TY - JOUR
AU - Lang,, Andrew
AB - Decades of negotiations after World War II that culminated with the creation of the World Trade Organization in 1995 brought low average tariffs in advanced economies. The WTO became one of the pillars of the international economic system, facilitating trade, encouraging liberalization in emerging markets, and allowing the development of global supply chains. Average tariffs had reached such low levels that trade negotiations increasingly turned to address non-tariff barriers ranging from subsidies to regulatory cooperation to digital trade. The resulting economic order was increasingly ‘rules-oriented’, with trade disputes typically resolved by a relatively sophisticated international legal system of impartial, third-party adjudication. The benefits included cooperation, a stable legal environment, and increased certainty for economic operators. The costs included a perceived loss of national sovereignty. The trajectory of a continually integrating trading system appeared to change abruptly in 2018. The US administration imposed higher tariffs covering sectors such as steel and aluminum, including on imports from regional trade agreement partners and geopolitical allies alike, advanced in the name of protecting its national security. It then began to target China with a massive ramp-up of tariffs covering hundreds of billions of dollars in trade that came after its release of a highly controversial report detailing a laundry list of grievances with Chinese unfair trade practices. After decades of lying dormant, its use of export controls also intensified. ZTE and Huawei—two giant Chinese telecommunications equipment companies—suddenly found themselves with potentially limited access to US technology and critical inputs needed to make their basic products. And the US holdup of new appointments to the WTO’s Appellate Body threatened to significantly alter the functioning of the WTO’s entire dispute settlement system, putting in peril the model that been utilized since its 1995 inception. It is increasingly common for these events to be referred to as a ‘trade war’, and indeed some go even further, calling it the first step in the long march to a new world order.1 For those economic operators touched directly by the new tariffs, certainty has been eroded, with stability of the legal and economic framework in rapid decline. To others, politics is dominating economic fundamentals—be it in trade policy or in financial markets. The fog of a trade war may turn out to be as damaging as the trade war itself, with economic policy uncertainty rising sharply since 2018.2 This special issue starts from the premise that the structure of the international economic order may be at a point of inflection. While any prognosis is dangerous in politically volatile times, it seeks to take stock of the current trade wars, provide an explanation of their contributing causes, and reflect on how best to response to the challenges they present. It aims to both contextualize the current moment as well as to offer ideas for what international economic law could and should look like looking ahead. The Special Issue is organized around three broad themes. First, how does the current set of trade wars compare to earlier episodes from history, both in terms of the instruments used and their likely economic and other effects? What is happening this time around, how is it differentiated historically, and what new concerns arise? For example, USA is reorienting its export control regime in order to deal with concerns over the transfer of technology to potentially hostile countries. Doing so unilaterally has raised questions of effectiveness and cost for American companies. How was the multilateral export control regime negotiated and managed during the cold war, and are there lessons for today? How might such export controls play out from a development perspective? Second, what are some of the economic, political, and systemic conflicts that have triggered the current crisis? Is it geopolitical shifts in the world order and the increased use of national security as a policy argument—an instance where international judicial control is weak? Can we still use the traditional rational choice model of political economy of trade to explain trade and investment policy or do we need additional explanations for the current trade wars and closure towards investment drawing on constructivist theories or behavioral economics? Third, at the systemic level, what new rules are needed in order to address the current conflicts? If USA–China trade frictions, e.g. the ‘forced’ transfer of technology, are at the heart of the present problems, the deeper issue may be the emergence of new market and quasi-market forms across the globe. How has the global economic order dealt with institutional diversity of this kind before? How can it, and how should it, do so now? Simon Evenett puts into historical perspective the still-evolving scale of the USA and China trade conflict that began in early 2018. Less than 5% of global commerce has been impacted to date by the trade war, even as bilateral tariff escalation threatened to cover nearly all bilateral trade with new duties by the end of 2019. The impact on global trade has thus far been much less than what arose in the 1930s, during another major period of global trade turmoil, following the US imposition of Smoot–Hawley tariffs. Evenett also interprets policies taking place during the trade war within the broader context of government interventions that had built up over the decade since the global financial crisis of 2008. Through that lens, he argues that the contemporary tariffs were less striking given the considerable examples of non-tariff forms of government interventions impacting trade flows over the prior 10 years. Chad Bown and Jennifer Hillman tackle one of the main areas of economic friction over China’s integration into the trading system—its system of subsidies and the dominance of its state-owned enterprises. They identify the main areas of tension in order to assess the legal-economic challenges to constructing new rules to address the underlying conflict. After providing a brief history of subsidy disciplines in the WTO predating any concerns introduced by China, they then describe apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address the political–economic problems with China’s approach to subsidies. They assess a number of proposals for reforms—to notifications, evidence, remedies, enforcement, and the definition of a subsidy—but also proposed reform only be taken after increased efforts to measure and pinpoint the source of the problems. To that end, they point to how the OECD took on agricultural subsidies in the 1980s that eventually led to considerable new disciplines for that sector in the trading system. Cindy Whang explores the potential implications of the Export Controls Act of 2018 that gave the US President new administrative power to regulate export controls activities and possibly reinvigorate the US export controls system. Whang reviews the history of domestic export controls regimes that were developed during the Cold War as a complement to national security concerns evolving not only conventional weapons, but also dual-use goods that might have civilian in addition to military applications. She then assesses a number of challenges that even allied countries faced when attempting to multilateralize their outcomes via international regimes like the Coordinating Committee for Multilateral Export Controls (COCOM) as well as the Wassenaar Arrangement. In light of new geopolitical tensions arising between the USA and China—as well as the likelihood that this will spill over to third countries—she examines potential implications of the new push for limiting exports of certain emerging and foundational technologies that the USA is undertaking ‘to maintain its leadership in science, technology, engineering, and manufacturing sectors’. This includes not only how the ECA approach differs from the past but also how new areas of conflict—including between allied countries—may arise. Anne van Aaken and Jürgen Kurtz critically examine the classic political economy of trade models’ state behavior on the international plane by reference to the formation of domestic interests. In this model, voters, interest groups, and politicians are rational actors, pursuing their economic preferences without cognitive or motivational distortions. They question the sufficiency of the rational choice model in the formation of contemporary trade policy. Starting from the classic political economy story, this article explores real-world deviations from rationally expected outcomes by drawing on cognitive psychology. Using both theoretical and empirical analysis, they identify key distortions that can better explain voter and politician behavior in the current trade wars. Loss aversion shows that individuals have asymmetrical attitudes towards gains and losses. Rising inequality within the rich world amounts to a perceived relative loss particularly for middle-class citizens. Combined with the absolute rise of equality between countries, this can trigger a double loss frame—both as an individual loss and as a national loss—that can profoundly shape anti-trade preferences in certain countries. Framing trade as a security threat also invokes powerful hawkish biases. Lastly, the availability bias can be provoked by social media mechanisms making people tend to focus on particular risks and overweight their importance. Jonathan Bonnitcha tackles questions of investment governance, which are central to current trade wars. The USA complains of China’s use of restrictions on US investment as a lever to force technology transfer, while China complains of the review of investment in the USA on national security grounds. He examines the place of these debates about investment liberalization within the trade wars. The focus is on US conduct, as the instigator of the trade wars. He argues that USA is pursuing diverse and partially inconsistent in relation to investment liberalization. In some contexts, USA is continuing to pursue the objective of removing impediments to outward investment, which was the principal objective of US investment policy for the decades prior to the Trump administration. In other contexts, USA is seeking to encourage the repatriation of US outward investment and to regulate inward and outward investment according to ill-defined security rationales. Bonnitcha argues that prevailing materialist accounts of the trade war struggle to explain these inconsistencies and suggests that constructivist political economy provides a more promising explanatory framework. According to this view, inconsistency in policy objectives stems from foundational uncertainty about the nature of the ‘problem’ of investment liberalization. Anthea Roberts, Henrique Choer Moraes, and Victor Ferguson focus on the recent developments suggesting that the international economic order is transitioning away from the post-Cold War Neoliberal Order toward a new Geoeconomic Order. The shift to this new order, which is characterized by a growing ‘securitization of economic policy and economisation of strategic policy’, will likely see the rules, norms, and institutions of international trade and investment law undergoing significant change. They expose the differences in the underlying logic of these orders, explore how this shift is being driven by the emerging USA–China tech/trade war, and consider the consequences of this transition for global economic governance. In his article, Andrew Lang argues that contemporary trade frictions are in part the product of the emergence of a wide range of new forms of market capitalism, of which China’s hybrid market economy is the most significant. Institutional diversity of this kind, he suggests, is a source of strength and dynamism for the global trading system, but it is also the cause of very serious friction. One concept which has emerged in WTO law (and elsewhere) to help define the boundaries of legitimate institutional diversity is the concept of the ‘market distortion’. Lang argues that, while the concept can be a useful one, it has so far been interpreted and applied with an inadequate appreciation of its serious conceptual and practical difficulties. The potential result, he observes, is a system of trade defenses targeted in a discriminatory and even punitive manner against heterodox institutional forms, in ways which may excessively disincentivize institutional experimentation. In response, his paper argues for an approach to the interpretation and application of this concept which proceeds from an understanding of the institutionally embedded character of markets. Nicolas Lamp argues that the traditional goal of dispute settlement in the WTO—the positive resolution of disputes—has become largely unattainable in the circumstances of the trade wars. Even so, he suggests, the regime can still play a valuable role by providing a framework for the rebalancing of obligations among the participants. Using the regime in this way, in his view, would defuse tensions among the participants, would ensure that the new equilibrium among them is integrated into the legal structure of the trade regime, and would provide the participants the opportunity to use the trade regime’s tools for solving disagreements at the margins, lowering the risk that the trade wars will spiral out of control. His paper uses the example of non-violation claims in the context of national security measures to illustrate the potential for and benefits of re-integrating the trade wars into the multilateral trade regime. Julia Ya Qin’s article focused on forced technology transfer, which has emerged in the context of the USA–China trade war as a new issue of systemic importance. USA, European Union, and Japan have jointly condemned forced technology transfer as a practice undermining the proper function of international trade and called for new WTO rules to discipline the practice. Qin’s article seeks to address the following questions: What does ‘forced technology transfer’ mean? Where did this practice come from? Why is there insufficient international regulation on the issue? What exactly are the problems inherent in such practice? And what can be done to improve the relevant international regulation? She argues in favor of a new system based on a country-classification system capable of differentiating among countries with different levels of economic and technological development. Only countries that have reached a certain level of development, she suggests, would under this system be prohibited from using ownership restrictions as a means of acquiring foreign technology. Footnotes 1 Irwin Stelzer, The Great Decoupling. Don’t Call It a Trade War, The American Interest, 13 August 2019, available at: https://www.the-american-interest.com/2019/08/13/dont-call-it-a-trade-war/ 2 https://www.policyuncertainty.com/ © The Author(s) 2019. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Introduction to the Special Issue on ‘Trade Wars’
JF - Journal of International Economic Law
DO - 10.1093/jiel/jgz046
DA - 2019-12-20
UR - https://www.deepdyve.com/lp/oxford-university-press/introduction-to-the-special-issue-on-trade-wars-FAHJ5aeGuZ
SP - 529
VL - 22
IS - 4
DP - DeepDyve
ER -