Monday, 29 September 2008

Trade and everything

This time is about tainted milk. As a die-hard WTO imperialist, I cannot help thinking of the possible trade issues involved in the case. SPS? MFN? Art. XX?

Another seemingly irrelevant issue is the Special Safeguard Mechanism (SSM). According to some people at least, this is THE REASON for the collapse of the Geneva talk a few weeks ago. To tackle the issue, Prof. Robert Baldwin proposed that rather than using import volume as the sole variable, we should also consider the level of import penetration in the domestic market. If imported products are replacing domestic products in the market, a country should be allowed to invoke the SSM.

One problem, however, is how this formula would deal with scenarios such as what happens in China following the tainted milk scandal. Nowadays, few people are buying domestically produced dairy products, but as people still need milk, they are turning to imported dairy products instead. To put that in terms of the Baldwin formula, the average consumption is the same as before (probably a bit lower as some people have chosen to shun milk and drink soybean drink instead), but imports have grown significantly. Thus, under the Baldwin formula, China could invoke SSM in this case. Of course, for political concerns, it's doubtful that China will want to invoke the SSM in the current case. The point, however, is that this could happen in every case where people prefer to choose imports over domestic products because the domestic products are of inferior quality. We all know bad money drives out good, but shall bad (domestically produced) products be allowed to drive out good (imported) products? It seems this theory could potentially be (a)bused by countries for just that purpose.

You can follow this debate by posting replies directly to this blog, or at the IELP blog.

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