Author: Simon Lester

Joel had a post a while back where he wondered if there is "anything in TRIPS that would restrict the ability of a state to set price controls on patented pharmaceutical products."  He doubted there was.

I was thinking about this issue recently, and while he is probably right, it seemed to me that maybe, just maybe, there was an argument on the other side.  It's probably a losing argument, but nevertheless, it seemed like there was something there.  Here goes.

The "exclusive rights" granted by intellectual property law, including patent rights, are not like most other rights, such as free speech, freedom of religion, etc.  These more traditional rights have an inherent value, both in terms of the broader policy goals and the fulfillment of individual liberty.  By contrast, "exclusivity" has no (or little) inherent value in and of itself. Article 28.1(a) of the TRIPS Agreement refers to the following exclusive rights: "making, using, offering for sale, selling, or importing."  Does it really matter if you are the only one who gets to "make" something or "use" it?  Do you feel better about yourself if no one else can do these things?  Is society better off somehow?  Is your liberty greater?  I would think the answer to all these questions is no (or at least, "not much").  Instead, the real value of exclusivity is in the monopoly you hold and the higher prices you can charge.  Since you are the only seller, you can charge whatever you want, with no fear of competitors undermining your price.  As one paper puts it:

The Main Purpose of Patent Rights

Invention is a time-consuming business. It usually requires creativity, resources and time. Once an invention has been made it may be copied by competitors. In order to enable inventors to enjoy the fruits of their labour, most states protect intellectual property through patents and other mechanisms. This allows inventors to exploit their brainchild for a limited period without unwanted competition. The patent allows its owner to block the market entry of copied products and thereby gives him or her the opportunity to recoup expenses through monopoly pricing.

So, coming back to the original question of whether there is "anything in TRIPS that would restrict the ability of a state to set price controls on patented pharmaceutical products," if exclusive rights are really all about monopoly profits, and price controls undermine these profits, couldn't it be argued that price controls violate the exclusive rights set out in Article 28?  While price controls don't affect exclusivity per se, as they don't affect whether someone else can take the actions in question (using, selling, etc.), they do undermine the purpose of exclusive rights.

On the other hand, perhaps the purpose of exclusive rights is not necessarily about allowing monopoly pricing.  In the absence of the ability to charge monopoly prices, the patent holder would still have 100 percent market share, which, while not as valuable as monopoly profits, is pretty good.

From economist Steven Landsburg:

As any historian could tell you, no society has every pulled itself out of poverty without putting its children to work. Back in the early 19th century, when Americans were as poor as Bangladeshis are now, we were sending out children to work at about the same rate as the Bangladeshis are today. Having had the good fortune to get rich first, Americans can afford to give Bangladeshis a helping hand, and there are plenty of good ways for us to do that. Denying Third Worlders the very opportunities our ancestors embraced, whether through fullfledged boycotts or by insisting on health and safety standards they can’t afford to meet, is not one of those ways.

Not sure why I'm on this email list, but here's a message I just received from "Free Trade Kills Animals":

ANIMAL CRUELTY OLYMPICS:

As Winter Games Begin in Vancouver, Activists Dressed as Canadian & Norwegian Prime Ministers, WTO General Secretary Club "Baby Seals" in Mock Olympic Event

Protest Decries Canadian Attempt to Use Olympics to Promote Seal Hunt and World Trade Organization Challenge to European Union Seal Product Ban, Protests Use of Seal Fur During Fashion Week

Who: Global Justice for Animals and the Environment, an international grassroots organization fighting against free trade policies that harm animals, the environment, and indigenous communities.

What: In a street theater performance, activists dressed as WTO Secretary General Pascal Lamy, Canadian Prime Minister Stephen Harper, and Norwegian Prime Minister Jens Stoltenberg will club activists dressed as baby seals with mock hakapiks, the device used by sealers to club baby seals to death.

"The officials" will stand in front of a backdrop reading "2010 Animal Cruelty Olympics, Vancouver, Canada" as a play by play announcer on a megaphone narrates the bludgeoning as a sports event. The "Olympians" will be disrupted chanting protesters with signs, banners, and leaflets, who will grab the clubs, rescue the seals, declare a boycott on the Olympics, and demand that the US pull out of the WTO.

When: Monday, February 15th, 12:15PM -1PM

Where: The Consulate General of Canada, New York, 1251 6th Ave between 49th and 50th Sts, Manhattan, New York City.

Why: The protest, along with a demonstration in Tucson, are intend to hold Canada accountable on the world stage in light of a May 2009 vote by Canada's Parliament to use the Winter Games as an opportunity to promote the seal hunt and a November 2009 World Trade Organization challenge to the European Union's May 2009 decision to ban seal products in 2010 (the Parliamentary decision to use the Olympics to promote the seal hunt was also a retaliatory gesture against the EU ban). The protest also marks fashion week, as activists support Europe's attempt to join the US in eliminating seal fur from fashion show runways and clothing stores.

Sounds like quite an event.  I'd just like to say to the organizers (if they are reading this) that if the WTO rejects the Canadian and Norwegian WTO complaints, I fully expect an equally elaborate event expressing gratitude to the WTO panelists. 😉

Following up on this post, the Court of Appeals for the Federal Circuit has upheld the decision of the Court of International Trade rejecting a claim that imposing different tariffs on men's and women's gloves violates the Equal Protection Clause.  Lawrence Friedman of the Customs Law Blog explains the key substantive issues (and also the procedural issues, which I have not quoted here):

The Court of International Trade held that Totes' complaint failed to allege facts that state a claim for which it is entitled to relief. In other words, it did not provide the facts necessary to show illegal discrimination.

 

The Federal Circuit's analysis was a little different than the CIT's, but it got to the same place. The Federal Circuit started from the premise that disparate impact alone can, in some cases, establish a violation of the equal protection clause. But, according to the Court, in the tariff context (as distinct from jury selection, employment, and housing), more is necessary. The plaintiff has to show an intent to discriminate. The first reason for this is that the tariff system is not really focused on the buyer. Rather, it is an effort to strike a balance based on product type, country of origin, and other economic and policy factors. The difference in duties between men's and women's gloves, therefore, is likely because they are different products affected by different economic conditions. Without evidence of an intent to discriminate against men, the Federal Circuit was unwilling to assume a discriminatory purpose.

 

The second reason the Federal Circuit took this approach is that the Supreme Court has long held that Congress has broad authority to craft taxes to raise revenue. Taxing often includes the power to differentiate between group. I guess that is why there are multiple income tax rates.

 

Because of these concerns, the Court held that the tariff differential is not facially discriminatory. In the absence of facial discrimination, a plaintiff needs to discriminatory intent, not just disparate impact. Totes did not plead any evidence of discriminatory intent. Consequently, the Federal Circuit affirmed the dismissal for failure to state a claim.

 

There is an interesting concurring opinion in this case. The concurrence states that there is no reason to treat equal protection cases arising under the tariff laws different from any other equal protection case. Rather, the concurrence focuses on the fact that Totes' argument is based entirely on the presence of a facially discriminatory tariff. Totes, apparently, did make a disparate impact argument. But, according to the concurrence, because the tariff is not facially discriminatory because it is directed at products, not people and is borne by importers not persons of gender (to coin a stupid phrase). Consequently, traditional equal protection law requires a showing of discriminatory intent. That showing is missing, so according to the concurrence, the case should be dismissed.

Here's the decision.  I found the following statement from the concurrence interesting:

Much like tuxedos and evening gowns are different products, men's and women's gloves are different products. The happenstance that the English language does not have separate names for these particular products, thus requiring reference to the gender of the intended wearer, does not transform the distinction into facial discrimination.

Is the difference between men's and women's gloves comparable to that between tuxedoes and evening gowns?

More here from Eugene Volokh:

 I’m inclined to say that the different treatment is facially discriminatory — even though the distinction is based on the sex of the likely wearers of the gloves, and not necessarily based on the sex of the buyers of the gloves — and not just something that has a disparate impact. But I’m not entirely sure of this, and would love to hear your thoughts, especially if you know a good deal about the constitutional law of sex discrimination.

From a speech by Pascal Lamy on the Government Procurement Agreement:

The GPA is a paradigm example of a trade opening instrument that also recognizes the need for governance mechanisms — in this case, the procedural rules that Parties to the Agreement must follow to ensure fair and transparent contracting practices and the domestic review or bid challenge mechanisms that the Agreement requires all Parties to put in place. These rules and enforcement mechanisms are built around the WTO's fundamental principles of non-discrimination, transparency and procedural fairness.

Non-discrimination and transparency are pretty clearly WTO principles.  But is "procedural fairness" a principle as well?   There are elements of various WTO agreements that could be said to involve procedural fairness, but it's not clear to me whether they are in there for their own sake, and thus would constitute a stand-alone principle, or if they are included as a proxy for getting at other issues (such as discrimination).

According to Arvind Subramanian, the biggest harm from the undervalued yuan is to developing countries:

.. an undervalued exchange rate is above all a protectionist trade policy, because it is the combination of an import tariff and an export subsidy. It follows therefore that the real victims of this policy are other emerging market and developing countries – because they compete more closely with China than the US and Europe, whose source of comparative advantage is very different from China’s.

In fact, developing countries face two distinct costs from China’s exchange rate policy.

• In the short run, with capital pouring into emerging market countries, their ability to respond to the threat of asset bubbles and overheating is undermined.

Emerging market countries such as Brazil, India and South Korea are loath to allow their currencies to appreciate – to damp overheating – when that of a major trade rival is pegged to the dollar.

• But the more serious and long-term cost is the loss in trade and growth in poorer parts of the world.

From an op-ed by Dan Ikenson of the Cato Institute:

When he urged Americans to "stop driving" their Toyotas last week, was Transportation Secretary Ray LaHood speaking as the head of a federal agency concerned with highway safety or as a sales advocate for a nationalized General Motors?

In testimony before the House Appropriations subcommittee on transportation last Wednesday, LaHood said: "My advice to anyone who owns one of these vehicles is stop driving it, and take it to the Toyota dealership because they believe they have the fix for it."

…

One important concern among auto industry analysts upon GM's emergence from bankruptcy has been whether and how the Obama administration might use regulation and the tax code to tilt the playing field in GM's favor.

Will consumers get special incentives to purchase high-mileage vehicles of the kind that — surprise — only Chevy Volt satisfies, for example?

Likewise, whether or not LaHood was exploiting an opportunity to reinforce doubts about Toyota and steer car buyers toward GM, there is no avoiding a conflict of interest when the government regulates an industry in which it has major stakes in one of the firms. One cannot objectively referee a race in which it has its own horse.

From a soon to be published interview with Bloomberg BusinessWeek:

In an effort to make U.S. exports more attractive, Obama set a year-end objective for persuading China to allow the value of its currency to rise.

“My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy,” Obama said.

He said his administration is “going to have some very serious negotiations” with China that are “going to be bumpy.” China has held its exchange rate with the dollar steady since July 2008.

Obama discussed a range of economic issues in the 35-minute interview with editors and reporters.

He said he would press for passage this year of free-trade agreements with South Korea, Panama and Colombia, though he cautioned that “different glitches” must first be negotiated with each country. …

That’s the title of a new book by Ian Fletcher.  (I came across it as a sponsored link in a Google search.)  There are a number of different reasons people criticize free trade, so I was curious to see what exactly he had in mind.  I asked him for a copy of the book so that I could review it on the blog, and he was kind enough to send one.

(Spoiler alert:  If you don’t feel like reading to the end to see what he is proposing, it’s for the U.S. to impose an import tax, of about 30%, on all foreign goods and services).

As a preliminary point, let me just note that the book is mainly about tariffs and quotas.  There’s not much about IP, labor rights, investor-state and similar recent additions to trade agreements.  (Although, as indicated in the spoiler, services, another recent addition, is covered).

Now to the substance.  The first four chapters contain a number of critiques of arguments and policies the author doesn’t like (including bad arguments for and against free trade).  I’m going to start with Chapter 5, which deals with comparative advantage.  Given the nature of the book (i.e., one that is critical of free trade), I was pleasantly surprised that he did a pretty good job of setting out this concept and explaining why it serves as an important basis for the free trade view.  He acknowledges its value, and criticizes those who dismiss it out of hand.  (In fact, this part was so good it could be used in a pro-free trade book!)  However, he then identifies a number of “flaws” with comparative advantage.  I’m just going to deal with one of these.  (Otherwise this post would become far too long — it’s already quite long as it is.)

To illustrate what he considers to be one flaw in the theory of comparative advantage, he asks, “What if a nation’s exports are unsustainable?”  For example, a country may be exporting non-renewable natural resources, if this is where its comparative advantage lies.  This will, he contends, maximize short-run efficiency at the expense of long-term prosperity.  To deal with this problem, he notes, you would have to tax or restrict such exports, which is “not free trade.”

I hear this issue raised now and then in various contexts.  However, I’m not convinced there is much to it.  It is certainly true that, in most cases, you would not want to use up all your natural resources.  But I don’t think the theory of comparative advantage requires you to do so.  Even for free traders, comparative advantage is not the only basis for policy making.  A country might have a comparative advantage in slaves, but it wouldn’t engage in slavery because we believe slavery is wrong.  Similarly, if you have a comparative advantage in a particular natural resource, you don’t have to extract/produce it.  If you want to deal with the threat of using up your resources, and you want to do it in a way that is consistent with “free trade,” just restrict their production, not their export.  Doing it this way is likely to be permissible under trade rules.  (There are some arguments you could make that production quotas violate trade rules, but my sense is most people don’t find these arguments very convincing).  So, I’m not sure I see how the issue of non-renewable natural resources is a flaw in the theory of comparative advantage.  It’s just a policy issue to be dealt with outside the context of trade.

Going further with comparative advantage, we now get a foreshadowing of the core idea of the book.  He says that a nation’s wages are determined by its productivity in sectors where it has a comparative advantage.  What he means by this, in essence, is that you would rather have a comparative advantage in high-wage industries.  So, for example, it is better to have your comparative advantage in making airplanes than in cutting hair.

At this point, he takes us through a bit of free trade history.  He explains that the British only became free traders after they used protection to establish themselves as the leading producers in industries such as wool-making.  Similarly, the U.S. and Japan also used protection to develop their industries.

I don’t disagree with his contention that these three countries, and also other developed countries, were quite protectionist during their development period.  I do, however, question whether this protection was the cause of their development.  Speaking very generally, it seems to me that all countries have been fairly protectionist, at various times and in various industries.  However, not all have developed.  As a result, I’m not sure it’s sufficient to identify a correlation between protection and development in some countries and claim that this demonstrates cause and effect.  To his credit, he does have an explanation of why protection worked better in East Asia than in Latin America, an issue which I’ve seen some critics of free trade overlook.  (P. 202)  However, one of his points here was that perhaps Latin America did not emphasize education enough, which, if true, suggests to me that education may be more important for development than protection.

In addition, I’m not sure that a comparison across eras has much value.  It is true that the U.S. protected its domestic industries from their British competitors.  But today, it might make more sense to offer your country up to a foreign company as a place to invest, instead of protecting domestic competitors.  Why spend years with inefficient domestic industries when you could have a foreigner come over and build a state of the art factory tomorrow?  That wasn’t an option for the U.S. in the 19th century, but it is for developing countries now.

Next up, in Chapter 8, he bashes the WTO, NAFTA and other trade agreements.  This part seems to reflect criticisms of people like Lori Wallach and Dani Rodrik.  Most readers are probably familiar with these arguments, so I’m going to skip them.

In Chapter 11, we get back to his key point, which is that it is better to have a comparative advantage in some industries than in others.  He says you want industries with “increasing returns” (for a given increase in inputs, returns go up by more than the increase).  And how do we achieve that?  He proposes a “natural strategic tariff.” As an example of this, he suggests “a flat tax on all imported goods and services” as the best approach.  He mentions a figure of 30%.

What he likes about this approach is that industries differ in “sensitivity and response to import competition.”  Thus, a 30% tariff would not be enough to cause apparel production to come back to the U.S., as our competitiveness in such industries is far behind that of other countries.   However, it would be enough to cause high-tech products like semiconductors to come back (as we are much closer there), which is great because these are the kind of increasing return, high-wage industries we want.

All right, that’s the crux of his argument.  Now for some of my responses.

First off, let’s just ignore the WTO, NAFTA, etc. violations inherent in his proposal.  He’s not interested in that part.  Let’s just talk policy.

I’m going to start with a positive.  There is one thing I like about his proposal:  Because it is a flat rate for all goods/services, it removes the discretion a government has to give higher tariffs to some industries (often based on the effectiveness of their lobbying).  I’ve always seen this as a huge flaw in the current system (and I very much like Chile’s one tariff rate approach).

But aside from that, not surprisingly, I have some concerns.  I’m not going to go through them all, though, but rather just pick out some favorites I want to talk about.  (Readers should feel free to add other thoughts in the comments).

One big concern I have is on competition within specific protected industries.  Won’t taxing foreign competition at such a high rate turn many industries into domestic oligopolies?  On p. 244, he suggests that domestic companies actually compete more intensely against each other than against foreigners.  I’m pretty skeptical of this point.  Unfortunately, it may be difficult to prove one way or the other empirically.  But logically, it makes no sense to me.  How is fewer competitors better?  Imagine if there were no cars made by foreign-owned producers sold in the U.S.  Wouldn’t U.S. consumers be considerably worse off if the U.S. auto makers had been competing only against each other all these years?  Is there any doubt we’d be seeing more expensive, lower-quality cars? 

A second big concern is the foreign response, which I think he vastly underestimates.   He goes through some possible responses foreign governments might have – such as subsidies, currency devaluation, and retaliatory tariffs  — if the U.S. were to adopt such a tariff but dismisses them pretty quickly.  For example, with tariffs, he notes that foreign countries would probably raise their tariffs “somewhat,” but the process would not “get out of control.”  Indeed, he suggests it might even cause them to lower some of their own barriers, if, after the strategic tariff is imposed, lower U.S. tariffs are subsequently offered as an incentive for them to lower their barriers.  (P. 246)

In reaction to this, let me point out first that it’s hard to predict how our trading partners would respond to such a policy.  It is extremely unlikely it would ever be adopted, so not many people have given a response serious consideration.  But I’ll give it a shot anyway.

I know it is commonly said (and the author implies at various times) that most other countries are more protectionist than the U.S. (and thus in part this “natural strategic tariff” would just counterbalance foreign protectionism).  But regardless of who is most protectionist, there is a good deal of support for relatively free trade in much of the developed world.  As a result, I don’t think the response would be anything like he hopes.  If I had to guess here, I think much of the rest of the world would band together in a free trade agreement of their own, and let us go our own way.  More specifically, it seems to me that a possible response by the rest of the world (and especially the EU, Japan and other developed countries) would contain two elements:

— impose an identical 30% tariff on all U.S. goods and services.

— form a free trade agreement amongst themselves.

Now, in the 1950s or 1960s, his argument about the foreign response might have been more plausible.  But today, the U.S. market, while very important, may not command the same power it once did.  There are a lot of other markets in which to sell, and many foreign companies might be happy to have U.S. companies at such a disadvantage in their own markets.

——–

So that’s it, my first book review on this blog.  A bit rambling, I think, but hopefully it was informative.

It may seem like a strange choice of a book to talk about, but I’ve always enjoyed the debate over industrial policy.  Even if the specific proposal here is unlikely to be adopted, there is plenty of industrial policy still going on in less obvious ways, so I think it’s worth taking this issue on.

The Economist has a piece on competition in the market for building nuclear reactors, in which they discuss how state support for domestic competitors may be playing a role:

… the United Arab Emirates (UAE) completed a tender for four nuclear plants in December, Vietnam is planning a similar deal this year and many other countries, from Italy to Indonesia, are hoping to build new reactors soon.

Yet the $40 billion contract in the UAE, won by a consortium led by Korean Electric Power Corporation (KEPCO), South Korea’s largely state-owned electricity monopoly, has caused consternation among the six big firms that have dominated the industry for decades: GE and Westinghouse of America, Areva of France, and Toshiba, Hitachi and Mitsubishi Heavy Industries of Japan. Russian and Chinese firms hope to follow the Koreans’ lead. Suddenly the incumbents are confronted by emerging-market “national champions” with the full backing of their governments—an invaluable asset in a high-liability business like nuclear power.

“If you find out how they won, let me know,” quips Hirotada Nagashima, a senior executive in the nuclear division of Hitachi, whose joint venture with GE lost out to Kepco, as did a consortium of Areva and other French industrial behemoths, including Electricité de France (EDF), Total and GDF-Suez. But there is little mystery. The South Korean consortium, which includes the heavy-industry arms of Doosan, Hyundai and Samsung, three of the country’s biggest conglomerates, and uses some of Westinghouse’s technology, has worked together for decades, building and operating most of South Korea’s 20 reactors. It offered not just to build the plants, but also to run them and even to find the fuel they will need—at a fixed price, for the most part. “It was very easy to bring them together and offer the UAE a complete package,” says Mark Yoon of CLSA, a financial-research firm.

The South Korean government also played its part. The president, Lee Myung-bak, flew off to Abu Dhabi on the eve of the decision to gladhand the locals, promising to help the barren statelet recreate South Korea’s economic miracle. Hiroki Mitsumata, director of nuclear energy at Japan’s Ministry of Economy, Trade and Industry (METI), believes that support from the South Korean government may also have allowed Kepco to offer the lowest price, because the state can backstop cost overruns and accident liability.

The future looks just as competitive:

The next test of the nuclear vendors’ mettle will be the bidding this year to build four nuclear reactors in Vietnam. Mr Mitsumata of METI thinks the government-run Japan Bank for International Co-operation, an export-credit and project-finance provider, and state-backed trade insurance could be used to boost the Japanese entrants. There is talk of a joint bid with a big utility such as Tokyo Electric Power. The government “is trying to increase the level of industrial support for the Vietnam project and the utility companies have been talking more seriously about that,” he says. But Kepco has hinted that it, too, is eyeing Vietnam—as well as other middle-income countries such as Turkey, Jordan, Indonesia, Thailand and South Africa.

In addition to government support for specific foreign projects, government support for domestic projects is also important:

American and Japanese nuclear firms’ chances of maintaining an edge may depend on how far their governments are willing to push nuclear power at home. Mr Obama’s sudden enthusiasm has given the American firms hope. But the Department of Energy has yet to hand out any of the previous batch of loan guarantees approved in 2005. Regulators in Florida have squelched local utilities’ plans to build new reactors. Recriminations about rising costs have held up another project in Texas. It is a far cry from South Korea, where six reactors are under construction and another 14 are on the drawing board.

Presumably, governments are likely to go to domestic companies for domestic projects, which would give these companies additional profits and allow them to bid lower on foreign projects.

It's a little unclear what the government measures at issue are here, but it seems like WTO rules should have something to say.  Or is this one of those "subsidies to services" issues, which we have talked about before (e.g., here), where there are no direct rules?  Not no rules at all, of course, but nothing equivalent to the detailed rules of the SCM Agreement.

Then again, maybe this isn't just a service.  Maybe there is a "good" in here somewhere as well (i.e., there are elements of both goods and services).  When you pay someone to build you a nuclear plant, you end up with a big, physical structure.  Isn't that a good?  Or does the physical thing you end up with have to be resellable (at least to some limited extent)?  One online dictionary defines "goods" as:  "Items; chattels; things; any personal property."  This seems pretty broad.

Perhaps the nuclear plant purchase is sort of like an American buying a car by having Toyota come to your house and assemble it in your driveway.  If they did that, would you be buying a service (assembly of a car) or a car itself?  But they don't do that, of course, so I'm not sure there is a parallel out there that provides much guidance.

Anyway, the point I was getting to was that if it is a good, then maybe we could apply the SCM Agreement to the issue, which would be much more helpful for thinking up WTO claims.  And then, just briefly, if we do get to the SCM Agreement, if a company builds a nuclear reactor abroad, is it "exporting" a good?  Does it depend on where the inputs come from, i.e., are they shipped in from another country?

Following-up on this follow-up post, here's more about current disagreements over trade in asbestos:

Controversy over asbestos exports continued to dog Quebec Premier Jean Charest right up to the very last day of a trade mission to India.

Indian unions and other groups twice called on Charest during the week-long mission to put a halt to the export of the cancer-linked material that is used in construction.

And just days prior to leaving on the mission, more than 100 scientists from 28 countries lent their support to a letter urging the premier to put a stop to asbestos exports from the province.

But the premier insisted Saturday the debate over risks related to the use of asbestos – also called chrysotile – is a thing of the past.

"We reflected a long time over chrysotile and it is politically part of our history," he said. "The Quebec position is well known and, I believe, where it needs to stand."

Charest said it was necessary to make do with the risks related to asbestos even in developing countries where labour standards are not always respected.

…

He maintained it was the Indian government's responsibility to ensure proper use of the product.

From Reuters:

China said on Friday it will slap heavy anti-dumping duties on U.S. chicken parts, a move likely to aggravate trade ties between two of the world's most important economies at a time of strained political relations.

The Chinese Commerce Ministry's initial investigation showed that U.S. companies had dumped chicken products into the Chinese market, according to the ministry's website (www.mofcom.gov.cn).

…

Tyson Foods (TSN.N), an active investor and lobbyist in China, got the lowest duty of 43.1 percent. Pilgrim's Pride Corp (PPC.N) was hit with an 80.5 percent duty. Most other firms, including Sanderson Farms (SAFM.O), face a 64.5 percent duty.

Those that did not appeal the finding would pay duties of 105.4 percent, the ministry said.

The duties are high and they will have a real impact:

… the USA Poultry & Egg Export Council said the American poultry industry was "deeply disappointed" by China's move.

The tariff decision disregarded facts provided by producers and "will virtually eliminate U.S. chicken exports to China for the foreseeable future," the lobby group said in a statement.

More on the product:

Chicken feet and wing tips, virtually worthless in the U.S. market, are a delicacy in southern China. Many U.S. poultry producers count on the Chinese market to round out their profits.

Chicken feet and wing tips fetch about 2 U.S. cents per pound in the United States, but land in China at about 42 U.S. cents – a figure that Chinese rivals say represents the cost of the freight only.

So will this be enough for the U.S. to challenge an anti-dumping duty at the WTO, something it rarely does?  Here's the official U.S. reaction:

The United States Trade Representative was muted in its response, saying it would consult with U.S. producers as it analyzed China's move.

"USTR is following the investigation closely, and we will want to ensure that MOFCOM follows the applicable WTO rules," spokeswoman Carol Guthrie said in a statement.

At Vox, Rahel Aichele and Gabriel Felbermayr explain how production-based carbon reduction can lead to carbon leakage:

We find that carbon trade has increased from 1995 to 2005 by about 50% from about 3,000 MtC to 4,500 MtC. We also find that Kyoto countries typically are net importers of CO2. In 2005, France and the UK, for instance, both have “carbon imports” amounting to about 35% of their domestic carbon emissions. Even Kyoto countries such as Germany or Japan, with trade balances strongly in surplus are net importers of carbon. China, India, or South Africa, in contrast, have net exports of carbon amounting to up to 25% of their emissions.

So how can this problem be dealt with?  Consumption-based carbon measures:

Production-based CO2 emission targets give rise to carbon leakage. Consumption-based targets do not have this shortcoming and should therefore play a more prominent role in climate policies. While more difficult to implement, they would make the current debate about border taxes entirely redundant, and therefore rid the world of a potential protectionist surge in green disguise.

And without carbon leakage, the border tax issue goes away.

His full post:

Well, there certainly are a surfeit of Sino–American tiffs going on at the moment. 

Over at Reason, Ron Bailey offers an intriguing solution to one of these problems — use the WTO as a crowbar to bring down the Great Firewall of China:

When China joined the World Trade Organization (WTO) in 2001 it agreed that foreign service companies would have the same access to markets in China as domestic companies do. Now the European Union and the U.S. Trade Representative office are considering an argument that the Great Firewall violates China’s obligations to permit free trade in services under its agreements with the WTO. Last year, in a working paper titled Protectionism Online: Internet Censorship and International Trade Law, the European Centre for International Political Economy (ECIPE) think tank argued that “WTO member states are legally obliged to permit an unrestricted supply of crossborder Internet services.”

Since 2007, the California First Amendment Coalition (CFAC) has been pushing the U.S. Trade Representative to file a case against China on the grounds that it has been violating its WTO obligations. CFAC argues that, among other violations, China discriminates against foreign suppliers of Internet services by blocking them at the border while allowing domestic suppliers to offer like services. In addition, China has violated its commitments not to introduce or apply non-tariff measures when it joined the WTO by blocking a number of imported products without explanation or justification. China has also not set up any administrative procedures through which foreign suppliers of online services could appeal the blocking of imported publications and content.

I'll defer to smarter law blogs for correction, but I really don't think this is going to work.  First, I'm not sure the differences in national treatment are great enough to constitute a WTO violation (remember, the Chinese position on the Google controversy is that Google has to obey Chinese laws, which appply to both domestic and foreign search engines).  Second, China can respond not by lifting the Great Firewall, but by setting up administrative procedures to handle complaints.  Third, as Bailey acknowledges, if China were to lose such a case, one option would be to simply refuse to comply.  The U.S. would be allowed to respond with trade sanctions, but I suspect China's government will take that bargain every day of the week and twice on Sundays. 

Simon Lester suggests that a bilateral investment treaty (BIT) would be a more useful crowbar — which is great, except the U.S. and China don't have one.  A BIT is being negotiated, and some experts are optimistic that it will be completed by this summer.   Call me crazy, but I can't see the Chinese government negotiating anything that would affect their ability to censor. 

Am I missing something?

I don't think he's missing anything.  I think he's got it pretty much right.  I, too, am skeptical of the NT differences, although there may be new evidence that pops up (and a "market access" claim might work). Also, if we are talking about the GATS, there's a question of whether any relevant commitments have been made, and even if they have been, there is the option to withdraw them.  So, it would be a tough road to get real relief for this at the WTO.

On the BIT issues, I think the substantive obligations would be broader, and thus more useful, but like Dan, I have doubts that China (or the U.S.) would sign onto something like this.  Could either side really tolerate the foreign investor complaints that might result?  Of course, as I've said many times, I don't know much about what goes on behind the scenes in these kinds of negotiations, so I could be completely wrong. 

From Arlen Specter:

I have a two-part question, and just a brief statement of the issue. We have lost 2.3 million jobs as a result of the trade imbalance with China between 2001 and 2007. The remedies to save those jobs are very ineffective — long delays, proceedings before the International Trade Commission, subject to being overruled by the President. We have China violating international law with subsidies and dumping — really, a form of international banditry. They take our money and then they lend it back to us and own now a big part of the United States.

The first part of my question is, would you support more effective remedies to allow injured parties — unions which lose jobs, companies which lose profits — by endorsing a judicial remedy, if not in U.S. courts perhaps in an international court, and eliminate the aspect of having the ITC decisions overruled by the President — done four times in 2003 to 2005, at a cost of a tremendous number of jobs on the basis of the national interest. And if we have an issue on the national interest, let the nation pay for it, as opposed to the steel industry or the United Steel Workers.

…

A "judicial remedy," perhaps in an "international court," to prevent the U.S. President from overruling the U.S. International Trade Commission?  I'm not sure I follow that one at all.  I'd love to hear more about this if anyone knows what he's talking about.

The rest of the question (and Obama's answer) was mostly about whether China was violating its trade commitments and what to do about it.  Here's the part of Obama's response related to the tires safeguards:

"There was a case involving foreign tires that were being sent in here, and I said this was an example of where we've got to put our foot down and show that we're serious about enforcement. And it caused the usual fuss at the international level, but it was the right thing to do."

That fuss is DS399 at the WTO.  The panel has been established but not yet composed.

In the WSJ, economist Matthew Slaughter writes:

Academic research, including most recently by Harvard's Mihir Desai and Fritz Foley and University of Michigan's James Hines, has consistently found that expansion abroad by U.S. multinationals tends to support jobs based in the U.S. More investment and employment abroad is strongly associated with more investment and employment in American parent companies.

When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren't substitutes. More hiring abroad stimulates more U.S. hiring. For example, as Wal-Mart has opened stores abroad, it has created hundreds of U.S. jobs for workers to coordinate the distribution of goods world-wide. The expansion of these foreign affiliates—whether to serve foreign customers, or to save costs—also expands the overall scale of multinationals.

Expanding abroad also allows firms to refine their scope of activities. For example, exporting routine production means that employees in the U.S. can focus on higher value-added tasks such as R&D, marketing and general management.

From Reuters:

Vietnam has launched its first dispute at the World Trade Organisation with a case against U.S. anti-dumping measures on its key exports of shrimp.

The communist state only joined the global trade arbiter three years ago, and its economy like China's has benefited strongly from membership in the world trading system and its rules.

…

No one was available for comment at Vietnam's mission to the WTO, and details of the dispute were not immediately clear.

But Vietnamese shrimp exporters have complained in the past about the controversial U.S. method of calculating anti-dumping duties known as zeroing, which has been condemned repeatedly by WTO courts and rejected by all other WTO members.

Vietnam became a WTO Member in January 2007.  I'm curious:  What's the average time after accession that a GATT Contracting Party/WTO Member brings its first complaint, or is first subject to a complaint?  I wonder if anyone has researched this.

From a draft paper by Richard Stewart of NYU Law School, entitled "THE WORLD TRADE ORGANIZATION: MULTIPLE DIMENSIONS OF GLOBAL ADMINISTRATIVE LAW":

The WTO imposes extensive GAL requirements of transparency, participation, reason giving and review on decision making by members’ domestic administrative bodies in order to ensure even-handed treatment of domestic and foreign private economic actors and prevent disguised protectionism. These requirements constitute what is probably the most highly developed and profoundly transformative administrative law program of any global regime. Due to the clarity and strength of these requirements, the WTO’s near-universal membership, and its compulsory dispute resolution mechanisms, the WTO has played a key role in the emergence of global administrative law in multilevel governance.

The seminal source of this development is Article X of GATT 1947, which remained unchanged in GATT 1994.44 This provision basically requires the rule of law in trade regulation: transparency of trade measures, uniform and impartial administration, and review. Interestingly, it was originally proposed by the US Government and drew clear inspiration from the 1946 U.S. Administrative Procedure Act. There are few better examples of the “administrative law turn” in WTO disciplines than the marked shift in Article X practice and jurisprudence before and after the creation of the WTO in 1994. Before 1994, the few panel decisions involving Article X explicitly regarded it as “subsidiary” to the other “substantive” provisions of the GATT agreement.45 In the decade and a half since the inception of the WTO, violations of Article X have been claimed in no fewer than twenty disputes, and no longer are they proposed or treated as subsidiary considerations. Further, almost all of the new WTO agreements contain either a reference to Article X or, more usually, their own version of its requirements, often with detailed provisions for domestic administrative decision making. Extensive GAL requirements are, for example, found in the GATS, 46 SPS,47 TBT48 and TRIPS49 agreements. These developments comport with the development of a regulation-oriented global trade regime that looks to the expectations of market actors. Moreover, the many GAL requirements can in practice operate to the benefit of local citizens as well as foreign nations and economic actors.

What he describes certainly looks like administrative law.  This raises the following questions for me:  Is this administrative law for its own sake, or is it using the principles of administrative law to get at issues such as non-discrimination?  And does this distinction matter?

From Luke Peterson:

There are growing signs that investment treaty protections – while rarely discussed in media or human rights law circles – may be surprisingly useful in some cases of repression or censorship of foreign-owned media. While there is growing debate as to the uses of World Trade Organization agreements to combat certain forms of state repression of media actors, less attention has been paid to the potential of international investment law to combat certain forms of state censorship and repression. With the US Department of State now signaling that internet freedom should be advanced through US foreign policy, it remains to be seen whether the US negotiating position on international investment treaties will shift so as to embrace this foreign policy objective. Ongoing investment treaty talks between the US and China could provide the obvious forum for this issue to be raised and debated.

I agree with Luke (if I am reading him correctly) that investment protections may be more effective than trade rules on the issue of censorship (internet and otherwise).  There are two reasons for this:  (1) there is no government filter to bringing complaints and (2) some of the substantive investment rules seem particularly useful.  Presumably, China is aware of all this, though, which makes me wonder whether China would ever sign on to investor-state protections with countries that have significant foreign investments in China.

ADDED:

Michael Snarr of the China – U.S Trade Law blog thinks China and the U.S. will sign a BIT sooner rather than later:

Negotiation of a China-U.S. BIT will not be quick and easy, but it remains likely. China is an expanding market attracting foreign investment from around the globe. American enterprises want to invest there and would like more security for their investments. Such incentives historically have driven the United States to negotiate BITs.

This time, however, there is an added and critical dimension. China has amassed capital and is beginning to invest abroad. The United States not only is an attractive market; the United States also needs a substantial share of that investment for the growth of its own economy. Chinese businessmen, like Americans, want investment security. This time, therefore, the BIT partners share a common vision of an agreement that will attract investment to their own countries while protecting their citizens investing abroad. Such unusual balance may make the negotiations more difficult, but they also make a positive result more likely. 

From CNN:

China has threatened to slap sanctions on American companies that sell arms to its rival Taiwan as part of a range of punitive actions Beijing is taking to protest the deal.

I'm not sure what sanctions they have in mind, but it's hard to imagine this resulting in a WTO complaint even if there were a possible violation.  The U.S. is usually on the other side of such concerns, and they are unlikely to want this kind of issue adjudicated at the WTO.