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See Dani's response, and my reply, here. http://rodrik.typepad.com/dani_rodriks_weblog/2017/04/trade-redistribution-and-social-dumping.html
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Thanks, Dani, for this response. I see now that your main point was not about compensation at all, but about insulation from certain types of competition. You distinguish trade winners and losers from others on the basis of the normative or political attractiveness of allowing people to “lose” due to what you, provocatively, call “social dumping.” Of course, one person’s social dumping is another’s legitimate diversity of social contract. When you say that some trade “violates norms embodied in our institutional arrangements,” you seem to be suggesting that, for trade to take place, others must accept our institutional arrangements. My first question is the empirical one: does trade from low regulation countries cause reduction of our regulation? I have not looked at the regulatory competition literature for years, but last time I looked there was little evidence of a race to the bottom in labor rights or environmental protection. If that is still true, what is the problem with social dumping? In other words, is it true, as you suggest, that domestic social bargains are being undermined “through the back door?” Second, I am unsure why political will should not be deployed to protect the social bargains directly, rather than to try to do so indirectly through trade barriers, and with inevitable substantial errors if our experience with dumping, subsidies, and safeguards is any guide. But the main question, which would be important to answer even if there is a significant race to the bottom, is whether insulation from competition is the right response at all to institutional diversity. Within the U.S. federal system, we in theory and practice address interstate diversity that has excessive externalities not by blocking interstate commerce, but by legislating at the federal level. Of course, the international system has markedly less legislative capacity than most countries, but in important areas it has had some success. And it is a system that, with all its limits and opportunities for exercise of power does not in theory insist on imposing our institutional arrangements on others. Best, Joel
Yes, have you seen any explanation of the preference for bilaterals over plurilaterals?
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Thanks, Marc. Yes, it's anybody's guess exactly how this will be effected. But I'm not sure new legislation can target offshoring while complying with WTO law. The closest thing, as I mention in my post, would be the business cash flow tax proposed, and that does raise some WTO issues.
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My post addressed NAFTA and the WTO. The White & Case paper is in broad agreement: "The power of the President to terminate a US trade agreement or modify tariffs appears to be weakest for the WTO Agreements, broader but ambiguous for regional FTAs (NAFTA and the United-States-Dominican Republic-Central America FTA (CAFTA-DR)), and strongest for bilateral FTAs such as those with Australia, Chile, Colombia, Korea, Panama, Peru, and Singapore."
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Thanks, Simon, and that links up nicely with your post of John Jackson's views, both leading us to the idea that the legal categories now contained in WTO law do not necessarily reflect economic substance.
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Hello, Dani. It is difficult for scholars to observe national democratic processes from some Archimedean point and argue that there is a failure of democratic legitimacy. For the U.S., we approve trade agreements through a constitutionally-acceptable process that has been enacted by our democratically-elected legislature. While we might argue about whether fast track allows sufficient democratic input, the democratically-elected legislature has determined that it is acceptable. The making of international agreements is a two-level game that requires some adjustments to permit international cooperation. There can be errors of conservatism. For example, the ability of little Wallonia to hold up the entire EU and Canada’s otherwise approved policy—a type of tyranny of the minority—seems inconsistent, at least at some level, with democratic legitimacy. In addition, as Donald Trump has emphasized, it is possible for future governments to withdraw from trade agreements, so there may be less binding of future governments than you fear. But I would hasten to add that states, like firms, need a way to make binding agreements to constrain—to exchange—policy autonomy. While everyone can make mistakes and enter into welfare-reducing agreements, the overall effect of contract seems to be importantly positive. I am not sure why you believe that the overall effect of international law would be different. Best, Joel
If the treatment is specified by the treaty, then it is strange to think that the treatment violates another provision of the treaty. So my point is an interpretative one. I think states party to an investment agreement retain the authority to modify investors' rights under those agreements. They can modify the meaning of FET explicitly or implicitly by virtue of something like the tobacco carveout. This reminds me a bit of the debate about the NAFTA FTC interpretation.
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One important feature of a treaty provision is that it is agreed by both parties, and is not simply an act of the host state. It is tough for an investor to argue that it is not fair and equitable if the investor's home state agreed to that treatment. Second, and related, it may be arguable that the fair and equitable treatment standard has to be interpreted by reference to the carveout, or it may be arguable that the carveout as lex specialis overrides the FET standard.
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Thanks for this, Simon. This issue has indeed been around for a long time. One basic response is that US firms often successfully avoid US taxes on foreign source income--as both candidates emphasized. So, often, there is no double taxation. Second, the VAT cannot be applied in a discriminatory manner. If US firms selling in Mexico are subject to it, so are Mexican firms. The US tried to rebalance some of the implicit subsidy with the DISC and then the FSC laws. Third is your twitter colloquy: negotiating does not mean getting.
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Thanks, Simon. Yes, I think that the solutions Rodrik proposes might well be more intrusive then the existing rules.
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Well, it's a conundrum and the logic of the response is not as airtight as "we never every apply non-WTO international law", but I think it is reasonable to say that the AB has consistently refused to apply substantive non-WTO international law, and (in this case) has rejected the argument that WTO law can be modified inter se through non-WTO procedures. The division might be understood as substantive/procedural, or it might be understood as "as necessary to comply with its mandate to apply the covered agreements."
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Good question, Lorand. Not sure I have an answer. I suppose one might conjecture that the AB was not applying a lex specialis rule at all, but merely observing that the WTO specific provisions apply here, while Art. 41 does not, and so the WTO specific provisions "prevail." Otherwise, it is a conundrum, which could be resolved by saying they applied it as a customary interpretive rule. Perhaps the more responsible solution is that the AB must apply the covered agreements and must do whatever is necessary, including examining other international law, for the limited purpose of determining what the covered agreements are. This is why it might use lex specialis, and indeed why it might have applied Art. 41 if it were not precluded. Not sure what I think is the best answer.
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Thanks, Jim. It has been pointed out to me that the AB might have avoided engaging in the narrower VCLT Art. 41 analysis because the AB wished to avoid applying non-WTO law in the form of Art. 41 itself.
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Rob, while I don't claim any expertise in this area, I tend to agree with you that 10 years of better than status quo overshadows whatever comes later.
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Rob, I think your criticism misreads Schumer on two points. First, while the JCPA does not contain anything about non-nuclear aspects, Schumer expresses valid concerns about the funding Iran's non-nuclear military activities would receive from the lifting of sanctions. Of course the agreement has an effect on non-nuclear issues, even if it does not explicitly address them. Second, I think you mischaracterize Schumer's statement that "we might be better off with it." He only makes that statement about the first 10 years. After that, he believes we are worse off on the nuclear issues. So, he is looking at three parameters: nuclear first 10 years, nuclear thereafter, and non-nuclear. He only makes the statement that we might be better off on the first parameter. Here is his conclusion: "when it comes to the nuclear aspects after ten years and the non-nuclear aspects, we would be better off without it." So, while I tend to agree with your judgment that the deal is worth accepting, I disagree with your criticism of Schumer's judgment as incoherent and confused.
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Thanks, Julia. The AB said that the specific provisions of the WTO treaty prevail over general provisions of Art. 41 of the VCLT. This is one type of application of the lex specialis principle. It is open to states to set up a treaty regime for amendment or modification that departs from the VCLT rules. (Not sure Art. 41 was or is custom.) More generally, it is open to states to set up a treaty rule that derogates from customary international law--that is what treaty rules, in a broad sense, do. Only jus cogens is non-derogatable.
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Hi Julia. In para 5.112, the AB is applying a lex specialis rule to the effect that the relevant WTO law was intended to, and did, override Art. 41. As to customary international law, of course, states are generally permitted to contract out of it. Surely the preamble of the VCLT did not change that, but merely clarifies that the VCLT was not intended to nullify rules of CIL that were not addressed in the VCLT.
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Thanks. The AB says that 41 VCLT is supervened by the provisions for waiver and amendment in the WTO charter. Therefore, 41 VCLT is not available for any "substantive waiver" of WTO obligations. FTA waivers are not treated worse, but may benefit from XXIV. I think the "jurisdiction waivers" you refer to are distinguished by the fact that they are reviewed in the context of claims of violation of obligations of good faith under Arts. 3.7 and 3.10 of the DSU.
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Very interesting. Why would it not be similar to other commons-sourced products--fish from the high seas, for exsmple? I suppose there is an interesting question of whether the products would originate in the state in which they "land."
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Quantitative social science controls for other proposed causal variables. So, saying that, controlling for other causes that I, my workshop commentators, and my referees could think of, the data is consistent with the hypothesis that terms of trade power causes the pattern of tariffs that we see, is very powerful indeed. This empirical work constitutes a set of examples, from which the causal essence has been derived in a social scientific manner. To me, it is more plausible than a single hand waving example, or indeed a group of such examples, saying that in a particular tariff it seems to be terms of trade power rather than redistribution that motivated the decision-maker. The fact that I cannot, off the top of my head, propose a specific example does not mean that there are none. The empirical work indicates that there are many, and you could go and look at their data and find them.
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Simon, your methodological bias is showing. When you ask for specific examples, the implication is that we know what the motivation was. Perhaps you want a trade negotiator to tell you "I wanted to enrich my country at the expense of others." What Bagwell and Ludema and Mayda have done is to show a pattern of tariffs that matches what would be predicted by terms of trade theory: the data is telling us the motivation, rather than the person. It is always good to corroborate large n studies with qualitative case studies, as you are demanding, and perhaps someone has done that. But as I said, data is the plural of anecdote, and I'd prefer mutliple examples to a single one if I had to choose.
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Simon, governments might be using terms of trade power without recognizing it. Where outsiders bear a significant share of the costs of tariffs, we would expect disproportionately less domestic political opposition to those tariffs. So, all other things being equal, we would expect greater tariffs where a state has terms of trade power.
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I think most economists would agree that both national and worldwide welfare would be improved if states recognized, and acted upon the recognition, that tariffs only benefit them nationally where they have terms of trade power. Thus, yes, it would be good if practical people acted accordingly. I think the Bagwell/Staiger point is that the only *welfarist* role for trade agreements is to restrain states that have terms of trade power from using it in a prisoner's dilemma-type reduction of their welfare. I don't think they would dispute that there is a separate, political economy (internally distributive) role.
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