Author: Simon Lester

Multiple branches of government can be a real pain sometimes.

In the ongoing WTO EC – IT Products dispute (DS375, and also DS376 and DS377 brought by Japan and Chinese Taipei), the U.S. (that is, USTR) argued that the EC's reclassification of certain monitors in a way that led to higher duties was inconsistent with GATT Article II.  Here's a brief snippet of the claim from the U.S. first written submission:

55. Certain flat panel display devices were included in the ITA. Specifically, Attachment B of the ITA provides that participants shall “bind and eliminate” customs duties with respect to: Flat panel display devices (including LCD, Electro Luminescence, Plasma, Vacuum-Fluorescence and other technologies) for products falling within this agreement, and parts thereof.70

56. “Automatic data processing machines,” such as computers, “fall within” the ITA.71 Thus, this commitment includes flat panel display devices “for” computers – that is, flat panel computer displays such as LCD monitors. …

…

58. FPDs [Flat Panel Displays] entered the EC duty-free for years after the ITA was concluded and implemented, as required by the EC’s tariff concessions under the ITA. Then,… the EC changed course and over a period of three years, from 2004 to 2007, adopted a series of measures that resulted in the end of lasting duty-free treatment for virtually all LCD flat panel display devices exported to the EC. …

…

121. Based on the ordinary meaning in context of the terms in the EC’s Schedule, LCD monitors are “flat panel display devices…for products falling within this agreement.” A flat panel display device is “[a] video display with a shallow physical depth, based on technology other than the CRT (cathode-ray tube). Such displays are typically used in laptop computers. Common types of flat-panel displays are the electroluminescent display, the gas discharge display, and the LCD display.”166 In the ITA, the parenthetical following the terms “flat panel display devices” specifically identifies LCD flat panel display devices167 as one example of a flat panel display device. Computers (“automatic data processing machines”) are among the “products falling within” the ITA.168 LCD monitors “for” computers are therefore among the devices covered by the EC’s commitment with respect to flat panel display devices. Therefore, under the headnote, the EC and its member States are obliged to accord duty-free treatment to flat panel display devices for ITA products, and in particular LCD monitors, wherever they are classified.

…

122. Following implementation of the ITA, flat panel display devices such as LCD monitors imported into the EC were generally classified in CN line 8528 51 00 and its predecessor lines, and entered duty-free.169 CN 8528 51 00 covers monitors “[o]f a kind solely or principally used in an automatic data processing system of heading 8471”. However, as a result of several regulations and a CNEN adopted between 2004 and 2007, the EC and its member States began classifying certain FPDs under what is now CN code 8528 59 90170 and applying duties of 14% to these devices.

…

FN. 169 The EC renumbered CN 8471 60 90 to 8471 6 169 0 80, and later transposed the heading to CN 8528 51 00 as part of HS2007 implementation.

…

124. According to the EC, despite the fact that the LCD monitors in question were “mainly used” as computer monitors, the mere possibility that they could be connected to a source other than an computer meant that they were not covered by the ITA and therefore were not entitled to duty-free treatment. …

125. In regulations and amendments to the CNENs issued by the EC in late 2005 and 2006, the EC took further steps to exclude flat panel display devices from duty-free treatment in the EC. In these measures, the EC identified particular characteristics shared by approximately half of all LCD flat panel display devices – in particular, the presence of a DVI connector – as the basis for excluding the device. …

…

127. Several EC member States have issued BTIs reclassifying flat panel display devices as “video monitors” due to the presence of DVI. …

…

140. As explained above, the EC and its member States have acted inconsistently with Article II:1(b) by imposing ordinary customs duties on “flat panel display devices” for ITA products in excess of the bound rate established in their Schedule. Consequently, consistent with the approach adopted by the Appellate Body in, for example, Argentina – Footwear, the measures also result in duty treatment less favorable than that provided in the EC Schedule, contrary to Article II:1(a) of GATT 1994.

That's a lot of details to digest, and perhaps not a perfectly clear extract.  In a nutshell, under the WTO Information Technology Agreement (ITA) the EC had been giving certain flat panel display monitors (including LCD monitors) duty-free treatment as computer monitors.  These monitors could be used for more than just computers, though, and the EC later reclassified them as video monitors, which were subject to a duty.  The U.S. alleged a violation of GATT Article II, arguing that the reclassification as video monitors was improper.  (The WTO panel ruling in this case should be out soon.)
 
Moving to another branch of government, the Court of International Trade (CIT) recently (March 1) issued the following decision in the BenQ Am. Corp. v. United States case on a similar classification issue:

In this action, Plaintiff BenQ America Corporation challenges the decision of the Bureau of Customs and Border Protection denying BenQ’s protest concerning the tariff classification of certain liquid crystal display (“LCD”) monitors imported from the People’s Republic of China in mid-May 2004.

…

The Government maintains that Customs properly classified the merchandise at issue – Dell™ 2001FP Flat Panel Color Monitors – as “video monitors” under heading 8528 of the Harmonized Tariff Schedule of the United States (“HTSUS”), assessing duties at the rate of five percent ad valorem.

…

BenQ contends that the monitors instead should have been classified as display units for automatic data processing (“ADP”) machines under HTSUS heading 8471, duty-free.

…

According to a study commissioned by BenQ, which surveyed purchasers of the monitor at issue (and a somewhat earlier model), “[a] very large majority (86.6 percent) of survey respondents . . . purchas[ed] the monitors . . . for use principally as a display unit for computer uses,” and “[a]n overwhelming majority (more than 99 percent of survey respondents)” were using the monitors with a computer.

…

[However,] as designed, manufactured, and imported, the monitors at issue are equipped to receive signals from both computers and other non-computer devices.

… Asserting that the “principal function” of the imported merchandise is “as a computer monitor,” BenQ contends that the merchandise should be classified under HTSUS heading 8471 (“Automatic data processing machines and units thereof”), duty-free, as BenQ claimed at the time of importation. … In contrast, the Government maintains that Customs correctly classified the monitors under heading 8528 (“Reception apparatus for television . . .; video monitors and video projectors: Video monitors”), dutiable at the rate of five percent ad valorem, and that Customs’ denial of BenQ’s protest should therefore be sustained.

…

As set forth below, however, under Chapter 84 Note 5 (read in tandem with the relevant Explanatory Notes), the pivotal issue is instead whether the imported merchandise can “perform[ ] a specific function other than data processing” – or, stated differently, whether the monitors “are capable of accepting a signal only from the central processing unit [“CPU”]” of a computer (or whether they can also accept non-computer signals).

…

The imported monitors are thus classified under HTSUS heading 8528 under a straightforward GRI 1 analysis.

… the imported monitors cannot be classified as display “units” of “automatic data processing machines” under HTSUS heading 8471. See section III.B, supra. By the same token, it is undisputed that the monitors are video monitors. See section III.A, supra. As such, they are classifiable as “video monitors” under the broad eo nomine heading 8528, and thus were properly classified thereunder. See section III.A, supra. All that remains now is to ascertain the proper subheading.

…

Customs classified the monitors under subheading 8528.21.70, which covers “Reception apparatus for television, . . . ; video monitors . . . : Video monitors: Color: With a flat panel screen: Other: Other.” See Subheading 8528.21.70, HTSUS. Here, there is no claim by BenQ that some other subheading of heading 8528 more specifically describes the imported merchandise. An independent review of the potential subheadings confirms that, in fact, there is none. The monitors were thus properly classified under subheading 8528.21.70 of the HTSUS.

Again, sorry for the mangled extract, but if I'm reading this correctly, the CIT thinks that LCD monitors are properly classified as video monitors, rather than computer monitors (that is, "ADP" monitors).

Sifting through the customs classification reasoning in the CIT decision and the U.S. WTO submissions is a challenge for me.  Customs classification is not something I look at very often.  At first glance, though, it seems to me that the CIT position on classification is the opposite of what the U.S. argued to the WTO.  Maybe there's some way to reconcile the positions, but I don't see it.

Aside from the customs issues, what also interests me is whether the two proceedings will refer to each other.  Looking quickly through the various WTO submissions available online, I did not see a reference to the U.S. litigation.  But perhaps with the release of this CIT decision, it will begin to play a role.

ADDED:

Lawrence Friedman of the Customs Law Blog talks here about practical considerations resulting from a recent shuffle in the U.S. tariff schedule, which appears to bring the monitors in question back to duty-free status.

Taking a quick break from the big picture questions in the Great Trade Debate, I'm going to bring up a very narrow and technical trade issue:  How to apply a non-discrimination standard in the NAFTA Chapter 11 context.

As was widely reported last week, AbitibiBowater is going ahead with its NAFTA Chapter 11 claim in relation to an expropriation of certain of its assets by the Canadian Province of Newfoundland.  When there's a big NAFTA Chapter 11 case going on, I always go straight to the non-discrimination aspects.  I recognize, of course, that often the other claims are more important (as is likely in this case), but non-discrimination is what interests me, and here the claims raise some fundamental issues as to how non-discrimination is to be established.  Here's a short statement of the argument, from the Notice of Arbitration and Statement of Claim (obviously, more detail will be coming in the briefs):

96. NAFTA Chapter Eleven prohibits discrimination against investors of the other State Parties, vis-a.-vis both nationals or investors of other States. Under Article 1102(2), "[e]ach Party shall accord to investments of investors of another Party treatment no less favorable than it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments." The same principle is found in Article 1103(2), but in reference to "investment of investors of any other Party or of a non-Party." 

97. In effect, these NAFTA provisions make it illegal for Canada, through the Province, to discriminate against a U.S. investor's activities in Canada, whether by comparison to a local investor or to an investor from any other country. The Act undoubtedly breaches NAFTA's non-discrimination guarantees, by explicitly targeting and singling out the Canadian operations of AbitibiBowater, a single foreign investor, rather than serving as a measure of general applicability. Although the Province may have a right under NAFTA to expropriate in the public good subject to certain conditions, it cannot discriminate as between the owners of such assets by unilaterally imposing acts of retaliation on one investor, while treating other investors more favorably. Certainly, AbitibiBowater is not the first employer in the Province to close a facility in hard economic times. Where the Province has not attempted in other cases to penalize companies by unilaterally seizing their remaining assets and cancelling their remaining legal rights, it is clearly discriminating against AbitibiBowater. 

98. Discrimination is also apparent in the Province's approach to compensation for the expropriation. The Act limits AbitibiBowater's rights to be made whole while the Province has publicly stated that it plans to insulate AbitibiBowater's lenders and independent business partners from any adverse effects on their business interests. Discrimination is further apparent, as previously discussed, in the Act's attempt to preclude AbitibiBowater from accessing the courts or continuing with pending claims, while all other investors in the Province still retain the full panoply of judicial options as recourse for any ill treatment.

I think this argument can be loosely summarized as follows:  The Province's actions in relation to the expropriation discriminate against AbitibiBowater, and AbitibiBowater is foreign (partly at least), hence the actions discriminate against a foreign investor, in violation of Article 1102 (and also discriminate among investors of different countries, in violation of Article 1103).  I think that's a reasonable characterization of the argument, but feel free to correct me.  I'm not trying to frame it in an unfair way; it's just hard to get the wording exactly right.

I've talked about this issue a number of times, on this blog and elsewhere (e.g., here and here).  I'm very curious to see how this NAFTA Chapter 11 tribunal addresses the argument, as it is extremely important for defining the boundaries of non-discrimination in the investor-state context.  Some questions that I would very much like to see answered (focusing on National Treatment, rather than MFN, but the issues are similar):

— Under Article 1102, is it the treatment of an "individual" investor that is most important, or is it the overall treatment of the "group" of foreign and domestic investors that is the key?  And if the latter, how do you identify that "group" here?  Perhaps along the same lines as defining the group, what are the "like circumstances" here?

— With regard to the "individual" investor theory, is it the case under this approach that any time you single out a particular foreign investor with some kind of negative government action you have violated the NAFTA Chapter 11 National Treatment provisions?

— There has been a lot of talk about "individual" versus "group" theories of non-discrimination in the WTO context.  Will the parties and the tribunal cite to the various WTO-related journal articles and cases?  Or are the situations too different for the WTO arguments to be relevant?  And is the NAFTA Chapter 11 jurisprudence extensive enough at this point that the parties will be too busy arguing about what it all means, and thus will not bother with insights from the WTO?

Former Appellate Body Member Jim Bacchus would like to see a "financial GATT," but not a "financial WTO":

U.K. Chancellor of the Exchequer Alistair Darling has summed up the case for international coordination. "If everyone does their own thing it will achieve absolutely nothing. The banks are global — they are quite capable of organizing themselves in such a way that if the regime is difficult in one country, they will go to another one, and that doesn't do anyone any good."

We need a multilateral solution. What should it be?

Some have suggested a "financial WTO," an international approach akin to the World Trade Organization that would establish and uphold international rules for financial governance. This seems to me to be an acronym too far for the world in which we live.

There is need for international governance. There is also continuing need for national control and national flexibility.

What the world needs now is not a financial WTO but a "financial GATT." We need the international cooperation and coordination of the WTO, but we also need the considerably wider latitude for national discretion that was afforded by the WTO's predecessor, the General Agreement on Tariffs and Trade.

New and better international standards are needed on capital, liquidity, transparency, accounting, pay and more. We need a level financial playing field worldwide. Sovereign countries must, however, retain the right to structure, support, regulate and oversee the actions of financial institutions in their own jurisdictions in their own way.

There is no need at this time to create some grand new international institution for global financial governance. There is urgent need for early international agreement leading to effective international action.

 

It's not a sophisticated legal analysis, but I found this blogger's points to be interesting in terms of how non-specialists see the scope of trade rules:

When business people are in doubt, they can always claim unfair trade in order to tap government diplomats and the WTO. However, there are certain areas of trade which simply conflict with a country’s critical laws and culture.

In this case, China asserts censorship is a critical part of government. This is the same as the US holding strong to federal trade laws prohibiting the sale of marijuana. There are certain countries which disagree with US policy, but that doesn’t mean they have a slam dunk case with the WTO.

Imagine for a moment a company from China which sold home abortion kits. Clearly, the US government would oppose the sale of them in the US. Imagine the Chinese company claiming abortions are a human right for women. Uncle Sam holds firm, “No.” What if the company switched gears and claimed they had a right to sell the kits in the US under fair trade laws promulgated by the WTO? I think we can all see this case is still headed for failure.

Todd Tucker of Eyes on Trade live blogged it.  See his post for some basic details, or watch the video here.  I'll just mention a couple points (a rough transcription, not verbatim) that struck me as interesting.

First, Senator Grassley expressed concerns about the possibility of incorporating labor provisions into the model BIT.  He worried that this was a "poison pill" designed to derail future BITs.  In response, USTR Kirk said that the BIT review was not yet done, but he would share the direction BIT policy would take after the review was completed.  (At around 85:30 of the video) 

Second, Senator Lincoln raised the issue of inspections of foreign catfish, based on health concerns, and which agency should address it.  Kirk explained that the inspection process we undertake must be based on science, because if it is not, we could face retaliation by foreign governments, who might do the same thing to our exports.  (At around 104:10 of the video)

Third, Senator Roberts suggested that environment/labor concerns should be addressed through other mechanisms (such as the ILO), not through trade agreements.  (At around 120:30 of the video).

Fourth, in response to a question from Senator Cantwell, Kirk suggested that the final WTO Airbus decision should be issued (I assume to the parties, rather than circulated to the Members) within the "next several weeks."

By Daniel Griswold

   In the spirit of civility, something lacking in Washington these days, let me start with a compliment for my worthy opponent. Ian Fletcher has resisted the temptation to demagogue trade and jobs. He is right that trade and the trade deficit do not cause a net loss of jobs.
 
    Our disagreement centers on what kind of employment trade creates. I show in Mad about Trade, using data from the U.S. Bureau of Labor Statistics, that most of the net new jobs created in the United States in the past two decades have been middle-class service jobs that actually pay more than the average manufacturing job. Like many critics of trade, Ian is wedded to a model based on nostalgia for an industrial past rather than the realities of a modern, high-tech, service-based economy.
 
    The argument for trade really comes down to common sense. As Adam Smith argued, we are better off as individuals and as a nation specializing in what we do best and trading for the rest. Trade allows people, states, and nations to specialize in goods and services that play to our strengths, raising productivity and living standards. For Americans, that means we make more jet aircraft, pharmaceuticals, semiconductors, and sophisticated medical equipment, but fewer shoes, socks, and t-shirts.
 
    Trade raises productivity in other ways, too. Producing for global markets allows greater economies of scale, reducing the final cost of products by spreading the cost of investment, research, and development across larger production runs. Competition from trade spurs innovation, leading to cost savings and new products.
 
    The Economic Freedom of the World Report and numerous other studies confirm that nations open to trade grow faster and achieve higher incomes than those that are closed. If Ian were right, isolated North Korea and Burma would be outperforming free-trade economies such as Chile, Hong Kong, and the Netherlands.
 
    According to Ian, only America is open to trade while our trading partners maintain their barriers. In fact, the same EFoW Report finds that we rank a distant 28th in the world in our “freedom to trade internationally.” Our government maintains high and regressive barriers against imported food, clothing, and shoes, all staple items in a working family’s budget.
 
    Ian deserves credit for being specific about how he wants to change U.S. policy, even if his proposal is wrongheaded. A blanket 30 percent tariff on all imports would raise prices and lower real incomes for millions of American families struggling to pay their bills. But it would also hurt a wide swath of American producers.
 
    More than half of what we import each year is not consumer goods but raw materials, industrial supplies, and capital machinery that help U.S. companies compete. The Fletcher Tariff would force U.S. companies to pay more for energy, steel, memory chips, and other inputs, driving up costs, damaging their competitiveness in global markets, and eliminating some of the better paying jobs in our economy.
 
    Erecting such a high tariff wall would shred our international commitments in the World Trade Organization that were negotiated to avoid destructive trade wars. It would invite retaliation and deprive world markets of the dollars people in other countries need to buy U.S. exports and invest in the U.S. economy. It would cause a plunge in exports along with imports.
 
    The Fletcher Tariff would literally take us back to the 1930s in terms of trade policy. It would undo all the progress we have made in the generations since World War II to promote a more free, open, and integrated world economy.

    *********************************

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute, a non-profit, non-partisan think tank in Washington. He is author of the new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, available at Amazon.com and major bookstores. More information about Cato and Mad about Trade can be found at freetrade.org and danielgriswold.com. His email is [email protected].

(For the protectionism view, see Ian Fletcher's response here) 

By Ian Fletcher

Dan’s cheery (if somewhat bubble-inflated) statistics on the recent general prosperity of the U.S. are a mere distraction here, as nothing about these figures indicates whether free trade worsened or improved them.  So I will not address them.

Some of Dan’s analytically-relevant assertions, however, are demonstrably false, like his claim that “trade has created better jobs for millions of Americans.” The reality is that the U.S. economy has ceased generating net new jobs in internationally-traded sectors. All our job growth is now in non-tradable sectors like waitresses and security guards.

Dan repeatedly confuses the benefits of trade with the benefits of free trade.  Nobody on the protectionist side is proposing abolishing all trade, but we don’t need a trading system without reasonable limits in order to gain from a bit of foreign competition. We rejected pure laissez faire in our domestic economy a very long time ago; there’s no good reason to suppose it makes any more sense internationally.

It is no accident that the U.S. was historically a protectionist economy. The Founding Fathers understood the value of protectionism, so they explicitly granted Congress the power “to regulate commerce with foreign nations” in Article I, Section 8 of the Constitution. If protectionism is such a bad idea, why did the U.S. go from being an agricultural backwater to the world’s industrial superpower under this policy?  Why did Japan go from bombed-out rubble to the second-richest nation in the world this way?  Why is China growing nearly ten percent a year this way?

Dan’s claim that global poverty has declined due to free trade is bizarre given that, according to the World Bank, the entire net reduction in global poverty since 1981 has been in protectionist China.

Similarly implausible is Dan’s assertion that free trade “promotes… the spread of democracy, human rights, and peace” given that free trade (on America’s part, not theirs) is today massively enriching governments like that of China, enabling them to buy the bullets they need to oppress their own peoples and menace their neighbors.  And human rights?  Under the WTO’s free-trade rules, the sanctions imposed on South Africa in 1986 would now be illegal.  And free trade has been the origin of shooting wars for a long time: that’s how Hong Kong became British.

Dan writes that “U.S. companies and their workers cannot prosper in the long run without tapping into global markets.”  This is unlikely in light of the fact that corporate America and American workers were the world’s most successful in the 1950s and 1960s, when American exports were tiny in comparison to today.

Dan denies that our trade deficit is a sign of trouble on the grounds that it “reflects inflows of foreign capital.”  This sounds good, but elides the fact that “inflows of foreign capital” means either a) Americans accumulating debt to foreigners, or b) Existing American assets being sold off to foreigners. Therefore it makes us a poorer nation by definition; this is a basic accounting identity.

The rest of the hard economics of Dan’s position appears to consist in counting up the (undenied) benefits of free trade, then assuming that these benefits “must” surpass free trade’s costs because of economic logic that is either:

a) simply assumed  on the grounds of  libertarian ideology.

or
 
b)   based on cartoonish oversimplifications of how real economies work, outdated theories of trade that haven’t been updated since Ricardo’s 1817 theory of comparative advantage, and a failure to acknowledge that free trade economics takes for granted certain factual premises that are observably not true today.
 
I shall address the details in the next round.

 

*****************************

Ian Fletcher is an Adjunct Fellow at the U.S. Business & Industry Council, a Washington-based think tank founded in 1933, and author of the new book Free Trade Doesn’t Work: What Should Replace it and Why, available onAmazon.com. USBIC’s web site is at americaneconomicalert.org; the website for Ian’s book is atfreetradedoesntwork.com; Ian’s page at USBIC is at usbic.net/ianfletcher; he may be contacted at[email protected].

(For the free trade view, see Dan Griswold's response here) 

In testimony before the the Senate Committee on the Judiciary, Subcommittee on Human Rights and the Law, at at a hearing on "Global Internet Freedom and the Rule of Law, Part II," Nicole Wong, Vice President and Deputy General Counsel of Google, provides some suggestions for "how governments can support free expression," including:

— "using trade tools where possible"

– "perhaps … make [Internet openness] part of the criteria for receiving development aid."

See page 6.

ADDED:

More on the trade avenue here, from Bloomberg:

Going to the WTO is “well worth consideration,” Nicole Wong, deputy general counsel of Google, operator of the most popular Internet search site, told reporters after a congressional hearing in Washington yesterday. Using censorship “in a manner that favors domestic Internet companies goes against basic international trade principles,” Wong told lawmakers.

From Chapter 1 of the Obama Administration's 2010 Trade Policy Agenda: 

Work to Resolve Outstanding Issues with Pending Free Trade Agreements and Build on Existing Trade and Investment Arrangements

…

Substantial investment in foreign markets has become an indispensable foundation for supporting many American exports. Bilateral Investment Treaties are important tools for protecting the interests of American enterprises in overseas markets. As a result, these treaties have taken on greater significance for promoting American jobs and prosperity. We have to keep these agreements attuned to changing market conditions while maintaining their consistency with broader American values.

The Administration began a review of the “Model Bilateral Investment Treaty,” co-led by the Office of the United States Trade Representative (USTR) and the Department of State, in spring 2009. It particularly assessed the proper balance of investor and government rights under the BIT and the adequacy of investor protections in markets featuring a prominent role for state-owned enterprises. Extensive public outreach contributed to the analysis. The Administration is working to conclude the BIT review expeditiously, so that the United States can resume negotiations with carefully chosen countries, including with key emerging economies, such as China, India, Vietnam, and Mauritius.

I feel like they are trying to tell us something here, but I can't quite put my finger on which direction they plan on going.

Free Trade Fails in Both Theory and Practice

By Ian Fletcher

Free trade is gradually bleeding America’s economy to death, and the much-promoted myth that economics vindicates it does not survive serious scrutiny.

To debate this issue without bogging down in semantics, we need to make a few things clear at the outset.  For a start, the phrase “free trade” has two meanings, which are often confused:

1) The purely theoretical concept of perfectly free trade as analyzed in economics text-books.

2) The current free trade policy of the U.S. This is about 99%, not 100%, free on America’s part, and much less so on the part of our major trading partners.

Free traders often make arguments that would vindicate 1) if valid and then, assuming these arguments to be true, demand that we practice 2).   This obviously does not follow.  (Sometimes they say the solution is to make trade genuinely free all around the world, but this is infeasible, because the U.S. does not have sufficient political leverage to force this to happen.)

Some of the problems with free trade concern 2): foreign trade barriers, currency manipulation, and mercantilism generally.  These are already fairly well-known.

The deeper problems concern 1) because – unbeknownst to most free traders and indeed many economists – even the theoretical foundations of free trade have been crumbling in recent years. The most recent scholarship on the issue casts huge doubt on traditional theoretical justifications for free trade and makes clear why the mercantilism that is being practiced against us can be such an effective economic strategy.  It is gradually realigning theoretical economics with both economic history and the common-sense experience of ordinary Americans.

Free traders often duck the hard economics of whether free trade is best by simply resorting to skepticism about whether the U.S. is capable of honestly and competently implementing an alternative.  Because the political problems of implementing a tariff varying by industry are well-known, let me be clear at the outset that the alternative I am arguing for is a flat tariff of, say, 30 percent, on all imports, both goods and services.  Because there would be no discretion by Congress or the Executive to vary the tariff, these problems are not relevant to our debate here.

It is also necessary to be clear that when protectionists like myself speak of free trade as job-destroying, this refers to gross, not net, jobs, because workers who lose jobs to imports will generally find other jobs eventually.  The national unemployment rate is primarily a function of labor laws and the business cycle, not trade or trade deficits.  The problem is that free trade is currently destroying high-value-added and high-wage jobs (particularly in manufacturing) and driving Americans into nontradable sectors.  Unfortunately, most nontradable jobs are low-value-added, low-wage jobs like security guards, waitresses and the like.  It follows that a low unemployment rate does not, on its own, vindicate free trade.

Finally, we must distinguish between free trade being the optimal policy in the long run and the short run.  In the short run, it is indeed true that free trade can maximize our consumption: in economic language, it maximizes satisfaction of consumer preferences.  But this analysis takes no account of the long-term effects of imports upon our productive base.  This is ultimately the big issue.  David Ricardo’s theory of comparative advantage, the intellectual keystone of free trade, is a narrow theory which (although commonly misunderstood and vindicating free trade simpliciter) only speaks about optimizing present consumption.  It does not even pretend to say anything about optimizing a nation’s long-term productive base, and thus leads to erroneous con-clusions when misused in this way.

Ian Fletcher is an Adjunct Fellow at the U.S. Business & Industry Council, a Washington-based think tank founded in 1933, and author of the new book Free Trade Doesn’t Work: What Should Replace it and Why, available on Amazon.com. USBIC’s web site is at americaneconomicalert.org; the website for Ian’s book is at freetradedoesntwork.com; Ian’s page at USBIC is at usbic.net/ianfletcher; he may be contacted at [email protected].

(For the free trade view, see Dan Griswold's post here) 

Main Street America Benefits from Global Engagement

By Daniel Griswold

Americans are better off today because of our greater freedom to trade and work with people around the world. Our growing engagement in the world economy has delivered real benefits to Main Street Americans.

Competition from trade has blessed American families with lower prices, more choice, and better quality when we spend our paychecks. Because of trade, consumers pay lower prices for food, clothing, shoes, electronics, and cars, which translate directly into higher real incomes. The cars we drive today are safer and more fuel efficient because of import competition. The bargains that trade has delivered have done more to help struggling families make ends meet than any “stimulus” bill from Washington.

Trade has created better jobs for millions of Americans. Jobs connected to trade and foreign investment typically pay 15 to 30 percent more than average. Two-thirds of the net new jobs created in the past two decades have been in predominantly service sectors where average wages are higher than in manufacturing.  Despite the recent recession, real median household income is still $4,000 higher than it was in 1993, and real compensation per hour (wages and benefits) is 23 percent higher.

Trade has allowed U.S. manufacturers to move up the “value ladder” by specializing in higher-end products that play to our strengths. Real output at U.S. factories is 37 percent higher than it was in 1993, the year before NAFTA was enacted. In 2007, American workers on American soil produced 5,000 civilian aircraft, 15,000 aircraft engines, 10 million motor vehicles, 25 million computers, 44 million heavy appliances, millions of tons of chemicals, and billions of semiconductors. American producers lead the world in such advanced products as medical equipment and pharmaceuticals.

America remains the world’s top manufacturing nation based on total value-added (domestic output less imports). We are producing more manufactured products with fewer workers because Americans have become so much more productive per hour worked. Rising productivity is the essence of competitiveness and the foundation for higher living standards.

America’s trade deficit is not a scorecard of trade policy. It reflects a continuing net inflow of foreign investment to the United States. That investment keeps long-term interest rates down, saving a typical homeowner $1,000 a year in mortgage payments. Foreign-owned affiliates in the United States employ more than 5 million American workers in well-paying jobs, including one out of eight manufacturing workers.

We cannot hope to prosper behind tariff walls. Three-quarters of the world’s spending power lies beyond our borders. U.S. companies and their workers cannot prosper in the long run without tapping into global markets. High trade barriers raise the cost of production for U.S. companies that need to import raw materials, supplies, and machinery. They also invite other countries to keep their barriers high to U.S. exports.

We tried protectionism in the 1930s and it was a colossal failure. It only deepened and prolonged the Great Depression and did nothing to reduce high unemployment. After World War II, Democrats and Republicans worked together to create a more open U.S. and world economy. Our more open era has seen the global poverty rate cut in half since 1981. A rising global middle class and deeper economic ties among nations have promoted not only more demand for U.S.-branded products but also the spread of democracy, human rights, and peace.

American leaders from Franklin Roosevelt to Ronald Reagan and Bill Clinton understood that expanding trade promotes prosperity at home while it enhances American influence abroad. Let us not repeat the mistakes of the past by closing ourselves off from a world of opportunity.

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute, a non-profit, non-partisan think tank in Washington. He is author of the new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, available at Amazon.com and major bookstores. More information about Cato and Mad about Trade can be found at freetrade.org and danielgriswold.com. His email is [email protected].

(For the protectionism view, see Ian Fletcher's post here) 

I'm going to step aside for a couple days (well, unless anything really important happens in the trade world, in which case I'll jump back in) so that we can have a good, old-fashioned free trade versus protectionism debate.  On the free trade side will be Dan Griswold of the Cato Institute, who has a recent book out called "Mad about Trade: Why Main Street America Should Embrace Globalization".  On the protectionism side will be Ian Fletcher, whose book "Free Trade Doesn't Work: What Should Replace it and Why" I reviewed here.

Each of them will make a short opening statement tomorrow (Friday).  Next week they will come up with a response to the other's opening statement, and subsequently a response to the response.

Feel free to add to the discussion through the comments.

As a technical point, it will be me doing the actual posting, but I will make clear in the post that the arguments are coming not from me but from Griswold or Fletcher.

(For a future debate, I'd love to get Lori Wallach and Pascal Lamy, talking about the financial services issues discussed here, but I'm not holding my breath.)

ADDED:

I'll list all the posts here:

– Griswold opening statement

– Fletcher opening statement

– Fletcher reply

– Griswold reply

– Fletcher reply #2

– Griswold reply #2

– Fletcher reply #3

– Griswold reply #3

From the minutes (Word doc) of the 5-6 November 2009 TBT Committee meeting, here is the discussion of the U.S. and Canadian tobacco laws that affect clove cigarettes and burley tobacco, respectively (a favorite blog topic of mine):

(ii) United States – Ban on Clove Cigarettes (G/TBT/W/323)

6. The representative of Indonesia raised his delegation's concern as outlined in document G/TBT/W/323 with respect to the US "Family Smoking Prevention and Tobacco Control Act", which had entered into force on 22 June 2009.  He particularly regretted that the new measure prohibited the production and marketing of cigarettes containing certain additives, including clove, but permitted the production and sale of other flavoured cigarettes, such as cigarettes containing menthol.  Indonesia believed that the US measure discriminated against imported clove cigarettes and created an unnecessary barrier to trade under the TBT Agreement.  Therefore, the representative of Indonesia urged the United States to revoke the measure.

7. The representative of the United States indicated that the United States was not going to reverse the ban on clove cigarettes given the high priority the Obama Administration placed on protecting the health of Americans, especially youth.  US health authorities support a ban on clove cigarettes to protect the public health.  He noted that clove cigarettes were particularly appealing to youth and represented a "starter product" that could lead to the use of regular cigarettes.  In particular, he stressed that clove cigarettes made it easier for new smokers to start smoking by masking the harshness of cigarette smoke and, like other banned fruit flavours, could ease the transition to addiction.  Evidence also indicated that clove cigarettes could pose a range of additional health risks over conventional cigarettes.  With regard to the allegation of discrimination, the US representative noted that substantial differences related to consumption, use patterns, and epidemiology existed between clove and menthol cigarettes, which made the two situations not comparable.  He noted that the US Food and Drug Administration (FDA) had established a Scientific Advisory Committee that would support additional studies of menthol cigarettes before deciding an appropriate public health action.  His delegation was open to further discussing the issue with Indonesia, so that Indonesian regulators could better understand the scientific basis for the US action.

(iii) Canada – Bill C-32 amendment to Tobacco Act 

8. The representative of Argentina raised a concern regarding Canada's legislation "Cracking Down on Tobacco Marketing Aimed at Youth Act", which had entered into force on 8 October 2009.  He stressed that his delegation supported Canada's objective to prohibit the production and marketing of tobacco products which could attract youth.  However, he emphasized that this measure was more trade restrictive than necessary to achieve Canada's legitimate objective.  The representative of Argentina noted that the measure prohibited the use of various additives in certain tobacco products, including cigarettes, cigarillos and blunt wraps.  In this regard, he stressed that cigarettes made of several types of tobacco, such as blended cigarettes, contained several additives prohibited by the Canadian regulation.  These additives, however, were not used to give a characterizing flavour to the product, rather they were used as an essential component to mitigate the strong flavour of Burley tobacco.  A prohibition of these additives could therefore represent a de facto prohibition of blended cigarettes.  The representative of Argentina further noted that a ban on the production and sale of products with a certain flavour would represent a less trade-restrictive mean to achieve Canada's objective, and thus be in line with Article 2.2 of the TBT Agreement.  He also said that Canada based its legislation on the ingredients contained in a product without considering the effects of such ingredients on the final product, contrary to the obligations under Article 2.8 of the TBT Agreement.  The Argentinean delegate noted that Canada had not notified the measure to the WTO.  In this regard, he informed the Committee that prior to the adoption of the measure, the Argentinean Federation of Tobacco Producers and the Government of the Province of Salta had sent written comments to the Canadian Ambassador in Buenos Aires expressing their concern.  However, these comments had not been taken into account.  Finally, Canada was invited to amend this measure according to its obligations under the TBT Agreement.

9. The representative of Mexico supported the comments made by Argentina with regard to the Canadian legislation and regretted that Canada had neither notified the measure to the WTO nor taken into account other Members' views.  In this regard, Mexico expressed a systemic concern regarding legislative branches in a number of countries, including Canada, not seeming to see themselves bound by the transparency obligations of the TBT Agreement.

10. The representative of Switzerland shared the concerns expressed by previous speakers.  While Switzerland supported the objective of protecting human health, concerns remained that the legislation had not been notified to the WTO.

11. The representative of Colombia echoed the concerns expressed by Argentina, Mexico and Switzerland regarding the new Canadian legislation on tobacco.  She believed that the legislation was not consistent with Article 2.2 of the TBT Agreement which stipulated that "technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective".  While the legislation had the de facto effect of banning blended tobacco, there was no scientific evidence proving that blended cigarettes were more attractive to youth than traditional cigarettes, which represented ninety-eight per cent of the Canadian tobacco market.  Therefore, Colombia invited Canada to consider less trade-restrictive alternatives to achieve its objective and ensure that its measure was consistent with the obligations under the TBT Agreement.  The delegation of Colombia further emphasized that, absent such changes, exports of tobacco products to Canada would be seriously disrupted and the development of expansion plans for the growing of Burley tobacco would be negatively affected.

12. The representative of the European Communities  joined other delegations in expressing concern regarding Canada's measure on tobacco.  In particular, the EC representative reiterated the importance of Members fully complying with their transparency obligations under the TBT Agreement, in particular those related to the notification of technical regulations and conformity assessment procedures.  She also noted that this issue had been raised in an EC submission to the Fifth Triennial Review of the Operation and Implementation of the TBT Agreement.   The EC representative regretted that the Canadian measure had not been notified to the WTO and recalled that, according to Article 2.9 of the TBT Agreement, Members needed to ensure that draft legislation that could have a significant impact on trade be notified to the TBT Committee at an early appropriate stage when comments could still be taken into account.  Therefore, the European Communities urged Canada to postpone the implementation of the legislation and notify the Committee at an early stage any measure which laid out its implementing provisions. 

13. The representative of Turkey echoed concerns expressed by others.  He emphasized the importance of tobacco exports for the Turkish economy and noted that the measure was currently under consideration by Turkish authorities.  Comments on the legislation would be provided in due time.

14. The representative of the United States strongly supported Canada's objective of deterring youth from tobacco use.  However, he asked the Canadian delegation to provide further information on the approach taken and on any measures necessary to implement the new regulation.  Could Canada confirm when Sections 4 and 5 of the Tobacco Act would enter into force?  Could Canada confirm that its Government had the authority to amend the schedule of additives regulated?  Was the Government of Canada considering any amendments to the schedule of additives?  Could Canada provide further information on the criteria used to develop the list of prohibited additives?  Finally, could Canada explain what specific efforts had been made to identify the relationship in general between prohibited additives and products marketed to or that are innately attractive to youth?  The United States looked forward to receiving Canada’s responses and improving the US understanding of the measure and its relationship to the TBT Agreement. 

15. The representative of the Former Yugoslav Republic of Macedonia (FYROM) supported the comments made by previous delegations with regard to the Canadian legislation and highlighted the importance of the tobacco sector for his delegation's economy.  While the Former Yugoslav Republic of Macedonia supported the objective of protecting human health, concerns remained that the regulation could constitute an unnecessary barrier to trade.

16. The representative of Canada explained that the "Cracking Down on Tobacco Marketing Aimed at Youth Act" was designed to address public health concerns by reducing the incentives for young people to smoke.  She clarified that the new legislation prohibited, inter alia, the use of various flavours and other additives in certain tobacco products, including cigarettes, cigarillos and blunt wraps sold in Canada.  She stressed that the legislation did not ban any type of tobacco or tobacco product.  In this regard, it was Canada's understanding that since non-blended Burley cigarettes were currently sold on the Canadian market it was not correct to state that the ban on additives constituted an implicit ban on Burley tobacco.  The Canadian delegate assured delegations that Canada's trade obligations had been taken into account in drafting the legislation and that Canada was committed to respecting its international trade obligations while meeting its legitimate public policy objectives.

17. With respect to the allegation on the lack of scientific evidence, Canada believed that the dangers of tobacco use were well documented in scientific and public health literature; indeed there was sound scientific evidence to demonstrate that certain additives, including flavours, increased the attractiveness of tobacco product.  In this regard, the Canadian representative explained that some documents produced by the tobacco industries and subsequently made public by courts through litigation, had shown that the use of the additives banned by Canada made tobacco products more appealing to youth.  She further noted that several other countries had introduced legislation that aimed at protecting youth from tobacco marketing.  However, while the approach of such countries was only limited to banning specific flavours, the approach of the Canadian Government targeted a broader range of additives that were used to make cigarettes and other products more appealing to youth and novice smokers.  In particular, the Canadian legislation introduced a list of prohibited additives that included additives with flavouring properties but also other additives such as sweeteners, vitamins, minerals and colouring agents.  It was Canada's view that this legislation provided for more precision and certainty and that there was sound scientific evidence for prohibiting the use of such additives.

18. With regard to more systemic concerns about the non-notification of mandatory measures, the Canadian representative said that comments would be conveyed to capital for due consideration.  She also reassured Members that any implementing measure of the tobacco legislation would be notified to the WTO at an early stage. 

It's interesting to see how the U.S. addresses the issues related to the Canadian legislation.  It just asks a lot of questions.  Recall that the Canadian legislation is what is blocking some USTR appointments, as Senator Jim Bunning wants USTR to take stronger action on this matter and won't release his hold on the appointments until they do.

From remarks made today:

Now, I know that trade policy has been one of those longstanding divides between business and labor, between Democrats and Republicans.  To those who would reflexively support every and any trade deal, I would say that our competitors have to play fair and our agreements have to be enforced.  We can't simply cede more jobs or markets to unfair trade practices.  At the same time, to those who would reflexively oppose every trade agreement, they need to know that if America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.  In other countries, whether China or Germany or Brazil, they've been able to align the interests of business, workers, and government around trade agreements that open up new markets for them and create new jobs for them.  We must do the same.  And I'm committed to making that happen.

That's why we launched the Trans-Pacific Partnership to strengthen our trade relations with Asia, the fastest-growing market in the world.  That's why we will work to resolve outstanding issues so that we can move forward on trade agreements with key partners like South Korea and Panama and Colombia.  And that's why we will try to conclude a Doha trade agreement –- not just any agreement, but one that creates real access to key global markets. 

 

I'm a little out of my comfort zone when posting about things like the "transmission of international norms," but watching the Olympic hockey the other night, I caught a reference to an Olympic rule that was different from the one that applies in the NHL.  (I can recall something similar with international basketball and the NBA.)  This made me wonder whether players whose professional leagues have adopted a different rule than the international rule are at a disadvantage when playing in international competitions, as they have to adjust to the international rule.  Is there an incentive for leagues (which tend to be national or regional in nature) to adopt the international rule so that their players will be used to it?  Is this an example of how international norms make their way into the domestic arena (pun intended)?

Speaking of the Olympics, reading about all of the money some governments spend on their training programs (i.e., subsidies), I'm convinced there is a WTO violation in there somewhere, although I can't quite figure out where.  Perhaps we need a new WTO agreement to regulate this spending.  😉

 Dan Ikenson of Cato notes the following from Congress Daily:

Speaking at the USDA Annual Outlook Forum, [USTR Ron] Kirk said members of Congress “are more open and receptive” to the idea of creating a trans-Pacific agreement because it could be written from scratch.

The Trans-Pacific Partnership comes “without any of the biases of the three [agreements] under consideration,” he said.

Am I reading too much into this, or is Kirk saying that there are substantive parts to the Korea, Colombia and Panama FTAs (the "three" he refers to) that are problematic, and that if USTR can start fresh, they can write an agreement that will be approved by Congress?  What exactly are these "biases" they would like to see removed when they write a new agreement "from scratch"?  Is it just better negotiating in terms of concessions, or is it actual policy changes?

I feel like we are getting close to seeing what the Obama trade folks have in mind for this one part of trade policy.  It would be great if they would just tell us the specific details now, but we'll likely have to wait a bit more.

From the AP:

Jordanie Pinquie Rebeca leans forward and guides a piece of suit-jacket wool and its silky lining into a sewing machine, where — bat! bat! bat! — they're bound together to be hemmed.

If she does this for eight hours, she will earn $3.09. Her boss will ship the pinstriped suit she helped make to the United States, tariff-free. There a shopper will buy it from JoS. A. Bank Clothiers for $550.

In the quest to rebuild Haiti, the international community and business leaders are dusting off a pre-quake plan to expand its low-wage garment assembly industry as a linchpin of recovery. President Barack Obama's administration is on board, encouraging U.S. retailers to obtain from Haiti at least 1 percent of the clothes they sell.

But will that save a reeling country whose economy must be built from scratch?

…

Garments are central to the economic growth plan commissioned by U.N. Secretary-General Ban Ki-moon last year, a 19-page report written by Oxford University economics professor Paul Collier and promoted by former President Bill Clinton as special envoy to the impoverished nation.

They say the sector could quickly produce hundreds of thousands of jobs thanks chiefly to two things: an existing preferential trade deal with the nearby United States, and cheap Haitian labor.

The deal is the Haiti Hemispheric Opportunity through Partnership Encouragement Act, or "HOPE II." Passed by the U.S. Congress in 2008, it lets Haiti export textiles duty-free to the U.S. for a decade. Last year, $513 million worth of Haitian-made apparel, the bulk of exports, was shipped with labels including Hanes and New Balance. Factory profit margins average about 22 percent, according to Washington-based Nathan Associates Inc.

…

Others said relying too much on clothing assembly is risky.

"The garment sector is creating trouble for the economy because of social tensions and the low wages," said prominent Haitian economist Kesner Pharel.

Prime Minister Jean-Max Bellerive, himself an economist, said that while the garment industry shouldn't be ignored, increased investment should be sought in more enduring sectors such as agriculture and tourism.

From a background note by the WTO Secretariat on financial services (not public as far as I can tell, so I'm not going to post the whole thing here):

Measures that do not constitute a limitation on market access as defined by the Agreement, nor a limitation to national treatment, fall within the realm of regulation, whose exercise is guaranteed by the GATS.   Liberalization in the GATS sense is therefore not synonymous with deregulation of service activities.  As a matter of fact, even within the context of comparable commitments on market access and national treatment, Members may operate completely different regulatory frameworks, ranging from leaving the services concerned unregulated to establishing stringent regulatory requirements in areas such as licensing, capital adequacy or liquidity.

…

… none of the root causes of the financial crisis can be attributed to services trade liberalization as provided for in the GATS, namely granting market access and national treatment.  For one, excesses in monetary policy or the build-up of a bubble in real estate markets, and the policies that could potentially curb the detrimental effects arising from those situations, are in no way connected to liberalization commitments undertaken by Members.  On the other hand, malfunctions of the financial services sector in recent years seem to be more related to idiosyncrasies of the sector (e.g. search for yield, absence of due diligence, lowering of lending standards) and regulatory loopholes (e.g. regulatory arbitrage, inadequate capital and liquidity regulation, unregulated suppliers).  Even though a large exposure to foreign financial institutions and markets may exacerbate the transmission of shocks (IMF 2007), the crisis cannot be attributed to the involvement of foreign financial institutions per se.

And from a rough transcription of Joe Stiglitz at about 28:25 of this video (via Eyes on Trade):

National leaders say we need more regulation, but at the WTO they are saying we have to push the agenda of deregulation, even though we have had the biggest crisis over the past 75 years caused by deregulation, and even though the spread of the crisis around the world was faciliated by capital market and financial market liberalization.

It would be great if the two sides could sit down and talk to each other, but alas all we have are competing views that will not get reconciled.

I agree with the WTO Secretariat that WTO financial services commitments played little, if any, role in the financial crisis.  However, I would like to ask them whether these commitments contribute to, or encourage, deregulation to at least some degree.

With regard to Stiglitz (and Wallach), my questions are:

(1)  How are we better off with a financial services industry that is completely insulated from foreign competition?  Shouldn't we distinguish between "deregulation" and "anti-discrimination" as policy goals pursued at the WTO?

(2)  What specific regulatory actions would you like to see governments take that you believe are threatened by WTO financial services rules?   Are there instances where domestic regulation proposals have been threatened by WTO rules?

Some in Canada hope that an international declaration on ethical seal hunting will solve the seal products dispute:

In an effort to challenge the European Union’s trade ban on Canadian seal products, a Quebec senator is proposing that provinces and countries involved in the seal hunt sign on to an international declaration on ethical sealing.

Senator Céline Hervieux-Payette visited Iqaluit, Nunavut, last week to promote the Universal Declaration on the Ethical Harvest of Seals, written by a panel of experts and scientists from Canada and the United States.

The senator, who went on an Inuit seal hunt while in Nunavut, says the declaration has already been endorsed by the governments of Newfoundland and Quebec. She is also seeking an endorsement from Greenland. The IWMC World Conservation Trust, an international organization for animal conservation, officially supports it.

“I am quite confident that there will be no reason on the part of the Europeans to continue their boycott, because as far as I'm concerned the boycott itself is illegal right now,” says Hervieux-Payette.

She says the declaration could strengthen Canada’s consultations with the World Trade Organization in seeking to overturn the ban …

What would this Universal Declaration say?

The 13-page Universal Declaration on the Ethical Harvest of Seals states that seals must be killed rapidly in a professional manner that doesn’t cause “avoidable pain.” It seeks to strike a balance between animal welfare, sustainable development, protecting ecosystems, and maintaining people’s way of life in sealing communities.

It says signatories to the document care about animal welfare, and calls for establishing a common international position on ethical standards for the seal harvest.

I think the declaration is here:  http://www.sealsonline.org/seal-universal-declaration.php

So what impact, if any, would this kind of international legal instrument have?  The web site linked to above notes the goal of having "a United Nations Universal Declaration on the Ethical Seal Harvest ratified."  How many countries will endorse it?  What will the EU's reaction be?  Will the attempt to negotiate such a treaty have an impact on the interpretation of the relevant WTO rules?

More here.

 

From the WSJ:

Venezuelan President Hugo Chávez is seeking to purchase a local unit of France's Casino Guichard-Perrachon SA, a few weeks after he first ordered the expropriation of one of the retail chains controlled by the French company.

Venezuela has started negotiations with Casino to buy an 80% stake in Cativen, Casino's local subsidiary, after the French company offered to sell it to the government following the seizure of its Almacenes Exito retail chain, Mr. Chávez said Saturday.

"They want to sell to Venezuela," he said.

He said the government has started "friendly negotiations" with the French company to purchase Cativen and its chain of grocery stores, known as Cada.

No possible financial terms were disclosed. Monday Casino confirmed it was in discussions but declined to comment further.