International Economic Law and Policy Blog

U.S. Comments on "Precedent," DSU Article 11, and AD Agreement Article 17.6(ii)

In the hope of pushing the substantive discussion related to the Appellate Body crisis forward, here is a brief response to a couple points the U.S. made at the General Council meeting yesterday.

First up, the U.S. says the following about the issue of "precedent":

On so-called “cogent reasons”, the Facilitator’s Report suggests that Members agree that “precedent” is not created through WTO dispute settlement. If this is so, then why did some WTO Members advocate for the Appellate Body to assert that its interpretations must be followed by panels absent unidentified cogent reasons?  And why then does the Appellate Body assert a precedential value for its reports like an authoritative interpretation that only WTO Members in the Ministerial Conference or General Council can give?

I've talked about this issue before, and I won't go through it all again, but let me just add this: If you look at the Appellate Body's reasoning on GATT Article III:4 over the years, it's pretty clear that the Appellate Body's view has evolved, and that it feels free not to follow its past reasoning. 

Next is DSU Article 11:

With respect to the issue of appellate review of questions of fact, we are concerned that the Appellate Body would say it is already abiding by the text in the Facilitator’s Report, especially since the Appellate Body has interpreted DSU Article 11 to convert questions of fact into questions of law, and we hear WTO Members expressing different views on the meaning of Article 11 of the DSU.

I would really like to see the U.S. make the case that DSU Article 11 should not be the basis of an appeal. That would be an interesting debate. If they are not willing to go that far, maybe they would endorse the strict standard set out in Hormones? (And speaking of not following past cases, the Appellate Body's application of Article 11 seems to have gone back and forth as well).

Finally, the U.S. said this about AD Agreement Article 17.6(ii):

With respect to the issue of overreach, it is clear that the Appellate Body would say that it already abides by the text of Article 17.6 of the Anti-Dumping Agreement and, in turn, the text in the Facilitator’s Report. The problem is that the Appellate Body has adopted an erroneous interpretation of Article 17.6 that renders it inutile.  We have not yet seen convergence on how to address this issue, or other instances in which the Appellate Body has departed from the plain text of other covered agreements.

On this provision, I had the following suggestion a while back for new text to clarify how this provision should work:

The redrafted Article 17.6(ii) text could look something like this:

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations. As an illustration of a situation where more than one permissible interpretation exists, if the panel concludes that the interpretive approach set out in Article 31 of the Vienna Convention on the Law of Treaties leaves the meaning of a provision ambiguous or obscure, there shall be a presumption that the provision admits of more than one permissible interpretation, and the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

I'm curious what the U.S. thinks of this idea.

The facilitator's report is here.

Some Unsolicited Advice for Warren's Trade Policy Team

One of the most notable things about Elizabeth Warren's trade policy plan is what she doesn't talk about. She doesn't talk about the WTO. She doesn't talk about "national security" tariffs. She doesn't have much to say about U.S.-China trade relations. The lack of detail is perhaps a sign that despite any misgivings free traders might have about what she does say about trade agreements, there would be room to improve on Trump's trade policy in a Warren administration. With that in mind, here are a few suggestions for Warren and her advisers as to what might make us pro-trade folks less critical. 

Let's start with the WTO. The Trump administration has raised three big issues: The role of the Appellate Body; the treatment of developing countries; and the inadequacy of the notifications provided by many countries. (There is also the ability of WTO rules to deal with China, but I'll address China issues separately.)

In my view, the issues related to developing countries and notifications are real and challenging, and it's worth continuing to pursue them. By contrast, the Trump administration's approach to the Appellate Body has been flawed and needs to be abandoned. The first step the Warren administration should take is to stop blocking appointments to the Appellate Body. That would demonstrate a good faith effort to participate in WTO affairs, and to support neutral adjudication procedures and the international rule of law (rather than unilateralism).

The second step would be to articulate a vision of how the Warren administration sees the role of the Appellate Body. It's not just the Trump administration political appointees who have had concerns about the Appellate Body. There are a wide range of U.S. actors who have been critical of some of the Appellate Body's decisions and behavior. The question is, what do they want the Appellate Body to be instead? They need to figure this out, articulate it clearly, and make the case for it to other WTO Members. For example, do they want to get rid of DSU Article 11 appeals? I don't think that's an unreasonable position. But if that is their position, they need to convince everyone else of the merits. A number of remarks from Trump administration officials have been along the lines of, "We need to go back to what we agreed in the DSU in 1995." But there are different interpretations of what was agreed, so spell out what you think the Appellate Body should be doing.

Now let's move to the Section 232 national security tariffs, which of course involves the WTO as well. The best option here is to repeal the steel and aluminum tariffs, and to explicitly rule out imposing tariffs on autos. There isn't a reasonable justification for these tariffs under the terms of the statute, and imposing them has caused serious trade conflict in the form of tariff wars and abuse of the GATT Article XXI security exception (as well as the safeguards provisions invoked in response). Repealing the Section 232 tariffs would be a great way to start working with our allies again, which will be relevant to the China issues discussed below.

It's worth noting that there are plenty of legal ways to impose tariffs (trade remedies, for example), so there is no need for Section 232 in this regard. Of course, someone might point out that certain WTO rulings have made using trade remedies more difficult. Here, I would go back to what I said about the role of the Appellate Body. If there are specific concerns (e.g., the Appellate Body's rulings on "unforeseen developments") the answer is to make the case to other Members for a particular alternative approach.

And then there's China. I never had much hope for Section 301 tariffs as an effective way to change China's behavior, but the Trump administration has some time left before the election, and we'll see how it goes. But if it hasn't worked by the time there is a President Warren, perhaps then we could consider an alternative. One possibility is something along the lines of what President Obama tried, which is to negotiate liberalization with others in order to force China to behave better. Obama's broad strategy made some sense, but in my view the execution was botched, in two ways. First, the TTIP expectations were unrealistic. And second, the domestic politics of TPP were handled badly, and as a result Congress did not ratify it.

But it's not hard to imagine a President Warren joining a version of the TPP (without ISDS, etc.) and negotiating a trade deal with the EU. She'll have to compromise on a bunch of the conditions she set out in her trade policy plan, but that's OK. It's my understanding that politicians sometimes do this sort of thing.

In addition, governments should bring a wide range of WTO complaints against China. China's accession protocol has some pretty broad obligations in it. In my view, it's worth testing them out in dispute settlement.

And then finally on China, if we want China to make significant structural changes to its economy, there needs to be a negotiation that offers China something as well. Otherwise, for political reasons, China simply won't be able to sign on. For example, given how potent normal anti-dumping rules are, it seems to me that trading off the extra bad treatment China gets in anti-dumping in exchange for some significant Chinese reforms would be worth it. But I know that's a sensitive issue, and I'm open to other possibilities.

A Critique of Warren's Trade Policy Plan

Back in July, I offered some quick thoughts on presidential candidate Elizabeth Warren's trade policy plan (entitled, "It's Time for a New Approach to Trade"). Now I'm going to offer a more detailed critique, and I'll follow with a post that puts forward some suggestions as to how she might calm the nerves of critics who see her ideas as pretty close to Trump's confrontational trade policies.

She leads off with this:

Last month, I released my economic patriotism agenda — my commitment to fundamentally changing the government’s approach to the economy so that we put the interests of American workers and families ahead of the interests of multinational corporations. I’ve already released my ideas for applying economic patriotism to manufacturing and to Wall Street. This is my plan for using economic patriotism to overhaul our approach to trade.

For decades, big multinational corporations have bought and lobbied their way into dictating America’s trade policy. Those big corporations have gotten rich but everyone else has paid the price. We’ve lost millions of jobs to outsourcing, depressed wages for American workers, accelerated climate change, and squeezed America’s family farmers. We’ve let China get away with the suppression of pay and labor rights, poor environmental protections, and years of currency manipulation. All to add some zeroes to the bottom lines of big corporations with no loyalty or allegiance to America.

We need to completely transform our approach to trade. America enters into trade negotiations with enormous leverage because America is the world’s most attractive market. As President, I won’t hand America’s leverage to big corporations to use for their own narrow purposes — I’ll use it to create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices, and raise living standards worldwide. We will engage in international trade — but on our terms and only when it benefits American families.

I probably shouldn't get too hung up on the spin in her introduction, but nevertheless I'm going to point out a few things: We've gained millions of jobs from foreign companies "outsourcing" their production to the United States; I would worry just as much about the negative impact of carbon emissions from inefficient manufacturing caused by protectionism; and trade agreements have opened foreign markets to "America's family farmers." More generally, she is concerned about the influence of big corporations on U.S. trade policy. Initially, as I read the history, taking some trade policy power away from Congress and giving it to the executive branch led to diminished influence from corporations, but over time I think it's fair to say that they regained their influence. At the same time, environmental and labor groups also gained influence, which is why there are environmental and labor chapters in trade agreements.

Now on to the substance. Here is her overall vision:

A New Approach to Trade

My plan is a new approach to trade — one that is different from both the Washington insider consensus that brought us decades of bad trade deals and from Donald Trump’s haphazard and ultimately corporate-friendly approach.

Unlike the insiders, I don’t think “free trade” deals that benefit big multinational corporations and international capital at the expense of American workers are good simply because they open up markets. Trade is good when it helps American workers and families — when it doesn’t, we need to change our approach. And unlike Trump, while I think tariffs are an important tool, they are not by themselves a long-term solution to our failed trade agenda and must be part of a broader strategy that this Administration clearly lacks.

To ensure that American families benefit from international trade in the decades to come, I want to invest in American workers and to use our leverage to force other countries to raise the bar on everything from labor and environmental standards to anti-corruption rules to access to medicine to tax enforcement. If we raise the world’s standards to our level and American workers have the chance to compete fairly, they will thrive — and millions of people around the world will be better off too.

Achieving this vision isn’t about tough talk or tweets. We must do the hard work of transforming every aspect of our current approach to trade: from our negotiating process to the negotiating objectives we pursue to the way we enforce agreements. That’s what I intend to do.

First of all, let me say that I'm not sure how "new" any of this is. To me, it seems like the same basic approach: Gathering the various insider interest groups and formulating a policy based on those views. The only change is a shift in which interest group views will be most influential.

Second, it would be nice if she and her advisers provided more detailed explanations as to how they would use tariffs. She says that "tariffs are an important tool," but a tool for what exactly? For negotiating leverage? For shielding domestic corporations from competition? How will they not be abused by special interests, as they have been throughout history? Clearly, tariffs are not going away any time soon, but I'm just trying to point out to the Warren folks that tariffs were a problem long before Trump, and they cannot easily be administered strategically and effectively.

As for the point about using "our leverage to force other countries to raise the bar on everything from labor and environmental standards to anti-corruption rules to access to medicine to tax enforcement," I'll come back to this later, but just to start things off here, let me ask a few questions: Can this work? Is it the right thing to do? Are there better ways to work with poor countries to improve their living standards than imposing financial penalties on them if they do not adopt the policies we demand? 

Now she talks a bit about process:

A Trade Negotiation Process that Reflects America’s Interests

Our current approach to negotiating trade agreements works great for the wealthy and the well-connected. The negotiating text is kept confidential from all but a small set of advisory groups comprised mostly of corporate executives and industry trade group representatives. Once those corporate interests are finished whispering in the ears of our negotiators, the completed text is released. Then, under the expedited “Fast Track” procedure Congress typically uses to approve trade agreements, our elected representatives must vote up or down on the agreement with no ability to propose and secure any changes to it. Meanwhile, the negotiators who constructed it often breeze through the revolving door to take jobs with the corporations whose interests underlie the deal.

This is undemocratic and obviously corrupt. In a Warren Administration, we will negotiate and approve trade agreements through a transparent process that offers the public a genuine chance to shape it:

• Trade negotiators will publicly disclose negotiating drafts and provide the public with an opportunity to comment. When federal agencies write new rules, they typically must publish a proposed version of the rule and permit the public to submit comments on it. I will adopt a similar approach for our trade deals. Prior to negotiations, our negotiators will publish a draft of their proposals in the Federal Register, let the public offer comments on the draft, and take those comments into consideration during negotiations. And then as talks proceed, they will publish drafts of the negotiating texts so the public can monitor the negotiations.
• Trade advisory committees will prioritize the views of workers and consumers. I will ensure that there are more representatives from labor, environmental, and consumer groups than from corporations and trade groups on every existing advisory committee. And I’ll expand the current list of advisory committees to create one for consumers, one for rural areas, and one for each region of the country, so that critical voices are at the table during negotiations.
• The US International Trade Commission will provide a regional analysis of the economic effects of a trade agreement. Trade agreements can hollow out communities and transform regional economies. Yet the report the ITC provides before Congress considers a trade agreement only includes a nationwide analysis of a trade deal’s economic impact. I will push for the agency to provide a region-by-region analysis so the public and Members of Congress can understand how an agreement is likely to affect the places they live and represent.
• The congressional approval process will offer more opportunities for the public and elected representatives to shape trade agreements. I will seek expedited congressional approval of trade agreements only when every regional advisory committee and the labor, consumer, and rural advisory committees unanimously certify that the agreement serves their interests. I will also expand the list of congressional committees that must review any agreement before it is eligible for expedited consideration.

Together, these changes will ensure that our negotiations reflect the views of American families, not corporate interests.

First off, her comparison of trade agreements with domestic regulations (and their notice and comment process) seems misguided to me. I would compare trade agreements to statutes, and there the process is very opaque. Trade agreement negotiations are probably a good deal more transparent in many cases. Regardless, I suppose you could have notice and comment for trade agreement texts. But if you include the detailed regulatory issues that she seems to want included, you might never see a trade agreement concluded.

As for putting more labor, environmental, and consumer groups on the advisory committees, that's fine, but my impression is that some of the groups out there are really just protectionist front groups who would never accept any trade liberalization, and if you give these folks a big say here, you might never get a trade agreement approved.

And finally, having the ITC do a regional analysis seems fine in theory (I'm not sure how difficult this will be in practice), but while we are expanding the ITC's role, I think they should do an analysis of any new tariffs. It would be helpful when deciding whether to impose tariffs to have a sense of all the people who would be adversely affected.

Now we get to the part about using U.S. economic power to influence developing countries:

Using Our Leverage to Demand More for American Families and to Raise the Global Standard of Living

While a better process will produce better agreements, we also must fundamentally shift the goals of our trade agenda so they are aligned with the interests of America’s families.

With certain important exceptions, we live in a low-tariff world. Modern trade agreements are less about the mutual reduction of tariffs and more about establishing regulatory standards for everything from worker rights to pollution to patent protections.

My approach to trade reflects that reality. For too long, we have entered into trade deals with countries with abysmal records on labor, environmental, and human rights issues. In exchange for concrete access to the American market, we get vague commitments to do better, which we then hardly enforce. The result is that millions of people in our trading-partner countries don’t gain the benefits of higher standards — and companies can easily pad their profits by shifting American jobs to countries where they can pay workers next to nothing and pollute the air and water freely.

That will end under my Administration. I am establishing a set of standards countries must meet as a precondition for any trade agreement with America. And I will renegotiate any agreements we have to ensure that our existing trade partners meet those standards as well.

My preconditions are that a country must:

• Recognize and enforce the core labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.
• Uphold internationally recognized human rights, as reported in the Department of State’s Country Reports on Human Rights, including the rights of indigenous people, migrant workers, and other vulnerable groups.
• Recognize and enforce religious freedom as reported in the State Department’s Country Reports.
• Comply with minimum standards of the Trafficking Victims Protection Act.
• Be a party to the Paris Climate agreement and have a national plan that has been independently verified to put the country on track to reduce its emissions consistent with the long-term emissions goals in that agreement.
• Eliminate all domestic fossil fuel subsidies.
• Ratify the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
• Comply with any tax treaty they have with the United States and participate in the OECD’s Base Erosion and Profit Shifting project to combat tax evasion and avoidance.
• Not appear on the Department of Treasury monitoring list of countries that merit attention for their currency practices.

A country should only be considered an acceptable partner if it meets these basic standards. Shamefully, America itself does not meet many of these labor and environmental standards today. I am committed to fixing that as President. And to help bring other countries up to these standards, I’ll revitalize our commitment to providing technical assistance to help countries improve.

I will also go beyond these minimum standards in key areas to promote the interests of American workers and families.

In my view, a good way to raise the global standard of living would be to encourage development by buying products from poor countries. But Warren has something else in mind: She wants to restrict trade until these countries bring their labor/environment/etc. standards up to our level. But is that even possible? Does the sequence have to go in the other direction, where first developing countries use trade as one element in their industrial economic growth, and then later they can raise their regulatory standards?

As to the specific conditions she would impose, with a lot of them, I think she is missing the point of trade agreements. There are a number of areas where she seems to be trying to carve out the ability to be protectionist:

Labor. I will ensure trade agreements protect Buy American and other programs designed to develop local industry, contain strong rule-of-origin standards to promote domestic manufacturing, protect worker pensions, promote equal pay for equal work for women, and prohibit violence against workers. Unlike previous trade deals agreements that have put labor standards in side agreements that are difficult to enforce, I will make labor standards central to any agreement.

Climate Change and the Environment. Climate change is real, it’s man-made, and we’re running out of time to address it. America should be leading this fight, but we have turned our backs on our responsibilities — with communities of color in the U.S. and developing countries bearing a disproportionate amount of the harm.

Trump is moving us in the wrong direction — withdrawing from the Paris Climate Accord, renegotiating NAFTA without even a mention of climate change, and handing special carve outs to oil and gas companies.

Beyond requiring implementation of the Paris Climate accord and the elimination of fossil fuel subsidies as preconditions for any trade agreement, I have already proposed a Green Marshall Plan to dedicate $100 billion to helping other countries purchase and deploy American-made clean energy technology.

But we must do more. I will push to secure a multilateral agreement to protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges. And because big corporations will move their production to the countries with the weakest greenhouse gas emissions standards — undermining global efforts to address climate change and penalizing countries that are doing their part — I will impose a border carbon adjustment so imported goods that these firms make using carbon-intensive processes are charged a fee to equalize the costs borne by companies playing by the rules.

Prescription Drugs. Last year, Americans spent more than $500 billion on prescription drugs. That’s a 50% increase since 2010. Nearly 3 in 10 Americans report not taking their medicine as directed because of costs. And yet, one of the core elements of America’s current trade agenda is guaranteeing pharmaceutical firms monopoly protections so they can avoid competition from generic drugs — driving up costs and reducing access to necessary medicine abroad, and undermining our efforts to reduce drug prices here at home. That’s exactly what the Trump Administration has done as part of their failed effort to renegotiate NAFTA.

While medical innovation is important, there is no link between extremely long exclusivity periods and pharmaceutical innovation. These are giveaways to drug companies, plain and simple, which allow them to maintain ludicrously high drug prices.

As President, I will fight to bring down the costs of prescription drugs here and around the world. I will never use America’s leverage to push another country to extend exclusivity periods for prescription drugs. I will support efforts to impose price controls on pharmaceuticals. And I will actively seek out opportunities to reduce exclusivity periods in our existing trade deals in exchange for securing other changes that will help America’s working families.

Agriculture. For decades, trade deals have squeezed family farmers, with Black farmers losing their land particularly quickly. Between the trade fights incited by Trump’s haphazard tariffs and a series of natural disasters, America’s farmers are now facing the worst crisis in almost 40 years. They are also facing unprecedented levels of uncertainty and instability. Trump’s tariffs have reduced crop prices, threatened farmers already operating on razor-thin margins, and opened up new non-American markets against which our farmers are now forced to compete. Like trade deals of the past, Trump’s NAFTA 2.0 is written to help giant multinational agribusinesses at the expense of family farms, and it will do nothing to solve the newly created market insecurity Trump’s tariffs have caused.

As President, I will fight for trade agreements that reward American farmers for their hard work by negotiating for fair prices for goods, breaking up the monopolies in grain trading and meat packing, and protecting domestic markets to create stability for America’s family farms. And I will impose Country-of-Origin Labeling rules to protect American producers and provide transparency to consumers.

Consumer protection. We must ensure that the food we eat is high-quality and safe. But our trade agreements have limited safety standards and the inspection of imported foods, while simultaneously enabling a new flood of food imports that overwhelm food safety inspectors. In my Administration, our trade pacts will require imported food to meet domestic food safety standards, including enhanced border inspection requirements.

As with imported food, our current trade deals require us to allow imports of other products and services that do not meet domestic safety and environmental standards. My trade agreements will ensure that imported products and services must meet the same standards as domestic products and services.

Antitrust. We are in an era of massive consolidation across many sectors of the economy. One of the reasons why is that we have a narrow, permissive approach to mergers that looks only at economic efficiency and consumer welfare instead of assessing the impact that a merger will have on competition itself.

In recent years, we have added this problematic standard into trade agreements and proposed it as the defining objective for competition policy in new and renegotiated agreements. Under my administration, we will not propose this standard in any new agreement, and we will work to renegotiate agreements to remove it.

A problem with a lot of the points she makes above is that she is arguing for economic nationalism, which is the main thing (in my view) trade agreements are intended to get rid of or limit. She mentions Buy America programs "designed to develop local industry"; strong rules of origin standards "to promote domestic manufacturing"; helping other countries purchase and use "American-made clean energy technology"; and using country of origin labelling to "protect American producers." If you follow this approach, others are likely to do so as well, which will lead to trade wars and inefficient production.

Speaking of trade wars and inefficient production, a multilateral agreement to "protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges" could also be a big problem. What would make more sense is a policy of subsidizing consumers of these products (rather than producers), which for the most part should not be in conflict with trade agreements.

There is also her usual criticism of pharmaceutical companies, which I'm fine with, but intellectual property protection is complicated. Is she really going to be against all of it? I suspect she will decide to compromise on these issues, and will seem a lot less like a warrior against big companies if she is president.

With regard to food safety, I've heard statements such as "our trade agreements have limited safety standards and the inspection of imported foods" before, but I'm not sure what they mean. I followed her link, but I am deeply skeptical that trade agreements would constrain the implementation of our safety and inspection standards. If anyone involved in these activities is concerned, I hereby volunteer my time to help navigate the trade obligations!

Finally, on antitrust, those provisions tend not to be enforceable in trade agreements, but regardless I'm fine with taking them out and dealing with international antitrust cooperation elsewhere.

She also wants to take ISDS out:

Delivering for American Families with Stronger Enforcement

Our approach to enforcing trade agreements drives down standards worldwide and undermines American families. We offer big corporations fast and powerful methods to enforce the provisions that benefit them but make it nearly impossible for Americans to enforce labor and environmental protections. Foreign governments only fear a challenge to strong rules that might hurt corporate bottom lines, not to weak rules that might not adequately protect workers, the environment, or public health.

I will entirely reorient our approach to enforcement so we drive standards up, not down. I’ll start by ending “Investor-State Dispute Settlement,” or ISDS, the favorable enforcement approach we offer corporations. Under ISDS, a company that believes that a new law violates some aspect of a trade agreement can skip the courts and challenge the law before an international panel of arbitrators. If the company wins, the panel can order that country’s taxpayers to pay out billions in damages — with no review by an actual court. What’s worse, the arbitration panels handing out these binding rulings are often made up of corporate lawyers whose day jobs are representing the very same companies that seek judgments before them.

Companies have used ISDS to undermine laws intended to benefit the public interest. A French company challenged Egypt when it increased the minimum wage. A Swedish company challenged Germany when it decided to cut back on nuclear power after the Fukushima disaster. These cases have real effects across the globe: an ISDS panel’s decision to hear a challenge that Philip Morris brought against Uruguay’s anti-smoking campaign prompted several other countries to abandon similar public health efforts.

As President, I will not include ISDS in any new agreement and will renegotiate existing agreements to remove ISDS from them.

No one will be surprised to hear that I'm on board with that. And just in case she wasn't thinking beyond procedural issues, I think it's worth considering the substantive obligations as well.

And she has an institutional innovation on labor/environment enforcement:

And I’ll strengthen our approach to enforcing labor and environmental standards. Unlike a corporation under ISDS, a labor union seeking to enforce labor standards can’t bring a claim on its own — it must convince the federal government to bring a claim on its behalf. Even in the face of overwhelming evidence, our government can refuse to act for diplomatic or other unrelated reasons.

As a result, the federal government has only pursued one such claim in the last 25 years. In that one case, the American government, AFL-CIO, and Guatemalan unions spent nine years trying to challenge the Guatemalan government for violating the labor chapter of one of our trade deals because Guatemalan workers were being murdered for trying to join a union. In the end, we lost because the trade agreement required a showing that the violations had affected trade.

I will replace this broken process by creating independent commissions — made up of experts in the area — to monitor potential violations, respond to complaints, and investigate claims. The commissions must review and investigate claims promptly so that claims don’t languish for years. If one of these commissions recommends that the United States bring a claim against another country, the United States will be required to do so, without exception.

I will also fix the problem that arose in the Guatemala case by pushing to remove language from our deals that require us to show that a violation of rights was “sustained or recurring” and “affecting trade or investment.” A violation is a violation, and I won’t let another case like Guatemala happen ever again.

I'm not sure what to make of the commissions. Would it be easier just to let the labor department decide whether to bring cases?

And is the USMCA fix to the language that was a problem in CAFTA sufficient?

Finally, she makes a few other points related to enforcement:

I will strengthen our enforcement approach in other ways as well:

• Under WTO rules, a country designated as a “non-market economy” can face more serious trade penalties. I will push for a new “non-sustainable economy” designation that would allow us to impose tougher penalties on countries with systematically poor labor and environmental practices. We cannot allow countries that treat their workers and the environment poorly to undercut American producers that do things the right way.
• I already have a plan to move the lead American trade negotiator — the Office of the United States Trade Representative — within my new Department of Economic Development. That will ensure that America’s trade policy supports our broader economic agenda of defending and creating good American jobs. I will also create a new labor and environment enforcement division at the USTR to more effectively enforce obligations, and embed a labor attache at U.S. embassies to monitor compliance with our labor standards.
• Unlike the current approach that lets our government ignore unfair trade practices, my administration will create automatic triggers to initiate investigations into unfair trade practices. If those investigations produce compelling evidence of a violation, the Department will impose trade remedies immediately until the offenders show they are no longer engaging in an unfair trade practice. These automatic triggers will also apply to violations of labor and environmental standards.
• Finally, when we impose duties to support particular domestic industries, I want to ensure that the money we collect actually goes to American workers, instead of being sucked up by executives and shareholders. I will fight to change our trade laws so that we review duties every six months and lift the duties if companies can’t demonstrate the benefits of the duties are going to their workers.

On these last points, I'm skeptical of the “non-sustainable economy” designation, but I want to hear more about it. "Non-market economy" status is a part of trade remedies. Would “non-sustainable economy” status be part of this as well? Or part of GSP? I'll just reiterate what I asked earlier, which is, are there better ways to work with poor countries to improve their living standards than imposing financial penalties on them if they do not adopt the policies we demand? 

The final two points seem like a trade-off. Automatic triggers for "unfair trade practices" seem unnecessary, as we are pretty aggressive already. But I'm fine with removing the duties if workers aren't beneftting.

So that's my critique of what she did say, and it must seem like I would melt down under a Warren presidency. On the other hand, there's a lot she did not say, which perhaps suggests there is room for rules-oriented, trade liberalization supporters like myself to find ways to support a Warren administration on trade policy. I'll talk about those possibilities in the next post.

Guest Post: Some Remarks on “Who writes the Rulings of the World Trade Organization? A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement”

This is a guest post by Pieter Jan Kuijper

 Some Remarks on

 “Who writes the Rulings of the World Trade Organization?

A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement”

By Joost Pauwelyn & Krzysztof J. Pelc[1]

The paper concentrates entirely on the role the WTO staff assisting panels and the Appellate Body (AB) in the preparation for and the drafting of panel and AB reports. It argues that the role of the staff in these tasks has become too important relative to that of the members of these (quasi-)judicial bodies. This has led to a number of “failings” in the panel and Appellate Body reports, which are at the root of many of the objections leveled by the US over the last two years against the functioning of AB. As is generally known, these US objections have been converted into an unwillingness to fill vacancies in the AB and will result in the AB’s probable destruction by year’s end. The authors also affirm that they do not want to express themselves on the merits of the US objections beyond signaling that other Members disagree strongly, thus taking these objections de facto as given.

The paper is interesting where it uses a new computerized technique of recognizing writing style as a means to identify the author(s) of panel and AB reports. One may well wonder, however, whether the conclusion that panel and AB staff wrote a large parts of these reports was not already known from interviews with and writings of staff, panel and AB members. Still, it is good to have a confirmation.

The paper falls short as far as its references to legal cultures of assistance to the highest courts are concerned. The only comparators are some international courts, mainly arbitration tribunals and the ICJ, and the US Supreme Court. Especially making this last court into the only national court that the WTO system is compared to is a recurrent, but still objectionable, error in WTO scholarship, especially in the US.[2] This makes the panels and the Appellate Body and their staffs seem exceptional, because they are different from the ICJ and the Supreme Court. It creates the impression that the paper caters primarily to an American audience and thus makes it less convincing to audiences elsewhere.

In many ways the panels and the AB show quite some parallels to the Cours de Cassation and the Highest Administrative Courts in civil law countries.[3] These systems use “precedent”, but not stare decisis, just like the AB and the panels. (In reality this so-called “precedent” is nothing more than consistency over time.) Nevertheless in these systems it is possible to force a change in the “precedent”, if the lower court properly distinguishes a new case from a “precedent” or shows clearly and convincingly that the “precedent” of the highest Court cannot, or no longer, withstand scrutiny. This is not that far from the standard that the Appellate Body laid down in its case law: “cogent reasons” - which therefore is not at all exceptional.

Judges in these systems are assisted not just by their courts’ registrar and his staff, but often also by research lawyers. All these people are civil servants (mostly on a permanent contract). Think about the staff of the Cours de Cassation and the staffs of the Conseils d’Etat in many European countries and countries inside and outside Europe that have been within their legal sphere of influence. Moreover these civil service assistants of the highest courts in civil law systems remain anonymous, just as in the case of the panels and the AB. So there is nothing strange or exceptional about this arrangement – an impression the authors create because they have not included the civil law countries in their research.

Obviously, the somewhat skewed power relations between full time staff and part time judges do not exist in those systems, because the (permanent) judges at that level are equally smart and have often more experience than their (civil servant) assistants. The power between judges and assistants is more equally balanced than in the AB and in Panels. But that demonstrates that there is another, and in my view better, alternative than clip the wings of the staff of panels and the AB, namely appoint AB Members on a full time basis with a serious salary. (By the way, I remember from the last phase of the Uruguay Round negotiations that this was seen as a possible outcome, if after a number of years the AB would have a serious docket.) In the same way panel members should be much better paid than is actually the case. That would attract a different caliber of person, create a good balance between “judges” and their professional staff, and lead to an even higher quality of reports.

The authors largely spare the Members of the WTO this solution[4], because we all know many of them will not like that, but it is no good reason to lay the brunt of the solution of this “problem” only on the Secretariat. That amounts to punishing the Secretariat because they are too good, whereas the real problem is that the “judges” may be not (or no longer) good enough and/or not capable or willing to spend the necessary time on the job, given the remuneration they are getting.

Another example of saddling the staff with the sins of the Members can be found in the discussion of panel selection. The dysfunction of the method of panel selection consists in the parties to a dispute being increasingly unhappy with proposals for panel members from the Secretariat and incapable of agreeing on panel composition, so that the Director-General of the WTO nowadays must appoint all or some panel members for a large number of panels. This is a problem that can largely be laid at the feet of the Member States, but the authors fail to note this. They argue that it leads to the Legal Affairs Division (LAD) staff appointing their “own” panels and from there, implicitly, the staff may well lead them into the temptation of “overreach.” They even suggest that it is regrettable that in such situations the panel members or the Member States have no control over the WTO staff, “let alone the power to terminate their contracts”(p. 23). Obviously the panel members have power over the staff that is assisting them, if only the State Members were appointing panel members who had the wish to use their authority over their panel’s staff (see above). As to terminating contracts, if a staff member really would have misbehaved, a Member State can complain to the Director-General and he would be duty bound to look into such a complaint.[5]

More generally, cassation systems as a comparator for the panels and the Appellate Body also serve as a better explanation for the way in which the AB has dealt with the line between law and fact. All these systems have come to the same conclusion as the AB: there comes a moment where it is obvious that the lower court has maltreated the facts in such a serious way that it stains, it infects the law of the lower court’s judgment. That is when facts become law and the cassation court must yet have the possibility to intervene. Moreover, cassation systems know no dissenting opinions. The AB does know them, but in the early years it was not encouraged, probably rightly so. Now it is making its way more and more into AB reports, only a serious alternative reasoning is still lacking. That might well have come in due time, if only the AB had been given this time.

A perspective that is also sorely lacking is what it means for a member of LAD or the AB Secretariat to be an international civil servant for the WTO and the duties which that brings. That means that you are loyal to the WTO and its objectives, one of these being high quality dispute settlement without any preference for any Member. Being such a civil servant means that you have to be worried about consistency between panels among themselves (something that I was constantly worried about when serving as LAD director in order to avoid the impression that like cases where not treated alike) and between the panels and the Appellate Body (for the obvious reason of hierarchy). It means that you have to be elaborate in explaining the reasons for a certain outcome of the report and that you want to err on the safe side in your reasoning so that the party that loses will fully understand why. These are not quaint habits of the Staff of LAD and of the AB, they are inherent in their duties, but they are also widely shared by panel and AB members in my experience. They cannot be declared to be a weakness of the system, like the authors do; to the contrary, they are an indispensable part of its strength.

Similarly, it must not be considered impossible that the same loyal staff members, convinced by particularly valid arguments of a party before the panel that he or she serves, and after discussion with the panel’s members, comes to the conviction that a “precedent” is not or no longer tenable and that it is in the best interest of the WTO and its dispute settlement system to change it. He/she then helps the panel write a report that is full of good arguments as to why the AB should change its case law on the matter. The authors seemingly consider this inherently impossible and believe that the average staff member is a mindless word pusher who will repeat the exact same formula from an earlier AB report without any necessity. One may well wonder how it was possible then for anti-dumping panels and the AB to differ for such a long time on the question of the fairness of the zeroing technique in calculating dumping margins. Moreover, one cannot say that the AB is not adaptable to new insights; the evolution of the tuna/dolphin case law is an example that comes to mind.

The presumption that the average staff member is, to the contrary, usually a conscientious and neutral person, was also the reason why during the Uruguay Round it was self-evident to the negotiators that they had to continue the GATT system of Secretariat involvement in assistance to panels and why there should be no individual law clerks in the AB. Better that the AB should be assisted by people who had to be professionally neutral and give advice in the interest of the WTO dispute settlement system than that every AB Member would bring an assistant from his own country, who in all likelihood would have the same legal background as his/her boss. This would mean that the influence of the legal systems of the (semi-) permanent members of the AB (US, EU, China) would become even more entrenched. Now the AB gets more of a chance to be influenced by e.g. Japanese and Latin-American legal styles as well, if the representatives of these legal systems do not sit on the AB. People from those systems may well be on the support staff, but can be counted on to be loyal to the WTO first.

It was noted at the beginning of this review how the authors wanted to keep their distance from the battle between the US and other WTO Members. However, it is impossible to take dispassionate scholarship that far. First, because the scholarship may be too narrow, as I tried to argue above. Taking into account that next to international law and common law, civil law also had considerable influence on WTO dispute settlement rules would have shown that many of these so-called “failings” have their roots in well-established principles of civil law systems. They are not quaint or tyrannical or plucked out of thin air. They have been tested in existing systems of law. If they are considered too “European”, let the Members negotiate about that, but let us not pretend that this is the consequence of too much influence of the secretariat. Second, if one makes that much abstraction from the realities of the conflict that is going on, one runs the risk, as I have tried to demonstrate above, that one blames the panel and AB staff for problems largely caused by the Member States themselves.  The authors thus create the impression, in the highly charged debate about the incipient disappearance of the Appellate Body, that they are planting a knife in the back of the WTO’s Legal Affairs Division staff and the Appellate Body Secretariat. That is neither what the people working there deserve, nor, I hope, what the authors intended.

 

P.J. Kuijper

Emeritus Professor of the Law of International (Economic) Organizations

University of Amsterdam.

 

[1] Available at SSRN: https://ssrn.com/abstract=3458872 or http://dx.doi.org/10.2139/ssrn.3458872

[2] “European” scholarship on the WTO is also Europe centered in many instances and seems to concentrate in particular on how the EU courts and the WTO ‘courts’ deal with those aspects substantive law, which are closely aligned in the two systems, since the EEC of 1958 originally borrowed, not to say copied, from for instance, the exceptions of Article XX GATT, and from Article III GATT on internal fiscal discrimination.

[3] It is common knowledge that the first drafts of the GATT dispute settlement rules were largely borrowed from the Swiss arbitration statute of the 1950’s.

[4] Actually the authors, at the end of their article and with little connection to the body of the text, also mention the possibility of nominating “stronger” judges as their last recommendation, but they persist in their belief that the support staff of panel even then needs to be curtailed. This is absolutely unnecessary in my view for reasons explained in the text.

[5] Which has the additional advantage that any sanctions against such a staff member could be tested before the Administrative Tribunal of the ILO, which also services WTO administrative cases.

The U.S.-Japan Trade Deal: Can a Political Agreement Liberalize Trade Without Institutions?

The U.S. - Japan trade deal was signed today. USTR provides the legal texts here. Based on the various fact sheets, it looks like the agreement contains a modest amount of tariff liberalization. Let's look briefly at what's in the deal, focusing on four questions: (1) How much liberalization is in there? (2) Is this deal legal under WTO rules? (3) What is the impact of doing a U.S. trade deal as an executive agreement without Congressional approval? And (4) without dispute settlement provisions, how will the agreement be enforced?

First, with regard to how much liberalization is in there, it is much less than a comprehensive FTA, as services, procurement, etc. are not covered by this deal. Also, from what I can gather so far from the fact sheets (but I'll look at this in more detail soon), even the goods liberalization is less than the TPP. Japan is lowering tariffs on some agricultural sectors (as it would have under the TPP, but slightly less in this deal), and the United States will lower tariffs on a few industrial products, as well as some agricultural products.

Related to this, when you talk about bilateral tariff reductions, there is always the question of determining the nationality of the traded products, using rules of origin. But it doesn't seem like this agreement sets out any such provisions. Are there default rules that apply? Will it have to be sorted out later through some sort of implementing regulation? [Correction: The rules of origin are in the annexes, here and here]

With regard to other tariffs, I thought there would be a promise by the United States not to use Section 232 to impose additional tariffs on imports of Japanese autos/auto parts, but I don't see that in the texts released today. The practical answer might be that if the Trump administration imposes these auto/auto parts tariffs, Japan will just withdraw from the agreement, pursuant to Article 10 ("Either Party may terminate this Agreement by providing written notice of termination to the other Party. The termination shall take effect four months after the date on which a Party has provided that written notice to the other Party, or on such other date as the Parties may decide.")

Lastly on liberalization, there is a separate digital trade agreement, which at first glance roughly mirrors the TPP and USMCA digital chapters (but please point out any important differences you see).  My sense is that nobody expects this part to have much impact on current Japanese or U.S. policy in this area, as these countries are in general agreement on the issues.

Second, there is the question of how an agreement with such limited coverage could be consistent with WTO rules. Would this deal qualify as an "interim agreement" under GATT Article XXIV? Article XXIV:5(c) says: "any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time." So far, I don't see "a plan and schedule" for a comprehensive FTA, but perhaps one is coming. (A fact sheet says only this: "The United States looks forward to further negotiations with Japan for a comprehensive agreement that addresses remaining tariff and non-tariff barriers and achieves fairer, more balanced trade.")

A related issue is, what will other governments think of all this? For all of the products at issue, there are likely to be producers in other countries who will be adversely affected by the U.S.-Japan tariff reductions. Will they be aggressive about enforcing WTO rules against both Japan and the United States? Or will they just be happy the Trump administration is liberalizing and too afraid to complain?

Third, what exactly is the significance of not having Congress sign off on this? One clear implication is that the president can withdraw from the agreement without getting the permission of Congress, which seems like a power President Trump would want, given his frequent threats to withdraw from this or that trade agreement. I can see why the Trump administration would prefer this type of short-term, political agreement.

This arrangement is also interesting in terms of the digital trade agreement. One could imagine that, for example, a future President Warren would want to regulate the tech sector in a way that infringes on these digital trade rules. Having this agreement as an executive agreement would be less constraining (not that I think the Trump administration had this in mind; I'm just saying that would be the impact).

And fourth, what we have here seems to be a bilateral agreement to reduce tariffs, but without all the usual governance chapters, such as a chapter on dispute settlement. In terms of disputes, from what I saw there is only this:

Article 6

No later than 30 days after a request by either Party, the Parties shall enter into consultations regarding any matter that might affect the operation or interpretation of this Agreement, with a view to arriving at a mutually satisfactory resolution of the matter within 60 days.

Without a full set of litigation, implementation, and compliance provisions, will any of these new legal obligations be enforceable? Perhaps the idea is that these tariff commitments are so narrow and clear that there are not likely to be any violations, so a full dispute settlement chapter is not necessary. Or perhaps the idea is to continue the push away from multilateral dispute settlement, and rely instead on negotiations and/or unilateral tariffs as the enforcement mechanism.

Clearly, there are still some open questions about this deal. My guess is that we will get some answers soon.

The historical references in the U.S. First Submission in United States-Certain Measures on Steel and Aluminum Products

The United States’ First Submission for United States-Certain Measures on Steel and Aluminum Products is out. Similar to its third-party submissions in the Russia-Traffic in Transit dispute, the United States argues the drafting history of the International Trade Organization (ITO) supports an understanding that Article XXI GATT is, and has always been meant to be, “explicitly” self-judging. The U.S. declares, “[t]his has been the consistently expressed view of the United States for more than 70 years.” (U.S. First Submission, para. 2). Elsewhere, I explain why the U.S. history on this subject is complicated, and not as consistent as suggested. The U.S. also offers a new argument since the Russia-Traffic in Transit dispute - that the makers of the exception believed the only appropriate recourse was non-violation nullification or impairment claims by those members affected by measures taken under the security exception.

This post is limited to consideration of a bulleted list of statements meant to confirm that the exception was purely self-judging (U.S. First Submission, para. 169):

* In a July 1947 meeting, the U.S. delegate observed that in situations such as times of war, “no one would question the need of a Member, or the right of a Member, to take action relating to its security interests and to determine for itself—which I think we cannot deny—what its security interests are.

* In the same meeting, the Chairman stated “in defence of the text,” that, when the ITO was in operation, “the atmosphere inside the ITO will be the only efficient guarantee against abuses” of the essential security exception. 211

* A November 1947 summary of the draft ITO charter states that the essential security exceptions would permit members to do “whatever they think necessary to protect their essential security interests relating to” the circumstances presented in that provision. 212

* In January 1948, a representative from India “expressed some doubt” about whether “the bona fides of an action allegedly coming within [the essential security exception] could be questioned.” 213

* Also in January 1948, the ITO charter negotiators declined to incorporate an explicit reference to nullification or impairment into the essential security provision. 214 As the United States noted at the time, a reference to nullification or impairment in the essential security provision was “unnecessary” in light of the existing text. 215

* Around the same time, a Working Party of ITO negotiators decided to retain the nonviolation provision based on their conclusions that essential security actions “would be entirely consistent with the Charter, but might nevertheless result in the nullification or impairment of benefits accruing to other Members,” and that “[s]uch other Members should, under those circumstances, have the right to bring the matter before the Organization, not on the ground that the measure taken was inconsistent with the Charter, but on the ground that the measure so taken effectively nullified benefits accruing to the complaining Member.”

The goal of this post is to expand and comment on the context of the historical references made by the U.S. I think the question now is whether it appears that the drafters of the ITO Charter/GATT believed that the availability of non-violation nullification or impairment claims meant the exception was never subject to review to determine whether an action was of the type mentioned in the security exception. Moving forward, with the language of the exception the same, but the WTO quite different from the intended ITO, do we – or should we – still think the same way? As Nicolas Lamp asks: Is the nullification or impairment of benefits what really matters?

First bullet:

This quote was later corrected in the verbatim report. When asked the meaning of the phrase “In time of war or other emergency in international relations,” John Leddy of the U.S. delegation replied that in time of war, “I think no one would question the need of a Member, or the right of a Member, to take action relating to its security interests in time of war and to determine for itself– which I think we cannot deny – what its security interests are.” The corrigendum to the verbatim report clarified a crucial caveat to Leddy’s words, which I underlined: “in time of war.” Moreover, Leddy emphasized “the limitation I think, is primarily in the time.” E/PC/T/A/PV/33/Corr.3.

Leddy continued: “As to the second provision, “or other emergency in international relations,” we had in mind particularly the situation which existed before the last war, before our own participation in the last war, which was not until the end of 1941.” He goes on to explain: “It is really a question of balance. We have got to have some exceptions. We cannot make it too tight, because we cannot prohibit measures which are needed purely for security reasons. On the other hand, we cannot make it so broad that, under the guise of security, countries will put on measures which really have a commercial purpose.” E/PC/T/A/PV/33 at 20.

It also bears mention that Leddy had explained that the U.S. negotiators “thought it well to draft provisions which would take care of real security interests and, at the same time, so far as we could, to limit the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstance.” E/PC/T/A/PV/Corr.3 [emphasis mine].

Second bullet:

Erik Colban, Chairman of the Committee, observed: “when the ITO is in operation I think the atmosphere inside the ITO will be the only efficient guarantee against abuses of the kind to which the Netherlands Delegate has drawn our attention.” E/PC/T/A/PV/33 at 21. The U.S. argues this reference meant the Members would “police each other’s use of the essential security through a culture of self-restraint.” (U.S. First Submission, para. 66). I will note that Colban’s remarks do not suggest non-reviewability. Drawing from Robert Hudec and Andrew Lang, the reference to “atmosphere” signals how the delegations recognized the need to embed diplomacy within the institution for the embryonic dispute settlement mechanism. However, “atmosphere” may not be an alternative to a review via the ITO dispute settlement procedure. Rather, the “atmosphere” was an assumed aspect of the structure that supported the formal process. I did not see it as a sign that the ITO bodies (the Executive Board or Conference of Members) could never review the legality of the measure.

Third bullet:

The informal summary of the draft ITO Charter (November 1947) certainly seems to accord significant deference to the Members to determine what they believe is “necessary” in taking security actions. I remain cautious that this single summary does not evidence that the exception is self-judging in nature and non-justiciable. A few pages before this quote, the summary explains that “the Preparatory Committee gave only a limited time to the study [of the Settlement of Differences – Interpretation chapter] and that a full re-examination by the World Trade Conference will be desirable.” Moreover, there is no specific exclusion of the general exception from the scope of the dispute settlement mechanism.  A final observation is that the summary was designed “for the non-technical reader” and “does not claim to deal with every aspect of every Article of this highly complex document.” E/Conf.2/Inf.8.

Fourth bullet:

In January 1948, the UK delegation submitted an amended draft security exception. Sub-committee I (Article 94) was composed to review it, and there were nine meetings held (eight meeting notes were found by the WTO library). In the fourth meeting, there was elaboration of the UK draft Article 94(2):

If any action taken by a Member under paragraph 1 of this Article nullifies or impairs any benefit accruing to another Member directly or indirectly the procedure set forth in Chapter VIII of this Charter shall apply and the Organization may authorize such other Member to suspend the application to the Member taking the action of such obligations or concessions under or pursuant to this Charter as the Conference deems appropriate; provided that where the action is taken under paragraph 1(d) of this Article the procedure set forth in Chapter VIII of this Charter shall not apply until the United Nations has made recommendations on or otherwise disposed of the matter.

The draft proposed stemmed from the UK desire to confirm applicability of the nullification or impairment procedure (then Articles 89, 90 of the Charter) to the security exception. Later in the discussion, the UK delegation explained it would be satisfied if “the applicability of Articles 89 and 90 [were] written into the record rather than incorporated in the actual text of Article 94.” The UK delegation also confirmed there was no desire to “exclude the ITO from participation in the ultimate solution of a matter after the United Nations had acted.”

The U.S. delegation offered a preliminary opinion that Article 94(2) was “unnecessary” because “the [language was] in effect [] a repetition of paragraph (b) of Article 89 [the dispute settlement procedure that would apply, regardless of whether or not a measure conflicts with the provisions of the ITO Charter].” There is no further confirmation from the U.S. that their comment on the UK draft confirmed or denied the possibility of review of security-related actions, whether as a violation or a non-violation of the Charter. The emphasis on “unnecessary” may not signal the exception was self-judging. The UK draft was just repetitive. This was not the first time the U.S. refused to tie a provision to the dispute resolution procedure; and the reason was the same as cited here: there was no need to repeat the dispute resolution procedure in every area of the Charter. E/Conf.2/C.6/W.60.

Fifth bullet:

In the same fourth meeting of Sub-Committee I (Article 94), the Indian representative “expressed some doubt” as to whether under the UK’s draft Article 94(2) “the bona fides of an action allegedly coming within Article 94 could be questioned and also whether such an action could be countered collectively by Members of the Organization or only by affected Members individually.” While agreeing to consider the text, the Indian delegation added that it was their understanding that the “intention” of the UK proposed draft was to confirm that “counteraction” was limited to “compensatory action” and not “punitive action.” Yet, it is unclear whether the Indian position was that there should be review of the security exception and the UK draft failed to guarantee that, or whether there the security exception should be purely self-judging in nature. E.Conf.2/C.6/W.60.

The next meeting only confirmed agreement to create a new provision from Article 94(1)(d) and (2) in a new Article “Relations with the United Nations,” and further discussion on measures brought before the United Nations as directly related to political matters.

There was also a bit more to the story in Sub-Committee I. In the first meeting, the Indian delegation had argued for the expansion of the exception to cover all “essential national interests.” E/Conf.2/c.6/w.26. The Indian delegation explained in the second committee meeting that the delegations should “reach some understanding on the applicability of Articles 89 and 90 [the dispute settlement procedure] to action represented as falling within Article 94.” The Indian delegation continued:

If such action is subject to the procedures of Articles 89 and 90 it would be open to other Members or to the Organization to inquire into the purpose for which the action was taken and, accordingly, to take or authorize counter action if at the time it appeared that the provisions of Article 94 were being abused. The knowledge of the possibility of such counter action would serve as a deterrent to any misuse of the exceptions.” E/Conf.2/c.6/w.32.

In the third meeting the committee accommodated the Indian delegations’ concerns for essential security interests and would suggest that another appropriate committee (tasked with reviewing the commercial policy chapter) consider an exception for actions “necessary for the maintenance of ‘public order or safety’ (this was for Article 43 of the draft Charter which later became Article XX of the GATT). E/Conf.2/c.6/w.40.

The report of the third meeting also provides that “some” delegations believed “that action taken under Article 94 could not be prevented, or questioned, under other articles, but that the effects of that action might be the subject of consultation or complaint, and that a member affected by such action might accordingly seek release from some corresponding obligations.” E/conf.2/c.6/w.40. The meeting closed without further comment, and this question was not picked up again in the materials I was able to review. Other committees did address the relationship between Article 89, 90 and 94, particularly two sub-committees tasked with reviewing the organization and dispute settlement provisions (Sub-Committee G of Committee VI (Organization) and Sub-Committee on Chapter VIII (Settlement of Differences – Interpretation, respectively). Sub-Committee G is the subject of the final bulleted statement.

Sixth bullet:

Sub-committee G of Committee VI (Organization) was tasked with considering the relationship between the draft Charter’s nullification or impairment procedure (Article 89) and the invocation of the security exception. E/Conf.2/C.6/W.30. The report confirmed the committee decision to retain Article 89(b), which permitted non-violation complaints of nullification or impairment. They reported the procedure “would apply to the situation of action taken by a Member[,] such as action pursuant to Article 94 of the Charter.” Sub-committee G confirmed that:

Such action, for example, in the interest of national security in time of war or other international emergency would be entirely consistent with the Charter, but might nevertheless result in the nullification or impairment of benefits accruing to other Members. Such other Members should, under those circumstances, have the right to bring the matter before the Organization, not on the ground that the measures taken was inconsistent with the Charter, but on the ground that the measure so taken effectively nullified benefits accruing to the complaining Member.

Like the other committee described above, sub-committee G focused on the “effects” of Members’ actions to explain recourse to the nullification or impairment procedure. However, the final report of Sub-committee G does not explicitly preclude review of the invocation of the exception.

On a final note, little attention has been paid to the fact that the New York draft Charter made clear that interpretation of the security-related exceptions (then Article 37(c), (d), (e), or (k) or of Article 59(2)) were justiciable. It was also in this limited instance where a Member could directly bring a dispute to the International Court of Justice, rather than first seek a ruling of the Executive Board. This reference was removed in the Geneva draft. However, this may not signal a change in heart. One reading of this is that the delegations had by then worked towards the nullification or impairment procedure, with the phrase “justiciable issue” now gone. (See Seymour Rubin, Judicial Review Problem in the International Trade Organization 63 Harv. L. Rev. 78, 90). A further clue as to why the Geneva text lacked explicit reference to the security-related exceptions within the disputes procedure can be found in a delegates’ meeting in Geneva in 1947. There, Leddy spoke on July 24, 2017 to respond to other delegations’ efforts to amend the security exception (Article 94) to confirm explicit access to the nullification or impairment procedure. Leddy confirmed that the nullification or impairment procedure automatically applied to the entire Charter, and did not require an “addition of a note emphasizing what is clear from the text.” E/PC/T/A/PV/33.Corr.3.

 

Ukraine-AD Measures on Ammonium Nitrate - Can below-cost input prices be rejected?

I just spent an hour looking at the Appellate Body's decision in this case, which relates to Ukraine's rejection of natural gas prices in Russia for the purpose of calculating exporters' costs of production. The Appellate Body upheld the Panel's ruling that Ukraine erred in rejecting "distorted" gas input prices.

This is highly arcane for the non-AD expert, but the issue is huge: If an investigating authority can reject "distorted" input prices, then it is looking at what an exporter's costs ought to be in a non-distorted market, rather than what those costs actually are in the market as it exists. In other words, such an approach is a potential alternative to the non-market economy methodologies whose continued WTO legality is unclear.

This material is dense, I did not read it thoroughly, and I may not have understood at all what the Appellate Body was saying. But several things struck me.

First, the Appellate Body (like the Panel) went out of its way to limit its actual ruling to the so-called "second condition" of Article 2.2.1.1., which allows an authority to reject a company's costs as reflected its books and records if they do not "reasonably reflect the costs...." 

Second, and as pure obiter dicta, the Appellate Body once again "did not exclude" that the word "normally" in the chapeau of Article 2.2.1.1 might allow the rejection of a company's costs as reflected in its books and records for reasons other than the two specifically identified in that Article (para. 6.87). So far, no big surprises, as previous decisions had also so suggested. This remains then a potential avenue for the defense of a "distortions" methodology.

Third, although the Panel seemed to say that the fact that inputs were provided at below cost was not a basis to reject them under Article 2.2.1.1, the Appellate went out of its way to emphasize aspects of the Panel's reasoning that related to a failure to demonstrate as a matter of fact that the exporters in question had purchased below-cost gas, and it was on this basis that the Appellate Body upheld the Panel (para. 6.103).

Finally, the Appellate Body criticized the Panel for suggesting that "records may not be rejected on the sole basis that input prices are set by the government below the cost of production" where the supplier and exporter are unrelated (para, 6.105). While the Appellate Body on its face is criticizing the Panel for distinguishing between sales involving related and unrelated input suppliers, it also recalls again the flexibility provided by the "normally" language in the chapeau of Article 2.2.1.1.

So my question: Is the Appellate Body signaling that input prices in a company's books and records may disregarded in calculating costs if they are provided at below the input supplier's cost of production, using the flexibility of the term " normally" in Article 2.2.1.1?  Or am I just hopelessly confused? Perhaps better brains than mine can sort this out?

  

  

  

A $7.5 Billion Ammunition from the WTO?

At long last, the Article 22.6 Report of the Arbitrator on the Boeing-Airbus dispute is out.  Note that this dispute concerns an original dispute in which the United States (on behalf of Boeing) sued the European Union for the latter’s subsidies on Airbus. Another report in a parallel case in which the EU (on behalf of Airbus) sued the United States for the latter’s subsidies on Boeing will be released in the near future.

This report reads like an accounting paper full of numbers and formulas. Obviously, the Arbitrator took great pains in computing the reasonable volume of Boeing’s lost sales (counterfactual deliveries).  Note that Boeing and Airbus constitute a near duopoly in the global market when it comes to a large civilian aircraft, which is the subject of this dispute. The Arbitrator held that:

6.458. In the light of the foregoing, we consider that the United States' assumption that Boeing would have replaced all of the A380 Impedance Deliveries with deliveries of an equal number of 747-8I aircraft within the 2011-2013 Reference Period is reasonable in the light of the adopted findings of this dispute, and the evidence and arguments offered by the parties. (…)

Then, the Arbitrator determined that:

9.1  (…) [T]he level of countermeasures "commensurate with the degree and nature of the adverse effects determined to exist" during the 2011-2013 Reference Period amounts to USD 7,496.623 million per annum.”

While there can be a number of issues, legal and political, around this decision, let me offer three observations of my own. First, whether or how much would the U.S. government eventually utilize this ammunition bestowed by the WTO?  U.S. tariffs hurt its own economy, and others’. Also, according to Bloomberg Law, Airbus buys about 40% of parts and components from the U.S. companies. Of course, the EU may also retaliate based on a future parallel WTO decision against the U.S. 

Second, if the U.S. does retaliate, this will be “legal” under the WTO system. Then, how about the current trade war against China? Will the WTO’s approval of the U.S. retaliation on the EU change the U.S. attitude toward the WTO? Or, will the U.S. government still try to have both ways, i.e., retaliation within and outside of the WTO?

Finally, would it be desirable for this kind of case to be adjudicated in the WTO? The late Robert Hudec might have thought that it is a “wrong case” for the WTO.

Question from the U.S.: Why has the Appellate Body felt free to depart from what Members agreed to?

This is from the U.S. statement at Monday's DSB meeting:

Indeed, for several months, both within the Informal Process and outside, the United States has actively sought engagement from Members on what we believe to be a fundamental issue. That is, how have we come to this point where the Appellate Body, a body established by Members to serve the Members, is disregarding the clear rules that were set by those same Members. In other words, Members need to engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to.

...

The United States continues to consider that the way forward is to understand and recognize the concerns that have been raised with the Appellate Body, and engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to, so that appropriate solutions can be found.

I've mentioned this U.S. question before, as they keep raising it. I have not seen them answer it and I'm curious what their answer is. Here's a brief and partial answer from me.

I think there are several areas where you could make the case that the Appellate Body has "departed from the rules," in some sense of that phrase. With regard to procedural issues (such as going beyond 90 days for circulation or having AB Members serve beyond their term), it seems to me they were trying to come up with practical solutions to administrative difficulties they faced. As to substantive legal issues (such as treating the meaning of domestic law as a legal question), they simply got the interpretation wrong, as courts sometimes do.

I'm not sure what the U.S. is going for with this question, and I'll just say again that I'd really like to hear their own answer.

Guest Post: A Carbon Border Tax or A Climate Tariff?

This is a guest post from Reinhard Quick, Professor for International Economic Law, Saarland University, Dr. iur. (University of Mannheim), LL.M (University of Michigan)

The political guidelines for the next European Commission (2019-2024) are a victory for the proponents of the so-called "Border Carbon Adjustment" (BCA). The President-designate of the European Commission has declared that she “will introduce a Carbon Border Tax to avoid carbon leakage. This should be fully compliant with World Trade Organization rules. It will start with a number of selected sectors and be gradually extended”.

In formulating its proposal, the European Commission can rely on a considerable body of academic literature supporting the necessity, feasibility as well as WTO-compatibility of carbon border adjustment. These contributions discuss the complex legal, economic and environmental aspects of border tax adjustment and conclude that BCAs should be introduced because timely measures to protect the climate are needed.

In the following I will take issue with these arguments:

1. The concept of border tax adjustment (BTA) is unsuitable for BCAs

Uneven climate efforts between countries will lead to a relocation of production and investment from countries with ambitious climates policies to countries with less stringent requirements. In order to avoid the displacement of CO₂-emissions, i.e. ‘carbon leakage’, and to protect the competitiveness of domestic energy-intensive industries, it is proposed to have recourse to the GATT concept of border tax adjustment. The idea of BTA is appealing but carbon adjustment suffers from an environmental handicap. "Trade neutrality" is the basic concept for BTA: a domestic tax or a charge on products is levied on imports and reimbursed for exports. However, reimbursing a domestic carbon border tax on export is contrary to the environmental objective of the measure and even renders the strict domestic climate policies absurd. In fact, seeing the environmental illogicality of an export adjustment, most commentators suggest not to apply the BTA-concept to exports. In my opinion, such BCAs are not neutral; they are one-sided in so far as they only apply to imports and therefore pose a conceptual problem.

2. What is adjustable?

Border tax adjustment might be considered in case of a CO₂-tax which is levied both domestically and on imports, but even such a relatively straight-forward solution raises GATT-compatibility questions because of the non-inclusion of CO₂ in the final product. The issue, however, becomes even more complicated when the tax is levied at the border to compensate a domestic emissions trading system. GATT rules allow for the adjustment of direct and indirect taxes only when they are levied ‘on products’. Presumably, the carbon border tax will be presented as the import component of the domestic emissions trading scheme. Yet can emission trading, in a domestic content, be regarded as a ‘tax’ or ‘charge’ levied on products?

In principle, the cost of a general environmental legislation, i.e. the cost incurred in complying with typical environmental laws (e.g. water, air, soil, waste), cannot be offset at the border. The costs of these laws are not considered as charges levied directly on products, but as indirect costs incurred by a law-abiding application of the regulation which must be borne by the domestic industry. The ETS-regulation is not a typical product regulation rather a law limiting the greenhouse gas emissions of installations. It introduces a ‘cap and trade system’ by which a cap on the total amount of greenhouse gas emissions is set for each installation. Within the cap, companies "receive" or "buy" emission allowances which they can trade. The regulation combines the aspects of a typical environmental command-and-control regulation with a market instrument to limit greenhouse gas emissions. It is undisputable that the ETS-regulation has an indirect impact on the cost of production, but so do all the other typical environmental regulations. Is the fact that ETS-certificates have a “price” or can be attributed a “financial charge” sufficient to argue that they can be treated as an ‘indirect charge’ on a product and hence adjusted at the border? As any legislation leads to an indirect burden on products, regardless of whether it is environmental or social, so, where do we draw the line? In the case of emission trading there is also a special feature indicating that it should not be regarded as a product legislation: it is up to the owner of the installation to decide on how to comply with the cap, i.e. switching to cleaner technologies, buying more ETS-certificates or producing less. This means that the financial charge varies from installation to installation and thus from product to product and cannot be calculated in advance. In conclusion, if the ‘indirect cost on a product’ of a domestic measure cannot be established in advance such a measure seems unsuitable for an adjustment process.

To solve the problem, some commentators interpret in a creative way the concept of ‘indirect charge on a product’ under GATT Article III:2 or they revert to GATT Article III:4 considering the border carbon tax as the import facet of the ETS-regulation. I disagree with both solutions. In my view the GATT rules on non-discrimination are not applicable. In answering the question of whether the measure is a border measure, or an internal measure applied at the border, the Appellate Body looks at the ‘centre of gravity’ of the measure. Given the specific features of emission trading it seems questionable to treat the carbon border tax as the import facet of ETS; to me it rather looks as a border measure in breach of GATT Article II.

3. WTO compatibility - The hurdle of GATT Article XX

If the carbon border tax is found to be in violation with one of the GATT obligations (e.g. Article II), the EU could still try to justify it under the public policy exceptions of Article XX. The problem will not be so much to fit the ‘tax’ to one of the specific exceptions of subparagraphs (b) or (g). Yet the EU will have serious difficulties justifying it under the chapeau of Article XX. The way in which the carbon border tax will be applied risks being considered as an arbitrary and unjustifiable discrimination between countries where different conditions prevail. The Commission will have to distinguish between countries and these distinctions could lead to discrimination. It is unlikely that the ‘tax’ will only be applied against ‘climate offenders’, i.e.  those countries that are not parties to the Paris Agreement, rather it will probably also affect the signatories of the agreement.

As announced the system will start with some exposed sectors and will be extended to others. Most likely the Commission will establish a greenhouse gas emission benchmark for the specific products according to which the imports will be measured and eventually ‘taxed’ if the emissions are higher than the benchmark. This benchmark will correspond to the average of domestic greenhouse gas emissions of comparable products. Such a benchmark might be convenient from an administrative point of view, but it is by no means in line with the reality of the ETS regulation nor does it take into consideration the situation in the exporting country. At least, the Commission will have to led exporters to demonstrate that the greenhouse gas emissions of the specific product are below the benchmark. The practical application of a border carbon tax already seems rather complex thereby risking a finding of arbitrariness. 

Moreover, the question arises as to whether this ‘tax’ constitutes an inadmissible means of coercion for other WTO-members. The supporters of BCAs do not see them as ‘sanctions’ but rather as an ‘incentive’ to take similarly strict climate measures. In the Shrimps/turtle-case the Appellate Body has ruled that the imposition of a national regulation is inadmissible if it does not take national specificities into account – and here the Paris Agreement comes into play.  

The Paris Agreement allows for a heterogeneous and asymmetric implementation based on a "spirit of cooperation" and taking different national circumstances into account. The EU’s position to levy a carbon ‘tax’ upon importation is based on the idea that the specific climate protection policies of another country are not sufficient compared to EU policies. Yet, if the climate protection policies of an exporting country comply with the obligations of the Paris Agreement, it could be argued that, in wanting to levy the ‘tax’, the EU does not take the specific situation of that country into account. The exporting country has every freedom to regulate industrial greenhouse gas emissions of a product differently from the EU as long as it complies with Paris. Such compliance could therefore be used as a defense in the analysis of the “chapeau” of GATT Article XX. The carbon border ‘tax’ could be proven to be a protectionist measure rather than a measure to protect the climate.

4. Retaliation

Notwithstanding the significant hurdles many commentators consider BCAs as WTO-compatible, which is theoretically possible. However, I personally think that it is more likely that an EU carbon border tax would be considered WTO-incompatible. In order to verify the compatibility, WTO members would normally refer the case to WTO dispute settlement and wait for a final decision by the Appellate Body before taking any authorized countermeasures. Unfortunately, the good old days of WTO dispute settlement are over, and the WTO’s ‘crown jewel’ has lost its shine. In times of trade wars and unilateral impositions of additional tariffs, it is not exaggerated to assume that the countries affected by the EU’s measure would retaliate. The EU will have to analyze whether the introduction of a carbon border tax outweighs the risks of likely retaliatory action of its trading partners (USA, China, India, Saudi Arabia and Brazil, to name just a few). One wonders therefore whether the existing policy instruments to combat carbon leakage (e.g. free allocation of ETS certificates - although also potentially WTO-incompatible) are not preferable over tough and provocative border measures.   

A solution?

WTO-compatibility will be a tough nut to crack. Even the strong supporters of BCAs set conditions for such compatibility (e.g. the abolition of fossil fuel subsidies), which the EU will have great difficulties to implement politically. Saying it will not work is not acceptable as little as the wishful thinking that the carbon border tax will be made WTO-compatible.

There are solutions, however. In times of dwindling support for multilateralism it is daring to propose a multilateral solution which both increases climate protection and decreases the relocation of greenhouse gas emissions. The reason for a multilateral solution, however, lies in the rules of the WTO and of the Paris Agreement. The latter allows members to implement heterogeneous and asymmetric climate actions whilst the WTO considers it to be an unjustified discrimination if the specific conditions of the respective countries are not taken into account (Shrimps/turtle). Therefore, the signatories of the Paris Agreement should be the ones to set the criteria for BCAs.  These conditions can only be negotiated within the framework of the Paris Agreement and can then be enforced in the WTO with a waiver.

The multilateral path may also have many hurdles but is seems the only walkable way to justify BCAs and prevent retaliation. If the European Union and its Member States want to defend the multilateral approach, then they should try to find a multilateral solution and not immediately give way to unilateralism. Moreover, the EU could seek a simple fiscal solution to the problem: A two per cent increase of VAT coupled with the obligation to use this additional revenue exclusively for climate purposes could help to achieve climate goals without causing border tax adjustment problems. 

The SIEL–Hart Prize

This is from Hart Publishing:

SUBMISSIONS FOR THE SIEL-HART PRIZE IN INTERNATIONAL ECONOMIC LAW ARE NOW OPEN!

The SIEL–Hart Prize is awarded every two years to an outstanding unpublished manuscript by an early career scholar in the field of International Economic Law. The winner of the SIEL–Hart Prize will receive a contract for publication within the Hart series Studies in International Trade and Investment Law; a £250 Hart book voucher; a SIEL bursary of up to £750 to cover travel and accommodation expenses to, and waiver of the registration fee for, the 2020 SIEL Global Conference (to be held in Milan, July 2020). Full details about the prize can be found at https://www.bloomsburyprofessional.com/siel-hart-prize. Deadline for submissions is 1^st December 2019.

A Serious Enforcement Mechanism Will Require Major Changes to USMCA’s Dispute Settlement Provisions

Jennifer A. Hillman is the senior fellow for trade and international political economy at the Council on Foreign Relations (CFR), specializing in U.S. trade policy, the law and politics of the World Trade Organization (WTO), international organizations, and Brexit.

As debate over Congressional approval of the Trump Administration’s revisions to the North American Free Trade Agreement (NAFTA) – set forth in the United States-Mexico-Canada Agreement (USMCA) – heats up, a key sticking point remains the adequacy of the mechanism to enforce the Agreement, particularly its provisions affecting labor and the environment. The NAFTA included three dispute settlement systems—one for challenges to trade remedy actions (anti-dumping and countervailing duty measures) (NAFTA Chapter 19), one for disputes by foreign investors contending that their investments had been harmed by state actions (NAFTA Chapter 11), and one for all other disputes (NAFTA Chapter 20). It is this third mechanism—Chapter 20 of NAFTA and its updated version—Chapter 31 of USMCA—that is the key to whether much of the new USMCA can be enforced through a binding dispute settlement system. For a variety of reasons noted below, Chapter 20 of the NAFTA was inherently flawed and proved to be utterly unworkable. Unfortunately, Chapter 20’s successor does not fix those fatal flaws. Therefore, those in Congress wishing to ensure that the USMCA parties can be held to account for their commitments will need to make serious changes to USMCA Chapter 31.

NAFTA Chapter 20 Flaws

When written in the early 1990s, Chapter 20 was groundbreaking.  It established a process that begins with consultations between the disputing parties, followed by conciliation before a Free Trade Commission made up of the trade ministers of the U.S., Canada and Mexico, the establishment of a five-person panel to hear the dispute, the promulgation of a report ruling on the dispute and ultimately the implementation of the rulings and recommendations of that panel.[i] 

However, the process has a number of key flaws that contributed to its infrequent use and eventual demise.[ii] Chapter 20 does not require parties to comply with panel rulings. Rather, it provides that once a decision is rendered, the parties “shall agree on the resolution of the dispute, which normally shall conform to the determinations and recommendations of the panel.”[iii] The afflicted party may retaliate with trade sanctions 30 days after the issuance of the panel report, if the parties do not reach an accord. As a result, the ability to achieve a resolution can be affected by the quality of the reasoning, the crispness of the panel recommendations and the willingness of the parties to conform their measures to the panel report.[iv]  Second, panelists are chosen according to a “reverse selection process” under which one party must choose two panelists who are nationals of the other party, while the chair of the panel is to be chosen through agreement of the two disputing governments, or by lot if there is no agreement.[v] While this reverse selection process was created in the belief that it would encourage governments to nominate panelists to their own rosters who are independent, objective and well-qualified individuals, instead it has led to significant concerns over and delays in the selection of panelists.[vi] Third, the lack of requirements for panelists to meet deadlines meant that the few Chapter 20 cases that did go through the process were lengthy, beset by significant delays at various steps along the way.

But the most significant flaw in Chapter 20 is the ability of parties to block the establishment of a panel by refusing to appoint panelists or maintain a roster of qualified panelists from which appointments can be made. The U.S. used this flaw to block Mexico’s enforcement of NAFTA provisions related to trade in sugar, with one request for a panel pending for more than four years (which ultimately never convened) in the face of a refusal by the USTR to appoint any panelists. In frustration over U.S. intransigence, Mexico imposed anti-dumping duties and other taxes on U.S. exports of high-fructose corn syrup. The U.S. then turned to the WTO—where the establishment of a panel cannot be blocked—to challenge those anti-dumping duties. Mexico asked the WTO panel to consider the broader context of the dispute over trade in sweeteners and the NAFTA provisions governing Mexico’s right to export sugar, but both the panel and the Appellate Body refused to do so.[vii]Following the failure of the Chapter 20 process in the dispute over sugar, no Chapter 20 panels have been requested and there are no approved rosters of panelists from which to make appointments should a request be filed.[viii]

USMCA Chapter 31’s Changes to NAFTA Chapter 20

The new version of Chapter 20 is USMCA’s Chapter 31. As the following chart comparing the provisions of the two agreements demonstrates, Chapter 31 remains virtually unchanged, barring a few exceptions, from Chapter 20, so the critical impediments to an effective enforcement mechanism remain.

Issue	NAFTA Chapter 20	USMCA Chapter 31
Scope: Issues Subject to Chapter 20/31 Dispute Settlement	Covers all state-to-state disputes (except trade remedies (Chapter 19)) over: a) interpretation, b) violations, or c) nullification or impairment of NAFTA.	Covers  state-to-state disputes over interpretations, all claims of violation plus nullification or impairment of most of USMCA (Chapters 2, 3, 4, 5, 6, 7, 9, 11, 13, 15 or 20) but not certain specified chapters.*
Choice of Forum	If dispute could be heard either by WTO or NAFTA panel, either forum at discretion of complaining party unless third party prefers NAFTA.  In that case, consultation between parties on which forum; if no agreement, dispute "normally" settled under NAFTA. Environment  and SPS disputes solely under NAFTA. Once forum chosen, chosen forum is exclusive.	Complaining party may select the forum (USMCA versus WTO or any other forum if both parties members).  Once forum selected, chosen forum is exclusive
Consultations	Minimum of 30 days (45 days if third party requests joining; 15 days for perishable goods); must be requested in writing.	Consultations within 30 days (15 days for perishable goods; must be requested in writing and must include identification of specific measure at issue, and legal basis for complaint. Adds requirement that consultations may be held "by technological means," that parties make requested personnel of their government available, and that consultations "shall be confidential."
Establishment of a panel	Request in writing if consultations and Commission failed to resolve matter within 30 days; third party with substantial interest in matter entitled to join as complaining party.	Request in writing if consultations and Commission failed to resolve matter within 30 days; third party with substantial interest in matter entitled to join as complaining party; request for panel must include identification of measure at issue and legal basis of complaint; terms of reference are for panel to make findings, determinations and any jointly requested recommendations.
Roster of potential panelists	Roster of up to 30 individuals willing and able to serve established by consensus by January 1, 1994; roster members appointed by consensus for term of 3 years and may be reappointed.	Roster of up to 30 individuals willing and able to serve as panelists established by consensus by date of entry into force of agreement; roster remains in effect for a minimum of three years or until parties constitute a new roster.  For labor and environment disputes, disputing parties select a panelist with expertise or experience in labor or environmental law or practice.
Panel Selection	Panel comprised of 5 members; chair chosen first by agreement of parties or by lot if no agreement, then each party selects 2 panelists who are citizens of the other disputing party; if a party fails to select a panelist within 15 days, panelists selected by lot.  A disputing party can exercise peremptory challenge against any individual not on the roster.	Panel comprised of 5 members; chair chosen first by agreement of parties or by lot if no agreement, then each party selects 2 panelists who are citizens of the other disputing party; if a party fails to select a panelist within 15 days, panelists selected by lot.  A disputing party can exercise peremptory challenge against an individual not on the roster unless no qualified and available individual on the roster possesses necessary specialized expertise, in which case no peremptory challenge. Process for replacement of panelists who resign, are removed or become unable to serve.
Panel Proceedings	Model Rules of Procedure established by Commission; third party entitled to attend hearings, make written and oral submissions and receive written submissions;  panel can use agreed upon experts.	Rules of Procedure and Code of Conduct as updated and adopted by Commission; includes right to at least one hearing (open to public) before panel held in capital of responding party; opportunity for initial and rebuttal written submissions (to be made public);  confidential information protected; electronic document filing.
Function of Panel	No NAFTA provisions.    Model Rules of Procedure established by Commission.	Panel makes objective assessment and presents report with: a) findings of fact; b) determination of whether measure is inconsistent, or party failed to carry out its obligations, or measure (if within scope) nullifies or impairs; c) recommendations (if jointly requested) on resolution of dispute; and d) reasons for findings and determinations.  Interpretations in accordance with Articles 31 and 32 of Vienna Convention on Law of Treaties; panel decisions by consensus or if not possible, by majority vote; anonymous separate or dissenting views permitted.
Suspension or Termination	No NAFTA provisions	Panel may suspend its work for up to a year at request of complaining party; may suspend its work at any time if disputing parties request; if work suspended for more than 12 consecutive months, panel proceedings lapse unless disputing parties decide otherwise
Panel Report	Initial report provided in 90 days to parties; parties can provide written comments on report within 14 days; panel or disputing party can request views on comments; final report (including potential reconsideration based comments) issued within 30 days of initial report, unless the parties decide otherwise. Final report transmitted to the Commission within a reasonable period; Commission publishes report in 15 days.	Initial report in 150 days (120 for perishable goods) after panelists appointed; delay of up to 30 days permitted unless disputing parties agree otherwise; parties can submit written comments on initial report within 15 days; final report (including potential reconsideration based on comments, views or further examination) within 30 days of initial report unless parties decide otherwise.  Final report to be made public 15 days later (except for confidential information).
Implementation	Upon receipt of final report, parties to agree on resolution of dispute; normally conformity with recommendations of final report, if not, compensation.  If no agreement on resolution within 30 days, prevailing party may retaliate ("suspend benefits of equivalent effect").  Commission can establish panel to determine if retaliation is excessive.	Within 45 days of receipt of final report, the disputing parties to agree on the resolution of the dispute. If unable to agree, the complaining party may retaliate ("suspend the application of benefits of equivalent effect") or seek compensation.  If the responding party believes the retaliation if manifestly excessive or that it has eliminated the non-conformity or nullification or impairment, it may request that the panel be reconvened and issue its determination in 90 days/120 days.
Alternative Dispute Resolution (ADR)	Each party shall, to the maximum extent possible, encourage and facilitate the use of arbitration and other means of settling commercial disputes between private parties in US, Canada or Mexico.  No party shall provide for a private right of action.	Each party shall, to the extent possible, encourage, facilitate and promote through education, the use of arbitration, mediation, online dispute resolution and other procedures to resolve commercial disputes between private parties in US, Canada or Mexico. Parties shall provide procedures for recognition and enforcement of arbitral awards (i.e., compliance with New York Convention on Arbitral Awards or Inter-American Convention on International Commercial Arbitration). No party shall provide for a private right of action.

* Not subject to challenge for nullification or impairment under USMCA Chapter 31: trade remedies (Ch. 8); the sectoral annexes on chemicals, cosmetics, ICT, energy performance standards, medical devices and pharmaceuticals (Ch. 12);  investment (Ch. 14); temporary entry (Ch. 16); financial services (Ch.17); telecommunications (Ch. 18); digital trade (Ch. 19); competition (Ch. 21); SOEs (Ch. 22); labor (Ch. 23); environment (Ch. 24); SMEs (Ch. 25); competitiveness (Ch. 26); anticorruption (Ch. 27); good regulatory practices (Ch. 28); publication and administration (Ch. 29); administrative and institutional provisions (Ch. 30); and macroeconomic policies and exchange rates (Ch.33)

 

The changes that were made include:

1) the scope of USMCA Chapter 31 is more limited than NAFTA, in that NAFTA permitted panels to be convened to hear both violation complaints and nullification and impairment cases (non-violation cases) for everything in the NAFTA except trade remedies and the labor and environment side agreements, while Chapter 31 permits violation cases for all chapters of USMCA [except trade remedies] but it excludes non-violation cases for claims under USMCA’s chapters on labor, environment, digital trade, financial services, telecommunications and a number of others;

2) the addition in Chapter 31 of specific provisions on the function and duties of the panel and the possibility for the suspension or termination of a panel; 

3) the provision of additional time for panels to work (initial report in 150 days rather than 90; additional 30-day delay permitted; 45 days rather than 30 for parties to agree on resolution after panel report issued); and

4) rosters of panelists are to be established by consensus by date of entry into force of the USMCA and remain in effect for a minimum of three years or until parties constitute a new roster.

The last change—that rosters will be established by consensus by date of entry into force of USMCA and will remain in effect until a new roster is constituted—is critical to ensuring that the establishment of a panel cannot be blocked. If that requirement is faithfully executed, it would considerably improve the viability of Chapter 31 because panels could always be established by selecting panelists from the agreed upon roster.  However, simply stating a requirement for the establishment of a roster does not guarantee that it will be done. Indeed, NAFTA Chapter 20 had similar language, requiring that the NAFTA parties “shall establish [a roster of panelists] by January 1, 1994” but no agreed upon roster was ever promulgated. Therefore, Congress will need to ensure the existence of agreed upon rosters from all three parties before it votes on USMCA approval

The responses that USTR Ambassador Lighthizer has provided to Congress underscores the lack of a genuine fix to all of the Chapter 20 problems and the skepticism Congress should have about the Administration’s intent to faithfully execute the roster requirement. For example, Ambassador Lighthizer stated “I would point out the obvious and that is that panel blocking is permitted under the current NAFTA as well as under the USMCA.”[ix] If the requirement to have agreed upon rosters that remain in place is properly implemented, then it is not clear how the U.S. would lawfully be able to block a panel. Ambassador Lighthizer has also stated that “we can enforce our laws  . . . using our unilateral law and Section 301,” referring to Section 301 of the Trade Act of 1974 which gives the President authority to take action against certain unfair trade practices.[x] If the USMCA contained a binding and effective dispute settlement mechanism, there would be no need to resort to Section 301, which, because of its unilateral nature, invites retaliation. 

Recent press reports indicate that USTR may be willing to address at least some of these concerns.[xi] Enforcement was included in the list of four issues that Democrats have been working to improve before the USMCA implementing legislation is submitted to Congress, with USTR apparently providing a counterproposal to the Democrats initial request for changes to Chapter 31.

Recommendation

The most efficient and comprehensive way to address the flaws in USMCA Chapter 31 would be to replace the entire chapter with the dispute settlement provisions in the Trans-Pacific Partnership (TPP), now in effect as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP). Because Mexico and Canada are already parties to the CP-TPP, they have already agreed to the dispute settlement provisions in the CP-TPP. Moreover, the TPP provisions were negotiated to correct for the flaws in NAFTA Chapter 20 that were well-known to the U.S., Mexican, and Canadian TPP negotiators. The TPP dispute settlement system is “designed to be broader, deeper, faster, and more transparent than either the WTO’s Dispute Settlement Understanding or [NAFTA Chapter 20.]”[xii] If TPP disputes are not resolved in consultations, a three-person panel is appointed to hear the dispute. The TPP rules provide an elaborate system of what to do if any of the required appointments cannot be made; action or inaction by the parties thus cannot block the establishment of a panel.[xiii] Moreover, the TPP avoids the use of the “reverse selection process”, so the U.S. would be able to appoint a U.S. national to the panel to hear its disputes. It also includes tighter and more specific time limits. Finally, the TPP provides for a broader range of remedies (compliance, pay compensation to the complaining party, permission of retaliation in the form of a suspension of benefits, or payment of a fine), making it less likely that there would be long-running disputes over compliance with a panel report.[xiv]

If no agreement can be reached to substitute the TPP’s dispute settlement provisions for USMCA Chapter 31, then Congress should insist: 1) that rosters of panelists from the U.S., Canada, and Mexico be agreed upon pursuant to USMCA Article 31.8 and presented to Congress before the implementing legislation is voted on; 2) that the Statement of Administrative Action clarify whether, and if so, how and under what conditions, USTR believes that panels can be blocked; and 3) that the Statement of Administration Action clarify when and in which circumstances USTR believes Section 301 can be used to enforce an obligation arising under the USMCA or to respond to a Chapter 31 panel report.

 

[i] NAFTA, articles 2006-2017.  NAFTA Chapter 20 was modeled on the state-to-state dispute settlement system of the U.S.-Canada Free Trade Agreement (CFTA), CFTA’s Chapter 18.

[ii] In the 27 years since NAFTA’s completion on December 15, 1992, only three Chapter 20 panel decisions have been rendered, none after 2001 when the U.S. refused to appoint panelists to resolve a dispute over trade in sugar with Mexico.

[iii] NAFTA, article 2018.1.

[iv] From the outset, there were concerns about the quality of the panel reports issued under Chapter 20’s precursor, CFTA Chapter 18.  See, Gantz, David, “Addressing Dispute Resolution Institutions in a NAFTA Renegotiation,” Mexico Center, Baker Institute for Public Policy, April 2018, pp. 17-18.  In addition, the decision in Cross-Border Trucking Services (Case No. USA-MEX-1998-2008-1, February 6, 2001) which affected border crossings at the U.S.-Mexico border has never been fully implemented. Gantz at p. 19.

[v] NAFTA, art 2011.  Art. 2011(1)(c) provides that “[w]ithin 15 days of the selection of the chair, each disputing party shall select two panelists who are citizens of the other disputing party.”

[vi] In the Cross-Border Trucking Services dispute, there was a 15-month delay in the selection of panelists.  See, Gantz, David, “Addressing Dispute Resolution Institutions in a NAFTA Renegotiation,” at fn. 93, noting the U.S. concern that Canadian or Mexican nationals on the panel would favor their own governments.

[vii] Mexico-Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted March 24, 2006.

[viii] The NAFTA Secretariat's website listing for "Roster Members" includes only rosters for Chapter 19 proceedings.

[ix] Response of USTR Amb. Lighthizer to question from Senator Carper, U.S. Senate Finance Committee hearing, June 18, 2019.

[x] Id. “Our view is that we can enforce our laws in the rare circumstance where there was a blockage by using our unilateral law and the 301. . . . And why did we do that?  . . we think it will be very rarely used. But in a situation where, for example, someone challenged the trade laws of the United States, you want to be in a position where you can preserve your rights.”

[xi] “The administration has agreed to fix problems with how disputes between governments are resolved that plagued the North American Free Trade Agreement and were not corrected in the USMCA deal.” Politico, September 13, 2019.

[xii] Hillman, Jennifer, “Dispute Settlement Mechanism” in Assessing the Trans-Pacific Partnership, Jeffrey J. Schott and Cathleen Cimino-Isaacs, eds,  Peterson Institute of International Economics (2016), p.214

[xiii] For a fuller discussion of the TPP’s dispute settlement system, see, Hillman, Jennifer “Dispute Settlement Mechanism” in Assessing the Trans-Pacific Partnership, Jeffrey J. Schott and Cathleen Cimino-Isaacs, eds, Peterson Institute of International Economics (2016).

[xiv] TPP, Chapter 28.19

A Few Thoughts on the Role of the WTO/AB Secretariats in WTO Disputes

Following-up on Joost's post about his new paper with Krzysztof Pelc on the role of the WTO and Appellate Body Secretariats in WTO disputes, I wanted to offer some brief thoughts. Here's the first one:

More seriously, I sort of agree with them, in the sense that if I were designing a system from scratch, I probably would not have designed the one we have. However, the system evolved the way that it did, and we are where we are. Changing the system to one with panelists/Appellate Body Members relying on clerks that they hire (or some other alternative) rather than on the secretariat would be a leap into the unknown. It's not at all clear where we would end up.

Joost and Krzysztof seem to think we might end up in a better place. They suggest that the existing system may be the cause of some current concerns about WTO dispute settlement, and thus changes to the current system of Secretariat legal assistance might be helpful. Along these lines, they write:

Yet what we describe below as an inclination to write rulings that are ambitious and expansive in scope may, indeed, lead to what at least some Members have viewed as (i) activist interpretations that go “beyond the text”; (ii) advisory opinions on issues not necessary to resolving the dispute; and (iii) an expansive position on “legal issues” subject to AB review (e.g. including panel findings on the meaning of domestic law). Convoluted writing style and longer reports and proceedings, in turn, may partly explain why the AB has struggled to decide within the prescribed 90 days which, in turn, has necessitated many outgoing AB members to continue working on appeals even after their term ended (pursuant to Rule 15 of the AB Working Procedures). In other words, the outsized role of the Secretariat matters; adjusting it may even help save the overall system.

And they write:

Convoluted writing style and lengthy reports and proceedings. Detailed reference back to past decisions makes “issues papers” and eventual rulings longer. As the number of past rulings increases, reports tend to be longer over time, as has happened in the WTO. When WTO staff, especially younger, less experienced staff, draft reports (instead of seasoned adjudicators themselves), language may become more technical and convoluted. This effect may be heightened when staff are assigned to, and draft for, the panel or AB division as a whole, instead of individual adjudicators.

And also this:

Expansive scope and ambition of rulings. Experienced adjudicators, especially in state-to-state cases, have often come to realize the importance of sticking to party claims and deciding cases narrowly and incrementally, with a serious dose of humility. They make their own selection of the salient issues and arguments they wish to rule on, and focus their reasoning on certain elements, while relegating others to the margins of the analysis, exercising a type of “selection prerogative”. WTO staffers, especially younger ones or those academically inclined, may, however, fall victim to what Justice Rehnquist, in the context of US Supreme Court clerks, called “youthful exuberance”. They may feel compelled to dissect every issue and argument to the fullest extent, leaving “no stone unturned”.

The suggestion that young WTO staffers push for more "ambitious" or "expansive" or "exuberant" reasoning surprises me. It is certainly not what I observed while I worked at the Appellate Body Secretariat. But that is just a two year snippet of data, and I don't know what happened in all the other cases along the way. Nevertheless, although personalities vary and generalizations can be dangerous, on balance I would be more concerned about "ambitious" or "expansive" or "exuberant" reasoning if we shifted to a model based on panelists/Appellate Body Members hiring their own clerks for short terms, as is the case in many domestic legal systems. I can see how there may be less inclination by these adjudicators to address every argument by the parties, which makes WTO reports longer than they need to be. However, most of that sort of reasoning is not very "ambitious" or "expansive" or "exuberant," and my guess is the over-responsiveness to party arguments would be replaced by more significant reasoning.

As a final point, they say:

In a legal system like the WTO, with a form of de facto precedent, where earlier reports are almost religiously quoted, dissected and most often followed, the exact words and reasoning used in reaching the decision matter as much as the direction of the ruling itself (Busch and Pelc, 2019). As things stand today, panel and AB decisions not only offer a resolution of the dispute for the parties. They also interpret or give meaning to terms in the WTO treaty that will impact future cases. National treatment under the TBT Agreement has, for example, been read as including an obligation of “calibration”; “public body” in the Subsidies Agreement has been defined with reference to “governmental functions”. The words “calibration” and “governmental function” have no textual support in the WTO treaties themselves. They were included in the drafting process of particular rulings. Yet, they take on a life of their own and in subsequent cases, panels and the AB further apply and imbue meaning into these words. These interpretations, in turn, have distributional consequences: they favor some countries’ interests over others (Daku and Pelc 2017). As a result, who “holds the pen” matters, nowhere more so than in the current WTO system.

That's all true, of course, but it was also true back in the 1950s, before all the secretariat lawyers showed up, and a GATT panel uttered the famous line about "the conditions of competition between the domestic and imported products on the internal market." Will the de facto precedent be better than it has been recently if someone other than a Secretariat staffer is holding the pen? Maybe. Or maybe not. If the WTO Membership wants to take the plunge, we'll find out!

Guest Post: GAFA’s Global Investment Tribunal: Is it Going to Stay? Call for a research partner

This is from Marcin J. Menkes of the Warsaw School of Economics:

Although none of the GAFA companies –  Google, Amazon, Facebook, Apple –  or other major tech giant has taken the first step, publicly, to establish a world investment tribunal, the question to already ask, is whether such an arbitration tribunal will endure. Its creation seems merely a matter of time.

To those following the debate on investment arbitration—the mechanisms for settling disputes between states and foreign investors—this question may seem uneducated. In recent years, we have witnessed a regulatory pushback against investment tribunals. In response to allegations that such tribunals allow private interests to trump public policy, a number of stakeholders have engaged considerable resources in the reform of the system. The European Commission waged a war against investment arbitration between EU members. The United Nations Conference on Trade and Development (UNCTAD) took the lead in the global debate, leading to the possible establishment of a fully-fledged International Investment Court as an alternative to the ephemeral nature of the current ad hoc tribunals. The latest investment and trade treaties either scrapped investment arbitration provisions or subject the process to much more stringent control. Doesn’t all this reveal a trajectory whereby states are taking a firmer grip on resolving business disputes? Not necessarily.

The tension between business and the public authorities concerning the settlement of business disputes is not new. Entrepreneurs are interested in a quick, cheap resolution, especially if it doesn’t attract public attention. Bespoke arbitration can accommodate all these expectations, including hand-picking the qualifications of arbitrators called to resolve highly technical matters, ranging from complex accounting and legal issues to bleeding-edge engineering and IT solutions. Public authorities, though, are obviously not keen to renounce state jurisdiction on some of the most significant and largest disputes. What they have to offer is a public monopoly on coercion as enforcement of a final award. Depending on the political, social, and economic strengths of the business and political stakeholders, the pendulum has historically swung between state-courts and private arbitration. As both sides exert pressure, the public justice system may be prodded to show greater flexibility with regard to business needs while business arbitration tribunals may be more willing to interact with the public judiciary. So, does a firmer public grip on settling investment disputes simply reflect yet another swing in the justice pendulum? Hardly.

Let’s recall the never-ending saga of tax evasion, resulting in a scandal followed by a presumptuous political declaration and yet another scandal. From “Offshore Leaks”, to “Lux Leaks”, to “Swiss Leaks” to the “Panama Papers”, these scandals all reflect the weakness of contemporary states in a globalised economy. Let’s not forget about states’ failure to protect consumer privacy and harness Big Data, powerfully reflected by the Cambridge Analytica scandal and seen in the recent Mueller report. Three tech companies are already in the trillion-dollar club in aggregated market capitalization. Compare this to the mere 16 states above this threshold in GDP (and half are within the Big 3’s mid-term growth potential). We’re all waiting to see how one of the Big 3’s most ambitious initiatives to date—Facebook’s Libra, a cryptocurrency challenging the official monetary system—will play out. Accordingly, whether looking at traditional public power or sheer size translating into political leverage, the current power set-up favouring big business does not support the current political momentum in investment arbitration reform. What should we expect then? Frankly, the opposite of what we are currently observing.

In case lobbying to restrain legislation fails, business will push back by launching yet another generation of investment arbitration, most likely where the public authority is weakest, specifically cyberspace, by going against economically weaker states. One can easily imagine how major tech companies could strongarm medium or small states into re-taking the arbitration path, as happened in the past. So, are we witnessing the regulation-deregulation dynamics coming full circle? Unlikely.

The regulatory pushback against investment arbitration stems from multiple factors. However, the scapegoating of elusive “transnational companies and the ad hoc arbitration” feeds into major epochal change. The democracy crisis and market economy gradually shift social preferences from untamed liberty to greater security, from the pre-eminence of (economic) self-reliance to ever-stronger expectations of economic equality. The success of the probable business counter-initiative to arbitration reform will hinge upon embracing this contradiction.

The wealthiest individuals and the largest companies have an inherent inclination towards an individualistic sense of (economic) justice. They may agree to provide minimal sufficiency for the worst off to buy social stability. When the public courts–arbitration pendulum swung towards the arbitration the last time, liberal sense of justice was largely shared throughout society. Now, however, a communitarian wave is on the rise. Accordingly, the justice expectation is not limited to sufficiency but includes economic equality demands.

Business initiative to renew investment arbitration in a way that embraces economic egalitarianism seems paradoxical at first. However, in the long run such a more public-sensitive tribunal would be a better strategy for business, as they both again occupy the field (rather than ceding to the public judiciary) and thus gain leverage over the new International Investment Court, or any other direction the ongoing public reform takes us.

 

***

Please consider the above as a sketch for a research project on the sociology of international investment arbitration and contact the author, would you be interested in contributing with your sociological expertise to this endeavour.

 

A Special Event: Judicial Conference for U.S. Trade Law To be Held on November 18, 2019 in DC

Judicial Conference for U.S. Trade Law To be Held on November 18, 2019 in DC

Steve Charnovitz

The United States Court of International Trade has just announced the agenda for its 20th Judicial Conference to be held on November 18, 2019 in Washington, DC.  The judicial conference is an important event for the practice of U.S. trade law.  It's not an annual conference.  Rather, the Conference is held only about once every four years and this year is being held in Washington, DC at the historic Mayflower Hotel. 

This year's conference will be looking at the new developments in U.S. trade law during the past few years.  Among the topics to be examined are:  the collateral effects of new tariffs imposed under Sections 232 and Section 301; the implementation of rules of origin; the administration of antidumping and countervailing duties, the new issues arising within the statutory jurisdiction of the U.S. Court of International Trade, new trends in the cooperation of federal trade and customs agencies, and mediation of trade disputes.  The Conference will begin with a plenary panel of senior trade policy officials from three key U.S. government agencies -- the U.S. International Trade Commission, the Commerce Department, and the US Customs and Border Protection agency.  At mid-day, the Conference will host a lunch with a special presentation by Podcaster stars Soumaya Keynes and Chad Bown.  In the afternoon, the Conference will feature a discussion with a panel of Judges from the Court.  The Conference will close with a reception.

Although many of the participants will be trade law practitioners, the advent of the Conference provides an excellent opportunity for other interested individuals to participate and attend from companies, international organizations, state and local agencies, nongovernmental organizations, law firms, research institutes, universities, embassies, and the media. 

The registration fee is reasonable and much less than comparable international trade law workshops and CLE events held in DC or New York.  The link for registration is https://www.cit.uscourts.gov/20th-judicial-conference.

The Role of the Secretariat in WTO Dispute Settlement (and the AB Crisis)

In order to save independent, two-tiered and binding WTO dispute settlement, US critiques of AB “overreach” must be taken seriously, even if one is not fully convinced by such critiques. If the AB has, indeed, “overreached”, who is actually behind it, and most importantly, how might one “correct the course”? Indeed, at every DSB meeting, the US now explains its continued blockage of the AB appointments process with this single, and so far unaddressed, question:

Members need to engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to … Without further engagement from WTO Members on the cause of the problem, there is no reason to believe that simply adopting new or additional language, in whatever form, will be effective in addressing the concerns that the United States and other Members have raised.

Any responsibility involved is most likely collective. One important actor we all know about but hardly ever discuss openly is the WTO Secretariat, advising panels and the AB.

In a recent paper with Krzysztof Pelc, we examine the role of the Secretariat in WTO dispute settlement. The WTO’s Legal Affairs Division (LAD) was created in the mid-1980s to deal with panels “gone rogue”, especially on questions of legal interpretation. In the DSU, the Secretariat’s role of providing “legal support” was explicitly confirmed, also at the AB level. Since then, the Secretariat’s influence has only increased: It proposes and appoints panelists, helps set timetables and working procedures, writes “issues papers” and panel/AB questions to the parties, actively participates in hearings and internal deliberations and, in many cases, in what amounts to an “open secret” in Geneva, actually drafts panel and AB reports.

We empirically tested this claim, by asking: How much influence does the Secretariat versus adjudicators exert over the drafting of WTO rulings? As we only have publicly available data on WTO panel staff (and this for roughly 1995-2005 only), not AB staff, our empirical analysis is limited to panels. We rely on two different text analysis approaches. We begin by comparing the textual similarity of rulings on the basis of their potential authors. We then collect external texts written by all the potential authors of WTO rulings to create stylometric profiles for each. Using computational authorship-attribution tools, we then apply these profiles to determine who the more likely author of a given ruling is. The findings are unambiguous: the WTO Secretariat appears to exert significantly more influence over the writing of WTO panel reports than the adjudicators themselves. Of course, drafting a ruling is one thing; actually making the underlying decision is quite another.

We then explain how the Secretariat’s functions grew over time as a result of the greater experience and expertise of its (permanent) staff, compared with (part-time) adjudicators, asymmetries between staff and adjudicators in appointment terms, the relative independence and limited accountability of staff, and the fact that staff is assigned to panels/the AB as a whole instead of individual panelists or AB members.

We also elaborate on how the Secretariat’s role matters: (i) who “holds the pen” takes on special significance in a legal regime that pays close attention not only to the reasoning but also the actual words used in past rulings; (ii) crossing the line between adjudicator and staff tasks may threaten the legitimacy, trust and compliance pull of WTO rulings; (iii) and of most immediate relevance, a greater role for the Secretariat may have an impact on substantive outcomes, in particular: an increased (some would say, excessive) reliance on precedent; convoluted writing style and length of reports and proceedings; expansive scope and ambition of rulings; collegiality and low number of dissents.  

Paradoxically, this implies that increasing the role of WTO staff may lengthen and complicate the process and rulings, rather than making the process faster and more efficient. Indeed, the annual number of WTO disputes has remained steady; meanwhile the size of the Secretariat’s legal staff has more than doubled (from 37 people in 1999, to 90 people in 2018). Intriguingly, some of these impacts also overlap with the very US concerns that are now threatening to sink the AB: the role of precedent and obiter dicta; the expansive interpretations of the AB’s mandate; the AB’s usage of Rule 15; and frequent flouting of the 90-day period for AB review.

From a force to keep “rogue” panels in check, the Secretariat may therefore have evolved into an agent of more expansive dispute settlement. Correcting “overreach” may then, paradoxically, require more voice for adjudicators (e.g. more experienced panelists, full-time AB members and more scope for dissents), and a reduced role for the Secretariat (e.g. minimalist “issues papers” and less involvement in internal deliberations and drafting; adjudicator rather than division director oversight of Secretariat staff).

This, in turn, highlights how the role of the Secretariat matters; adjusting it may even help save the overall system.

We posted the paper on Monday and have already received some great comments. The paper remains a draft, so any comments or feedback would be much appreciated.

 

 

 

Tom Graham Clarifies My Earlier Tom Graham Clarification

In the comments section of my blog post earlier this week, Tom Graham commented as follows:

My statement as reported by Bloomberg was not inadvertent. It expressed my position accurately: "I have not yet decided [whether I will stay after December 10], and I am watching developments." No one, including persons on the AB staff or WTO Secretariat, is authorized to speak for me on this or to speculate about what I may have meant. Specifically, regarding the post above, my statement did not mean I was "undecided on how to approach cases after the expiration of" my term.

Tom Graham
Chair, WTO Appellate Body

I'm going to leave it at that, as I don't really know what's going on over there.

Are Social Media Trade Wars Inevitable?

A Washington Post article from last week, which includes the heading "TikTok Rise Could Signal End To Western Web Dominance" in the print version, describes a Chinese social media platform called TikTok as follows:

TikTok has quickly become one of America’s most popular mobile apps, a flashy, frenetic, video playground beloved by teens and downloaded more than 110 million times across the U.S. With its blend of goofy memes, fast-twitch skits and chart-topping earworms like “Old Town Road,” the app has quickly become China’s most successful social-media export abroad and a global phenomenon, installed by 1.3 billion users around the world.

The article then explains various aspects of the app and its regulation that could, in my view, lead to trade and other tensions:

But researchers have grown worried that the app could also prove to be one of China’s most effective weapons in the global information war, bringing Chinese-style censorship to mainstream U.S. audiences and shaping how they understand real-world events. Compounding researchers’ concerns are TikTok’s limited public comments about the content it removes and its purported independence from censors in Beijing.

TikTok’s parent company ByteDance said in a statement that U.S. user data is stored domestically and that the app’s content and moderation policies in the U.S. are led by a U.S.-based team not influenced by the Chinese government. ByteDance repeatedly declined to make executives available for on-the-record interviews.

...

The company declined to provide details of how the app is policed in the U.S. or how the U.S. team shields itself from being influenced by authorities in Beijing, where ByteDance is headquartered. Officials in the Chinese embassy did not respond to requests for comment.

TikTok’s surging popularity spotlights the tension between the Web’s global powers: the United States, where free speech and competing ideologies are held as (sometimes messy) societal bedrocks, and China, where political criticism is forbidden as troublemaking.

TikTok’s Chinese counterpart, researchers say, remains captive to the ruling regime’s ideas of appropriate content and censorship, and they point to the way the nation’s Communist Party has used it as a propaganda vessel for young audiences that might otherwise not seek out state-media news.

...

TikTok’s parent company has offered limited information about its mix of human and algorithmic censors, which scan videos and remove blacklisted words and images. The company’s chief said last year it would employ 10,000 moderators to flag and remove content following a crackdown from Chinese regulators targeting the app’s “improper content.”

Many of the biggest social media companies are American-owned, but there are some based in other countries, and I'm wondering if we could see something like a traditional manufactured goods trade war play out in the social media sector. It's not hard to imagine a social media company going to its government and saying, "Hey, this foreign competitor of ours is engaging in bad practices and you should place restrictions on their business."

When thinking about what trade conflict might look like here, it seems to me that there are several key factors to take into account in relation to the market competition and government trade policy battles that may arise:

- What are the censorship policies that the company employs, and how transparent is the company about them?

- How does the company use its customers' data? What are its privacy policies?

- Where does the company store its customers' data?

- Which government(s) have oversight of the company's policies and behavior?

Putting aside the trade war angle for a moment, in my view, there is a large, untapped market for social media companies that have reasonable and transparent censorship policies, that use customers' data on a limited basis if at all, and that operate in jurisdictions that have laws in place that limit governments themselves from accessing customers' data or censoring content. I am rooting for all of the smaller companies who currently operate in this space.

But for now, what we mostly see in many parts of the world is a bunch of dominant U.S. companies who rely heavily on user data, and perhaps some rising Chinese competitors who do the same, with very different regulatory regimes in place in the two countries. (And in China, the Chinese companies have the home market to themselves, due to various restrictions.) Unfortunately, that seems like a recipe for another front in the trade war.

Conference on Socially Responsible Foreign Investment under International Law

Católica|Lisbon School of Law and Católica Global School of Law will host the international conference on Socially Responsible Foreign Investment under International Law.

The event will take place at the Lisbon campus of the Catholic University of Portugal next 24 and 25 of October.

Entrance is free and registration is required through the online form.

Clarifying Tom Graham's Status on the Appellate Body

Last week, Bloomberg ran a story about Appellate Body Member Tom Graham which stated that:

- A U.S. member on WTO appellate body may resign in December

...

While Graham’s term ends on Dec. 10, panel members in the past have stayed on to finish WTO cases they’re involved in. If he resigns, the seven-member body would no longer have a quorum to rule on pending WTO appeal cases.

“I have not yet decided, and I am watching developments closely,” Graham said in an interview at WTO headquarters in Geneva.

To clarify this, I have been in touch with various trade officials, who confirmed the following about the status of things:

Tom Graham plans to stay in his position for the remainder of his term, and there is no question of him "resigning." He made a brief statement in response to a question from a reporter in the halls of the WTO as to whether he would stay after 10 December when his term ends, but his response was a neutral statement about being undecided on how to approach cases after the expiration of his term. He was not making any announcements for the time after 10 December and in fact parties to appeals with recent or upcoming hearings have been informed to this effect. There are 12 pending appeals and the Walker process is ongoing, so it is premature to speculate about whether Mr. Graham would continue to work on all 12 of those appeals.

UNCITRAL and ISDS Reforms: Agenda-Widening and Paradigm-Shifting

By Anthea Roberts and Taylor St. John 

On 17 July 2019, South Africa made its submission to UNCITRAL on investor–state dispute settlement (ISDS) reform in which it seeks a “paradigm-shift” in investment law. In keeping with our description of South Africa as a “widener” in the UNCITRAL debates, the submission brings a wide-angle lens to the negotiations, first placing ISDS in a broader context and then discussing a multitude of possible reforms, several of which have not been on the UNCITRAL agenda so far. Time will tell whether South Africa seeks to get other states to rally around its cause, but for now its submission represents an important anchor in the incremental/structural/paradigmatic reform dynamics.

1. Toward a New Paradigm for Investment Treaties and ISDS

The South African submission starts from first principles, by describing the ideological foundations on which investment treaties rest. It highlights that investment treaties were tied to a narrow vision of development that prioritized “economic growth through the free market, individual property and free flow of capital” and limited the role of a state to “securing property rights to optimize market development.”

These foundations have led to a system in which “the investors’ property and contractual rights supersedes public interest and public needs,” South Africa states. While foreign investors have access to the supranational level, “people and communities harmed by foreign investments do not have clear mechanisms to claim justice and reparation. Their rights are subject to a system driven by purely private commercial reasoning prompted to award cases exclusively focused towards serving the private economic interest of investors.”  

South Africa seeks a paradigm shift, and takes steps towards this new paradigm by providing different answers to fundamental questions, including: what is the purpose of the international investment regime, which actors have standing, and which actors have obligations?

a. Reframing the Purpose of Investment Treaties

South Africa foregrounds purpose by arguing that “any reform about the international investment regime needs to begin with the very purpose of the regime.” South Africa notes that the principal purpose of investment treaties has been to protect investment, but that this purpose is insufficient and needs to be expanded. For South Africa, “promoting and attracting investment should not be an end in itself, but a step towards realising the broader objectives of the [Sustainable Development Goals] and the human rights obligations, such as reducing poverty and hunger, empowerment of indigenous peoples, promoting decent work, and reversing environmental degradation and climate change.”

b. Including All Affected Parties in Proceedings

In a paradigm that prioritizes these broader objectives, all affected parties are included in proceedings. South Africa notes the asymmetry of the current system: “ISDS allows foreign investors to bring claims against host governments to an international arbitral tribunal and gives private parties access to the supranational level. … Yet, people and communities harmed by foreign investments do not have clear mechanisms to claim justice and reparation.” Ecuador’s submission also wants to ensure that all affected parties are included, recalling their experience with “situations where the rights of specific groups with a legitimate interest in a dispute have been affected by an arbitral award and yet those groups were not given the opportunity to be parties to the proceeding.” The principle is clear — all affected parties should be included in proceedings — but the means through which it is achieved are flexible. South Africa observes this principle can be achieved through various reform paths. South Africa suggests “the development of an inclusive investment-related dispute settlement alternative” and also urges more clarity on third-party interventions in the Multilateral Investment Court (MIC) proposal.

c. Imposing Investor Rights and Investor Obligations

Another aspect of South Africa’s paradigm shift is rebalancing the system so both investors and states have obligations. South Africa notes that the current human rights law and investment law frameworks impose obligations on states only, ignoring “the current global economic order in which corporations hold a greater power of influence over people’s lives without the need for being accountable for their actions; at least, not by formal means.” Arguments for both states and investors to have obligations at the international level are as old as investment treaties. As the very first investment treaties were discussed in the 1960s, the World Bank was asked if it would take over negotiations for a substantive multilateral treaty. Aron Broches responded for the World Bank: “I said that we wouldn’t do it, because the code was a one-sided document limited to the protection of foreign property and the obligations of the host countries. If we were to take it over, we would have to look at the other side, namely the obligations of investors” (Broches Oral History, May 1984). Negotiators carefully balanced obligations on investors and states in the UN Code on Transnational Corporations between 1972 and 1988, before those negotiations were shut down by the US and UK. Is the contemporary political climate more auspicious for agreeing binding legal obligations for investors? South Africa’s submission makes its position clear — both investors and states should have binding obligations — and here again mentions multiple means through which this goal could be achieved, suggesting that many investor obligations could be added directly into treaties while also expressing support for the UN Treaty on Business and Human Rights.

2. Concrete Reform Proposals Within and Beyond UNCITRAL

South Africa makes clear that in its view, procedural reform is not enough. A wider agenda that includes substantive issues is needed. That said, procedural reforms are part of a broader package of reforming the whole system, so South Africa has engaged earnestly with proposed procedural reforms, including the MIC. The 31 possible reform solutions listed in their submission are wide-ranging; some go beyond procedural reform, while others would be compatible with structural reforms. 

a.  Advocating for Substantive Reforms

South Africa seeks to widen the agenda, to include reform of substantive standards. Its submission makes clear that “reforming ISDS is in itself not sufficient to solve all problems that the international investment regime faces. Many problems already identified in earlier phases can only be properly tackled through a reform of substantive standards.” Some other states share this concern over the substance-procedure dichotomy. For instance, Indonesia noted in its April 2019 submission that “Indonesia is of the view that procedural law is inherently substantive and vice versa.”

South Africa proposes several reform solutions that many actors would consider substantive reforms, including a unifying language of substantive obligations (to ensure consistency), public interest carve-outs (to exclude challenges to public interest laws, regulations and legislation), and a supremacy clause (to ensure investment protections do not outweigh countries’ social, environmental and human rights commitments). South Africa also proposes new approaches to precedent (decisions should be binding), legal standing (should be available to everyone affected by a proceeding), and jurisdiction (should be limited to claims by investors who have not violated any law).

South African officials know that negotiated multilateral agreement is likely very difficult to reach. Yet raising these possible reform solutions keeps them in consideration for future negotiations, widening the agenda beyond procedural reforms. At the same time, South Africa wants to ensure their views about the shape of a MIC or other procedural reforms are represented, and that alternative processes, such as domestic courts and state-state dispute settlement, are respected and possibly accommodated within the design of a MIC.  

b. Making Space for Other Procedural Reforms

In its list of possible reform solutions, South Africa emphasises several means through which disputes can be resolved prior to arbitration, including dispute prevention policies, alternative dispute resolution, an ombuds office, and state-state cooperation in dispute prevention. Several other states express support for dispute prevention tools in their submissions; ombudsman are elaborated in the Brazilian and Korean submissions, and the idea of mandatory mediation is raised in the Indonesian submission. These dispute prevention proposals seem complementary with a range of reform proposals and are not necessarily in conflict with a MIC or other structural reform options; dispute prevention steps could be built in by governments into the current system of investor-state arbitration or into a system that has been structurally reformed. 

South Africa also emphasises the role of domestic courts and domestic administrative review procedures. South Africa asserts that “ISDS stymies good governance. By resorting to international arbitration, ISDS substitutes the use of domestic legal institutions and can thereby entrench their weaknesses. The availability of ISDS on the international level relieves States from external pressure to improve domestic government mechanisms and practices.” South Africa proposes that actors must exhaust local remedies before they can access ISDS. Other states’ submissions, including Indonesia and Morocco, also propose that investors are allowed to make a claim to international arbitration only after exhausting local remedies. Requirements to exhaust local remedies are compatible with ISDS and with a range of reform proposals, including a MIC or other structural reform options; this requirement could be part a government’s consent.

On the MIC specifically, South Africa emphasises that “full membership in the court should not be required to experiment with its use” and that “the court should be designed as a forum both for State-to-State and investor-State dispute settlement.” Brazil’s submission also highlights the usefulness of state-state dispute settlement. South Africa makes clear that it views state-state dispute settlement as potentially compatible with a MIC or other structural reform options.

Conclusion: One Reform Process, Many Recipes? 

States’ experiences with and views on how to reform ISDS vary. South Africa’s experience and public reflections on it provide valuable contributions to ISDS reform debates. This submission continues South Africa’s serious engagement with the UNCITRAL process and provides an excellent example of attempts at agenda-widening and paradigm-shifting. It will be welcomed by several other states and by civil society groups. As other governments create their own policy recipe for ISDS reform, they can use ingredients from UNCITRAL as well as the wider range of ingredients in South Africa’s submission, including reforms to substantive standards and procedural options that have not been discussed at UNCITRAL. Indeed, as we wrote last year, “paradigmatic reformers often have the advantage of proposing approaches that do not require collective agreement.”

Yet multilateral negotiations are also a collective endeavour. Those actors that arecommitted to structural reform are likely to express concern that by trying to widen the agenda to include substantive as well as procedural reforms, South Africa risks getting neither because the agenda will be too broad and the room for reaching consensus too narrow. A key question for South Africa is how to engage with proposed procedural reforms like the investment court and Appellate Body that do not emerge from shared foundations of paradigmatic reform yet may be compatible with transformative aims. This submission suggests that South Africa wants its views represented in discussions of these proposed procedural reforms, but that it will continue to push for reforms beyond procedural ones, advancing the need for a paradigm shift in investment law.

First published on EJIL: Talk!

The U.S. - Japan Deal: More Than Just "In Principle" Now?

I mentioned a possible U.S.-Japan trade deal here, described a couple weeks ago as an "agreement in principle". Things seem to have progressed a bit, with the Trump administration just issuing the following "Presidential Message to Congress Regarding the Notification of Initiation of United States–Japan Trade Agreement":

On October 16, 2018, my Administration notified the Congress that I intended to initiate trade negotiations with Japan on a United States-Japan Trade Agreement.  As stated in that notification and subsequent consultations with the Congress, my Administration proposed pursuing negotiations with Japan in stages.  I am pleased to report that my Administration has reached an initial trade agreement regarding tariff barriers (the “agreement”) with Japan and I intend to enter into the agreement in the coming weeks.

Accordingly, pursuant to section 103(a)(2) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (Public Law 114-26, Title I) (the “Act”), I hereby notify the Congress that I intend to enter into a trade agreement regarding tariff barriers with Japan under section 103(a) of the Act.

In addition, I also will be entering into an Executive Agreement with Japan regarding digital trade.

My Administration looks forward to continued collaboration with the Congress on further negotiations with Japan to achieve a comprehensive trade agreement that results in more fair and reciprocal trade between the United States and Japan.

I still have the same questions I had a couple weeks ago:

I have a few questions about all of this. The first is, how can Japan and the United States offer this liberalization consistently with WTO rules? (Let's assume for the moment this is something they care about). Usually a bilateral deal involves preferential tariff treatment, which would violate GATT Article I (MFN). The amount of goods covered here seems far too low to fall within GATT Article XXIV's "substantially all trade" requirement, so that makes an Article XXIV defense a bit difficult. My initial thought was that the Japanese tariff cuts on beef and pork and the U.S. auto parts tariff cuts could be offered on an MFN basis. Then Rob Howse suggested on Twitter that perhaps this deal would be an "interim agreement" under GATT Article XXIV. Is one of these the explanation? Something else?

The second, and related, issue is, what will other governments think of all this? For both sets of products, there are likely to be producers in other countries who will be adversely affected. Will they be aggressive about enforcing WTO rules against both Japan and the United States?

...

Finally, as described in the article, what we have here seems to be a bilateral agreement to reduce tariffs, without all the usual governance chapters that make up the bulk of the legal text of modern trade agreements. So will there be a dispute settlement chapter here? If so, what will it look like? Or is this more of a short-term, political agreement that isn't intended to be in force permanently? As the article notes, this agreement would not be approved by Congress. Presumably, if the president can enter into it without Congress having a say, the president can also withdraw from it without Congress having a say.

I also have a question about the digital trade part. Will this agreement have any impact on actual behavior? My sense is that it will not, as people I have spoken to about this say that Japan and the United States agree on the policies here and are not in violation of any aspects of the text (which will look like the USMCA digital trade chapter). So perhaps this "Executive Agreement" is more about spreading soft law than disciplining the behavior of the parties.

Guest Post: Reflections on the first application of the “dominant and effective nationality” test in international investment arbitration

This is a guest post from Gabriela Sánchez of the Universidad de los Andes, Bogotá

Last September 3rd, the Permanent Court of Arbitration issued the Final Award on the case Michael Ballantine and Lisa Ballantine v. Dominican Republic. The case was governed under UNCITRAL (2010) arbitral rules and under the Dominican Republic-Central America FTA (CAFTA-DR).

Michael and Lisa Ballantine (dual nationals of the United States and Dominican Republic) were the owners of a real estate and infrastructure project in Dominican Republic: Jamaca de Dios and Aroma de la Montaña. The dispute arose because of the rejection by the Ministry of Environment and Natural Resources of the claimants’ request to expand Jamaca de Dios, as well as other actions by the central and local government. The Ballantines alleged that Dominican Republic had breached its obligations under CAFTA-DR of, among others, national treatment, most-favored nation, fair and equitable treatment and indirect expropriation.

However, since the beginning of the proceedings, it was clear that the dispute was going to revolve around the question of whether the Ballantines could demonstrate that their United States nationality was "dominant and effective." In a majority award, the Tribunal found that the Claimants’ dominant and effective nationality was that of the Host State (Dominican Republic) and that the Tribunal therefore lacked jurisdiction to hear the dispute under CAFTA-DR. As recognized by the Tribunal in the Award, this appeared to be the first time that an international investment arbitral tribunal dealt with the “dominant and effective” test. Although addressed in other forums,such as the International Court of Justice (Nottebohm Case), the Italian-United States Conciliation Commission (Mergé Case) and the Iran-United States Claims Tribunal, it had not been directly and deeply addressed by an arbitration tribunal.

Even though the decision appears to be consistent with the development of the “dominant and effective” standard in these other forums, this Award raises two issues to reflect upon. The first one relates to the direct “transplant” of precedent from other forums and the second one concerns the application of the rule of interpretation of Article 31 of the Vienna Convention on the Law of Treaties (VCLT).

Firstly, the Tribunal seems to have applied the standard developed by other forums (especially from the Nottebohm Case) without much debate. Albeit recognizing that the factors developed under customary international law were instructive, the Tribunal clearly stated that these had been developed in a different period of time and under different circumstances. Therefore, the application of the standard in this case deserved special consideration to the factual circumstances rather than “directly incorporating any other standard, which would disregard the rules of interpretation under VCLT” (para. 533). However, it appears that the Tribunal took the factors to determine the “dominant and effective nationality” developed by the Notebohm Case (and then reaffirmed in the Mergé Case and by the Iran-US Claims Tribunal) and applied them to the present case without much discussion. The issue of the “dominant and effective nationality” seems far from being a “rule of thumb”. Yet, it is inevitable to wonder whether the Tribunal failed to identify the characteristics or issues that made the application of this standard in an investment arbitration any different from those other cases and those forums.

Secondly, despite explicitly referring to the rule of interpretation contained in Article 31 VCLT to give meaning to the term “dominant and effective”, the application of this rule can be seen as insufficient. The Tribunal alluded to the ordinary meaning (Article 31.1 VCLT) of the terms “dominant” and “effective” and then directly referred to “other relevant rules of international rules applicable to the relations between the parties” (Article 31.3(c) VCLT). Even though the general rule of interpretation contained in this Article is far from requiring a rigid examination of all its elements, it would have been desirable that the Tribunal had engaged in a more rigorous and comprehensive application of Article 31 VCLT. Not because it demands so, but rather because it could have enriched the analysis of the “dominant and effective” test, especially when applying it to a regime that had not been applied before in international law. Probably, the elements contained in Article 31.3 (a) and (b) (Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions and Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation) could have shed light on some interesting insides of the particular facts of this case.

In conclusion, although being consistent with previous cases in other areas of international law, the decision of the Arbitral Tribunal Michael Ballantine and Lisa Ballantine v. Dominican Republic raises some concerns regarding the undisputed “transplant” of precedent between international dispute resolution forums and the rigor in the application of the general rule of interpretation contained in Article 31 VCLT. After all, the exercise done by an arbitral tribunal is one of treaty interpretation. It will be in the hands of future investment arbitration tribunals (for example in the current Carrizosa v. Colombia Cases) to take into consideration these reflections to provide a more meticulous evaluation of the “dominant and effective nationality” standard.

My Quick Take on the Trade Talk In Last Night's Democratic Debate

The Democratic debates have (thankfully!) been narrowed from 20 to 10 candidates. Many of them had a chance to weigh in on trade policy at the debate last night. Here's what they said:

STEPHANOPOULOS: Welcome back. We want to turn now to national security and the foreign policy issue that has such a direct impact here at home. The U.S. relationship with China, trade, and President Trump's tariffs. We received more than 100 questions from viewers wanting to know how all of you are going to handle these tariffs.

And, Mr. Yang, let me begin with you. Would you repeal the tariffs on your first day in office? And if so, would you risk losing leverage in our trade relationship with China?

YANG: I would not repeal the tariffs on day one, but I would let the Chinese know that we need to hammer out a deal, because right now, the tariffs are pummeling producers and farmers in Iowa who have absolutely nothing to do with the imbalances that we have with China.

A CEO friend of mine was in China recently and he said that he saw pirated U.S. intellectual property on worker workstations to the tune of thousands of dollars per head. And he said, one, how can my workers compete against that? And, two, think about all the lost revenue to American companies.

So, the imbalances are real. But we have to let the Chinese know that we recognize that President Trump has pursued an arbitrary and haphazard trade policy that has had victims on both sides.

So, no to repealing the tariffs immediately, but yes to making sure we come to a deal that addresses the concerns of American companies and American producers.

STEPHANOPOULOS: Mayor Pete, let me take that question — let me take that question to you, because you've seen President Trump's tweets. He says what's going to happen here is the Chinese are just going to wait him out so that they can get a Democrat who they can take advantage of.

How do you think about China? We've seen President Trump call President Xi both an enemy and a friend.

BUTTIGIEG: Well, the president clearly has no strategy.

You know, when I first got into this race, I remember President Trump scoffed and said he'd like to see me making a deal with Xi Jinping. I'd like to see him making a deal with Xi Jinping.

(LAUGHTER)

Is it just me, or was that supposed to happen in, like, April? It's one more example of a commitment not made. When that happens on the international stage, people take note, not just our competitors, our adversaries, but also our allies take note of the inability of the United States to keep its word or follow through on its plans. And when that happens, there are serious consequences.

We saw it at the G7. The leaders of some of the greatest powers and economies of the world sitting to talk about one of the greatest challenges in the world, climate change, and there was literally an empty chair where American leadership could have been.

The problem is, this is a moment when American leadership is needed more than ever, whether it's in Hong Kong, where those protesters for democracy need to know that they have a friend in the United States, or anywhere around the world where increasingly we see dictators throwing their weight around. The world needs America, but it can't be just any America.

STEPHANOPOULOS: Would you repeal the tariffs?

BUTTIGIEG: I would have a strategy that would include the tariffs as leverage, but it's not about the tariffs. Look, what's going on right now is a president who has reduced the entire China challenge into a question of tariffs, when what we know is that the tariffs are coming down on us more than anybody else and there's a lack of a bigger strategy.

STEPHANOPOULOS: Senator Klobuchar, you've actually supported the tariffs on steel.

KLOBUCHAR: What we've got right now, though, George, it's not a focused tariff on steel. What he has done here, he has assessed these tariffs on our allies. He has put us in the middle of this trade war and he is treating our farmers and our workers like poker chips in one of his bankrupt casinos. And if we are not careful, he is going to bankrupt this country.

One forecast recently says that it has already cost us 300,000 jobs, all right? There is soybeans that are mounting up in bins all over the Midwest, in my state of Minnesota and in Iowa.

So what I think we need to do is to go back to the negotiating table — that's what I would do. I wouldn't have put all these tariffs in place. And I wouldn't have had a trade policy where on August 1st he announces he's going to have tariffs on $300 billion of goods, on August 13th, he cuts it in half, a week later, he says he's going to reduce taxes, the day after that, he says he's going to do it.

The leaders of the world are watching this, and it undermines our strength as a nation. And, yes, we want fair trade, but we must work with the rest of the world. And he has made a mockery of focused trade policy, which I think means enforcement, like we've done in northern Minnesota, passing bills, getting President Obama to do more on that, so that our workers can benefit, so we are importing, exporting goods and making sure that it's a competitive policy where our goal is that we are making things, inventing things, and exporting to the world. He is defeating that goal.

STEPHANOPOULOS: Secretary Castro, you actually, in one of the previous debates, identified China as the most serious national security threat to our country. I want to pick up on what Senator Klobuchar was saying. She said she would go back to the negotiating table. The question is, what do you do for leverage? Where do you get it?

CASTRO: Well, look, I agree with those who have said that this erratic, haphazard trade war is hurting American families. As Senator Klobuchar said, 300,000 American jobs. It's estimated that it's cost $600 to the average American family. Just a couple of days ago, 60 percent of Americans said that they believe that we're in for a recession next year.

So when I become president, I would immediately begin to negotiate with China to ratchet down that trade war. We have leverage there. I also believe, though, that we need to return to a leader when it comes to things like human rights.

We have millions of Uighurs, for instance, in China that right now are being imprisoned and mistreated.

(APPLAUSE)

And in North Korea, this president is elevating a dictator. We need to stop that. We need to return to ensuring that America leads again on human rights. When it comes to this trade war, I would immediately begin ratcheting that trade war down. We have leverage in that discussion.

STEPHANOPOULOS: Senator Warren, let me bring you in on this conversation. President Obama signed the Trans-Pacific Partnership. In part, it was designed to rein in China, to bring China into some kind of regulation. What do you think he got wrong?

WARREN: So our trade policy in America has been broken for decades, and it has been broken because it works for giant multinational corporations and not for much of anyone else. These are giant corporations that, shoot, if they can save a nickel by moving a job to a foreign country, they'll do it in a heartbeat.

And yet for decades now, who's been whispering in the ears of our trade negotiators? Who has shaped our trade policy? It's been the giant corporations. It's been their lobbyists and their executives.

The way we change our trade policy in America is, first, the procedures. Who sits at the table? I want to negotiate trade with unions at the table. I want to negotiate it with small farmers at the table. I want to negotiate it with environmentalists at the table. I want to negotiate with human rights activists at the table.

And you asked the question about leverage. If I can just respond to that one, the leverage, are you kidding? Everybody wants access to the American market. That means that we have the capacity to say right here in America, you want to come sell goods to American consumers? Then you got to raise your standards. You've got to raise your labor standards. You've got to raise your environmental standards...

(APPLAUSE)

... so our companies can compete on a level playing field. We can use trade not to undermine American workers and not to undermine American farms and not to undermine small businesses in this country. We can use trade to help build a stronger economy.

(APPLAUSE)

STEPHANOPOULOS: Senator Harris, how would your trade policy differ from President Obama's?

HARRIS: Well, first of all, I have no criticism of that more than just looking at where we are now, which is we've got a guy in the White House who has been erratic on trade policy. He conducts trade policy by tweet, frankly born out of his fragile ego. It has resulted in farmers in Iowa with soybeans rotting in bins, looking at bankruptcy.

When we look at this issue, my trade policy, under a Harris administration, is always going to be about saying, we need to export American products, not American jobs. And to do that, we have to have a meaningful trade policy.

I am not a protectionist Democrat. Look, we need to sell our stuff. And that means we need to sell it to people overseas. That means we need trade policies that allow that to happen.

You asked earlier about China. It's a complicated relationship. We have to hold China accountable. They steal our products, including our intellectual property. They dump substandard products into our economy. They need to be held accountable.

We also need to partner with China on climate and the crisis that that presents. We need to partner with China on the issue of North Korea. I am on — and I think the only person on this stage — the Senate Intelligence Committee and the Senate Homeland Security Committee. We need a partner on the issue of North Korea.

But the bottom line is this. Donald Trump in office on trade policy, you know, he reminds me of that guy in "The Wizard of Oz," you know, when you pull back the curtain, it's a really small dude?

(LAUGHTER)

STEPHANOPOULOS: Okay. I’m not even going to take the bait, Senator Harris. But I am going to take...

HARRIS: Oh, George, it wasn't about you.

STEPHANOPOULOS: I'm going to take this to Senator Sanders right now.

SANDERS: Well, there is a reason — there is a reason why, in the last 45 years, the average American today, despite an explosion of technology and worker productivity, is not making a penny more than he or she made 45 years ago. And one of the reasons is that, for decades, we have had disastrous trade policies.

I got to say to my good friend, Joe Biden, Joe and I strongly disagree on trade. I helped lead the opposition to NAFTA and PNTR, which cost this country over 4 million good-paying jobs.

(APPLAUSE)

And what happened is people who had those jobs ended up getting other jobs making 50 percent of what they made in manufacturing.

So Trump, obviously, hasn't a clue. Trump thinks that trade policy is a tweet at 3 o'clock in the morning. What we have got to do is develop a trade policy that represents workers, represents the farmers in the Midwest and elsewhere, who are losing billions right now because of Trump's policy, a trade policy which understands that if a company shuts down in America and goes abroad, and then thinks they're going to get online to get a lucrative federal contract, under Bernie Sanders, they got another guess coming.

STEPHANOPOULOS: Vice President Biden, he invoked your name.

BIDEN: Yeah, well, look, we're either going to make policy or China's going to make the rules of the road. We make up 25 percent of the world economy. We need another 25 percent to join us.

And I think Elizabeth — Senator Warren is correct. At the table has to be labor and at the table have to be environmentalists. The fact of the matter is, China — the problem isn't the trade deficit, the problem is they're stealing our intellectual property. The problem is they're violating the WTO. They're dumping steel on us. That's a different issue than whether or not they're dumping agricultural products on us.

In addition to that, we're in a position where, if we don't set the rules, we, in fact, are going to find ourselves with China setting the rules. And that's why you need to organize the world to take on China, to stop the corrupt practices that are underway.

STEPHANOPOULOS: Senator Booker, close out this round.

BOOKER: Sure. There’s one point we’re really missing on the stage right now, which is the fact that Donald Trump’s America first policy is actually an America isolated, an America alone policy.

BIDEN: Exactly right.

BOOKER: From trade to battling China to the global crisis of climate change, the challenges in the Middle East, he is pulling us away from our allies, out of the Iran deal, out of the Paris climate accords.

And on trade, he's deciding to take on China, while at the same time taking on tariff battles with all of our allies. You literally have him using a national security waiver to put tariffs on Canada. Now, look, I'm the only person on this stage that finds Trudeau's hair very menacing, but they are not a national security threat.

(LAUGHTER)

We cannot go up against China alone. This is a president that has a better relationship with dictators, like Duterte and Putin, than he does with Merkel and Macron. We are the strongest nation on the planet Earth, and our strength is multiplied and magnified when we stand with our allies in common cause and common purpose. That's how we beat China. That's how we beat climate change on the planet Earth, and that's how American values are the ones that lead on issues of trade and workers' rights.

My quick take on each candidate's answer:

-- Yang didn't say much of anything.

-- Buttigieg had a good one-liner and a good overall take, although I'm skeptical of the "tariffs as leverage" theory (that's being tested right now and we'll see how it goes.)

-- Klobuchar's answer was vague.

-- Castro's answer was decent, although he didn't really answer the leverage point. (One thing I would say here is that it's not clear that tariff threats give us leverage, and generally speaking, if we are willing to do some liberalizing ourselves, other countries are also willing.)

-- Warren ignored the "TPP reining in China" part of the question, which is actually an interesting idea, and just repeated her usual talking points. I understand her general point about using access to the U.S. market as leverage to get others to raise their standards. In practice, though, I think this can be more complicated than she is imagining, in a lot of ways.

-- The "I am not a protectionist Democrat" line from Harris will have great appeal to policy wonks at free trade-oriented think tanks. We'll see how it plays to primary and general election voters. I hope this is where the electorate is, but we'll see!

-- Sanders repeated his usual talking points.

-- Biden was fine and said many things he usually says.

-- Booker's strong defense of Canada was heartening and his reference to Justin Trudeau's hair was funny for anyone who knows who Justin Trudeau is (might not be too many American voters though!).

The Appellate Body and the Role of Precedent

One of the issues raised by the United States in its critique of the Appellate Body is the role of precedent. How much weight should be given to past cases? Is the Appellate Body being too deferential to its prior rulings? Is there a difference between the "cogent reasons" language used by the Appellate Body and a standard that says past cases have only "persuasive value"? In a short Cato paper (a longer version will be coming out in the Journal of World Trade next year), Jim Bacchus and I are skeptical that there is much difference between the current Appellate Body approach and what the United States seems to be advocating:

In our view, the concerns voiced by the United States about the Appellate Body’s cogent reasons standard and its alleged illegitimate adherence to precedent are vastly overstated. Although the cogent reasons language is new, it is not clear to us that an interpretative approach stating that a panel should have cogent reasons for departing from previous appellate reasoning and rulings differs from a reliance on persuasiveness. It could be argued that there are subtle differences in the two approaches, based on who has the burden to show that a previous ruling should not be followed. It seems likely, though, that the Appellate Body would have been explicit if it had intended to announce such a distinction. ...

Furthermore, it is not at all clear how the use of one interpretative approach instead of the other would lead, in practice, to different outcomes. Rather, it seems most likely that the use of the two different interpretative approaches will each reach the same result. In fact, a recent WTO panel applied the absent cogent reasons approach in a way that allowed it to depart from past Appellate Body reasoning. The difference between the absent cogent reasons approach and the standard of persuasiveness endorsed by the United States seems to us to be one mainly of semantics. This perceived legal distinction by the United States does not warrant the emphasis the United States has given it.

As the same time, we would not object to a clarification that "persuasive value" is the proper standard, along the lines of the following addition to DSU Article 3.2:

“Clarifications provided by panels and the Appellate Body can have persuasive value, but are of less authority than the interpretations adopted under Article IX:2 of the WTO Agreement.”

US-China Tariff War: A Lesson about WTO Law

The US first written submission in the Section 301 case (DS543) is an eye-opening read. To me, the ingenious arguments advanced by the USTR, no matter how far-fetched they may seem in places, raise some interesting questions and teach a valuable lesson about WTO law. 

I. A brief analysis of the legal situation

1. The US imposed an extra 25% of import tariffs on a total of $50 billion worth of Chinese products in 2018. These levies were justified on the grounds of three findings under Section 301: (i) China has forced American firms to transfer technology, (ii) China has acquired American technology through state-facilitated acquisitions of American firms in the US territory, and (iii) China has committed cyber theft of US technology. Regardless of the merits of the justifications cited, the US extra tariffs on Chinese products violate GATT articles I (MFN) and II (tariff bindings). To the extent that forced technology transfer is prohibited under China’s Accession Protocol, the US unilateral action is also inconsistent with DSU article 23 (no resort to unilateral retaliation on matters covered by WTO).
   
   
2. China promptly brought DS543, rightly asserting the legal claims under GATT I & II and DSU 23. However, China also promptly retaliated against the US by imposing 25% import tariffs on $50 billion worth of US products. Like the United States, China’s unilateral tariffs violate GATT articles I and II. Unlike the United States, China’s unilateral tariffs, in its entirety, violate DSU article 23 (see below). China cited unspecified “international law principles” to justify its unilateral action.
   
   
3. In defending its case in DS543, the US submission has advanced two major arguments. First, it claims that, because China has already taken the matter in its own hands by imposing retaliatory tariffs, China’s pursuit of this dispute constitutes “a misuse” of the WTO dispute settlement system. In support of this claim, the US submission cites “nine separate principles” of WTO dispute settlement, ranging from the objectives of the dispute settlement mechanism to “good faith”. The US claim raises an interesting question: Can a member lose its right to resort to WTO dispute settlement if it has taken unilateral action to address the same matter? In other words, is the member’s right to have recourse to WTO dispute settlement conditioned upon its compliance with the requirements of DSU Article 23?  In this vein, the US further argues that the fact that both the US and China have resorted to unilateral actions indicates that “a settlement of the matter among the parties to the dispute has been found” within the meaning of DSU article 7, and, accordingly, the Panel report should be “confined to a brief description of the case” and stating that “a solution has been reached” as instructed by DSU 7. It seems ridiculous to call an ongoing and escalating tariff war “a settlement of the matter” between the two countries. However, what if the two countries reach some kind of truce (as they did between December 1, 2018 and May 4, 2019) or even a formal agreement but do not eliminate all the extra tariffs? Is that a “settlement” within the meaning of DSU Article 7?   
   
   
4. The second major argument advanced by the US is its invocation of the public morals exception under GATT Article XX(a). I suspect this defense will fail, since it is not difficult to suggest reasonably available alternatives that are less trade-restrictive than unilateral tariffs. For instance, a ban on Chinese acquisition of high-tech companies in the US territory, and targeted countermeasures in cyberspace, would all be less trade restrictive and more effective in addressing the underlying US concerns about IP loss.
   
   
5. The US could sue China on its retaliatory tariffs for violation of GATT I and II. In that event, China might invoke GATT XXI(b)(iii) as defense. That is, China may “consider” the massive US tariffs as a threat to its “essential security interests” and its retaliatory tariffs “necessary” for the protection of such interests and taken in time of an “emergency in international relations.” Given the US current position on the national security exception, it might not wish to take this route.

II. A counterfactual: What if China had not retaliated unilaterally?

Let’s imagine that upon US declaration of its unilateral tariffs, China responded by bringing DS543, but had not imposed any retaliatory tariffs. What would the situation be today?

1. In DS543, the US would not have available the arguments that China misuses the WTO dispute settlement system and that the dispute has been effectively taken out of the WTO.
   
   
2. The US would still invoke the public morals exception as defense. But this defense is likely to fail. At that time, China could seek DSB authorization for retaliatory tariffs – probably in the year of 2020 – and the US would not be able to retaliate against China’s DSB-authorized retaliation, which would be proportional.
3. Not facing China’s retaliatory tariffs, the US extra tariffs would have stayed at the initial level of 25% on $50 billion of Chinese products (instead of being expanded to the additional $312 billions current in effect). Although the US might find other ways to challenge China, the tension would not have escalated to the current level.

There should be no question that China would have been much better off economically without the self-inflicted woes wrought by its retaliatory tariffs. And there should be no question that the world would be much better off without the escalating trade war between the two largest economies and the looming threat of a new cold war. Furthermore, the WTO institution would not have suffered the damage from the trade war. By taking the matter in their own hands, the two largest trading powers have cooperated in undermining the multilateral system.  

III. A lesson about WTO law: The wisdom of DSU article 23

China announced its decision to retaliate on Day 1 out of indignation. China’s thinking appears to be: the US unilateral tariffs amount to an act of aggression that must be countered by equal force. Even though DSU article 23 prohibits self-help in such situation, there must be some fundamental international law principles that can override the WTO rule. Let’s hope that China will clarify what exactly these international law principles are in DS543.

The problem with this line of thinking, however, is that it ignores the underlying rationale of WTO law. To a large extent, the idea of WTO law is to protect countries from themselves. And DSU article 23 is an explicit expression of this idea:  

“When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements... they shall have recourse to, and abide by, the rules and procedures of this Understanding.” “In such cases, Members shall not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired … except throughrecourse to dispute settlement in accordance with the rules and procedures of this Understanding….” 

By requiring WTO members not to take retaliatory action on their own, DSU 23 protects countries (i.e., their overall national welfare) from their own self-destructive trade measures. If it had followed the DSU 23 requirements, China would have maintained the moral high ground in DS543. By ignoring its obligation under DSU 23, China has done a great disservice to itself and to the rest of the world. That should be a valuable lesson for all.

On a final note, DSU article 23 only disciplines members in their reaction to the situation where their benefits under the covered agreements are nullified or impaired. It does not apply to the initial use of trade measures to address matters falling outside the covered agreements which have caused such nullification and impairment. Thus, to the extent the US is weaponizing tariffs to deal with issues such as cyber theft, foreign direct investment, and immigration, DSU 23 is of no use. How to deal with the US “aggressive unilateralism 2.0” remains a major challenge for WTO.

Two Points About Dani Rodrik's Latest Piece

Dani Rodrik has a new paper up at NBER, entitled "Putting Global Governance In Its Place." Two things jumped out at me.

First, it surprised me that in discussing when regulatory standards are protectionist, he seems unaware of the national treatment principle:

Unlike in the case of tariffs and quotas, there is no natural benchmark that readily allows us to judge whether a regulatory standard is excessive or protectionist. Different national assessments of risk – safety, environmental, health -- and varying conceptions of how business should relate to its stakeholders – employees, suppliers, consumers, local communities – produce different standards, none obviously superior to others. In other words, regulatory standards are public goods over which different nations have different preferences. An optimal global governance scheme would trade off the benefits of expanding market integration (by reducing regulatory diversity) against the costs of excessive harmonization. But it is difficult to know where that optimal point may lie. Asking trade negotiators do perform this task adequately across a wide variety of policy domains seems unrealistic.

In reality, we have decades of experience with examining whether regulatory standards are protectionist ("excessive" is more difficult to judge, but we do that as well, as shown in the second point below). Among others, we have GATT Article III:4, TBT Agreement Article 2.1, and various SPS Agreement provisions. There is extensive jurisprudence on these provisions and plenty of "benchmarks," which feel pretty "natural" to me. There is no consensus, of course, but it's law so there will never be a consensus. Personally, I still like "design, structure, and architecture" as the standard, but there are a number of options, most of which get you to roughly the same point.

Second, based on the title and some of his criticisms, I thought his main argument would be that global governance has gone too far and needs to be reined in. But then he says this:

We can usefully distinguish DEGG [Democracy-enhancing global economic governance] from “globalization-enhancing global governance” (GEGG), which comes closer to the spirit of prevailing practice in the world economy today. Under GEGG we can justify any and all external rules that restrict domestic policy autonomy if the result is to minimize transactions costs associated with national borders. Under DEGG we would imposes only those, mostly procedural, obligations that enhance domestic deliberation or are consistent with democratic delegation.

I have in mind procedural requirements designed to enhance the quality of domestic policy making. Examples of such requirements would be global disciplines pertaining to transparency, broad representation of stakeholders, accountability, and use of scientific/economic evidence in domestic proceedings. These procedural requirements would not prejudge what the end result might be – whether a country might impose a tariff, subsidy or any other “beggar thyself” policy. 

On its face, "global disciplines pertaining to transparency, broad representation of stakeholders, accountability, and use of scientific/economic evidence in domestic proceedings" seems very intrusive into domestic policy-making, which is something I thought he was concerned with. I'd want to hear some clarification from him about what exactly he has in mind here, but I can see how it could lead to a wide range of new legal claims against domestic policies. (And it also seems like this proposal contradicts his earlier critique: One way to determine if standards are "excessive" is to review whether they are based on scientific evidence.)

Call for Entries: RMLNLU-CTIL Conference on International Trade Law

This is from the Journal Committee at Dr. Ram Manohar Lohiya National University, Lucknow, in collaboration with Centre for Trade and Investment Law, Indian Institute of Foreign Trade:

The Journal Committee at Dr. Ram Manohar Lohiya National University, Lucknow, in collaboration with Centre for Trade and Investment Law, Indian Institute of Foreign Trade is organizing RMLNLU- CTIL Conference on International Trade Law (7th RMLNLU International Legal Essay Writing Competition) on 2 February 2020.

Authors must be pursuing their 5-year integrated LL.B. (Hons.) course / 3-year LL.B. course / LL.M. from any recognised university in India and equivalent undergraduate law degree, abroad for the academic year of 2019-2020, to be eligible to participate in the Competition.

The last date for the submission of soft copies is 17 November, 2019.

Please see the call for entries here and the conference poster here.

 

 

Guest Post: Energy Policy in EU Free Trade Agreements

This is a guest post from Anna Marhold, Assistant Professor at the Institute of Public Law and the Grotius Centre for International Legal Studies at Leiden University, based on her article, "Externalising Europe’s energy policy in EU Free Trade Agreements: A cognitive dissonance between promoting sustainable development and ensuring security of supply?" recently published in, Europe and the World: A Law Review (UCL Press), as part of the Special Issue on Economic and Non-Economic Values and Objectives in the EU’s International Trade. 

It is no secret that while the European Union (EU) has taken up commitments to combat climate change under the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement and its own 2020 and 2030 climate and clean energy package strategies, the Union continues to be heavily dependent on the import of fossil fuels from abroad. One may even say that this leads to a cognitive dissonance (i.e. the discomfort which ensues if one holds two contradictory values) with respect to the externalisation of the Union’s energy and sustainable development policy:

On the one hand, the EU aims to become a global frontrunner in the field of promoting renewable energy and sustainable development. This expresses itself through the inclusion of specific chapters on Trade and Sustainable Development in the EU’s Free Trade Agreements (FTAs) (standard since the 2011 EU-South Korea FTA). On the other hand, the EU realises that it is imperative to secure the Union’s security of energy supply, which is still largely guaranteed by fossil fuels. Therefore, the Union in parallel attempts to eliminate discriminatory practices in international fossil fuel trade in its bilateral agreements (e.g. in the EU-Ukraine Deep and Comprehensive Free Trade Agreement (DCFTA)). Beyond that, the EU even goes as far as aspiring to include provisions that legally secure access to fossil fuel energy sources (mainly natural gas) in its FTAs with third countries (e.g. in the currently dormant, but nevertheless controversial EU-US Transatlantic Trade and Investment Partnership (TTIP) negotiations).

It is therefore safe to say that the behaviour of the Union is, at a minimum, contradictory in attempting to reconcile these objectives. On the one hand, the EU is promoting sustainable development in its relations with third countries. On the other, it continues to be heavily dependent on imported fossil fuels, therefore actively attempting to secure the supply of polluting fossil fuels in its external relations. While the Union’s current reliance on energy from imported fossil fuels is understandable from the viewpoint of short(er)-term energy security, it should strive to move away from them in the long run if it wants to ‘practise what it preaches’ in terms of sustainable development abroad.

The shared competences in the field of energy (Article 194 Treaty on the Functioning of the European Union (hereinafter TFEU)) and the environment (Article 191 TFEU) pose additional challenges in forming a coherent external strategy in this area. The result is that the EU must constantly walk on a tightrope in two directions as regards its external energy policy: not only does it have to balance between promoting decarbonisation and securing its energy supply, it also has to ensure that the internal relationship between the Union and its Member States in this area is reflected adequately in its relations with third countries.

It should be pointed out that the objectives of sustainable development and security of supply are not contradictory per se. However, clearer delineations or coordination between the two objectives would favour EU external relations in general, and the EU’s FTAs more specifically. Moreover, Member States and the Union would themselves benefit from more uniformity and coordination in this area, as would the EU institutions tasked with developing energy, sustainable development and environmental policy.

The U.S. Defense in the Section 301 Case (DS543)

USTR has posted its first written submission in the DS543 case, which is China's complaint against the U.S. Section 301 measures. Among other things, there is a GATT Article XX(a) public morals argument. I'll let readers be the judge of all this. I wanted to focus on another point. The submission says: 

12. The United States adopted the measures at issue in this dispute to combat China’s longstanding policy and practice of using government interventions, coercion, and subterfuge to steal or otherwise improperly acquire intellectual property, trade secrets, technology, and confidential business information from U.S. companies with the aim of advantaging Chinese companies and advancing China’s industrial policy goals. Although China’s conduct is not addressed by current WTO rules, it is unfair and contrary to basic moral standards.

...

52. First, findings by this Panel cannot enhance the security and predictability of the system because China’s unfair and trade-distorting technology transfer policies addressed in the U.S. Section 301 investigation are not subject to current WTO rules. China certainly has not argued otherwise. To do so, of course, would amount to an argument by China itself that China is breaching WTO rules.

So the U.S. says "China’s conduct is not addressed by current WTO rules" and "China’s unfair and trade-distorting technology transfer policies addressed in the U.S. Section 301 investigation are not subject to current WTO rules." However, to take one example, as has been pointed out by a number of people, Section 7(3) of China's accession protocol addresses issues of forced technology transfer, and the United States could have brought a claim under that provision. Thus, for at least some of the U.S. concerns about China, there is, in fact, a possible U.S. remedy under WTO rules.

There's a distinction here between not "addressed," "subject to," or "covered by" WTO rules, on the one hand, and not in violation of the rules, on the other. It seems to me that most of the Chinese actions raised by the U.S. are at least "covered by" the rules, in the sense that there are relevant rules that apply to the kinds of actions at issue. Of course, even if the actions are "covered," there is still the question of whether there is a violation, something that would have to be decided based on the facts of the case.

China's arguments, and the panel's questions on this issue and the U.S. responses, will be interesting on this point.