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It’s A Question of Market Access

Published online by Cambridge University Press:  27 February 2017

Kyle Bagwell ,
Petros C. Mavroidis  and
Robert W. Staiger
Kyle Bagwell
Affiliation:
Department of Economics and Graduate School of Business, Columbia University
Petros C. Mavroidis
Affiliation:
Faculty of Law, University of Neuchatel
Robert W. Staiger
Affiliation:
Faculty of Law, University of Neuchatel
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Extract

In this paper, we argue that market access issues associated with the question of the optimal mandate of the World Trade Organization should be separated from nonmarket access issues. We identify race-to-the-bottom and regulatory-chill concerns as market access issues and suggest that the WTO should address these concerns. We then describe ways that WTO principles and procedures might be augmented to do so. As for nonmarket access issues, we argue that as a general matter these are best handled outside the WTO, and that, while implicit links might be encouraged, explicit links between the WTO and other labor and environmental organizations should not as a general matter be forged. We view this as a measured approach to labor and the environment within the WTO.

Type
Symposium: The Boundaries of the WTO
Information
American Journal of International Law , Volume 96 , Issue 1 , January 2002 , pp. 56 - 76
Copyright
Copyright © American Society of International Law 2002

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References

1 The framework described in this section is formally developed in Bagwell, Kyle & Staiger, Robert W., Gattthink (Nat’l Bureau of Econ. Research, Discussion Paper No. 8005, 2000)Google Scholar; Bagwell, Kyle & Staiger, Robert W., An Economic Theory of GATT, 89 Am. Econ. Rev. 215 (1999)Google Scholar; Bagwell, Kyle & Staiger, Robert W., Domestic Policies, National Sovereignty and International Economic Institutions, 116 Q. J. Econ. 519 (2001)CrossRefGoogle Scholar; Bagwell, Kyle & Staiger, Robert W., The WTO as a Mechanism for Securing Market Access Property Rights: Implications for Global Labor and Environmental Issues, J. Econ. Persp., Summer 2001, at 69 CrossRefGoogle Scholar.

2 Country B’s consumers may gain from the lower price that a higher country A tariff implies, but their economic gain will be small in comparison to the loss to country B’s exporters.

3 Bagwell & Staiger, Gatt-Think, supra note 1.

4 We understand the term “property rights” over market access commitments to mean that a WTO member has a legal claim to request that the value of negotiated market access commitments be honored.

5 The difference between this case and the first case raised above can be understood as follows. In the two-country model, the terms-of-trade theory implies that, in the presence of imperfect property rights over market access commitments, governments distort their standards choices subsequent to tariff negotiations so as to frustrate the full liberalizing implications of their tariff commitments. In the particular case of export-industry standards, this consideration implies that, if anything, standards will be set too high relative to efficient levels.

6 Brander, James & Spencer, Barbara, Export Subsidies and Market Share Rivalry, 18 J. Int’l Econ. 83 (1985)Google Scholar; Maggi, Giovanni, Strategic Trade Policy with Endogenous Mode of Competition, 86 Am. Econ. rev. 237 (1996)Google Scholar.

7 Bagwell, Kyle & Staiger, Robert W., Strategic Trade, Competitive Industries and Agricultural Trade Disputes, 13 Econ. Pol. 113 (2001)CrossRefGoogle Scholar.

8 See, e.g., European Communities—Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, Jan. 25, 1990, GATT B.I.S.D. (37th Supp.) at 86, 128–29 (1991).

9 See Japan—Measures Affecting Consumer Photographic Film and Paper, WTO Doc. WT/DS44/R (Mar. 31, 1998). In this case, the panel did not reject the U.S. complaint, which was directed, inter alia, against lax enforcement of Japanese competition laws. Thus, in principle, it accepted that such an allegation can constitute a nonviolation complaint if, of course, the value of negotiated market access commitments is reduced as a result of lax enforcement of antitrust laws.

10 See European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, WTO Doc. WT/DS135/AB/R, paras. 182–97 (Mar. 12, 2001) [hereinafter Asbestos Report].

11 WTO members might attempt a different approach: it might be claimed that the circumstances at hand do not present a legitimate health-based reason for blocking trade. But with such an approach, they will be arguing that their trading partner’s decision to block trade on health grounds violates the WTO contract. The condition to move to a nonviolation complaint is precisely that no violation of the WTO contract has occurred.

12 Paragraph 188 of the Asbestos Report, supra note 10, reads:

The European Communities also contends that the Panel erred in finding that Article XXIII: 1 (b) applies to measures which pursue health, rather than commercial, objectives and which can, therefore, be justified under Article XX(b) of the GATT 1994. Once again, we look to the text of Article XXIILl (b), which provides that “the application by another Member of any measure” may give rise to a cause of action under that provision. The use of the word “any” suggests that measures of all types may give rise to such a cause of action. The text does not distinguish between, or exclude, certain types of measure. Clearly, therefore, the text of Article XXIILl (b) contradicts the European Communities’ argument that certain types of measure, namely, those with health objectives, are excluded from the scope of application of Article XXIIL1 (b).

13 See Understanding on Rules and Procedures Governing the Settlement of Disputes, Art. 26.1 (b) [hereinafter DSU], in Marakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, Annex 2, in World Trade Organization, The Legal Texts: The Results of the Uruguay Round Of Multilateral Trade Negotiations 354 (1999).

14 Supra note 13.

15 A case like this has never been brought in WTO case law. Indeed, one might be tempted to argue that from a legal perspective such a case could never see the light of day. However, the wording of GATT Article XXIII.1 (b) and, more specifically, the term “indirectly” reflected there suggest that such a possibility is not excluded a priori.

16 We are well aware of the limits of this proposal. In the absence of ex officio complaints to this effect and a WTO ombudsman, the extent to which more nonviolation complaints will be brought against WTO members racing to the bottom will ultimately depend on the willingness of the leaders of the world community to punish such behavior. Subsidizing such complaints domestically is an option that deserves to be examined by national authorities. Anyway, at least the European Community and the United States, through the penetration of their private sector in almost all WTO markets and their strong public presence (embassies, etc.) all over the world, have the wherewithal to collect information in this context. All they need is the incentive to process the information and bring countries before the WTO.

17 GATT Article XXVIII allows WTO members to rebalance the level of their commitments. Under Article XXVIII, whenever a WTO member wishes to increase its bound protection on an item, it must offer compensation on another item.

18 Of course, in many cases an action that generates a nonpecuniary externality carries implications for market access as well. In this part, we address actions that generate predominantly nonpecuniary externalities.

19 Ignatius Horstmann, James R. Markusen, & Jack Robles, Multi-Issue Bargaining and Linked Agendas: Ricardo Revisited or No Pain No Gain (Nat’l Bureau of Econ. Research, Working Paper No. 8347, 2001).

20 Giancarlo Spagnolo, Issue Linkage, Delegation, and International Policy Cooperation (2001) (unpublished manuscript, on file with Stockholm School of Economics).

21 Horstmann, Markusen, & Robles, supra note 19.

22 A similar possibility is to condition membership in free trade agreements or customs unions on the strength of standards (along the lines of the recently negotiated U.S.-Jordan Free Trade Agreement). A potential risk should be noted, though: if governments see preferential arrangements as the only feasible way to address standards concerns, then the result may be a proliferation of tariff discrimination, with the possibility of associated damage to the WTO system.

23 Generalized System of Preferences, June 25, 1971, GATT B.I.S.D. (18th Supp.) at 24, 25 (1972).

24 Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, Nov. 28, 1979, id. (26th Supp.) at 203, 203 (1980) (citation omitted).

25 Id. (citation omitted).

26 See European Communities—Measures Affecting Soluble Coffee, Request for Consultations by Brazil, WTO Doc. WT/DS209/1 (Oct. 19, 2000).

27 Which should have been given in accordance with Article 3.6 of the DSU, supra note 13.

28 National GSP lists are available online at the Web site of the UNCTAD, <http:www.unctad.org>.

29 ILO Convention (No. 87) Concerning the Right to Organize and to Bargain Collectively, July 9, 1948, 68 UNTS 17; ILO Convention (No. 98) Concerning Freedom of Association and Protection of the Right to Organize, July 1,1949, 96 UNTS 257; ILO Convention (No. 138) Concerning Minimum Age for Admission to Employment, June 26, 1973, 1015 UNTS 297.

30 19 U.S.C. §§2461–2467 (1994).

31 If this lack of legal security is determined to be an impediment to the use of GSP for this purpose, it might be possible to enhance the legal security of GSP commitments by allowing each developed country to record a list of criteria for GSP benefits in its Article II schedule.

32 For an economic perspective on enforcement in trade agreements, see Bagwell & Staiger, Gatt-Think, supra note 1; Bagwell, Kyle & Staiger, Robert W., A Theory of Managed Trade, 80 Am. Econ. rev. 779 (1990)Google Scholar; Dixit, Avinash, Strategic Aspects of Trade Policy, in Advances in Economic Theory: Fifth World Congress 329 (Bewley, Truman F. ed., 1987)CrossRefGoogle Scholar; Maggi, Giovanni, The Role of Multilateral Institutions in International Trade Cooperation, 89 Am. Econ. Rev. 190 (1999)CrossRefGoogle Scholar.

33 Recent papers on the topic of linkage and trade agreements include Paola Conconi & Perroni, Carlo, Issue Linkage and Issue Tie-in in Multilateral Negotiations, 4 J. Int’l Econ. (forthcoming)Google Scholar; Ederington, Josh, International Coordination of Trade and Domestic Policies, 91 Am. Econ. Rev. 1580 (2001)CrossRefGoogle Scholar Josh Ederington, Global Environmental Agreements and Trade Sanctions (May 2001) (unpublished manuscript); Nuno Limão, Trade Policy, Cross-Border Externalities and Lobbies: Do Linked Agreements Enforce More Cooperative Outcomes? (2000) (unpublished manuscript, on file with Department of Economics, Columbia University); Spagnolo, supra note 20.

34 See text at note 20 supra.

35 The WTO Agreements’ renegotiation provisions might come into play if a country’s nonconformity with its ILO obligations were responsible for enhanced export volumes that its trading partners did not wish to accept.

36 Charnovitz, Steve, The Moral Exception in Trade Policy, 38 Va.J. Int’l L. 689 (1998)Google Scholar.

37 On this issue, see Mavroidis, Petros C., Remedies in the WTO Legal System: Between a Rock and a Hard Place, 11 Eur. J. Int’l L. 763 (2000)CrossRefGoogle Scholar.