Part of the problem with getting old is that sometimes you can’t tell if the world has changed (and nobody sent you the memo), or if you merely mis-remember history.
A case in point is our current extended bout of economic protectionism (or industrial policy, or trade wars, or whatever you want to call it.)
Most recently, we had the CHIPs act to subsidize domestic production of computer chips. The Inflation Reduction Act provided significant subsidies for electric vehicles via the tax code, but unlike the legislation that replaces, those subsidies are now for domestically-assembled cars only. The Biden infrastructure bill has a pretty strong “buy American” clause.
(I know that last one because I recall all the right-wingers from Fox on down pissing all over those buy-America clauses. Which just … seemed odd, to say the least. Because we need to hate China, but we have to buy Chinese steel? Beats me. I don’t think internal consistency is necessarily their strong point in the best of times.)
And then, of course, the prior President appeared to impose new tariffs almost at random, or based on whoever spoke to him last. With some obviously made-up national security pretext. So we had ourselves a mini trade war with Canada? Yeah, Canada. Because they were a threat to U.S. national security?
Let me put aside whether I’m for or against such things. Put aside the knee-jerk reaction of a classically trained economist. Or even whether you think the best of these constitute good economic policy.
My only question is: Didn’t that used to be illegal?
For example, didn’t the General Agreement on Tariffs and Trade (GATT) forbid that sort of non-level-playing-field behavior? Is GATT still in force? If not, what replaced it?
I’m sure I can recall the U.S. claiming that (e.g.) Canadian subsidies for softwood lumber were illegal. And having anti-dumping penalties imposed on Japanese chips. And so on and so forth. I’m pretty sure I didn’t make those up. Pretty sure they actually occurred.
What changed?
GATT and the WTO. There is no legal or illegal. There is only power, and those too weak to use it.
The answer to my question is that international trade law is just one great big game of “So, sue me”.
First, I appear to be a touch out of date. GATT was a set of treaties in force between 1947 and 1995. GATT was effectively replaced by the World Trade Organization (WTO) at that point.
But, in theory, the guiding principles of the WTO are the same as GATT. In a nutshell, they are for removing tariffs and other barriers to trade.
So, what’s legal and what’s not legal, under the WTO?
Despite several attempts to figure out just what, exactly, the WTO is and does, I have decided that all documents pertaining to the WTO are required to be written in impenetrable bafflegab. Half an hour of reading, from multiple sources, and I still have no idea what’s legal and what’s not. I have no idea whether the concept of “legal” even applies to policies affecting international trade.
I’m clearly going to have to have an expert dumb it down for me.
OK, to be concrete. The Biden infrastructure bill has some fairly strong “Buy American” clauses in it. And yet, the U.S. is party to a WTO agreement requiring that government purchases operate on a level playing field, that is, without preference for domestic over foreign manufacturers. How can those two things both be true?
The law firm of Aiken, Gump offers this explanation.
Below, the GPA is the WTO agreement, of which we are part, which “… prohibits the U.S. from discriminating against the goods, services and suppliers of parties to those agreements for procurement.”
The article closes with a review of the implications of the GPA on the IIJA’s Buy America requirement. The authors note that many state agencies implementing IIJA-funded projects may be unaware of the implications of the U.S.’s GPA commitments on their procurement because previous federal funding similarly subject to Buy America requirements was “generally covered by exceptions to these commitments,” as they discuss in the article. They conclude by noting, among other benefits and risks, that “[T]he Buy America expansion in the IIJA could significantly complicate the administration of procurements for infrastructure projects for covered states. Unlike with previous federal funding, states agencies will now have to consider whether the procurement for each infrastructure project is subject to U.S. GPA commitments via consideration of the factors listed above.”
Source: The law firm of Aiken, Gump
Clear as mud. As I read it:
- The U.S. government cannot discriminate against foreign suppliers.
- But the U.S. government is handing the money to the states.
- The states can discriminate against foreign suppliers, even if that’s at the explicit direction of the Federal government.
- Except maybe they can’t.
Well, OK, then how about the CHIPS act? Here’s a reasonably intelligible writeup of that, from somebody I don’t recognize. A key paragraph, emphasis mine:
"Under WTO law, the Chips Act is a “domestic subsidy” because it is targeted at a particular industry and makes financial contributions to that industry through direct payments and tax subsidies. Such subsidies are not prohibited but are potentially “actionable” at the WTO if they cause injury to foreign producers of semiconductors seeking to sell into the U.S. market or some third country market in competition with subsidized products. In addition, if chips produced by subsidized facilities or firms are exported, they are potentially subject to “countervailing duties” imposed by the importing country if their presence in the export market causes “material injury” to producers in that market.
Source: Stanford University Law School
Aha. The penny drops.
There is no clear-cut legal and illegal under WTO agreements. There are some vague general principles that we’ve agreed to. And then, they way these things are settled is that if some country or industry doesn’t like what you’ve done, they sue you over it. And … I guess the WTO kind of functions like an international court of law.
So, for example, the domestic subsidy is only one of several controversial parts of the CHIPs act. The most controversial is that it bars U.S. producers from expanding production of certain types of chips in China. And it appears that China is getting ready to sue us, via the WTO, over that (per this reference).
When I was a child, I talked like a child, I thought like a child, I reasoned like a child.
I think I finally get it.
As a young man, I naively thought that there were, you know, laws and stuff, governing international trade.
Now, as an old man, I’m pretty sure that’s wrong. There are agreements, but these aren’t laws they way (e.g.) criminal laws are laws. They kind of outline the things that you can sue somebody else for, if they do them. I think.
So, international trade is governed by some general principles — with numerous exceptions. Each country and industry is free to do whatever it wants to. And if somebody else doesn’t like it, they can take them to court. With, I guess, the WTO being the court, that is, supervising the dispute.
And that’s why the U.S. can sign a treaty that bars discrimination against foreign-made goods in government procurement. And then sign laws requiring discrimination against foreign-made goods in government procurement.
It’s up to foreign governments and industries to sue us if they don’t like it. Given how swiftly the law moves in general, I cannot even imagine how long that takes under international law.
Maybe a decade from now, we’ll be found to be in violation of our WTO treaty. But by then, that big chunk of infrastructure money will have been spent.
In any case, I think I get it now. When it comes to tariffs, domestic subsidies, and Buy American legislation, there are no laws. It’s all just a game of whatever you can get away with.
