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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

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

slide7
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

slide8
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

slide10
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

slide11
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

slide13
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

slide14
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

slide16
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

slide17
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

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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