WTO

U.S. Blows Hard at Chinese Wind Power Subsidies

by Fran Smith on December 23, 2010

in Energy, Ethanol, International, Sanctimony, Trade

Well, the U.S. has taken it one step further — it has gone to the World Trade Organization for “consultations” about China’s green energy subsidies, specifically for wind power manufacturing. As a result of investigations triggered by a United Steelworkers’ complaint, U.S. Trade Representative Ron Kirk announced on December 22, 2010, that the U.S. is requesting consultations with China under the WTO’s dispute settlement provisions.

The U.S. says that under China’s Special Fund for Wind Power Manufacturing program,

. . . China appears to provide subsidies that are prohibited under WTO rules because the grants awarded under the program seem to be contingent on Chinese wind power equipment manufacturers using parts and components made in China rather than foreign-made parts and components.

According to a USTR press release, China is giving large grants to Chinese manufacturers of wind turbines and their components while excluding foreign parts manufacturers.

The size of individual grants currently available under the Special Fund for Wind Power Manufacturing ranges between $6.7 million and $22.5 million, and the recipients of these grants – Chinese manufacturers of wind turbines and Chinese manufacturers of parts and components for wind turbines – can receive multiple grants as the size of the wind turbine models increases. USTR estimates that grants provided under this program since 2008 could total several hundred million dollars.

These consultations are the first stage of the WTO’s dispute settlement process. In many cases, the parties at this point will reach an agreement to resolve the issue.  If agreement isn’t reached, the next stage is more serious and formal — it involves adjudication by a WTO panel and perhaps by the Appellate Body, and then the ruling’s implementation.

Some observers caution that the U.S. should be wary, as it could face challenges to its own funding of green energy programs and its “Buy American” program:

In President Obama’s stimulus bill, $71 billion was dedicated to clean energy funding, with an additional $20 billion for loan guarantees and tax incentives to support clean energy projects.  President Obama’s budget proposes $150 billion over ten years in clean energy and efficiency programs.  Clean energy job creation is also one of the central tenets of the Administration’s new Middle Class Task Force.  Given these policies, and other proposals pending in Congress, the United States needs to tread carefully in denouncing green-energy subsidies as violations of WTO rules.

In terms of green energy, the best approach is to let the market work, without subsidies that distort that market. Government support through green subsidies and incentives for particular industries, whether by foreign governments such as China or by the United States, are a form of industrial policy intervention to pick winners (and losers) and can lead to unintended consequences in addition to the trade implications, e.g., heavy support for corn ethanol and its effect on food prices and the environment.

Photo Credit

Online Gambling in New Jersey Could Cause WTO Disputes

by Michelle Minton on November 29, 2010 · 1 comment

in Deregulate to Stimulate, Economy, Nanny State, Personal Liberty

New Jersey is on the verge of becoming the first state in the U.S. to explicitly legalize online gambling in an attempt to keep the state’s flailing casino industry afloat. After several attempts, legislation that would legalize online gambling in the state is closer than ever to becoming law.

Despite lagging federal attempts to legalize online gambling throughout the entire country, a great number of individual lawmakers support legalized gambling and see legalized and taxed online gambling as a good way to raise money and bridge widening budget gaps. In particular, State Senator Raymond J. Lesniak of New Jersey has made several attempts to legalize sports gambling and online betting. Earlier this month, his bill S-490 and its companion S11 were approved by the Senate Budget and Appropriations Committee, and last week it was approved by the New Jersey Senate. The final steps for the legislation will be a vote by the state assembly and for Governor Chris Christie to sign it into law — both of which are likely to occur before the end of the year:

It was one of seven bills passed by the New Jersey Senate in an effort to revive Atlantic City’s ailing casinos and horse racing. The intrastate poker sites would be hosted by Atlantic City casinos. Within the U.S., only people in New Jersey would be able to participate. However, bill sponsor Sen. Raymond Lesniak interestingly added an amendment that would allow people outside the U.S. to open an account through the New Jersey casino sites, potentially creating a larger player pool.

The amendment added by Lesniak, allowing foreign players to place bets on New Jersey Internet casinos, is likely to cause tension in the international gambling community, which has long viewed the United States’ stance on online gambling as discriminatory and a violation of international agreements. In 2005 and again in 2007, the WTO ruled against the United States after Antigua filed a complaint against the U.S.

Legalized Internet gambling in New Jersey and taking customers from foreign lands is likely to reignite claims that the U.S. is unfairly hindering international trade — something that New Jersey lawmakers are well aware of and hoping for. The hope is that renewed WTO disputes as well as the revenue brought in by online gambling in the state will prompt the federal government to take seriously the legalization of Internet gambling.

Image credit: FamilyofFun’s flickr photostream.

WTO: For Trade Imbalances, Use Value Added For a More Accurate Picture

by Fran Smith on November 24, 2010 · 2 comments

in Economy, International, Trade

The World Trade Organization’s annual report released today is well worth reading, not only for the data on recent trade flows, economic and unemployment trends, and trade financing but also for the cautions against protectionism and the analyses of trade policy.

Policymakers should particularly take note of the discussion on trade imbalances and why current ways of measuring trade flows don’t take account of value added, that is, currently the full value of a product’s imported value is attributed to the exporting country, even when that country has had a very small part in its total production.  Apple’s iPad – produced through a global supply chain – was a prominent example in the media of the distortions that current measurement of trade flows produces.

Here’s the WTO’s discussion (on p. 17):

A factor that is of particular relevance when situating trade and trade policies in the context of current tensions over trade imbalances is that trade flow statistics are recorded universally in gross terms;  the full value of an imported product is attributed to the country that exports it, even if that country contributes only a small proportion of the product’s value-added.  This has long been recognized in trade policy terms, for example when imposing rules of origin requirements on products that are eligible for preferential tariff treatment.  Even so, it can send misleading signals to trade policymakers.  With many manufacturing processes today broken down into separate parts and spread across different countries before the finished product is assembled for export in one of them, attributing the full value of the product to the country from which it is exported to its final consumer destination will give an exaggerated idea of the real importance of trade with that country.

The report notes that when a value-added approach is used to calculate bilateral trade flows between China and the U.S., for example, it would result in “a reduction of the [US] deficit by more than 40%.”

Here are the calculations (p. 19):

US-China trade balance, 2008: Traditional and value added measurement

(Billion dollars)

ItemValue
USA exports to China (traditional statistics)71
USA exports to China (in value added terms)60
USA imports from China (traditional statistics)  *356
USA imports from China (in value added terms)224
Trade balance (traditional statistics )-285
Trade balance (in value added terms)  **-165

* Adjusted for China processing trade.

** While individual bilateral balances are affected by the value-added measurement, the total trade balance of each country -as measured by the balance of payments- remains the same.

Source: A. Maurer and Ch. Degain ”Globalization and trade flows: what you see is not what you get!”,  WTO Staff Working Paper ERSD-2010-12, June 2010.

That is certainly a significant fact that policymakers should have beaten into their heads before they are allowed to discuss U.S. trade imbalances with China.

Russia’s Frozen Poulty Ban — Not Likely a Path for WTO Membership

by Fran Smith on November 9, 2010

in International, Trade

Russia will be banning frozen chicken imports beginning January 1. The reason for the proposed ban? The head of the Russian agency in charge of Consumer Rights Protection and Human Welfare was quoted as saying, “It is an outdated and rough technology, which leads to a loss of many of the useful qualities of meat.”

Some domestic poultry producers in Russia are opposed to the ban, which would allow only chilled chicken to be sold in Russia. Of course, there are some, such as poultry producer and high-level Russian politician, Sergei Lisovsky, who supports the ban but wants it to go even further — to ban all imported chicken. In an interview reported by The Washington Post, Lisovsky said that the only reason imported chicken was allowed was to help Russia get admitted into the World Trade Organization. But then he was quoted as offering this seemingly contradictory argument: “Since we are not a member of WTO, why should we fulfill all these requirements?” he asked. “The quicker we stop fulfilling the WTO requirements, the quicker we’ll be allowed in.” Huh?

?? ????????????? ?? ???, ??????  “Don’t count on it, Sergei.”

Canada’s Green Energy and Jobs Programs Butt Up Against WTO Rules, says Japan

by Fran Smith on September 22, 2010 · 2 comments

in Energy, Environment, Global Warming, International, Trade

Do green energy and green jobs mandates run counter to World Trade Organization rules?  Japan says “yes” in relation to Canada’s program for renewable energy generation and green jobs in Ontario. Japan is complaining to the WTO that Canadian measures that mandate domestic content requirements for renewable energy generation equipment are inconsistent with WTO rules because they discriminate against equipment produced outside of Ontario and also represent a subsidy prohibited by the WTO. The country has asked the WTO for a formal consultation with Canada on the issues it raises in its September 13, 2010 filing. Consultations are often the first step in trying to resolve an issue before a country opens an official case with the WTO’s dispute settlement body.

Primarily Japan’s complaint hits Canada’s domestic content requirements in its “feed-in tariff” (FIT) program for Ontario, which requires that the renewable energy equipment, such as solar panels, wind turbines, biomass, and waterpower generation equipment, be produced in Ontario in whole or in part. (Feed-in tariffs are renewable energy payments that electric grid utilities obligate themselves to pay to purchase electricity generated from renewable sources.)  Under the program guaranteed prices for renewable energy electricity production are provided through long-term contracts.

According to a provincial government backgrounder on FIT, the domestic content requirements are intended to support “new green jobs in Ontario”:

Domestic content requirements for both FIT and microFIT projects are intended to help support the creation of 50,000 new green jobs in Ontario. MicroFIT projects will help create new local businesses and green jobs as demand grows for technologies such as solar panels, wind turbines, biomass and waterpower generation equipment, and for Ontarians who can design, build, install, operate and maintain these technologies.

And the domestic content requirements can be very specific (and somewhat ridiculous).   Here, for instance, is the one for silicon ingots and wafers:

Silicon ingots and wafer, where silicon ingots have been cast in Ontario, and wafers have been cut from the castings by a saw in Ontario.

From my quick review of the Canadian program, Japan seems to have a real cause for its complaint. Other countries looking to follow Canada’s example for green jobs creation should be wary about including their own protectionist measures.

H/T/ Julie Walsh

U.S. avoids Brazil’s retaliatory tariffs — for now

by Fran Smith on April 7, 2010

in Agriculture, International, Trade

With Brazil poised to retaliate against the U.S. for its cotton subsidies that were deemed unfair by the World Trade Organization, the two countries announced on April 6 that they had reached an agreement to forestall Brazil’s announced actions to slap tariffs on about 100 U.S. products imported by Brazil, including several products relating to intellectual property.  The tariffs and countermeasures were to go into effect today.

In making the announcement U.S. Trade Representative Ron Kirk and U.S. Secretary of Agriculture Tom Vilsack said that the agreement takes steps to recompense Brazil  over the shorter-term while continuing discussions regarding how to eventually resolve the cotton dispute through further negotiation and the 2012 Farm Bill.  Under the WTO’s finding in the cotton dispute brought by Brazil, that country was entitled to impose about $820 million in countermeasures.

The USTR press announcement detailed that the U.S. will establish a fund of approximately $147.3 million per year on a pro rata basis to provide Brazil with technical assistance and capacity building.  The U.S. will also modify its Export Credit Guarantee Program, and make a risk-based determination whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the U.S.

One can only hope that the fix the U.S. found itself in as a result of giving in to cotton producers and other special interests in the 2008 Farm Bill will make policymakers realize that providing subsidies and hand-outs to special groups can be costly for other producers and consumers.  But don’t bet on that.  Farm bills are one of the worst examples of bi-partisan lawmaking, with politicians ever ready to provide  pork for their farm constituents – with taxpayer money that they think of as their own.

Mixing trade and global warming — a recipe for disaster

by Fran Smith on November 13, 2009 · 1 comment

in Global Warming, International, Trade

Oh dear!  Staunch trade proponent Fred Bergsten of the Peterson Institute is in bed with radical trade opponent Lori Wallach of Public Citizen in a joint op-ed in the Washington Post today.  It seems Bergsten thinks there’s no chance of a legislative cap on CO2 emissions unless the U.S. does something to address the competitiveness issues, and he’s against “border tax adjustments” because of its potentially devastating effect on the world trading system.

That’s the good part.  The bad part is that both he and Wallach want to combine the two issues – global warming and trade – and deal with them together. That was a recommendation that the Peterson Institute for International Economics made in a study earlier this year. What that would mean still seems a bit vague.  According to the op-ed, this synthesis would involve –

. . . a new code of “best practices” on greenhouse gas emission controls, including establishment of “policy space” for countries to limit emissions without sacrificing the competitive position of their industries. The institute also recommended that countries adopt a time-limited “peace clause” in which pursuit of new trade barriers would be suspended while the negotiations proceeded, and that a global climate accord be linked to a new global trade accord.

The synthesis would seem to involve  countries agreeing to a “code” that would address restrictions on CO2 emissions  and be generally consistent with WTO rules even if some technical rules would be violated.  Countries signing up for the code would agree not to bring those technical issues to the WTO for dispute resolution (the “peace clause”).

Those “technical” issues, in practice, however, are likely to become substantive issues, as countries enact  a broad array of restrictive  measures to protect their own industries.  But, never fear, the Peterson Institute also recommends in its book that the UN Framework Convention on Climate Change or some international arbiter decide when a code member isn’t in compliance with its international commitments.  Then, if that’s the case, other code members could take trade reprisals against that non-complying member.

Does this sound like a simple plan that would run smoothly?  Not in my book.

The article concludes with a bit of hyperbole — that the “only way to solve our problems is to treat them together.”  Otherwise, we’ll have “paralysis.”

Given the fact that global warming policy prescriptions have been extremely controversial even before the Kyoto Protocol 12 years ago, and the fact that the WTO’s Doha Round for 8 years has been mired down in disagreements among rich and poor countries, does it seem likely that putting these two divisive issues together will produce harmony?

The Magic of Numbers

by Tatiana Kryzhanovskaya on September 30, 2009

in Politics as Usual, Trade

Is it really easier to work in groups or is it just a way to shift responsibility?

This question is relevant after the recent summit in Pittsburgh, where the G-8 has sort of transformed into the G-20. And even though the G-8 will be still meeting annually as well as the new G-20 format, the world leaders have announced that G-8 is not capable to solve world economic problems alone anymore. Maybe there is a similar reason for Russia to insist on joining the WTO as a union with Belarus and Kazakhstan? It is still not clear why Russia has taken this course of action.

It looks like WTO membership is an Achilles’ heel for Russia. And recently, the Russian government appears to be searching for new WTO membership obstacles. In June, Prime Minister Putin declared that entering the WTO for Russia is possible only if it were to enter as a trade union with Belarus and Kazakhstan. He pointed out that partnership with neighboring countries has been much more important for Russia than WTO membership. In September, President Medvedev said that his colleague Mr. Putin was misunderstood. Of course, there is no need to enter the WTO as a union.

Whether Russia will ever join the WTO is still a big question. But it is certain that the customs union between Russia, Kazakhstan, and Belarus will take effect in July 2011, which was announced earlier this week.

Fishy Politics May Harm US Consumers

by Greg Conko on July 14, 2009 · 2 comments

in Agriculture, International, Natural Resources, Regulation, Trade

The Wall Street Journal has a great editorial today on one US industry’s latest attempt to secure some protection against foreign imports, which just may spark a trade war with an important target for American exports. This time, it’s the farmed fish industry, and the imports in question are catfish from Vietnam.

The U.S. catfish farming industry, located primarily in Alabama, Arkansas, and Mississippi, faces tough competition from Vietnamese imports, the value of which rose from $2 million in 1998 to $46 million in 2002, and $77 million last year, all the while chipping in on the US-produced market which fell from about fell from $488 million to $410 million during the same time period. That didn’t sit well with American fish farmers. So, in 2002, they convinced Congress pass a law forbidding Vietnamese catfish, which is a different species than the one farmed domestically, from being labeled as “catfish.” Instead, you’ll see it in supermarkets labeled as “basa” or “tra,” even though taxonomically, the Vietnamese fish are members of the family Pangasiidae within the order Siluriformes, which makes them genuine, authentic catfish.

American consumers seem to like the relatively inexpensive imports, no matter what they’re called. So, in 2003, the US farmed fish industry secured a punitive tariff of up to 64 percent on the Vietnamese fish. And, last year, the federal Farm Bill included a provision introduced by Republican Senator Thad Cochran (Miss.) that would authorize the federal government to shift the inspection of “catfish” from the Food and Drug Administration, which currently oversees nearly all seafood, to the US Department of Agriculture. According to the Associated Press,

“The inspections requirement could be the U.S. producers’ silver bullet, stopping imports in their tracks. Applying to all catfish sold in the U.S., it would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years.”

Ironically,

“after years of arguing that the Vietnamese fish is not catfish — and winning a federal law saying as much — the U.S. farmers are now trying to have it both ways. Under their latest lobbying strategy, they want the Vietnamese imports considered catfish so that they will be covered by [the] new inspections regime”.

This is reminiscent of a similar dispute between the European Union and South American fishing industry that arose earlier this decade. In an effort to protect the European fishing industry, the EU adopted a rule that forbade Pacific Ocean-caught Sardinops sagax from being labeled as “sardines” despite their taxanomic similarity to Mediterranean-caught Sardinops walbaum. In 2002, the World Trade Organization found that this violated the EU’s GATT obligations and ruled in favor of the complainant, Peru.  It’s worth noting that the US sided with Peru and the other South American countries in that dispute, but is now doing exactly what it condemned the EU for doing just a decade ago.

The various US attempts to hobble the Vietnamese farmed-catfish industry is no less underhanded. And, in order to prevent a trade war with Vietnam, it would be wise for Agriculture Secretary Tom Vilsack to reject the pleas of US fish farmers to harm US consumers by making it harder for us to enjoy a good, safe, and inexpensive food.

Leading trade lawyer: real problems with carbon tariffs

by Fran Smith on July 9, 2009 · 1 comment

in Agriculture, Energy, Environment, Global Warming, International, Legal, Trade

Leading trade lawyer Gary Horlick testified yesterday on carbon tariffs before the Senate Finance Committee.  As the Senate prepares an energy suppression/global warming bill, it is attempting to find ways to soften the “border adjustment” provisions in the House-passed bill (H.R. 2454).

Horlick points out some of the practical problems of setting up a carbon tariff system and cautions about the potential effects of such measures on the international trading system.  As he notes, if the production method rather than the end-product is focused on, such processes as agricultural biotechnology may face increased challenges in the World Trade Organization:

It is tempting to say that we can re-interpret existing WTO rules to permit whatever measures are necessary to protect our environment. But do we really want to change those existing rules? The key to the U.S. economy is constant innovation.

One of the important fields where we lead the world of innovation is biotechnology, which is revolutionizing medicine, agriculture, and even many of the environmental concerns dealt with in proposed legislation (such as environmental remediation and renewable fuels). So far the United States has resisted efforts in Europe and elsewhere to limit our market access for our products because of how they are produced – from biotech means. But if we re-interpret WTO rules to allow trade barriers based on how things are made, we open up a can of worms – and might permit other countries to block our biotech exports, including major items such as corn, soybeans, and other crops.

Talk about creating chaos in the world trading system!

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