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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

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A General Equilibrium Interpretation of WTO Dispute Settlement Cases - 4 EU-US Trade Conflicts

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  1. 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

  2. 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

  3. “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.

  4. 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!)

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 4 EU-US mini trade wars: winners + losers (total welfare in % of GDP)

  19. 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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