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Simon Lester
Florida
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Which Chinese subsidies did you have in mind?
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Thank you! All in all, the report says a lot of very smart things, in my view. Simon
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Interesting, thanks. It's a strange issue to focus on, though, because I thought the ISDS changes adopted by the European Commission already have dealt with the secrecy problem.
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To clarify, I did not mean that a government could bring a WTO complaint alleging a violation of the TPP. Rather, I meant that when faced with most kinds of protectionism (e.g., discriminatory regulations, anti-dumping tariffs), the WTO is the most, and often the only, effective remedy. The TPP won't help much.
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Julia, It does feel like the AB's recent thinking in these two areas is coming from a similar place. I'm more concerned about the "benefit" ruling. Calculating the amount of subsidies is inevitably a bit messy. What worries me most is excluding overly broad categories of financial contributions from being considered subsidies in the first place.
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Joost, I'm wondering if there is a distinction between, on the one hand, moon minerals that are brought back to earth for further processing and storage before being export, and, on the other hand, moon minerals transported directly to an export destination. To illustrate the point, if an American company is doing some moon mining, brings the minerals back to the U.S., and only then exports them to Switzerland, WTO rules already apply. By contrast, if the American company transports the minerals directly from the moon to Switzerland (I haven't worked out how yet!), then perhaps you need some additional rules of the kind proposed to govern this trade. This is the first time I have ever considered this issue, so I reserve the right to amend my comments!
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Andrew, I think the main difference in our views is that I don't see "benefit" as a necessary part of finding the right balance. And, in fact, I would argue that if you do anything other than what I've suggested on benefit, you fundamentally undermine the balance that has been created. The balance all comes from specificity, export contingency, local content, and adverse effects. Financial contribution plus benefit just means there is a covered measure. If you exclude certain subsidy measures from coverage, you are completely undermining the subsidy disciplines. Now, you may want to completely undermine the subsidy disciplines. I think that's a different argument, but if that's what you have in mind, let me know, and we can debate that instead! Also, I agree that there are "a huge range of background governmental measures, including tax law, health and safety laws, consumer protection law, as well as more basic arrangements regarding the details of property rights regimes, corporate and insolvency laws etc." But to me, this has no impact on the benefit analysis. Regardless of the background, financial contributions that stimulate demand or supply will confer a benefit. To take an oversimplified example, keeping all of the background measures in mind, if private banks are lending at 5%, and the government lends at 3%, there's a benefit there. The background doesn't affect this. In practice, I don't think it's very difficult to determine whether measures stimulate demand and supply. It's sort of like a conditions of competition analysis. My 3% vs. 5% example may be particularly easy, but I don't think most others are much more difficult. The FIT case certainly doesn't seem very difficult to me. Of course, as you note, markets can be distorted. In fact, they often are. But I can't think of a case where that would make it all that difficult to determine whether a benefit is conferred by a particular financial contribution. As you can guess, I tend to think subsidies are generally market-distorting rather than market-correcting or market-creating. But that just doesn't enter into the question of whether a subsidy exists.
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Andrew, But in what sense are these hard cases? From my perspective, if you focus on whether demand or supply is stimulated, they are easy. Do you mean they are hard because they lead to difficult public policy dilemmas? How so? Do you mean that in these situations, the SCM Agreement rules make it hard to promote a clean environment? I don't see why that is the case. Just subsidize consumers instead. There is only a problem when you subsidize producers. On the second question, my view is that regardless of whether the subsidy is market-correcting or market-distorting, the SCM Agreement does a pretty good job identifying a narrow category of subsidies that are designed to favor domestic producers over foreign competitors. There is never a good reason for these, and it's fine for them to be disciplined under the SCM Agreement. There remains a wide range of subsidies that are still allowed if you want to fiddle around with the market in some way (however silly I think those efforts might be!).
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Marc, It's true that the FIT subsidy here did violate the substantive obligations. But it's not clear to me why anyone thinks it needed to be rescued. Local content requirements are prohibited for a good reason. Even with a GATT Article XX exception available (which I think there should be), the FIT subsidy would not have been saved. It's worth noting that subsidies to consumers to encourage the use of environmentally friendly goods would almost certainly not violate the SCM Agreement. It's where you favor specific producers that you get into trouble.
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Thanks for your engagement on this issue, Andrew. No doubt the Appellate Body appreciates your support! Let me just note two short points in response. First, I'm not sure why an approach to benefit that looks at whether the financial contribution stimulates supply or demand would not work. You mention "hard cases." I'd be curious to hear more about these cases. As far as I can tell, this approach works really well in all cases, but I'm happy to hear more about when it would not work. You suggest that the FIT case was a hard one. In what sense do you mean that? Second, I'm not sure I see any other approaches that do work. For the reasons I set out in my post, I don't think the market creation vs. existing market distinction works very well at all. Is there something else that would work instead? If not, what exactly are we supposed to do with benefit? The emphasis on "institutional conditions" seems problematic, because those exist just about everywhere. If correcting an existing market distortion offers an exemption, there may be no disciplines left! One last thing. We should keep in mind that subsidies are not per se illegal. Once we have defined something as a subsidy, we then test it out under the SCM Agreement's other obligations. If we want to exempt certain subsidies, we can do that. But saying that what just about everyone understands to be a subsidy is not a subsidy seems like a misguided approach.
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Thanks, Richard. To illustrate my point about enforceability, I will quote your note: "the scope of the investor-State dispute settlement (ISDS) in the BIT is very limited, applying only to disputes related to the amount of compensation payable in the event of an expropriation".
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I'm not aware that the China - Australia FTA will address this issue, at least not directly.
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Elizabeth, Thanks for raising this excellent point! I noticed the reference to the BIT, and wondered about it, but did not look it up. Here is that old BIT: http://investmentpolicyhub.unctad.org/Download/TreatyFile/148 I glanced through it, and wasn't sure just how enforceable it was. I thought I saw various conditions related to bringing ISDS claims before an international tribunal, but take a look yourself and see what you think.
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I'm not sure I follow. Could you clarify? Simon
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Kim, The standard is pretty loose for standing to bring a case. Without getting into the technical legal details, I think that even potential exports of products from Ukraine to Australia would be sufficient. Of course, in terms of showing any significant amount of nullification or impairment, Ukraine may have had a hard time given that it does not currently export the product to Australia (from what I've heard). Thus, any trade sanctions it could have imposed if it won the case might have been minimal. Simon
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Thanks! I felt like they took a more discussion-oriented approach to the issue. They laid out a bunch of relevant factors, but didn't really state a clear conclusion (although perhaps if I understood trademark law better, I would have seen what result they were pushing for).
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Thanks, Tania. That's exactly what I had in mind. Is there anything on the other side of the issue?
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Sandra, Thanks! I'm wondering how broad the taxation measures exemption is. At a certain point, does taxation become regulation? For example, a tax break for clean energy vehicles feels as much like regulation as taxation.
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Thanks. I'd want to see some support for an interpretation of "market" based only on actual completed transactions. Also, I wonder when exactly there is a "new product". That does not appear to be the situation in the feed-in tariff case.
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Excellent questions! I have no idea what the answers are. It would be interesting to hear how these SOEs operate in practice.
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But if the regulation is "designed to indirectly handicap more innovative foreign competitors," then it will be caught by the "applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination" language, so there's no problem.
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Thanks, Christian! Very interesting, I had not realized that.
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I don't know whether the U.S. government would bring a complaint against tobacco measures today, given the current political climate related to tobacco, but they brought several under the GATT. The claim would not be that we think Viet Nam is preventing harm to its people, but rather that it is encouraging its people to smoke Vietnamese cigarettes rather than U.S. cigarettes. In addition, DS227, DS302, DS371, DS406 and DS411 all involved other governments challenging discriminatory tobacco measures in WTO DS. One thing Greg, Sergio and I can probably all agree on is that if the TPP comes to fruition, whatever it does with tobacco will make for a great case study of the issue!
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Greg and Sergio say that the purpose of reducing tariffs is to promote competition, thus reducing prices and increasing product quality and variety. That is certainly one purpose, but I don't think it's the only purpose. Another purpose is to eliminate confrontational economic policies. When you favor domestic industries at the expense of their foreign competitors, you engage in economic hostility towards your trading partners. You try to take business away from "them" and bring it to your own people. That type of behavior often leads to economic retaliation, which can spiral out of control. And the fact that the product here is tobacco does not change anything. When a government uses tariffs to protect a domestic state-owned company from foreign competition, very few people will believe they are motivated by public health. If they were looking to increase cigarette prices, they would tax domestic cigarettes, too. Instead, it looks more like the policy is designed to enrich a government agency that profits from selling cigarettes, by taking business away from foreigners. In my view, we need to put the specific product aside when we talk about tariffs, because there is a larger issue here: Protectionism is always a bad idea. That doesn't change when tobacco is the product. Or asbestos. Or unhealthy food. The trade regime should allow regulation of these products, but it should not allow protectionism. I agree we should be focusing on empirics. The link I provided above is the most recent empirical study I'm aware of on this issue, and it questions the connection between tariff liberalization and lower cigarette prices. As noted, I can imagine that 20 years ago, lower tariffs would have meant lower cigarette prices. But today, with the atmosphere around tobacco, I would be surprised if Viet Nam simply removes tariffs and does not add taxes or regulations. In all likelihood, the ultimate result here will be that if tariffs are removed, taxes and regulations will arrive quickly. If I could, I'd like to turn the issue around on Greg and Sergio. There is, presumably, someone lobbying against reducing those 135% tariffs: The Vietnamese state-owned tobacco company. Why should we give in to a tobacco company's desire to preserve a highly profitable domestic monopoly? Is tobacco control really better off if there is a government agency that has a financial interest in continuing to sell cigarettes?
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Actually, let me amend that. This case seems a lot stronger than Bilcon. I can see how there's an argument for banning a project due to environmental concerns. But with Keystone, from what I can gather, the outcome of the failure to approve seems to be a prohibition on one form of oil transportation, while allowing one that is more environmentally risky.
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