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Simon Lester
Florida
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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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But what about the comparison Todd makes to the other pipeline projects that were approved quickly? At first glance, this case strikes me as somewhat similar to Bilcon.
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Kim, I guess I'm assuming that a requirement to add ethanol to your gasoline is an added cost. It would be cheaper to sell gasoline without any additives, wouldn't it? So whatever the extra cost is, that's the injury. Of course, it's an injury to all investors, not just foreign investors, but that wouldn't matter for an FET claim. Am I wrong about the extra cost?
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Haven't heard anything about it.
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Lorand, I agree with you on the first one -- if A and B producers do not meet the standard at the time of adoption, but A subsequently meets the standard, then no violation. By contrast, where A producers already meet the standard, there's clearly a disparate impact right now. So what's the legal effect of that? It would likely mean an Article I:1 violation (one could argue about whether that should be the result, but it probably would be). But what about Article 2.1? Is the disparate impact enough, or would there have to be a further inquiry, looking more closely at the design, structure, etc of the measure, to see whether any detrimental impact "reflects discrimination"? Also, what if only slightly more A producers meet the standard than B producers? What degree of disparate impact is required here?
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Thanks for this link, Katie. Very interesting to see this perspective! Simon
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Absolutely, and feel free to explain why. I couldn't cover everything!
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One final point here. With these kinds of cases, often the facts lead to a violation whichever standard is applied. As a result, panels/tribunals may be comfortable leaving the standard vague, because they don't have to settle it in order to decide the case.
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Arwel, Thanks very much for your comments and clarifications. I had started reading your piece, but had not fully digested it yet, so wasn't able to integrate your thoughts with the Bilcon tribunal's findings. I'm glad you weighed in here. You make a good point about the absence, in Bilcon, of a domestic comparator that had faced bad treatment. Perhaps, then, even if a group comparison had been undertaken, a detrimental effect would have been found. At the same time, I've always thought the degree of effect was an important consideration. In this regard, note the following from the MFN section: "727. Bilcon cites a series of projects in which the proponent was a foreign company or a Canadian subsidiary of a foreign company. All of them involved activities in which some form of landbased project (such as a refinery or mine) was involved as well as a marine terminal. The alleged better treatment in every case includes being subjected to a review of smaller scope (such as terminal only) at the federal level and using a screening or comprehensive study rather than a review panel. ..." I read this to say that there were other foreign companies who were treated well. Thus, a full comparison of foreign and domestic companies might have shown only a small detrimental effect (on one company). That could have had an impact on the overall national treatment conclusions, if the tribunal followed such an approach.
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On the other hand, perhaps BITs are about politics, not investment flows: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2576330
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Jari, You are clearly right, that is the main objective (not that the evidence shows investment treaties have an impact on attracting foreign investment!). The problem is, whatever the objective of investment treaties, the result is that locals are stuck with the "unfair" local courts, and foreign investors now have an alternative. When you look at the larger context, rather than focusing on investment treaties in isolation, that seems like a strange result. Taking the example of expropriation: Wouldn't it be better to protect property rights for all, rather than only for foreign investors?
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Andrew, All of your points are excellent ones, and that's part of what I was trying to do: Use this particular narrow debate to highlight the broader discussion we should be having.
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Joel, I did download the documents you linked to, but an example did not jump out at me. It seems like it will take some time to sort through what they have done, and may require an economist. I'll see if I can find one who is willing to help me! But again, it's not difficult to find examples of protectionism. (Every anti-dumping tariff ever!) The fact that it's so hard to find one for terms of trade manipulation says something, I think. Also, I don't think "terms of trade power causes the pattern of tariffs" is the same as "governments are motivated by terms of trade concerns." Maybe that's just semantics, but I think it's kind of important.
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I'm not sure that simply saying "the data is consistent with my hypothesis", without more, tells us that much. Obviously, you want the data to be consistent. If the data were inconsistent, that would undermine the hypothesis! But I think you need more than consistency, especially in this situation. As far as I can tell, government officials are pretty clear about what their motivation is. Most people who advocate for tariffs, Buy America provisions, etc., believe that giving an advantage to domestic producers through protectionist measures makes us better off by preserving jobs and increasing domestic wages and profits, which then circulates through the domestic economy, or something like that. I reject that, and most economists reject that, but that's what they seem to believe. In this way, they think protectionism itself increases economic welfare. I don't think they are aware of the terms of trade argument at all. So, in a world where people are actually motivated by protectionism, and make that very clear, I think you need more than data consistent with an alternative hypothesis of what motivates people. (Relatedly, when arguing that terms of trade manipulation is the motivation, there also needs to be some discussion and clarification of how "protectionism" relates to "terms of trade manipulation". I think most people assume "terms of trade manipulation" is just a fancy economist word for "protectionism." How do these two concepts relate? Where do they overlap? Where do they diverge?) It also seems to me that someone should be able to come up with at least one concrete example of terms of trade manipulation. Aggregate data are great, but you should be able to produce an actual measure of some sort. (I've got about a million examples of protectionism I can show you!) If no one can do that, it leaves me pretty skeptical. One additional point: In the context of FTAs, where most tariffs are phased out completely, doesn't their whole argument just fall apart? Governments are eliminating the entire protectionist aspect of almost all tariffs, and don't seem focused at all on eliminating only the terms of trade manipulation component. (I admit, though, that perhaps I've misunderstood their argument here).
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Also, I don't see any specific examples of optimal tariffs in there. I just want to have a concrete example in front of me so that I can evaluate it. Boris' measures is a concrete example -- but it doesn't seem like it was motivated by terms of trade considerations.
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The proponents seem to say that governments are "motivated" by terms of trade considerations. I'd like to see evidence and data on that.
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I think we both agree that Argentina was trying to increase demand for local products. They wanted domestic producers to increase sales. What I'm unclear about is the suggestion that they were trying to "improve the price ratio between Argentine and foreign goods". What makes you think they had this in mind? My guess -- and I admit that I'm not completely sure -- is that they thought simple protectionism would improve their balance of payments, by lowering imports.
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Note Japan's argument at p. B-48: "5. The imposition of trade-restrictive requirements reflects a broader protectionist turn in Argentine economic policy since the mid-2000s." http://worldtradelaw.net/reports/wtopanelsfull/argentina-importmeasures(panel)(full).pdf
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Boris, I can definitely see how the measures at issue there were protectionist, e.g., the local content requirement favors domestic goods over imported. In what sense do you think the measures are not protectionist, but rather about terms of trade manipulation? Or are you not making a distinction between the two?
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It sounds like there are two key points here: 1) some governments have terms of trade power 2) those governments have greater tariffs Assuming that’s true, I’m not sure how much it helps with an argument that these governments are using their terms of trade power without recognizing it, and that trade agreements are a solution to this problem. For one thing, I question whether terms of trade power can be used. That is, even if in theory you could increase national income with an optimal tariff, I’m not sure it could be done in practice. How would you calculate an optimal tariff? How would you get one through the political process? Has anyone ever seen one in the wild? For another, when you look at how trade negotiations work, they do not seem calibrated to targeting optimal tariffs. Might they, incidentally, address the problem of optimal tariffs as part of the process of agreeing on tariff reductions? I guess it’s imaginable that this could happen, but probably only by accident, and on rare occasions. On the point about outsiders bearing a significant share of the costs, I’m not sure I follow. Don’t outsiders always bear a significant share (assuming there are imports)? Can you give me an example of a situation you have in mind?
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I understand the theory of how you could use a tariff to manipulate the terms of trade and increase national income. But I'd want to see an example of this actually happening in practice -- both a government intending to do it, and it actually working. My sense is that Regan is not disputing that it could happen. He's just saying it isn't happening, that is, governments are not pursuing this as a policy.
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