International Economic Law and Policy Blog

Maria Pagan on Reforming WTO Dispute Settlement and the Appellate Body

This exchange is from today's Senate Finance Committee hearing to consider the nomination of Maria Pagan for Deputy USTR in Geneva (Ambassador to the WTO):

Senator Carper:

I would like to start off with a question ... for Ms. Pagan, dealing with WTO reform. Ms. Pagan, I've always felt it's something imperfect, we ought to work to make it better. And there's been a great deal of conversation, really on both sides of the aisle, and across the globe, about the need for reforms in the WTO. And that we know that the WTO has an important role to play in combating unfair trade practices that persist in non market economies like China. Unfortunately, the organization continues to face challenges with its dispute settlement system, including the lack of quorum on the Appellate Body that weakened the WTO's enforcement. The question is this, in your opinion, what strategy should our country take, the US take, to reforming the WTO and addressing the operability of the WTO's Appellate Body?

Maria Pagan:

Thank you, Senator Carper. The good thing is that we all agree, I think there's consensus that the WTO, and particularly the Appellate Body, need to be reformed. I guess on the other hand, we all have different views of what reform means, and particularly with respect to the Appellate Body. What we want, and if confirmed what I will work hard to do, is to have conversations so that we can restore the Appellate Body and the dispute settlement system to what we thought we had agreed to. We never intended the Appellate Body to be a rulemaking body. We believe that rules have to be enforced, but it has to be the rules as they were negotiated and agreed by the Members. So we need to, USTR has been having, these conversations, and we will continue to have these conversations. And I suspect that I will spend a lot of time having these conversations with our counterparts at the WTO to make sure that we can restore the Appellate Body and the system to the way that we envisioned it at the beginning. And I don't think it's going to be an easy conversation but it's something that I look forward to doing while I'm there.

Restoring the Appellate Body sounds positive, and perhaps more positive than other things we have heard from U.S. trade officials for a while. At the same time, restoring "the system to the way that we envisioned it at the beginning" is going to be tricky, because there may be different views on what was envisioned at the beginning, as well as different views on what is appropriate and necessary now.

ACWL 20 Year Anniversary Event

From the ACWL:

The ACWL is celebrating its 20th anniversary this year. To celebrate this occasion, we are hosting a webinar on 28 October from 15:00 to 16:30 CET on the “ACWL: Achievements for Developing Countries and LDCs and Challenges Ahead”.  We are delighted to have Professor Peter van den Bossche, former Chair of the Appellate Body and Director of Studies at WTI in Bern, Ms. Anabel Gonzalez, Deputy Director-General, WTO, Ambassador Usha Dwarka- Canabady, Permanent Representative of Mauritius to the United Nations Office in Geneva, Ambassador Gothami Silva, Permanent Representative of Sri Lanka to the WTO, Mr. Norman Harris, Representative in Panama of the Secretariat for Central American Economic Integration (SIECA), and Ms Patricia Holmes, Chair of the ACWL General Assembly and Deputy Permanent Representative of Australia to the WTO make presentations at the webinar.

Registration link: https://lnkd.in/dpeVeX7Y

Tai: "A Lot of Potential" for Coordinating U.S./EU approaches to China

This is from a two part interview by CNN's Julia Chatterley with U.S. Trade Rep. Katherine Tai:

Chatterley: Another, and it's been described as a pivot point actually, in the relationship between the EU and the United States, when we spoke to the French finance minister this week, and he said, it's on China. and there's a difference of opinions and approach, that the perception in Europe is that America wants to confront and challenge China, whereas Europe wants to engage. Do you agree that China effectively wins if the US and the EU are at odds with this relationship, and how to tackle the issues with China?

Tai: Well, let me take a step back, I think that a lot of this talk has come from comments that Minister Le Maire made, and I wanted to give the Minister the fair shake that he deserves, and I went back and looked at his comments. And I don't think that they're as pointed or as sharp as the reporting seems to make it. And let me say I think that we are very much aligned, from the US and EU perspective, and also from my own conversations with the Minister, the US and French perspectives, in terms of the fact that we share really considerable competitive challenges right now, but also in terms of the values that we share as societies, as economies, in terms of our political philosophies. So what I would say is that we have so much potential here for aligning the US/EU, and in terms of our approaches to China, actually in the conversations that I've been having, and I assure you, I have been having a lot of these conversations, I don't feel that there are gaps. I think that there is just a lot of potential for how we coordinate our approaches.

"Confronting and challenging" is a form of "engaging," and I'm not sure the differences between the two sides are as great as some people think. Tai's response here, along with the progress on putting aside disputes such as Boeing-Airbus, digital services taxes, and perhaps soon the Section 232 steel and aluminum tariffs (which also came up in the interview), gives me some hope that U.S.-EU cooperation on China could actually emerge some time soon.

SIEL October Conversation: ‘Institutions and Dispute Settlement under WTO’

From the SIEL:

SIEL October Conversation

The Society of International Economic Law (SIEL) is pleased to invite you to its February Conversation entitled ‘Institutions and Dispute Settlement under WTO’, with Geraldo Vidigal (University of Amsterdam),  Tommaso Soave (Central European University; Former WTO Appellate Body Secretariat), Marcus Gustafsson (Legal Service of the European Commission), Pınar Artıran (Istanbul Bilgi University; WTO Chair), chaired and moderated by Kathleen Claussen (University of Miami School of Law) 

28th October 2021 at 3 pm CET time. Registration is available here. 

More information can be found here.

Webinar-- The modernisation of the Energy Charter Treaty: Substantial and procedural implications for the IIA regime

This is from the University ‘Parthenope’ of Naples and the Asia Pacific FDI Network:

On 5 November, 14.00-17:30 CET; 08:00-11.30 (NY) we will host a webinar on "The modernisation of the Energy Charter Treaty: Substantial and procedural implications for the IIA regime."

The modernization process of the ECT is in full swing. So far, seven rounds of negotiations have been conducted, with the eight round yet to come in November 2021. This webinar provides the unique opportunity to hear the various perspectives on the modernisation process of the ECT that will be addressed by the representatives of states and international organizations, e.g., the EU Commission and UNCTAD. Also, the academic experts will address the key jurisdictional and substantive issues arising out of the interpretation the ECT in energy disputes.

The webinar is organised by University ‘Parthenope’ of Naples, the Asia Pacific FDI Network and Nyenrode University.

The programme and the registration form can be accessed here.

The webinar is free, but registration is required.

The organizers:
Dr. Yulia Levashova and Dr. Sara Pugliese

The speakers and the moderators:
Keynote address: Mr. Lukas Stifter (Chair of the Modernisation Group, ECT)

Prof. Hans van Houtte (KU Leuven)
Mr. Carlo Pettinato (European Commission)
Ms. Dorieke Overduin (Dutch Ministry of Economic Affairs and Climate Policy)
Ms. Diana Rosert (UNCTAD)
Prof. Paolo Davide Farah (West Virginia University /gLAWcal)
Prof. Julien Chaisse (City University of Hong Kong/Asia Pacific FDI Network)
Dr. Ottavio Quirico (Australian National University, University of New England and European University Institute)
Dr. Yulia Levashova (Nyenrode University/Asia Pacific FDI Network)
Dr. Sara Pugliese (University ‘Parthenope’ of Naples)

What Does the Biden Administration Think About a Power-Based vs. a Rules-Based Trading System?

I wanted to elaborate on a point I made in my post from last week, where I discussed U.S. Trade Representative Katherine Tai's response to my question about ways to improve the WTO panel process. As a reminder, here's what she was asked and how she replied:

Question: ... And then a related question from Simon Lester, I think is, moving away from the Appellate Body, you worked on panels here in Geneva, ... and you mentioned that some of these cases take a long time and aren't working, so he was wondering if there is anything you can suggest, anything you saw to make panels work faster and work better in the US estimation.

Tai: ...

So, with respect to the panel question, the only thing I would add there is that the panel process does take a while. It's very laborious, it can be quite expensive, if you've got outside lawyers working for you. And I think that the issue is not how to make it faster, but how to create more opportunities for the Members to come together and be incentivized to solve the problem, because in every dispute settlement case, when you play it out to the end, you've gone through every appeal and you've gone to the arbitration for your suspension of concessions. The point is not to punish each other. The point at the end of all of this is to create the conditions for the two Members to come together to find an accommodation, because we are all WTO members. And so, if there are ways that we can incentivize those political moments of conversation sooner, I think that that would be a worthy goal.

And here was my blog comment in response:

In terms of my question on the panel process, what I would say is that I completely agree that we should make settlement a priority, but from what I can see, the existing rules already do this. It's really up to the Members whether they want to settle, and sometimes they are able to do so. It's worth noting that most WTO complaints don't go through the whole litigation process. But sometimes Members just can't agree, and when they don't, we end up in litigation. Where that's the situation, there are important issues related to how the litigation process works that are worth improving on. (And I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations).

As I said, settlements are great, and governments should always be thinking of them as the best option. What worries me, though, is that if we don't have a litigation process that works when settlements can't be achieved, we will shift away from a system that emphasizes rules and towards one that gives primacy to power, and that leaves us worse off overall (although some countries might think they benefit from a power-based system). 

To be clear, the trading system will always have some mix of power and rules, so this is not an all or nothing proposition. But my question here is, does the Biden administration want to to shift a bit away from rules and towards power?

I hinted at this issue when I said, "[a]nd I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations." To elaborate a bit, what I meant here is that with the economic power imbalances that exist among different countries, a functioning international trade litigation system that relies on rules can give at least a little more leverage to smaller and developing countries when they raise concerns with larger powers. In particular, the moral force of a neutral ruling, combined with a monitoring system, can help them fight against the bad behavior of more powerful countries. In this way, the existence of rules helps to moderate the role of power.

My concern is that the Biden administration might prefer a more power-based system because it thinks the U.S., as the leading economic power, will get better outcomes under such a system. I don't know if it actually could get better outcomes, especially over the long-term, but my sense is that there are some people who think it could. To take an obvious example, I think that's what the Trump administration believed, and that's where it wanted the system to go. Instead of filing WTO or FTA complaints, the U.S. would just use access to its large domestic market as a way to extract concessions from trading partners. GSP reviews would be one way to do this, but there are plenty of other avenues as well.

Tai's response makes me worry that the Biden administration sees things in a similar way: Rulings by international trade courts are to be avoided, and instead U.S. economic leverage will be the primary basis for inducing changes in foreign government policies.

Now, maybe I'm overstating the importance of one response to one question. And a counterpoint to my concern is the Biden administration's willingness to pursue a USMCA complaint. However, in WTO dispute settlement, there aren't many signs yet that the Biden administration wants to preserve the rule of law. I can see how the Appellate Body crisis is a political challenge for the administration. But in terms of the basics of WTO dispute settlement, there are constructive things that could be done in the meantime to signal general support for a process that relies on rules.

USTR Requests ITC Investigation on Distributional Effects of Goods and Services Trade and Trade Policy

USTR has just requested that the ITC carry out the following two-part investigation of distributional effects of goods and services trade and trade policy:

under authority delegated by the President to the United States Trade Representative and pursuant to Section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)), I request that the Commission conduct a two-part investigation on the potential distributional effects of goods and services trade and trade policy on U.S. workers by skill, wage and salary level, gender, race/ethnicity, age, and income level, especially as they affect underrepresented and underserved communities.

Here's part one:

For part one of this investigation, I request that the Commission prepare a public report that catalogues information on the distributional effects on under-represented and under-served communities of trade and trade policy. In identifying these effects, and to the extent practicable, the Commission should gather information through:

(1) roundtable discussions among representatives of under-represented and under-served communities that have been identified in the Executive Order On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, as well as think tanks, academics and researchers, unions, State and local governments, non-Federal governmental entities, civil society experts, community-based stakeholders, such as minority-owned businesses, business incubators, Historically Black Colleges and Universities (HBCUs), Hispanic Serving Institutions (HSIs), Tribal Colleges and Universities (TCUs), other minority serving institutions (MSIs), and local and national civil rights organizations;

(2) a symposium focused on academic or similar research on the distributional effects on under-represented and under-served communities of trade and trade policy, including results of existing analysis, evaluation of methodologies, the use of public and restricted data in current analysis, identifying gaps in data and/or in the economic literature, and proposed analysis that could be done with restricted data; and

(3) a critical review of the economic literature on the distributional effects on underrepresented and under-served communities of trade and trade policy including, among other things, the data limitations raised in these analyses.

To the degree practicable, the investigation should report on the information provided through roundtables separately from that gathered through the symposium and literature review. It should identify information on effects on U.S. workers by group (as specified in the previous paragraph) identifying their specific U.S. region, and make recommendations on future research. I request that the report on part one of this investigation be delivered twelve months after receipt of this letter. As we intend to make the Commission's report on part one of this investigation available to the public, it should not include confidential business or national security classified information.

And here's part two:

For part two of this investigation, I request that the Commission expand its research and analysis capabilities so that future probable economic effects advice includes estimates of the potential distributional effects of trade and trade policy, including goods and services imports, on U.S. workers. This capacity building should include the further development of models capable of analyzing the potential distributional effects of trade and trade policy, including with respect to goods and services imports, on U.S. workers. The models should also be capable of analyzing the effect of expanded market access for U.S. goods and services products abroad on affected U.S. exporting industries, and to the extent practicable, the “indirect” effect on U.S. exports of intermediate inputs when final goods receive preferential access to the U.S. market. Through this capacity building, the Commission should also identify any data limitations that, if removed, could substantially speed the time to complete the analysis or allow for improved analysis.

I request that the Commission expand its research and analysis capabilities as indicated in the previous paragraph as soon as possible but no later than twelve months after receipt of this letter. During this time, I also request the Commission provide a briefing to USTR to present the results of its capacity building on these issues.

If I were still at a think tank, I would make this a priority project, and dive in to trying to study the negative distributional effects of tariffs, Buy America procurement, the Jones Act and other protectionist policies in general, and the negative effects on under-represented and under-served communities in particular.

Guest Post: ‘The crown and the jewel’ The rise and fall of the WTO Appellate Body: a critical analysis

This is a guest post from law professor Luca Rubini:

In yesterday’s speech in Geneva, Ambassador Katherine Tai, the current USTR, said:

“Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

It is about revitalizing the agency of Members to secure acceptable resolutions.  

A functioning dispute settlement system, however structured, would provide confidence that the system is fair.  Members would be more motivated to negotiate new rules.

Let’s not prejudge what a reformed system would look like. While we have already started working with some members, I want to hear from others about how we can move forward.”

This brief piece, initially written a few weeks ago, is a somewhat basic reflection on the rise and fall of the Appellate Body of the World Trade Organization (‘WTO’), long considered as a very successful – if not the most successful – example of international court. To many its track-record was impressive and spotless. While criticism of some of its jurisprudence, and more generally of some of the features of the whole dispute settlement mechanism, were raised, the Geneva-based “court” continued in its day-to-day work - relentlessly. In 2015 the criticism erupted into a full-fledged crisis with the United States (Obama administration) vetoing the replacement of a retiring member. The main claim, a long-standing one for the US, was that the Appellate Body was systematically ‘creating law’. This veto lasted from through the Trump administration with the result that, one by one, the 7 members were reduced to less than 3 on 10^th December 2019 – the minimum number for the body to adjudicate. In effect this meant killing the Appellate Body.

In this brief note I explore the historical origin of dispute settlement in the trade context and attempt to analyse the causes of this demise, while looking at the future.

The GATT era

At the very beginning, the General Agreement on Tariffs and Trade (‘GATT’) did not have a dispute settlement system. This birth defect depended on the fact that the GATT was designed to be a simple part of a bigger regulatory framework with at its centre a fully-fledged organization, the International Trade Organization. With the US Congress, however, jettisoning the ITO because of its perceived intrusion to American sovereignty, the only part of the deal that remained standing was the GATT which only included two very general provisions on disputes. No mention was made of the adjudicating bodies that should solve them, no reference to their composition or procedures.

What then happened is a miracle of diplomatic pragmatism. The closely-knit community of GATT and government officials created step by step a functioning dispute settlement system. For many years, it operated more as a mediation or conciliation system with working parties which included representatives of the litigating parties, aiming at finding a positive settlement between them. Through the years, with the constitution of ad hoc independent panels, there was a shift from a diplomatic to a more legalistic approach – where litigants argue on the basis of legal points and a winner (and a loser) necessarily emerge from the process.

The miracle is that the system worked and served the world trading system reasonably well for more than 45 years. Importantly, unlike judicial decisions in a domestic system, the reports produced by the Panels were not automatically law but had to be adopted by all Contracting Parties. Although the incentive for the losing party simply to object the adoption was clear, 80% of the Panel reports were adopted (only 8 reports remaining toothless printed paper). The Contracting Parties certainly had the perception that today’s loss could turn in tomorrow’s win. More importantly, however, they valued the system and played by the rules of the game.

If the GATT dispute resolution system is often tagged as an example of a diplomatic means to solve international disputes, it increasingly became more legalised. Perhaps, this had to do with the fact that lawyers were recruited in the mid-1970s for the first time (see Marceau, 2015). With the increasing legalization and judicialization of the system, the birth defects showed that it had reached its full potential, and reform was necessary. (For a masterful history of the GATT dispute settlement the works of Robert Hudec are still unsurpassed; see for example the volume Enforcing International Trade Law, 1993.)

The WTO era

The Uruguay Round negotiations, launched in the mid-1980s, eventually led to the creation of the WTO. The legal package included also a specific agreement on dispute settlement which thus filled the gap of the GATT period. It is, however, clear from the negotiations record that the idea of the Appellate Body was an after-thought, it came late in the negotiations and was not really carefully discussed and pondered. It was the first example in history of an appellate level in international judicature. The literature (Mavroidis, 2016) has recently explained the main political focus of the negotiations on dispute settlement: it was necessary to buy the US in the idea itself of an international dispute settlement and thus constrain their unilateralism.

For many years, the system has been applauded for its success. Since the beginning Members made use of the system. At the time of writing, 606 disputes have been registered. At the same time, many have consistently appreciated its compliance record. The mantra has been that losing parties do comply with the rulings and recommendations of the Dispute Settlement Body and that only in a handful of cases retaliation (the last resort in remedies) had been authorised and in very few of these instances applied. Though one may legitimately question this mantra (what does compliance really mean? See Mavroidis, 2016), we will not deal with this point.

The Dispute Settlement Mechanism of the WTO, with the permanent Appellate Body at its top, was frequently referred to as the ‘jewel in the crown’ of the WTO system.

The problems

Since the beginning, the literature has given large space to the decisions of the Panels and especially the Appellate Body, with analysis which increasingly matched the sophistication of the legal issues raised by disputes. In the early 2000s, the American Law Institute even set up a project where all decisions of the Appellate Body (and many of the Panels) were annually commented by a team constituted of one lawyer and one economist (the reports can be found here). As in any ‘public law’ system, big jurisprudential questions about sovereign prerogatives and their limits were continuously raised. One increasingly common theme in the literature was, however, the dissatisfaction with the attitude and quality of the Appellate Body’s decisions, especially concerning the interpretation of certain key agreements (for example, whether the anti-dumping agreement permits the practice of ‘zeroing’) or the asserted precedential nature of previous Appellate Body’s decisions (for few examples of this literature see, e.g., Mavroidis, 2013; Mavroidis, 2016; Rubini, 2016; for different assessment of 20 years of WTO Appellate Body jurisprudence see Howse, 2016).

This scholarly criticism found its political counterpart in the monthly meetings of the Dispute Settlement Body, the political organ of government representatives called to discuss and adopt the Appellate Body’s reports. Consistently, one of the strongest voices of criticism came from the United States – and this irrespective of the colour of the administration.

An old and rooted conviction of the Americans was that the Appellate Body was undoing the promises and commitments of the parties, it was, using jargon, “adding to the rights and to the obligations” of the parties. In a word, it was an activist body, indulging in creating law. All this, clearly, to the detriment of US’ interests (see Stewart, 2018; Condon, 2018).

Facts followed words. Jennifer Hillman, initially appointed by President George W. Bush, was not re-appointed by President Obama in 2011. Allegedly, she had not sufficiently defended US’ interests in the cases she was involved too. This was clearly a ‘bad omen’ for the trading system (Hufbauer, 2011). Hillman’s farewell speech in December 2011 was a measured defence to the importance of judicial independence. In May 2016 the US blocked the re-appointment of another member of the Appellate Body, this time Seung Wha Chang from South Korea. The reason was the disagreement “with the jurisprudence articulated in four Appellate Body decisions on which Chang was one of the three appellators on the division deciding the case” (Charnovitz, 2016). President Trump continued with the blockage, vetoing all new appointments to come, with the effect that the Appellate Body was doomed. The drama concluded with the fiery farewell speech by Thomas Graham, the last US Appellate Body Member, that seemed to fully back the long-standing US accusations and even escalated them by finger-pointing the Appellate Body Staff leadership (NB: the Appellate Body members used to be assisted by a special unit of the Secretariat).

But is the US the only complainer? According to a recent (2020) empirical study by the EUI, “the data reveal strong support for the basic design of the dispute settlement system but also that the United States is not alone in perceiving that the [Appellate Body] went beyond its mandate. There are substantive questions that need to be addressed if the Appellate Body impasse is to be resolved.” 

Analysis

It is now time for a bit of analysis. Those conversant with the system know that the WTO dispute settlement system has essentially been a two-level court in the shadow of the secretariat. It is highly likely that the helping hand of the officials in charge has often gone too far. This is not limited to the appellate level. Panellists are often not qualified enough. The quality of Appellate Body Members has arguably been decreasing appointment after appointment (I witnessed myself one former Member, excusing himself at a conference celebrating the twenty year anniversary of the Appellate Body, because he admitted not to have sufficient legal expertise to contribute to the debate). In a word, the endemic lack of professional and experienced lawyers on the bench has inevitably led to the Secretariat supplementing. This, in a sense, can also be seen as the lingering impact of the diplomatic GATT dimension within a system which has now the mission of being legalistic.

To be sure, the system has become more legalised in the WTO but the room for judicial gap-filling (and potentially policy-making) is very significant. Partly this was inevitable, and goes to the nature of WTO law which is in large respects an uncomplete contract. Many provisions are more akin to standards rather than rules (see Kaplow, 1992). The cost of negotiating specific rules was simply too high – mostly because agreement could not be found – and the parties concluded vague legal language, sometimes called ‘creative ambiguity’. In a word, it is the Members’ choice and responsibility to have opted for broad and vague language. This has, however, meant that, sooner or later, the standard had to be translated into a rule, it had to be construed. Gap-filling becomes almost inevitable, especially in a context where Members cannot find ways to update a rule-book negotiated in the 1980s/early 1990s (another element of governments’ responsibility). But, here comes the duty, responsibility and pressure of the adjudicators, who can perform their duty in different ways – being more deferential or indeed more creative. Arguably, there have been many instances where their constructions of the law seem to depart from what the parties agreed or, better, could not agree. See Rubini, 2016. Some of the most salient examples can be found in the sensitive jurisprudence on trade remedies (anti-dumping, safeguards, countervailing duties). See Rubini, 2014.

At the same time, jurisprudence has also been growing in complexity. Certainly, this has partly depended on the complexity of claims and facts (the epitome is Large Civil Aircraft litigation on financial support to Boeing and Airbus, the dispute that the system was not ready to handle – but the fault here is for those Members that escalated it into a legal dispute, not the dispute settlement system that was then obliged to deal with the “hot potato”; eventually reason came to town and a settlement was concluded; see Hufbauer, Rubini, Yee, 2009). But, rather than attempting to reduce this complexity to an efficient style of analysis and clear drafting, the judicial style seems to have remained entangled in it, at times even indulging in it. The quality of drafting suffered from it. More than this, this attitude has unduly led to tackling issues not strictly necessary to solve the dispute, to unnecessary obiter dicta, to excessively completing the analysis. The bigger picture emerging from this scenario is one where the Appellate Body was perhaps too much strongly aware of being the guardian of the system. This contrasts with what prevailed in the first years, mostly characterised by caution and self-restraint (see Ehlermann, 2003; Abi-Saab, 2006). In its 25 years of history, what is clear to the observer is an evolution in judicial leadership and strategy. See Rubini, 2016.

And now? Back to the past?

Two reactions have come out from the demise of the Appellate Body. On the one hand, those that have bitterly lamented the loss of the ‘jewel’, its unprecedented track-record in international dispute settlement, its good example as guardian of the rule-based system. On the other hand, others have asked themselves whether exploring the causes that led to this demise would have been a more fruitful exercise – we belong to this quarter. Quite inevitably, even the attitude on what to do with the dispute settlement system has been opposite between the two groups, with the former cohort suggesting that the veto – impasse should be tackled as a matter of urgency and the Appellate Body be reinstated in all its functions, and the latter group suggesting a period of reflection and possibly reform. Various proposals have been tabled (see the ‘Walker Principles’) and an interim appeal system has been signed to by several Members.

The literature is tackling various issues. Arguably, there is a need to go back to the fundamental questions. What type of dispute settlement do we want? Do we really need an appellate level? To do what? In the context of an international organization with no real legislative function, how can ‘wrong’ judicial decisions be remedied? Surely, the elephant in the room is that, not only do we need dispute settlement but, before that, we also need a properly functioning rule-making activity. One without the other will not work. That was partly what happened in the WTO: no rules, too many rulings.

Dispute settlement is necessary for any legal system, but the type of dispute settlement is dictated by the nature of legal system. Legally and politically, the discussion boils down to the following questions:  Is WTO law constitutional? Was the Appellate Body (supposed to be) a constitutional court? Or was the nature of the system and its laws more transactional and contractual? Using an economic language, who was the principal and who was the agent? Did the regulatory framework duly reflect these roles and introduce the necessary safeguards?

It is exactly in times of crisis, like the ones we currently live, that we need to go back to the fundamentals.

Katherine Tai on WTO Dispute Settlement

U.S. Trade Representative Katherine Tai gave a speech on WTO issues in Geneva today at the Graduate Institute's Geneva Trade Platform. Here is the section on WTO dispute settlement:

Over the past quarter century, WTO members have discovered that they can get around the hard part of diplomacy and negotiation by securing new rules through litigation.    

Dispute settlement was never intended to supplant negotiations.  The reform of these two core WTO functions is intimately linked.  

The objective of the dispute settlement system is to facilitate mutually agreed solutions between Members.  Over time, “dispute settlement” has become synonymous with litigation – litigation that is prolonged, expensive, and contentious.  

Consider the history of this system.  

It started as a quasi-diplomatic, quasi-legal proceeding for presenting arguments over differing interpretations of WTO rules.  A typical panel or Appellate Body report in the early days was 20 or 30 pages.  Twenty years later, reports for some of the largest cases have exceeded 1,000 pages.  They symbolize what the system has become: unwieldy and bureaucratic. 

The United States is familiar with large and bitterly fought WTO cases.  Earlier this year, we negotiated frameworks with the European Union and the United Kingdom to settle the Large Civil Aircraft cases that started in 2004.  

We invoked and exhausted every procedure available.  And along the way, we created strains and pressures that distorted the development of the dispute settlement system.

With the benefit of hindsight, we can now ask: is a system that requires 16 years to find a solution “fully functioning?”

This process is so complicated and expensive that it is out of reach for many – perhaps the majority – of Members. 

Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

It is about revitalizing the agency of Members to secure acceptable resolutions.  

A functioning dispute settlement system, however structured, would provide confidence that the system is fair. Members would be more motivated to negotiate new rules.

Let me address a couple of her points. Starting with the length of the reports, let's take a look at the earliest Appellate Body reports and the last Appellate Body reports in terms of the page length of the reasoning sections:

First 5 AB reports page length:

US - Shirts and Blouses: 9 pages

Brazil - Coconut: 12 pages

US - Underwear: 12 pages

Japan - Alcohol: 24 pages

US - Gasoline: 19 pages

Last 5 AB reports page length:

Australia - Plain Packaging: 204 pages

US - Supercalendered Paper: 25 pages

Russia - Railway Equipment: 71 pages

Ukraine - Ammonium Nitrate: 42 pages

Korea - Pneumatic Valves: 132 pages

These were rough calculations based on a quick glance, so feel free to check my math! But the figures should be approximately accurate. Clearly, Appellate Body reports got longer as the years went on. There are a number of possibilities for why that happened, including the following:

• Some of the difference has to do with the WTO Members themselves, of course. What kinds of issues, and how many issues, did they raise on appeal? Clearly, the appropriate scope of appeals expanded in the minds of the Members over the years.
• As the jurisprudence grew in volume, the AB had more past cases to cite to, and that added to the length. (I remember working on early SCM Agreement cases, and the provisions had never been interpreted before, which made it possible to keep things relatively short.)
• The Appellate Body itself may have seen its role as more expansive, and that led it to try to provide more clarity, which of course took up more pages.

In addition, it is true that 16 years to resolve a case is quite long, but it's worth noting that this is not the norm for these cases. If a case is complex enough that it is likely to take 5 years or more to litigate, it may be worth considering whether it is even worth bringing.

In the Q & A, two issues (one from me) related to WTO dispute settlement came up. The first question was about bringing the Appellate Body back, and the second was about making the panel process faster and more effective:

Question: So we've received a number of questions asking whether the US plans to move on the Appellate Body, on the conditions required to end the ban on new Appellate Body judges, justices. And so that was one strand of questions. And then a related question from Simon Lester, I think is, moving away from the Appellate Body, you worked on panels here in Geneva, ... and you mentioned that some of these cases take a long time and aren't working, so he was wondering if there is anything you can suggest, anything you saw to make panels work faster and work better in the US estimation.

Tai: So it's two questions. The first one specifically on the Appellate Body, the second one a little bit broader about the dispute settlement system and how to make it more efficient.

So on the first question, let me just say this. It is my hope that, as part of this reform effort, we can bring a different energy to our negotiations, and instead of my slapping down a full on proposal that I've dialed up to about 250, because I know that over the course of working through 164 members, ... it's going to get moved quite a bit from where we're starting. Instead of starting out that way, what I would like to do is start with the conversations, the talking to and the listening to each other, in terms of how the dispute settlement system, the whole thing, can serve the interests of Members better. And I've given you some examples in the speech today in terms of where the dispute settlement system has fallen flat in our estimation, but I can also point you to, and I don't think anybody wants me to do this, ... reams of documentation, papers, statements that the United States has made over the course of 15 years and three different administrations where we were saying to the Members of the WTO, we have concerns with the way the dispute settlement system is functioning, and we think that there needs to be a course correction, and frankly I think that over the course of those 15 years, not enough members listened. And so I want to take that lesson in this moment of reform to say, if you will listen to us, we will listen to you, and let's start the reform process from there.

So, with respect to the panel question, the only thing I would add there is that the panel process does take a while. It's very laborious, it can be quite expensive, if you've got outside lawyers working for you. And I think that the issue is not how to make it faster, but how to create more opportunities for the Members to come together and be incentivized to solve the problem, because in every dispute settlement case, when you play it out to the end, you've gone through every appeal and you've gone to the arbitration for your suspension of concessions. The point is not to punish each other. The point at the end of all of this is to create the conditions for the two Members to come together to find an accommodation, because we are all WTO members. And so, if there are ways that we can incentivize those political moments of conversation sooner, I think that that would be a worthy goal.

On the part about the Appellate Body, my comment here, and I'm sure I've said this before on this blog, is the following. I've read the U.S. criticisms of WTO dispute settlement and the Appellate Body over the years, and I understand the various issues the U.S. has concerns about. What I don't understand, though, is what the U.S. wants to see instead. For example, what should the scope of the appeals process be? Should there be DSU Article 11 appeals, and if so what should they look like? What should the GATT Article III non-discrimination standard be? The U.S. has criticized all of these areas and others, but it has not offered up much in the way of proposals. I'd really like to see some concrete proposals here, which could serve as the basis for a discussion. Tai seemed reluctant to put forward a "full on proposal," but I'm not sure there is any other way to move forward. Without this, I think it's likely we'll end up with the MPIA coming into operation as the appeals mechanism for those who want to use it. I do welcome the conversations, and maybe something can come out of them. However, based on what has been made public (I don't know what has been said in private), I have very little idea of what the U.S. vision for appellate review and broader dispute settlement reform is, and I think it's a big problem what we don't have a sense of this.

In terms of my question on the panel process, what I would say is that I completely agree that we should make settlement a priority, but from what I can see, the existing rules already do this. It's really up to the Members whether they want to settle, and sometimes they are able to do so. It's worth noting that most WTO complaints don't go through the whole litigation process. But sometimes Members just can't agree, and when they don't, we end up in litigation. Where that's the situation, there are important issues related to how the litigation process works that are worth improving on. (And I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations).

Birmingham Law School International Economic Law and Policy Working Group Events

This is from law prof Luca Rubini:

We are glad to present the first events in the 2021/2022 academic year of the International Economic Law and Policy Working Group (IELPWG), set up in 2019 at Birmingham Law School.

The IELPWG is a highly-focused discussion group for those numerous scholars (staff and PhD students, as well as alumni!) in Birmingham Law School with a core expertise and interest in trade, investment, antitrust and competition, finance and monetary affairs, EU internal and external trade, and other areas which can be defined as both ‘economic’ and ‘international’. It works as an interest group with regular meetings where research is presented and topical developments discussed. While the core focus of the group is on the law, it is open to scholars coming from other disciplines (mostly economics and political science) and will also benefit from the contribution of invited speakers.

You can find details on the IELPWG, its members and forthcoming events here.

The inaugural event of the 2021/2022 academic year, scheduled for October 18, Monday (5-7pm UK time) features one of our alumni, Dr Ben Czapnik, currently post-doc at the Chinese University in Hong Kong, presenting a paper on “Moral Determinations in International Law: Lessons from the Seals Dispute”. Professor Lorand Bartels, from the University of Cambridge, will act as discussant.

You have an abstract of Ben’s paper here:

While GATT Article XX(a) permits WTO Members to implement trade-restrictive measures for moral purposes, it also permits dispute tribunals to review the consistency of those measures with WTO law. In the moral disputes to date, WTO tribunals have managed a delicate balancing act by pragmatically addressing the parties' concerns while avoiding perceptions that they are second-guessing the moral choices of sovereign Members. However, this pragmatic approach has left some critical questions unanswered:

• What does the concept of "public morals" entail? 
• What analytical methods are available to establish the existence of public morals?
• Are non-rationalist measures covered by the moral exception?

In this session, Dr Czapnik argues that WTO law has failed to clearly resolve these issues and that the WTO's public morals jurisprudence is ambiguous and equivocal. These issues came to the fore in the Seals dispute where there are competing academic views about the EU's underlying policy objective: was the seal products ban a rationalist animal welfare measure inspired by welfarist philosophy or did the EU offer special protection to seals because of their "cuteness" and the "moral feelings" they invoke among EU citizens? 

We hope to see many of you joining this and all our events!

Luca Rubini and Henok Asmelash

Soumaya Keynes' Great Special Report on World Trade (and Two Quibbles)

Soumaya Keynes of the Economist has a great six part Special Report on World Trade. I really enjoyed it and highly recommend it! (Unfortunately, Soumaya is apparently leaving the trade beat, but this was a nice way to go out).

There were two small bits in the environment part that I have quibbles with, though, and I'll mention them here.

First, she says:

"In theory, the wto should be an ideal forum in which to consider environmental issues. Global problems of the commons require global solutions."

I completely agree with the second sentence, but I completely disagree with the first. In my view, there is no reason to think the WTO would be an "ideal" forum for environmental issues, or even a good forum. Certainly there is an overlap between trade and the environment, and WTO Members will have to come up with ways to address this. For example, an agreement to lower tariffs on environmentally-friendly goods could be useful; and we need clarity on how domestic environmental measures will be judged in WTO dispute settlement. But for the fundamental aspects of environmental issues (e.g. reducing carbon emissions), I don't see why the WTO would be the right place.

One reason I say this is that I don't think it's a good idea to deal with multiple global problems in one institution. That creates fears about some sort of "global government," and gets more than a few people riled up. People are riled up enough as it is -- let's not give them another reason!

Now, if the WTO were particularly effective at handling international rules on the environment, maybe it would be worth that risk. But the WTO is not particularly good at international rules on anything these days, so I don't see why it would be particularly effective here.

Overall, I don't see any advantages in doing this sort of global coordination at the WTO. It can be done anywhere, either in a permanent institution or through an ad hoc mechanism. Governments have certainly had trouble doing it, but the reason they are having trouble is unrelated to institutions or mechanisms. Rather, in my view, it's that most of them have simply been reluctant to take action in certain areas, such as climate change. If they wanted to take global action on climate change, they could. But they are all torn about it for one reason or another, so they haven't.

Second, she says:

"... the wto’s lawyers tend not to approve of discrimination based on how products are made, which is crucial if carbon-intensive products are to be treated differently from cleaner ones."

It is true that there is an approach to GATT/WTO non-discrimination obligations that goes something like this: If you have two products that are "like" in terms of their physical characteristics, but are treated differently pursuant to a regulation on the basis of how they were made, that will inherently treat at least one foreign product less favorably than one like domestic product, and that in and of itself leads to a finding of violation of GATT Article III or Article I with no further analysis needed. (There may be some variations on this view -- that was just a quick off the top of my head explanation).

However, I would say that while this approach used to be the dominant one, it is now an increasingly minority one, and it would probably not be applied by a WTO panel (or the Appellate Body or the MPIA) today. In my view, the existence of discrimination based on how different products are made is not directly relevant to the WTO's non-discrimination standards (in either the obligations or the exceptions), which instead should focus on issues such as the "design and structure" of the measure and should be centered around the concept of nationality-based discrimination rather than discrimination against particular products. A regulation that treats products differently depending on how they were made could certainly be challenged under these provisions, just as any regulation could. But you would still have to go through the full analysis under provisions such as GATT Articles III and I and the Article XX exceptions, rather than just assuming that a measure which treats carbon-intensive products differently from low-carbon ones leads to a violation. There's no doubt in my mind that a carbon regulation could be designed in a way that either does not violate or is upheld under the exceptions, although in practice governments tend to slip in some nationality-based discrimination, which is what often leads to problems.

New GATT Dispute Database from the WTO

The WTO Secretariat has just put out a cool new database on GATT disputes. The official press release is here: 

The database allows users to search for information relating to the 317 GATT disputes brought by contracting parties from 1948 to 1995. The information provided includes documents such as consultation requests and reports, serving adjudicators, the disputing parties, claims and defences of the parties, the procedural legal basis cited by the complainants, and products at issue in the proceedings.

If you want a less formal introduction to the database, check out this video on the linkedin page of the WTO's Roy Santana.

The Role of Women in U.S.-China Trade Negotiations

I found this question and answer from CNBC's Kayla Tausche to U.S. Trade Rep. Katherine Tai interesting:

Tausche: In the direct talks that took place during the prior administration, the only women that were at the table were the translators. Do you fear that because of Chinese cultural norms that you won't be taken seriously as a woman leading the negotiations for the administration?

Tai: So much to unpack there Kayla. You know what, I look forward to these conversations. And I would say with respect to Chinese cultural norms, you don't have a Chinese mother. I would say that I don't fear Chinese cultural norms. In fact, I'm really looking forward to these engagements because they are so important to how successful the United States will be in the coming years.

As Tai said, there is a lot to unpack here. As the question started, I was thinking that the focus was going to be on the lack of women on the American side of the table last time. But then it turned out that the focus was on the Chinese side.

In terms of Chinese cultural norms here, I have no idea, so I asked Julia Qin for her thoughts. Here's what she said:

As for the “Chinese cultural norms”, I expect the Chinese negotiators (esp. if MOFCOM is involved) will be smart enough to take her very seriously. Some of the MOFCOM folks met her during WTO litigation. The fact that she speaks Chinese and understands Chinese mentality is all the more reason for the China side to take her seriously. As for being a woman, recall that Charlene Barshefsky was the one that negotiated China’s WTO accession. And the two former Chinese AB members are both women. 

I feel like some other people out there who know more about all this than I do might want to weigh in as well, either on the general topic, the question, or the response, so have at it in the comments if you so desire.

The Biden Administration's China Trade Policy

I wrote a piece over at China Trade Monitor (still free for now!) on Katherine Tai's speech from yesterday and the Biden administration's developing China trade policy. Here's the intro and conclusions:

After months of saying that they are reviewing their China trade policy, the Biden administration has, through a speech by U.S. Trade Representative Katherine Tai at CSIS, an interview with Tai on CNBC, and remarks made on background by senior administration officials, offered some details on the direction they plan to go. Four key aspects of their agenda are: 1) Enforcement of the U.S.-China Phase One trade agreement; 2) restarting the Section 301 tariff exclusions process; 3) reengaging with senior Chinese trade officials; and 4) working with allies on the trading system in general and on an approach to China. To some extent, the Biden administration's statements seem like a continuation of the existing U.S. trade policy towards China (although Biden administration officials emphasized that they view the Trump administration's approach as flawed and their approach would be different in important ways). However, they could be taken as a tentative, though belated, first step towards a post-Trump U.S. trade policy towards China.

...

The Biden administration's announcements on its China trade policy probably could have come a lot sooner. However, the administration was caught up with various domestic policy issues; it is still in the process of getting its full USTR team in place; and it has a difficult task in formulating a coherent and effective policy in this area. The pressure from various sources to do or say something may have pushed them to offer the general outlines of the policy described above. What we heard from Katherine Tai and other officials are the first tentative steps towards a policy that will continue to be fleshed out over the coming months and years. The immediate step appears to be that the Biden administration will raise these issues with China, and see how China reacts. It is that reaction that may determine the next steps the Biden administration takes in this area.

Basically, they will raise a bunch of concerns with China (mostly through the Phase One agreement, but perhaps elsewhere as well) and see what China has to say. I think there will be problems with doing this under the Phase One agreement (lack of transparency, a flawed enforcement mechanism), but that's what they want to use and we'll see how it goes.

What Would Happen if WTO Members Voted on AB Appointments?

Henry Gao has been making the case that WTO Members should have a vote on appointing AB Members, as a way to get around the U.S. block. I don't think that's likely to happen, but just for fun, I ran a totally unscientific Twitter poll to see how people thought the U.S. would react to such a vote:

 

What I had in mind for each one, but didn't have the space to explain on Twitter, was:

• "Withdraw from WTO" -- Congress either repeals the URAA or votes to withdraw during one of those five year periodic vote opportunities set out in the URAA.
• "Not engage with WTO work" -- The Biden administration simply decides not to show up at any WTO meetings.
• "Accept the result" -- The U.S. basically says "OK fine we accept the new AB Members and we'll participate in WTO DS again."
• "Something else" -- Dmitry Grozoubinski offered a good example here under which the U.S. blocks the WTO budget.

Again, I don't expect a vote to happen, but for whatever it's worth, I voted for "not engage with WTO work."

U.S. Trade Rep. Katherine Tai will be giving a big speech on U.S.-China trade relations on Monday. I hope that someone at USTR gives us some hints soon about U.S. ideas to get WTO dispute settlement working again.

Guest Post: Eco Oro Minerals Corp. v. Republic of Colombia: some thoughts on an investor’s due diligence

This is a guest post from law professor Yulia Levashova:

The investor’s due diligence has become a significant factor in determining whether the legitimate expectations based on the stability of a regulatory framework of an investor give rise to protection under the FET standard. According to numerous recent decisions (Charanne v. Spain, Isolux v. Spain, Stadtwerke München and others v. Spain, Antaris v. Czech Republic,  Belenergia v. Italy, Hydro Energy v. Spain), the evidence of a due diligence process is a requirement for the protection of legitimate expectations arising out of a stability claim. The threshold for a violation of legitimate expectations is whether the state’s contested regulatory changes were unforeseeable for a prudent investor. To determine whether this is the case,  a tribunal usually consider: (1) the form and the content of due diligence and (2) the extent of the foreseeability of regulatory changes that can be determined by the efforts undertaken by an investor to assess the risks of change (see the analysis here: https://link.springer.com/article/10.1007/s40802-020-00170-7).

Currently, the requirements for the form and content of due diligence are not clearly defined and vary from case to case. Furthermore, the execution of a due diligence process itself is not always accepted as a requirement for the protection of the legitimate expectations by tribunals.  The recent decision on jurisdiction, liability and quantum in Eco Oro Minerals Corp. v. Republic of Colombia, (9 September 2021) is a good illustration of that. In this decision, the tribunal found that Colombia violated the fair and equitable treatment standard under Article 805 of the Free Trade Agreement between Canada and Colombia. The majority found that Colombia frustrated the legitimate expectations of Eco Oro (the investor) by refusing to proceed with mining exploitation activities in the entire area of Concession because of the environmental reasons.   

In its assessment of legitimate expectations, the majority emphasizes the significance of an investor’s due diligence in protection of the legitimate expectations. The tribunal concludes that no due diligence has been performed by the investor, providing ‘whilst there is no evidence on the record of the due diligence actually undertaken by Eco Oro, it cannot be disputed that proper due diligence would have notified Eco Oro of the presence of páramo within the area of the Concession. Equally, due diligence would have alerted Eco Oro to the fact that páramo presence had been known to Colombia since 1851 and Eco Oro would also have been alerted to the fact that Colombia had had the duty to protect páramo ecosystems since Law 373 of 1997 but had not taken any action. Eco Oro should also have been aware that given the terms of Constitutional Court Judgment C-293 of 2002, its rights pursuant to Concession 3452 were subject to the overriding interests of the State to protect the environment. (..)’ (para. 768).

The majority acknowledges that even ‘the most cursory due diligence even before Concession 3452 was granted would have revealed (i) the potential existence of a páramo ecosystem within the boundaries of Concession 3452; (ii) the Government’s commitment and obligation to protect these ecosystems; and (iii) that such protection could be achieved by the imposition of a mining’ (para. 682). This being said, the tribunal still found a breach of the legitimate expectations, essentially disregarding the absence of the investor’s due diligence. As prof. Sands underlined in his dissenting opinion, ‘the majority nevertheless concludes that Eco Oro had a legitimate expectation in relation to MST, on which it could rely notwithstanding the total absence of any exercise of due diligence. In reaching its conclusion (at paras. 804 and 805 of the Decision), the majority passes in silence on due diligence.’ (Dissenting opinion, para. 18).

What is interesting in this decision is the tribunal’s disregard of its own conclusions in the final determination of the legitimate expectations, namely the acknowledgement that the process of due diligence is a relevant factor in the assessment of legitimate expectations and the recognition of the fact that the investor has not undertaken any due diligence. Earlier tribunals that do not place a significance on an investor’s due diligence usually consider any limited efforts on the part of an investor to assess the risks to constitute sufficient due diligence. Or, some tribunals determined that a due diligence would not have changed anything in the appraisal of the regulatory framework. For example, in Novenergia v. Spain, the tribunal was of a view that the state’s assurances that originated from Royal Decree 661/2007 and which stated that the original rate of returns would remain were so ‘adamantly clear’ that it did not require a ‘particularly sophisticated analysis’, such as legal due diligence. Also, in the tribunal’s view no formal due diligence would have been capable of revealing the regulatory changes that were later enforced by the state. (para. 679).

Although an investor’s due diligence has clearly become a factor in assessment of the protection of the legitimate expectations. There is no consistency concerning the scope of an investor’s due diligence in investment decisions, as well as its role in the final determination.

Guest Post: Appointing Appellate Body Members by Majority – A Draft Article IX:2 Interpretation

This is a guest post from law professor Geraldo Vidigal (see also my totally unscientific twitter poll related to this issue):

With the Biden administration having continued the previous administration’s stance of blocking all appointments to the Appellate Body, the issue of the appointment members by majority is back on the agenda. Even if negotiators are unlikely to fundamentally change the dynamics of the WTO by proceeding to decisions-making by majority, an interesting legal question arises: could the Ministerial Conference or the General Council appoint Appellate Body Members by majority even is this were politically feasible?

Henry Gao and I have discussed the matter in this blog in the past, and have now published comprehensive academic articles defending our respective positions.

I must say I have changed my mind slightly on the matter since first looking into the relevant provisions. While I still believe that, under the most logical interpretation of the WTO Agreements, the Ministerial Conference and the General Council should be bound by the same rules as the Dispute Settlement Body (DSB) when appointing persons to the Appellate Body (i.e., consensus), I have since concluded that there is scope for interpretation. In other words, there is scope for an arrangement that both fits the text of the Agreement Establishing the WTO (AEWTO) and the Dispute Settlement Understanding (DSU) and allows the Ministerial Conference and General Council to appoint persons to the Appellate Body by majority, exercising their authority under Article IV of the AEWTO.

This interpretation is due to the fact that the Ministerial Conference has “the authority to take decisions on all matters under any of the Multilateral Trade Agreements … in accordance with the specific requirements for decision-making in this Agreement and in the relevant Multilateral Trade Agreement”. Under Article 2.4 of the DSU, the DSB is required to make all of its decisions by consensus, including the appointment of persons to the Appellate Body under DSU Article 17.1. The DSU is a multilateral trade agreement. Therefore, the most logical interpretation of the relevant arrangement is that the Ministerial Conference and the General Council may make appointments to the Appellate Body but must respect the requirements for decision-making that apply to the DSB’s own decisions on the matter.

Upon considering the matter further, however, I now see scope for the following interpretation: “specific requirements” in Article IV:1 are requirements that apply specifically to the decision being made. Article 2.4 is a general requirement applicable to all decisions of the DSB under the DSU. Other previsions of the DSU specifically require certain decisions to be made by consensus (6.1, 16.4, 17.14, 22.6, 22.7). Article 17.1 does not set out any such specific requirement. As a result, the consensus requirement applies generally to decisions of the DSB, but there are no specific requirements applicable to decisions to appoint persons to the Appellate Body. As a consequence, the Ministerial Conference and the General Council would be able to appoint persons to the Appellate Body under their own authority under Article IV:1, subject solely to the requirements for decision-making under AEWTO Article IX:1, which allows majority decisions in case a decision cannot be made consensus.

Given the significance of this interpretation to the WTO’s institutional architecture and the likely dispute that there would be over it, I do not see how it should be adopted implicitly – would it then be legitimated by an Appellate Body whose very composition has its legality disputed? As a result, if WTO Members were willing to appoint persons to the Appellate Body by majority (which, I emphasize, I do not believe they ever will), I believe they could only do that by preceding the appointments with an interpretation explicitly adopted for this purpose, employing their “exclusive authority” to do so under AEWTO Article IX:2. While I would recommend Members to adopt this interpretation by consensus, especially in order to avoid disputes over the limitation in the final sentence of Article IX:2 (“This paragraph shall not be used in a manner that would undermine the amendment provisions in Article X.”), the interpretation I propose is a logical interpretation of the relevant legal provisions, not an amendment of these provisions. As a result, it could be adopted by a three-fourths majority, as Article IX:2 explicitly permits.

To make the intellectual exercise more interesting, I have drafted a possible Article IX:2 interpretation that would achieve this purpose. While I do not see that politically WTO Members would ever appoint persons to the Appellate Body by majority, as a matter of legal architecture the existence of this possibility may affect negotiation dynamics, giving future holdout Members the prospect – even if politically unlikely – of a majority decision. And this prospect may turn out to be necessary, now that all WTO Members know that all they need to do to dismantle the WTO dispute settlement system is to persistently object to the appointment of persons to the Appellate Body.

*

Interpretation of Article IV:1 of the Agreement Establishing the World Trade Organization

1. We recognize the challenges the Dispute Settlement Body (DSB) has been facing, over the past five years, in reaching consensus over the appointment of persons to the Appellate Body. As a result of these challenges, the DSB has been unable to fulfil its obligation under Article 17.2 of the Dispute Settlement Understanding (DSU) to fill vacancies in the Appellate Body as they arise.
2. We reaffirm our commitment to preserving the principles and to furthering the objectives underlying the multilateral trading system, including the security and predictability of the multilateral trading system. We also reaffirm our commitment to the continuation of the practice of decision-making by consensus whenever a decision can be arrived at by consensus.
3. We recognize that there are divergent interpretations concerning the requirements applicable to decisions of the Ministerial Conference and the General Council, acting under Article IV of the Agreement Establishing the World Trade Organization.
4. Accordingly, we exercise the authority, conferred on us by Article IX:2 of the Agreement Establishing the World Trade Organization, to adopt interpretations of this Agreement and of the Multilateral Trade Agreements, and thus interpret Article IV:1 of the Agreement Establishing the World Trade Organization as follows:

1. 1. The expression “in accordance with the specific requirements for decision-making in this Agreement and in the relevant Multilateral Trade Agreement” in Article IV:1 of the Agreement Establishing the World Trade Organization refers to requirements that apply specifically to the adoption of the decision being made.
   2. Requirements that apply generally to all the decisions of an organ are not specific requirements for decision-making and do not affect the requirements for decision-making applicable to the Ministerial Conference and the General Council when making decisions under the authority conferred on them by Article IV:1 of the Agreement Establishing the World Trade Organization.
   3. For greater clarity, when appointing persons to the Appellate Body under Article 17.1 of the Dispute Settlement Understanding, the Dispute Settlement Body is bound by its general decision-making rules, including by Article 2.4 of the Dispute Settlement Understanding, which requires all decisions made by the Dispute Settlement Body provided for in the Dispute Settlement Understanding to be made by consensus.
   4. Contrary to other provisions of the Dispute Settlement Understanding, its Article 17.1 does not establish specific requirements for the appointment of persons to the Appellate Body.
   5. Pursuant to the interpretation adopted in paragraph (a) above, the Ministerial Conference and the General Council may therefore exercise their authority under Article IV of the Agreement Establishing the World Trade Organization to appoint persons to the Appellate Body of the World Trade Organization, subject solely to the requirements for decision-making applicable to their decisions under the Agreement Establishing the World Trade Organization, and in particular to the requirements set out in its Article IX.

5. We stress that the Ministerial Conference and the General Council should not lightly exercise their authority to make decisions primarily assigned to other organs of the World Trade Organization. Only where a decision cannot be arrived at by the relevant organ following genuine and prolonged good faith negotiations should the Ministerial Conference or the General Council exercise their authority under Article IV of the Agreement Establishing the World Trade Organization in matters primarily entrusted to decision-making by other organs of the World Trade Organization.

Guest Post: Proof that WTO subsidy rules are out-of-date in the climate change age

This is a guest post from trade lawyer Bixuan Wu of the Hiways law firm:

Last December, the US Commerce Department ruled that, under the EU's Emission Trading System, extra free allowances received by EU producers with high carbon leakage risks constituted a countervailable subsidy. Soon after the DOC’s final determination, Jesse Kreier wrote a post here which I missed. My attention was drawn to this case by the EU’s 39^th Annual Report on trade remedies.

At first glance, and by intuition, I thought the DOC’s decision was legally sound. Anyway, under the EU ETS, producers on the “carbon leakage list” indeed receive a favorable treatment by receiving more free allowances than unlisted producers, thus may emit more CO2 with no costs. But I, with a petitioner’s habitual thinking, overlooked the financial contribution factor which is usually the easiest to prove. If my understanding of the EU ETS is correct, emitters that run out of free emission allowances don’t buy allowances from the government. Instead, they buy from other companies subject to the ETS. Thus, as the EU has made clear in its briefs, in the case of free allowances, there was no revenue forgone because there was no revenue “otherwise due” in the first place.

The DOC certainly understood how the EU ETS worked but was determined to establish a financial contribution anyway. It repeatedly asserted that without additional free allowances, companies would have to purchase allowances either from the government or from another private party with allowances to sell. This statement is pivotal to the finding but is half-false. Similarly misleading is the DOC’s analogy between free allowances and favorable tax treatments.

The decision is interesting because it shows existing WTO subsidy rules need to be reformed to address new problems of the climate change age. In essence, the EU favored listed companies over unlisted ones by granting more free allowances to the former, not at the expense of its own pocket (revenue), but rather at the expense of climate mitigation. This is a situation that the drafters of ASCM did not envisage.

Also interesting is that free allowances is one of the two approaches to remedy carbon leakage. The other is a Carbon Border Adjustment Mechanism (CBAM). I wonder if the DOC has considered the ramification of its decision – if the EU’s free allowance is a countervailable subsidy, then the EU’s proposed CBAM is more legitimate. Isn’t it?

A Sixth Agreement To Use the MPIA

I previously noted the five WTO disputes where agreed procedures between the parties for using the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) have been circulated (as well as an agreement to use Article 25 arbitration outside the context of the MPIA). There is now a sixth dispute, China - Canola Seed from Canada (DS589), which is the second one involving China. The agreed procedures in the case are here. The panel was established on July 26, 2021, and has not yet been composed, so it would be a while until it is ready to be appealed.

We're not seeing any progress in resolving the Appellate Body crisis, which makes it more likely that the MPIA is used for appeals at some point.

RCEP's Airtight Data Localization Security Exception

Security exceptions in international economic law agreements tend to be more expansive than other exceptions, but over on Twitter Geraldo Vidigal pointed out recently that the RCEP security exception for data localization measures has an element that seems to go further than usual, giving any government that invokes the exception complete and total discretion to do whatever it wants in this area. Here's what the obligation and security exception say:

Article 12.14: Location of Computing Facilities

2. No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that Party’s territory.¹¹

3. Nothing in this Article shall prevent a Party from adopting or maintaining:

...

(b) any measure that it considers necessary for the protection of its essential security interests. Such measures shall not be disputed by other Parties.

The language that differentiates it from most security exceptions is "Such measures shall not be disputed by other Parties." If I understand that correctly, and as Geraldo suggested on Twitter, where one party has said it considers a measure  to be "necessary for the protection of its essential security interests," other RCEP parties cannot even raise an argument about this, either in bilateral discussions or in a formal complaint. Any disputes about such measures are off the table completely. That's quite a broad security exception! (Although it is only for a limited category of measures, of course -- the RCEP general security exceptions are drafted in a more traditional way).

Geraldo seemed to think that maybe the idea came from India, but I can see how it might catch on with a couple of other governments. That would be a mistake, in my view. But it's something to keep an eye out for nonetheless.

Call for Venues for the SIEL Biennial Global Conference in 2023

From the SIEL:

The Society of International Economic Law (SIEL) is seeking a suitable venue and institutional host for the Eighth Biennial SIEL Global Conference, to be held in July 2023. The Call for Venues is open to all institutions (including consortia or collaborations of institutions) active in the field of international economic law. We expect that the Eighth Biennial SIEL Global Conference will be held in a hybrid format with the possibility of turning to fully online should health restrictions not permit holding the conference in a hybrid format. More information can be found at:

https://www.sielnet.org/8th-biennial-siel-global-conference-2023-call-for-venues/

Guest Post: The CPTPP/TPP-11, the UK and China

This is a guest post from law professor Jaime Tijmes

Trans-Pacific Partnership (TPP) negotiations concluded in October 2015.[1]  United States President Obama heralded the TPP as a renegotiation of NAFTA:

…TPP representing a renegotiation of NAFTA… (available at https://web.archive.org/web/20191217063334/https://ustr.gov/tpp/)

As President Obama has made clear, past trade deals—including the North American Free Trade Agreement, or NAFTA—haven’t always lived up to the hype. That’s why he has called for renegotiating NAFTA to better address labor and environmental issues. Because TPP includes Canada and Mexico and improves substantially on NAFTA’s shortcomings, it delivers on that promise. TPP learns from past trade agreements, including NAFTA, by upgrading existing standards and setting new high standards that reflect today’s economic realities. (https://ustr.gov/sites/default/files/TPP-Upgrading-the-North-American-Free-Trade-Agreement-NAFTA-Fact-Sheet.pdf)

It seems fair to say that the implicit purpose of TPP was answering a real or perceived increase in China’s influence in the Asia Pacific, as part of the Obama Administration’s East Asian foreign policy[2] (“Pivot to Asia”).

Very soon after US President Trump took office, the US informed that it did not intend to become a party to the TPP.[3]  Instead of pursuing the TPP, the Trump Administration chose to renegotiate NAFTA, which eventually became the United States-Mexico-Canada Agreement (USMCA).  Due to the US decision not to pursue the TPP, the remaining 11 TPP parties signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, also known as TPP-11), which in essence incorporates most TPP provisions by reference pursuant to art. 1 CPTPP.

The CPTPP entered into force regarding Australia, Canada, Japan, Mexico, New Zealand and Singapore on 30 December 2018. It has taken over two years for the CPTPP to enter into force regarding Peru on 21 September 2021.[4]  Entry into force is still pending regarding the remaining four parties: Brunei Darussalam, Chile, Malaysia, and Viet Nam.  Thus, it seems fair to say that the CPTPP has resulted less attractive than originally envisaged.  A few days ago, for instance, Chile expressed its interest in joining AANZFTA (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, Viet Nam and the Philippines; and New Zealand and Australia);[5]  so far, it is unclear if this means that the Chilean Government is tacitly giving up CPTPP due to domestic political pressures.

It was somewhat startling when the UK applied for accession pursuant to art. 5 CPTPP on 30 January 2021[6], that is, almost exactly a year after Brexit on 31 January 2020.  So far, the CPTPP Commission has commenced the accession process and has established an Accession Working Group.[7]

On 16 September 2021, China applied for CPTPP membership.[8]  However, it seems doubtful if China’s application will be fruitful.  CPTPP parties would have to reach consensus for allowing China to join.  But that the main hurdle lies elsewhere: in the USMCA.  Art. 32.10 USMCA provides that a USMCA party that intends to commence free trade agreement negotiations with a non-market country, shall inform the other parties at least 3 months prior to commencing negotiations (article 32.10.2).  Before signing the agreement, the party shall provide the other parties with an opportunity to review the full text of the agreement (article 32.10.4).  Entry by a party into a free trade agreement with a non-market country will allow the other parties to terminate the USMCA on six months’ notice (article 32.10.5, analogously to a withdrawal pursuant to article 34.6), enter into negotiations (article 32.10.7) and eventually replace it with a bilateral agreement (article 32.10.5) based on the text of the USMCA (article 32.10.6).  Quite obviously, these rules aim at China.  Since the CPTPP entered into force on 30 December 2018 regarding Canada and Mexico[9], article 32.10 USMCA will be applicable to China’s request to join the CPTPP.  It seems unlikely that Canada and Mexico would chose the CPTPP with China if it means terminating, renegotiating or replacing the USMCA.  Thus, China’s accession to the CPPTP will at the end of the day most probably hinge on the US.

The Chinese Government is most certainly aware of this.  At first glance, China’s application for CPTPP membership may have been a surprising move considering the TPP implicit purpose of deterring China.  Yet it makes sense: irrespective of the application’s result, and precisely because of the TPP’s implicit purpose, China’s application for CPTPP membership looks like a political move to underscore US passivity and lack of leadership, while also possibly putting a wedge between USMCA parties.  Canadian and Mexican trade flows are notably more concentrated on the USA than the other way around; therefore, it would arguably make sense for Canada and Mexico to liberalize their trade with China.

Finally, UK and China applications to join the CPTPP may invigorate the political pressure on Brunei Darussalam, Chile, Malaysia, and Viet Nam regarding the CPTPP’s entry into force.  It may also assuage (right-wing and left-wing) anti-globalization critics: after all, if the UK and the China (two States that supposedly promote national sovereignty) want to join the CPTPP, it can’t be that bad, after all.

 

[1] http://www.sice.oas.org/tpd/tpp/tpp_e.asp

[2] https://obamawhitehouse.archives.gov/the-press-office/2015/11/16/fact-sheet-advancing-rebalance-asia-and-pacific

[3] https://ustr.gov/sites/default/files/files/Press/Releases/1-30-17%20USTR%20Letter%20to%20TPP%20Depositary.pdf

[4] http://www.sice.oas.org/tpd/tpp/tpp_e.asp

[5] https://www.subrei.gob.cl/sala-de-prensa/noticias/detalle-noticias/2021/09/15/ministros-de-asean-australia-y-nueva-zelanda-dan-la-bienvenida-al-interés-de-chile-de-incorporarse-al-aanzfta

[6] https://www.gov.uk/government/news/uk-applies-to-join-huge-pacific-free-trade-area-cptpp

[7] https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/decision_cptpp_uk_request-decision_ptpgp_ru.aspx?lang=eng

[8] http://www.mofcom.gov.cn/article/news/202109/20210903199707.shtml

[9] http://www.sice.oas.org/Trade/TPP/CPTPP/English/CPTPP_Index_e.asp

The Eco Oro Minerals v. Colombia Award: More Evidence that MST/FET Can't Be Salvaged

Over on Twitter, lots of people are talking about the recent investment arbitration award in Eco Oro Minerals v. Colombia. (For Investment Arbitrator Reporter subscribers, a summary of the tribunal's reasoning is here.)

I've followed some of the Twitter discussion, but haven't read the whole award. For now, let me just make two quick points about some specific aspects of the award.

First, here are some key passages from the Tribunal majority's finding of violation of MST/FET:

805. A majority of the Tribunal finds that Colombia’s actions, including its failure finally to delimit the Santurbán Páramo in circumstances where Eco Oro was advised that no environmental licenses could be issued for mining projects in the vicinity of the Santurbán Páramo until the new delineation had been completed and the failure to give Eco Oro an extension to submit its PTO, comprise conduct that failed to provide Eco Oro with a stable and predictable regulatory environment.

...

821. Whilst the bar is a high one and the Tribunal does not expect that Colombia should have elevated unconditionally Eco Oro’s interests above its obligation to protect the páramo, equally Colombia should have ensured that its various arms took the necessary steps to comply with Colombia’s constitutional obligation to protect the páramo such that they acted in parallel and in a coordinated manner with respect to Concession 3452. It should be reminded that, for purposes of attribution, “[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.”837 It is clear from the above review of Colombia’s actions, viewed as a whole, that Colombia’s approach to the delimitation of the Santurbán Páramo was one of arbitrary vacillation and inaction which inflicted damage on Eco Oro without serving any apparent legitimate purpose. Colombia was not willing to address and manage the widely disparate interests of those impacted by where the boundary of the Santurbán Páramo was drawn; it found itself torn between the competing interests of protecting the páramo and obtaining much needed royalties. It has failed to act coherently, consistently or definitively in its management of the Santurbán Páramo and in so doing has infringed a sense of fairness, equity and reasonableness and indeed has shown a flagrant disregard for the basic principles of fairness. This is more than just inconsistency or inadequacy by Colombia and its officials. Colombia has not accorded Eco Oro’s investment treatment in accordance with the customary international law minimum standard of treatment of aliens, including the obligation to provide fair and equitable treatment, and the Tribunal therefore finds by a majority that Colombia is in breach of article 805 of the FTA.

My take on MST/FET jurisprudence has always been that the approach of many tribunals to this obligation is not rooted in the reality of how governments operate. If you take standards such as "stable and predictable regulatory environment" seriously, such a wide range of government actions, perhaps even a majority of them, would violate these obligations that the whole system doesn't make any sense. Now, if you could narrow MST/FET down to some extremely egregious actions that only occur rarely and we all agree are unacceptable, maybe it would work. But there's no language I've ever seen proposed that would come close to doing this. In practice, the various options with MST/FET language involve varying degrees of vagueness and overbreadth.

Second, after finding a violation of MST/FET, the tribunal majority found that the existence of an environmental exception does not prevent compensation from being awarded for the violation. The exception, Article 2201(3), says:

(3) For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investment or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:

(a) To protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal or plant life and health;
(b) To ensure compliance with laws and regulations that are not inconsistent with this Agreement; or
(c) For the conservation of living or non-living exhaustible natural resources.

That seems like a fairly clear and normal IEL exception, but the Tribunal took away its force by allowing claims for compensation even if the exception is satisfied, as follows:

828. The Preamble to the FTA details, inter alia, that its object and purpose is to ensure a predictable commercial framework for business planning and investment in a manner that is consistent with environmental protection and conservation.841 Canada accepts that “the Parties [to the FTA] did not view their investment obligations as being at odds with the protection of [….] their environment and human rights obligations.”842 and that “trade and environment policies are mutually supportive […]”.843 In determining the ordinary meaning of Article 2201(3) it is therefore necessary to understand, as has been held by the Tribunal, that neither environmental protection nor investment protection is subservient to the other, they must co-exist in a mutually beneficial manner.

829. In the context of the FTA’s object and purpose, the Tribunal construes Article 2201(3) as being permissive, ensuring a Party is not prohibited from adopting or enforcing a measure to protect human, animal or plant life and health, provided that such measures are not arbitrary or unjustifiably discriminatory between investment or between investors or a disguised restriction on international trade or investment. Such a construction is consistent with the FTA’s objective of environmental protection: by prohibiting an investor from applying for restitution pursuant to Article 834(2)(b), the State is not precluded from adopting or enforcing the measure in question. Equally, however, there is no provision in Article 2201(3) permitting such action to be taken without the payment of compensation. Given that the FTA is equally supportive of investment protection, had it been the intention of the Contracting Parties that a measure could be taken pursuant to Article 2201(3) without any liability for compensation, the Article would have been drafted in similar terms as Annex 811(2)(b), namely making explicit that the taking of such a measure would not give rise to any right to seek compensation under Chapter Eight. In this regard, it is of note that there is no reference in Article 2201(3) to claims for breaches of the FTA. Indeed, given that the Contracting Parties drafted other provisions, such as Annex 811(2)(b), to include an express stipulation as to the circumstances in which a measure is not to constitute a treaty breach, it is simply not credible that the Contracting Parties left such an important provision of nonliability to be implied when considering the operation of Article 2201(3).

830. The Tribunal therefore construes Article 2201(3) such that whilst a State may adopt or enforce a measure pursuant to the stated objectives in Article 2201(3) without finding itself in breach of the FTA, this does not prevent an investor claiming under Chapter Eight that such a measure entitles it to the payment of compensation.

That conclusion is eye-popping, to say the least.

Putting these two findings together confirms my strongly held opinion that there is nothing that can be done to salvage MST/FET provisions. Revisions to the wording of the obligation do very little; and adding in exceptions does very little. The only solution I see is to remove MST/FET from international investment obligations entirely. (While some people might suggest investment courts are the answer here, I'm not sure they would help.)

Can Domestic Disputes Over Who Is the Legitimate Government of a Country Be Addressed at the WTO?

What happens if governments raise concerns at the WTO over whether a particular government is a legitimate one? Here is the U.S. statement at the March 26 DSB meeting as summarized in the official minutes:

1.2. The representative of the United States said that, pursuant to Rule 6 of the Rules of Procedure for Meetings of the General Council, as agreed by the DSB, the United States proposed an amendment to the proposed Agenda. The United States proposed to remove item 4, referred to as "Request for the Establishment of a Panel by Venezuela." The United States said that item 4 of the proposed agenda contained an item that had been submitted by purported representatives of the government of Venezuela. This was not the case. The purported representatives of the Government of Venezuela attempted to place a similar item on the Agenda of the DSB meeting in March 2019. At that time, the US position was that the item had not been requested by the legitimate government of Venezuela and therefore could not be placed on the Agenda. The basis for the US position was straightforward: the United States – along with more than 50 other WTO Members – did not recognize the Maduro regime as legitimate. Instead, the United States recognized Juan Guaidó as the legitimate President of Venezuela. In the two years since the Maduro regime's last attempt to add its request to the DSB agenda, the US position had not changed. Now, the United States – as well as many other WTO Members – continued to not recognize the legitimacy of the Maduro regime. For that reason, the United States said that it must object to the adoption of a proposed agenda that included item 4, because that item had been requested, not on behalf of the legitimate government of Venezuela, but by individuals acting on behalf of the illegitimate Maduro regime. Those representatives did not have the right to place an item on the agenda of a DSB meeting on behalf of the government of Venezuela. The United States instead proposed that the DSB amend the proposed Agenda to remove item 4, such that the Agenda would contain only those items properly requested to be included by Members of the WTO. The United States invited all Members to join in adopting an amended Agenda.

Venezuela obviously disagreed:

1.4. The representative of Venezuela said that in response to the question posed by the Chairman, Venezuela deeply regretted that it was, unfortunately, under the obligation to respond to the statement made by United States, which, under the influence of intolerance and repeating unusual and somewhat fragile arguments about the alleged legitimacy of Venezuela's Government, sought to paralyze the work of this important Body. It was reprehensible and inappropriate that one delegation sought to multi-lateralize its bilateral position and impose its confrontational agenda in a forum that had been established to settle disputes in an impartial and objective manner, in accordance with legal rules. Venezuela regretted that the United States had decided to block the Agenda of the present meeting, in response to the legitimate right of Venezuela to include on the Agenda of the present meeting the request for the establishment of a panel, submitted by Venezuela and contained in document WT/DS574/2/Rev.1, which had been circulated on 16 March 2021. Venezuela had a sense of déjà vu, since it had tried to include its panel request pertaining to this matter in 2019, with the same response from the United States. Venezuela believed, perhaps naively, that the new US government would open the door to respectful dialogue and ensure observance of public international law. Venezuela saw that this was not the case and that the words and actions continued to lack consistency.

...

In terms of how other governments reacted, some took the U.S. side:

1.10. The representative of Peru said that Peru supported the US objection regarding the inclusion of item 4 on the proposed Agenda by the Maduro regime of Venezuela.

1.11. The representative of Brazil said that, in Brazil's, view the representatives of the Maduro regime did not have the legitimacy to speak on behalf of Venezuela at the WTO. Therefore, those representatives could not request the establishment of a panel in the DSB. Brazil hoped that every effort would be made to avoid paralysis of the regular work of the DSB. Brazil supported the amendment proposed by the United States to the Agenda of this meeting.

1.12. The representative of Colombia said that Colombia echoed and supported the concerns expressed by the United States. Colombia also supported the US proposal to amend the proposed Agenda by removing item 4. In Colombia's view only those items that had been properly requested to be placed on the Agenda should remain thereon.

The EU, probably suppressing a big grin, suggested that the U.S. could invoke the security exceptions:

1.13. The representative of the European Union said that, if the EU understood correctly, the United States was not ready to accept the panel request by Venezuela as being valid, as it was submitted by a government which the United States no longer recognized as the legitimate government representing Venezuela. In that case, the European Union would have expected the United States to rely on the security exceptions under Article XXI of the GATT 1994 and Article XIV bis of the GATS to justify any departures from basic GATT and GATS provisions that may exist with regard to the measures taken against Venezuela. The EU noted that the US measures at issue appeared justified by the security exceptions, so the challenge at issue could not, in any event, succeed. All that being said, the EU had to react for systemic reasons and express its concern at the prospect of the DSB being prevented from proceeding with the present meeting with all the items on the proposed Agenda simply because that Agenda could not be adopted. There was a long-standing and widely recognised principle that DSB Agendas could not be blocked to the extent that they included items governed by negative consensus. That included first panel requests (governed by consensus), since they were a necessary precondition to second panel requests. That principle was of utmost importance because the binding nature of WTO dispute settlement rested on it. That said, the EU expected that the meeting be suspended, as a result of the US objection to the adoption of the proposed Agenda. That would allow the Chairperson and the WTO Members directly involved to consult in an effort to find a solution. The EU hoped that these efforts would rapidly yield a solution, so that the meeting could proceed to enable the DSB to discharge its important duties with which it was entrusted.

Cuba than took Venezuela's side:

1.14. The representative of Cuba said that Cuba recognized the legitimately elected government in Venezuela of Nicolás Maduro as well as the legitimate right of the delegation led by its Ambassador to request that this item be included on the proposed Agenda of the present meeting. Cuba said that Members should consider who was trying to paralyse the work of the DSB regarding this matter.

As did Russia:

1.15. The representative of the Russian Federation stated that the Russian Federation wished to refer to its previous statement made at the DSB meeting on 26 April 2019 in support of the legitimate delegates of the government of Venezuela and wished to reiterate its principal position that the WTO was not an appropriate forum for political discussions. The Russian Federation was greatly concerned with the disruption of the normal functioning of the DSB due to political controversies between WTO Members, especially under the present challenging times for the dispute settlement system caused by the Appellate Body crisis. The Russian Federation expressed its hope for the quick resolution of this matter on mutually acceptable terms.

By the next meeting, Venezuela had agreed to remove its panel request from the agenda.

I don't know how these kinds of issues should be resolved, but I know some people who are interested, so I thought I'd call attention to it here.

The Possibility of Another Section 301 Investigation on Chinese Trade Practices

At the end of the day on Friday, there were a number of news reports about the Biden administration considering a new Section 301 investigation on China, this time focusing on subsidies. Here's Bloomberg:

The Biden administration is weighing a new [Section 301] investigation into Chinese subsidies and their damage to the U.S. economy as a way to pressure Beijing on trade, people familiar with the matter said.

Top Biden economic advisers, including U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo, are meeting Friday afternoon to discuss the potential probe, the people said. 

Here's the FT:

A move to open a new investigation into unfair trade practices by China would follow the Biden administration’s growing frustration that Beijing has not fundamentally shifted away from its heavy use of industrial subsidies to prop up strategically important sectors in recent years.

And here's the WSJ:

Administration officials are considering launching an investigation into Chinese subsidies under Section 301 of the U.S. trade law, which could lead to new tariffs, according to people familiar with their plans. The White House is also looking to team up with the European Union, Japan and other allies in Asia, and rally support within the World Trade Organization to take on Chinese subsidies.

Upon hearing these reports, my first thought was that it would be crazy for the Biden administration to take the same approach to Chinese trade practices as the Trump administration did. If you want China to change its practices, a unilateral effort involving tariffs that violate WTO rules is extremely unlikely to accomplish this. Now, maybe you don't expect change, and just want to balance out the Chinese subsidies with U.S. tariffs. (Countervailing duties already take care of that to some extent.) But if you are hoping for change, more Section 301 tariffs seem like the wrong approach. It's difficult to disentangle all the various things that happened with Trump's trade policies, but I think it would be pretty hard to make the case that Trump's Section 301 tariffs led to meaningful liberalization of Chinese trade practices.

At the same time, figuring out what to do instead is complicated. It's easy enough to say, as I and other often do, that working with allies, and going through the WTO, is the better approach. But certainly neither one of those things will be simple. Nevertheless, I think it's the best option, and I was heartened to see the WSJ piece seem to mention this as a possibility being considered by the Biden administration. When the Trump administration started up the Section 301 process, I wasn't completely sure where they were going with it. It turned out they were going towards tariffs, of course. But the Biden administration might not be going in the same direction with a Section 301 investigation.

One thing a Section 301 investigation does is buy the administration a little time to figure out exactly how to proceed. And it could, in theory, be used as a basis for organizing a multilateral effort. If that's the idea, then I can see how a Section 301 investigation makes sense. I doubt USTR really needs to do much investigating at this point. I assume they have been gathering evidence for years. But they can write it all up nicely in a report, and in the meantime coordinate with allies on the best approach.

Introducing China Trade Monitor

As many of you know, I left Cato as of July 1. Since then, I've been working with my former Cato colleague Huan Zhu to set up a news/analysis website on China trade issues. It's called China Trade Monitor and you can see it here: www.chinatrademonitor.com. 

We will cover a wide range of issues related to trade, investment, and economic relations with China more broadly: Traditional trade policy issues,  “trade and …” issues, and issues that have implications for trade, such as national security, human rights and competition policy/antitrust. Some of the main topics include: trade agreements, negotiations, and disputes; trade remedies; domestic legislation, regulation, and litigation; digital trade; investment; intellectual property; environment; and labor rights.

We've been writing regularly for the site for the past few weeks, and there are more than a hundred posts up there for people to check out.

For the next few weeks at least, we will do this for free. At a certain point, we will have to start charging, of course, but in the meantime enjoy the free service and let us know what you think! We would love to get people's feedback. We are still making tweaks to the design, and still thinking about the precise scope of the content, and it would be great to hear from people on these issues. 

(And to answer a question I've gotten, WorldTradeLaw.net and this blog will continue as is! I'm basically just switching out my Cato work for this new website.)

ANZSIL International Economic Law Interest Group Workshop

From the ANZSIL International Economic Law Interest Group:

The Co-Chairs of ANZSIL’s International Economic Law Interest Group, Dilan Thampapillai and Chris Riffel, are pleased to present the programme of this year’s workshop. The workshop on Monday, 6 Sept, will be via Zoom and non-presenting attendants can register with Dilan (d.thampapillai@unsw.edu.au). The keynote address by Andrew Mitchell will be on indigenous data sovereignty and the electronic commerce chapter of the CPTTP.

The full program is here.

Some Quick Reactions to the WTO Panel Report on U.S. - Safeguards on Photovoltaic Products

The WTO panel report on U.S. - Safeguards on Photovoltaic Products was circulated today. Here are a few reactions based on a very quick read of the report.

First, it seems like kind of a big deal that a safeguard measure, and in particular a U.S. safeguard measure, was found not to be in violation of WTO rules. I've heard a number of people say that WTO jurisprudence in this area is so strict that it's impossible to impose a safeguard measure consistently with the rules. But now it has been done, so the rules may not be as constraining as was thought. (Previously, a WTO panel and the Appellate Body upheld a U.S. safeguard measure on tires under the now expired China-specific safeguard rules, but those provisions are easier to satisfy.) Perhaps this decision will have some impact on the views of some of the people in the U.S. who have been critical of WTO dispute settlement.

Second, based on my quick read, it seems to me that a big reason for the finding of no violation on the important issue of "unforeseen developments" was USTR's decision (a big thank you to whomever at USTR was behind this!) to ask the ITC to do a supplemental report on this issue, and the panel's decision to take that report into account. Back in January 2018, I said the following about this issue:

I wonder what a WTO panel and the AB will think of the fact that none of this showed up in the original ITC report, and, relatedly, what they will make of the USTR request that generated this reasoning in a subsequent report. My guess is that as long as they find the reasoning acceptable, they will forgive its omission from the original report, ...

My instincts seem to have been correct (but again, it was a very quick read!).

Third, this panel kept referring to "DSB reports." For example, in para. 7.18 it said:

As we agree with the findings in the previous DSB reports noted above, we will assess China's claims concerning the three elements in the first clause of Article XIX:1(a) of the GATT 1994 accordingly.

I don't think "DSB reports" is a normal thing for panels to say (and a quick search seemed to confirm that), and I wondered if this was part of the panel's attempt to reframe reliance on past reports, in two ways: 1) there would be no references to the "Appellate Body"; and 2) the panel expressed agreement with past reports, rather than a more deferential reliance on them.

And finally, I wonder how China will react to all of this. It could appeal the report into the void, in order to maintain some uncertainty about these issues. On the other hand, it would be a show of good faith to let the report be adopted and simply move on. That wouldn't solve the bigger issues surrounding China's participation in the WTO, but a gesture of this sort could help move things in a positive direction.

ADDED: I want to add something about the USTR request that the ITC do a supplemental report on the issue of unforeseen developments. I had forgotten that such a request was also made in the U.S. - Steel Safeguards case back in the early 2000s, as Jesse pointed out in the comments to this post. See paras. 10.119-135 of that panel report. I have not looked at the two ITC supplementary reports in the Steel Safeguards and Photovoltaic Safeguards cases to see how they compare and whether any differences might have contributed to the different results in these two panels' findings.

SECOND ADDITION: I've uploaded the ITC's supplemental report on unforeseen developments in the photovoltaic safeguards case here.

The Solar Safeguards Panel Report - Some First Reactions

The newly-released Panel Report in US – Solar Safeguard (WT/DS562/R) is of course notable in that, for the first time, a global safeguard measure challenged in WTO dispute settlement has fully survived panel review. A longstanding practice of imposing standards so high that they could never be satisfied has perhaps been breached. Maybe if this type of standard had been applied earlier, and safeguards had been reasonably available as the parties to the Uruguay Round negotiations anticipated, we would not be plagued with the effectively unbounded Section 232 measures applied by the Trump Administration?

The Report is however notable in other ways. The first thing that struck me was its style. It is a relatively short report by WTO standards, almost readable. The report’s legal analysis tends to focus on treaty text, rather than prior decisions, and avoids lengthy quotations from Appellate Body decisions. Where it does refer to prior decisions, it refers to “previous DSB reports”, not differentiating between adopted AB and panel reports, and tends to drop the references to those reports to footnotes. And when referring to such decisions, the Report carefully notes that the panel “agrees” with the findings, rather than simply treating them as a source of law in themselves.

Substantively, the Report’s approach to “unforeseen developments” and “the effect of WTO obligations” is also interesting. Regarding the latter point, it is enough that the Member “identifies a WTO obligation that would have prevented it from raising tariffs on the product at issue” (para. 7.52). Regarding the former, the Panel accepted the proposition that “China’s industrial policies, five-year plans and other government support programs” were a development that could not have been foreseen by US negotiators (para. 7.26). Although the Panel did not specifically reference this, the US had argued that WTO Members had “committed to open, market-oriented policies” (para. 7.24).

These comments just skim the surface of the Report. I’d be very interested to hear the reaction of other readers ….

USMCA State-State DS Is Keeping Busy

Panel composition in a second USMCA dispute, on U.S. - Solar Safeguards, was recently announced (the first USCMA dispute panel to be composed was discussed here). The panelists are:

• Mario Matus, Chair, by agreement of the disputing Parties
• Jennifer Hillman, Appointed by Canada, the complaining Party
• Donald M. McRae, Appointed by the United States, the responding Party

All three have extensive experience with WTO dispute settlement: Matus and McRae both have five WTO panel reports to their name; and Hillman was on the Appellate Body.

The panel request in the case is here.