

PTAs as first-mover advantages

Brookings’ Joshua Meltzer takes an extended look at the future of the global trading system (html / pdf / event). The introduction is a good overview of the status quo’s challenges, though knowledgeable observers will find plenty of room for disagreement in assessing the shape and magnitude of various obstacles (e.g. the bicycle theory of trade negotiations, PTAs’ diversion of attention from multilateral talks).

The discussion of WTO legitimacy at the end of the piece is very interesting, though I won’t focus on it in this post. (More on that subject can be found in this Oxford book on trade ethics.)

In the middle of the article, Meltzer hints at an argument that has perhaps not received sufficient attention:

For the United States, the European Union, China, and Japan, bilateral and even regional FTAs maximize their ability to get their own way. Were these outcomes to become templates for future multilateral trade rounds, then a two-level game that leverages FTA outcomes into the WTO might undermine the WTO’s legitimacy.

One such danger is that FTAs might be a means for the US or EU to try to lock in first-mover advantages in shaping regulatory standards (such as technical barriers to trade). While preferential tariffs can be undone relatively easy by further tariff cuts, plurilateral agreements that promulgate the adoption of a larger economy’s preferred technical standard might serve to determine which standard is later adopted multilaterally. A first mover might gain at the expense of others if its preferred standard is worse for world welfare. (This scenario would be most damaging if technical standards are to be harmonized, but it also highlights the difficulties of harmonization. If mutual recognition is the future of reconciling technical barriers to trade, then the scope for first-mover advantages may be reduced.)

“Made in the world”

In line with my suggestion that labels simply say “made in a series of places”, the WTO has announced a “Made in the world” initiative. It aims “to support the exchange of projects, experiences and practical approaches in measuring and analysing trade in value added.” “Made in the world” should be a valuable initiative, at least until the arrival of interstellar trade.

"Made in the world"

In line with my suggestion that labels simply say “made in a series of places”, the WTO has announced a “Made in the world” initiative. It aims “to support the exchange of projects, experiences and practical approaches in measuring and analysing trade in value added.” “Made in the world” should be a valuable initiative, at least until the arrival of interstellar trade.

Do precedents matter in WTO dispute decisions?

WTO panel:

In our view, there is not a system of precedent within the WTO dispute settlement system and panels are not bound by Appellate Body reasoning. However, we agree with Korea that adopted reports create legitimate expectations among WTO Members and that “following the Appellate Body’s conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same”.

Russian WTO accession update

Russian recently struck a deal with the EU that makes the former’s accession to the WTO likely to occur in 2011. Russia is hoping to do so before July. Robert Amsterdam describes what may lie ahead:

The benefits of Russian entry, on one hand, are very positive. Moscow has agreed to phase out most of its export tariffs, including timber, which will certainly benefit the European community as a whole. Russia has also agreed to waive flyover royalties that it has imposed on international airlines for passing through Siberia en route to East Asia. Although this is a minor concession, it will still put an additional $400 million back in the hands of European carriers instead of the archaic Russian national airline Aeroflot.

On the other hand, Russia will eventually have to face other WTO members’ geopolitical concerns before accession. First off, Georgia will demand Russian withdrawal and cessation of support for breakaway provinces South Ossetia and Abkhazia. The 2008 War and Russia’s ongoing occupation of the territories in question will inevitably be a major topic of debate.

Another concern, in addition to Russia’s forceful reassertion over its traditional sphere of influence in Eastern Europe and Central Asia, is Russia’s ability or willingness to counter corruption in its government and business community. If China’s integration into the WTO since 2001 has been of any guidance, Russia’s entry should build anti-corruption measures and promote the international system’s benefits and openness to the Russian people. WTO membership is surely opposed by the more nefarious economic powers within Russia – admission to the organization will lead to more oversight and honest competition for services and products.

Here’s a 2006 post mentioning “Russia’s long-sought entry into the World Trade Organization”. Could we see both the Doha round and Russia’s membership finally conclude in 2011?

[HT: LWS]

Google wants to influence trade negotiations

USTR Ron Kirk visited Google last week for a round table on “Supporting Silicon Valley in the Global Economy.” One of the big headlines coming out of event is an argument, pushed by Google, that online censorship is a trade barrier.

The analogy/conflation between web openness and trade openness seems increasingly prevalent. The Economist devoted a cover story to the internet’s openness earlier this month and said that “the internet is as much a trade pact as an invention… Just as a free-trade agreement between countries increases the size of the market and boosts gains from trade, so the internet led to greater gains from the exchange of data and allowed innovation to flourish.”

While at some level the analogy is appropriate because there are common lessons, such as the fact that specialization is limited by the size of the market, I doubt that it’s as valuable when discussing the nuts and bolts of such (informational or economic) exchanges or the policies that should be adopted. But Google is pushing it hard:

Chief Legal Officer David Drummond… said Google is seeing an “alarming increase” in governments around the world censoring the Web, and he called on the U.S. government to treat the issue much as it would if a foreign nation was blocking the trade of physical goods.

“If this was happening with physical trade, we’d all be saying this violates trade agreements,” he said…

Drummond said barriers take several forms, such as blocking access to Google’s YouTube video service or by imposing licensing requirements that stipulate the company must install servers within a country in order to create a “local presence”–a definition that subjects content on those servers to local laws.

This argument, as presented by the WSJ, isn’t consistent with WTO law. Trade barriers discriminate between domestically produced goods and imports produced abroad. To quote myself:

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

In short, “free trade” doesn’t mean “everything goes” and local laws can’t govern consumption. Free trade means non-discrimination with respect to producers’ origins.

The more plausible line of argument is that trade agreements can be used as leverage in negotiating non-trade issues:

“In our view at Google it’s high time for us to start really sinking our teeth into this one,” said Drummond.

“We have great opportunities now with pending trade agreements to start putting some pressure on countries to recognize that Internet freedom not only is a core value — that we should be holding them to account from a human rights standpoint — but also that if you want to be part of the community of free trade, you are going to have to find a way to allow the Internet to be open.”

But making trade negotiations contingent on pledges against government censorship doesn’t mean that Chinese-style internet censorship constitutes a trade barrier in the traditional WTO sense.

"Figuring Out the Doha Round"

Gary Hufbauer, Jeff Schott, and Woan Foong Wong launched a book titled Figuring Out the Doha Round yesterday. They argue that the US, EU, and China should accelerate and expand (“top up”) their Doha offers, particularly in services liberalization, because the current offers on the table are insufficient to garner support from the major players.

Here are their slides. The authors argue that the WTO’s credibility as a negotiating forum is important to the credibility of its dispute settlement mechanism, but the logic of that argument isn’t immediately clear to me.