I thank the editor of the WTR for the opportunity to comment on Michael Finger's and Julio Nogues' reply to my review of their book Fighting Fire with Fire, and to both Mike and Julio for their challenging reply. I will try to be brief.

For starters, I fully agree with Mike and Julio in that trade remedies can help support a trade liberalization strategy if applied by the ‘right people’. My concern, however, is that reliance on the ‘right people’ alone for this task is only viable in the short run because in the long run the domestic interests affected by a disciplined application of trade remedies will likely mobilize to capture the system, and will begin this process by having all of the ‘right people’ that stand in their way sacked. I say this based on direct experience because I have the privilege to know over a half dozen former senior trade remedy officials from the countries surveyed in Fighting Fire with Fire who were summarily fired, demoted, or shuffled to positions with other agencies for being insufficiently ‘responsive’ to domestic interests while performing their duties. Trade remedies can be used constructively in the longterm provided that staffing with the ‘right people’ is supplemented with policies such as turning the ‘right people’ from political appointees into irremovable career public servants, endowing the agency concerned with institutional autonomy, creating detailed legal instruments consistent with a pro-trade approach, and making the local reviewing courts function properly (to ensure accountability and the opportunity for redressing wrongs). Thus, using trade remedies constructively in the long run requires a ‘package deal’ that goes well beyond staffing the agency concerned with capable economists. By contrast, Fighting Fire with Fire glosses over the fact that a number of the countries that get glowing reviews (Mexico and Argentina, for instance) abandoned at some point their pro-trade practices and became heavily protectionist. The lessons drawn in Fighting Fire with Fire would provide much better policy guidance if the book had taken stock of such turnarounds and explained how they can be avoided.

As Mike and Julio point out, in my review of Fighting Fire with Fire I use the GATT/WTO trade remedy rules as the standard of good performance in the application of trade remedies. However, I am deeply troubled by Mike's and Julio's assertion that the substance of those rules is ‘bad policy guidance’ and lacks good economics. I am referring here specifically to the aspects of the GATT/WTO trade remedy rules that concern the determination of injury and causation. At their bare minimum, those rules make affirmative determinations contingent upon demonstrating, based upon objective evidence, that (a) the economic and financial performance of the domestic industry has declined noticeably, (b) such situation is attributable, at least in part, to the investigated imports, and (c) the injurious effects of factors other than the investigated imports have been disentangled from the injurious effects of the investigated imports themselves. I fail to see, however, how such rules are contrary to good economics. How else one could test objectively whether the condition of the import-competing producers is ‘bad’, and whether some portion of this injury is indeed attributable to the investigated imports?Footnote ¹

One can argue that compliance with GATT/WTO rules is too easy because it appears that one can get away with demonstrating a deterioration in the condition of the domestic industry on the basis of a narrow sub-set of industry variables, inferring a causal link on the basis of a simple ‘coincidence in time’ between the growth of the investigated imports and the deterioration in the condition of the domestic industry, and distinguishing the effects of ‘other factors’ from those of the investigated imports on the basis of rudimentary data comparisons. But, even if this were completely true, the problem with the GATT/WTO rules governing injury determinations would be that they lend themselves to be interpreted less than rigorously, and not that they lack an economic underpinning per se.Footnote ²

In any event, the problems that I outline in my review in respect of a number of Argentine and Mexican injury determinations concern flaws that are contrary to any basic notion of good economics. For instance, in Footwear, an Argentine determination under the WTO Agreement on Safeguards, the available evidence showed that import volume was contracting, as opposed to booming, let alone rising. In HFCS, a Mexican determination under the WTO Agreement on Anti-Dumping, the investigating authority neglected to collect and assess industry data on a number of elementary variables, including profits. In Rice, another Mexican determination under the WTO Agreement on Anti-Dumping, the investigating authority limited its analysis to the period within each year where import penetration was at a seasonal high, and kept on switching the number of firms included within the domestic industry presumably to reach an affirmative injury finding in respect of each and every variable examined. In a nutshell, in all of these cases there was no evidentiary basis to conclude that the import-competing industry was harmed. How these analytical flaws could still be consistent with good economics frankly escapes me.Footnote ³ I should also make clear that my intent in pointing to these cases is only to show that the record of Latin American countries in applying good economics in trade remedy cases is much more spotty that what Fighting Fire with Fire suggests.Footnote ⁴

Mike and Julio also contend that GATT/WTO rules ‘let down’ Latin American policy managers in the sense that such rules ‘did not support’ their efforts at introducing sensible economics into their practices. However, GATT/WTO rules allow WTO Members enough latitude to take such steps individually. As discussed in the review, it is perfectly consistent with GATT/WTO rules not to institute trade remedy legislation which effectively blocks the possibility of any trade remedy cases being launched. Hong Kong is an example of this approach. GATT/WTO rules also permit introducing a ‘public interest’ clause weighing the interests of the import-competing industry seeking protection against the interests of the industries that consume the imports involved. GATT/WTO rules further permit setting measures in amounts lower than the calculated margins of dumping or subsidization. Thus, if Latin American policy managers had been inclined to take the ‘high road’ to taming trade remedies, they could have done away with trade remedy measures by not instituting trade remedy legislation, or could have adopted mandatory ‘public interest’ and ‘lesser duty’ provisions (enforceable as a matter of law in each and every proceeding) in their own trade remedy legislation. They did neither.

It seems that what Mike and Julio find reprehensible about GATT/WTO rules is that these rules do not make mandatory on a multilateral basis the adoption of a ‘public interest’ test and the ‘lesser duty rule’, inter-alia. While this shortcoming may indeed be reprehensible from an economic perspective, it is simply a reflection of the absence of a multilateral consensus to infuse trade remedy practice with tighter disciplines. Interestingly, the reason why Latin American policy managers did not introduce tighter disciplines in their trade remedy legislation (or ban trade remedy measures altogether) is probably that they did not succeed in building enough political support in the legislative bodies of their own countries to do so. Thus, what Mike and Julio regard as a failure of the multilateral system is in reality another facet of a (most unfortunate) domestic failure. One should not blame the multilateral system for failing to adopt standards of discipline that are equally elusive domestically.

Finally, Mike and Julio appear to suggest that the critical views expressed in my review are colored by not ‘having shouldered the responsibility of an ambitious trade liberalization program’. It turns out, however, that from 1989 to the mid 1990s I served as Director of Trade Policy at SECOFI (the Mexican Ministry of Trade & Industry, which at the time was brimming with pro-trade economists, under the leadership of Jaime Serra) and subsequently as Director and Deputy Director General for AD and CVD investigations at the same agency. So, I happen to have lots of first-hand experience as to how difficult it is to pry open an economy and of how a sensible trade remedy policy can provide the necessary ‘elbow room’ for undertaking a massive trade liberalization program. I recall distinctly that in 1989 we started thinking about the need to completely revamp the Mexican trade remedy system on account of criticisms by the World Bank, presented most cogently in a paper authored by Patrick Messerlin (who fortunately had already become interested in trade remedies at the time). This reform process eventually blossomed, as aptly described in the Mexican chapter in Fighting Fire with Fire. As the resulting system, generally speaking, was economically rigorous, it generated great animosity in import-competing industries, ended up gone with the wind, and trade remedy practice reverted to its state prior to the reforms (in spite of much institutional paraphernalia added in by the NAFTA). Similar episodes took place in Argentina and Peru. This explains why I do not have the same optimism as Mike and Julio as to the possibility to administer trade remedies based upon good economics simply by appointing capable individuals to run things.