Public Health or Protectionism, Chinese Fireworks Ed.

The NYT reports that:

India’s Supreme Court on Friday banned the sale of firecrackers in the capital region, reflecting a growing sense of urgency after a thick smog engulfed Delhi for 10 days early this month, trapping its population of 20 million in dangerous concentrations of polluted air…

For generations in India, fireworks have been set off to mark Hindu festivals, and their manufacture is a vast industry. Last year, the court refused to issue a blanket ban on fireworks, arguing that it would infringe on citizens’ rights.

This year, however, the hearing came on the heels of an episode that rattled the capital. After acrid smoke from fireworks set off late last month for Diwali, the Hindu festival of lights, merged with emissions from other sources, levels of the most dangerous particles of air pollution rose to more than 16 times the level that the Indian government considers safe.

At first glance, this seems like an open-and-shut case of public health protection.

However, as an opinion piece last year in Asia Times reports, there is also a significant economic dimension.

Chinese goods — often produced with cheap labour in their sweat factories — have begun to have an edge over Indian fireworks.  An important reason is the killing pricing, which Sivakasi factories are unable to match. The Chinese prices are so low that they are naturally tempting for a consumer — and this “unhealthy competition”, as some aver, is smoking out the livelihood of thousands in Sivakasi — a town that virtually survives on the fireworks industry.

The 750-odd fireworks units in Sivakasi have had to cut their output by a third — and this means that this commercial enterprise cannot run on the fifth gear during the festival season, as has been the case traditionally…

Chinese goods began their unlawful journey into India in 2013. That year, says G. Abiruben, president of the Tamil Nadu Fireworks Manufacturers’ Association, only ten kinds of fireworks came into India from across the Himalayas. This year, the number is a whopping 215 — the increase is incredible, but painfully true.

The best part of this whole clandestine business is that these Chinese products are smuggled along with other legal imports — which may be toys or electronics. And most of these fireworks are sold in small unauthorised shops and even by pavement vendors.

Some estimates place the figure of smuggled Chinese stuff at Rs 5,000 million (US$76 million), and given the low pricing, the actual quantity of fireworks sold may well be huge.

More recently, Indian trade officials have been stepping up their scrutiny of Chinese imports, as India Today reports.

So is the Indian Supreme Court motivated by public health or protecting Indian fireworks manufacturers from Chinese competition? Unclear, and the motivation won’t matter as much as the effect on competition if China decides to raise the issue with the World Trade Organization (WTO).

As a WTO member, India has agreed to not apply charges or restrictions to imports above what it imposes on domestic production, and to not impose “prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures… on the importation of any product of the territory of any other contracting party.”

If China launches a case, would India have any defenses? It wouldn’t be a defense that this week’s action was undertaken by courts rather than regulators. As I show here in the context of a case brought by Mexico against the U.S., international adjudicators will treat all branches as a single entity when it comes to state responsibility in international law.

And it could be difficult to argue that a sales ban is excused under environmental defenses baked into the GATT. Why? Arguably, the Supreme Court decision will hit Chinese exports disproportionately. The sale ban (a quantitative restriction) goes into place immediately, while the NYT reports that the a ban on Indian manufacture of fireworks will be punted to down the road. This discrepancy could make it harder to argue that India is making the environmentally-motivated trade restriction in conjunction with restrictions on domestic production – something required under WTO defense provisions.

On the other hand, the Supreme Court might have set the measure on less protectionist footing. Earlier this year, Asia News Network reports that India banned the sale of foreign fireworks only.

Stay tuned to see if China requests consultations with India at the WTO.

Leave a comment

Filed under Uncategorized

It May Not Be Trump That Starts the Trade War – Climate ed.

European politicians are threatening a trade war tariffs if the U.S. backtracks on its Paris Agreement commitment. As French presidential candidate Nicholas Sarkozy has said,

“I will demand that Europe put in place a carbon tax at its border, a tax of 1 to 3 percent, for all products coming from the United States, if the United States doesn’t apply environmental rules that we are imposing on our companies,” he said.

The proposal would violate WTO rules on most-favored nation rules – specifically, Article I of the General Agreement on Tariffs and Trade, or GATT.  By treating, say, goods from (Paris Agreement obeyer) Canada better than (Paris Agreement defector) US – it would be a per se violation of the equal playing field all countries extend to one another.*

Given Trump’s promises to push hard on WTO enforcement, we can expect him to challenge such a move.

For obvious reasons of history moving in a linear direction, the 2016 Paris Agreement was not included as a specific exception to GATT commitments made over 1947-1993.

Proponents of a carbon tariff, however, would try to argue that it is excused under Article XX of the GATT, which reads in part:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:…

(b)      necessary to protect human, animal or plant life or health;…

(g)      relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

Would this work as a defense?

The argument “against” is that it’s a multi hurdle rope course.

  1. The measure is “necessary” for protection of life and health. This is in itself a three-hurdle test that has been difficult to make use of, requiring a consideration of
    • (a) how much it contributes to the goal;
    • (b) the importance of the goal; and
    • (c) how trade restrictive it is in light of alternative policies that might contribute more to the goal. In the alternative could argue that it is “relating to” conservation, a lesser test.
  2. The measures are not applied in a manner which would constitute a means of arbitrary…
  3. or unjustifiable discrimination…
  4. between countries where like conditions prevail,
  5. or a disguised restriction on trade in services.

These defenses are hard to use and almost never work.

The argument “for” is essentially a political one, that the trade negotiators that deal with the WTO knows that it should be rowing in the same direction as their environmental policy colleagues back home (who, after all – are from the same government). Under this line of thinking, the WTO’s Appellate Body and lower panels would find a way to make the exception apply.

The argument in the middle of these two positions are that – governments change. As former WTO director general Pascal Lamy said back in 2008, the WTO is still waiting for a a consensus on climate. While the Paris Agreement is an example of agreement, it’s also an agreement that by design wasn’t highly enforceable, as David Victor writes. That’s checkmark 1 against a consensus around using highly enforceable trade rules to tackle backsliding. Checkmark 2 is of course the votes of an electoral college majority in the US against even these lightly enforceable rules before they take full effect in 2020. Given this lack of uniformity in opinion on the environment, WTO adjudicators might slink back to promoting trade flows – an area they know best.

NOTES

* Indeed, my former colleague Mary Bottari and I once argued that much less aggressive carbon reduction policies could pose WTO problems. See here also.

1 Comment

Filed under Uncategorized

#Trexit without Trade Wars

Many of us in the U.S. are still reeling from Tuesday’s election results, and probably will be for some time.

Since we are on course to have a President Trump, I tried to think through a version of Trexit that would avoid economic damage.

Here’s the teaser from my new piece at the Roosevelt Institute.

From climate change to immigration reform, many progressive priorities are dead on arrival with the coming of President-elect Donald J. Trump. However, there’s at least one Trump priority that overlaps in part with progressive concerns: trade policy. As Michael Moore argued in July, Trump’s successful cooptation of labor unions’ talking points on trade catapulted him to victory in the Upper Midwest.

Trade is a complicated policy area, and trade agreements implicate a wide range of topics. But the aspect of trade deals that most politicians and grassroots organizations now seem to agree is problematic is investor-state dispute settlement, or ISDS. This system allows multinational corporations to sue host governments over environmental and other policies. It has come under fire from the Tea Party and Progressive Caucus, and even from former trade deal proponents like Hillary Clinton and Tim Kaine.

While Trump has focused primarily on older-fashioned aspects of trade deals (like tariffs), his campaign has noted, “The Trump Trade Doctrine also opposes any provisions in any trade deals that interfere with the sovereignty of the United States government… and ISDS clauses raise sovereignty issues.” Language similar in spirit if not letter made its way into the Republican platform

If Trump is genuine on this point, there could be room to forge a bipartisan and international consensus on ISDS.

To read the full thing, click here.

Leave a comment

Filed under Uncategorized

How to Rebalance International Law – Time oped

I have a piece in Time Magazine. Here’s a preview:

It’s been a bad month for international law. From continent to continent, governments have been shredding, rejecting or abandoning the postwar international legal order.

Last Wednesday, Gambia joined South Africa and Burundi in a growing exodus of African countries from the International Criminal Court.

The week before, Filipino leader Rodrigo Duterte agreed to drop his country’s hard-fought legal victory at The Hague’s Permanent Court of Arbitration, which found that Chinese naval encroachments in the South China Sea violated the Philippines’ rights under the U.N. law of the sea.

Even Europe, the birthplace of international law, has not been immune. Case Study A was the U.K.’s decision earlier this year to exit the E.U. (“Brexit”). More recently, Wallonia—a Belgian region of three million people—blocked a Canada-E.U. trade agreement. The deal took years to negotiate and promised to bring a population of 500 million on both sides of the Atlantic under a more unified market.

What is driving this retreat to national borders?

For one, rising inequality in many countries has led to a sense of anxiety and distrust of the wealthy.

To read the rest, go over to Time’s site.

Leave a comment

Filed under Uncategorized

How Trump Could Pull Out of Treaties and What it Would Mean

How easy would it be for a President Trump to reverse trade liberalization? Pretty easy, as a new Peterson Institute report argues, and as I argued to Justin Wolfers in today’s New York Times.

As the study show, tariff commitments can be reversed for national security purposes. Trade deals decades old could be exited by summer. Advocates of trade expansion have long advocated shifting power over trade from Congress to the executive. It would be the height of irony for a President Trump to use those powers to undo their agenda.

But Simon Lester posed this argument on Twitter: “I agree w/ that Pres Trump could do damage on trade; but Cong. would have say on leaving WTO/NAFTA”.

This raises an interesting point. Treaties used to be deals struck by the executive, with two-thirds advice and consent of the Senate. But modern so-called “treaties” often take the form of congressional-executive agreements, where the president strikes the deal, and both chambers of Congress have to pass implementing legislation by a majority vote.

This quirk means that – while the WTO and NAFTA have provisions that would allow Trump to withdraw on six months’ notice – the laws implementing how WTO and NAFTA commitments are codified in national law are not so easy to reverse.

The law around these questions is very unsettled, as Oona Hathaway writes:

Though it specifies the process for making treaties, [the Constitution] is silent on the question of withdrawal. Some have argued that because the President has the power not to ratify a treaty even after the Senate’s consent has been given, the President must have the parallel authority to withdraw that ratification regardless of the Senate’s position on withdrawal. The Restatement endorses this view, stating that “[u]nder the law of the United States, the President has the power. . . to suspend or terminate an agreement in accordance with its terms.”   This view has never been formally upheld by the courts and remains controversial. The courts have twice refused to settle the issue, declining to intervene to prevent unilateral withdrawal from a treaty by the President on the grounds that the challenge to the President’s authority posed a political question, among other reasons.

The Senate, perhaps not surprisingly, opposes the idea that the President can unilaterally withdraw from a ratified treaty. The Senate Foreign Relations Committee has repeatedly contended that the termination of treaties requires the participation of the Senate or Congress.  A Report prepared in 2001 by the Senate Foreign Relations Committee concluded that whether termination of a treaty “requires conjoint action o f the political branches remains. . . a live issue which the Supreme Court has sidestepped in the past .”   Yet it admitted that “[a]s a practical matter. . . the President may exercise this power since the courts have held that they are conclusively bound by an executive determination with regard to whether a treaty is still in effect.”…

[In contrast] Congress cannot prevent the President from communicating with foreign governments about the termination of a congressional-executive agreement (as long as the termination is consistent with the terms of the statute that created the agreement).  Hence the President could unilaterally withdraw the United States from a congressional-executive agreement by communicating the withdrawal to the foreign parties.  Yet the act of withdrawing from the international agreement does not undo the statute on which the agreement rests—which cannot be undone without the cooperation of Congress.  Even though the President may be able to “unmake” the international commitment created by a congressional-executive agreement as a matter of international law, the President cannot unmake the legislation on which the agreement rests. … The President is not able to terminate a statute unilaterally, and hence cannot terminate the statutory enactment that gives rise to a congressional-executive agreement.  And insofar as the statute specifies a course of action by the United States, the President is required to execute it unless and until the underlying statute is repealed or superseded.

This poses an interesting quandary. In the UK, voters demanded Brexit to regain control of immigration. But the deals the UK will have to make to retain access to European markets will likely require open immigration access. Similarly, in the US, Trump could deliver on threats to exit NAFTA, but may be stuck with NAFTA rules, thanks to the nature of congressional-executive pacts.

It’s a bit of a distinction without a difference, as Wolfers and the Peterson study make clear. Trump would not have to erase the “NAFTA tariff statute” in order to raise barriers to Mexican goods. He has plenty of statutory authority to restrict trade (see here, here, and here).

That’s the U.S. side of the equation. What about other countries?

Continue reading

Leave a comment

Filed under Uncategorized

Will TPP Stop China’s Rise?

A major thrust of President Obama’s pitch for the Trans-Pacific Partnership agreement, or TPP, is geopolitical. As the president himself put it last year,

The world has changed. The rules are changing with it. The United States, not countries like China, should write them. Let’s seize this opportunity, pass the Trans-Pacific Partnership and make sure America isn’t holding the bag, but holding the pen.

In other words: there’s a race for influence in the Asia-Pacific between the U.S. and China. Only one can win. Either China sets the rules, or the U.S. does. If China gets there first, their rules will prevail.

This story seems to assume that the rules the countries would set are different. Is this true?

We don’t have to guess. Wolfgang Alschner and Dmitriy Skougarevskiy are the brains behind the website Mapping Investment Treaties. The site allows text-as-data comparisons between thousands of ratified and proposed international treaties. In an article published earlier this year, Wolfgang and Dmitriy concluded:

China is likely to be most sympathetic to a multilateralization of investment disciplines around TPP. The country is among the states that have concluded most investment agreements. Moreover, its recent BIT with Canada overlaps textually to 50% with the TPP and converges in substance in some areas. When it comes to MFN, for instance, the China–Canada BIT is the closest treaty to TPP in our database.

That said, they go on to note several differences between the U.S. and Chinese templates.

I wanted to know just how different the two pacts where, so I asked this legal power duo to create a special feature on their website to allow the rest of us to compare Obama’s TPP with the Canada-China bilateral investment treaty, or BIT, which was signed in 2012 and entered into force in 2014. Thankfully, they agreed.

+++

Crossposted from Roosevelt Forward. To see the full article, go to the Roosevelt Institute‘s site; produced in collaboration with Mapping Investment Treaties website.

 

Leave a comment

Filed under Uncategorized

What would be the consequences of pulling out of the WTO?

Donald Trump recently made headlines for threatening to pull out of the World Trade Organization, or WTO.

The proposal by the Republican presidential candidate would be a major break with the past. The 163-country pact has structured trading relations for over two decades, and a predecessor agreement goes back to roots in the 1940s.

What would the impact be of such an unprecedented move? While the future is unknowable, there are a few things to consider.

First, when people refer to “the WTO,” they can mean a few different things.

  • The WTO is an actual It has a building in Geneva, Switzerland, and a full-time Secretariat staff that helps keep the lights on.
  • The WTO is also an intergovernmental body. The Secretariat helps provide a forum for governments to negotiate and talk to one another about policies affecting trade in goods and services. The U.S. delegation is led by the Deputy U.S. Trade Representative Michael Punke, who serves under USTR head Mike Froman. Like Froman, Punke has ambassador status; unlike Froman, he wrote The Revenant – remade as a movie starring Leo DiCaprio. But trade negotiations have stalled since the late 1990s, so the importance of the inter-governmental part of the WTO has been downgraded to mostly routine bureaucratic meetings.
  • Finally, the WTO is a set of treaties and a court that adjudicates disputes under them. The WTO consists of 17 treaties, each of which lay out commitments and obligations for the organization’s members. Under the Dispute Settlement Body, governments and the Secretariat supervise adjudicators hired by the case to decide on challenges by WTO members against one another. If disputing governments do not like the outcomes of these lower panels, they can appeal the decision up to an Appellate Body staffed of tenured adjudicators. If a respondent country loses a case, they are supposed to (in theory) change the policy so that it complies with WTO rules. In practice, countries often drag their heels or outright refuse to change the offending policy. There is then a further set of procedures for fixing an amount of permissible trade retaliation. There have been over 500 intergovernmental challenges launched since the WTO opened its doors in 1995.

The pact’s multi-faceted nature makes it tricky to know what exactly a WTO critic is criticizing.

Second, the WTO should not be confused with a specific content of national policy. It is a legal-diplomatic construct that is distinguishable from national economic policy choices.

The debate around the UK’s vote to leave the European Union illustrates the distinction I am trying to make. Now that UK leaders are going forward with Brexit (unnecessarily, IMHO), they must decide if and how to restructure their relationship with the EU. The models that are often mentioned are Norway and Switzerland, who are not voting members of the EU but have nonetheless committed to follow EU rules on trade and immigration. So, not a member of the EU, but having national laws that are nonetheless consistent. A bitter pill for many Brexit supporters no doubt.

Put bluntly, the WTO doesn’t diminish national sovereignty, at least not in the first instance. It simply creates a series of potential legal and financial consequences for stepping out of line. This means that a country can leave the WTO and still have national policies consistent with WTO rules. It means also that a country can be in the WTO with national policies that are not consistent with the rules, and still face no consequences (either because other countries don’t notice or aren’t willing or able to mount a legal challenge).*

To follow this through to the present context, Trump would not need to leave the WTO to jack up tariffs on Chinese goods.** He would, however, almost assuredly face a challenge at the dispute settlement body if he tried to do so, as it is a blatant violation of most-favored nation rules. (For this reason, the policy would also probably be ineffective and likely lead to more imports from third countries.) He could also leave the WTO, but not jack up tariffs.

So, what are observers worried about when they question Trump’s WTO threats? On the one hand, they’re worried about jeopardizing some of the gains from trade under the WTO – which economists estimate at a few percentage points of global income. But such models are really capturing the autonomous national policy changes that each WTO member enacted. It is at least conceivable that they could have happened without the WTO, although many political economists consider the system indispensable for helping countries trust one another to make the baby steps needed to liberalize.

And, thus, we get to the real issue. Pulling out of the WTO should not be feared for any necessary economic fallout. The U.S. and world could get by just fine. Rather, what observers should be worried about is the potential diplomatic signal it sends. This could lead to a chain reaction of tit-for-tat retaliation by nervous politicians who seek to shield their population from the externalities of Trump’s effort to protect U.S. workers.

So, the WTO is not so much a global government as it is a framework for structuring retaliation. Trump’s comments envision a return to a world where retaliation is not so structured. Where that takes us is any one’s guess.

++

 

FOOTNOTES

* A trickier problem is that there may be no consensus about what a WTO obligation actually means in practice. In such cases, panelists and appellate body members get to moonlight as rule writers – taking over for gaps left by actual government negotiators.

 

** Depending on how exactly he took the action, he could take an action under executive branch powers. Alternatively, he might need Congress to modify U.S. tariff rules or the Uruguay Round Agreements Act that greenlit U.S. membership in the WTO. This was a bill supported by the Bill Clinton administration – passed by a lame duck Congress full of Democrats that just lost their seats, most of whom had not read the legislation. (Interestingly, the Obama administration is suggesting doing something similar with the Trans-Pacific Partnership after the November elections.)

 

Leave a comment

Filed under Uncategorized