Vol. 21 No. 1 (January, 2011) pp.4-7
LAW AND ECONOMICS OF CONTINGENT PROTECTION IN INTERNATIONAL TRADE by Kyle W. Bagwell, George A. Bermann, and Petros C. Mavroidis (eds). Cambridge, New York: Cambridge University Press, 2009. 434 pp. Hardback: £55.00/$98.00. ISBN: 9780521769075. Adobe eBook. $76.00. ISBN: 9780511687105.
Review by Susan L. Karamanian, The George Washington University Law School. Email: Skaramanian [at] law.gwu.edu.
Too often, legal scholarship with a strong focus on economic analysis is highly theoretical, grounded in classical and neoclassical assumptions that appear far removed from reality. Economic principles are used to describe conduct and assess the implications of attempts to regulate it. The analysis, sometimes dense and supported by graphs and charts, tends to raise more questions than it answers. The reader is left questioning the relevance of what appears to be largely an academic exercise.
Yet, in certain areas of the law, an understanding of the economic consequences of regulation is critical to the discipline itself; that is, without the framework of economics, the presentation has a noticeable gap. For example, in international trade law, economics plays a special role given trade’s efficiency objectives and the business nature of the subject matter (Garcia 2001, at 1045; recognizing that the “international economic law system’s core commitment to free trade naturally reflects the principles of trade economics in which liberalized trade contributes to increased welfare due to gains in efficiency and the unfettered operation of comparative advantage”), even though other factors help paint a complete picture (Charnovitz 2002, at 34; arguing that the WTO should be evaluated based largely on political factors, such as relations between states, within states and at the international level). The importance of economics is magnified when specific trade measures are put under the microscope. Indeed, studies by groups of lawyers and economists have demonstrated the value of inter-disciplinary approaches to international trade (see Bhagwati and Hudec 1996a, 1996b, ALI Current Projects. The reviewer is grateful to Steve Charnovitz for guiding her to these sources).
LAW AND ECONOMICS OF CONTINGENT PROTECTION IN INTERNATIONAL TRADE, the third volume in a series of the Columbia Studies in WTO Law and Policy, offers a refreshing legal and economic perspective on trade “protective mechanisms” permitted under the law of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) (Goode 2007, at 101). The covered mechanisms are subsidies and countervailing duties (CVDs), antidumping measures, and safeguards.
The book’s 20 contributions are uniformly strong. Three of the submissions introduce the legal landscape of the protective mechanisms. [*5] For example, Jan Wouters and Dominic Coppens examine the Agreement on Subsidies and Countervailing Measures and the Agreement on Agriculture. Terence P. Stewart and Amy S. Dwyer provide an overview of the Antidumping Agreement. Jasper M. Wauters surveys the Agreement on Safeguards (SA).
Each overview piece covers the terms of the respective agreement along with an analysis of WTO Appellate Body Reports and Panel Reports, relevant GATT jurisprudence, and other appropriate law. Although descriptive, the three pieces have normative elements. Wouters and Coppens, in addition to providing a full review of subsidies and CVDs, dissect the relevant legal principles with a focus on legal and domestic economic considerations. They bring the same critical approach to agriculture subsidies, which are explained due largely to negotiating imbalances. Stewart and Dwyer are as comprehensive in their treatment of antidumping law. Their submission includes useful charts on WTO cases as well as an extensive bibliography of books and articles. Wauters’s overview piece about the SA is abundantly thorough and takes aim at the agreement itself as well as the Appellate Body’s decisions concerning it.
The essays and commentaries that follow each overview article examine other aspects of the contingent measures covered in the introductory piece. The editors, Kyle W. Bagwell, George A. Bermann, and Petros C. Mavroidis, took considerable care to ensure that the follow-up submissions either respond to or cover issues not addressed in the main paper. For example, Robert Howse follows Wouters and Coppens with an argument for the reestablishment of non-actionable subsidies under the SCM Agreement. The submission by Andrew Green and Michael Trebilcock complements Wouters and Coppens by focusing more on remedies.
Howse’s essay, in particular, is notable for its blending of legal and economic analysis. It first examines the efficiency analysis of economists Kyle W. Bagwell and Robert W. Staiger, who focus on the link between the level of constraint on subsidies and tariff concessions. Subsidies give States some protection and thus enable them to make tariff concessions; yet a high level of subsidies could offset the economic benefits from a reduction in tariffs. The SCM Agreement may not be as efficient as the GATT regime of negotiated market access with the possibility of a complaint for a Non-Violation Nullification and Impairment. Howse has some fair attacks on the method of Bagwell and Staiger, yet he uses their analysis, and that of others, to open up a discussion on “embedded liberalism,” under which trade rules are seen as means for States to achieve domestic goals within the context of broader global objectives, such as peace, security, sustainable development and human rights. If it is possible “to enhance internationally efficient trade liberalization by some relaxation of the existing disciplines,” as Bagwell and Staiger have suggested, then why not support the use of specifically defined non-actionable subsidies that satisfy customary international legal norms (pp.100-01)? The possible non-actionable subsidies are briefly addressed, suggesting that they are fodder for additional scholarship. Of equal importance is Howse’s broader theme which calls for a [*6] better understanding of different State approaches to the WTO and an underlying attempt to reconcile WTO norms with those of other legal regimes.
Joseph Francois, an economist, follows Howse with an essay that tackles the meaning of a benefit conferred by a subsidy with a specific focus on measuring its full competitive benefit. He argues for the use of economic, as opposed to accounting, tools in valuing the subsidy, which also affects the CVD, and sets forth a useful economic model that supports the analysis.
The subsidy discussion is not limited to the substance of WTO law. An interesting comparative dimension is addressed in two essays on the Boeing-Airbus dispute. Piet Jan Slot sets out a hypothetical case that Boeing could have brought before the European Commission for violating the state aid law of the European Union. Slot covers the relevant substantive and procedural issues. In response, Mark Wu raises the obvious issue that Slot did not squarely address, namely that support of Airbus has been a major aspect of European economic policy, so it would be hard to imagine that the Commission would take action to undermine this policy. Wu also analyzes Commission jurisprudence to support his contention that a state aid claim would face difficulty.
The antidumping section, like the subsidy/CVD discussion, contains a number of essays responding to the main submission of Stewart and Dwyer. Two of these essays, the one by David Gantz and the other by Thomas J. Prusa, infuse economic principles into the antidumping analysis. Prusa, in particular, takes polite aim at Stewart and Dwyer for not tackling the inconsistency between antidumping law and “basic economic principles” (p.258). He uses microeconomic analysis to show that the sale of a good at a price below the cost of production does not necessarily mean that the foreign firm is not making an economic profit on the sale. Prusa’s essay, which focuses on pricing, opens the door to the one following it by William E. Kovacic, a commissioner of the US Federal Trade Commission (Mr. Kovacic is on leave from The George Washington University Law School, the reviewer’s home institution), who compares price differentiation under US antitrust law with that under the antidumping system. Kovacic’s piece is a reminder that behind any price differentiation is a long, sometimes complicated, story that could, if told in detail without being subject to generalizations, end with enhanced consumer welfare.
A lively discussion occurs in evaluating safeguards, the final contingent protection measure under review in the book. Kamal Saggi, an economist, accepts that economic principles support the need for safeguards, or what Wauters describes as a “safety-valve” which gives the State the “opportunity to scale back some of the [trade] concessions granted if, because of some unforeseen developments, imports had increased to such an extent that the domestic industry is suffering serious injury” (p.336). Meredith A. Crowley, also an economist, provides a thorough review of the economic literature on the need for safeguards. In addition, she conducted her own empirical study on the subject. Her essay, which sets out her method and results, questions whether safeguards protect against [*7] “macroeconomic shocks” (p.398). Jeffrey Dunoff, a legal scholar, does not despair too much about Crowley’s conclusion and instead uses it to re-direct the inquiry by asking whether the focus should be on specific States that use safeguard petitions more frequently or on the reason for their use of safeguards in a specific instance. His reasoning is akin to Howse’s, as the shortcomings in analyzing the contingent measure offer new ways of looking at international trade.
Saggi moves beyond the issue of the necessity of safeguards and challenges the treatment of safeguards as set out in the SA and as interpreted by the WTO Appellate Body. For example, the requirement of a sudden, sharp and unforeseen increase in imports for a State to be able to use safeguards is vague and not quantifiable. Causation, proof that the increase in imports will cause domestic injury, is also problematic, particularly with regard to measurement. He reaches his conclusions using a healthy dose of logic and his understanding of how markets work. Saggi’s observations identify a number of issues that could be subject to further empirical testing, along the lines of Crowley’s assessment of whether there is a need for safeguards.
CONTINGENT PROTECTION offers a thorough and sophisticated treatment of subsidies and CVDs, antidumping and safeguard measures. It is essential reading for the lawyer, economist, or political scientist working in international trade and an important book for anyone interested in developing a comprehensive understanding of international economic matters. Also, the work is a welcome addition to the law and economics field, notably due to the authors’ disciplined use of legal and economic reasoning as a tool to explain rather than to theorize.
American Law Institute Current Projects: Legal and Economic Principles of World Trade Law. Available at http://www.ali.org/index.cfm?fuseaction=projects.proj_ip&projectid=10 .
Bhagwati, Jagdish, and Robert E. Hudec (eds). 1996a. FAIR TRADE AND HARMONIZATION: PREREQUISITES FOR FREE TRADE? VOLUME I, ECONOMIC ANALYSIS. Cambridge, MA: The MIT Press.
Bhagwati, Jagdish, and Robert E. Hudec (eds). 1996b. FAIR TRADE AND HARMONIZATION: PREREQUISITES FOR FREE TRADE? VOLUME II, LEGAL ANALYSIS. Cambridge, MA: The MIT Press.
Charnovitz, Steve. 2002. “Triangulating the World Trade Organization.” 96 AMERICAN JOURNAL OF INTERNATIONAL LAW 28-55.
Garcia, Frank J. 2001. “Building a Just Trade Order for a New Millennium.” 33 GEORGE WASHINGTON INTERNATIONAL LAW REVIEW 1015-1062.
Goode, Walter. 2007. DICTIONARY OF TRADE POLICY TERMS (5th ed). Cambridge: Cambridge University Press.
© Copyright 2011 by the author, Susan L. Karamanian.