A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts
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A General Equilibrium Interpretation of WTO Dispute Settlement Cases - 4 EU-US Trade Conflicts. Fritz Breuss The Calculation and Design of Trade Sanctions in WTO Dispute Settlement Interdisciplinary Workshop Graduate Institute of International and Development Studies

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A General Equilibrium Interpretation of WTO Dispute Settlement Cases - 4 EU-US Trade Conflicts

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A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

A General Equilibrium Interpretation of WTO Dispute Settlement Cases -4 EU-US Trade Conflicts

Fritz Breuss

The Calculation and Design of Trade Sanctions in WTO Dispute Settlement

Interdisciplinary Workshop

Graduate Institute of International and Development Studies

Centre for Trade and Economic Integration (CTEI)

Geneva, 18-19 July 2008


Topics

Topics

  • WTO

    Since 1995 - 378 disputes; EU vs US – 47 cases

  • “Rebalancing” retaliation – myth and reality

  • Examples of general equilibrium analysis of DS cases - 4 EU-US mini-trade wars:

    - Hormones

    - Bananas

    - FSC

    - Steel

  • Suggestions forimproving the DS System


Rebalancing retaliation in wto dispute settlement myth and reality

“Rebalancing“ retaliation in WTO Dispute Settlement – myth and reality

  • How to calculate the level of damage – Bazaar?

    - „equal to the nullification or impairment“ = Illusion!

    - “lost trade” (trade effects – Mercantilist view)

    versus “welfare effects”– only by chance the same!

  • Suspension of tariff concessions?

    - impose countermeasures (import tariffs) up to the level of

    nullification or impairment ( amount of “lost trade”)

  • Nominal damage - static view?

    - „Shooting oneself in the foot“

DSU = Dispute Settlement Understanding = legal basis of Dispute Settlement: Annex 2 of the WTO Agreement:

„Understanding on rules and procedures governing the settlement of disputes“, 1994.


Problems with dispute settlement in practice

Problems with Dispute Settlement in practice

  • Retaliation in which sector?

    - „Bananas vs „Gucci“ products“

    - sectoral implications of retaliation unclear (CGE analysis ?)

  • Repercussions on third countries?

  • Who controls retaliation tariffs collected?

    - who gets the tariff revenues? - firms damaged or state?

  • Dispute settlement system with tariffs favors large countries

    - optimal tariff theory!

  • Who wins trade wars?

    - mostly large countries

    - LDC refrain from retaliation (e.g. Ecuador in Bananas case!)


Cge analysis of 4 eu us mini trade wars with the gtap5 model

CGE analysis of4 EU-US “Mini trade wars”with the GTAP5 model

  • 12 Countries/regions:

    USA, Canada, Mexico, EU, EFTA, Turkey, Brazil, Latin America, China, Japan, Korea, ROW

  • 7 Commodities/sectors:

    Bananas, Meat, Food, Other Primaries, Steel, Manufactures, Services

  • 5 Factors of production:

    Land, Unskilled Labor, Skilled Labor, Capital, Natural Resources

  • Standard full competition model - calibrated to 1997 data


Hormones case

Hormones case

  • Brief history

    - 4/1996 WTO panels (US + Canada vs EU)

    - 5/1999 EU bans all imports of US beef + beef products

    - 7/1999 WTO Arbitrator - level of nullification or impairment

    suffered by USA = US$ 116.8 mill. per year

    Canada = CND$ 11.3 mill. per year

    - Open dispute !

  • Model implementation -------------------------------

    - Scenario I:EU bans Meat imports from USA value US$ 116.8 mill.

    - Scenario II:USA reduces imports from EU by US$ 116.8 mill.

    (sectors: meat, food, other primary products, manufgr.)

    - Scenario III:Mini trade war - simultaneous Scenarios I + II


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Hormones case

Welfare effects in % of GDP

TOT

TOT

0.0002

-

-

+

-

-

+

0.0000

-0.0002

-0.0004

-0.0006

-0.0008

-0.0010

EU

USA

(I)

(II)

(III)

Scenarios

US$ 116.8 million = 0.05% of total EU exports to USA (0.11% of agricultural EU exports to USA) each year


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Hormones case

Real GDP effects %-change

Exports with partner, %-change

-0.01

-0.06

-0.07

-0.03

-0.01

-0.04

0.0001

0.0000

-0.0001

-0.0002

-0.0003

-0.0004

-0.0005

-0.0006

-0.0007

-0.0008

EU

USA

Scenarios

(I)

(II)

(III)

US$ 116.8 million = 0.05% of total EU exports to USA (0.11% of agricultural EU exports to USA) each year


Bananas case

Bananas case

  • Brief history

    - 1/1993 EU introduces Common Market Organization for

    bananas - prefers ACP bananas, discriminates

    „Dollar bananas“ (Latin America etc.) - tariff-quotas

    - 4/1996 WTO panels - USA, Mexico, Ecuador, Guatemala

    Honduras + third parties (Saint Lucia, Dominican

    Republic, Nicaragua, Jamaica)

    - 3/1999 WTO Arbitrator - level of nullification or impairment

    suffered by USA = US$ 191.4 mill. per year

    - 7/2001 Bananas dispute solved - USA suspended trade

    sanctions vs EU tariff only regime 1 Jan 2006

  • Model implementation -------------------------------

    - Scenario I:EU „banana“ imports from USA down by US$ 191.4 mill.

    - Scenario II:USA retaliates - reduces „manufacturing“ imports from

    EU by US$ 191.4 mill.

    - Scenario III:Mini trade war - simultaneous Scenarios I + II


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Bananas case

Welfare effects in % of GDP

TOT

TOT

0.0004

+

-

-

-

+

-

0.0002

0.0000

-0.0002

-0.0004

-0.0006

-0.0008

-0.0010

EU

USA

(I)

(II)

(III)

Scenarios

US$ 191.4 million = 0.08% of total EU exports to USA (0.19% of agricultural EU exports to USA) each year


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Bananas case

Real GDP effects %-change

Exports with partner, %-change

-0.11

-0.12

-0.07

-0.02

-0.08

-0.01

0.0000

-0.0001

-0.0001

-0.0002

-0.0002

-0.0003

-0.0003

EU

USA

(I)

(II)

(III)

Scenarios

US$ 191.4 million = 0.08% of total EU exports to USA (0.19% of agricultural EU exports to USA) each year


Foreign sales corporations fsc case

Foreign Sales Corporations (FSC) case

  • Brief history

    - 1/1984 USA introduces FSC scheme, replacing old export

    promoting tax scheme (DISC), which was not GATT

    conform

    - 9/1998 WTO panel - EU vs USA

    - 8/2002 WTO Arbitrator - estimated damage of nullification for

    the EU = US$ 4.043 bio. per year

    - 3/2004 EU – gradual sanctions against USA: 5% to 17% tariffs

    - Nearly solved dispute !

  • Model implementation -------------------------------

    - Scenario I:USA subsidizes exports to EU by US$ 4 bio.

    - Scenario II:EU retaliates by reducing imports by US$ 4 bio.

    (sectors: meat, food, steel, other primary goods, steel

    and manufactures) - hypothetical scenario !

    - Scenario III: „Mini“ trade war - simultaneous Scenarios I + II


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

FSC case

Welfare effects in % of GDP

TOT

TOT

-

+

+

+

-

-

0.0200

0.0150

0.0100

0.0050

0.0000

-0.0050

-0.0100

-0.0150

-0.0200

EU

USA

(I)

(II)

(III)

Scenarios

US$ 4 billion = 2.5% of total EU imports from the USA each year


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

FSC case

Real GDP effects %-change

Exports with partner, %-change

+0.24

-0.39

-0.15

-0.15

+1.73

-1.89

0.0025

0.0020

0.0015

0.0010

0.0005

0.0000

-0.0005

-0.0010

-0.0015

-0.0020

EU

USA

(I)

(II)

(III)

Scenarios

US$ 4 billion = 2.5% of total EU imports from the USA each year


Steel case

Steel case

  • Brief history

    - 3/2002 USA imposes restrictions on steel from the rest of the

    world (except from Canada, Israel, Jordan, Mexico)

    - 30% import tariffs (safeguard measures)

    - 3/2002 EU adopted temporary safeguard measures on steel

    (9/2002 - 7 out of the original 21 products) -trade

    diversion effects !?

    - 6/2002 WTO panel on US „Safeguard measures on steel

    imports“

    - 6/2002 WTO panel for EU vs USA + 7 other countries (Japan,

    Korea, China, Switzerland, Norway, New Zealand,

    Brazil)– AB report 11/2003: US measures against WTO

    - President Bush ended safeguard measures on 4 Dec 2003

  • Model implementation -------------------------------

    - Scenario I:USA reduces steel imports from 7 countries: US$ 1 bio.

    - Scenario II:EU reduces imports from USA: US$ 1 bio (sectors: food

    + manufactures)

    - Scenario III:Mini trade war - simultaneous Scenarios I + II


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Steel case

Welfare effects in % of GDP

TOT

TOT

-

0.0030

-

+

+

-

-

0.0020

0.0010

0.0000

-0.0010

-0.0020

-0.0030

-0.0040

-0.0050

USA

EU

Scenarios

(I)

(II)

(III)

US$ 1 billion = 0.42% of total EU exports to USA each year


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

Steel case

Real GDP effects %-change

Exports with partner, %-change

-0.47

-0.11

-0.57

-0.11

-0.51

-0.62

0.0000

-0.0001

-0.0002

-0.0003

-0.0004

-0.0005

-0.0006

-0.0007

-0.0008

-0.0009

EU

USA

Scenarios

(I)

(II)

(III)

US$ 1 billion = 0.42% of total EU exports to USA each year


A general equilibrium interpretation of wto dispute settlement cases 4 eu us trade conflicts

4 EU-US mini trade wars: winners + losers

(total welfare in % of GDP)


How to improve the ds system

How to improve the DS System

  • Suggestion:

    * From retaliatory tariffs to transfer sanctions

    - Complainant country should be entitled to claim transfers from the

    respondent country

    - Transfers are then redistributed to the firms damaged by WTO-illegal

    trade measures

    - Control easier than with tariffs

    * Problem?

    - Interference into national sovereignty - legal change in WTO DSU?

  • Other ideas:

    - Anderson (2002) - „compensation instead of

    retaliation“ (respondent must lower import

    barriers on some other products!)

    - Mexico: “Tradable retaliation rights” !?


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