PaulB. Stephan*
Further Reflections on the
Implementation of Comparative
Advantage Principles in Trade Law
says many useful things
rofessor
about the Brand's
conceptualpaper
underpinnings of U.S. trade law and
the deficiencies of the legal mechanisms the United States has
adopted. He makes the familiar
argument that this law, and particularly the GAIT system, reflects the
theory of comparative advantage.
He further suggests, rather subtly,
the possibility of institutional
breakdown in the implementation
of this vision. If this author may
paraphrase and perhaps modify his
argument, Brand seems to argue
that the United States has no trouble
signing on to international agreements that seek to expand and reinforce an international economic
system based on the concept of
comparative advantage but that the
rules our lawmakers enact domestically fail to fulfill all of these
promises. He further argues, apparently, that the addition of another
layer of judicial review of the legislative enactments-in his words,
giving private parties access to
GAIT rules-will bring U.S. domestic law more in line with the
initial premise of liberal trade informed by comparative advantage
theory.
This author embraces comparative advantage theory, although not
only for the reasons advanced by
Brand. One of the underappreciated virtues of a liberal international
economic order is its potential for
inducing governments to make precommitments that raise the costs of
rent-seeking by cohesive and powerful domestic interest groups, es-
*Paul B. Stephan, School of Law, University of Virginia, Charlotlesvllle, Virginia
Stephan: FurtherReflections on the Inplementation of
ComparativeAdvantage Principlesin Trade Law
pecially trade associations and
labor unions. Such commitments as
the GATT embodies, for example,
may make it harder for these groups
to obtain from the government trade
barriers that lower consumer welfare without greatly advancing
those groups' interests. Governments that wish to resist such
pressures can cite the GATT-inconsistency of the interest groups' proposals (and the costs that flow from
a finding of GAIT inconsistency)
as an additional argument against
their adoption. Precommitments always entail bonding costs and cannot prove that these costs invariably
will be less than the savings produced by suppression of rent-seeking, but probably the overall
benefits to a society are usually
positive.
The argument just made, however, is part of a normative account
of comparative advantage theory,
not a positive analysis. Brand argues that the "normal evolutionary
process" entails "developing a rule
to implement a policy.1 Assertions
of this sort about the development
of legal rules reflect a valid perspective about the relation between law
and society, one quite understandable in light of Brand's
grounding in political science. But,
for what it is worth, the assertion
reverses conventional positive
economic analysis.
One of the fundamental premises of economic science, not uncontroversial but still useful, is the
claim that overt behavior can give
one greater insight into the desires
of individuals and groups than will
their professed intentions. If one
wants to know what conceptual
framework underlies the interna-
tional trade system, economic analysis teaches how governments
and other economic actors working
within that system should be studied. In other words, if one wants to
determine the policy, he should
look at the rule.
With respect to U.S. trade law,
such a look suggests that the theory
of comparative advantage has had
little to do with the present legal
regime, notwithstanding the pervasive rhetoric to the contrary. By any
measure it seems clear that a very
large part of international commerce takes places under legal and
customary norms that do not reflect
what Smith and Ricardo taught.
Huge segments of international
trade in goods-agricultural products, textiles, energy resources,
military hardware, to cite only a few
examples--either were taken out of
GAIT de jure or, because of their
industrial structure, do not trade on
terms that reflect either the most-favored-nation or national-treatment
principle. Notwithstanding the ambitions of the Uruguay Round, both
the ever growing trade in services
and capital investment flows are
subject to highly mercantilist regulatory structures almost everywhere, including particularly the
United States. Even domestic legal
structures that seem to embody the
ideal of competition in free markets-here primarily the Sherman
Act-tend to give way when faced
with the imperatives of protectionism. Thus the Justice Department's
1988 international antitrust guidelines jump through hoops to explain
why what otherwise would be a
classic import cartel falls outside
the Sherman Act if the concerted
activity occurs under the auspices
Journal of Legal Economics
July 1992
of a so-called voluntary export restraint, lawless though the latter
may be. 2
This glance at U.S. law does not
suggest that comparative advantage
theory is irrelevant to discussions
about international trade, but rather
that the concept is not especially
fruitful in exposing the wellsprings
of existing rules. It does follow, of
course, that aspects of current law
that fail to fulfil comparative advantage theory are not for that reason
inconsistent with the overall purpose of the existing rules. But this
insight only requires one to come up
with other normative arguments for
changing existing law. Comparative advantage theory should not be
used as a talisman, but there is nothing inappropriate about showing
why departures from comparative
advantage theory in particular cases
might be especially undesirable.
The topic of private access to
GATT rules consequently arises. It
is not entirely clear how this principle would work in practice. Brand
is not apparently advocating that the
GAT should assume the status of
a constitutional instrument, in the
sense that courts can invoke it to
invalidate statutes that conflict with
its underlying principles. Such an
outcome would, inter alia, represent a remarkable reversal of settled
constitutional order, which denies
to the executive (the only branch of
our government to accede to the
GAIT) the power unilaterally to
nullify valid legislative enactments.
Nor is Brand calling for abandonment of either the 1947 Protocol
that grandfathered all preexisting
GATT-inconsistent legislation or
the last-in-time rule that protects all
post 1947 statutes
from GATT
3
based challenges.
What Brand apparently means
is that courts should be sensitive to
the interests and goals embodied in
the GATT and should look to
GATT text and practice to inform
their interpretation of domestic statutes that involve the same subject
matter. If this is his position, it is
generally endorsable. But room to
quibble remains.
One of the attractions of
Brand's position is that it engages
the common law powers of U.S.
courts in a way familiar to all lawyers. Rather than consigning the
interests of importers-acting as
proxies for consumers, foreign producers and anyone else who might
benefit from free trade-to legislative logrolling and bureaucratic indifference, it allows the impartial,
measured, incremental development of a free trade jurisprudence.
As a secondary matter, of course,
this position also makes it more
likely that academic specialists in
international economic law will be
called upon to advise litigators and
otherwise instruct the judges in the
nuances of the GAT. Perhaps they
will even be rewarded for their efforts.
But by invoking a global right
of private access to GATI rights,
Brand may have overlooked some
points that economic analysis might
uncover. Reconstructing his argument with the aid of public choice
theory and some conventional assumptions about legal process, one
might make the following series of
assertions: Agreements based on
comparative advantage theory are
normatively desirable. For any
number of reasons, the executive
Stephan: FurtherReflections on the Implementation of
ComparativeAdvantage Principlesin Trade Law
branch of the U.S. government occasionally can overcome the manifold obstacles to multilateral
cooperation and can reach such
agreements, at least as to a limited
range of international economic behavior. Congress, however, may be
more subject to the influence of interest groups that wish to pursue
rent seeking that such agreements
may thwart. (These groups might
simply ignore the first stage of
agreement formation, if they know
they can get what they want out of
Congress.) The U.S. judiciary,
however, is harder to capture and
should be encouraged to read out of
legislative enactments concessions
to such interest groups. Such interpretive strategies of the judiciary
should be based on the agreements
reached by the execuoriginally
4
tive.
Each of these assertions rests
assumptions, but the
debatable
on
one that is most disturbing is that
the U.S. judiciary is uniformly resistant to interest group capture.
There is no reason to believe that
courts do not have interests of their
own and that their behavior does not
reflect those interests. For a broad
range of adjudications, it may be
difficult to specify what those interests are and how they may affect
judicial dispositions, but some
guesses may be ventured.
Without getting into any
broader debate about the interest
group politics of the federal judiciary, one tentative hypothesis may
be offered: In a hierarchical judicial
system with greater prestige and job
security attached to judges serving
in courts of general jurisdiction, the
judges who sit on specialized tribunals will seek to compensate for
114
their perceived lesser influence by
augmenting the significance (which
is to say, the stakes) of the disputes
they do hear. This hypothesis does
not assume that one class of litigants has any greater influence with
these tribunals than another, but
rather that the judges will decide
marginal cases in a manner that
makes, what they do seem more important. The fact that such decisions might systematically benefit
discrete classes of litigants is interesting but irrelevant.
Consider the administrative
and judicial structure for resolving
disputes over antidumping and
countervailing duties. Sections 701
and 731 of the Trade Act of 1930
embody the standards for the imposition of these duties worked out at
GATT's Tokyo Round. 5 The
Tokyo Round's agreements on
countervailing and antidumping
duties tried to restrict the power of
states to impose these levies, which
can subvert the fundamental GAIT
goals of nondiscrimination and
transparency. 6 Absent such restraints, states could avoid their obligation to impose low,
nondiscriminatory tariffs on imports by inventing a subsidy (leading to countervailing duties) or a
dumping (pretending that prices are
below cost, leading to antidumping
duties). Importers want to make it
hard for the government to impose
these duties; domestic producers
want these duties to be nearly automatic and hefty.
Sections 701 and 731 are
administered by the International
Trade Administration of the Department of Commerce and the International Trade Commission, an
independent agency. A domestic
Journal of Legal Economics
July 1992
producer will bring a complaint
against an importer, alleging either
subsidies or dumping (usually
both). The International Trade
Administration (ITA) must determine whether subsidization or
dumping has occurred; the International Trade Commission (ITC)
must determine whether the suspect
imports are harming or pose a reasonable threat of harm to domestic
producers. Both tribunals must
make an affirmative finding to uphold extra duties. Both importers
and domestic producers may appeal
adverse findings by either tribunal
to the Court of International Trade,
with appellate review in the United
States Court of Appeals for the Federal Circuit and, in theory, the Supreme Court of the United States.
On their face neither Section
701 or 731 departs from the 1979
Tokyo Round agreements, and private parties do have access to these
rules in the sense that importers
have standing to use them to challenge in a judicial body the government's imposition of counter
7
vailing and antidumping duties.
Does this mean that Brand's vision
of greater adherence to comparative
advantage theory has been realized
here?
The available evidence is unfortunate. Alan Sykes has documented the sharp growth in U.S.
countervailing duty imposition directly in the wake of the 1979 agreements.8 Conventional wisdom has
it that antidumping duties have
grown at the same rate during the
same period. What started out as an
international agreement to cut back
on these duties appears to have been
transformed into a license for protectionism, even as the victims en-
joyed the right to assert the GATT
standards in court. What happened?
One possibility is that the 1979
agreements, by clarifying the legal
standards, both reduced the risks
associated with bringing complaints and alerted the international
trade bar to the opportunity of such
proceedings. One may be skeptical
of this explanation because the
agreements only added additional
hurdles and did not clarify or eliminate any of the prior standards for
imposition of the duties. Nor were
domestic producers and their lawyers ignorant of the advantages of
bringing complaints before 1979.
More plausible is the possibil'ity that during the early 1980's a
combination of lower domestic
profits and a rise in imports led domestic producers to rely more aggressively on entitlements that they
always had enjoyed. Perhaps the
greater willingness of some domestic producers to assert these claims
led the bar to acquire greater expertise in these matters, which they
then sold to a broader class of producers in the form of lower attorneys' fees.
What is clear, however, is that
the Court of International Trade and
the Federal Circuit at the least did
nothing to stem the tide and may
have encouraged domestic firms to
bring even more claims. Throughout the 1980's these bodies handed
down decisions that made it easier
for domestic producers to win these
disputes. They tolerated steps by
the administrative agencies that
loosened the standard for establishing the existence of subsidies
and dumping and interpreted the
concept of harm so loosely as to
Stephan: FurtherReflections on the Implementation of
ComparativeAdvantage Principlesin TradeLaw
almost obviate this barrier to the
imposition of duties.9 All the time
the courts were doing this, importers could argue GATT rules to
them.
If the judges of the Court of
International Trade and the Federal
Circuit had the power to discipline
the ITA and the ITC by resorting to
GAIT rules, why did they choose
not to do so? A tentative hypothesis
aboutjudicial interests suggests one
possibility. The Court of International Trade does nothing but listen
to customs disputes, and countervailing and antidumping duty controversies make up a large portion
of its caseload. If the judges of this
tribunal were to issue rulings that
discouraged domestic producers
from bringing complaints, they
would have less to do, and the disputes they did hear probably would
involve less money. The Federal
Circuit does not have as great an
incentive to encourage complaints
by domestic producers as it also
hears appeals in, inter alia, certain
tax, patent, contracts and torts
cases. But on the other hand, the
Federal Circuit has no special reason to discourage the Court of International Trade from making
procomplainant rulings. The operative statutory standards are far
from clear cut and the Federal Circuit has every reason in marginal
cases to show some deference to the
specialized tribunal that it reviews.
If this diagnosis has any substance, then the proper response is
not to supply importers with more
rhetoric about the GATT and comparative advantage theory, but
rather to change the institutional arrangements involved in the oversight of countervailing and
antidumping duties. One fairly
straightforward solution suggests
itself: Congress might abolish the
Court of International Trade and
extend jurisdiction over customs
disputes to the federal district
courts. This change in venue might
liberalize U.S. trade barriers more
than would the enactment of any
conceivable new standards that the
and judicial
existing administrative
1
bodies might apply.
But if Congress is prone to capture by domestic producers, why
would it ever consider such a step?
Surely both the parties that tend to
prevail before the Court of International Trade and the lawyers who
have built up some knowledge of
that tribunal's customs and byways
would resist mightily. But other
groups, also organized if not quite
as cohesive, would benefit from the
change. In addition to self-styled
consumer advocacy organizations,
lawyers who know how to litigate
in the district courts might see the
advantages of a new forum for duties disputes. Moreover, questions
of venue lack some of the highly
politicized nature of straight tariff
allocations and invite lawmakers to
refer to more general concepts of
good government.
As a matter of predictive positive analysis, the most interesting
question is whether federal district
judges would oppose the transfer of
customs cases to their jurisdiction.
These judges have a tendency to
worry about the size of their
caseload, and casual empiricism
suggests that mundane money disputes involving circumscribed statutes generally do not interest them.
But if a connection can be made
between the common law of coun-
Journal of Legal Economies
July 1992
tervailing and antidumping duties
and broader issues of competitiveness, national economic security,
and government integrity, perhaps
the judges would see that taking on
these cases will enhance their prestige and enrich their lives.
To recapitulate, this author
likes comparative advantage theory
as much as does Brand, but careful
study of U.S. trade law cannot stop
at the identification of rules that
seem to depart from what this theory teaches. Economic science can
teach a lot about the reasons why
current law so frequently frustrates
rather than supports free trade and
the strategies that might make the
rules friendlier to comparative advantage theory. In particular, it can
point to institutional relationships
that, independent of substantive
rules, can affect the degree of freedom in international commerce.
Lawyers, as specialists in institutional structure, should welcome
this guidance.
Stephan: FurtherReflections on the Implementation of
ComparativeAdvantage Principlesin Trade Law
Endnotes
1. Brand at p. 25.
2.
Compare U.S. Department of Justice, Antitrust Guidelines for International
Operations, Case 16, 53 Fed. Reg. 21,584 (Jun. 8, 1988), with Consumers
Union of UnitedStates v. Kissinger,506 F.2d 136 (D.C. Cir. 1974), cert. denied,421 U.S. 1004 (1975).
3.
I am confused, however, by Brand's statement that
The later-in-time rule exists simply because international law is not primary
authority in U.S. law. So long as this dualistic aspect of the U.S. legal system remains, itIsnot through judicial opinion that GAIT rules are likely to
be applied in a manner consistent with the underlying economic theory.
Pp. 25-26 n. 32.
If Brand means to suggest either that the United States could embrace the
primacy of international law without a constitutional revolution, or that it
should take this step, I strongly disagree. Nor do I understand how the laterin-time rule prevents U.S. courts from implementing legislative mandates in
ways that reflect sensitivity to prior international commitments. Cf. Cook v.
United States, 288 U.S. 102, 120 (1933).
4.
This reconstruction of Brand's argument follows the general lines of the interest-group analysis developed by Jonathan Macey and his coauthors in
dealing with the general problem of how courts might interpret special interest legislation. See, e.g., Jonathan R. Macey, PromotingPublic-Regarding
LegislationThrough Statutory Interpretation-AnInterest GroupModel, 86
Colum. L. Rev. 223 (1986).
5.
19 U.S.C. §§ 1671, 1673.
6. Agreement on Subsidies and Countervailing Duties of 1979, GATT BISD,
26th Supp., p. 56 (1980); International Dumping Code of 1979, GAIT
BISD, 26th Supp., p. 171 (1980).
7.
The Court of International Trade, for example, has considered and accepted
arguments to the effect that U.S. countervailing duty statutes should be interpreted in light of the Tokyo Round Agreement on Subsidies. See, e.g.,
Zenith ElectronicsCorp. v. United States, 770 F. Supp. 648 (1991). At the
same time, the Court has asserted the primacy of the statute and will not listen to GAT-based arguments if they lead to results that the Court regards
as inconsistent with the plain meaning of the statute. See, e.g., AvestaAB v.
UnitedStates, 689 F. Supp. 1173 (1988), aft'd,914 F.2d 233 (Fed. Cir.
1990).
8.
See Alan 0. Sykes, CountervailingDuty Law: An Economic Perspective,
89 Colum. L. Rev. 199 (1989).
9.
See,e.g.,Algoma Steel Corp. v. UnitedStates, 865 F.2d 240 (Fed. Cir.)
(1989) (holding that in an antidumping proceeding ITC can base a harm determination on all of importer's sales, not just the ones involving "less-than-
118
Journal of Legal Economics
July 1992
fair-value" sales); Zenith ElectronicCorp. v. United States, 633 F. Supp.
1382 (CIT 1986) (putting burden of proof on exporters to demonstrate that
value-added taxes are passed on to consumer so that refund on export does
not benefit consumers); Cabot Corp. v. United States, 620 F. Supp. 722
(CIT 1985) (treating benefits of general availability as targeted for specific
industry).
10. Compare Anne Krueger's suggestion that policymakers interesting in enhancing consumer welfare and eliminating deadweight losses in international commerce might "choose policies and institutional arrangements that
will force tradeoffs to be faced in the administration and execution of policy." She argues that governments should disestablish tariff commissions in
favor of a ministry of trade that represents importers as well as domestic
producers. Anne 0. Kreuger, Government Failuresin Development, 4 J.
Econ. Persp. 9, 21 (1990).
Stephan: FurtherReflections on the Implementation of
ComparativeAdvantage Principlesin TradeLaw
120
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July 1992