Category Archives: WTO

"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.

Nsour: Establish an agreement on PTAs

Mohammad Nsour, who was involved in McGill Law’s PTAs database that I’ve mentioned before, has published his doctoral thesis as Rethinking the World Trade Order: Towards a Better Legal Understanding of the Role of Regionalism in the Multilateral Trade Regime. The publisher’s summary:

Regional Trade Agreements (RTAs) have proliferated at an unprecedented pace since the creation of the World Trade Organization (WTO). Although the WTO legally recognizes countries’ entitlement to form RTAs, neither the WTO nor parties to RTAs have an unequivocal understanding of the relationship between the WTO and RTAs. In other words, the legal controversies, the result of uncertainty regarding the application of the WTO/GATT laws, risk undermining the objectives of the multilateral trade system. This research tackles a phenomenon that is widely believed to be heavily economic and political. It highlights the economic and political aspects of regionalism, but largely concentrates on the legal dimension of regionalism. The main argument of the book is that the first step to achieving harmony between multilateralism and regionalism is the identification of the legal uncertainties that regionalism produces when countries form RTAs without taking into account the substantive and procedural aspect of the applicable WTO/ GATT laws. The book calls for the creation of a legal instrument (i.e. agreement on RTAs) that combines all of the applicable laws on RTAs, and simultaneously clarifies the legal language used therein. Likewise, the WTO should have a proactive role, not merely as a coordinator of RTAs, but as a watchdog for the multilateral system that has the power to prosecute violating RTAs. The author is aware that political concerns are top priorities for governments and policy makers when dealing with regionalism. Hence, legal solutions or proposals are not sufficient to create a better international trade system without the good will of the WTO Members who are, in fact, the players who are striving to craft more regional trade arrangements.

Brazil, U.S. Agree to Avoid Tariffs in Cotton Dispute

Bloomberg:

The Obama administration offered $147.3 million in assistance to Brazilian cotton producers and suspended an export-credit program for American farmers, in a bid to end a trade dispute with the Latin American nation.
The government will also seek to ease sanitary barriers to Brazilian imports of pork and beef, U.S. Trade Representative Ron Kirk said in a statement today on the preliminary deal. The U.S., which lost a World Trade Organization ruling in August that said its cotton subsidies violate global trade rules, will work with Brazil to reach a comprehensive agreement by June.
“We now have a clear path forward, one that is in the best interest of both the United States and Brazil,” Kirk said. “As a result of our discussions with Brazil we have avoided imposition of higher tariffs.”
The U.S. for now dodges as much as $830 million in trade sanctions on 102 goods including ketchup, cars and boats that Brazil targeted. In addition to financial assistance for Brazilian farmers, the U.S. halted the GSM-102 program that guarantees the credit foreign customers use to by American cotton, and said it will be restarted with higher fees.
Any other changes to U.S. cotton programs are pushed back until at least 2012, when the U.S. Congress will have to revisit the broader issue of farm subsidies before existing legislation governing the nation’s agriculture policies expires.

Censorship as a trade barrier

Gilbert Kaplan says that if Chinese censorship forces out US content companies like Google, the US should retaliate by erecting trade barriers to Chinese computer hardware exports. Nate Anderson at Ars Technica reports:

Dealing with censorship as a trade violation isn’t a new idea. Computer industry lobbying group CCIA was talking up trade complaints as a way to handle Chinese censorship back in January. CEO Ed Black said at the time, “It is increasingly apparent that censorship is a barrier to trade, and that China cannot limit the free flow of information and still comply with its international trade obligations. The Chinese government has said it is gathering more information before deciding how to proceed and we would urge that they look at the issue holistically with government, economic and trade officials involved in the decision.”

Of course, lobbyists aren’t the best source to describe trade law. I’d prefer to consult the folks at IELP, for example.

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.

If China censors both domestic and foreign internet sites, then it is unlikely that its WTO commitments oblige it to liberalize both. Thus, the line of thinking from folks like Dan Drezner and Simon Lester (1, 2) is that WTO law isn’t much of a tool to wield against Chinese censorship.

WTO essay contest

The 2010 WTO essay contest for young economists, with a prize of 5000 CHF (~$4640), is now open. Submissions are due June 15 and will be judged by Jagdish Bhagwati, Robert Staiger, Alberto Trejos, Patrick Low, and Hakim Ben Hammouda. Ralph Ossa was last year’s winner.

Krzysztof Pelc: “Why Do We Not See More Efficient Breach at the WTO?”

Krzysztof Pelc:

While models of “optimal compensation” grow in sophistication, the institutions concerned are evolving progressively further away from the recommendations of efficient breach advocates. Indeed, voluntary export restraints were forcefully banned during the Uruguay Round, and there is no sign of their being brought back into use; the WTO Agreement on Safeguards has drastically reduced the possibility of compensation, by explicitly ruling it out in the first three years of any safeguard measure; retaliation, far from becoming an automatic response to continued violations, is exercised in about one percent of all WTO disputes; monetary compensation has been offered only once in WTO history…

If efficient breach at the WTO would make all parties better off, then why do we see so little of it?…

The argument presented in this paper brings back the question of the purpose of the WTO as an institution. Focusing on domestic politics, I demonstrate how the possibility of efficient breach defies the purpose for which countries join the institution in the first place…

while individual instances of efficient breach would indeed make trading partners better off, its sheer possibility empowers domestic interest groups, by raising payoffs from lobbying for protection, and thus acts to slow down trade liberalization. It is little wonder that the countries that would seem to benefit most from the possibility of efficient breach have consistently opposed it. Over and above its normative implications, and the net transaction costs it may generate, efficient breach goes against the very purpose of international trade agreements.

Hat tip to IELP.

What is China’s trade governance failure?

Susan Aaronson accuses China of poor governance to the degree that its behavior is a threat to the global trading system. I do not understand her argument, so I will quote her at length before I complain that she hasn’t explained her case:

But China’s competitive advantage is to some degree based on its inadequate governance; its failure to enforce its own laws in a transparent, even-handed manner. As part of its accession to the WTO, however, China was required to enforce the rule of law throughout all of its territories…
Inadequate Chinese governance is a trade problem because of the country’s dominance in global markets. Its failure to enforce the rule of law threatens the concept of mutual benefit that underpins the trade regime. China is broken, and a broken China could break the WTO…
it has yet to meet many of the obligations delineated in its protocol of accession. European and American business groups investing in China believe that the country is becoming more interventionist and protectionist (European Business in China 2009 and US China Business Council 2009)…
The rule of law was a key element of China’s accession agreement because trade policymakers understood that how China was governed could distort trade.
In recent years, China has become infamous for its failure to enforce its own laws, whether those laws related to intellectual property, product or food safety, human rights, or employment.
In both its 2006 and 2008 Trade Policy Review at the WTO, member states lauded Chinese trade diplomats for their export prowess but also complained that China was not transparent, accountable, or sufficiently even-handed (WTO 2006, 2008). Nor could they trust Chinese statistics or assertions on enforcement related to key trade issues such as product and food safety or intellectual property protection. Meanwhile, Chinese leaders argued that they are a developing country and thus deserve patience as they learn to govern effectively.
What can the WTO do?
WTO members have the ability to encourage China to address its inadequate governance. They could begin by using the trade policy process more effectively to discuss the rule of law and how it distorts trade. And they could threaten a trade dispute on some aspect of inadequate governance. Under GATT Article XXIII, any country in the WTO is entitled to a “right of redress” for changes in domestic policy that systematically erode market access commitments even if no explicit GATT rule has been violated.

I am familiar with complaints that weak intellectual property enforcement hurts sales of American and European IP products in China. But how does that undermine the world trading system? And while Mattel had to recall toys tainted with lead paint, is there a systematic problem with product safety for Chinese exports? No one is suggesting that Japan’s rule of law is inadequate after a few safety problems with one of its most notable exporters. I understand complaints about China’s rule of law, but how could China “break the WTO”?

WTO disputes in 2010

The first WTO dispute of 2010 is, according to Simon Lester, a “classic de facto discrimination case.” The US complaint against the Philippines:

Distilled spirits produced from certain materials that are typically produced in the Philippines are taxed at a low rate. Other distilled spirits are taxed at significantly higher rates. The Philippines’ taxes on distilled spirits appear not to tax similarly imported distilled spirits compared to directly competitive or substitutable domestic distilled spirits. The taxes appear to be applied in a way that affords protection to the domestic products.

The Doha stall will likely last into 2011, so, as has been the case for a couple years, the WTO’s importance to the global trading system in 2010 will be its role in global trade governance and dispute resolution.

US continues to lose cotton cases

The World Trade Organisation gave Brazil the green light on Monday to impose $295m (€206m, £181m) of sanctions on US goods over Washington’s failure to scrap illegal subsidies to its cotton farmers.
However, the trade retaliation granted by a WTO arbitrator was barely a tenth of the $2.7bn Brazil had asked for. Brazil will also not be able to carry out its threat to break US drug patents or retaliate in services unless subsidies rise substantially from 2006 levels.

FT:

The World Trade Organisation gave Brazil the green light on Monday to impose $295m (€206m, £181m) of sanctions on US goods over Washington’s failure to scrap illegal subsidies to its cotton farmers.

However, the trade retaliation granted by a WTO arbitrator was barely a tenth of the $2.7bn Brazil had asked for. Brazil will also not be able to carry out its threat to break US drug patents or retaliate in services unless subsidies rise substantially from 2006 levels.