Category: Trade

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Some History on Trade and Tariffs

I tend to think that when someone says “This is how it should be” or “As it was, so it shall be” there’s a good chance that the claims are incorrect. Marc Levinson’s book, An Extraordinary Time, hits an area, where I have had that gut feeling that something isn’t correct, quite well. Can the US and the world reach the levels of growth that happened after WWII and ended around 1973? Short answer not likely. The book goes into the various technocrat approaches to fixing the economy, and then the book shows that none of those really hold up. A quote from Paul Samuelson sums up “The third quarter of the Twentieth Century was a golden age of economic progress. It surpassed any reasoned expectation. And we are not likely to see its equivalent anytime soon again.”

One specific area, the use of tariffs to protect American jobs, jumped out for me. After resisting pressure for tariffs on bolts, nuts, and screws (yes a major area it seems), in 1978 the Carter Administration caved and imposed a 15% tariff that lasted three years. US manufacturers raised their prices so that tariff protection cost was passed to consumers. One study estimated that limiting imports from Asia (the target of the tariff) cost $550,000 per job “saved” while the average job in that industry made $23,000 per year. And the tariff did not save the industry. By the mid 1980s sales of the US industry in that sector had lost about 15%.

When it came to autos, trade limits with Japan saved 44,100 US jobs. That is great. But one study says that the cost to consumers was $8.5 billion, because of higher prices “or $193,000 per additional job–approximately six times the annual pay of an American autoworker.” And Japanese automakers still sold their cars at the higher prices and so made “perhaps $7 billion in added profit” which was re-invested in building plants in the US and developing higher-end cars. That is they seem to have become more competitive.

I note these details, not because I am an avid free-trade person. I note them not because I think those who are displaced by the way society and industry change should be shoved aside or chewed up. I note them, because it seems to me that some of the core points about trade policy hold up, if we want lower consumer prices. Remember that part of being able to buy lower cost and super cool TVs, cars, etc. means our dollars are able to buy other things too. There are oceans of ink on the way trade and costs ought to spur overall good things. I leave that for others and other posts.

For this post, the core issue is what happens when large swaths of society, be they in the vast plains or the former industrial giants or in cities and suburbs, aren’t able to have jobs and so their place in society is unstable? Levinson’s book goes to the many times the US and other countries have tried to solve such riddles. The answers are not clear. But the book’s ability to show how looking to politicians and policy to save us has not worked as crisply as we may hope or believe is good tonic going forward. That is regardless of who is in power, look at the solution, look at whether it has been tried, see what happened, and ask whether there is a better way to address the problem; one that might give aid to those threatened and still tee up better businesses for the future.

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The Legality of a Border Tax Under the WTO

I have a question for those of you who write about or practice international trade law.  (As an aside, congratulations!  Your area is about to become very exciting.)

Suppose that Congress follows through on the President’s idea of imposing a tax on goods manufactured abroad by an American firm that closed a factory here and built the foreign factory.  Would that pass muster under the WTO?  I have no idea, which is why I’m curious.

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Politics of Process-Tricky Stuff

The walls between commercial and political products, processes, and speech continue to collapse. Douglas Kysar’s Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice, calls out that “[g]lobalization . . . has enhanced the flow of information, not merely goods, and information regarding processes increasingly is finding its way down-stream” such that “consumer preferences may be heavily influenced by information regarding the manner in which goods are produced.” (118 Harv. L. Rev. 525, 529, 641 (2004)). A recent decision by the EU highlights the tension.

According to the Economist, the EU has rules that will mean that goods made in West Bank will no longer be labeled as “Produce of Israel” but “Produce of the West Bank (Israeli settlement)”. As I have argued in Speech, Citizenry, and the Market “What we buy, what we use, how we make, and how we use have moved beyond pure, personal cost evaluations. Today the idea that purchasing choices are ‘purely private concerns’ is less clear and often inaccurate.” I think this point holds for both sides of this decision. The EU claims that the rule is “to ensure consumers are not misinformed;” not discriminate against Israel. Israel disagrees. According to the Economist at least one wine maker in the West Bank said “This will probably only make [his wines] more popular.” And “He is already planning a line of Christmas gift-boxes with additional settlement products, which he believes will be a hit in evangelical communities in America.” Is the rule increasing information or it is enabling discrimination? The answer is both views seem correct. Insofar as there is better information about where a product is made, people may choose to buy or not to buy based on politics. Thus the EU is providing more information (though may be not clearing up “misinformation”), and yes, some may not stock or buy goods made in the West Bank and in that sense discriminate.

In short, the EU rule creates the possibility for feedback from the market and that feedback can mean a range of things. As Kysar predicted, consumers “may well come to view such preferences as their most appropriate mechanism for influencing the policies and conditions of a globalized world.” If the rule influences the market, as I put the point about corporate speech, “Consumers are voting for policy through the market.” That said, if as the Economist indicated “Israel’s Economics Ministry reckons that it could cause no more than $50m-worth of damage to Israeli producers a year, out of some $300m exported from the settlements (and some $18.9 billion that Israel exports to Europe,” then it seems the gesture is trying to send a signal beyond just letting the market signal processes it cares about. As I said, the walls between commercial and political continue to collapse; maybe they were never that separate.

Leading the World with Free Trade

As debate heats up on the Trans-Pacific Partnership trade deal, journalists should keep a few key points in mind. First, the deal is in essence deregulatory, shifting enormous power to multinational corporations to challenge basic legal protections of consumers and citizens. Second, the US has a history of using its power in the global trading system to promote fundamentally unsafe products and services to other nations. Consider this snippet from a story on lead paint:

By the 1920s, it was known that one common cause of childhood lead poisoning was the consumption of lead paint chips. . . . In 1922, the League of Nations proposed a worldwide lead paint ban, but at the time, the US was the largest lead producer in the world, and consumed 170,000 tons of white lead paint each year. The Lead Industries Association had grown into a powerful political force, and the pro-business, America-first Harding administration vetoed the ban. Products containing lead continued to be marketed to American families well into the 1970s, and by midcentury lead was everywhere: in plumbing and lighting fixtures, painted toys and cribs, the foil on candy wrappers, and even cake decorations. . . .

Lead paint was the most insidious danger of all because it can cause brain damage even if it isn’t peeling. Lead dust drifts off walls, year after year, even if you paint over it. It’s also almost impossible to get rid of. Removal of lead paint with electric sanders and torches creates clouds of dust that may rain down on the floor for months afterward, and many children have been poisoned during the process of lead paint removal itself. Even cleaning lead-painted walls with a rag can create enough dust to poison a child.

Of course, at this stage in the development of globalization, toxic financial products are a greater concern than toxic chemicals.  We’ve also advanced toward more subtle ways of assuring their proliferation. But the core mission of “free trade” law in this, as in so many areas, is relatively clear: to open yet another venue where corporations, far from being held accountable for their actions, can instead undermine crumbling extant legal protections for consumers.

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Process Matters: How, Corporate Reputation, and the Trademark Game

The New York Times reported about the fight over trademark rights around the word “How” and there was the usual chatter about how (yes very punny we law professors are) such a thing could be. But for me the more interesting point was that the issue of how something is made continues to rise as a market question. The dispute is between Chobani, which is pitching us ““A cup of yogurt won’t change the world, but how we make it might,” and that “How Matters,” and Dov Seidman whose company “is in the business of helping companies create more ethical cultures” and whose book is “How: Why How We Do Anything Means Everything.” As I argue in Speech, Citizenry, and the Market: A Corporate Public Figure Doctrine:

Corporations no longer exist in a purely commercial world. Corporate policies intersect with and shape a host of political issues, from fair trade to gay rights to organic farming to children’s development to gender bias to labor and more. Thus Google urges countries to embrace gay rights; Mattel launches a girl power campaign; activists question Nike’s labor practices, McDonald’s food processing, and Shell Oil’s business practices; and bloggers police the Body Shop’s claims about its manufacturing practices. The social, political, and commercial have converged, and corporate reputations rest on social and political matters as much as, if not more than, commercial matters.

The How of Seidman and Chobani is not limited to those companies. McDonald’s is now trying to engage with its customers about, yes, how, they make their food. I suppose using social media and the former Myth Buster Grant Imahara to reach young ‘uns is wise (then again if the goal is to reach Millenials as reported, they might see this tactic as a ploy). Regardless of success or failure, McDonald’s is another sign that Douglas Kysar’s Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice insight that process matters to the marketplace have force. As he put it “Because process preferences provide an outlet for the expression of public values through a market medium that is being endorsed simultaneously as a primary locus of choice, opportunity, and responsibility, individuals may well come to view such preferences as their most appropriate mechanism for influencing the policies and conditions of a globalized world.”

To date, activism over how has not seemed to gain major traction, if one looks to things such as labor and clothing or environmental issues in energy. Price still matters. Giving up our easier way of life (yes first world ACH! such a condescending term, high quality problem) to improve lives all over the world and for future generations is easier said than done. Try to buy clothing and food that is truly perfect (whatever that metric is, let’s assume fair labor and environmentally sound). Some sort of quasi-subsistence/commune hybrid life would be required and is not viable across society. Yet, as people speak up, and companies engage, make claims about their roles in addressing social matters, and adjust offerings (e.g. offering fruit in kids’ meals or refusing to sell cigarettes in a pharmacy), it may be that long term, incremental changes will emerge. When folks indicate preferences, options to buy something a little bit healthier or fairer could come on to the market. We might buy fewer things but buy better things. And another signal is sent so that the cycle might persist.

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Beyond Lawyers: Thoughts on Talent Wants To Be Free

This book is a terrific synthesis of many literatures on legal rules regulating employee-generated intellectual property, human capital, and the nature of innovation. Through her broad and perceptive reading in law, economics, sociology, geography, psychology, and organizational behavior, among other fields, Lobel has compiled a persuasive argument in favor of free employee mobility. She explains the law of trade secrets, noncompetition and nondisclosure agreements, pre-invention assignment agreements, and works for hire in copyright in terms that can be understood by nonlawyers. She explains economic concepts like prisoners’ dilemmas, agglomeration economies, and the rigidity of labor markets in simple terms and links them to legal rules and to news accounts of how legal rules affect company and employee behavior.

One of the book’s great strengths is how engaging the writing is and how deftly Lobel constructs her synthesis. The prose style is jaunty. The examples are ripped from the pages of the Wall Street Journal, magazines aimed at business readers, academic studies published in peer-reviewed journals of business and economics, as well as canonical stories of genius inventors and entrepreneurs ranging from Ben Franklin to Thomas Edison to Steve Jobs. In a mere two pages, she skips from academic studies of business to anecdotes about her experiences consulting with inventors to a story reported in Forbes Magazine to Joseph Schumpeter’s classic economic works published in the 1920s (pp. 202-203). She makes great use of a diversity of sources to develop her argument about why the law ought to allow a great deal more mobility of human capital than it currently does.

The book is clearly aimed at an audience of business people and policy makers rather than legal scholars. As she says at the end, “If many of your best employees are leaving you, it serves as a warning sign to make changes.” (p. 244) That is all to the good. Many of the ideas in this book aren’t new – scholars have been criticizing overbroad enforcement of noncompetes, trade secrets, and invention and copyright assignments for decades, and the research on agglomeration economies (like Silicon Valley) is no longer novel. But the broad scholarly consensus in both law and business/economics that employee mobility leads to economic growth has not yet had much impact on law. Indeed, the proposed Restatement of Employment Law is poised to make some aspects of the law in this area more hostile to employee mobility. So an appeal to nonlawyers seems essential. As Lobel points out (pp. 72-73), at least one state (Massachusetts) has been engaged in a serious look at whether to dramatically change its laws governing noncompete agreements to allow much more employee mobility, and a book like this is tailor made to be read by legislators mulling over whether Massachusetts businesses would be helped or hurt by making noncompete agreements unenforceable. She translates the empirical work of a number of scholars into clear and simple lessons for business executives and policy makers.

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Introducing the Talent Wants To Be Free Symposium

Talent Wants to be FreeThis week Concurring Opinions is hosting a symposium on Professor Orly Lobel’s book, Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding. In simplest terms, Professor Lobel takes on some thorny problems in innovation policy debates including whether to lock down talent and ideas or to embrace the movement of people and knowledge. Though these tensions seem easy to understand, the natural desire to keep what one has means arguments to tie up whatever seems to be giving one an advantage creates larger debates about optimal control and outcomes. Professor Lobel’s work tangles with these core ideas and more.

Professor Lobel is leading thinker on the intersection of employment law, intellectual property law, regulatory and administrative law, torts, behavioral economics, health policy, consumer law and trade secrets as they relate to innovation. She is the Don Weckstein Professor of Labor and Employment Law at University of San Diego School of Law and holds an SJD and LLM fro Harvard as well as an LLB from Tel Aviv University. She is a member of the American Law Institute and the recipient of research grants from the Robert Wood Johnson Foundation, the American Bar Association litigation Fund, the Searle-Kauffman Fellowship, the Southern California Innovation Project, and Netspar, University of Tilburg. We are honored to have her join us for the symposium as our great list of guest authors engage with her book.

Our line-up of authors include Matt Bodie, Anupam Chander, Danielle Citron, Catherine Fisk, Vic Fleischer, Brett Frischmann, Shubha Ghosh, Ron Gilson, Peter Lee, and Frank Pasquale. We look forward to everyone’s contributions.

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Neutrality or Nirvana?

Trade law should not allow countries to insist on a regulatory nirvana in cyberspace unmatched in real space.

Reading Anupam Chander’s The Electronic Silk Road has been a real treat, and thanks to the folks at Concurring Opinions for organizing this terrific online symposium and including me. The book offers a wide-ranging and insightful discussion about global electronic commerce and its regulation and management. Anupam proposes general principles—rules of the road, essentially—to guide policymakers in this process of regulating and managing global e-commerce. The very first principle introduced in the book–the quotation above captures its essence–is that of technological neutrality: To keep cybertrade free and open, the online provision of a service should not be subject to more onerous regulatory burdens than its offline counterpart.

I wish to focus on this first principle. It seems a balanced and uncontroversial prescription. Why should local regulators saddle online service providers with heavier regulatory burdens than the local bricks-and-mortar competitors? The specter of protectionism lurks!

For me, Anupam’s technological neutrality principle is insufficiently ambitious with respect to the possibilities for effective regulation of e-commerce. Anupam’s concerns are free trade concerns, with which I am sympathetic. At the same time, though, e-commerce may actually be able to do better than brick and mortar on a number of important regulatory fronts, but technological neutrality gives up on those possibilities. It relieves the pressure to pursue more efficient regulation in cyberspace.

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Global Legal Pluralism

I remember back in 2003, Anupam Chander and I both took part in a cyberlaw retreat on Cape Cod sponsored by Harvard Law School’s Berkman Center for Internet and Society.  Most of the professors assembled at the retreat were concerned with how to “solve” the problems that local regulation of internet activity might pose.  In contrast, Anupam Chander and I repeatedly made the case that this was not a problem to be solved, but an inevitable expression of cultural diversity.  Further, we argued that there might even be some benefits that could accrue from such legal pluralism, properly managed.

We have been fellow travellers ever since, and I am very pleased to see Anupam’s project finally come to fruition in this lively and agile book.  As befits a broadly synthetic work about the electronic silk road, Anupam stiches together an impressive array of examples that convincingly demonstrate the importance of the global trade in services.  In addition, turning from the descriptive to the normative, he lays out principles that might undergird a governance regime for this cross-border activity that leaves open the possibility for multiple competing normative voices.

Anupam’s approach is one that is consonant with the conception of global legal pluralism I have been pursuing for over a decade, and so I have few objections to his account.  Quite rightly, Anupam steers a useful middle ground on issues of so-called extraterritorial regulation.  He neither says that local regulation should always trump all other possible normative authorities (as sovereigntist territorialists often do), nor does he call for a full universal harmonization scheme.  Instead, he adopts a pithy aphorism: “harmonize where possible and glocalize where necessary.”  The key here is that a decisionmaker in a cross-border dispute should always ask whether it is possible to defer to another legal regime in the interests of a harmonious interlocking transnational legal system.  Even asking such a question can, over time, inculcate habits of mind that cause decision-makers to be restrained about reflexively applying their own law in all circumstances.  At the same time, Anupam recognizes that there will be instances when such deference is impossible and local populations will feel the need to impose local norms on cross-border activity.  In such cases, he asks global services companies to “glocalize”: customize their global services product to conform to the law of various localities.

My guess is that such an approach will be workable in many cases, and so Anupam’s argument is an advance.  It is also usefully pluralist in that it leaves space for multiple communities—local international, and transnational—to assert normative authority.  This is in marked contrast to an approach that seeks to elide normative difference and tries to impose a single authoritative set of norms.  Thus, I fully embrace his project.

I do have two quibbles, however.

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Navigating The Electronic Silk Road: How the Web Binds the World Together in Commerce

In The Electronic Silk Road: How the Web Binds the World Together in Commerce, Anupam Chander has helped to illuminate any number of debates that surround the growing trade in online information services (a phenomenon that he calls “net-work”).  The range of legal and political issues implicated by trade in online information services is vast and some are quite arcane.  Yet, Chander brings them together beautifully in a wonderfully accessible book that is very readable without being simplistic.  He does not purport to offer a single solution to the challenges of trade in online information services.  (Indeed, I would be suspicious of anyone hawking a single solution to what is an incredibly complex problem.)  Instead, he suggests a framework for recalibrating the balance between local and international norms (and institutions) in ways that take account of the special features of online commerce (and online social interactions, for Chander is continually alert to the ways that trade and commerce can positively contribute to broader social policy objectives).  Chander recognises that to understand the complexity of regulating (or de-regulating) the provision of online services, one has to take account of any number of institutions or devices: thus he dissects rules on conflicts of law (jurisdiction, choice of law, and recognition and enforcement of judgments), and international economic law (most notably GATS), while also taking due account of private ordering by large online players and the global power of consumer pressure.  He paints a messy picture, but it is messy because it is rich.  One has first to accept that messiness and complexity, in order to address the problems of activity that (arguably) simultaneously occurs nowhere and everywhere.

Perhaps the biggest single contribution that Chander makes is to suggest that these disparate legal devices can be considered through a single analytical framework, which he develops using a number of core propositions and concepts.  The most important of these, which I discuss below, is the concept of “glocalisation” (not new, but adopted and adapted by Chander) and harmonisation (also not new, of course).  The framework does not suggest any concrete solutions (with a couple of exceptions).  But that would be too much to expect.  Nor will it resolve some of the most acute tensions between international norms and local (national) sovereignty.  But that would be too much to ask.  It does ask us to think differently about how to address those tensions.

It is the interaction of glocalisation and harmonisation that is at the heart of the book, and on which I will focus my post.  The core proposition that Chander advances is “Harmonise where possible, and glocalize where necessary.”  (p 191).  By this proposition, I read (based on his uses throughout the book rather than how I would use the terms, as discussed below) to mean that we should strive for global norms so as to take advantage of the efficiencies (and other social benefits) of universalization, but allow local (mostly national) norms to apply where important to preserve important values on which local communities may disagree (provided such values are broadly consistent with fundamental international norms, such as human rights commitments).  In some respects, this is not a radical proposition.  Most of international law consists of calibrating the balance between the national sovereignty and international norms.

However, in two senses Chander’s proposal is quite radical.First, he recognises this tension pervades any number of legal rules and institutions, not just public international law.  Thus, he seeks to apply his basic tenet to conflicts rules, as well as rules that facilitate global transactions.  This is radical insofar as it is not the starting point for conventional private law analysis generally.  Chander is not alone. 

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