A U.S. senator from New York doesn't want NBA players taking to the court wearing jerseys made in Asia.

"Basketball is an American game," Sen. Charles Schumer said.

Schumer held a press conference Sunday outside the NBA Store on Fifth Avenue, where he urged the league to intervene and stop adidas from moving production of the NBA's official uniforms to Thailand, or pull out of its contract with the sports apparel giant.

"Adidas' plan is to outsource the jerseys to Thailand and with that, they threw an airball big time," Schumer said.

Saying adidas has broken its contract with an upstate New York company that poured $1 million into the facility, Schumer called on the NBA to end its deal with the jersey maker if it goes ahead with the move from Perry, N.Y.

"Because it's an American sport invented in America, played better in America than anywhere else, the jerseys ought to be made here in America," Schumer said.

Schumer said about 100 jobs are at stake at American Classic Outfitters' factory, where more than half the uniforms worn by Kobe Bryant, LeBron James and other NBA players are manufactured.

"The bottom line is that this outsourcing has gone too far," Schumer said.

Is basketball really all that American?  The inventor of basketball was born and raised in Canada.  And the players are getting more and more foreign ("un-American", to borrow from Stephen Colbert).

But let me put that all aside and ask the following legal questions.  Let's say Senator Schumer succeeds in convincing Adidas to stay with the U.S. producer:

• Are his actions a "measure" that can be challenged in WTO dispute settlement?
• If so, would such actions violate any WTO obligations? Perhaps some U.S. services commitments?
• Is there a possible non-violation nullification or impairment claim (e.g., the U.S. lowered its tariff on these apparel products, but then prevented foreign production of such goods, thereby undermining the benefit)?

It’s not the global mechanisms that are wonky. It’s the weakness of the national governments pulling the levers. This would be as true of a plurilateral trade deal as of a multilateral, of course. There is no technocratic solution to the Doha round. It’s a political problem.

That sounds about right to me.  No doubt there are many WTO "governance" problems as well, but for the most part it's up to national governments to decide what they want from trade agreements and how seriously they want it.  Right now, there is a lot of disagreement on the former, and with regard to the latter there are other issues that seem to be a higher priority.

ADDED:  The other thing that occurs to me, speaking of politics, is that here in the U.S., there seem to more groups against a Doha agreement than for it, and the intensity of the opposition is greater than the support of the proponents.

So where does that leave us in terms of the exit strategies Tomer discussed?  I am torn between two extremes:  cut whatever deal you can versus abandon the round and start fresh.  Deep down, I think I prefer a radical overhaul, but I fear that it is not achievable right now, so it could be a mistake to try.

The options seem to be the following:

- "Keep on keeping on": Persist patiently, until conditions ripen for a comprehensive agreement. Some developing countries say they want this, the poorest actually mean it. The African Group ambassadors insist that given the choice between 'early' and 'succesful' they prefer successful. The 'early harvests' they hoped for - cotton, Duty-Free Quota-Free - have actually been pushed to the backburner. They think that they will lose from a non-comprehensive deal in 2010, and are trying to bring the larger developing countries to back them. But just like these states could never steer the process, they won't be able to prevent it from stopping. 

- Doha Light - Just Do It: Cut the losses, consolidate the little that has been agreed upon, because it does have value, get it done in 2010 and move on. This is the view taken by Bernard Hoekman at a ICTSD panel on "Bringing Doha to Closure". He says members should "grasp the bird in the hand", that a limited agreement that would include DFQF for LDCs, some new market access, and above all renewed commitments not to raise protection and support for domestic industries would be worthwhile, and worth having soon. Greater pressure for more market access should be shifted to post-round sectoral agreements, that would involve only the main importers and exporters in each sector, without holding the entire round hostage. 

- No deal/formal abandonment: On the same panel, Massimiliano Cali of ODI also advocated an early conclusion, preferrably with a reduced ambition deal but even without one, by comparing the costs and benefits of each scenario. According to him, (1) we haven't yet witnessed a protectionist spiral, and historically states have not tended to use 'water in the tariff' (the gap between ound and applied tariffs) - so a new tariff reduction agreement is not crucial' (2) the benefits of new end-of round tariff reduction would be small; small countries and LDCs would benefit, but progress is blocked by large players; and (3) the opportunity costs of being bogged down in the Doha process without being able to move on other new pressing issues are high.here is something to be said for this approach, but as Simon Evenett said (also on the same panel) there is too much bureaucratic vested interest in the round to let it end that way. It would also be very damaging to the WTO's already damaged reputaion (pointing out that all normative discussion of economic protectionism has effectively shifted from the WTO to the G-20).

- Informal abandonment: According to Evenett, this is a position already taken by many in practice. I agree - although this does not mean that at some level despite the substantive disengagement the round's conclusion is not still on everyone's to do list.

- "Functional UNCTAD": This was Evenett's term, describing the situation in which the WTO's negotation function is "in abeyance", and we are left with the dispute settlement function and perhaps an enhanced (and important) monitoring function. 

Lingering under this rather gloomy menu is the question of the reform of WTO decisionmaking processes, reform that is necessary to revive its negotiation function. But unfortunately, such reform is also tied to the Doha round exit strategy.

Risk, Science and Law in International Governance

Date: December 5, 2009 (Saturday)

Venue: Chicago-Kent College of Law

Illinois Institute of Technology

565 West Adams St.

Chicago, IL 60661-3691

For Registration, click http://www.asil.org/activities_calendar.cfm?action=detail&rec=100

Program Schedule

Saturday, December 5, 2009

8:30 am-9:00 am (Lobby)

Registration9:00 am-9:10 am

Welcome

Sarah Harding

Associate Dean, Chicago-Kent College of Law

Gregory Shaffer

Co-Chair, International Economic Law Interest Group, American Society of International Law

9:10-10:40 am

Panel I: Risk Science and International Trade

This session will provide an analysis of the current case law of the World Trade Organization on the connection between international trade and human health risks. Discussion issues include:

The WTO Hormones decision

The effectiveness of health measures and appropriate levels of protection

Risk assessment under WTO law

Gregory Shaffer, University of Minnesota Law School (Chair)

Warren Maruyama, Horgan & Hartson (“The WTO SPS Agreement: Ten Years after the Hormones Decision”)

Jeffrey Atik, Loyola Law School (LA) (“The Effectiveness of Health Measures and Appropriate Levels of Protection”)

Alberto Alemanno, Ecole des Hautes Etudes Commerciales,

Paris (“Risk Assessment under WTO Law: Workable Requirement or Probatio Diabolica?”)

10:40-11:00 am

Break

11:00 am-12:00 pm

Panel II: At the Edge of Risk Science

This session will provide provocative discussion of the interplay of risk science under international environmental law and the WTO norms. Discussion topics include:

Interpretation of scientific evidence

Precautionary principle and the WTO law

Dan Tarlock, Chicago-Kent College of Law (Chair)

Sungjoon Cho, Chicago-Kent College of Law (“Science, Hermeneutics and International Law”)

Markus Wagner, University of Miami School of Law (“Taking Interdependence Seriously: The Need for a Reassessment of the Precautionary Principle in International Trade Law”)

12:00 pm-1:00 pm

Lunch

1:00-2:30 pm

Panel III: Risk Science and International Governance

This session will review sophisticated regulatory arrangements involving both international organizations and self-regulatory regimes. Topics include:

Standards of review in the WTO tribunal

Delegation of risk regulation to private parties

Regulating risks through online networks

Claire Kelly, Brooklyn Law School (Chair)

Tracey Epps, University of Otago, New Zealand (“To Defer or Not to Defer? Has the Appellate Body Resolved the Issue of an Appropriate Standard of Review in SPS Cases?”)

Adam Muchmore, University of Chicago Law School (“Delegating Risk Regulation”)

Jennifer Shkabatur, Harvard Law School (“Fighting Global Risks through Online Networks”)

2:30 pm-3:00 pm

Break

3:00 pm-4:30 pm

Panel IV: New Challenges and New Ideas

This session will highlight the emerging challenges in the relationship between international trade and human health regulation as well as suggest innovative institutional solutions to tackle those challenges. Issues for discussion include:

The “necessity” test under GATT Article XX

Risk assessment and international investment law

Political challenges in the SPS Agreement

Jason Yackee, University of Wisconsin (Madison) Law School (Chair)

Benn McGrady, Georgetown University Law Center (“Chains of Causation and Necessity under Article XX of the GATT”)

Justin Jacinto & Rahim Moloo, White & Case (“Science and the Assessment of Legitimate Government Regulation in International Investment Law”)

Christopher Thomas, University of Cambridge (“Rationalising Politics: Science, Conflict, and the SPS Agreement”)

4:30 pm-5:00 pm

Conclusion: Questions and Answers

* We regret that CLE credits are not available for this conference.

In any case, beyond the posturing on agriculture and Geographical Indications, probably largely meant for the French press, the interesting point mentioned was a proposal apparently made a couple of days ago by France together with Brazil about the regulation of the global market for agricultural land. I haven't seen the proposal and don't know in which forum it has been made (WTO or otherwise).

Whatever it is, it relates to this phenomenon: millions of hectares being purchased by countries like China and Saudi Arabia, that are concerned about their food security. Theoretically, I wonder if this could be a WTO issue, if only because it could influence international trade in agricultural products (not to mention biofeuls), or through the backdoor of agricultural services. Regardless, this is clearly a very complex issue as far as development is concerned, worthy of research.

On another level, given the history of colonialism, I wonder why it should be France, or Europe at all that is bearing the flag on this issue. When they wanted land in Africa, they didn't even pay for it.  

Brazil Minister of External Relations Celso Amorim:

The Doha Round was launched with the objective of bringing the development dimension into the WTO. Over the last 8 years we have built a negotiating package that potentially contains benefits for developing countries and for the membership as a whole.

 The contribution of developing countries would be greater than that given by developed countries in any of the previous negotiating Rounds. It is unreasonable to expect that concluding the Round would involve additional unilateral concessions from developing countries.

It would be interesting for the U.S. Trade Representative and the EU Trade Directorate to make the following proposal: 

Hey, Wen, you're right about the unfair tire tariffs and the like.  Let's make a trade deal:  you allow the yuan to appreciate, say, 20% against the dollar over the next twelve months.  In return, we will announce a voluntary two-year moratorium on any new anti-dumping and escape clause measures targeted against Chinese imports.  What do you say?

To be honest, I'm not sure if this is legal, but it would be an interesting gambit.

This might not work -- among other things, there would be MFN problems to a moratorium that covered only Chinese imports -- but I like the general concept.  How about this instead:  The U.S. and EU abandon the "non-market economy" classification in return for China allowing the yuan to appreciate?

Compare to Catherine Ashton, on her last day in office at DG Trade, and as she put it - in her last three minutes of speech. She said that 'low-intensity protectionism has been contained, and very quickly she turned to discuss the need to address the needs of poor developing countries, and that we are moving too slowly to reach the goal of completing the round in 2010, with an 'ambitious, balanced and comprehensive' development package as its goal. She then moved on to discuss climate change issues, especially the encouragement of development and trade in environmental goods and services. I don't think she mentioned market access. And she even found time to thank Pascal Lamy for his efforts.

It's easy to be critical of both of these statements - could Kirk have said much else, given the evident lack of a mandate to make any progress on key issues? By focusing on development and climate change was Ashton not evading responsibility for some EU positions that have nothing to do with either and everything to do with protection and market access? In any case, it's interesting to see how these very different statements reflect very different styles of rhetoric and cultures of discourse. The Americans and the English are indeed divided by a common language.     

Not likely to happen, but who knows? Lamy, who left before the other panelists spoke, described the Ministerial as a test to gauge the political determination to conclude the Doha Round in 2010. The elephant in the room (who is more often not in the room, or at least in another room) is the US. As Marchi said, a lot depends on a particular country, that needs to get its mandate, or else Ministers will be on a "stationary bicycle - a lot of sweating, but very little moving".   

T.  

At the outset, let me note that, as with trade more generally, offshoring has its winners and losers. The most prominent losers are people in rich countries (such as Japan) who lose their jobs when these jobs are outsourced to countries where wages are lower. The winners may include several groups: the people in developing countries who now have jobs (or higher paying, higher skill-level jobs than they had previously); the corporations who now pay lower wages; and consumers of the products and services in question, who will likely pay lower prices.

It’s certainly reasonable to be troubled by the job losses in Japan. Any government should be concerned about this, and the people affected are not going to be happy about it. But is trying to stop offshoring an appropriate response? I think there are good arguments that it is not.

First, any measures taken in this regard will prevent developing countries from moving up the economic ladder, or at least slow their progress. Rich countries talk a lot these days about helping developing countries grow their economies (e.g., tariff preference programs, various aid programs). It would be a shame to see a promising private sector initiative that achieves this same goal be undermined by government action. All that is required by governments here is to do nothing and it will be a positive for economic development.

And second, in the absence of offshoring, developing country governments are more likely to take action to encourage their own, competing industries. If they succeed, the result would be competition for rich country companies from those same, lower-wage workers, which means that the ultimate result would be similar, just delayed a few years. (And if the response to that competition is protectionism in the rich countries, then we just end up with a large number of protected, national markets, which doesn’t seem like a very efficient outcome.)

So, yes, be concerned about job losses from offshoring, and try to help those who are affected through various government programs. But offshoring is not necessarily something we should try to stop, even if we could, as there are many people who benefit from offshoring, including a large number of people in developing countries. It may be one of the best development programs available.

All good points, but I was disappointed to see no mention of the carbon consumption tax alternative, which can reduce or eliminate a lot of the trade conflict.

[WTO Members] shall not, by exchange action, frustrate* the intent of the provisions of this Agreement ...

Thus, Article XV:4 refers to the "intent of the provisions of this Agreement."  One provision of "this Agrement" (that is, the GATT) is Article II, which is titled "Schedules of Concessions" and requires Members to abide by their scheduled tariff concessions.  Here's a question I have:  What is the intent of Article II and how does that impact on the Article XV:4 obligation?

A narrow view of the purpose of Article II might be that it obligates Members not to impose duties/charges in excess of the scheduled duties/charges (i.e., the amounts they have promised).  That is, its purpose is simply to enforce the concessions.

But it may also be possible to justify a broader characterization and suggest that the underlying purpose of enforcing the concessions is to provide greater "market access" for imports.  That is, the true goals of scheduling the concessions are to (1) reduce duties/charges and (2) provide certainty by establishing an upper limit on them.  This helps open the domestic market to imports.

So breaking down my original question, the first part is, which of these two purposes (keeping tariffs at or below the bound rates vs. greater market access) is a better description of the objectives of Article II?  Then, if the purpose is market access, the second part is, can an exchange rate peg which keeps a currency undervalued be said to frustrate the intent of Article II by keeping prices of imports artificially high, and thus undermining the market access achieved by the tariff concessions?

Any thoughts?

From the intro:  "This paper will deal with the question whether the exchange rate regime operated by the People’s Republic of China is contrary to the rules of International Economic Law, or whether it is merely a—maybe selfish but absolutely lawful—way for the Chinese government to pursue an economic policy it deems appropriate for its country for the time being. The questions dealt with in this contribution are,
however, not limited to the case of China. Other countries have been accused of exchange rate manipulation as well. In the immediate past, the recent economic downturn caused increased concerns about competitive currency devaluations taking place."  And from the conclusion:  "even the intentional devaluation or suppression of the exchange rate does not necessarily—as I have tried to point out—infringe the WTO agreements."

There are lots of other good pieces in the publication as well.  See the TOC here.

70. Annexes 2 and 3 provide factual information on the general economic stimulus measures and the specific measures for financial institutions.  Most of these measures were undertaken at the beginning of the review period.  Monitoring the impact on trade of fiscal stimulus programmes and industrial and financial support programmes presents a particular challenge because of the paucity of data available, in particular on the specifics of how these programmes are being implemented.  Concerns have been raised by some governments and businesses about "buy/invest/lend/hire local" requirements that have been attached officially or unofficially to some of these programmes.  Because of their evident nationalistic appeal in current circumstances, there is a particular danger that these programmes could become targets for retaliation and proliferate.  Several new cases of "buy local" campaigns, usually at local government levels, have been reported in the press throughout the year.

...

139. The importance of the GPA was seen clearly in the framing of the American Recovery and Reinvestment Act of 2009 (i.e. the U.S. "stimulus legislation").  The U.S. legislation (Pub. Law 111-5, enacted by Congress and signed into law in February of 2009) introduced two new "Buy American" requirements, one relating to the procurement of iron, steel, and manufactured goods for construction and related projects concerning public buildings and works (section 1605 of the legislation), and the other involving the procurement of specified items of clothing or equipment for the Department of Homeland Security (section 604).  In both cases, the stimulus legislation addresses the potential conflict with the WTO Agreement on Government Procurement (GPA) and other U.S. international trade commitments by including a further provision stipulating that:  "This section shall be applied in a manner consistent with United States obligations under international agreements" (section 604(k) and section 1605(d) of the legislation).  Subsequently, a notification by the United States to the WTO Committee on Government Procurement (GPA/98 of 24 April 2009) provided details of interim implementing measures relating to the two requirements.  These measures have been an important topic of discussion in the Committee during the year.

140. "Buy National" requirements raise concerns for trade and the international trading system in three main ways.  First, they can exclude foreign suppliers from markets in which they could otherwise hope to compete, either by reserving the market completely for domestic suppliers or by introducing administrative complexities that make procurement procedures less easily accessible for foreign suppliers.  Second, paradoxically, in some cases they may even raise the costs or impede the operations of domestic companies in the countries implementing the relevant measures, if such companies experience difficulties in sourcing domestically and cannot easily obtain waivers for purchases abroad.  Third, as in other economic sectors, the implementation of discriminatory government procurement measures in one country may engender pressures for the adoption of similar measures by other countries.  In this context, following the adoption of the U.S. stimulus legislation, China reinforced its own "Buy Chinese" regulations and there were press reports of pressures building for the adoption of "Buy Canadian" procurement measures particularly at the sub-central government level.

In a nutshell, such programs make procurement more expensive for the purchasing government, and lead to domestic companies losing business as other countries copy the discrimination.

... the US doesn't have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.

Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China's. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.

The difference in exchange rates would provide an enormous incentive for Chinese businesses and individuals to exchange their yuan at the Treasury rate rather than the official Chinese rate. While this may violate Chinese law, the enormous potential profits would make the law difficult to enforce. In a relatively short period of time, the US exchange rate is likely to become the effective market exchange rate.

Is there any precedent for this kind of battle of exchange rate pegs?  It sounds like it could be worse than trade litigation.  As Baker himself notes "this situation of warring exchange rates would lead to a period of instability and unnecessary hostility between the two countries."

H.R. 3012, TRADE Act
...

The bill spells out what should be in trade agreements including standards on: labor, environment, food and product safety, agriculture, human rights, currency anti-manipulation rules, national security, procurement, investment 

The bill also lists issues that should NOT be in trade agreements including: bans on Buy America, bans on anti-sweatshop rules, new rights for foreign investors to promote off-shoring, service sector privatization and deregulation requirements, special protections for pharmaceutical companies that limit affordable access to drugs. 

...

H.R. 3786, Reciprocal Market Access Act
...

Authority to receive or eliminate tariffs in trade agreements is tied to achieving meaningful market access for U.S. domestic producers that have identified and worked with the U.S. government to address those barriers. 

To better ensure meaningful market access, the bill requires that the President provide a certification to the Congress in advance of agreeing to a modification of any existing duty on any product, that sectoral reciprocal market access has been obtained. 

I wish I had a better sense of how they envisioned the trade regime.  Let's say they controlled Congress and the White House, and could convince the rest of the world to go along.  What would things look like?  I'm pretty sure of the following:

-- international labor and environment rules would be strengthened (broader and more enforceable)

-- international IP rules would be weakened (e.g., more leeway for compulsory licensing)

-- Buy (Your Country Here) rules would be allowed and widely used

-- subsidies and protection for agriculture would be higher

-- services liberalization would mostly stop

-- investment agreements would be weakened (e.g., perhaps no more investor-state)

But there's one very important point that I can't figure out.  What is their ideal view of tariffs?  They seem to want to condition lowering U.S. tariffs on other countries lowering their tariffs.  My question is, would they prefer that other countries don't lower tariffs, and thus all tariffs remain high?  Or are they hoping everyone else lowers their tariffs, after which the U.S. will do so as well?

reason: Was NAFTA a mistake?

Bhagwati: I think in retrospect, yes. It’s not a slam dunk argument because it did bring in Mexico. Otherwise, they were talking about CAFTA which included just Canada and the U.S. But when you brought in Mexico, it made it a much bigger thing.

President Clinton was carrying on the multilateral negotiations in tandem with NAFTA. But NAFTA created worries on the part of the unions here, because this is a poor country and they were worried that Mexican competition would really hurt their wages. So even though the multilateral talks would’ve gone through without any difficulty, President Clinton ended up having to fight very hard for NAFTA, which survived by a very narrow majority. In order to win NAFTA, he had to give in on things like labor standards and so on. That’s when all these social things became part of trade deals. From there, it never looked back.

So in retrospect, I would say, because of the concessions they had to make, Clinton started us down a road which really has been counterproductive.

There is another thing to worry about. When you look at a trade agreement like NAFTA, it’s about that thick (holds his hands about two feet apart). When I debate people like Lori Wallach of Public Citizen, she arrives with a lot of books, and among them is this NAFTA treaty she carries for effect. I hope she gets a hernia from doing this often enough, because it looks pretty heavy to me. I wouldn’t be carrying it around. Anyway, she shows this book and asks, “Is this free trade?” And mad as she is, she’s right to raise that issue. You should be able to say maybe in 10 pages that in these sectors we are going to liberalize and so on. But nine-tenths of what’s in these agreements are things which have nothing to do with trade. Labor standards, environmental standards, intellectual property rights. If I were Jane Fonda, in order to sell more workout tapes, I could put into the agreement a clause that the president of Mexico has to do his exercise to my tapes. And it would go in, because ours is a lobbying culture and nobody really would know that it’s there. Because who opens these things except the lobbyists?

So many developing countries are now waking up to the fact that they’re being sold a bill of goods in the form of trade agreements.

-- Panel requested by Canada and Mexico on U.S. country of origin labeling (DS384 and 386): established.

-- Panel requested by the U.S. on EC restrictions on poultry imports (DS389): established.

-- Panel requested by the EC, Mexico and the U.S. on Chinese export restrictions (DS394, 395 and 398): blocked.

-- Request for retaliation by Brazil in relation to the U.S. - Cotton dispute (DS267): authorized.

Those who read my previous post on this topic may have noticed that I buried the NME issues towards the end.  You may have suspected that was because I wasn't quite sure what to say about them.  If so, you were right.  I still don't have the issues quite sorted out yet, but I thought I would point readers to the recent U.S. statement to the panel in the DS379 case, where the issue was discussed as follows:

2. NME Methodology is Not Designed to Offset Subsidization

75. China’s position rests on the extraordinary proposition that an NME anti-dumping methodology, by its very nature, offsets subsidization.59 This proposition is without merit. It reflects an understanding of the NME methodology that has no basis in, and is contradicted by, the text of the covered agreements.

a. The Covered Agreements Provide No Support for China’s Proposition

76. First, as the United States has observed,60 the covered agreements establish the antidumping and countervailing duty regimes as two different mechanisms to address two separate and distinct unfair trade practices. China has not cited any provision of the GATT 1994, Anti-Dumping Agreement or SCM Agreement that would support its proposition. Indeed, if the NME methodology does in fact counteract subsidization, leading directly to a so-called double remedy, one might have expected China to negotiate in its Protocol conditions on a Member’s recourse to that methodology or, even better, an express prohibition on the concurrent application of AD and CVD measures, as it seeks to have the Panel insert now. China did neither.

77. Furthermore, accepting the view that the NME methodology is designed to offset subsidization would lead to incongruous results under the covered agreements. The United States recalls that footnote 36 to the SCM Agreement states that a countervailing duty “shall be understood to mean a special duty levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any merchandise, as provided for in paragraph 3 of Article VI of GATT 1994.” If China’s theory was applied, that is, if the NME methodology offset subsidization, then any anti-dumping duty calculated pursuant to the NME methodology would fall squarely within this definition of “countervailing duty.” Because such an anti-dumping duty would also be a countervailing duty, that anti-dumping duty, as required by Article 10 of the SCM Agreement, could “only be imposed pursuant to [an] investigation[] initiated and conducted in accordance with [the SCM Agreement].”61 Therefore, an investigating authority could not impose an anti-dumping duty calculated pursuant to the NME methodology without first also conducting a CVD investigation. In the absence of such an investigation, an anti-dumping duty calculated pursuant to the NME methodology, under China’s theory, would appear to be inconsistent with Article 10 of the SCM Agreement. Under China’s theory, this would be the case whether or not a concurrent CVD case were ongoing. And of course, under China’s argument, even after conducting the two investigations, that investigating authority could not also impose the duty resulting from the separate CVD investigation, but instead, would be permitted to impose only one of the duties calculated.

b. U.S. Law on the NME Methodology Provides No Support for China’s Proposition

78. Just as China’s view that the NME methodology counteracts subsidization cannot be
reconciled with the text of the covered agreements, so too can it find no support in the text of the U.S. law governing the NME methodology. As explained in the U.S. rebuttal submission,62 U.S. law identifies an exporting country as an “NME” based on an examination of multiple statutory factors, none of which references subsidization. Put simply, the existence, nature, or extensiveness of subsidization in the exporting country has no bearing on the designation of that country as an “NME.” There is no basis to contend that subsidization is one of the “‘distortions’ in the market that the NME construct was designed to address”63 when it is not even a factor examined when considering whether a country constitutes an NME.

79. The exclusive focus of the NME methodology on making a price comparison for the purpose of calculating the dumping margin is also reflected in U.S. legislative history, which notes that normal antidumping methodologies were “insufficient to counteract dumping in State controlled economy countries where the supply and demand forces do not operate to produce prices … which can be relied upon for comparison purposes.”64 In its First Written Submission, China relies on one mention of subsidization in the NME context in the U.S. legislative history as support for its view that the NME methodology offsets subsidization.65 However, this reliance is misplaced.

80. The United States has explained in its rebuttal submission that Commerce tends to avoid
factor values in the limited circumstances where those values are based on import prices of inputs and the inputs are from countries that have been found in prior CVD investigations to be providing non-product-specific export subsidies.66 This naturally leaves a whole swathe of
potential subsidies unaccounted for in Commerce’s application of the NME methodology. In
respect of this broad range of potential subsidies, Commerce undertakes virtually no inquiry.
Moreover, even where Commerce excludes factor values based on subsidized inputs, the factor values that are ultimately selected may well reflect subsidization themselves because Commerce does not and cannot ensure otherwise. Therefore, the prices used by Commerce when constructing normal value under the NME methodology cannot be concluded to be “unaffected by subsidies,” as presumed by China’s theory.67

81. This is not surprising, though, when one recognizes that the proper objective of the NME
methodology is not to offset subsidization, but is to measure the margin of dumping in a context where normal value cannot be reliably measured using the exporting country’s own costs and prices.68 China’s attempt to argue otherwise finds no basis in the covered agreements or in U.S. implementation of the NME methodology.

In this case, information was filed against defendant for offering or exposing for sale imported chicken shell eggs of Australian origin without complying with section 1308.02 of the Revised Laws of Hawaii 1945. The section is a new section added to chapter 20 of the Revised Laws, relating to sale of eggs, by section 5 of Act 167 of the Session Laws of 1955. It provides that it is unlawful for any person to sell, offer or expose for sale any imported chicken shell eggs of foreign origin unless a placard bearing the words "WE SELL FOREIGN EGGS" printed in legible boldface letters of a size not less than three inches 566in height is displayed in a conspicuous place where the customers entering can see it.

Act 167 also amended, by section 1 thereof, section 1307 of the Revised Laws, relating to grading standards and regulations. It authorized the board of commissioners of agriculture and forestry to make rules and regulations with respect to sale and transportation for sale of eggs for human consumption; grades or standards of quality and condition; size and weight classes; inspection and classification; assessment and collection of fees for requested certification; labeling of containers of imported and locally produced eggs; character of newspaper advertisements, posters or signs as to size, grade and geographic origin of eggs offered or exposed for sale; seller's invoice for sale of eggs; records of imported shell eggs of foreign origin; and enforcement of the provisions of the subtitle of chapter 20 relating to eggs and the rules and regulations promulgated under the authority of such subtitle.

To the information, defendant filed a demurrer and set forth ten grounds in support thereof. The court below sustained the demurrer on three grounds, namely (a) that Act 167, and in particular section 5 thereof, is in contravention of the fifth and fourteenth amendments to the Constitution of the United States in that it deprives defendant of his property without due process of law by preventing the sale of his property without compliance with its provisions, which provisions are in excess of the lawful exercise of the police power of the Territory; (b) that the Act is void in that section 1 thereof authorizes the board to make rules and regulations without defining any standards therefor; and (c) that the Act is in contravention of clause 2 of Article VI of the Constitution of the United States in that its provisions are in conflict with the express provisions of the General Agreement on Tariffs 567and Trade to which the United States and Australia are signatories.

Defendant is charged with violation of section 5 of Act 167, not with violation of any rule or regulation promulgated under section 1. Consequently, we deem it unnecessary to discuss the legality of section 1. We are of the opinion that the demurrer was properly sustained on the ground that section 5 contravenes the General Agreement on Tariffs and Trade.

The General Agreement on Tariffs and Trade is a multilateral agreement originally entered into on October 30, 1947, by twenty-three nations, including the United States and Australia. (61 Stat. Part 5) It was modified by the Geneva Protocol of September 14, 1948. (62 Stat. 3679) It was executed on behalf of the United States by a plenipotentiary of the President. It is not a treaty made by the President by and with the advice and consent of the Senate under Article II, section 2, of the Constitution of the United States. It is an executive agreement made in the exercise of the authority granted to the President "To enter into foreign trade agreements with foreign governments or instrumentalities thereof," under section 350 (a) of the Tariff Act of 1930, as amended. The constitutionality of the grant of such authority has been repeatedly questioned in and out of Congress. Nevertheless, Congress has extended from time to time the period during which the President may exercise such authority. The latest extension is contained in Trade Agreements Extension Act of 1955, which extends the authority until the close of June 30, 1958. In the Act, Congress provided, "That the enactment of the Trade Agreements Extension Act of 1955 shall not be construed to determine or indicate the approval or disapproval by the Congress of the executive agreement known as the General Agreement on Tariffs and Trade."

Article VI, clause 2, of the Constitution of the United 568States provides that "all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land." Under this constitutional provision, there is no question that a treaty made by the President, by and with the advice and consent of the Senate, is the supreme law of the land, overriding all state laws in conflict therewith. This case poses the question: Is an executive agreement, such as the General Agreement on Tariffs and Trade, a treaty within the meaning of this constitutional provision, so that it has the same efficacy as a treaty made by the President by and with the advice and consent of the Senate? We think that it is, under the decisions of the Supreme Court of the United States in United States v. Belmont, 301 U.S. 324, and United States v. Pink, 315 U.S. 203. In both cases the court had under its consideration an executive agreement known as the Litvinov Assignment. In United States v. Belmont, the court stated at page 331: "Plainly, the external powers of the United States are to be exercised without regard to state laws or policies. The supremacy of a treaty in this respect has been recognized from the beginning. * * * And while this rule in respect of treaties is established by the express language of cl. 2, Art. VI, of the Constitution, the same rule would result in the case of all international compacts and agreements from the very fact that complete power over international affairs is in the national government and is not and cannot be subject to any curtailment or interference on the part of the several states." In United States v. Pink, the court stated at page 230, "A treaty is a `Law of the Land' under the supremacy clause (Art. VI, Cl. 2) of the Constitution. Such international compacts and agreements as the Litvinov Assignment have a similar dignity."

The Territory is a fortiori bound by an international agreement having the dignity of a treaty because section 56955 of the Organic Act specifically enjoins that its legislative power be exercised consistently with the Constitution and laws of the United States.

Then, in what respects does section 5 of Act 167 contravene the General Agreement on Tariffs and Trade?

The General Agreement on Tariffs and Trade provides in Article III, paragraphs 1 and 4, as follows:

"1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production."

"4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product."

Certain exceptions to the above quoted provisions are set forth in Article XX of the agreement, as follows:

"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 570shall be construed to prevent the adoption or enforcement by any contracting party of measures:

I. (a) necessary to protect public morals;

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

* * * * *

(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices."

Section 5 of Act 167, in requiring a conspicuous display of a placard of origin, singles out chicken shell eggs of foreign origin from domestic eggs. No such requirement is imposed in connection with the sale, or offering or exposing for sale, of chicken shell eggs of local or mainland origin. That its purpose is to protect domestic production is indicated by the following statement in Standing Committee Report No. 482 to the President of the Senate, Twenty-Eighth Legislature: "Your Committee conducted a public hearing, at which time it was determined that the majority of poultrymen in the Territory were in favor of this measure." Thus, it contravenes the proscription of Article III, paragraph 1, of the General Agreement on Tariffs and Trade that internal laws affecting the internal sale or offering for sale should not be applied to imported products so as to afford protection to domestic production. Furthermore, in imposing an additional requirement on foreign eggs which is not imposed on domestic eggs, it contravenes Article III, paragraph 4, of the agreement which provides that the products of the territory of any contracting party imported into the territory of any other contracting 571party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws affecting their internal sale or offering for sale.

The requirement of section 5 of Act 167 does not come within any of the exceptions in Article XX of the agreement. Such requirement is not necessary for the protection of public morals; nor is it necessary for the protection of human, animal or plant life or health.

If it be deemed that a measure to prevent deceptive practices is necessary, such a measure, more comprehensive and nondiscriminatory, is found in section 1308 of the Revised Laws, which provides: "In the case of eggs imported from the mainland United States or foreign countries, regardless of the person producing the same, each egg so imported shall be marked in clear and plain letters, of not less than twelve point type, the letters `U.S.', if such egg was produced in the mainland United States, or the name of the country, if such egg was produced in a foreign country, before such eggs may be removed from any dock or landing * * *." The exception under Article XX of a measure relating to the prevention of deceptive practices is subject to the requirement that such a measure is 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." We think that the additional requirement of a placard of origin only in the case of foreign eggs constitutes a disguised restriction on international trade.

Most of the world’s major currencies “float” against one another. That is, their relative values move up or down depending on market forces.  ...  most nations try to keep the value of their currency in line with long-term economic fundamentals.

China is the great exception. Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

He has said this part before.  The new point he makes is this:

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge.

That, at any rate, is the argument made in a new paper by Richard Baldwin and Daria Taglioni of the Graduate Institute, Geneva. As they note, trade imbalances, both China’s surplus and America’s deficit, have recently been much smaller than they were a few years ago. But, they argue, “these global imbalance improvements are mostly illusory — the transitory side effect of the greatest trade collapse the world has ever seen.”

Basically, his view is that it's even worse than we thought, and the Obama administration better do something quick.

Less than a month after Prime Minister Stephen Harper visited Washington to lecture President Obama about the dangers of “Buy American” laws, his government passed a “Buy Canada” tobacco ban that violates Canada’s World Trade Organization (WTO) responsibilities. 

The legislation, C-32, was intended to ban candy-flavored tobacco products, a worthy goal that U.S. burley growers share. 

Unfortunately, C-32 morphed into an overreaching piece of legislation that prohibits the manufacture or sale of blended cigarettes that contain burley tobacco. This outcome is especially troublesome because American blend cigarettes are not candy-flavored in any way. The Canadian government conceded this vital fact during Parliament’s consideration of C-32, but it proceeded to target a legitimate American product anyway because small amounts of additives were used to reduce the harshness of the burley tobacco. ...

Given the difficulty the burley folks may be having in getting USTR to take action, I'm wondering if there are any Canadian investments they have made so as to bring an investor-state case under NAFTA Chapter 11.

Employing the terms-of-trade framework for the modeling of trade agreements, we show how  "large" nations may have an incentive to impose discriminatory product standards against imported goods once border instruments are constrained, and how inefficiently stringent standards may emerge under certain circumstances even if regulatory discrimination is prohibited. We then assess the WTO legal framework in light of our results, arguing that it does a reasonably thorough job of policing regulatory discrimination, but that it does relatively little to address excessive nondiscriminatory regulations.

The issue of how WTO rules should and do address non-discriminatory measures has long been an interest of mine and is something I have blogged about before (see, e.g., here).   In my view, the extent to which trade agreements should go beyond discrimination is one of the most important issues facing the trade regime.  Are there good reasons to regulate non-discriminatory measures?  Is there a downside to doing so?  The Staiger/Sykes paper provides a number of insights on these issues.

Early on in the paper, they state:

We then suppose that governments agree to a national treatment clause that applies to both domestic taxation and regulatory standards, and we ask: Will a tariff agreement that is protected by this broader nondiscrimination rule allow governments to reach internationally efficient policies? Again we show that the answer is "no," because governments have an incentive to distort their consumption taxes to inefficiently high levels even if these taxes cannot be set in a discriminatory fashion, and they may (and will, if product-level consumption taxes are unavailable) have an incentive to distort upward their nondiscriminatory product standards as well.

Our economic analysis thus leads to the following broad conclusion. To achieve internationally efficient policy levels in this environment, tariff agreements must include rules that prevent the use of discriminatory domestic tax and regulatory policies, while at the same time preventing governments from setting excessively high nondiscriminatory taxes and product standards in response to the ability to shift some of the costs of these policies onto foreign exporters.

Thus, they make the point that a non-discrimination rule is insufficient to achieve "internationally efficient policies."  In this regard, they refer to "excessively high" taxes and product standards.  They argue that additional rules might be useful in this regard:

The analysis suggests as well a possible need for additional legal disciplines on nondiscriminatory regulatory and tax policies to prevent international cost-shifting and over-regulation in appropriate cases.

However, they note, WTO rules do little to address this issue:

the explicit obligations contained in GATT Article III and the SPS and TBT Agreements probably do little to address this ... issue. We then evaluate the possible role for "nonviolation" claims in cases involving nondiscriminatory regulations, which would allow exporting nations to seek compensation for reduced market access, but suggest that as currently interpreted the nonviolation doctrine is also probably ineffective in providing the needed discipline.

They elaborate on these points as follows.  With non-violation, they see it as effectively limited, in the case law, to discriminatory measures, and suggest that even if it could be used to address non-discriminatory measures, this would only be appropriate in exceptional cases.  With regard to the SPS and TBT Agreements, they argue that:

it is at least questionable whether the obligations to use international standards, the scientific evidence requirements, and the consistency requirements will do much in practice to address instances of economically excessive nondiscriminatory regulation. Indeed, it is possible to interpret all of these provisions as falling within the nondiscrimination framework. If a nation declines to adopt international standards when they would achieve its objectives adequately, it might be presumed to be acting strategically to disadvantage foreign suppliers, whose goods will often meet the international standard but perhaps not the domestic alternative. The obligation to use international standards is then perhaps little more than a corollary of the least restrictive means principle. Similarly, a regulation that has no scientific justification might be considered a sham, again designed to raise the costs of foreign suppliers relative to their domestic competitors.

Their focus here was on international standards, scientific evidence requirements, and consistency requirements.  Let me note here that I disagree a bit with the authors on whether provisions of the SPS and TBT Agreements go beyond non-discrimination.  To me, all of the provisions they mention, as well as the "necessity" provisions, do, in fact, go beyond this, although exactly how far beyond is a little hard to say.  There is clearly some overlap between these provisions and the non-discrimination requirement.  However, there are at least some cases (although it is not clear how many) where such obligations will catch measures that would not violate the non-discrimination obligations.  For example, while a regulation not based on science might be a sham designed to raise costs for foreigners (as suggested by the authors), it could also be that the legislators/regulators believed that the science was too uncertain to follow or that science is not the only consideration.  It is also possible that while such a regulation raises costs for foreigners, it raises them for domestic entities even more.  As a result, it could be argued that if these kinds of rules are a proxy for discrimination, they are not a very good one.

Given their emphasis on the importance of disciplining non-discriminatory measures, it is not surprising that the authors are skeptical of a view of trade agreements that is restricted to non-discrimination:

For Regan (2006), the goal of trade agreements is to eliminate protectionism. But why do governments care about protection imposed by other governments? In our view, the answer lies in the fact that their exporters are harmed, and earn less on their export sales than otherwise. This is precisely the injury that terms-of-trade theory captures. Thus, we view the “governments do not take account of the terms of trade” objection to the terms-of-trade theory as misguided. It is not necessary for governments to literally “take account” of terms-of-trade effects in their decision making processes for the issues that the model highlights to arise. It is enough that government policy is the result of a political process in which domestic interest groups are represented and foreign interests are not. The resulting political equilibrium will then naturally select policies that ignore the harm done to foreign interest groups, and in particular the harm due to the fact that tariffs, consumption taxes, regulatory standards and the like may force foreign exporters to reduce their prices to remain competitive. As long as governments ignore such harm to foreign interests, they will tend to behave “as if” they were consciously manipulating their terms of trade.

In response to this, I offer three points.  First, it is no doubt true that there are non-discriminatory policies that affect trade.  So, trade concerns clearly go beyond simple protectionism.  However, when trying to build a trade regime, we need to balance out the goal of achieving efficient regulatory outcomes with that of creating a sustainable and legitimate legal and political structure for trade agreements.

Second, an agreement requiring "internationally efficient" domestic regulation would be extremely broad in scope.  There are likely to be arguments that a wide range of domestic regulation is inefficient.  Subjecting all such regulation to international discipline would lead to a situation where trade agreements could seriously hinder the adoption of much domestic regulation.

As a third point, the authors note that "governments care about protection imposed by other governments" because "their exporters are harmed, and earn less on their export sales than otherwise."  While this is no doubt true, I think it is likely that they care more about lost export sales when they are the result of discrimination against their products.  Most governments can probably live with a certain amount of incidental impact on their trade due to variations in regulatory policies; they are more likely to be upset when their goods are explicitly or intentionally targeted, or if discrimination can otherwise be shown.

With regard to all of these points, the following statement by the authors later in the paper seems relevant:  "An international system that second-guessed the cost-benefit determinations of national regulators would also likely intrude heavily on notions of national sovereignty and meet considerable political resistance."  Arguably, restricting trade agreements to the goal of eliminating protectionism is a way to achieve the appropriate balance between efficiency and regulatory autonomy.

Finally, it does seem clear that, all else equal, it would be a good thing if we had "internationally efficient policies" and could avoid "excessively high" taxes and regulatory standards.  The question I would ask is, are binding international agreements the best way to achieve this?  It may be that we could achieve just as much, if not more, through a cooperative and consultative system, as this could alleviate some of the sovereignty concerns noted above.