The academic literature on international trade policy usually falls into one of two separate categories: law or economics. Economists use abstract and sometimes obtuse mathematical models and sophisticated econometrics, while lawyers compose excruciatingly detailed (for non-lawyers) analyses with hundreds of footnotes. Even if each group is dealing with the same subject, it is sometimes hard to tell. This is a wholly unhealthy dichotomy that both obscures commonalities and reduces the possibility of useful cross-germination of ideas across disciplines where there are real differences in approaches.
Law and Economics of Contingent Protection in International Trade is the third volume in the Columbia Studies in WTO Law and Policy series and tries to help overcome this gap. The editors deserve considerable praise simply by taking up the challenge of bridging these two worlds. In this case, the target is the three principal WTO-sanctioned ways in which Member governments may raise import barriers beyond bound tariff rates.
The volume, with 21 contributions by separate authors or author teams, deals first with responses to subsidies that result in trade distortions, then moves on to antidumping, and finally to safeguard measures.
The essays include overviews of the international legal structure that governs each area. Jan Wouters and Dominic Coppens' essay will be an excellent source for those seeking a thorough review of current approaches in the WTO subsidies regime. Similarly, Terence Stewart and Amy Dwyer provide a comprehensive legal overview of the multilateral antidumping regime, just as Jasper Wauters' contribution does for safeguards. All three overviews would be invaluable for anyone new to these subjects. Certainly, many students would benefit enormously from reading these three chapters alone.
The book also includes detailed analyses by lawyers and economists that deal with more detailed controversies and issues along with suggestions of possible reforms.
The large number of separate contributions makes it impossible for a reviewer to make sweeping judgments of all works simultaneously or even comment on all of the fine essays. There are, however, especially important themes that are present in each of the three sections.
The first section of the book on subsidies covers many subjects, but arguably addresses two fundamental issues.
The first is that the current WTO approach, which severely disciplines subsidies, may be overly strict. Robert Howse argues that current WTO practice does not recognize that some subsidies deal with market failures and might therefore be welfare-improving. Kyle Bagwell and Petros Mavroidis also explore whether the standing multilateral disciplines may sanction subsidies ‘too much’ and note that the famous Brander and Spencer (Reference Brander and Spencer1985) work might suggest that export subsidies can bring increased world production and lower prices, with subsequent benefits to global consumers. These authors do note that relaxing subsidy rules might cause the unintended consequence of less trade liberalization, as nations hesitate to make concessions on tariffs that could be undercut by subsequent subsidies under a less stringent regime.
The authors make very good points but perhaps underemphasize other benefits of the current approach of strict subsidy disciplines. First, a more relaxed approach opens the door to rent-seeking industries that will naturally point to market failure or strategic trade policy considerations when arguing that they should receive a check from taxpayers. Second, a prohibition on export subsidies is a simple rule; it requires less interpretation and judgment about what is ‘allowable’. This is similar to Paul Krugman's point that free trade may not always be optimal but at least it is easy to enforce, especially in a world with rent-seeking. Third, allowing subsidies in certain circumstances means that the government must possess considerable information to implement them properly. For example, while Brander and Spencer found export subsidies to be ‘optimal’ from an exporting country's standpoint in a Cournot framework (i.e. quantity setting), Eaton and Grossman (Reference Eaton and Grossman1986) show that export taxes are optimal with Bertrand competitors (i.e. price setting). This not only highlights the importance of the government collecting information, but also real world political economy issues: Wouldn't exporting firms always want a government check for sending goods abroad rather than see themselves taxed? Doesn't a simple prohibition obviate the need for the government to be so ‘smart’? There may be an opportunity cost of inaction, but a relaxed subsidy regime is not necessarily better.
Less controversial are Andrew Green and Michel Trebilcock's points about how current rules result in excessive penalties for those using export subsidies. They point out the absurdity of allowing a single Member to impose restrictions equal to the total cost of a prohibited subsidy by another Member compared to the narrow economic impact that the subsidy has on the complaining country. In contrast, actionable subsidies (e.g., a domestic subsidy that increases exports and causes injury) can only be retaliated against by an amount equal to the economic impact in the complaining country alone. Joseph Francois uses more formal economic analysis to make a similar point that the subsidy rate found in a countervailing duty (CVD) case can often exceed the amount that would negate the injury. These two contributions show this volume at its best; a combination of legal and economic analysis that points to specific reforms that might be pursued by negotiators.
The second section focuses on antidumping. Thomas Prusa and David Gantz both note the absence of any economically coherent justification of antidumping, which has become the multilateral system's most common form of new import restriction. They note that behavior unacceptable by foreign firms under antidumping rules (e.g. price discrimination across markets) is perfectly acceptable if domestic firms do it. One case not mentioned by these authors, but which is particularly odd: foreign firms are deemed to be dumping if they sell abroad at below average total costs (i.e., they have negative profits). In order to be protected by antidumping duties, domestic firms must suffer injury (i.e., they have negative profits). So both domestic and foreign firms with similar pricing and similar cost structures are treated differently, one ‘condemned’ by the rules of the multilateral trading system, the other protected by the same rules.
Stewart and Dwyer argue that the presence of antidumping in the multilateral system helps governments liberalize further. Antidumping proponents often make this argument, but provide no systematic evidence that it is true. And there are strong reasons to doubt it. For example, the US steel industry, one of the most vocal proponents and users of antidumping, has applied MFN tariffs essentially at zero. The presence and use of antidumping cannot help more liberalization in the steel industry that cannot happen anyway. In addition, recent research by Moore and Zanardi (Reference Moore and Zanardi2009) suggests that in a sample of developing countries there is no positive correlation between trade liberalization and earlier antidumping activity.
William Kovacic of the US Federal Trade Commission offers a particularly provocative and interesting piece. Kovacic highlights how economic analysis has transformed US competition policy in a way totally absent in the antidumping realm. Legal scholars and US courts have dramatically reduced their focus on price discrimination in antitrust and turned their attention to other analytical approaches that arise out of economists' insights. This begs the very important question as to why the economically indefensible antidumping process has been immune to similar input from economists. Antidumping is clearly an area where the marriage of law and economics would be quite helpful.
The final section of this book turns towards safeguards. Safeguards are unabashedly designed to be protectionist. Member countries may impose them (on a MFN basis) for a maximum of eight years, but with no presumption of ‘unfair’ trade as with subsidies or dumping. Consequently, the rules surrounding safeguards are stringent since they undercut one of the most basic principles of the WTO system: bound tariffs facing ‘fair’ traders. In fact, the rules were so stringent that prior to the Uruguay Round conclusion, countries relied instead on ‘grey’ measures such as voluntary export restraints. Negotiators concluded a Safeguard Agreement that was designed to reduce the use of such questionable measures and perhaps even antidumping actions that were really safeguard measures masquerading as ‘unfair’ trade remedies.
Safeguards, however, have remained the ‘forgotten child’ of contingent protection in the multilateral trading system. They are still much less frequently invoked by WTO members than antidumping or by those complaining about foreign subsidies. The authors in this volume illuminate some of the reasons very clearly. Wauters for example notes the bizarre and ultimately extremely unhelpful decision by the Appellate Body to require that increased imports must be a result of ‘unforeseen developments’ to justify a safeguard. Including this criterion, which was not part of the Safeguard Agreements concluded in 1994 but was part of the original GATT agreement, has vastly complicated the ability of governments to justify their use of safeguards. In fact, one can argue that this approach has gutted this option for Member governments.
Marco Bronckers notes as well in the EU context that if a qualified majority of European Council of Ministers does not support a safeguard measure, it expires. On the other hand, antidumping and CVD measures are imposed unless a Council majority specifically opposes the measure. (In the US, a similar institutional bias exists against safeguards: the President must approve a safeguard, but plays no direct role in antidumping and CVD actions.)
The upshot of these contributions is that safeguards are unlikely to be used very frequently. The WTO Appellate Body has created case law that makes it very difficult to pass muster and the current structures in major trading countries create strong disincentives against domestic industries seeking safeguards and incentives to pursue antidumping and CVDs instead.
There are other very interesting contributions in the volume including alternative approaches to the Boeing-Airbus dispute (Piet Jan Slot and Mark Wu), rules of origin in antidumping (Stefano Inama, Edwin Vermulst, and Piet Eeckhout), the dysfunctional antidumping sunset review process (Claudio Dordi and Thomas Prusa), and fundamental questions about the appropriate role of safeguards in trade agreements (Kamal Saggi, Meredith Crowley, and Jeffrey Dunoff). These all have important insights and are welcome additions to the literature but space prevents full discussion of them here.
This volume has considerable merit to those interested in trade policy and contingent protection generally. Nonetheless, there are some problematic broad aspects that distract somewhat from its overall potential.
One difficulty is that the audience for the book is unclear. The overview chapters, as noted above, will be particularly helpful to a newcomer. At the same time, some of the ensuing chapters focus on detailed issues that would be difficult for the non-specialist to appreciate. On the other hand, specialists in the field would find little new in the overview chapters (though a useful reference for review), but would be intrigued by some of the more provocative later chapters. Some of this confusion could have been remedied by a more thorough analytical introduction by the editors, who might have provided the reader with a more detailed roadmap of the volume rather than simply a summary of each chapter.
The book also has a somewhat odd structure. Some chapters have no commentary; some have a single author responding to the issues; some have two commentators. Given the importance of trade lawyers and trade economists communicating with each other, one cannot help but lament that each chapter did not have a lawyer and economist commenting. This might have been difficult for reasons of space, but fewer subjects illuminated in this way might have been a better way to approach these issues.
This ambitious volume nonetheless would be a very useful addition to any library focusing on trade policy issues. There are many law school and policy school instructors who should seriously consider using it. Specialists in the field would find themselves frequently referring to Law and Economics of Contingent Protection in International Trade. At the very least, Bagwell, Mavroidis and Bergman should continue their efforts to illuminate, explain, and expand the analysis of the law and economics of international trade.
