_{Volume 13, Number 14, 22 April 2009}

LEAD STORIES

Lamy Urges Countries to ‘Remain Vigilant’ against Protectionism

WTO delegates meeting in Geneva last week agreed that, despite warnings to the contrary, the world economy has not fallen into an all-out tit-for-tat protectionist battle since onset of the global financial crisis in September. But WTO Director-General Pascal Lamy told the trade officials that there has been a slight up-tick in new trade-restricting measures in recent months, and urged them to “remain vigilant” in resisting pressures to close their borders to trade.
 
World trade flows have dropped precipitously since the economic turmoil struck last year. The WTO predicted in March that world trade flows will slide by 9 percent this year, the steepest drop in 60 years (see Bridges Weekly, 25 March 2009).

 
But so far, at least, the news these days is somewhat brighter.
 
“There is no indication of an imminent descent into high intensity protectionism, involving widespread resort to trade restriction and retaliation,” Lamy told WTO delegates at the 14 April meeting. “The multilateral trade rules under the WTO continue to provide a strong defence, and a unique insurance policy, against that happening.”
 
“We should nevertheless remain vigilant and avoid nationalistic responses to the crisis, which will just shift problems to neighbours and risk them bouncing back,” he warned.
 
The director general had called the officials together to discuss a report on WTO Members’ protectionist policies that his office released on 26 March (see Bridges Weekly, 1 April 2009). The report, the second in a series of official updates on WTO Members’ new trade-restricting policies, concluded that there had been “significant slippage” toward protectionism. The first such report, released in January, found “only limited evidence” of moves to restrict trade (see Bridges Weekly, 28 January 2009). 
 
US disputes severity of ‘slippage’
 
The director general’s characterisation of the status quo was not universally well received; delegates at the meeting got to witness some semantic quibbling over the wording in the report.
 
“We understand the danger of an incremental build-up of restrictions but do not think that the facts bear out the suggestion in the introduction of the report that ‘there has been significant slippage’ since the beginning of the year,” said Peter Allgeier, the US ambassador to the WTO, adding that he thought the phrase ‘some slippage’ was more appropriate.
 
“Overall, in the face of strong pressures in many capitals, major protectionist measures have been avoided,” he added. 
 
The Indian ambassador, Ujal Singh Bhatia, also struck a moderating tone. “Doomsday predictions of a return to the Smoot-Hawley era are out of place,” he said, noting that domestic pressures toward protectionism would be offset by the voices of the many people who have benefited from globalistation.
 
Hong Kong tables ‘standstill’ proposal
 
Upping the ante in the meeting, the Hong Kong delegation proposed a temporary freeze in all new trade-restricting measures. Under this so-called ‘standstill initiative’, WTO Members would voluntarily commit to “refrain, for a period of time” from imposing measures that would restrict or distort trade. The standstill commitments would be in addition to Members’ current WTO obligations, the Hong Kong delegate said.
 
Many WTO Members maintain tariff and subsidy rates well below the ceilings set by existing trade agreements. As such, in many cases countries can raise barriers to trade without breaching world trade law. But the ‘standstill’ initiative, which Hong Kong claimed had received the backing of several other delegations, would seek to prevent all increases in trade barriers, legal or not.
 
Aim of monitoring reaffirmed
 
In his address to delegates, Lamy explained that close monitoring of countries’ new trade policies was critical to getting the global economy back on track. Such exercises increase transparency, he said, putting government actions under greater scrutiny and thus pressuring them to resist protectionism. He noted that delegations had been largely cooperative in the information-gathering process.
 
The 30 delegations that made statements at the meeting largely agreed that such public scrutiny was a critical safeguard against protectionism. “The importance of great vigilance in monitoring the situation is obvious,” US Ambassador Allgeier said. 
 
The WTO’s next protectionism report will be released in mid-June, Lamy said.
 
ICTSD reporting.

Obama Administration Not Ready to Support Carbon Border Tax: Kirk

A recent letter from US Trade Representative Ron Kirk downplays the notion that the Obama Administration would implement a border tax on imports from large developing countries to help domestic industry under a cap-and-trade scheme.
 
Kirk issued the statement in response to questioning from Republican Congressman Joe Barton regarding comments made by Energy Secretary Stephen Chu at a hearing in the House of Representatives in early March. Chu had suggested that in order to prevent ‘leakage’ and protect local industry under an emissions cap-and-trade programme, the US would not rule out using tariffs and other trade barriers to pressure countries like China and India to cut back on emissions. “If other countries don’t impose a cost on carbon, then we will be at a disadvantage,” Chu said at the hearing.
 
Leakage – the movement of carbon-intensive industry to countries with lax environmental standards – is a prime concern for the Obama administration as it mulls a proposed emissions trading scheme that was unveiled in Congress on 31 March.
 
The 648-page American Clean Energy and Security Act of 2009, introduced by Democrats Henry Waxman and Edward Markey, would establish an aggressive cap-and-trade programme, as well as initiatives aimed at cleaning up the environment, promoting renewable energy, and updating standards for transportation emissions.
 
Some critics argue that an emissions-trading, or cap-and-trade, scheme would place the US economy in jeopardy because it would force domestic industry to compete with countries that lack similar restrictions. But the sponsors say their proposal will, in fact, strengthen the US economy.
 
“This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution,” said Waxman. “Our goal is to strengthen our economy by making America the world leader in new clean energy and energy efficiency technologies.”
 
The means by which such goals will be achieved has been the subject speculation. Some observers have warned against implementing climate-related measures that might be considered protectionist.
 
But some US manufacturers are more concerned about how the bill might impact their business. The US steel industry recently spoke out about Washington’s plans for cutting greenhouse gasses, saying that steel produced in countries such as China and India should face import tariffs if their industries do not have to adopt similar emissions targets.
 
“Chinese steelmakers enjoy an unfair advantage in global trade due to the lack of enforcement of exceptionally weak pollution standards,” Scott Paul, the executive director of the Alliance for American Manufacturing, said recently.
 
American steelmakers say their cost of production has already gone up significantly as a result of investments in pollution control systems aimed at reducing particulates and components of acid rain.
 
Terry Straub, a senior vice president at US Steel Corp, says that government should carefully consider the impact of a possible flood of cheap foreign imports and suggests a carbon fee be placed on steel from any country that does not regulate greenhouse gas emissions.
 
The proposed bill acknowledges the obstacles that the steel, aluminium, cement and chemicals industries will face under cap-and-trade. To that end, the draft legislation would offer assistance in the form of rebates, incentives for carbon capture projects, and a special reserve of allowances.
 
Under the rebate programme, the government would distribute payments to manufacturing industries adversely affected by foreign competitors located in countries that do not have similar emissions-reduction requirements.
 
But if such measures prove inadequate, the bill would allow the president to establish a so-called ‘border adjustment programme’, which would require importers of emissions-heavy goods from countries that do not regulate carbon emissions to purchase special allowances from the government.
 
Some observers say that such a programme would amount to thinly veiled protectionism.
 
China has been particularly vocal over the suggestion of any such US import tariffs, arguing that the US could use the cap-and-trade scheme to justify protectionism. China recently surpassed the US as the world’s top emitter greenhouse gases, but Chinese officials have frequently said that the onus of emissions should be placed on countries that purchase the goods manufactured in China, rather than by China itself.
 
Kirk’s 14 April letter, which was addressed to Republican representatives Joe Barton, Ralph Hall, Greg Walden, and Paul Brown, takes aim at protectionist concerns. The Obama administration would ensure that its energy and climate policies do not violate the country’s international trade obligations, the letter said, noting that the White House would seek to “minimise incentives” for US trading partners to use retaliatory trade measures against US exports.
 
“Our consideration of the necessity of, and options for, addressing carbon leakage will include how potential measures might be targeted towards the circumstances of energy and trade intensive industries,” the letter reads. “The administration, however, does not support any specific measures, including border measures, at this time.”
 
Commitment to UNFCCC process re-affirmed
 
The letter also re-affirms US support for Copenhagen deal, suggesting that concerns over carbon leakage would be dealt with best through the UN Framework Convention on Climate Change (UNFCCC).
 
”The Administration believes that the best approach to address concerns with carbon leakage is to negotiate a new international climate change agreement in the United Nations that ensures that all the major emitters take long term, significant action to reduce their greenhouse gas emissions,” Kirk wrote. “We look forward to working with these countries to negotiate a meaningful global climate agreement and actively avoiding circumstances in which we are simply exporting carbon emissions abroad.”
 
Letter leaves ‘unanswered questions’: Republicans
 
Responding to the letter, deputy Republican staff director on the Energy and Commerce Committee Larry Neal said that the Kirk epistle “tries to make up in cheery confidence what it lacks in facts.” Neil said the letter leaves many unanswered questions regarding the possibility of other countries taking ‘strategic advantage’ of the higher cost of production US manufacturers would face under the cap-and-trade programme.
 
The proposed US carbon trading scheme has been controversial. The proposal faces bipartisan opposition and many observers say the bill is unlikely to get approval from Congress if concerns over protecting domestic manufacturing are not addressed.
 
Additional Information
 
Ron Kirk’s 14 April letter to Joe Barton can be accessed here: http://ictsd.net/downloads/2009/04/kirk-letter-14-04-09.pdf
 
ICTSD Reporting, “Obama Wants Climate Bill Mindful Of WTO Rules - Kirk,” REUTERS, 16 April 2009.

WTO IN BRIEF

New Zealand’s Walker Becomes New Chair of WTO Farm Talks

David Walker, New Zealand’s ambassador to the WTO, is the new chair of the agriculture negotiations at the WTO. The third New Zealander to hold the position, he will be responsible for nurturing a consensus on agricultural issues in the WTO’s Doha Round.
 
Walker faces a tough task in resurrecting the farm talks, which, according to some observers, are responsible for the  collapse of a  meeting of trade ministers in Geneva last July. Indeed, the farm talks have historically been one of the most contentious areas of the Doha negotations, with many competing interests amongst and between developed and developing countries.
 
Walker’s predecessor, New Zealand’s former WTO ambassador, Crawford Falconer, managed to whittle the points of contention down to just a few critical issues. The Special Safeguard Mechanism, an instrument that would allow developing countries to control import surges, remains contentious. Other issues that have yet to be resolved include the question of how to discipline rich country farm subsidies and how to regulate sensitive products, goods that will face reduced cuts in tariffs in exchange for expanded quotas.

At a formal meeting of the special sesion of the WTO’s Agriculture Committee on Wednesday, Walker told delegates that he would convene another session of the group once he had consulted with Members and “gathered [his] thoughts” on “the most appropriate way forward.” 

Walker was appointed as New Zealand’s top envoy to the WTO late last year, when Falconer announced that he was giving up the post. Falconer stayed on as the chair of the farm talks for another few months, before announcing in March that he planned to return to New Zealand (Bridges Weekly, 18 March 2009, http://ictsd.net/i/news/bridgesweekly/43437/). 
 
A former instructor at Canterbury University, Walker, who holds a doctorate in regulatory economics, was the lead negotiator on New Zealand’s Free Trade Agreement with China and in the ‘P4’ Economic Partnership negotiations with Chile, Singapore, Brunei. Walker also led the New Zealand delegation in the ‘TransPac’ negotiations between the US and ‘P4′ countries.
 
”Dr Walker is one of New Zealand’s most experienced trade negotiators and I have no doubt he is fully committed to bringing the agriculture negotiations to a successful conclusion,” Trade Minister Groser said.
 
The former ambassadors of New Zealand and chairs of the WTO agriculture negotiations have gone on to fill important roles at home. Tim Groser, chair of the farm talks between 2003 and 2005, is now the country’s trade minister, while Falconer, chair from 2005 to 2009, will be taking up a post as deputy secretary at the New Zealand Ministry of Foreign Affairs and Trade.
 
ICTSD reporting.

Search Is on for Two New Appellate Body Judges

Argentina, Brazil, Costa Rica, the European Union and Mexico have presented their candidates for two vacancies on the WTO’s Appellate Body, the organistion’s highest court.
 
The Appellate Body (AB), which is composed of seven judges, saw the departure of one of its members, Luiz Olavo Baptista, a Brazilian lawyer, earlier this year; that post must be filled in July.  A second vacancy will open up in December, when Italian law professor Giorgio Sacerdoti, will come to the end of his tenure. Each judge on the AB serves a four-year term that can be renewed once.
 
Although Appellate Body judges do not represent individual governments, it is seen as prestigious for a country to secure a nomination on the body. The AB currently includes judges from China, Italy, Japan, the Philippines, South Africa and the United States.
 
Canadian ambassador John Gero, who is the head of the WTO’s dispute settlement body, is chairing the six-member interview panel that is charged with finding the replacements. The panel conducting interviews with the six candidates this week; after consulting with Members, the panel will propose two names at the end of May. Those names would then be put forward to the Dispute Settlement Body for approval in June.
 
According to WTO custom, one place on the high court is reserved for Latin America and one for the European Union. This norm helps to preserve a representative composition of the geographical origin, as well as the different legal systems, of the WTO’s 153 Members.
 
The four Latin American nominees are Hector Torres of Argentina, a former member of the Argentinean delegation to the WTO; Ellen Gracie Northfleet of Brazil, who is currently a judge on her country’s highest court; Ronald Saborío, Costa Rica’s current ambassador to the WTO; and Ricardo Ramirez of Mexico, a former trade negotiator who now works as a lawyer.
 
The European bloc has made two nominations: Peter Van den Bossche, a Belgian national who was formerly a legal counsellor to the AB and the director of its secretariat; and Pieter-Jan Kuijper of the Netherlands, who has previously served as the director of the WTO secretariat’s Legal Affairs Division and as the director for international trade with the European Commission’s Legal Service.
 
This article was translated and adapted from Puentes Quincenal, Vol. 6 No. 7; “WTO top court attracts strong nominations,” REUTERS, 9 April 2009; “WTO’s Appellate Body attracts high-caliber nominations,” Institute of International Trade, 10 April 2009.

BRIDGES Weekly Trade News Digest© is published by the International Centre for Trade and Sustainable Development (ICTSD).