Some interesting weekend reads

 Some weekend readings on international economic law and policy:

1. With withdrawals from international organisations making headlines, the possibility of the US' withdrawal from the World Trade Organization and what is in store, this brief piece by William Alan Reinsch in CSIS offers the odds and what may be in store. 

2. For a more complicated econometric analysis of how domestic politics influences participation in international organizations, this NBER paper by T. Renee Bowen J. Lawrence Broz Christina J. Schneider titled "Domestic Politics and International Organizations" is a must read. A very difficult read at that, I must admit. Try deciphering this:

3. A brief overview of the possible reactions of countries to tariff plans of the US as well as what is in store in this succinct piece by Alan Wm. Wolff.

4. The issue of ISDS and its legitimacy is often a topic on this blog. This piece studies the appointment of arbitrators as a subject of discussion and whether only state nominees as arbitrators instead of parties to the arbitration deciding the arbitrators could enhance the legitimacy.

Tariff disputes reach the WTO sooner than expected?

The tariff war has reached the multilateral trade body - the World Trade Organization. 

Canada and China have chosen the dispute settlement route for the moment to take on the issue of tariffs imposed by the United States. Requesting consultation is the first stage of the dispute settlement procedure.

What are Canada's main grounds in the request for consultations relating to violations of GATT (they had a Trade Facilitation Agreement violation argument too):

1. The US has imposed an ad valorem duty of 25% on non-energy goods from Canada and 10% on energy goods. These are tariffs in addition to what the US imposes according to its tariff schedule under the GATT commitments. This fails the MFN test.

2.  The treatment to Canadian goods are less favourable than what the US GATT commitments are.

3. They are in excess of the bound rates that the US committed at the WTO

And here are China's main grounds for seeking consultation:

1. The 10% additional tariff on all goods from China fails the MFN test.

2. It is in excess of the bound rates of the US committed at the WTO.

3. They are protectionist and discriminatory.

Will the national security exception under Article XII GATT come to the rescue as the measures are allegedly related to the national emergency of "alleged influx of synthetic opioids into the United States"? 

What is teh security exception?

Article XXI 

Security Exceptions 

Nothing in this Agreement shall be construed 

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or 

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests 

(i) relating to fissionable materials or the materials from which they are derived; 

(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

 (iii) taken in time of war or other emergency in international relations; or 

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

Is a "self-judging" exception going to be tested again in the panel? Will it be an appeal in the void again later? I had blogged about the self-judging nature of the exception here.

Latest reports on the dispute are here and here.

How does one interpret the law - text based or more purposefully?

This blog rarely goess of track. It sticks to international economic law and policy, trade law, investment law, WTO, trade agreements - you get the flow.

Going off track today - could not resist putting this book review up there for everyone. A brilliant book review of United States Justice Stephen Breyer's book "Reading the Constitution: Why I Chose Pragmatism, Not Textualism" by Kevin Newshom and Alana Frederik in Harvard Law Review post here.

The eternal question is about how judges should interpret the Constitution or statute. Should it be a more formal, textual approach that sticks to the letter or text of the law or should it be a more pragmatic, purpose oriented approach that looks, inter alia, on the purpose and outcome of the interpretation. 

A fascinating conversation ensues in the review and the reviewers tend to disagree with the pragmatic approach put forth by Justice Breyer while prefering the formal, textual approach. The role of the Courts in a separation of powers context is to interpret the law as IT is and not as it SHOULD be. It leads to more certainty and respects the rule of law, avoids discretion and subjectivity and allows toe Courts to do what the judiciary are supposed to do rather than take on the role of the legislature or executive. If the law is leading to unintended consequences, amendment is the answer, not creative interpretations.

This principle is applicable as much to the Constitution of the United States as it is to India or any other written constitution. It also applies to domestic laws as well as international economic law.

Got me thinking on the Vienna Convention on the Law of Treaties (VCLT). How do we interpret international treaties. Article 31 and 32 provide some light:

Article 31

General rule of interpretation 

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: 

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; 

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 

3. There shall be taken into account, together with the context: 

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

 (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; 

(c) any relevant rules of international law applicable in the relations between the parties. 

4. A special meaning shall be given to a term if it is established that the parties so intended. 

Article 32 

Supplementary means of interpretation 

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: 

(a) leaves the meaning ambiguous or obscure; or 

(b) leads to a result which is manifestly absurd or unreasonable.

What does this indicate - a formalist approach? A pragmatic approach? or a bit of both? When does one determine that the result is a manifestly absurd one?

A fascinating journey into interpretation of statutes - if I recall right, it was one of my favourite courses in Law School. Wonder why?

And, by the way, I got this blogpost back to international economic law and treaty interpretation! Some habits die hard.

My next post will be textualism and pragmatism in the Appellate Body, perhaps?

Free and Fair Trade - The case made out for the two

How should trade policy be? What should be its focus and what should be its limits? Where does one intervene and where does one back off in trade policy? What should an approach in international trade policy be vis a vis partners or adversaries? What should form part of the trade agreement bucket? Deep trade agreements or bare minimum market access? How should one engage with the multilateral trading system - streghtne it or break away?

Trade negotiators often face such quinessential questions of existence. How does one protect national interest without disrupting free trade? How does one protect domestic industry, consumers and agricultursist without being restrictive? How does one build the economy on the principles of free trade and enterprise?

If one wants to understand some of these naunces - 2 must read pieces from Project 2025

1. The Case For Free Trade by Kent Lassman

Some key takeaways from this one - have humility that trade policy is not a magic wand that will solve all problems. Trade policy should be exactly that - involving trade and non-trade issues (labour, climate change, gender, intellectual property) should not find a place in trade agreements. This is an interesting take:

Trade-unrelated provisions are routinely hijacked by progressives and rent-seekers and dilute otherwise worthwhile trade agreements. They also create additional points of contention that make agreements unnecessarily difficult to pass. A conservative trade policy should limit trade-unrelated provisions in trade agreements.The WTO should be revived or atleast replaced by an alliance of free trade supporters. Believe in entrepreneurship and free trade.

2. The Case For Fair Trade by Peter Navaro

Keytakeaways from this one - The WTO's MFN principle institutionalises non-reciprocal tariffs and it needs to be addressed. The danger of excessive trade deficits and how they endanger national and economic security. China's dominance in the global trading system due to Satte support needs to be checked. And, yes, the importance of having the right personnel in the right job. I found importance placed on finding the right person for the job as extremely revealing.

In thinking about the personnel positions that are most essential to effective implementation of trade policy, the most obvious position to get exactly right is that of the United States Trade Representative. The USTR is at least putatively the top offcial on trade policy, and it is critical that this position be filled wisely.

Two of the most relevant pieces if one wants to understand the current thinking, approaches and dilemmas in today's chaotic trade policy world.

Reciprocal tariff could revive multilateral trade negotiations say some - unthinkable?

When everyone is talking about the idea of reciprocal tariff blowing a death knell to most-favoured nation principle and multilateral rules, one would expect a fresh narrative from none other than Joost Pauwelyn along with Jennifer Hillman and Hervé Jouanjean. 

In this essay in the IELP blog, they argue that the threat of reciprocal tariffs could be a boon to the multilateral system in the sense that they can re-invigorate the discussion on non-agricultural market access - in other words tariff concession negotiations could be re-ignited at the WTO to address the reciprocity problem.

Instead of purely bilateral discussions with (and retaliation threats against) the US, the EU and other major trading nations should coordinate a broad-based Article XXVIII re-negotiation process. If managed properly, this could, in effect, turn into the biggest tariff negotiation round since the creation of the WTO in 1994, with the potential to create a fairer and more enduring result.

What this essentially means that negotiations to re-work one's tariff concessions could be the unintended fallout of the present gloomy paradigm of reciprocal tariff reductions on a bilateral basis. Or even an alternative to bilateral trade agreements?

Feasible? Acceptable to the rest of the WTO membership? What about the single undertaking? What about linking tariff negotiations to agricultural and services trade negotiations?

Where do we ship this problem to?

The USTR analysis on China's shipbuilding industry, maritime and shipping sectors is an exhaustive account of alleged unfair practices that has given China dominance in this sector.

The USTR report is here.

A critical account of this report is found here which argues that the report does not establish a causal relationship between the growth of China's shipping and maritime industry and the demise of the US businesses.

A more detailed report of the China shipping industry is found in this CSIS study here.

The China response was expected - that the report is not in tune with the WTO rules and is a protectionist move.

The question is what are the policies and practices called "measures" in WTO language that are inconsistent with China's WTO obligations? And if they are inconsistent, is it relevant anymore in a changed world?

A cursory search for an international trade law perspective was found in this old but relevant paper that contextualises the Chinese shipping industry within its WTO obligations post 2000.

Where do we ship this problem to?

Tariffs at Will, a Code of Conduct and abjuring the middle path!

 Some more reasings and reaction on recirporcal tariffs from around the (online) world:

1. Shiro Armstrong and Tom Westland in the REITI websiteargue provocatively that reciprocal tariffs should be met with realiatory tariffs which could be disastrous to world trade. Instead, action on amending intellectual property regimes domestically to make them more aligned to public purpose than private interest should be undertaken.

2. The impact of high tariffs was analysed here in the context of Japan and Jinji Naoto concluded that the impact would not be much for the imports into the US as there would be trade diversion from other countries and the consumers may be the worst hot after all.

3. Alan. Wm Wolff in his inimitable way alludes to what other trading partners do in the face of the changed reality of the challenge to the rules based system by stating that if the WTO needs to survive and be relevant the WTO members should come with a World Trading System (WTS) Code of Conduct System 2025 which has signatories agree to everything from abiding by the rule based trading system to ending the non-participant veto in case of plurilaterals that achieve a critical mass. I found his statement "Tariffs at will is the opposite of tariffs contractually bound." particularly relevant in the context of WTO rules.

4. The impact on India of the tariff threats is analysed here by Harsh V Pant who argues that India would need to rethink on its feet and avoid the "middle path" and take strategic, innovative decisions quickly. So much for wanting to tread the middle path! But wait, isn't acting startegically to protect national interest also treading the middle path?!

5. I have been thinking of this lately - what is the reaction on China to the new tariff proposals. This piece by Antara Ghoshal Singh is a summary yet exhaustive account of the reaction in China to the new paradigm - the key question there is who will bear the brunt of tariffs - the US consumer and economy towards inflation or Chinese manfuacturing companies profit margins.

6. An option that could achieve the outcome of reciprocal tariffs in a better way is entering into trade agreements that would reduce tariffs and barriers as argued by Colin Grabow here.