Trade disputes

Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 1 Lecture 7 Trade disputes WTO dispute settlement procedures Sanctions Examples Ari Kokko What’s a trade dispute in WTO? One member government believes that another member government is violating an agreement or a commitment made to the WTO – “Unfair” antidumping levies – Non-tariff barriers – Administrative practices Note: initial antidumping determination purely national process Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 2 Lecture 7 Ari Kokko The WTO dispute settlement process Emphasis on consultations and voluntary settlement of disputes Detailed schedules for formal dispute settlement process – complaint to Dispute Settlement Body – expert panel – report and proposed resolution – process for appeals Ari Kokko The panel process Complaint and consultation – 60 days for bilateral discussions Establishment of panel – must be done within 45 days Final panel report to parties – max 6 months after establishment of panel, includes conclusions and recommendations Final panel report to all DSB members – 3 weeks after parties have received it Report automatically adopted after 60 days if there is no consensus against it Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 3 Lecture 7 Ari Kokko Appeals The panel’s ruling can be appealed by either party Appeals examined by three person group from permanent 7-member Appellate Body – Appellate Body report in 60-90 days New report accepted or rejected by DSB within 30 days – rejection requires consensus Ari Kokko After adoption of panel report Country at fault must reform its policy according to recommendations – statement of intent within 30 days – compliance required within “reasonable” period of time Alternative is to negotiate payment of mutually acceptable compensation – 20 days for negotiations Trade sanctions can be authorized by DSB if compensation is not agreed upon Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 4 Lecture 7 Ari Kokko Sanctions Retaliatory action – suspension of concession and obligations – should primarily be in same sector – some possibilities to retaliate in areas of other WTO agreements Level of retaliation to match injury – arbitration by original panel How effective is retaliation? – How can small countries “hurt” the US? Ari Kokko WTO disputes 1995-2004 (Dec) 324 cases reported to DSB 103 panel reports 64 appellate body decisions only 5 cases where retaliation has been authorized Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 5 Lecture 7 Ari Kokko Retaliation authorized in 5 cases Foreign sales corporations – EU complaint about tax benefits to exports. Level of retaliation: USD 4,043 million. Implemented from March 2004. US Antidumping Act of 1916 – EU request to adopt similar system with “triple damages”. Airplane subsidies – Canadian complaint about Brazilian subsidies. Level of retaliation: CAD 344 million. Not yet implemented Ari Kokko Retaliation authorized in 4 cases Bananas – Latin American countries and US complaint about EU banana import regime. Value of retaliation: USD 393 million. Withdrawn after agreement. Hormones – US and Canadian complaint about EU ban of imports of hormone treated meat products. Level of retaliation: USD 125 million. In force, but calls for removal after EU rules revision in late 2003. Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 6 Lecture 7 Ari Kokko The Banana case The establishment of the Single Market 1992 required unified banana policy – widely different national policies Distinct interest groups – protection of EU producers – support to former colonies – support to EU distributors – consumer interest for cheap bananas Heavy lobbying of EU decision makers – effective alliance in favor of protection Ari Kokko EU:s 1993 banana policy Tariff free quotas for ACP bananas – based on “best” year before 1991 More restrictive tariff quotas for dollar bananas Quota licensing system for dollar bananas included shares reserved for ACP banana importers Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 7 Lecture 7 Ari Kokko WTO dispute settlement Ecuador, Guatemala, Honduras, Mexico, and Panama file complaint with WTO in 1996 – joined by US, to defend interests of US banana companies Support for complaint from WTO panel and Appellate Body – but EU unwilling to change until sanctions were imposed Any similarities with Catfish case? Ari Kokko GM: next big case? Genetically Modified (GM) food products EU unwilling to allow imports of GM foods – health / safety: GM food may affect human genes – discussion about labeling and tracing GM US strongly opposed to import restrictions Unwillingness to take problem to WTO – US would probably win case, but lose publicity war – standing of WTO may weaken if it makes unpopular decisions