• Another Economic Defense for the Multilateral Trading System

    by  • January 8, 2020 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on January 7, 2020]

    Stephen Roach (Yale) has recently published a must-read (“US, China and the Myth of Global Decoupling”), which refutes the logic of trade wars.  Here are main observations.

    Today’s global economy is far more integrated than ever before. (…) The tighter that trade is woven into the fabric of global commerce, the tougher it will be to disentangle those linkages (…). —and the lower the odds of a more pervasive and disruptive decoupling. (…)

    This diffusion of bilateral trade through multi-country supply chains would dampen the effects of a bilateral decoupling of any two economies, no matter how large.

    Without addressing the US saving shortfall, raising tariffs and other barriers on China will simply divert trade away from Chinese sourcing toward America’s other trading partners. Bilateral decoupling does not mean global decoupling; it means trade diversion.

    The trade diversion arising from bilateral decoupling would mean that US sourcing would migrate from low-cost Chinese production platforms to a broad constellation of foreign producers. (…) The bottom line is a likely shift to higher-cost production platforms. Ironically, that would be the functional equivalent of a tax hike on US companies, workers, and households.

    These observations offer yet another powerful defense for “an integrated, more viable and durable multilateral trading system,” as stipulated in the WTO Charter.  As the WTO panel report on Section 301 highlighted, any unilateralist policy, such as a trade war, has “indirect effect (…) on individuals and the market-place, the protection of which is one of the principal objects and purposes of the WTO.” (para. 7.86).

    Is the European Union Outsourcing Public International Law to Save the WTO Dispute Settlement System?

    by  • December 13, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on December 12, 2019]

    Upon the Appellate Body having being paralyzed, the European Commission has promptly moved to secure its trade interests by arming itself with the retaliatory power, also creating the position of “Chief Trade Enforcement Officer.”  The Commission’s proposal is reminiscent of Nicolas Lamp’s earlier post on the threat of unilateral retaliation to keep the WTO dispute settlement system alive.

    As far as the WTO is concerned, the proposal allows the Commission to impose penalty tariffs on a WTO member that lost at a panel stage but refuses to comply with the appellate arbitration mechanism under DSU Article 25 and instead appeal “into the void” to prevent the panel report from being adopted.  Interestingly, the Commission justifies (pdf) such unilateral retaliation as a “countermeasure” under the “Draft Articles on Responsibility of States for Internationally Wrongful Acts.”  This is what the Commission argues in this regard:

    [W]here the responsible party fails to cooperate in good faith in the dispute settlement procedures, thereby preventing the injured party from completing such procedures, the possibility to resort to countermeasures in accordance with the requirements of general public international law necessarily revives. The International Law Commission notes that the revival of that possibility arises when one Party “fails to implement the dispute settlement procedures in good faith” or “where a State party fails to cooperate in the establishment of the relevant tribunal”.

    Would this kind of “threat” from a big trading bloc induce other WTO members into buying the proposed appellate arbitration mechanism?  What about the United States?  Obviously, a retaliatory measure may invite another one, and that’s what a trade war is all about.

    Two Faces of (De-) Globalization

    by  • October 23, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on October 23, 2019]

    Two very different observations on (de-) globalization have caught our eyes lately.

    First of all, according to the most recent statistics provided by the Global Trade Alert (composed by Prof. Simon Evenett at St. Gallen), pro-trade and investment measures across borders have shown the biggest decline ever for the past seven years, while a sharp increase of protectionist measures have continued. (more…)

    A $7.5 Billion Ammunition from the WTO?

    by  • October 2, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on October 2, 2019]

    At long last, the Article 22.6 Report (PDF) of the Arbitrator on the Boeing-Airbus dispute is out.  Note that this dispute concerns an original dispute in which the United States (on behalf of Boeing) sued the European Union for the latter’s subsidies on Airbus. Another report in a parallel case in which the EU (on behalf of Airbus) sued the United States for the latter’s subsidies on Boeing will be released in the near future.

    This report reads like an accounting paper full of numbers and formulas. Obviously, the Arbitrator took great pains in computing the reasonable volume of Boeing’s lost sales (counterfactual deliveries).  Note that Boeing and Airbus constitute a near duopoly in the global market when it comes to a large civilian aircraft, which is the subject of this dispute. (more…)

    Collateral Damages of the Trade War

    by  • August 12, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on August 12, 2019]

    Two researchers from the Kiel Center for Globalization (Haiou Mao and Holger Görg) have just published a working paper (PDF) entitled “Friends like This: The Impact of the US – China Trade War on Global Value Chains.”  Based on the notion of “cumulative and indirect tariffs” in global value chains (GVCs), the paper demonstrates that higher tariffs on Chinese intermediate products (parts and components) imposed by the United States incur an additional tariff cost to third countries (such as the EU, Canada and Mexico) when they are assembled into final products and re-exported to those third countries.  Any initial tariffs imposed by the United States will continue to hurt multiple trading partners further downstream in GVCs.

    This study highlights collateral damages of the U.S. – China trade war.  One might speculate that it calls for a strong “normative” response from the world trade community.  Could, or should, third parties challenge those tariffs imposed by the United States, and retaliatory tariffs imposed by China, before the WTO?

    Business Reactions to Trade Wars

    by  • April 15, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on April 14, 2019]

    There is a Chinese saying that “when there is a policy from the above, there is a reaction from the below” (“上有政策, 下有对策”).  This is exactly what has happened since the inception of trade wars.  Both domestic and international businesses have attempted to avoid the punitive tariffs through various means, such as the exclusion application, transshipment and tariff engineering.  As you can imagine, some have been successful; others not.

    The Financial Times has recently offered an excellent simulation game (“Dodging Trump’s Tariffs”) in which readers can educate themselves about intriguing consequences of trade wars.  The simulation game is based on real examples.  Highly recommendable!

    A WTO’s “Kompetenz-Kompetenz” Moment

    by  • April 9, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on April 5, 2019]

    This is a supplemental post to Simon’s earlier one that provides an excellent summary of the Russia – Traffic in Transit panel report. Here are some aspects of the panel report that I found interesting and worth further reflection.

    First, one might say that this landmark decision is characteristic of a “constitutional” moment to the WTO. I understand that the use of “c” word here might be frowned upon in some circles, both legal and political. However, GATT Article XXI is not just a mundane, technical interpretive issue to the WTO. It is a matter of allocating power between the WTO as an autonomous institution and its member. If I exaggerate a little bit, this particular dispute echoes potential existential angst from the WTO. What if the panel had accepted Russia’s original claim and declared Article XXI as a “self-judging” provision? Constitutional consequences would have been dire. The WTO would have opened the jurisdictional Pandora’s Box, invited massive abuses and therefore undermined its own rationale (and identity). (more…)

    May the (Trade) Force Be With You

    by  • March 18, 2019 • 0 Comments

    Trip Planning photo with Admiral Ackbar and Yoda minifigs by Maëlick Reiterlied

    Not many people know it was actually a “trade” dispute that precipitated the Star Wars “a long time ago in a galaxy far, far away.” Professor Sungjoon Cho shares the history of trade wars, laws that aim to prevent trade wars, and how they might have obviated the need for Jedi knights.

    Read more →

    Are Trade Wars Missing the Point? (Part II)

    by  • February 12, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on February 12, 2019]

    In the previous post, I introduced main finding of the recent McKinsey report (“Globalization in Transition: The Future of Trade and Value Chains.”)  The report highlighted the growing importance of services and the relative decline of goods production in global value chains (GVCs).  Likewise, GVCs have become more technology and knowledge-intensive.  In addition, “regional” value chains have become prominent as emerging economies mature and are now capable of insourcing more of intermediate products, which they used to import from advanced economies.  Then, what would be possible implications of those new phenomena to the WTO? (more…)

    Are Trade Wars Missing the Point? (Part I)

    by  • February 6, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on February 5, 2019]

    The answer might be in the affirmative according to the recent report by McKinsey Global Institute, titled “Globalization in Transition: The Future of Trade and Value Chains.”  Here is a summary of its main findings.

    1. “Goods-producing value chains have grown less trade-intensive.”
    2. “Services play a growing and undervalued role in global value chains.”
    3. “Trade based on labor-cost arbitrage is declining in some value chains.”
    4. “Global value chains are growing more knowledge-intensive.”
    5. “Value chains are becoming more regional and less global.”

    On its face, this report might seem to play the same gloomy tune as “slowbalization.”  However, the McKinsey report does not equate this new phenomenon with the decline of globalization.  On the contrary, it attributes the phenomenon as the economic maturation of emerging economies, such as China, India, Thailand, Malaysia and Indonesia, which are “now consuming more of what they produce.”  By 2030, developing countries’ consumption will exceed a half of global consumption. (more…)

    The Dawn of the e-WTO

    by  • January 27, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho

    On the sidelines of the Davos World Economic Forum this week, seventy six WTO member countries agreed to launch a negotiation on electronic commerce.  Yes, we all know that e-commerce has recently been skyrocketing, becoming part of our everyday lives.  Meanwhile, the WTO has been criticized for having failed to provide effective multilateral rules to regulate e-commerce.  I see a bit of déjà vu from the Uruguay Round here, in particular within the context of the North-South tension.  Developed countries such as the United States, the European Union and Japan are spearheading this new initiative, while developing countries such as China and India seem to be lukewarm about the initiative.  China joined the initiative with the reservation that developing countries’ concerns must be reflected. India argued that the Doha Development Round must be addressed before starting a new set of negotiations in the WTO. (more…)

    The Resiliency of the WTO Dispute Settlement Mechanism (Or Not)

    by  • January 12, 2019 • 0 Comments

    Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on January 10, 2019]

    Many worry that the current United States–China trade wars, and negotiations therefrom, might undermine the WTO dispute settlement mechanism (DSM).  Curiously, however, both the United States and China have not completely bypassed the WTO DSM.

    In fact, both countries have invoked the WTO DSM in tandem with their unilateral/bilateral engagements outside of the WTO.  For example, China sued the United States for the latter’s punitive tariffs against the former (here and here).  The United States also filed a complaint against China regarding the latter’s alleged violation of TRIPS, in addition to its execution of the Section 301 procedure on the same complaint.

    One might surmise that the U.S.’ such actions are in contrast to its recent blocking of new Appellate Body members.  So, can we say comfortably that the WTO DSM is resilient?  Or, are these all about merely anteing up political rhetoric?