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Simon Lester
Florida
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Welcome to the blog, Anthea, and great first post! One of my favorite economists these days is Caroline Freund, and she made some good points about the elephant graph here: https://piie.com/blogs/realtime-economic-issues-watch/deconstructing-branko-milanovics-elephant-chart-does-it-show. This is an excerpt: "Taken together, many have interpreted the figure as showing globalization helps poor countries to grow at the expense of the lower and middle classes of rich countries, as Krugman did in his lecture. A problem with this interpretation is that there are numerous alternative explanations for the shape. A lot of things happened between 1988 and 2008: For example, the fall of the Soviet Union and the economic stagnation of Japan, driven by its rapidly aging population, caused income in those countries to decline or stagnate, irrespective of globalization. While integration was partly responsible for China’s rise, the shift from a state-run economy to private sector growth mattered enormously. An increase in automated production changed the landscape for manufacturing around the world, with fewer workers needed. Worldwide demand also shifted towards new goods, such as computers and software and improved products like flat screen TVs—companies that failed to see these trends were shuttered, replaced by firms producing the new goods. There were also dramatic policy shifts in some advanced countries, particularly the tax cuts and deregulation carried out by President Ronald Reagan in the United States and British Prime Minister Margaret Thatcher. It is also hard to imagine that international trade could be the primary cause for such a large drop because trade is not a zero-sum game. Countries import goods that are relatively more expensive to produce, so greater imports raise living standards because prices fall. Countries export goods that they are more efficient at producing, so greater exports enhance productivity, which further raises incomes. While it is true that people employed in import competing sectors lose from globalization, economic research suggests that the vast majority of the work force in gains from increased trade. So before lurching to conclusions, it is important to fully deconstruct the animal depicted by the graphic. One important quirk: The image does not show how the 80th percentile from 1988 fared over time. Rather, it compares the 80th percentile in 1988 to the 80th percentile in 2008. So, zero growth doesn’t imply that the incomes of the 80th percentile did not grow. Rather it shows that the 80th percentile in 1988 has roughly the same income as the 80th percentile in 2008. But these two groups may be composed of different populations. For example, the percentile could include primarily US households in one period and Japanese in the next, because both countries underwent changes in the composition of income distribution and population growth." Here's a thought I had on all this. I understand a key point of the elephant graph to be that certain working class people in developed countries have fared badly in recent years. Assuming that is true, I wonder how this same group did in earlier eras. Is it possible that in the post-WWII period, this same group of people did particularly well (in large part due to various societal and governmental factors and constraints), and what we are seeing now is everyone else catching up to their earlier progress?
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Thanks, Markus. A related and important point is the scope of the obligations themselves. With FET, there is almost always a credible claim someone can make. That's how PM v. Uruguay came so close to a complainant winning. I do understand why, for public relations reasons, governments take the approach they do with regard to tobacco. But if they want to solve the broader problem, they should, in my view, think more deeply about the scope of the general obligations and exceptions.
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They may be sued for such measures, but it's hard to imagine the complainant winning.
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Thanks, Cherie, that's very helpful. It's not clear to me what Ross meant here, and perhaps when USTR folks weigh in during internal discussions, any confusion about how the U.S. approaches this will be cleared up.
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For a Chapter 11 (or other ISDS) claim, you don't need to show that the host government gave the foreign government or company assurance of approval. I would say the chances of success on this claim were closer to 50/50.
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I saw that. I wasn't quite sure what to make of it.
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I'm all for multilateralism, but in the current political climate in the U.S., where bilateralism seems to be the preferred approach, I thought a U.S.-China bilateral might have a better chance.
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Thanks for the comment, Jim! The phrase "aims and effects" is fraught with controversy, and I agree that we are unlikely to see it used by the AB. On the other hand, the Article III:2, second sentence jurisprudence seems to be well liked, and it works even though Article XX exists. I guess what I have in mind is that something similar to the kind of analysis being done under Article III:2, second sentence could also be done under Article III:4, without doing damage to Article XX. Obviously, the language of Article III:4 and Article III:2, second sentence are not the same, but I see enough flexibility in the Article III:4 language to look at policy purpose to some extent. The "design, structure, architecture" formulation works well, in my view, and allows some consideration of these issues.
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Federico, Thanks for your thoughts about strategy on this! I'm really not sure what will work best. People in the EU seem determined to keep FET in, but were willing in CETA to include exceptions for at least some provisions. I thought maybe I could convince them to expand the exceptions to additional obligations, as other agreements have done. My opinion of the CETA "right to regulate" is that it is unlikely to have much impact. But we will see. On GATT Article III, I think the interpretation you refer to was a mistake that will be corrected some day. Looking at public policies works fine under Article III:2, second sentence, and I'm not sure why anyone thinks it would not work in other Article III provisions.
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I was just trying to bring a little levity to these trying times. ;)
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Ross said: "THE PROBLEM WITH REGIONAL TRADE AGREEMENTS IS YOU GET PICKED APART BY THE FIRST COUNTRY. THEN YOU NEGOTIATE WITH THE SECOND YOU GET PICKED APART. AND YOU GO WITH THE THIRD ONE. YOU GET PICKED APART AGAIN." http://www.cnbc.com/2016/11/30/cnbc-transcript-steven-mnuchin-and-wilbur-ross-speak-with-cnbcs-squawk-box-today.html Doesn't seem consistent with the reality of trade negotiations as I understand them, but the Trump folks are all buying into it. It would be great to hear from some people with trade negotiating experience, to see what they say about this.
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Mark, Thanks, this is very interesting! Simon
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Brett, Maybe. But I think the broader context of 15(a) muddies the waters a bit.
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I will be very interested to see what the parties, and also the Appellate Body, say about that Appellate Body statement in Fasteners.
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I'm curious about your position on BITs/ISDS as a general matter, beyond tobacco. Do you think BITs/ISDS serve a useful purpose, or should we get rid of them?
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Just to add to my earlier comment, in this case the alleged harm has been done to the German subsidiary, so I don't see why it is a problem that the subsidiary has to bring the lawsuit.
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I've heard something along these lines before, but I'm not sure why having to sue in German court through a subsidiary is considered an impediment to filing a lawsuit in German court.
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Oh, sure, there's no question the subsidy is a measure. I'm just wondering specifically about the phone call in which he tried to convince them to stay.
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But keep in mind, Trump is not the President yet. Does that change the analysis?
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The U.S. would be able to bring enforceable complaints against Mexico's labor practices under TPP, whereas it could not do so under NAFTA. I don't know what the best word to describe that change is, but "renegotiation" seems pretty close. At the least, it renegotiates the trade rules that apply as between the U.S. and Mexico.
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I'm a skeptic about much USTR marketing, but this one I can buy. Under NAFTA, there are no enforceable labor/environment protections with Canada and Mexico. Under TPP, there are. Hence, a renegotiation.
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If the issue is what is fair and equitable to the investor, as opposed to what is fair and equitable to the home state government, why does it matter if the home state agreed to it?
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I prefer exceptions, but I suppose an exemption could work as well. I'm not convinced this distinction has much impact on the result. An exception might take a little longer, but it would get us to the same place. The more important issue is the particular language used (e.g., "necessary" or "related to.") To the extent there is regulatory chill, a well-written general exception is the most balanced approach. By contrast, with the exemption used here, it seems like they are saying that tobacco control measures can be used to favor domestic tobacco companies over foreign ones, which is a strange approach. As for regulatory chill and industries abusing a privilege, I don't think it's correct to say the tobacco industry is acting differently than any other industry (I don't have the figures, but I doubt they are in the top 10 of industries using ISDS), and I don't see anyone abusing anything. When companies feel their rights are being violated, they threaten to bring cases, and sometimes actually bring cases. That's how the system is designed to work. Now, as I've said, I don't think the international investment system makes a lot of sense, and I think we should get rid of it. But as long as we have the system, I don't see why we get mad at particular companies who use it.
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Christian, But isn't it likely the Canadian company would set up a German subsidiary (or operate through some similar arrangement), and this subsidiary would be a domestic juridical person?
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Australia and NZ have already established a precedent in the TPP for excluding ISDS: http://worldtradelaw.typepad.com/ielpblog/2015/11/no-isds-as-between-australia-and-new-zealand.html
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