Saving Multilateralism: Renovating the House of Global Economic Governance for the 21st Century

Last December, the eyes of all those with a stake in international affairs turned to Europe. First they looked to Geneva, for signs that the long-running Doha Round of multilateral trade negotiations at the World Trade Organization (WTO) would get back on track after years of stalemate. Then observers turned to Copenhagen, hoping to see a binding and comprehensive agreement reflecting a commitment on the part of the world’s governments to address the pressing global challenge of climate change. They were to be sorely disappointed. Inscribed on the faces of those struggling to reach agreements was a deep frustration with multilateral processes that were proving incapable of delivery. Instead of agreement, the images playing out on television screens and in newspapers around the world were of fractiousness and division, due in part to the large number of participants and contentiousness of the issues faced; of anger, on the part of all those who felt marginalized by the process; and of concern, from those looking for signs that the world still has the capacity to reach accords when it really matters. The failure of these meetings to produce formal agreements—or even specific paths to reaching agreements in the future—despite the high stakes and the political capital that had been invested in advance left many questioning the ability of the world’s leaders to meet global challenges, shedding a spotlight on the institutions and fora that were established for the purpose of achieving multilateral solutions to the most pressing collective problems of the 21st century. Why did these meetings fail? Many had assumed that the most significant economic crisis since the Great Depression and the overwhelming scientific and circumstantial evidence of damaging changes to our climate would compel world leaders to set aside their differences and reach meaningful agreements. But it did not happen. It is not that the problems are not big enough or urgent enough. The failure to reach agreements can best be seen as part of a long-term trend toward increased complexity in the world that makes it nearly impossible to reach traditional multilateral binding accords, combined with a waning of faith on the part of many countries in multilateralism and multilateral institutions

Multilateral Economic Institutions and U.S. Foreign Policy: Hearing Before the Subcomm. on Multilateral Int\u27l Dev., Multilateral Insts., & Int\u27l Econ., Energy, & Envtl. Pol\u27y of the S. Comm. on Foreign Relations, 115th Cong., Nov. 27, 2018 (Statement of Jennifer A. Hillman)

Virtually every major international gathering of world leaders recently has ended in failure—or at least failure to reach enough agreement to issue a concluding statement or communique. These failures come at a time when many have been looking for signs that world leaders would come together to address the most pressing problems facing the world—including climate change, the breakdown in the rules of the international trading system, the need everywhere for good jobs that pay a living wage, and rapidly growing income inequality. The failure of these meetings to produce formal agreements—or even specific paths to reaching agreements in the future—despite the high stakes has left many questioning the ability of the world’s leaders to meet global challenges, shedding a spotlight on the institutions and fora that were established for the purpose of achieving multilateral solutions—particularly the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF). The failure to reach agreements can best be seen as part of a long-term trend toward increased complexity in the world that makes it nearly impossible to reach traditional multilateral binding accords, combined with a waning of faith on the part of many countries in multilateralism and multilateral institutions. A number of clear trends emerge from the failures to reach accords at virtually all recent international gatherings: 1) Government policies and international arrangements for collective decision-making have not kept pace with changes in the world, especially the high degree of international economic integration and interdependence. Much of the increasing complexity in the international economic order stems from the explosive growth in the number and size of multinational corporations and financial institutions, many of which now dwarf the size of most of the nations in the world. Added to the complexity is the increase in the speed at which goods, money and technology moves around the globe in our digital age. 2) Learning to operate in this vastly more complex world will require more multilateralism, not less. As countries emerged from the era of colonialization and began opening their markets, the number of players on global stage increased, making reaching consensus among a much larger group of disparate interests more difficult. But because the most significant problems facing the world cross many international boundaries, solving them will require that countries come together to find regional, plurilateral, or global solutions. 3) It is essential that the international economic institutions be updated and improved, not destroyed or left to wither. Because it is clear that reaching major new binding accords or creating new international institutions is quite difficult, the best and most achievable solution is to renovate our existing institutions. Each needs to modernize and improve their governance structures to ensure that work can get done despite the increases in complexities and to update their mandates to ensure the ability to address the problems of the 21st century, many of which are quite different from those that existed in the 1940s when these institutions were created. Given that the crisis is most acute at the WTO, this testimony will focus on what must be done to renovate the World Trade Organization and why doing so is critical, both for the trading system and for the continued existence of a rules-based international economic order. The need for the WTO and its dispute settlement system to remain viable is particularly critical if we are to address the challenges presented by the explosive growth of China and its transformation into the largest exporter of goods in the world

An Emerging International Rule of Law?—The WTO Dispute Settlement System’s Role in its Evolution

More than 2,000 years have passed since the idea of the “rule of law” appeared in Western culture. But only recently has it entered common usage—we have become the “rule of law generation.” With the growth in the number of international courts and tribunals, the question arises whether the same principles surrounding the rule of law that have been developed in many national legal systems also apply in international arenas. Despite the fact that the international system lacks a centralized legislative authority, and despite the scepticism of many observers, I argue that institutions like the dispute settlement system of the World Trade Organization (“WTO”) significantly contribute to moving toward a full-fledged international “rule of law.” In the first part of this Comment, I explore what the concept of “rule of law” means in a domestic setting, and address the problems arising from applying this concept in the international arena. In the second part, I analyse the role of the WTO’s dispute settlement system, and in particular of the Appellate Body, in the progressive development of an international rule of law. In the third part, I address the question of whether the WTO’s dispute settlement system can constitute a valid model for how the rule of law can be applied in other international arenas. In the fourth part, I examine the potential obstacles in the path of establishing a genuine rule of law at the WTO—namely the absence of a balance between a highly functioning adjudicatory system and a weak legislative arm

Changing Climate for Carbon Taxes: Who’s Afraid of the WTO?

Carbon taxes have recently become a major source of discussion in the Washington, DC policy community. Supporters contend that they offer an efficient way to simultaneously create incentives to emit less carbon dioxide and reduce the budget deficit. Leading think tanks from both the left and the right, including Brookings, the American Enterprise Institute, and Resources for the Future, have hosted dialogues on how to structure the tax and use the revenues. Meanwhile, lawmakers have proposed two carbon tax bills during this congressional session: 1) Senators Boxer (D-CA) and Sanders (I-VT) put forward a plan to assess coal, oil, and gas producers a $20-per-ton carbon tax; and 2) Rep. Henry Waxman (D-CA), along with Rep. Blumenauer (D-OR) and Senators Whitehouse (D-RI) and Schatz (D-HI) released a discussion draft of a bill that would impose a fee of between$15 and $30 per ton on greenhouse gas emissions from power plants, factories, refineries, and other major emitters of carbon dioxide. Should such a carbon tax be enacted, it will in all likelihood be accompanied by measures to ensure that the U.S. industries that would be most heavily affected by the tax are not placed at a competitive disadvantage with respect to competitor producers operating in countries that have not imposed any restrictions or taxes on carbon usage. Any such efforts to “level the playing field” will raise numerous questions regarding their compatibility with U.S. international obligations, especially their legality under agreed upon rules of the World Trade Organization (WTO) and in particular, the General Agreement on Tariffs and Trade (GATT). Can such a carbon tax be applied in a way that does not violate U.S. obligations under the WTO Agreements? I believe the answer is yes, provided that policymakers carefully design such a tax, keeping in mind the basic requirements of the WTO not to discriminate in favor of domestic producers or to favor imports from certain countries over others. The key is to structure any accompanying border measure as a straightforward extension of the domestic climate policy to imports. If so designed, there should be few questions about the measure’s consistency with the WTO rules. Even if questions were raised, the United States would have strong defenses within the WTO system. And even if those defenses were somehow to fail, the United States would be able to make adjustments should some aspect of its carbon tax system be found wanting. A non-discriminatory tax enacted in good faith to address climate change should pass muster with the WTO. Therefore, the threat of WTO challenges should not deter policymakers from adopting a carbon tax system now

Why the Ryan-Brady Tax Proposal Will Be Found to Be Inconsistent with WTO Law

The tax-reform plan released by Speaker of the House Paul Ryan and House Ways and Means Committee Chairman Kevin Brady is intended to improve our corporate tax system by, among other things, taxing companies based on where they sell their goods, not where the business is located or where the goods are made. To do so, the ambitious reforms would set up a system in which corporations pay taxes on their U.S. sales revenues, with deductions permitted for the cost of input materials and labor, along with exclusions for the value of export sales. Although policymakers rarely need to take the World Trade Organization (WTO) or its rules into account when devising tax policy, the proposal outlined in the Republican Blueprint for a cash flow tax does have significant WTO implications. While many proponents have said that plan is fully consistent with our WTO obligations, or at least that the WTO-consistency of the plan is “ambiguous,” that contention rests on a blurring of the distinction between taxes imposed on imports with rebates or exclusions for exports, combining the two under the overall notion of “border adjusted taxes” or BTAs. As this Issue Brief explains, as currently described, the Ryan-Brady taxes on imports are a clear violation of WTO rules while the rebates or exclusion from taxes for exports presents a murkier picture. The speed with which WTO disciplines can be imposed also vary between imports and exports. Claims that the cash-flow tax’s application to imports violates the WTO would follow the traditional WTO dispute settlement rules, potentially taking two or more years for a decision on whether a violation has occurred, with significant additional time added on for compliance and possible further litigation over whether any changes the US might make in response to an adverse ruling bring about actual compliance. Disputes claiming that the exemption for exports from the sales revenue base violates the WTO rules on subsidies would, on the other hand, potentially be subject to the WTO’s expedited dispute process for claims involving prohibited export subsidies or relatively fast action by our trading partners to impose countervailing duties on US exports that cause injury to their domestic producers. As a result, any U.S. violations would likely generate several opportunities for relatively expeditious reprisals by other WTO member states

Conflicts Between Dispute Settlement Mechanisms in Regional Trade Agreements and the WTO — What Should WTO Do?

It was a tremendous pleasure to participate in a symposium that honored one of the giants of the World Trade Organization\u27s (WTO) Appellate Body—Professor Yasuhei Taniguchi. Professor Taniguchi served as a distinguished member of the Appellate Body from 2000 to 2007, during which time he served on the division for twenty-one appeals, many of them addressing landmark issues. In tribute to him, this article focuses on an issue that was a key element in the last dispute on which Professor Taniguchi served as member of the Appellate Body. This dispute concerned Brazil\u27s restrictions on imports of retreaded tires and raised important questions about the relationship between regional trade agreements and commitments to the WTO. The subject of this article—the relationship between the dispute settlement mechanisms of various free trade agreements, customs unions or regional trade agreements (RTAs) and the WTO\u27s Dispute Settlement Understanding—is one that has already seen considerable debate among scholars. This debate is poised to become more relevant and more intense with the proliferation of free trade agreements and RTAs. This article outlines the most common types of dispute settlement mechanisms contained in RTAs and the problems that can arise from the overlap or conflict between these RTA dispute settlement provisions and the Dispute Settlement Understanding of the WTO. This article also discusses the most recent case in which such a conflict arose—the Appellate Body\u27s report in Brazil Tyres. In Brazil Tyres, the Appellate Body examined Brazil\u27s ban on the importation of used and retreaded tires and the exemption from that ban that Brazil adopted to implement an adverse ruling from a decision of an RTA dispute settlement tribunal. Brazil contended that the WTO panel was correct in finding that Brazil\u27s exemption from the ban for certain retreaded tires was permissible because it was mandated by a Mercado Común del Sur (MERCOSUR) tribunal. The Appellate Body reversed the panel, finding that taking action to comply with a MERCOSUR dispute settlement panel did not necessarily provide sufficient justification for Brazil\u27s action. Brazil was still required to meet the requirements of the General Agreement on Tariffs and Trade (GATT) and WTO covered agreements, particularly, in this case, the chapeau of Article XX. This article concludes that there are a number of problems that can arise—or have already arisen—due to the overlap in dispute settlement processes between the WTO and RTAs, and WTO members should take immediate action under the Doha Round mandate to address these conflicts and clarify the legal relationship between RTA and WTO dispute settlement provisions

Slamming the Door on Trade Policy Discretion? The WTO Appellate Body\u27s Ruling on Market Distortions and Production Costs in EU—Biodiesel (Argentina)

This paper presents a legal-economic analysis of the Appellate Body′s decision in EU-Biodiesel (Argentina) that the WTO′s Anti-Dumping Agreement (ADA) does not permit countries to take into account government-created price distortions of major inputs when calculating anti-dumping duties. In this case, the EU made adjustments to the price of biodiesel′s principal input - soybeans - in determining the cost of production of biodiesel in Argentina. The adjustment was made based on the uncontested finding that the price of soybeans in Argentina was distorted by the existence of an export tax scheme that resulted in artificially low soybean prices. The Appellate Body found that the EU was not permitted to take tax policy-induced price distortions into account in calculating dumping margins. We analyze the economic rationale for Argentina′s export tax system, distortions in biodiesel markets in Argentina and the EU, and the remaining trade policy options for addressing distorted international prices. We also assess whether existing subsidies disciplines would be more effective in addressing this problem and conclude that they would not

What Role for the WTO in Disciplining China’s State-Dominated Economy?

Is the World Trade Organization (WTO) and its rules-based system capable of addressing the distortions in trade caused by the explosive growth of China’s State-Owned Enterprises (SOEs)? If it is, why hasn’t it been put to use? If the WTO rules are not up to task, where and how do they need to be changed? Those are the questions that Henry Gao and Weihuan Zhou answer in their thorough and compelling assessment of the current state of China’s SOEs, the commitments China made when it joined the WTO and the relevance of the applicable WTO rules, Between Market Economy and State Capitalism: China’s State-Owned Enterprises and the World Trading System. The answers to those questions have taken on greater urgency in light of the Trump Administration’s view, now largely adopted by the Biden Administration, that if the WTO is incapable of addressing the United States’ concerns over China’s increasingly non-market, Communist Party-dominated economy, then the WTO is not sufficiently valuable to bother investing in or working hard to reform. The answers are all the more important in light of the increasingly accepted view that trade with China is unfair and damaging to the United States

China’s Entry into the WTO—A Mistake by the United States?

The conclusion that China\u27s accession to the WTO was a failure from a U.S. perspective stems from: 1) loading too many issues and expectations—including an entire panoply of national security and geostrategic concerns -- on to the WTO and its rules-based, binding dispute settlement system to address; 2) failure by the United States and the rest of the world to use the tools available as a result of China’s accession to the WTO to both protect their domestic markets and hold China to account for its WTO commitments; and 3) China’s U-turn away from market-economy reforms to a much more state-centric, Chinese Communist Party (CCP)-run economy. Addressing the United States’ concerns with China will require working to strengthen the WTO and then using it to take on a more limited set of trade concerns while using other tools to address broader concerns both bilaterally and in conjunction with allies and partners

Framework Proposal for a US Upstream Greenhouse Gas Tax with WTO-Compliant Border Adjustments

Discussions regarding policies to limit greenhouse gas (GHG) emissions have been ongoing for decades, and GHG policies of various types have been implemented for years in many countries. In practice, countries that adopt GHG policies utilize a portfolio that typically includes a mix of standards, subsidies, mandates and price-based policies, each directed at particular economic sectors. In view of obvious inefficiencies and lack of synergies resulting from the portfolio approach, economists and many others have convincingly argued that setting a price on carbon—and other GHG emissions—using an economy-wide, upstream GHG tax would be the most effective and efficient policy to address GHG emissions. Its effectiveness stems from being able to cover all emissions from production and use of fossil fuels by applying the tax on producers of coal, oil, and gas resources at the mine mouth and wellhead before they are combusted, rather than dealing with actual emissions from millions of individual sources and actors throughout the economy. Its efficiency stems from allowing markets, rather than the political process, to identify and implement the most cost-effective steps to reduce emissions through decisions that affect current operations and purchases, and through decisions now about investment, research and development to invent and deploy more effective solutions to reduce future GHG emissions. Myriad issues must be addressed to design and approve legislation to implement an upstream, economy-wide GHG tax. This report does not address that galaxy of challenges and opportunities. Rather, assuming that an upstream GHG tax could be implemented, the report addresses the challenge of border adjustments for exports and imports in the context of a domestic upstream GHG tax, as described below. The domestic GHG tax could cause energy-intensive industries to shift production to countries without comparable pricing, resulting in “leakage” of GHG emissions that the domestic tax aims to prevent. By shifting production from the United States, the tax would also disadvantage domestic manufacturers, their employees, and the communities where they operate. Hence, the call by many to introduce border adjustments: through the imposition of equivalent GHG pricing on imported products from energy-intensive, trade-exposed (EITE) industries, and by providing rebates from the impact of the upstream tax on the cost of products exported by domestic producers. However, doing this has raised concerns about consistency with rules of the World Trade Organization (WTO). Here we propose a Framework for a US climate policy with border adjustments that are compatible with US obligations under WTO agreements. It is based on an upstream tax on GHG emissions with rebates for exports and charges on imports for products from EITE industries. A companion Compendium (forthcoming) provides additional details on implementing border adjustments with specific recommendations for 35 EITE industries. Proposed border measures are designed in a non-discriminatory fashion, with the intent and effect of reducing global GHG emissions. Therefore, the border adjustments proposed as part of the Framework will not give rise to any valid claims of WTO violations. Even if such claims should be raised, a strong defense could be made under the exceptions to the WTO rules