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Simon Lester
Florida
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I commented on the Buffett plan on this blog a while back: http://worldtradelaw.typepad.com/ielpblog/2009/01/buffett-on-the-trade-deficit.html Here's an excerpt: As Buffett himself notes: "There is no free lunch in the IC plan: It would have certain serious negative consequences for U.S. citizens. Prices of most imported products would increase, and so would the prices of certain competitive products manufactured domestically. The cost of the ICs, either in whole or in part, would therefore typically act as a tax on consumers."
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Hmm, yes, maybe that means the situation wouldn't be as absurd as what was happening in Argentina.
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Also, the Stiglitz plan sounds like what was used in Argentina, with results that seem pretty inefficient: "BMW AG's subsidiary in Argentina worked out an agreement to export leather, a type of grape juice, and tons of rice so it could import BMWs, minis and motorcycles to sell. "Rice is not the BMW business, but we had to come up with a solution," said Dan Christian Menges, a BMW Argentina spokesman. ... " http://www.wsj.com/articles/SB10001424127887324595904578117370506750116
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If people want to solve the trade deficit problem, there is an easy solution: a recession. This is from the NY Times a few years back: "AFTER years of being told by Asians and Europeans that it had to find a way to reduce its trade deficit, the United States did find a way in 2009. A global recession did the trick, producing the largest decline ever in the deficit." http://www.nytimes.com/2010/02/13/business/economy/13charts.html But snark aside, the solutions I've seen for the trade deficit all seem much worse than the alleged problem, whatever it is. Former Cato trade policy director Dan Griswold had a good piece on this in the 1990s. Here's an excerpt: "Misunderstanding of the trade deficit threatens to undermine the freedom to trade by encouraging faulty and damaging “solutions” to a problem that does not exist. Any attempt to fix the trade deficit through protectionism, export subsidies, or currency manipulation is bound to fail because none of those tools of intervention addresses the underlying causes of the trade deficit. The trade deficit will respond only to changes in a nation’s net flow of foreign investment, which in turn is determined by its underlying rates of savings and investment." http://www.cato.org/publications/congressional-testimony/americas-misunderstood-trade-deficit As long as U.S. consumers spend so much more than consumers in our trading partners, there will be a trade deficit. It's not clear why governments should try to "fix" this, on either side of the equation.
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OK, one more. He is generally critical of global economic governance, but says he favors more limited forms, such as: "Subsidy rules can be improved by requiring economic cost-benefit analyses that incorporate potential consequences for both static and dynamic efficiency." That might be a more intrusive form of global economic governance than anything else mentioned in the piece!
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Joel, I agree with your post, but I feel obligated to take on something Rodrik says: "Sometimes domestic economic advantage comes at the expense of other countries. This is the case of so-called beggar-thy-neighbor policies. The purest illustration occurs when a dominant supplier of a natural resource, such as oil, restricts supply on world markets to drive up world prices. The exporter’s gain is the rest of the world’s loss. A similar mechanism underpins “optimum tariffs,” whereby a large country manipulates its terms of trade by placing restrictions on its imports. In such instances, there is a clear argument for global rules that limit or prohibit the use of such policies." I just want to point out there is almost never a "domestic economic advantage" from these policies. Maybe the oil example works, but in the real world, there are almost no examples of success here. Rather, attempts to do what he suggests will almost certainly result in a domestic economic disadvantage. He also offers this false dichotomy: "Problems rooted in failures of domestic deliberation can be solved only through improved democratic decision-making. Global governance can make only a very limited contribution here – and only if it focuses on enhancing domestic decision-making rather than constraining it." But all the enhancements he offers are actually constraints! That's enough Rodrik-bashing for the day, but it was nice to have the opportunity to do so again. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1873995
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Life is never easy, but there is always some fun for lawyers! ;)
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Another point. It's interesting to note where international law steps in, and where it does not. In theory, it could step in for lots of different people, on a wide range of rights-type issues. In practice, though, it steps in -- in an effective way -- for foreign investors on expropriation/due process-type, but rarely steps in for anyone else on any other issue.
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Let's say that, due to the absence of effective remedies for expropriation in Canada, the province of Alberta is having trouble finding companies to invest in its oil sector. A comprehensive expropriation law reform would be the ideal solution to this problem, but the citizens of Alberta are skeptical. However, they do like oil investment, so Alberta is able to get support for a law that provides a remedy for expropriation for companies investing in the oil sector. Is that situation similar to what international investment law does for foreign investors?
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Julia, Just to be clear, I'm not convinced there's a problem here that needs to be dealt with. But if someone did think there was a problem, then yes, I was thinking of an amendment to the DSU (which, as you note, is not very realistic politically!). In theory, you could use the "authoritative interpretation" approach that you mention. I'm not sure what provision of the DSU you would be interpreting, though, and what the specific interpretation would say.
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Just to clarify, the Livemint article incorrectly cites me for this quote: “How exactly was the US able to figure out what Seung Wha Chang’s line of thinking was since appellate body rulings are authored by the division as a whole and not individual rulings on the issues? Was it inference? Or inside information?” In fact, it was an anonymous commenter who said this: http://worldtradelaw.typepad.com/ielpblog/2016/05/appellate-body-drama.html#comments
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Thanks, Chris. I get the argument in theory. However, I'd like to see some evidence in practice of how prices change in this way. Also, I'd want to see any such prices increases compare to price decreases for other products.
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Here's what some economists who looked at this issue found: "Over the past two decades, the European Commission has negotiated a number of Free Trade Agreements (FTAs) which contain both traditional elements of bilateral tariff reductions, as well as additional liberalisation measures like non-tariff barriers. According to economic theory, FTAs lower trade barriers on imported goods, leading to consumer welfare gains from increase in product variety, better quality products and lower prices for existing products. We estimate the variety, quality and price effects of EU FTAs, drawing on recent developments in the quality literature and using detailed import price and expenditure data. On average, trade agreements the EU has entered into over the past two decades increased the quality of UK imports from its FTA partners by 26 per cent and lowered the quality-adjusted price of imports by 19 percent. We find that consumer prices fell by 0.5 per cent for UK consumers as a result of FTAs with trade partners that are not members of the European Community. Price reductions for UK consumers are greater than those for EU12 consumers, whose prices fell by 0.3 per cent from non-EC FTAs. Using the set of nonEC FTA estimates to predict the effects of future FTAs, we find a projected decline in consumer prices for UK consumers of 0.4 per cent from an FTA with the United States (TTIP) and 0.2 per cent an FTA with Japan (EPA). For EU12 consumers, the TTIP and EPA are predicted to reduce consumer prices by 0.3 per cent and 0.1 per cent." http://cep.lse.ac.uk/pubs/download/dp1417.pdf
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Even assuming that is true, wouldn't that particular price effect likely be outweighed by other factors, such as tariff reductions on imported goods, so that overall prices would go down?
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Sounds good, but that means I'll have to cancel my plans to get a Trump-style hair weave.
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My sense is that very few people anywhere in the world would trust international (as opposed to national or regional) courts with such a broad constitutional function. But I don't have any data on this, and would love to see some polling. As for how many measures would survive, I think it depends on exactly what standard is being applied. The standards can vary a bit. There are some strict ones that are hard to meet, in my view. I have another post coming that compares two possible standards.
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Thanks for the detailed response! You may have been wondering where I was going with this. Here it is. If you gave your explanation of trade agreement obligations to a politician or to the public, do you think they would support trade agreements? I feel like if the explanation is "protectionism," many people will accept them; if it is what you just articulated, I'm not sure they will. What's your view of this? (As for my joke, I really would like to see some empirical analysis of what percentage of measures would survive such a test).
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Lorand, let me ask you this: Under your approach, what kind of government behavior are you targeting? It is protectionism, or something broader? If broader, what exactly is it you are after?
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I think you are probably right (and I appreciate you going on record!). In the meantime, what I would find interesting is if someone uses the Article III:2, second sentence standard to try to convince the AB that it was wrong to focus Article III:4 on effects. I'm very curious to hear what the AB has to say about all this.
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So what do you think should/will happen in the next Chile - Alcohol-type case? Will the AB look at objective intent as part of Article III:2, second sentence? Or will/should it shift that analysis to Article XX?
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Ganging up on me, huh? Fine, I'll take you both on! ;) Let's go through a few of these points, starting with the text. Bryan, you say, "purpose should not be looked at in any non-discrimination obligations, except where the text explicitly directs such an interpretation." So what about TBT 2.1? You seem to think that GATT III:4 does not explicitly direct such an interpretation, so I assume you would say 2.1 does not do so either. So what do we do with 2.1? Not look at purpose at all? Apply the GATT XX exceptions to the TBT Agreement? As to the text itself, Bryan, you seem to accept that "so as to afford protect" indicates intent. Lorand disagrees. That leaves the breakdown like this: Bryan -- intent in III:2, second sentence, but not elsewhere in non-discrimination provisions Lorand -- intent in none of the non-discrimination provisions Me - intent in all of the non-discrimination provisions So what does the text tell us? To some extent, I agree with Lorand that all the non-discrimination provisions leave open whether to look at intent or effect. And maybe it is just my view of what the drafters had in mind, and what makes the most sense, that leads me to include intent. But can we all agree that the provisions are broad enough that they could allow a consideration of intent? Bryan, you seem to agree on III:2, second sentence, but are skeptical on III:4. Here's my argument for III:4. Article III itself is about national "treatment." And III:4 talks refers to "treatment" no less favourable. I keep putting "treatment" in quotes, so you can probably guess that I'm going to focus on "treatment"! I explained here http://worldtradelaw.typepad.com/ielpblog/2011/11/the-intent-of-a-measure-and-the-likeness-less-favorable-treatment-elements.html why I think treatment includes intent. As for the Article III-XX relationship, here's what I mean. The AB seems to be saying that GATT III:4 can't be about intent, because the exceptions exist, and that's where you look at intent. But if they also say that III:2, second sentence can be about intent, that undermines the logic of their argument about III:4. Now, Bryan, you are right that if the text dictates otherwise, you can justify a different result. But as I said above, I'm not convinced the textual differences are that great. Both provisions could be about intent. In addition, Bryan, you said, "in the Article III:2, second sentence, jurisprudence this aspect is an afterthought and not scrutinised with any meaningful degree of rigour, even in Chile-Alcohol." I strongly disagree here. Paras. 63-66 of the AB decision are very rigorous, and in my view are the key to the case. To me, this is the kind of analysis that should be done in all non-discrimination cases; this approach would make these decisions a lot more credible. And let me add that this analysis should be done regardless of where you look at intent -- obligations or exceptions. To me, design, structure and architecture is the key. Many of the recent non-discrimination cases get lost in lengthy analyses of what seems to be something else, and fail to look carefully at the measure. Lorand, you talk about doing the analysis in the exceptions. Obviously, you could do this, as a policy matter. But I'm not sure why that is preferable. You also say, "(including the exception, as it undoubtedly is, in art 2.1 tbt)." I'm not sure what you mean here. I can't see how Article 2.1 is an exception or includes an exception. Now, maybe you just mean something about burdens of proof here. Here's what I would say in response. If you find that there are violations of GATT III:4 whenever there is a disparate impact on or among foreign goods, a huge percentage of measures will violate that provision. To me, it seems dangerous to say that countries are in violation of the GATT if they adopt a measure that unintentionally has such an impact. A violation of international trade rules (or any rules) is a serious thing. And the GATT XX exceptions are limited. I think it's much safer to only declare violations after we have found both a disparate impact and a protectionist intent (or at least that the non-protectionist intent offered as a justification was a sham). Finally, Lorand, you also say this: "trade agreements are (or easily can be) as much about good regulation as non-protectionist regulation." I'll leave you with a bit of libertarian snark: If we use trade agreements to go after all bad regulation, what regulations would be left?
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Thanks, Tim. I guess what I had in mind is an agreement to take action to eliminate the programs that do exist (and, as you note, already violate WTO rules). Maybe they could start with an effort to identify all of the DCR measures that exist around the world.
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Rob, Thanks for this long post. There's a lot in there, and I may come back to other points, but let me just mention a couple things quickly. First, in a couple places, you seem to equate intellectual property rules in trade agreements with neoliberalism. I can't speak for all neoliberals, but as a card-carrying neoliberal myself, let me just note that in my view, the excessive intellectual property protections in modern trade agreements are the furthest thing from neoliberal. In fact, they are better described as statist interventionism/corporate welfare than neoliberalism. Second, turning to Bernie Sanders, it can be hard to really know what's going on inside a politician's head. But when I listen to him talk about trade, it sounds to me like he often tries to stoke fear of foreigners, especially Mexicans. Now, it's true that he doesn't refer to Mexicans as rapists, as Trump has done, so that makes him better than Trump, obviously. But he still talks about competition with Mexicans in a way that seems designed to strike fear in the heart of Americans (there are a couple examples in here: http://www.nytimes.com/2016/03/07/us/politics/transcript-democratic-presidential-debate.html). He may very well not be xenophobic at all, and may care deeply about the plight of poor Mexicans. But as a U.S. politician, it seems to me that he is happy to say things that will get him votes from xenophobic Americans. Finally, having read quickly through the Sanders web page on trade, it's really unclear to me what kind of trade policy he would pursue. There aren't many specifics. Overall, though, it has the feel of a trade policy that would have higher tariffs than we currently do.
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Thanks, Armand. Here is something I said recently about the protection of property rights in Canada: "Canada is famous for having weak protections against expropriation. The solution to this problem, however, is not to grant protections to foreign investors through investment and trade agreements. Rather, it is to give such protections to all investors through changes in Canadian law." http://object.cato.org/sites/cato.org/files/articles/lester-5-6-2015.pdf
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Any legal proceedings on these issues will be interrupted by frequent snack breaks.
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