International Economic Law and Policy Blog

New U.S. Export Restrictions on Personal Protective Equipment (PPE)

Last week, President Trump issued a "Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use," which including the following passage:

On March 25, 2020, the Secretary of Health and Human Services designated under section 102 of the Act 15 categories of health and medical resources as scarce materials or materials the supply of which would be threatened by accumulation in excess of the reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices (“scarce or threatened materials”).  These designated items include certain PPE materials.  To ensure that these scarce or threatened PPE materials remain in the United States for use in responding to the spread of COVID-19, it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.

An accompanying statement clarified:

Nothing in this order will interfere with the ability of PPE manufacturers to export when doing so is consistent with United States policy and in the national interest of the United States.

These kinds of memos and statements sometimes don't lead to much, and I wondered where this was going. But now it has gone somewhere. The following is from a temporary final rule just issued by FEMA (and scheduled to be published on April 10) entitled "Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use":

II. Provisions of the Temporary Final Rule

Following consultation with the Secretary of HHS; pursuant to the President’s direction; and as an exercise of the Administrator’s priority order, allocation, and regulatory authorities under the Act, the Administrator has determined that the scarce or threatened materials identified in the April 3, 2020 Presidential Memorandum (“covered materials”) shall be allocated for domestic use, and may not be exported from the United States without explicit approval by FEMA. See new 44 CFR 328.102(a).

The rule is necessary and appropriate to promote the national defense with respect to the covered materials because the domestic need for them exceeds the supply. Under this temporary rule, before any shipments of such covered materials may leave the United States, CBP will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a rated order for, or allow the export of part or all of the shipment under section 101(a) of the Act, 50 U.S.C. 4511(a). FEMA will make such a determination within a reasonable time of being notified of an intended shipment and will make all decisions consistent with promoting the national defense. See new 44 CFR 328.102(b). FEMA will work to review and make determinations quickly and will endeavor to minimize disruptions to the supply chain.

In determining whether it is necessary or appropriate to promote the national defense to purchase covered materials, or allocate materials for domestic use, FEMA may consult other agencies and will consider the totality of the circumstances, including the following factors: (1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; (2) minimization of disruption to the supply chain, both domestically and abroad; (3) the circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns; (4) the quantity and quality of the materials; (5) humanitarian considerations; and (6) international relations and diplomatic considerations.

This rule contains an exemption that the Administrator has determined to be necessary or appropriate to promote the national defense. See new 44 CFR 328.102(c). Specifically, the Administrator has determined that FEMA will not purchase covered materials from shipments made by or on behalf of U.S. manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020, so long as at least 80 percent of such manufacturer’s domestic production of covered materials, on a per item basis, was distributed in the United States in the preceding 12 months. The Administrator decided that this exemption is necessary or appropriate to promote the national defense because it would limit the impact of this order on pre-existing commercial relationships, in recognition of the importance of these commercial relationships to the international supply chain, and for humanitarian reasons, in consideration of the global nature of the COVID-19 pandemic. If FEMA determines that a shipment of covered materials falls within this exemption, such materials may be transferred out of the United States without further review by FEMA, provided that the Administrator may waive this exemption and fully review shipments of covered materials subject to this exemption for further action by FEMA, if the Administrator determines that doing so is necessary or appropriate to promote the national defense. FEMA may develop additional guidance regarding which exports are covered by this exemption, and encourages manufacturers to contact FEMA with specific information regarding their status under this exemption.

The Administrator may establish, in his discretion, additional exemptions that he determines are necessary or appropriate to promote the national defense and will announce any such exemptions by notice in the Federal Register.

FEMA will implement this rule with the cooperation and assistance of other U.S. Government agencies, including CBP, and will work with manufacturers, brokers, distributors, exporters, and shippers to ensure that the applicable requirements are carried out. Any covered materials intended for export may be detained by CBP while FEMA conducts its review of the shipment. FEMA will review the shipment and provide notification as soon as possible regarding the disposition of the covered materials under this order, provided that any goods that have been detained by CBP and are subsequently made subject to a DPA-rated order will be consigned to FEMA pending further distribution or agency direction. FEMA may provide additional guidance regarding the application of any exemptions to this temporary rule, as appropriate.

FEMA may conduct such investigations and issue such requests for information as may be necessary for the enforcement of the Act, including this rule. See new 44 CFR 328.104(a); see also section 705 of the Act, 50 U.S.C. 4555; Executive Order 13911, 85 FR 18403 (Apr. 1, 2020). FEMA may seek an injunction or other order whenever, in the Administrator’s judgment, a person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of the Act or any rule or order issued thereunder. See new 44 CFR 328.104(b); see also section 706 of the Act, 50 U.S.C. 4556. In addition to an injunction, failure  to comply fully with this rule is a crime punishable by a fine of not more than $10,000 or imprisonment for not more than one year, or both. See new 44 CFR 328.104(c); see also section 103 of the Act, 50 U.S.C. 4513. In addition, pursuant to 18 U.S.C. 554, whoever fraudulently or knowingly exports or sends from the United States, or attempts to export or send from the United States, any merchandise, article, or object contrary to any U.S. law or regulation, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise, article, or object, prior to exportation, knowing the same to be intended for exportation contrary to any U.S. law or regulation, faces up to 10 years’ imprisonment, a fine, or both, if convicted.

At any point in time, and to the extent consistent with United States policy, the FEMA Administrator may determine additional materials to be subject to this allocation order. Upon a determination under section 101(b) of the DPA that an additional material is a scarce and critical material essential for national defense, and that being allocated to domestic use under this allocation order is the only way to meet national defense requirements without significant disruption to the domestic markets, the Administrator will include these additional materials in this allocation order, and will provide notification of this decision through publication in the Federal Register. 

I don't have a problem with this sort of export regulation in theory. I think governments should be keeping track of where all the personal protective equipment is, so they can make sure it gets to the people who need it most. And the six criteria set out above seem reasonable. What's going to be important here, in my view, is how the rule is applied and whether it prevents this equipment from getting where it should go.

New US Domestic Content Requirement for State Aids

New US Domestic Content Requirement for COVID-19 State Aids

Steve Charnovitz

While I was pleased to see the G20 Statement on 30 March 2020 that governments should avoid "unnecessary interference with international traffic and trade," I also note that the Statement does not mention the word "law," as in "international law" or "WTO law."  So, I was disappointed, but not surprised, that the Trump Administration added a domestic content requirement to the $350 billion U.S. "Paycheck Protection Program" to provide subsidies to US businesses.  In order to obtain the financial contribution, the applying business executive has to certify that "To the extent feasible, I will purchase only American-made equipment and products."  The recipient is also required to agree that "if the funds are used for unauthorized purposes, the federal government may pursue criminal fraud charges."

This may be the largest WTO-illegal subsidy in the history of international trade law.

A disaster provides opportunity, and the COVID-19 disaster is giving the United States yet another opportunity to engage in discrimination and protectionism in international trade. 

The Real Rot in the System: Delays Are Making WTO Dispute Settlement Irrelevant, Especially During a Pandemic

“Free trade saves lives” is what I was recently reading on Twitter. And, yes, trading masks or ventilators in times of coronavirus can do exactly that.

Plenty of trade commentators (here and here) have lamented the export restrictions recently imposed on medical gear, which may do the opposite.

Jennifer Hillman has added how reducing tariffs on pharmaceuticals, and allowing for subsidies to quickly find a vaccine and cure, would complement what she calls a “smart trade approach to fighting COVID-19”. The WTO itself has stepped in with a website to offer some transparency on virus response measures taken by countries across the globe.

Yet, no one has even mentioned the WTO’s dispute settlement system as something that could potentially assist countries in dealing with the crisis, for example, to obtain a ruling on what subsidy, export or trade restriction is within the rules, or to prevent an escalation of beggar-thy-neighbour policies.

And you cannot blame them.

Why so?

Timing …

Although panel proceedings were supposed to take only 6 months (maximum 9) and appeals 60 (maximum 90) days, the reality today is a multiple of that. The DSU provides for expedited procedures “in cases of urgency” (cutting timeframes in half, see Arts. 4.8/9 and 12.8/9), but these have never been used. And it is hard to imagine how these timeframes (3 months to complete a panel!) could be achieved following today’s “foot-dragging practices” of panels, the AB and (perhaps most importantly) disputing parties.

Think of it: the US emergency measures to address imports of steel and aluminum on (alleged) national security grounds were taken on 23 March 2018. On 5 April 2018 (13 days later), China requested WTO consultations. But today two years have passed and the panel is still pending. The panel recently announced that its final report would be issued to the parties in fall 2020 which means that (with translation) a public panel report circulated to Members can, at best, be expected by the end of 2020 …

DSU Art. 12.9 states that “in no case should the period from the establishment of the panel to the circulation of the report to the Members exceed nine months”. In reality, in DS544 (and this case is no exception) it will take not 9 months but at least 24 months … (and we are not even speaking yet of appeals, implementation periods, compliance and retaliation proceedings that may follow).

As I discussed elsewhere (here and here), the system has favored comprehensiveness, detail and the search for “correctness” and “consistency” over speed, efficiency and timely resolution of specific trade disputes.

A re-calibration is needed.

The main goal of WTO dispute settlement is to find a positive settlement of the dispute and avoid escalating retaliation. As Alan Sykes put it in 2002, the DSU was set up to "cap" and "limit" retaliation, rather than "increase the penalty for violations". It is there to detect "defection" (breach) so as to trigger an obligation of compliance or (in the absence thereof) a right to rebalance. Past harm is never compensated and retaliation (rebalancing) is only permitted when authorized at the end of a proceeding.

More than in other enforcement systems, this makes time of the essence. If it takes 3 years (panel plus appeal) to even get a signal of “breach or no breach”, the rules lose their credibility and the deal its value. The system is then useful only for claimants with deep pockets (and defendants interested in foot-dragging), long-term systemic disputes or disputes of really high commercial value targeting specific firms (e.g. certain trade remedy cases). Indeed, according to one metric, while "in the first five years of the WTO, on average every $85 billion of intra-G20 trade triggered a WTO dispute; now, it takes over half a trillion dollars" ...

Where it takes 3 years to get an outcome (and another 2 or 3 to obtain a formal right to rebalance) the system fails in de-escalating trade disputes and avoiding trade wars (as we saw in 2018-2019) or, today, is not even thought of as potentially useful for dealing with a pandemic where trade, and keeping trade restrictions in check, can save lives.

Timeframes and delays -- which, in turn, may be linked to how adjudicators and parties view the system and their mandates -- are the real rot in the system.

The New "Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 of the DSU"

The EU has announced that it and 15 other WTO Members have "decided on an arrangement that will allow them to bring appeals and solve trade disputes among them despite the current paralysis of the WTO Appellate Body." It explains that "[t]he Multiparty Interim Appeal Arbitration Arrangement mirrors the usual WTO appeal rules and can be used between any members of the Organisation willing to join, as long as the WTO Appellate Body is not fully functional." The EU expects "the Multiparty Interim Appeal Arbitration Arrangement to be officially notified to the WTO in the coming weeks, once the respective WTO Members complete their internal procedures, after which it will become operational."

The participating Members are: Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; the European Union; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Singapore; Switzerland; and Uruguay.

The full text of the MPIA (as it is referred to in the text) is here. Here are a few highlights.

In broad terms, this is what's happening:

1. The participating Members indicate their intention to resort to arbitration under Article 25 of the DSU as an interim appeal arbitration procedure (hereafter the "appeal arbitration procedure"), as long as the Appellate Body is not able to hear appeals of panel reports in disputes among them due to an insufficient number of Appellate Body members.

2. In such circumstances, the participating Members will not pursue appeals under Articles 16.4 and 17 of the DSU.

3. The appeal arbitration procedure will be based on the substantive and procedural aspects of Appellate Review pursuant to Article 17 of the DSU, in order to keep its core features, including independence and impartiality, while enhancing the procedural efficiency of appeal proceedings. ...

With regard to the arbitrators, there will be a standing pool of 10:

4. In particular, the participating Members envisage that, under the appeal arbitration procedure, appeals will be heard by three appeal arbitrators selected from the pool of 10 standing appeal arbitrators composed by the participating Members in accordance with Annex 2 (hereafter the “pool of arbitrators”).¹ ...

^{...
1 Should a need arise to select arbitrators to serve on a specific dispute while the pool of arbitrators has not yet been composed, the parties to that dispute will agree on the selection procedures applicable to that dispute. This footnote will cease to apply six months after the date of the multi-party communication, unless all the participating Members agree to extend it.}

As set out in Annex 2, composition of the standing pool of 10 arbitrators will take place as follows:

After the notification of the present communication to the DSB, the participating Members will promptly commence the composition process. The following will apply:

1. Each participating Member may nominate one candidate, by notifying the other participating Members¹²
.
2. The deadline for nominations will expire 30 days after the date of this communication.

...

4. The participating Members will compose the pool of arbitrators by consensus. The participating Members will endeavour to compose the pool of arbitrators within three months following the date of this communication. They will notify the pool of arbitrators to the DSB, as addendum to this communication. The composition of the pool of arbitrators will ensure an appropriate overall balance.

5. The composition of the pool of arbitrators may be modified by agreement of all participating Members at any time. The participating Members underscore the interim nature of this arrangement. Should the conditions laid down in paragraph 15 of the communication remain for a longer period of time, the participating Members will, periodically, partially re-compose the pool of arbitrators, starting two years after composition, in line with the procedures established in this Annex.

...

^{12 For greater certainty, current or former Appellate Body members may be nominated as candidates. If nominated as candidates, they will not undergo the pre-selection process set out in paragraph 3 of this Annex.}

There are 16 participating WTO Members looking to fill 10 slots. I think they will be able to fill the slots without too much acrimony, but nevertheless this process is going to be interesting. Current or former Appellate Body members "may be nominated," but will they be? If they are, they won't have to "undergo the pre-selection process," so it seems like there could be some incentive for Members to propose them.

There will be some "collegiality":

5. Members of the pool of arbitrators will stay abreast of WTO dispute settlement activities and will receive all documents relating to appeal arbitration proceedings under the MPIA. In order to promote consistency and coherence in decision-making, the members of the pool of arbitrators will discuss amongst themselves matters of interpretation, practice and procedure, to the extent practicable.

Para. 8 of Annex I elaborates on this:

8. In order to give effect to paragraph 5 of communication JOB/DSB/1/Add.12 in this dispute, the arbitrators may discuss their decisions relating to the appeal with all of the other members of the pool of arbitrators, without prejudice to the exclusive responsibility and freedom of the arbitrators with respect to such decisions and their quality. All members of the pool of arbitrators shall receive any document relating to the appeal.

With regard to Secretariat-style assistance, there is this:

7. The participating Members envisage that appeal arbitrators will be provided with appropriate administrative and legal support, which will offer the necessary guarantees of quality and independence, given the nature of the responsibilities involved. The participating Members envisage that the support structure will be entirely separate from the WTO Secretariat staff and its divisions supporting the panels and be answerable, regarding the substance of their work, only to appeal arbitrators. The participating Members request the WTO Director General to ensure the availability of a support structure meeting these criteria.

I'm not completely sure I follow this. It sounds like there will be a new and perhaps permanent group formed by the WTO DG, but what does "entirely separate from the WTO Secretariat staff and its divisions supporting the panels" mean? Will there be a new Secretariat division formed? Or will this be outside the Secretariat completely? And where is the money to pay these folks coming from?

The MPIA applies to the following disputes:

9. The MPIA applies to any future dispute between any two or more participating Members, including the compliance stage of such disputes, as well as to any such dispute pending on the date of this communication, except if the interim panel report, in the relevant stage of that dispute, has already been issued on that date.

So what are the ongoing disputes the MPIA may actually apply to? There is Canada - Sale of Wine (complaint by Australia), but the interim report is scheduled to be issued on April 2 (WT/DS537/11/Add.3), so that might not be covered. There is Costa Rica - Avocados (complaint by Mexico), where the Panel expects to issue its final report to the parties by the second half of 2020 (WT/DS524/4).  Those are the only ongoing panels I see where this procedure could apply. (There are also two panels currently suspended under DSU Article 12.12 where it could apply). But perhaps other Members will decide to make use of it if they get frustrated by the inability to resolve a particular dispute.

The mechanics of the appeal are set out in para. 5 of Annex I:

5. The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 20 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect. The Notice of Appeal shall include the final panel report in the working languages of the WTO. The Notice of Appeal shall be simultaneously notified to the other party or parties and to the third parties in the panel proceedings. Rules 20-23 of the Working Procedures for Appellate Review shall apply mutatis mutandis.

The time-frame for these appeals is sort of similar to existing time-frames:

12. The parties request the arbitrators to issue the award within 90 days following the filing of the Notice of Appeal. To that end, the arbitrators may take appropriate organizational measures to streamline the proceedings, without prejudice to the procedural rights and obligations of the parties and due process. Such measures may include decisions on page limits, time limits and deadlines as well as on the length and number of hearings required.

13. If necessary in order to issue the award within the 90 day time-period, the arbitrators may also propose substantive measures to the parties, such as an exclusion of claims based on the alleged lack of an objective assessment of the facts pursuant to Article 11 of the DSU.⁹

14. On a proposal from the arbitrators, the parties may agree to extend the 90 day time-period for the issuance of the award.

^{-----------
9 For greater certainty, the proposal of the arbitrators is not legally binding and it will be up to the party concerned to agree with the proposed substantive measures. The fact that the party concerned does not agree with the proposed substantive measures shall not prejudice the consideration of the case or the rights of the parties.}

It will be interesting to see how para. 13 plays out. Will arbitrators propose excluding this kind of DSU Article 11 claim? Will the parties accept that proposal?

And finally, there is this:

15. The parties agree to abide by the arbitration award, which shall be final. Pursuant to Article 25.3 of the DSU, the award shall be notified to, but not adopted by, the DSB and to the Council or Committee of any relevant agreement.

This means we will now have a separate category of appellate reports that are not adopted, with some uncertain value in terms of their persuasive authority on future WTO disputes. That's going to confusing, but definitely interesting.

Application for CUSMA/USMCA Dispute Settlement Rosters (Canada)

As Simon noted in an earlier post, application requests for the USMCA dispute settlement rosters were recently published by USTR. Canada is undertaking a similar process.

This is from the Trade Law Bureau of Foreign Affairs, Trade and Development Canada:

Seeking Expression of Interest

At this time, the Government of Canada is seeking applicants for appointment to rosters for the following bodies. Applications are to be submitted through the Privy Council Office portal:

https://pcogic.njoyn.com/cl3/in/share/JobDetails.asp?clid=52106&jobid=J0320-0181&BRID=42655&SBDID=1&LANG=1

Canada United States Mexico Agreement (CUSMA)

CUSMA Chapter 31 (General State to State) Roster: The roster will be used to constitute panels that determine disputes covered by Chapters 17 (Financial Services) and 31 of the Agreement. The Chapter provides for the establishment of a roster of up to 30 individuals.  The Government of Canada is seeking 10 appointees to this roster.

Chapter 31 (Rapid Response Labor Mechanism Panelists) Lists: Three lists of panelists are to be established pursuant to Article 31-B.3 of Annex 31-B of the Agreement: one list with appointments by Canada, one list with appointments by Mexico, and a joint list with appointments made by consensus. The individuals in the joint list shall be non-nationals of either Mexico or Canada.  Appointees from these lists will be used to serve as panelists for the Labor Mechanism. The Government of Canada is seeking approximately 8-10 appointees to these lists.

------

Présentement, le gouvernement du Canada est à la recherche de candidats pour les nominations aux listes des organes suivants. Les demandes doivent être soumises via le portail du Bureau du Conseil privé:

https://pcogic.njoyn.com/cl3/in/share/JobDetails.asp?clid=52106&jobid=J0320-0181&BRID=42655&SBDID=1&LANG=1

Accord entre le Canada, les États-Unis d’Amérique et les États-Unis Mexicains (ACÉUM)

Chapitre 31 de l’ACÉUM (recours général d'un État contre un État) : La liste sera utilisée pour constituer les groupes spéciaux qui règleront des différends relevant des chapitres 17 (Services financiers) et 31 de cet Accord. Ce chapitre permet l'établissement d'une liste comptant jusqu'à 30 personnes. Le gouvernement du Canada cherche à nommer 10 personnes à cette liste.

Chapitre 31 (Panélistes du Mécanisme de travail d'intervention rapide): Trois listes de panélistes doivent être établies conformément à l'article 31-B.3 de l'annexe 31-B de l’Accord: une liste avec des nominations par le Canada, une liste de nominations par le Mexique et une liste commune de nominations par consensus. Les personnes figurant sur la liste commune doivent être des non-ressortissants du Mexique ou du Canada. Les personnes nommées à partir de ces listes serviront de panélistes au Mécanisme du travail. Le gouvernement du Canada cherche à nommer environ 8 à 10 personnes sur ces listes.

UK DIT invites expressions of interest for UK designates to the ICSID Panels of Arbitrators and Conciliators

From the UK Department for International Trade:

Appointments to ICSID panels: call for expressions of interest

...

How to apply

Expressions of interest should clearly set out the applicant’s motivation and detail how they satisfy required experience and attributes, including the core ICSID criteria set out in Article 14(1) of the ICSID Convention. Applicants should specify whether they wish to be considered only for the Panel of Arbitrators or Panel of Conciliators or for both. Through their designation to either Panel, designee’s are made available for selection to Tribunals, Commissions and ad hoc Committees and applicants should confirm their understanding of the requirements on their availability, as well as willingness to travel if selected.

Applicants should provide two professional reference contacts, to be contacted in due course for written statement, as well as formally declare any potential conflicts of interest. Persons currently taking instruction from the United Kingdom or devolved governments, or any government of a Contracting Party to the ICSID Convention must declare this in their application. Potential conflicts of interest will be considered in assessing an applicants’ suitability for appointment.

Expressions of interest should be in the form of:

• a cover letter, maximum 1 page
• a CV, maximum 2 pages
• 2 professional reference contacts, to be contacted in due course for a written statement

These should be sent to icsidappointments@trade.gov.uk

Postponement of 9th PEPA/SIEL Conference

This is from the PEPA/SIEL Conference Conference Chairs:

Dear colleagues,

It is now clear that due to the ongoing global Coronavirus crisis, we will be unable to hold the 9th PEPA/SIEL conference as planned for May 2020 in Jerusalem. This is of course highly disappointing to all involved in the planning and preparation of the conference, and of course to those who were expecting to present their latest research, but the risks of contagion, as well as the expected continuation of stringent restrictions on travel and events and the economic constraints involved make this decision inevitable.

We sincerely hope that we will be able to convene the conference at a later date in Jerusalem, perhaps even in the Fall of 2020, but at this stage it is impossible to make a definitive decision in this respect. In any case, we would like to thank all those who have devoted their time and energy to the planning of the conference, including the SIEL leadership, our conference committee, our invited senior speakers, and the administrative staff of the Hebrew University of Jerusalem whose organizational work has been indispensable.

The spirit of the PEPA conferences has always been one of learning through open discussion between emerging scholars and practitioners and more senior ones. As most of us in both academia and practice shift our professional activity online, we believe that these goals can be promoted through a virtual conference, even if not providing the significant intellectual and social strengths of a full conference experience. We are therefore working with all those whose papers were selected for presentation at the conference as well as with the senior speakers and commentators to facilitate such a virtual symposium, to be held during the original dates of the conference, and without prejudice to participation in a non-virtual PEPA/SIEL at a later date. Should the virtual format selected enable participation of other colleagues and researchers, we will provide relevant information closer to the conference.  
 
In any case, we wish you, your families and loved ones all the best for the months ahead.

Best regards,

The PEPA/SIEL Conference Chairs
Tomer Broude, Freya Baetens and José Caiado

Applications for USMCA Dispute Settlement Rosters

USTR has published the following notice regarding an invitation for applications to be on the rosters for Chapter 31 state-state dispute panels and for the new rapid response labor panels:

Invitation for Applications for Inclusion on the Dispute Settlement Rosters for the United States-Mexico-Canada Agreement

...

USTR is seeking applications from U.S. citizens and nationals of other countries who are interested in serving as panelists for general state-to-state or labor dispute settlement panels established under the USMCA. You can find the text of the USMCA on the USTR website: https://ustr.gov/​trade-agreements/​free-trade-agreements/​united-states-mexico-canada-agreement.

I. General Dispute Settlement Mechanism Under Chapter 31

USMCA is a trilateral trade agreement between the United States, Mexico, and Canada (the Parties). Chapter 31 sets out detailed procedures for the resolution of most disputes arising under the USMCA. Dispute settlement involves two stages: (1) Consultations between the disputing Parties to try to arrive at a mutually satisfactory resolution of the matter, and (2) resort to a neutral panel to make a determination regarding the matter at issue. The disputing Parties form a separate five-member panel for each dispute although they may agree to a three-member panel.

USMCA requires the Parties to establish a general roster of up to 30 individuals who are willing to serve as panelists, with each Party designating up to 10 individuals. The Parties will try to achieve consensus on the roster. Individuals on the roster are appointed for a minimum term of three years and will remain on the list until the Parties form a new roster. See USMCA Article 31.8.1.

Panelists normally are selected from the roster. For disputes under Chapter 23 (Labor) and Chapter 24 (Environment), each disputing Party has to select panelists with relevant expertise, and for disputes in specialized areas of law aside from labor and environment, the disputing Parties should select panelists to ensure the necessary expertise is available on the panel. For each dispute, roster members under consideration to serve as a panelist will have to complete a disclosure form that the Parties use to identify possible conflicts of interest or appearances thereof. The disclosure form requests information regarding financial interests and affiliations, including information regarding the identity of any clients the roster member may have, and, if applicable, clients of the roster member's firm.

To qualify for inclusion on the on the general dispute settlement roster, an applicant must:

• Have expertise or experience in law, international trade, other matters covered by USMCA, or the resolution of disputes arising under international trade agreements.
• Be objective, reliable, and possess sound judgment.
• Be independent of, and not be affiliated with or take instructions from, a Party.
• Comply with a code of conduct established by the Parties.

II. Facility-Specific Rapid Response Labor Mechanism Under Annex 31-A

Annex 31-A establishes a facility-specific rapid response labor mechanism (the Mechanism), as between the United States and Mexico, which can be used whenever either Party believes that workers at a Covered Facility (as defined in Article 31-A.15) are being denied the right of free association and collective bargaining under the laws necessary to fulfill the obligations of the other Party under the USMCA (a Denial of Rights). A Party may ask a labor panel under the Mechanism to request that the respondent Party allow it an opportunity to verify the Covered Facility's compliance with the law in question and to determine whether there has been a Denial of Rights. See USMCA Article 31-A.5. Labor panelists have to submit a report to the Parties commenting on the functioning of the Mechanism at the conclusion of the first four-year term and every four years thereafter. See USMCA Article 31-A.3.6.

USMCA requires the Parties to establish three lists of panelists who are willing to commit to being generally available to serve as labor panelists for the Mechanism. By the date of entry into force of USMCA, each Party has to appoint three individuals to one list and appoint, by consensus, three individuals to a joint list. The individuals on the joint list may not be nationals of either the United States or Mexico. Six months from entry into force of USMCA, the lists will be expanded to at least five individuals each. Individuals on the lists are appointed for a minimum term of four years or until the Parties constitute new lists. See Article 31-A.3.

To qualify for inclusion on the Mechanism lists, an applicant must:

• Have expertise and experience in labor law and practice, and with the application of standards and rights as recognized by the International Labor Organization.
• Be objective, reliable, and possess sound judgment.
• Be independent of, and not be affiliated with or take instructions from, a Party.
• Comply with a code of conduct established by the Parties.

III. Applications

USTR invites eligible individuals who wish to be considered for inclusion on the general roster or the labor Mechanism lists to submit applications through Regulations.gov, using docket number USTR-2020-0012. In order to be assured of consideration, USTR must receive your application by April 20, 2020. Applicants must file all submissions electronically via Regulations.gov. For alternatives to online submissions, please contact Sandy McKinzy at (202) 395-9483 before transmitting your application and in advance of the deadline.

More details at the link.

It's going to be interesting to see who the administration selects for these rosters. It would also be interesting to see who applied but did not get chosen, but I don't think that information will be made public. (But feel free to mention it in the comments if you apply!)

I'm not sure there will be many Chapter 31 disputes, but I can imagine that the rapid response labor mechanism will be busy.

Guest Post: Trade Policies under Pandemic

This is a guest post from Jingyuan "Joey" Zhou, Professor of Practice at University of Arizona Law School

The COVID-19 has become a pandemic and more and more governments worldwide are struggling to contain the virus so as to protect their citizens.  Commentators have inter alia recommended policies which would ease trade restrictions on medical goods/devices so that freer trade will better equip health care systems and help them tackle the virus (see C. Bown and S. Evenett).  Others have cautioned against restrictions limiting the movement of people and services trade and called for a coordinated approach (see The Economist and my earlier post).  Others have gone further, recommending that the tariffs applied to Chinese imports under the ongoing trade war be at least temporarily removed or reduced, as with U.S. “national security” tariffs on imported steel and aluminum (see S. Rodriguez).  In times of a Public Health Emergency of International Concern and a global pandemic, rational policy-making that will not only outlast the existence of a global pandemic and PHEIC, but also provide guidance for future policy reform and liberalization, is especially important.

Most policy makers, facing so many unknowns in an emergency and a pandemic, the scope of which is not yet understood, must be mindful of the short-term effects and long-term spillovers generated by their decisions (see A. Swanson).  In the short-term, when implemented, policies reducing trade barriers including tariffs on medical goods and non-tariff barriers such as export restrictions/bans and licensing procedures will likely help boost health care systems’ capacity in containing the virus and mitigating its effects.  Other policies, such as closing borders (see E. Londoño et al.), may retard the spread of the virus and thus may be welcomed by citizens (see C. Kahn).  But the same policies may at the same time cause extreme economic hardship for many.

When governments decide to reduce or remove tariffs on specific products, they are bound to extend any such relief to other World Trade Organization (WTO) Members as required by the most-favored-nation obligation (the MFN obligation), with a few exceptions (see Art. I of GATT and Art. 2 of GATS).  And one may argue that by bringing down applied tariffs, at least in the cases of the tariffs imposed by the U.S. against Chinese goods and others against steel and aluminum imports, would actually increase the observance of the United States’ MFN obligation.

However, in the long run, when the pandemic subsides and life comes back to normal, will governments have the political and legal capacity to retract temporary tariff relief and restore tariffs back to the level of commitments in force immediately prior to the pandemic?  Doing so does not appear to be that straight-forward as governments will face pushback from stakeholders that have benefitted from the changes and thus will encourage the restoration of earlier high tariffs.

Art. II of GATT permits governments to maintain some leeway in setting applied tariff rates not exceeding the rates to which they committed to be bound.  However, raising tariffs, even within the ceiling of a Member’s Schedule, appears to be inconsistent with the WTO’s broad goal in reducing trade barriers.  Thus, in theory, other governments may challenge the revocation of the reduced tariff rates under the “nullification or impairment” clause under Article XXIII:1 of GATT 1994.  But this argument is a weak one legally in my opinion, and in any event has limited potential utility now that the WTO’s Appellate Body is unable to function.

Alternatively, as I envisioned, governments may justify non-tariff trade barriers, be it export bans/limitations or import restrictions (consider the travel ban now widely imposed aiming at containing the COVID-19 or the decisions of Germany and other EU members to restrict exports of medical supplies), on exceptions such as Art. XXI (national security) or Art. XX(b) (protecting the health and life of citizens) of GATT and their counterparts in GATS, Art. XIV(b) and Art. XIVbis in general.  Also, in particular, governments may rely on Arts. 2.2 and 5.7 of the Sanitary and Phytosanitary Agreement (SPS) for imposing trade restrictions on goods, especially medical goods that are in dire need.

But what about the long-term effect brought about by such measures?  Could the COVID-19 serve as a catalyst in furthering comprehensive trade policy reform in the multilateral forum in Geneva (see R. Hormats) or one more nail in the coffin of globalization (see A. Roberts and N. Lamp)?  It is hard to tell.  The current situation certainly exposes the fragility of globalization that we are used to and in many cases have taken for granted for several decades (see H. Farrell and A. Newman).  The current crisis appears to be a good time for collaboration in scientific research as such collaboration will likely shorten the time required to develop effective vaccines (see A. Knapp).   Given that multilateral trade rules governing services trade are subject to reform (although no significant progress has been made in almost 20 years) and rules governing data protection are missing, it would also be both wise and reassuring for governments to immediately begin negotiating new rules with experiences recently gained world-wide to accommodate the fast-changing circumstances (think about the huge amount of health data that will be or has been collected during this COVID-19 pandemic).  But for now, when governments are struggling to contain the pandemic, attention is being diverted away from multilateral rulemaking at the WTO, WHO, the United Nations or elsewhere.

Solidarity and coordination are much needed in emergencies like this one.  Carefully thought-through policies, preferably developed on the basis of multilateral discussions rather than unilaterally, would contribute to solving the immediate global pandemic and reducing the widening adverse economic impacts.  As of mid-March, 2020, the pandemic has resulted 191,127 confirmed cases, claimed 7,807 lives (WHO), caused an estimated loss in global supply chains of $50 billion (UNCTAD), and is projected to lower the global growth rate by 0.4% (Congressional Research Service) and even drag the whole world into recession in the worst case scenario (McKinsey & Co.).  Collaboration and solidarity are thus urgently needed.

Reply to Prof. Petersmann: Why the end of the Appellate Body must not mean the end of independent third-party adjudication

Dear Ulli,

On a slightly more optimistic note than your post of yesterday (and realizing that with corona, other, more important issues are on people's minds), I think you are unnecessarily equating “independent third-party adjudication” with the specific incarnation that the Appellate Body has taken after 25 years of WTO. For simplicity sake, I’ll call the latter “appellate review 2019”.

I agree with you that “independent third-party adjudication” (ITPA) is a “public good”. And I am, moreover, convinced that, over time, also the US (and especially US businesses) will realize that ITPA is, on the whole, in the US national interest and better than “unilateral” enforcement and the trade wars and unpredictability that come with it. This is the case especially in a world where the US is no longer the “sole hegemon” and the risk of retaliation by other “large markets” is real.

But ITPA, which the EU has called a “red line”, can take many forms. Panels plus “appellate review 2019” is only one of them. ITPA could also take the form of a single-tiered panel system (on condition that panel reports are automatically adopted). Indeed, most international versions of ITPA are single-tiered (think of the PCIJ, ICJ, ITLOS, ECHR, ISDS-outside-ICSID or dispute settlement in FTAs).

And, yes, ITPA with an appeal is another option. But there as well various appeal mechanisms (all in line with ITPA) can be on the menu. This is, for example, what is currently being discussed in UNCITRAL Working Group III, debating a possible appellate review mechanism for ISDS.

Generally speaking, appellate review can aim at “correctness” of specific rulings, or “consistency” across cases, or both. And both objectives (correctness and consistency) can be pursued at various degrees of intensity. I leave aside the question of whether “appellate review 2019” is in line with what the drafters of the WTO treaty in 1994 had in mind (“appellate review 1994”). At the very least, both sides in this debate have to admit that

(i)    there were various ways in which the Appellate Body could have evolved over the last 25 years (for this, the one DSU article on “appellate review”, Art. 17, leaves enough space), and

(ii)    the US (after all, the main “user” of the system) is deeply unhappy with how things turned out (arguing that “appellate review 2019” is a deviation from “appellate review 1994”).

Grossly generalizing, “appellate review 2019” has put a premium on (i) (what the AB perceives as) “correctness” (e.g. 68% of panels appealed and 83% of panels modified or reversed on appeal; frequent appellate review also of factual findings under DSU Art. 11 and all “issues raised” under DSU Art. 17.12; increasingly long and complex reports and proceedings) as well as (ii) “consistency” (e.g. de facto rule of precedent, aversion against dissents, important role for the Secretariat).

Do not misunderstand me, “appellate review 2019” is in line with ITPA and may be the preferred evolution of some or even a majority of WTO members (even though, in the US view, it breaches the DSU). But, as hard as it may be for some people who have been building and inside “appellate review 2019”, there are valid, ITPA-consistent alternatives to it. The demise of “appellate review 2019” must not and cannot be equated to the demise of ITPA.

Rather than ferociously criticizing or blindly defending what once was “appellate review 2019”, what is needed now is

(i) convincing all WTO members of the need for ITPA, and

(ii) constructing a form of WTO dispute settlement that is acceptable to critics of “appellate review 2019” but stays within the “red lines” of independent third-party adjudication.

In the short to medium term, this will likely include setting up, testing and re-adjusting appeal arbitration under Art. 25 as between a coalition of the willing. In the longer term, this may morph into “appellate review 2024”.  

One ITPA-consistent alternative (which can be tested under Art. 25) could, for example, be appellate review that focuses more on “speed” (that is, quick decisions, allowing for prompt compliance or rapid but equivalent retaliation in case of breach) and reversing only "egregious" errors by panels, rather than detailed and time-consuming “correctness” (which may remain unclear and subjective anyhow) and across the board “consistency” (which risks setting every first decision on an issue in stone). In a system where legislative correction is near impossible, panel and AB mandates (and rules of treaty interpretation) could also be tightened so as to limit findings of breach to conduct clearly outside the four corners of WTO treaty text. All of this can be done without crossing the “red line” of ITPA.

So, in the words of Debra Steger, and addressing both its long-time critics and its die-hard defenders, “let [appellate review 2019] rest”. But let's not give up on independent third-party adjudication. By defending "appellate review 2019" as if it were the only way to have independent third-party adjudication, you are bound to lose both.

SIEL 2020 Conference Postponed

The following is a notice from SIEL:

To the SIEL Community:

In light of the evolving situation regarding the COVID-19 crisis, the SIEL Executive Council has decided to postpone the 2020 SIEL Conference, which was schedule to take place in July 2020 at Bocconi University in Milan. We have not taken this decision lightly, but given recent developments and the guidance from various national and international bodies, it is the only decision we felt we could take. 

While the biennial global conferences are important events for SIEL and its members, the inconvenience of the postponement of such a conference pales in comparison with the pain, cost and disruption COVID-19 inflicts around the world to individuals, families, organisations and businesses. 

We would like to express our appreciation to all those who have committed countless hours to what promised to be an exciting 2020 Conference. This includes our colleagues at Bocconi University and the members of our conference committee. 

We wish you, your families and loved ones all the best for the months ahead and look forward to seeing you at the SIEL 2021 Conference. 

Sincerely, 

Peter Van den Bossche               Shin-yi Peng                 Markus Wagner 

Guest Post: WTO ADJUDICATION@me.too: Hidden in plain sight

This is a guest post from Prof. Ernst-Ulrich Petersmann, European University Institute Florence

Humanity knows from Greek mythology and from the Bible that third-party adjudication emerged and developed in response to never-ending human tragedies (like the pursuit of Orest by the goddesses of revenge punishing Orest’s murder of his mother, because she had killed his father Agamemnon who had sacrificed their daughter Iphigenia on his way to lead the Greek battle against Troye). Since the trial of Orest in Athena’s Aeropag, the trial of Socrates in the ancient constitutional democracy of Athens, or the trial of Jesus under the Roman rulers Herodes and Pilatus, humanity has learned that tribunals – even in constitutional republics since ancient Rome - need to be constrained by principles of justice and due process of law. Like the Permanent Court of International Justice was created in response to World War I, so were the International Court of Justice, the European Court of Human Rights, many national Constitutional Courts (e.g. in Germany) and European Courts responses to the tragedies of World War II. Human tragedies continue, and so do the human responses of establishing new national and international courts, like national criminal courts and the ICC in response to crimes against humanity, or the WTO Appellate Body (AB) in response to the previous failures of the GATT dispute settlement system. Nationalist rulers – also in many democracies, including in European Union countries like Poland - challenge national and international courts, especially if judges (including WTO judges) - or the US Congress - dare holding rulers accountable. The US trade wars against China and US threats of trade sanctions against other WTO members ignore WTO rules and WTO dispute settlement procedures, just as China’s military expansion in the South China Sea ignores the arbitral award rendered under the UN Law of the Sea Convention, and Russia ignores the arbitral award rendered by the Permanent Court of Arbitration in Russia’s investment dispute with the expropriated shareholders of the former Yukos oil company. How should citizens and their democratic institutions respond to the illegal destruction of the WTO’s AB and to intergovernmental power politics (like the US blocking of the AB) disregarding the will of parliaments when they approved the WTO Agreement and, in many  countries, incorporated it into their domestic legal systems?   

The unprecedented and unconvincing attacks against the WTO Appellate Body in the 2020 USTR Report and in Tom Graham’s speech on 5 March 2020, the United Kingdom’s rejection of any control by the European Court of Justice over the future EU-UK Partnership Agreement, the limitation of investment adjudication in the USMCA Free Trade Agreement, and the reactions of some North-American legal commentators (including also Debra Steger’s comment, published in this Blog on 14 March 2020, that ‘the Appellate Body is gone – Let it rest’) are reminders of the often ambivalent role of lawyers and of advocates of neo-liberalism in humanity’s struggles for constraining political by judicial powers. Court houses in all 164 WTO members are decorated by statues symbolizing justice by blind-folded women holding a scale and a sword. The two statues representing Justice and Peace, which flank the main entrance to the WTO’s headquarter at Lake Geneva, recall what WTO publications, the International Chamber of Commerce and also many US lawyers emphasize long since: rules-based multilateral trading systems play a crucial role in promoting peace. In his book on Supreme Injustice: Slavery in the Nation’s Highest Court’ (Harvard UP 2018), US history professor P.Finkelman recalls how the ‘slavery jurisprudence’ of the three most important, pre-civil war US Supreme Court justices (Marshall, Taney and Story) contributed to the US civil war responding to a systemic hostility in US law to human rights and social justice. US law professor R.H.Fallon, in his book on Law and Legitimacy in the Supreme Court (Harvard UP 2018), concurs with other US constitutional lawyers that the politicization of US Supreme Court judges and judgments calls into question the legitimacy and reputation of the Court. Recent critics of the US Supreme Court, like A.Cohen’s book on Supreme Inequality: The Supreme Court’s Fifty-Year Battle for a More Unjust America (Penguin 2019), point to social injustices, which the Court’s jurisprudence continues to cause by often protecting powerful rather than vulnerable interests. Is the WTO AB crisis just another illustration of this politicization of independent, impartial third-party adjudication by US interest group politics?

This is not the place to list the factually and legally false USTR criticisms of the AB, some of which I identified in my Guest Post: Neo-liberalism vs Ordo-liberalism – Beware the 2020 USTR Report on the WTO Appellate Body (IEL Blog 28 February 2020). Nor shall I repeat here the contradictions between the praise by former AB member T.Graham for the WTO AB, its AB staff, and for the WTO dispute settlement system as ‘the most successful dispute settlement system in the history of the world’ (Graham’s 2013 speech) and his support for the populist USTR assaults on the AB (in Graham’s speech on 5 March 2020 as a trade remedy lawyer back in Washington; cf. Henry Gao’s and my comments published in this IEL Blog on 11/13 March 2020). The more important policy question is: How should citizens, democratic institutions and WTO institutions respond at a time when the USTR is waging ever more trade wars and denies global public goods treaties (e.g. on climate change mitigation, which seems impossible without a functioning WTO legal and dispute settlement system)? Can the ‘global readership’ of this IEL Blog contribute to ‘public reason’ by challenging Graham’s conclusion (in his Washington speech): ‘The Appellate Body is gone and it is not returning’ (p.6)? This conclusion flatters the USTR, but fails to convince the 120 WTO members requesting, at each DSB meeting, to proceed to the filling of AB vacancies. Neither any of the 164 WTO members nor their citizens have reasonable self-interests in destroying what Graham himself called, in 2013, ‘the most successful dispute settlement system in the history of the world’. How should reasonable actors respond? 

Global public goods (res publica) – like the WTO legal and dispute settlement as an indispensable building block for realizing the UN 2030 sustainable development goals (SDGs) and climate change mitigation – cannot be effectively protected without support from civil societies and democratic institutions (e.g. limiting fossil fuel consumption, fishery subsidies and ‘green house gas emissions’): the ‘law in the books’ depends on social support and respect by citizens in order to remain an effective ‘law in action’ (e.g. limiting environmental pollution by millions of citizens). In order to protect global public goods, civil societies must hold accountable – as a ‘global virtual republic’ representing ‘the willing world’ (J.Bacchus) supporting global public goods protecting existential citizen interests –, governments and democratic institutions. As the AB remains part of the ‘WTO law in the books’, all 164 WTO members remain legally required to honor their obligations to protect the AB as defined in Article 17 Dispute Settlement Understanding (e.g. by filling AB vacancies by majority decisions as prescribed in Article IX:1 of the WTO Agreement, with a pragmatic ‘opt out’ for WTO members illegally abusing their veto-powers). As long as no parliament has approved the illegal and undemocratic de facto amendment of the DSU imposed by the USTR, the ‘virtual cosmopolitan republic’ of responsible citizens should remind their WTO governments of the fact (albeit ‘hidden in plain sight’) that WTO law prescribes impartial, independent and compulsory third-party adjudication of WTO disputes. Notwithstanding the deliberate avoidance, at the insistence of USTR negotiators in 1993, of references to ‘judges’, ‘courts’ and ‘adjudication’ in the DSU treaty provisions, the (quasi)judicial dispute settlement mandate is emphasized in the DSU (again, ‘hidden in plain sight’), in WTO working procedures for WTO panelists, AB members and arbitrators, in numerous WTO dispute settlement reports, annual AB reports, official WTO publications, hundreds of books and thousands of articles published by WTO lawyers over the past 25 years. People have no reason to deny this fact only because the USTR wishes to impose its power on the rest of the world without judicial constraints.

Of course, the WTO system of third-party adjudication remains uniquely sui generis (e.g. the discussion, criticism, adoption and supervision of more than 400 WTO panel and appellate reports by the Dispute Settlement Body on behalf of all WTO members, the institutionalized discussion also of dozens of WTO arbitration awards in the DSB, the worldwide discussion of WTO jurisprudence). Yet, prior to the conversion (with his speech of 5 March 2020) of T.Graham from a ‘WTO Paulus to a WTO Saulus’, all practicing WTO adjudicators (panelists, AB members, arbitrators) and WTO litigators representing WTO member governments (except some USTR lawyers and their trade remedy clientele) have consistently acknowledged the (quasi)judicial duties for independent, impartial, ‘prompt settlement’ of WTO disputes through, inter alia, clarifications of ‘the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’ (Article 3 DSU). In his 2013 speech, Graham convincingly described the tasks of AB members as ‘judges applying a legal craft – not statesmen’ (p.11). What are the lessons from his 2020 speech from his different ‘statesmanship’ and trade remedy law perspectives?

The list of legal methodology questions drawn up by Graham for his former AB colleagues remains a distraction: in any judicial system, interpretative methods – within the constraints prescribed by the applicable law - remain a matter for each individual Justice to decide, as long as each Justice adopts a legally consistent method in good faith and remains open to modifying her interpretive method in response to the judicial arguments of her colleagues (as acknowledged also in the above-mentioned book by Fanon, at p.131). Judicial responses to external criticism of the AB (e.g. from the USTR) may be legally justifiable, even if judges inspired by R.Dworkin’s ‘Justice Hercules’ may resist political pressures. But Graham’s advice to give up the AB’s collegiality tradition is toxic for an appeal body deciding by consensus or majority: as the interpretive methods of judges may legitimately differ (as reflected in some of Graham’s dissenting opinions in AB reports), collegial deliberations among judges are the essence of the social and legal legitimacy of their (majority) judgments. In the DSB, government representatives legitimately challenge some legal AB interpretations (e.g. of ‘public bodies’ in WTO subsidy disciplines) on political grounds; yet, most WTO diplomats wisely avoid political interferences with judicial methodology issues (e.g. judicial duties of justifying ‘right interpretations’), for example in view of the WTO’s separation of legislative, executive and judicial governance functions (cf. Article III WTO) and the dishonest USTR denial of (quasi)judicial functions of the WTO dispute settlement system. So far, the USTR has failed in its efforts at destroying the social and legal legitimacy of AB jurisprudence, even if ‘the crown jewel’ of the WTO dispute settlement system has been stolen by the USTR without any intention of giving it back. Compared with other WTO members, the USTR seems to have been the most successful litigator in past WTO dispute settlement practices. Yet, it remains isolated in its efforts at de-legitimizing the AB; most AB findings continue being supported and implemented by the WTO membership. Can the legal and democratic legitimacy dilemmas of the WTO’s ‘AB crisis’, and the ‘political failures’ of WTO governments to adjust WTO law to the regulatory challenges of the 21^st century, be reduced by enhancing ‘social legitimacy’ and ‘public reason’ through more inclusive WTO deliberations?

Responsible citizens – as a cosmopolitan ‘rule-of-law@me.too republic’ - should promote not only human rights, gender equality and climate change mitigation, but also other global public goods in order to prevent autocratic rulers from destroying ‘global public goods treaties’ to the detriment of citizens all over the world. Readers should start a WTO Adjudication@me.too ‘enlightenment campaign’– regardless of one’s views about the obvious need for reforming the WTO dispute settlement system (the DSB and the USTR have grossly failed in this task of ‘institutionalizing public reason’ in WTO adjudication) and the ruthless neo-liberalism and illegal power politics dominating WTO negotiations. Especially the younger ‘social media generation’ – which, according to the 2019 UN ‘Sustainable Development Goals’ Report, risks being confronted with 140 million climate change refugees by 2050 – should follow the courageous example of Swedish climate activist Greta Thunberg by challenging their local teachers and democratic representatives. For example, why do most worldwide organizations and related textbooks on the politics (‘member-driven WTO governance’), economics and law of governing international public goods – with few exceptions (like human rights and ILO bodies, the 17 UN sustainable development goals, EU law, my own International Economic Law in the 21^st Century textbook of 2012) - avoid ‘embedding’ international rules and institutions into ‘principles of justice’, which citizens can understand, invoke, support and enforce in domestic jurisdictions? Why do Washington trade remedy lawyers, who pity themselves as ‘losers’ of AB jurisprudence, have such disproportionate influence on US and WTO politics? Why do ‘realist US lawyers’ ridicule proposals that citizens must assume ‘cosmopolitan responsibility’ for protecting public goods in a globalizing world without strong democratic leadership and with an increasing number of autocratic rulers, who disdain judicial accountability and cosmopolitan conceptions of the international law community as including citizens?

Is the Virus Killing Globalization? There’s No One Answer

By Anthea Roberts and Nicolas Lamp

Narratives provide the storylines through which people make sense of the world. Actors strategically deploy narratives to advance agendas, telling stories about what or who is to blame and what should be done. When it comes to the coronavirus, multiple narratives are emerging. Instead of adopting a common frame to understand this threat, actors are doubling down on their existing critiques of globalization and neoliberalism, using the coronavirus to show how right they were all along.

Instead of trying to advance a dominant narrative about what the pandemic means for globalization, we think it is time to start developing mental models to understand what the different perspectives are, how they can be integrated and what trade-offs this might involve. This approach permits us to provide a more three-dimensional understanding of the problem. We’ve identified at least seven major storylines that are competing for attention in explaining what the virus means for economic globalization...

Find the rest of the article at https://www.barrons.com/articles/is-the-virus-killing-globalization-theres-no-one-answer-51584209741 (no paywall).

U.S. "Wins" and "Losses" in WTO Disputes

With Trump complaining about the WTO treating the U.S. unfairly, I get asked now and then about U.S. "wins" and "losses" in WTO disputes. How does the U.S. fare as a complainant and as a respondent? It's a difficult question. A government might bring 10 claims in a particular case, win 8 of them, and consider it a loss because it lost the two claims it cared most about. Or it might bring 10 claims and win just 1, but consider it a win because that was the big claim. It's really difficult to judge these things as an outsider, as governments will often publicly spin the result of particular cases in their favor no matter the result.

As a result, I haven't tried to characterize WTO disputes in terms of wins and losses. Instead, in the data we gather on WorldTradeLaw.net, we look at whether a complaining government won at least one of the claims it brought, that is, it proved a violation and the respondent did not successfully invoke an exception. That's not very satisfying, but it's the simplest methodology I could come up with. Implicitly, I guess, we are suggesting that this is a "win" for the complainant, but we don't use that term and we try not to overstate the significance of the data.

Someone recently ask me about this data, so I'm going to post some of it here for everyone's reference. As of today:

- There have been 225 total cases (including Article 21.5 compliance cases) with a panel and/or AB ruling that was adopted by the DSB

- There have been 201 cases with at least one finding of violation

- That makes 89.33% of total cases with at least one finding of violation

(this figure is roughly the same for standard disputes and for Article 21.5 compliance disputes)

Turning to the U.S.:

- There have been 56 cases brought by the U.S. (including Article 21.5 compliance cases, and sometimes with co-complainants) with a panel and/or AB ruling that was adopted by the DSB

- There have been 51 cases with at least one finding of violation

- That makes 91.07% of cases with at least one finding of violation

 

- There have been 84 cases brought against the U.S. (including Article 21.5 compliance cases) with a panel and/or AB ruling that was adopted by the DSB

- There have been 72 cases with at least one finding of violation

- That makes 85.7% of cases with at least one finding of violation

Those figures indicate that the U.S. does a little better than average as a complainant and also as a respondent, although the variance from the average is pretty small.

An additional issue is how the United States has fared before panels as compared to the Appellate Body. Of course, there are plenty of differences in reasoning between panels and the Appellate Body, as well as differences in findings on specific claims, but that's not what I'm looking at here. Again, for simplicity's sake, I am just looking at whether one or more violations exist. In terms of going from a finding of violation before a panel to no finding of violation after the Appellate Body report, here are the three cases I see that involved the U.S. as complainant or respondent:

- U.S. - Tax Incentives (DS487)

- Canada - Dairy, Article 21.5 (DS103,113)

- EC - Computer Equipment (DS62,67,68)

For cases not involving the U.S., there was Argentina - Financial Services (thanks to Bryan Mercurio for pointing that one out). If someone sees a case I missed, please let me know. [ADDED: I just thought of another case in this category: Guatemala - Cement I (DS60)] (I didn't see any cases that went from no violation before the panel to a violation finding by the Appellate Body.)

There are a bunch of methodological issues with these numbers (for anyone who is a glutton for punishment I can go through them all with you!), so please take this as a rough approximation. And also feel free to offer alternative approaches to measuring this or try to poke holes or point out mistakes in mine.

Finally, just to emphasize again, I don't mean to overstate the importance of these numbers. They probably mean something, but to repeat what I said at the outset, judging "wins" and "losses" in WTO disputes is challenging.

The UK-EU Trade Talks: The "Level Playing Field"

One of the most controversial aspects of the UK-EU trade talks has to do with the "level playing field." Simplifying things a bit, these are the EU demands that the UK not change its regulation so as to give its producers an advantage over EU competitors. In response, the UK says it has no intention of doing this, but nevertheless it does not want its ability to regulate constrained by a UK-EU trade agreement.

The EU's proposed "Draft text of the Agreement on the New Partnership between the European Union and the United Kingdom," available here, has some detailed provisions on how the EU sees the level playing field operating. It will take some time to go through them all, but for now I'll highlight just one:

PART TWO: ECONOMY AND TRADE

TITLE III: LEVEL PLAYING FIELD AND SUSTAINABILITY

Chapter two: Specific Areas of Level Playing Field and Sustainability

Section 7: Fight against climate change

...

2. A Party shall not adopt or maintain any measure that weakens or reduces the level of climate protection provided by the Party’s law and practices, and by the enforcement thereof, below the level provided by the common commitments and targets applicable in the Union and the United Kingdom at the end of the transition period, and by their enforcement.

Let me ask this question: Could a decision by an EU member state to phase out nuclear power, which could lead to a rise in carbon emissions, be covered by this provision?

EU Proposal on UK-EU Disputes Raising Questions of European Union Law

A version of the EU's proposed "Draft text of the Agreement on the New Partnership between the European Union and the United Kingdom" is available here (this may be a leaked version, with some edits before an official one is published). There's a lot in this document to discuss! I'm going to start with a follow up to this post. Here is a provision in the dispute settlement part related to questions of interpretation or application of European Union law:

Article INST.16: Disputes raising questions of Union law

1. Where a dispute submitted to arbitration raises a question of interpretation or application of a concept of Union law contained in this Agreement or any supplementing agreement, or of a provision of Union law referred to in this Agreement or any supplementing agreement, the arbitration tribunal shall not decide on any such question. In such case, it shall request the Court of Justice of the European Union to give a ruling on the question. The Court of Justice of the European Union shall have jurisdiction to give such a ruling which shall be binding on the arbitration tribunal.

2. The arbitration tribunal shall make the request referred to in the first subparagraph after having heard the parties.

3. Without prejudice to the first sentence of paragraph 1, if the Union or the United Kingdom considers that a request in accordance with paragraph 1 is to be made, it may make submissions to the arbitration tribunal to that effect. In such case, the arbitration tribunal shall submit the request in accordance with paragraph 1.

4. In the cases referred to in paragraphs 1 and 2, the time limits laid down in Article INST.17 [Ruling of the arbitration tribunal] shall be suspended until the Court of Justice of the European Union has given its ruling. The arbitration tribunal shall not be required to give its ruling in less than 60 days from the date on which the Court of Justice of the European Union has given its ruling.

5. The provisions of Union law governing procedures before the Court of Justice of the European Union in accordance with Article 267 TFEU shall apply mutatis mutandis to requests for a ruling of the Court of Justice made pursuant to this Chapter.

6. In cases brought before the Court of Justice of the European Union in accordance with paragraph 1, the United Kingdom may participate in the proceedings before the Court of Justice of the European Union. Lawyers authorised to practice before the courts or tribunals of the United Kingdom shall be entitled to represent or assist the United Kingdom in such proceedings.

I would guess the UK will reject this, as least as it relates to trade disputes, and there will be no room for negotiation. But we'll see.

Putting that aside, I'm puzzled by why the EU thinks it needs a principle such as this one in the context of trade disputes. (The UK-EU agreement would deal with other issues as well, and perhaps it makes more sense in other areas). It seems to me that in the trade context, WTO panels and the Appellate Body have generally done a good job addressing questions of interpretation or application of measures that have been challenged, so I'm not sure why the EU's proposed approach would be needed. I also wonder if the EU would be willing to have this principle be used by its trading partners as well (i.e., the partners could provide interpretations of their own measures). If so, the EU needs to make the case for why its approach is better than the current one.

It Sure Looks Different from the Inside, and Now the Outside Too? (or "Graham on Graham")

Simon Lester's posts about Tom Graham's recent speech on the Appellate Body ("AB") reminded me the speech Graham gave back in 2013, which was "[s]oon after [he] joined the Appellate Body". When I re-read the 2013 speech entitled "It Sure Looks Different from the Inside: Deciding International Disputes at the WTO", I couldn't help but notice how things looked different back in 2013 and now. Below are a few examples:

Issue	Graham in 2013	Graham in 2020
On the role of the AB and its Members	“although they don’t call us that, we are in effect judges, on what is in effect the highest appeals court for the rules of global trade.” “We are judges, applying a legal craft.”	He regards "that disdain as indicative of … an orthodoxy of viewpoint, about the role of the Appellate Body as a selfanointed international court” “The negotiating history strongly indicates that [the AB] was intended not as an international court, but as a check on occasional egregious mistakes by panels. It was intentionally not called a court. Members of the Appellate Body were not called 'judges.'”
On the role of the AB Secretariat	“The Appellate Body has its own staff: an outstanding group of young lawyers and assistants from all over the world. The staff serves the Appellate Body as a whole – that is, Members don’t have their own law clerks – which contributes to the sense of group commitment and collegiality that is part of our tradition.” “I would like to say, on the completion of my first year as a Member of the Appellate Body, that the sense of responsibility and dedication to the institution of my fellow Members have been enormously impressive, as has been the extraordinary ability and dedication of our truly great multinational staff.”	“make sure the persons tasked with making the decisions -- the arbitrators, the deciders, the successors to Appellate Body Members -- control the consideration of appeals from beginning to end. Prohibit anyone other than the team -- deciders, and staff working directly on a case -- from discussing the case, either in meetings, or in unofficial side-bar chats, unless authorized by the deciders to do so. In others words, no partisan participation in team discussions, and no private lobbying of individual deciders, by staff leadership not part of the team on the case.”
On whether the AB Members should have practical familiarity with trade rules or just legal rules	“For we are not policymakers, and we are not negotiators. We are judges, applying a legal craft. It is as craftsmen—not statesmen -- that we work together to try to get it right.”	“These things happened, I believe, in part because many Appellate Body Members -- and the staff leadership -- lacked practical familiarity with trade remedies or appreciation for their role in the WTO rules and system.”
On whether there is one right answer to the meaning of specific WTO rules	“Our unspoken mission is to get it right: to interpret and apply the WTO rules correctly. For, as I said, in the current WTO system we are the final arbiters of what the rules of international trade mean.”	“Belief in a single, correct interpretation, and seeking it through extended analyses, encouraged gap filling and overreach. It made the Appellate body strain to look for that 'one correct' interpretation instead of asking whether the panel made a serious error, whether the challenged measure was prohibited by the rules as written.” “In other words, the question is not what is the ideal interpretation, it is whether the challenged action is permissible, that is, is not prohibited.”
On “plain meanings” & “context” as per Article 31(1) of the Vienna Convention	“‘Ordinary meaning’ has, well, a pretty clear ordinary meaning. The same should be case for interpreting terms ‘in their context’”	“Each of the initial steps for treaty interpretation set out in Article 31 of the Vienna Convention -- plain meaning, in context, in light of object and purpose -- usually calls for a choice: which 'plain meaning?' What context?”
On oversight on AB by WTO Members	“No decision of the Appellate Body has ever been overturned by the WTO Dispute Settlement Body – the committee of the whole WTO membership that oversees us.” This made the WTO DSM “the most successful international dispute settlement system in the history of the world.”	“Together, these characteristics amounted to the Appellate Body acting like a court that was not accountable to anyone. Not accountable to WTO member governments, because they had no means of correcting appellate decisions, and they could not agree on amendments to the rules. Not accountable to the Dispute Settlement Body, the committee-of-the-whole WTO membership, because Appellate Body decisions are automatically accepted unless a majority opposes them, and that turned the Dispute Settlement Body into a rubber stamp for Appellate Body decisions.”
On the finality of AB’s decisions	“in the current WTO system we are the final arbiters of what the rules of international trade mean.” “To paraphrase Harry Truman, for the rules of the World Trade Organization, the buck stops with us.” This shows “The respect for the institution of the Appellate Body; the sense of responsibility of everyone involved--Members and staff.”	This creates “a sense of infallibility – ‘it's right because we say it’ -- and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular disputes, so as to create a body of jurisprudence, or to head off future disputes, matters that were beyond the Appellate Body's mandate”
On the precedential value of AB’s decisions	“As a practical matter, we have the final word not only in deciding cases but also in creating a body of jurisprudence for this global trade institution that is still new in the sense of the usual timeframe for creating international law.”	“an undue adherence to precedent… bake in mistakes.” “They grew over decades and they became an integral part of what the appellate system was, and of the US-led critique.”
On 90-day rule	“The rules require us to issue our reports not later than 90 days after an appeal is filed. The last 20 of those 90 days are taken up with translation into the other official languages of the WTO, so in reality we have 70 days to [do so many things]”, which turns the 90-day rule into “very tight – sometimes impossible – time limits.”	“The Appellate Body was expected to resolve appeals in 60 days, and was required to do so within 90 days.”
On the scope of Appellate Review	“the rules also require us to address every issue raised by the parties to the dispute.”	“The AB was to consider only "legal" issues. And, the AB was only to "uphold, reverse, or modify" panel reports.” Therefore, the AB should “banish most Article 11 claims on appeal.”

To be fair, notwithstanding the vehement disagreements between Graham 13’ and Graham 20’, he has remained consistent on some issues, such as the utility of “object and purpose” in treaty interpretation, whether the AB should fill in the gaps or defer to “creative ambiguity” when the text is unclear, and whether the WTO rules can accommodate different economic systems, etc.

I'm not saying that one can not change his views, but it is rather unusual that many of Graham's views seem to have shifted 180 degrees from when he first joined the AB. I wonder what was the reason, other than the quip (to borrow from Graham’s 2013 lecture) that “It Sure Looks Different from the Inside, especially when One is Now Outside?”

Tom Graham's Full Speech on the Appellate Body

Last week, I posted about the Inside US Trade summary of Tom Graham's remarks on the Appellate Body (entitled "The Rise (and Demise?) of the WTO Appellate Body"). I now have the full text, which is here. Here is one part:

Soon after I joined the Appellate Body I was struck by several things:

First, the degree of control by the Appellate Body staff leadership, compared with the control that one would think should have been coming from Appellate Body
Members;

Second, an over-emphasis on "collegiality" that shaded into peer pressure to conform, together with

Third, an excessive striving for consensus decisions coupled with a discouragement of dissents. This led to excessively long and unclear compromise
reports. It also encouraged over-reach, gap filling, and advisory opinions, as way of accommodating conflicting views.

Fourth, a sense of infallibility -- "it's right because we say it" -- and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular disputes, so as to create a body of jurisprudence, or to head off future disputes, matters that were beyond the Appellate Body's mandate, I believed.

Fifth, an undue adherence to precedent -- and don't let anyone tell you that was not the case -- precedent not only as to outcomes, but also as to reasoning, definitions, and obiter dicta. What this did was to bake in mistakes. And it made it more important to know the past than to think anew. It empowered those who best knew the past, such as staffs, and it incentivized litigators to argue the past, at the expense to all of openly considering whether the past should be reconsidered.

The Trump Administration's Shameful Attack on Appellator Zhao

The Trump Administration's Shameful Attack on Appellator Zhao

5 March 2020

Steve Charnovitz

On 5 February 2020, I posted a paper, <https://ielp.worldtradelaw.net/2020/02/the-illegitimate-ab-report-in-russia-railway-equipment-.html>, explaining why the Appellate Body's February 3 decision in Russia - Railway Equipment is illegitimate.  The reason why is that two of the three appellators in that tribunal, Mr. Graham and Mr. Servansing, were serving under an extension of their terms pursuant to Rule 15 yet in violation of the terms of Rule 15.  I further noted that the failure to follow the letter of Rule 15 had occurred under the chairmanship of Graham.  Thus, the only legitimate member of the tribunal was Judge Zhao from China.

On 6 February 2020, the Appellate Body issued a report in US - Supercalendared Paper. The Appellate Body upheld the panel which found that the US government had committed multiple violations of WTO subsidy rules.  I decided not to comment at the time, but this Appellate Body decision suffers the same invalidity as the Railway Equipment decision.  Only one appellator, Zhao, was legitimately a member of the tribunal.  The other two appellators, Graham and Bhatia, were both serving an extended term pursuant to Rule 15 and yet in both cases, the Rule 15 extensions were granted prematurely.  Again, this flouting of Rule 15 was carried out by the Appellate Body under the stewardship of Graham.  For both reports, Graham, while serving as chair of the Appellate Body, acted illegitimately to extend his own term on the division for a period following the pending expiration of his term.  Clearly, Rule 15 does not allow an appellator to vote to extend himself (and his compensation) for a period after his departure as a full Appellate Body member. 

Today, at the meeting of the WTO Dispute Settlement Body, the Trump Administration pointed out that the Supercalendared Paper decision was "not a valid Appellate Body report and represents the latest example of the Appellate Body’s failure to respect WTO rules."  On that I agree.  But I was surprised to see the main reason the Trump Administration gave for the invalidity was that Zhao "is not ... a member of the Appellate Body because she is not eligible under the DSU."  Judge Zhao's alleged reason for ineligibility, according to the Trump Administration, is that she is affiliated with China's Academy of International Trade and Economic Cooperation.

Is this a serious objection?  I hardly think so.  Looking this evening at the Academy's website, it plainly says that "The Chinese Academy of International Trade and Economic Cooperation (CAITEC) is an inter-​disciplinary and multifunctional social science research institution and a consultative body directly under the Ministry of Commerce (MOFCOM) of China."  Yet the fact that she is part of an Academy sponsored in some way by China's government hardly makes her ineligible to be appointed to the Appellate Body.  The only reasonable interpretation of the DSU Article 17.3 requirement that appellators be "unaffiliated with any government" is that the appellator cannot simultaneously be an official or an agent of a government. 

The entire span of DSB practice shows that Appellate Body members will typically be individuals who have served as officials in governments and may be even retirees of those governments.  Prior government service is not a disqualifier from being on the Appellate Body even though there may some ongoing affiliation.  Service as a professor in a public university is also not a disqualifier nor is being a consultant to a judicial academy a disqualifier.  I won't discuss individual names of former Appellate Body members, but a perusal of the list shows affiliations similar to what Zhou apparently has back home.

Nevertheless, following three pages of information about Zhao, US Ambassador Shea's paper asserts that none of this information was disclosed to the DSB when Zhao was named to the Appellate Body.   Therefore, USTR concludes that "Ms. Zhao is not a valid member of the Appellate Body."

Plainly this conclusion is wrong, as USTR conclusions often are wrong.  Zhao is a valid member of the Appellate Body because she was elected by consensus of WTO members on 1 December 2016.  Whatever doubts WTO members may have had about Zhou's eligibility were resolved during the debate that led to her election by consensus. 

Once an international judge gets elected, any attack on that judge by a government can only be viewed as an attack on the judicial independence of that judge.  Indeed, the motivating factor behind the US attack on Zhao is made perfectly clear in USTR's statement today which argues that Zhou "participated in an appeal in which the conduct complained about related almost exclusively to China.  And so, besides the invalidity of this individual to serve on the Appellate Body, their participation in this particular appeal is impossible to see as impartial."

While it is great to see the Trump Administration being so solicitous of avoiding conflicts of interest under DSU Article 17.3, I wish they were equally solicitous to obeying WTO rules regarding subsidies in Supercalendared Paper and in scores of other WTO cases against the United States that have been decided and that would be brought if the Trump Administration had not defenestrated the Appellate Body. 

Tom Graham Comments on the Appellate Body

Tom Graham was talking about the Appellate Body at a Georgetown law conference today. I wish I had the full text of his speech, but all I have for now is the Inside US Trade summary, and I'll have to make do with that:

Graham identified four steps he believes will help address what has happened at the Appellate Body. First, he said, those tasked with arbitrating a dispute must have the power to do so -- and those not assigned to a dispute must not be allowed to talk about it.

Second, he argued, the Appellate Body should not accommodate the constant appeals that invoke Article 11 of the Dispute Settlement Understanding, which has to do with a panel’s objective fact-finding. The Appellate Body is not supposed to engage in fact-finding, Graham said, and therefore should entertain Article 11 arguments only in cases where the panel made an “egregious” mistake.

His third contention was that too many members and staff of the Appellate Body operated as if there was only one definitive interpretation of a WTO text, despite the understanding among many WTO architects that the texts included “constructive ambiguity” in order to secure the agreement. This led to gap-filling and overreach, Graham argued, echoing an argument made by the U.S.

Finally, Graham said the dispute settlement system should “carve out” a different track for cases involving trade remedies. Trade remedies cases, he argued, are unique because they have already been litigated domestically via largely open and transparent processes. The outcomes of trade remedy cases also tend to have more direct impacts on jobs and livelihoods, which affect domestic politics, he said.

On the first step, I assume he is talking about the exchange of views, where the three AB Members working on a case talk about the case with the four not working on it (see para. 4 of the AB working procedures). The article also says: "Graham also pointed to 'an over-emphasis on collegiality that shaded into peer pressure to conform and certainly not to dissent' and a 'sense of infallibility' as problematic elements of the culture at the Appellate Body." I don't have strong feelings about the exchange of views, but I can see a concern about different Appellate Body divisions creating conflicting legal standards if they don't talk about cases with the full AB contingent as they are hearing them.

On Article 11, I've said a number of times that I think the AB's approach has created too broad a standard. Graham sounds like he is going for a narrow standard like in Hormones. But do we need Article 11 appeals at all? And what about DSU Article 12.7 appeals?

On the "one definitive interpretation," maybe here he has in mind the AD Agreement Article 17.6(ii) legal standard of review? Or perhaps he is thinking about interpretations more broadly. This is a really difficult issue, because governments who are complainants are going to be pushing a particular definitive interpretation and governments who are respondents are going to be pushing for flexibility. Article 17.6(ii) aside, I'm not sure how to draw the line any better than it has been drawn.

On the trade remedies carve out, Jennifer Hillman has said almost exactly this. I'm curious to hear what the trade policy folks in the Trump administration think of the idea.

Guest Post: Facilitating WTO-compliant Responses to International Public Health Emergencies

This is a guest post from Jingyuan "Joey" Zhou, Professor of Practice at University of Arizona Law School

Introduction

As exemplified by COVID-19,[i] a Public Health Emergency of International Concern (PHEIC)[ii] incidence and past PHEIC incidences like H1N1, Ebola, and MERS, governments take significant actions based on limited information and knowledge about the disease to prevent it from spreading and to protect their citizens.  Containment measures seeking to establish barriers to the spread of the disease are exemplified by restrictions and bans of entries[iii] to those who have recently travelled to the epicenter or the country where the epicenter is located or other countries more broadly.[iv]  Mitigation measures that focus on minimizing the impact by maximizing surge capacity may be seen from a declaration of a domestic “public health emergency”[v] or “a state of emergency.”[vi]  Such measures should be based on “scientific principles, available scientific evidence, and available specific guidance and advice from the W[orld] H[ealth] O[rganization].”[vii]  Those measures (hopefully?) restrict the spread of the disease, but also (inevitably) interfere with the movement of people and goods, sometimes even defy[viii] the WHO’s non-binding recommendations[ix] otherwise.  This short piece reviews responses taken by governments since the existence of the coronavirus became publicly known in late December 2019, through the end of February 2020, and examines their compliance with certain World Trade Organization (WTO) trade in services rules as service trade is hurt most severely[x] (discussed below).  The discussion makes reference to past responses taken during other pandemics and analogies from relevant cases under WTO jurisprudence in trade in goods.[xi]  Recognizing the inherent power states have to protect their own citizens, I advocate collective actions based on scientific evidence, close communication, and against discriminatory measures.

WTO Principles

The General Agreement on Trade in Services (the “GATS”) sets forth primary principles, rights, and obligations that each WTO Member pledges to uphold.  The commitments include non-discrimination and market access, among others.  WTO Members, however, can impose measures “necessary to protect human, animal or plant life or health”[xii] and each Member may take actions “which it considers necessary for the protection of its essential security interests: … taken in time of war or other emergency in international relations; …”[xiii] that would have otherwise violated their pledges.  Currently, with the restrictions on entry and fears over the spread of the disease, tourism and other hospitality industries including air and cruise traffic have reportedly been hit hard.[xiv]  Factories are closed[xv] as are hotels and restaurants.[xvi]  Exchange programs have been cancelled or postponed and the operations of global campuses have been restricted.[xvii]  Thus, three out of the four modes of trade in services—consumption abroad (e.g., tourism and other hospitality industries), commercial presence (e.g., factories), and presence of natural persons (e.g., education)—are suffering and may suffer further under these protective and yet trade restrictive measures.

To date (February 22, 2020), no case challenging a Member’s measures imposed during PHEIC under GATS has been brought to the WTO for adjudication.  Similar measures such as import restrictions on contaminated goods that may affect the safety and health of people against specific Members, however, have been challenged for asserting exceptions under Art. XX of the General Agree on Tariffs and Trade (GATT) and Arts. 2.2 and 5.7 of the Sanitary and Phytosanitary Agreement (SPS).  Although Art. XXI of GATT has not been invoked to justify measures taken for safety and health reasons, the inherent power governments have to protect national security may see its application to PHEIC responses.  Those WTO decisions shed light on the legality and compliance of measures Members take during PHEIC (now and in the future).

Governments have discretion in implementing measures for national security reasons, subject to WTO review.[xviii]  Such measures—imports/export restrictions, for example—must be taken to protect a Member’s citizen from “external threats” under “an emergency in international relations.”[xix]  As interpreted by the panel in Russia—Traffic in Transit, an emergency is an “armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state.”  Other WTO Members, including the United States, argue that the panel’s definition of an emergency is overly narrow.

Governments can implement measures “necessary to protect human … health,” provided that such measures are not “arbitrary or unjustifiabl[y] discriminat[ory].”[xx]  For example, the complete ban on both domestic and imported asbestos products imposed by France is justified as a legitimate measure protecting French citizens from asbestos-related cancer.[xxi]

When imposing trade restrictive measures on goods for human health, governments are required to base these measures on sufficient scientific evidence or relevant international standards, and conduct a risk assessment.[xxii]  However, when scientific research and evidence are insufficient or divergent, trade restrictive measures in the name of protecting public health may be difficult to defend against legal challenges, especially under Arts. 2.2 and 5.7 of SPS.  Art. 2.2 of SPS authorizes governments to adopt measures “necessary to protect human … health, … based on scientific principles.”  Art. 5.7 allows Members to “provisionally adopt … measures on the basis of available pertinent information, including that from the relevant international organizations … as well as applied by other Members” when “relevant scientific evidence is insufficient.”

One case regarding a complete import ban taken during Avian Influenza (though not PHEIC) is most relevant here.  Experiencing High Pathogenicity Avian Influenza (infections of which may cause serious complications or fatal cases in humans), India banned the importation of agricultural products like poultry products from the United States. [xxiii]  India claimed that such products came from areas that were affected by Low Pathogenicity Avian Influenza (infection of which may be asymptomatic or have very mild symptoms).  The U.S. accused India of not basing its measures on or conforming to the World Organization for Animal Health (OIE)’s established international standard, the OIE Terrestrial Code, nor on a scientific risk assessment.  The U.S. also claimed that India discriminatorily imposed those measures on poultry products from the U.S. while sparing products from other Members where similar conditions prevailed.  The U.S. further alleged that India failed to recognize the disease-free areas and areas of low prevalence of the disease under Art. 6 of SPS, thus prohibiting imports of poultry products from those “safe” areas.  The WTO panel and the Appellate Body sided with the U.S. on the aforementioned challenges, but the Appellate Body faulted the panel for not considering whether these Indian measures were supported by sufficient scientific evidence.  Up to now, the compliance panel has yet to rule on India’s implementation of Appellate Body’s recommendations.

The EC—Hormones case is relevant when trade restrictive measures are taken under the “precautionary principle.”[xxiv]  The European Community’s ban—imposed when scientific evidence on the toxicity of certain hormones was insufficient—on imports and domestic production of certain hormone treated meat and meat products, with limited exceptions, was held to be WTO-inconsistent.[xxv]  The Appellate Body, in its ruling on the “precautionary principle” justification invoked by the EC, recognized that the “precautionary principle” was reflected in Art. 5.7 of SPS.  The Appellate Body further held that any measure resulting from an exercise of the “precautionary principle” should conform to the risk assessment requirement, which must be sufficiently warranted by scientific evidence and principles.[xxvi]

Facilitating WTO-Compliant Responses to PHEIC

One obstacle facing governments during PHEIC is the lack of sufficient scientific evidence to justify stringent measures as oftentimes the disease is novel, fast spreading, and effective treatments are not presently available and may take time to develop.  Meanwhile, governments need to protect their citizens and are required to base their measures on “scientific principles, available scientific evidence, and available specific guidance and advice from WHO.”  As the risks of not taking sufficiently prudent and precautionary measures may be high and irreversible—life-terminating and serious damages to human health—in times of PHEIC, governments would rather err on the side of cautions, i.e., imposing more stringent measures than advised by WHO.  Such more trade-restrictive-than-necessary measures may include a broad travel ban imposed on people coming from the Member state where the disease originates (instead of the specific area in that Member state where the disease originates) and from adjacent Member states where infections have been reported, defying the WHO’s advice to the contrary.

While governments’ hands should not be tied when responding to emergencies like PHEIC, it is important for governments to consider the consequences, risks, and externalities of those measures as they tend not only to impact the ability and capability of health protection, but also negatively affect international trade flow in goods and services.  Those consequence, risks, and externalities may be justified under GATS Arts. XIV(b) and XIVbis, as alluded before, but governments should exercise restraint and extra precaution in assessing whether such measures are warranted by scientific principles and evidence.  While PHEIC by itself indicates the existence of a public health emergency, whether it is equivalent to an emergency in international relations is still debatable.  Assuming that PHEIC is equivalent to such enumerated emergencies (e.g., heightened crisis) in international relations, and protecting citizens’ health is one of “those interests relating to the quintessential functions of the state,” such measures shall not be “more restrictive of international traffic and trade … than reasonably available alternatives that would achieve the appropriate level of health protection.”[xxvii]  When fear over unknown disease spreads alongside the disease itself, as is often the case of PHEIC, it is important to separate the legitimate consideration of protecting national security, citizens and their health with illegitimate considerations such as protectionism and de facto discrimination.

The more trade-restrictive-than-necessary measures may also be justified by drawing analogies to SPS, including the “precautious principle” embedded in Art. 5.7 when scientific evidence is scarce, when a new type of virus is reported and PHEIC is declared.  However, the exercise of “precautionary principle” should not override the WHO’s requirements that governments should base their measures on “scientific principles, available scientific evidence, and available specific guidance and advice from WHO.”  As past experience in PHEIC and other domestic pandemics suggest, new scientific evidence will be discovered and revealed as labs and researchers work collectively, though located separately, to study those novel viruses.  In the interim, if and when governments feel compelled to implement more restrictive measures than advised by the WHO, some scientific justifications, more than mere fear, should be present to warrant such a deviation.

Admittedly, human health is of utmost importance to governments.  To analogize measures under trade in goods and services rules, though relevant given the similarities in the wording of relevant provisions and the width of industries affected by measures taken during PHEIC, requires extra care.  I do not purport to give a full account as to what constitutes “good practice” under PHEIC.  I hope, however, by examining relevant past WTO cases concerning measures taken for the protection of national security and human health, a scientific evidence-centered approach will serve as guidance for measures taken in combating future PHEIC.

 

[i] WHO Director-General’s remarks at the media briefing on 2019-nCoV on 11 February 2020, World Health Organization, February 11, 2020, https://www.who.int/dg/speeches/detail/who-director-general-s-remarks-at-the-media-briefing-on-2019-ncov-on-11-february-2020.

[ii] Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV), World Health Organization, January 30, 2020, https://www.who.int/news-room/detail/30-01-2020-statement-on-the-second-meeting-of-the-international-health-regulations-(2005)-emergency-committee-regarding-the-outbreak-of-novel-coronavirus-(2019-ncov).

[iii] Rachel Pannett, Australia Restricts Travelers From Mainland China as Virus Impact Spreads, Wall Street Journal, February 1, 2020, https://www.wsj.com/articles/australia-s-qantas-suspends-china-flights-as-virus-impact-spreads-11580536238.

[iv] China coronavirus outbreak: All the latest updates, Al Jazeera, Feb. 21, 2020, https://www.aljazeera.com/news/2020/02/cloneofcloneofcloneofcloneofcloneof2002152244372-200220231446112.html.

[v] Secretary Azar Declares Public Health Emergency for United States for 2019 Novel Coronavirus, HHS Press Office, Jan. 31, 2020, https://www.hhs.gov/about/news/2020/01/31/secretary-azar-declares-public-health-emergency-us-2019-novel-coronavirus.html.

[vi] Italy declares state of emergency over coronavirus, France24, Jan. 31, 2020, https://www.france24.com/en/20200131-italy-declares-state-of-emergency-over-coronavirus.

[vii] International Health Regulations (2005), Art. 43(2), https://apps.who.int/iris/bitstream/handle/10665/246107/9789241580496-eng.pdf;jsessionid=A4372CD14B345F1D18285627B0EC340A?sequence=1.

[viii] WHO advice for international travel and trade in relation to the outbreak of pneumonia caused by a new coronavirus in China, WHO, Jan.10, 2020, https://www.who.int/ith/2020-0901_outbreak_of_Pneumonia_caused_by_a_new_coronavirus_in_C/en/.

[ix] Supra note vii, Article 1.

[x] Cecile Daurat, The Coronavirus is Infecting the Global Economy. Here’s How., Bloomberg, Jan. 31, 2020, https://www.bloomberg.com/news/articles/2020-01-31/the-global-economy-is-getting-infected-by-the-virus?sref=Yspa2Kpl.

[xi] The similarity in the languages and goals in Arts. XX(b) and XXI of GATT, and Art. 5.7 of SPS vis-à-vis GATS provisions warrants such analogy.  See also Appellate Body’s U.S.—Gambling decision, recognizing the relevance of the jurisprudence under Art. XX of GATT.

[xii] GATS Art. XIV(b)

[xiii] GATS Art. XIVbis.

[xiv] Louise Moon and Martin Choi, Global tourism to take a US$80 billion hit and a year to shake off the effects of coronavirus outbreak, South China Morning Post, Feb. 14, 2020, https://www.scmp.com/business/companies/article/3050682/global-tourism-take-us80-billion-hit-and-year-shake-effects.

[xv] Coronavirus: Much of ‘the world’s factory’ still shut, BBC News, Feb. 10, 2020, https://www.bbc.com/news/business-51439400.

[xvi] See supra note xiv.

[xvii] Associated Press, Universities cancel study-abroad programs amid coronavirus fears, New York Post, Feb. 6, 2020, https://nypost.com/2020/02/06/universities-cancel-study-abroad-programs-amid-coronavirus-fears/.

[xviii] Russia — Measures Concerning Traffic in Transit (hereinafter “Russia—Traffic in Transit”), DS512, WT/DS512/R, paras. 7.102-7.104.

[xix] Id. at paras. 7.130 and 7.76.

[xx] Art. XX of GATT.

[xxi] European Communities — Measures Affecting Asbestos and Products Containing Asbestos, DS135, WT/DS135/AB/R.

[xxii] Articles 2 and 5 of SPS.

[xxiii] India—Measures Concerning the Importation of Certain Agricultural Products (United States), DS430, WT/DS430/AB/R paras. 1.4 and 4.12.

[xxiv] European Communities — Measures Concerning Meat and Meat Products (Hormones) (hereinafter “EC—Hormones”), WT/DS26/AB/R and WT/DS48/AB/R.  The Appellate Body Report did not opine on whether “precautionary principle” has become customary international or a general principle of international law.  Para. 123.

[xxv] EC—Hormones, WT/DS26/9 para. 9.1 and WT/DS48/7 para. 9.1.

[xxvi] EC—Hormones, WT/DS26/AB/R and WT/DS48/AB/R, Part XIV.

[xxvii] Supra note vii.

A Few Responses to USTR's 2020 Trade Policy Agenda and 2019 Annual Report

In the last post, I said that going through USTR's 2020 Trade Policy Agenda and 2019 Annual Report page by page and responding to every point "would be exhausting and would probably not achieve much." But I'm going to do a little bit of it anyway, just for fun. I will focus on the section entitled The World Trade Organization at Twenty-Five and U.S. Interests, which starts at p. 38 of the PDF. Here goes!

With regard to the GATT vs. the WTO, the report says:

Under the GATT system, between 1947 and 1994, there were eight negotiating rounds – each of which led to lower tariffs and fewer trade barriers among all GATT Members. But in the twenty-five years since the WTO began operation—though there have been some positive agreements that address discrete aspects of trade—Members have not reached a significant new multilateral market access agreement. As a result, most of the fundamental rules that govern global trade were negotiated before the WTO even came into existence.

In my view, significant liberalization isn't going to happen unless governments want to liberalize. I suppose we can pick out this country or that country as deserving the most blame, but from what I can tell, all major governments, including the United States, have resisted liberalization. Everyone wants to focus on other Members' protectionism, while ignoring their own. Liberalization won't happen in that environment.

On China, the report says:

scholars estimate that China’s accession to the WTO has contributed to the loss of millions of jobs in the United States, primarily in the manufacturing sector.

I'm skeptical of the job loss numbers that have been put out there (the Autor et al. number of two million or so has been undermined by various critiques), and also that things would have been much different if China hadn't joined the WTO, but none of this is provable and we are all just basing our conclusions on instinct.

On WTO dispute settlement, the report says:

Over the last quarter century, the United States has become the chief target of litigation at the WTO, and has at least partially lost the overwhelming majority of cases brought against it. 155 disputes have been filed against the United States, while no other Member has faced even a hundred disputes. According to some analyses, up to 90 percent of the disputes pursued against the U.S. have resulted in a report finding that a U.S. law or other measure in question was inconsistent with WTO agreements. This averages out to five or six successful WTO disputes against the United States every year.

The United States has also filed 124 complaints against other countries, and has succeeded at a similar rate. With all the trade barriers out there, why not file more?

On U.S. economic growth, the report says:

When considering the effects of the WTO Agreement on the interests of the United States, it is instructive to compare U.S. economic performance and trade flows before and after 1994, the year the United States joined the WTO. ...

...

The U.S. economy grew at an average annual rate of 3.5 percent under the GATT system (1947–1994). Considering only economic data for the immediate twenty-five years before the United States joined the WTO (1969–1994), the economy grew by an average annual rate of 3.0 percent. In the twenty-five years since joining the WTO, growth has slowed to an average annual rate of 2.5 percent.

Given all the other things going on in the economy during the periods in question, I'm very surprised to see it implied that the creation of the WTO caused U.S. GDP growth to slow. 

On tariffs, the report says:

The U.S. average bound tariff rate and applied most-favored-nation (MFN) rate are both 3.4 percent. In comparison, Brazil’s bound tariff rate is 31.4 percent, and its applied rate is 13 percent. India’s bound and applied tariff rates are 48.5 percent and 17 percent, respectively.

Under current WTO rules, these rates are locked in place with no sunset clause or meaningful mechanism to allow the United States and other Members to address enormous differences. It is not reasonable to accept that because the United States agreed to such disparities many years ago, when economic and geopolitical conditions were very different, that the United States should tolerate them in perpetuity. Commitments on tariffs should keep pace with the realities of the global economy rather than locking certain countries into nonreciprocal rates.

I don't think the tariffs are locked in place. I think that, for example, if the United States offered up some farm subsidy liberalization in exchange for tariff lowering by other countries, we could probably get it. Or if that's too sensitive, maybe offer to scale back IP protection a bit.

On trade deficits, the report says:

The United States simply cannot sustain substantial increases in its trade deficit year after year, decade after decade. ...

To the extent this is a problem, it can and should be solved by addressing its causes, which are mostly macroeconomic in nature. U.S. savings (both government and private) should be increased significantly. The report also says:

Moreover, the establishment of the WTO has ushered in an era of massive global trade imbalances. While neutral market factors contribute to these long-running imbalances, that the imbalances remain unchanged for decades, despite varying periods of growth and recession, indicates there are other, non-market factors at play.

The imbalance figures have changed drastically during periods of growth and recession, which I think helps make my point that the imbalances are not that important. If your growth is up and that leads to a rising trade deficit, which has happened frequently, consider yourself lucky!

More on the trade deficit:

In sum, it is unfair and unsustainable for the United States to accept the status quo under current WTO conditions that help contribute to enormous and ever-growing trade imbalances. While the U.S. trade balance may not be the only indicator of economic health, it is an indicator of how equitably the United States is treated by its trading partners and how well it is faring as a Member of the WTO.

There is lots of protectionism out there, and I applaud everyone's efforts to identify such measures and eliminate them. But "trade imbalances" are a terrible way to approach the issue. 

On solutions to the Appellate Body crisis, the report says:

USTR recently issued an extensive report that details the systemic problems with the WTO Appellate Body and dispute settlement process and addresses the correct approach to all of the issues identified.

On a lot of the issues identified in the USTR report on the Appellate Body, I'm not sure I understand what approach USTR thinks should be taken. DSU Article 11 and GATT Article III:4 are good examples. I understand what they don't like, but what precise alternative do they support? I'd love to see them lay out the alternative and make the case for it.

On technology transfer, the report says:

Forced technology transfer is inconsistent with an international trading system based on market principles and undermines growth and development. Members should develop norms, core disciplines, and effective means to stop harmful forced technology transfer policies and practices, including through enforcement tools and the development of new rules.

In its accession protocol, China has agreed to some norms in this area. The U.S.-China phase one deal elaborates on these. I think it would be great to develop norms for the WTO membership as a whole. Someone should propose it.

On the value of the WTO generally, the report says:

It is difficult now, twenty-five years after its inception, to declare the WTO a success for American interests. Indeed, the organization in many ways ignores and enables unbalanced trade and unfair trade practices.

There's an implication here that the GATT was better for the U.S. economy than the WTO. Of course, the GATT did not include rules on intellectual property protection, whereas the WTO does. My sense is that many countries think they got a bad deal in the Uruguay Round and some probably wouldn't mind going to back to the GATT. A lot of American interests would be much worse off under the old regime though.

How To Get Countries To Lower Their Tariffs

USTR's 2020 Trade Policy Agenda and 2019 Annual Report was released today. Among other things, it includes a lot of complaints about the WTO, and clearly reflects the trade views of the Trump administration. There's a part of me that would like to go through page by page and respond to every point, but that would be exhausting and would probably not achieve much. Instead, I'm going to focus on one specific issue the report raises:

The WTO currently locks-in outdated tariff determinations that no longer reflect deliberate policy choices and economic realities. As a result, many countries that have large economies that have developed significantly over the past two decades continue to maintain very high bound tariff rates, far in excess of the rates applied by the United States or to which the United States is bound. For example, the U.S. average bound tariff rate and applied Most Favored Nation rate are both 3.4 percent. In comparison, Brazil’s bound tariff rate is 31.4 percent, and its applied rate is 13 percent. India’s bound and applied tariff rates are 48.5 percent and 17 percent, respectively. Members need to fundamentally rethink tariffs and their role, recognizing that commitments on tariffs should reflect current economic conditions.

I agree that it would be great if other countries would lower their tariffs. How might the U.S. government achieve this goal? I have two suggestions: (1) Stop spending so much time and effort pushing other countries on other policies, such as intellectual property protection, and focus on tariff lowering instead; and (2) offer to liberalize in the areas where other countries complain about U.S. protectionism, such as farm subsidies or anti-dumping abuses.

I think this approach would work, and until someone tries it and proves me wrong, I will remain convinced and keep promoting it.

Guest Post: Neo-liberalism vs Ordo-liberalism: Beware the 2020 USTR Report on the WTO Appellate Body

This is a guest post from Prof. Ernst-Ulrich Petersmann, European University Institute Florence

In his recent book on Globalists. The End of Empire and the Birth of Neoliberalism (Harvard University Press 2018), history Professor Q. Slobodian describes the WTO as ‘the paradigmatic product of Geneva School neoliberalism’ (at p.25), and the ‘creation of the WTO (as) a crowning victory of the neoliberal project of finding an extra-economic enforcer for the world economy in the twentieth century’ (at 23). Yet, like many other Anglo-Saxon commentators on neo-liberalism, Slobodian overlooks the categorical differences between Anglo-Saxon neo-liberalism and European ordo-liberalism: US neo-liberalism and Chicago School economists prioritize liberalization of market access barriers, deregulation, privatization and financialization of markets in order to empower utilitarian market actors (homo economicus) to pursue their self-interests and enhance the self-regulating forces of market competition as spontaneous information, coordination and sanctioning mechanisms. The German, European and Virginia Schools of ordo-liberalism perceive markets as legal constructs (rather than as gifts of nature), which cannot maximize general consumer welfare without legal limitations of market failures, governance failures and ‘constitutional failures’. GATT/WTO jurisprudence (e.g. on interpreting GATT/WTO rules as protecting non-discriminatory conditions of competition) emphasized the systemic, ordo-liberal functions of states and of the GATT/WTO legal and dispute settlement systems as ‘guardians’ of non-discriminatory conditions of competition. The USTR Report on the Appellate Body of the WTO (AB) of February 2020 perceives WTO law as an instrument of US power politics and disregards ordo-liberal ‘constitutional economics’ justifying the multilateral WTO legal and dispute settlement systems. The legal justifications by the Trump administration of their illegal ‘blocking’ of WTO AB nominations insist on US interpretations of WTO rules and US criticism of AB findings without any evidence that legal interpretations by the AB violated the customary rules of treaty interpretation or the (quasi)judicial AB mandate for impartial, independent and prompt third-party adjudication through quasi-automatic adoption of WTO panel and AB reports by the Dispute Settlement Body (DSB). The 2020 USTR Report – notwithstanding its valid criticism of some WTO rules and dispute settlement practices (e.g. that the AB no longer consults with the parties when deciding to disregard the Article 17.5 deadline) – suffers from legal biases and incorrect claims such as:

- US denial of (quasi)judicial functions of WTO third-party adjudication, even though numerous WTO publications and WTO dispute settlement reports over more than 20 years acknowledged the (quasi)judicial mandates of WTO dispute settlement bodies (i.e. WTO panel and AB reports as adopted by the DSB);

- US disregard for judicial AB arguments in the performance of the Dispute Settlement Understanding (DSU)’s mandate ‘to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’ (Article 3 DSU), for instance whenever the AB found compliance with the time limit of 90 days (Article 17.5 DSU) – which was imposed by US negotiators in 1993 notwithstanding the widespread criticism that no other court seems to be limited by such an unreasonably short time limit – impossible to reconcile with the other AB tasks (e.g. due to illegal US blocking of the filling of AB vacancies);

- contradictory USTR claims that AB legal findings against the US violated the DSU prohibition to ‘add or diminish the rights and obligations in the covered agreements’ (Article 3.2 DSU) – even if the AB had justified these legal findings on the basis of the customary rules of treaty interpretation and its (quasi)judicial mandate -, notwithstanding the USTR’s regular support of AB reports accepting ‘creative WTO interpretations’ advocated by the USTR as a legal complainant;

- US description of US ‘zeroing practices’ as a ‘common-sense method of calculating the extent of dumping’ (p.2) even if their biases had been consistently condemned by the AB and DSB as violations of the WTO obligations of ‘fair price comparisons’ (which are hardly mentioned in the USTR report);

- one-sided focus on WTO texts as interpreted by US negotiators without regard to the customary law and DSU requirements to clarify the meaning of the often indeterminate WTO provisions with due regard also to WTO legal texts revealing the ‘context, object and purpose’ of WTO provisions and the explicitly recognized ‘systemic character’ of what the WTO Agreement calls ‘this multilateral trading system’ (Preamble) and its ‘dispute settlement system’ (Article 3 DSU);

- denigration of AB members as ‘three unelected and unaccountable persons’ (pp. 8, 13) whose ‘overreaching violates the basic principles of the United States Government’ (idem, Introduction), notwithstanding the election of AB members through consensus decisions of 164 DSB member governments (including the USA), their (quasi)judicial mandate, and the approval of WTO agreements (including the DSU) by the US government and US Congress;

- insulting claims that the AB Secretariat has weakened the WTO dispute settlement system by not respecting WTO rights and obligations (p.120).

The USTR Report acknowledges that its purpose ‘is not to propose solutions’. The Introduction to the Report repeats what the US ambassador has stated in DSB meetings since 2017: ‘WTO Members must come to terms with the failings of the Appellate Body set forth in this Report if we are to achieve lasting and effective reform of the WTO dispute settlement system’. Yet, nothing suggests that – if WTO members should accept the false US claims of the AB’s ‘persistent overreaching… contrary to the Appellate Body’s limited mandate’, and ‘the Appellate Body’s failure to follow the agreed rules’ – the US would be willing to comply with its DSU obligation of filling AB vacancies ‘as they arise’ (Article 17.2 DSU) and return to WTO third party adjudication and appellate review as prescribed in the DSU. Past WTO members’ ‘appeasement’ of false USTR claims (e.g. in Ambassador Walker’s mediation proposal for overcoming the WTO dispute settlement crises) never changed the USTR’s refusal to return to WTO third party adjudication as prescribed in the DSU. The ‘Economic and Trade Agreement’ signed by the Chinese and US governments on 15 January 2020 provides for discriminatory Chinese commitments to buy US products, discriminatory US import tariffs and US trade restrictions (e.g. targeting Chinese technology companies) without third-party adjudication. This bilateral ‘opt-out’ – by the two largest trading nations – from their WTO legal and dispute settlement obligations seems to be the policy option preferred by those USTR officials who pursue additional ‘bilateral US trade deals’ and now publicly reflect on US withdrawal from the WTO Agreement on Government Procurement, and on ‘unbinding’ US tariff and market access commitments, in order to better use power asymmetries in rebalancing bilateral US trade deficits through bilateral reciprocity negotiations, as advocated by Trump’s trade policy advisor P. Navarro. The US-China trade deal provision for dispute settlement through unilateral USTR determinations seems to illustrate the hegemonic trade mercantilism, which USTR Lighthizer would like to impose on the rest of the world. De facto, the US Trump administration already disregards WTO rules (e.g. GATT Articles I, II and III) and WTO dispute settlement procedures whenever it suits US political interests and US interest group politics.

WTO members willing to defend the multilateral WTO legal and dispute settlement system should beware of hegemonic US power politics undermining WTO law and denying global public goods like multilateral trade and environmental protection systems. The response to the USTR demand of ‘why’ the WTO dispute settlement crises have emerged seems obvious: as WTO members have failed to adequately control WTO jurisprudence, the US Trump administration prioritizes mercantilist power politics rejecting multilateral legal and judicial restraints on its ‘asymmetric deal-making’. The response to the question of ‘how’ to reform the WTO dispute settlement system must be to defend, and reform the rules-based, multilateral trading system, while continuing pragmatic use of Article 25 DSU ‘appellate arbitration’ as a temporary substitute for circumventing the illegal US blocking of the WTO AB system. Appeasement of US destruction of the WTO legal and dispute settlement systems has systemic repercussions far beyond the WTO. Without a multilateral WTO dispute settlement system, the UN sustainable development goals, climate change mitigation, future WTO negotiations, and also US efforts at inducing market-oriented reforms in China’s totalitarian state-capitalism are unlikely to succeed. Authoritarian strongmen may benefit from intergovernmental power politics and neo-liberal interest group politics. Yet, citizens all over the world will suffer from neglect of the ordo-liberal task of limiting governance failures and ‘constitutional failures’ in multilateral governance of transnational public goods.

Guest Post: The EU-UK Future Relationship: A Trade or Governance Agreement?

This is a guest post from law professor Geraldo Vidigal:

1. A New Partnership Agreement

It was perhaps predictable. On 25 February 2020, the Council of the European Union (EU) authorized the opening of negotiations for a ‘new partnership agreement’ (NPA) with the United Kingdom (UK). Attached to the authorization were 46 pages of negotiating directives (NDs), covering ‘trade and economic cooperation, law enforcement and judicial cooperation in criminal matters, foreign policy, security and defence and thematic areas of cooperation’ (NDs para. 7). While outlining the bases for the desired future partnership, the EU’s document also included a comprehensive wish list of EU Member States for their relations with the UK – from establishing EU law as the controlling legal order governing UK access to security-relevant satellite data from the Galileo project (para. 140) to EU fishers’ demand to continue to be able to fish in UK waters under currently applicable conditions (para. 88) to Greece’s demand for ‘the return or restitution of unlawfully removed cultural objects to their countries of origin’ (NDs para. 33).

Two days later, the UK Prime Minister presented to the UK Parliament a 30-page document outlining the UK’s approach to Negotiations over its future relationship with the EU (UKAN), proposing a ‘Comprehensive Free Trade Agreement’ (CFTA) to ‘be supplemented by a range of other international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy’ (UKAN, p. 19).  The key goal of the proposed CFTA is to ‘ensure there are no tariffs, fees, charges and quantitative restrictions on trade’ between the parties (UKAN p. 5).

As regards the core of the future relationship – the economic partnership – the two documents present starkly divergent visions. Drawing inspiration from EU agreements with Canada, Japan, the United States, South Korea, New Zealand, and Chile, the UKAN proposes ‘a relationship based on friendly cooperation between sovereign equals’, in which each party maintains ‘legal autonomy’ and ‘control of its own laws and political life’, with no role for the Union’s regulatory standards or governance structures, in particular the Court of Justice of the European Union (CJEU) (UKAN, p. 3).

The EU Negotiating Directives set up quite a different vision, on two levels: substantively, by proposing that the NPA contain so-called ‘level playing field’ commitments, which would require the UK’s regulatory framework to remain on pace with that of the EU (even if it formally diverges from the latter); procedurally, by setting up a governance structure to permit updating the level playing field commitments to match Union standards, foreseeing unilateral remedies in case the UK falls behind on these commitments, and delegating to the CJEU decisions on the interpretation of EU law.

2. The Level Playing Field Provisions: Standards and (Unilateral) Remedies

The Negotiating Directives condition the elimination of barriers to trade (or rather their non-increase) to the UK's acceptance of commitments over the so-called level playing field. In both substance and form, these commitments go beyond the sustainable development commitments in existing EU free trade agreements (FTAs) with Canada, Japan, or South Korea. Substantively, recent EU FTAs tend to include provisions requiring adoption of minimum standards with respect to labour and social rights, environmental preservation, and the fight against climate change. In these fields, these agreements usually combine requiring the incorporation of certain internationally agreed standards, such as those of the core conventions of the International Labour Organization, with demanding that the parties comply with their own labour or environmental regulations. The proposed NPA level playing field section would go beyond these requirements. It would require the UK to establish or maintain legal disciplines not only in traditional sustainable development areas but also in the fields of state aid and competition law, state-owned enterprises, and taxation. In both cases, the EU Negotiating Directives propose not only the adoption of ‘common standards’ at the time the NPA is signed but also of ‘corresponding high standards over time with Union standards as a reference point’ (NDs para. 94).

This seems to fall short of full ‘dynamic alignment’, a mechanism used in the EU’s so-called Deep and Comprehensive Free Trade Agreements (DCFTAs) with Ukraine, Georgia and Moldova. Through dynamic alignment, the EU’s counterpart is not limited to committing to adopt rules and standards equivalent to those of the EU but commits to ‘regulatory approximation’, adopting EU rules wholesale, including any subsequent modifications that EU institutions might make, through legislation or interpretation, to the relevant regulatory framework. In exchange for dynamic alignment, a DCFTA partner gains full access to the EU market, without the need for regulatory checks. The Negotiating Directives, while leaving open the door for such an arrangement (‘wider sectoral cooperation’ (NDs para. 17)), overall propose a lower level of integration: the adoption of ‘correspondingly high levels of protection’ (Ibid), requiring an equivalence of objectives and outcomes but not the adoption of common means of attaining these objectives and outcomes.

As a matter of form, sustainable development chapters of existing EU FTAs have been criticized for not being enforceable in that, while they are subject to impartial dispute settlement, there is no provision authorizing trade retaliation in case of non-compliance with the adjudicators’ decisions. Whether or not these criticisms are founded, the Negotiating Directives propose a break with this trend. They provide that the NPA level-playing field commitments should be subject to adjudication and that dispute settlement should provide for ‘appropriate remedies’ (NDs para. 94), empowering the parties to respond to non-compliance with adjudicators’ decisions by taking ‘proportionate and temporary measures, including suspension of [the party's] obligations within the scope of the envisaged partnership as well as any supplementing agreements’ (NDs para. 161). Potential retaliation would thus not be restricted to the sector in which non-compliance took place but could be implemented as cross-retaliation, with reciprocal non-performance by the aggrieved party of its commitments under other areas covered by the NPA.

Additionally, the Negotiating Directives propose that the EU should be able to apply ‘autonomous, including interim, measures’ – presumably, unilateral measures not subject to prior adjudication – in order ‘to react quickly to disruptions of the equal conditions of competition in relevant areas, with Union standards as a reference point’ (NDs para. 94). Such a mechanism would extend to the level playing field provisions the logic of trade remedies, such as anti-dumping and anti-subsidy countervailing duties (which the Negotiating Directives propose to preserve in EU-UK relations (NDs para. 23)), whereby each party is empowered to react unilaterally to the emergence of circumstances that are harmful to its domestic industry, leaving it up to the affected party to pursue adjudication in case it believes the unilateral remedies are unwarranted or disproportionate. In this case, a unilateral finding by the EU that the UK's has failed to comply with level playing field obligations (including those that establish EU standards as the reference point) would allow the EU to respond by taking 'autonomous' (i.e. unilateral), presumably trade-restrictive, measures.

3. The Governance Structure: Intergovernmental and Community Institutions

In addition to substantive provisions, the EU Negotiating Directives propose endowing the NPA with a governance structure that involves essentially three institutions. First is a purely intergovernmental organ, the governing body, composed of representatives of the EU and the UK and deciding by consensus, tasked with managing and supervising the implementation and operation of the NPA. The sole indication of the tasks of the governing body in the Negotiating Directives is that it should be able to modify the level playing field commitments over time to ensure that the ‘high levels of protection’ remain up to date, presumably to keep them aligned with EU standards (NDs para. 95). Since consensus-based decisions mean that each party is able to block a decision without providing a justification, the governing body in principle preserves the autonomy of the parties and gives each of them control over the evolution of their commitments.

The second institution is arbitration panels, to which both the governing body and each party individually can refer disputes, defined as ‘any matter concerning the operation of the envisaged partnership’ (NDs para. 158). Arbitration panels are independent third-party adjudicators, a common fixture of trade agreements everywhere to which the alternative is 'bilateral dispute settlement', i.e. unilateral interpretation and negotiations under the threat of retaliation. While panels are themselves independent, what their independence means is that they apply the commitments that were entered into by the parties. Thus, if the level playing field provisions establish that on certain matters the NPA provisions are to be updated by the governing body to keep pace with increases in EU standards, inaction by the governing body (whose decisions the UK may block) may not prevent the arbitration panel from finding that the UK’s substantive obligation remains to keep pace with EU standards – governing body decisions being a coordination and expectation-setting mechanism rather than a requirement for the updating of the UK’s obligations.

Finally, the Negotiating Directives foresee a role for the CJEU in the governance of the agreement. This role arises whenever a dispute between the parties raises a question of interpretation of EU law, and requires the arbitration panel, on its own motion or at the request of either party, to refer the question to the CJEU, ‘as the sole arbiter of Union law’ (NDs para. 160). The CJEU’s ruling would then be binding on the arbitration panel, which would be required to ‘decide the dispute in accordance with the ruling given by the CJEU’ (Ibid).

The CJEU’s role would not necessarily work to the disadvantage of the UK. If a dispute concerns the implementation of EU rules by the Commission or a Member State in a manner that the UK believes violates EU law, for example, referring the issue to the CJEU would allow it to decide against the interpretation advanced by the Commission or the Member State. This decision would not only be binding on the panel but would be directly applicable in the legal order of EU Member States, giving the UK the ability to de facto request a CJEU judgment with direct effect and obviating the need for post-ruling negotiations and threats of retaliation. The CJEU’s track record shows that it is more than ready to condemn Member State policies that in its judgment violate, to the detriment of non-Member States, either EU law or EU FTAs.

Where the CJEU’s role proves trickier is in areas in which the NPA itself, or subsequent NPA-grounded rules, incorporates by reference rules and standards of EU law. NPA provisions relating to human, animal or plant health, for example, may follow the Negotiating Directives' objective of ‘uphold[ing] the application of the precautionary principle in the Union as set out in the Treaty on the Functioning of the European Union’ (NDs para. 30). Depending on the wording of the NPA, a determination on whether a certain regulatory choice infringes the NPA may depend not only on whether this choice is, in the abstract, a legitimate application of the precautionary principle – which seeks to give governments wider, rather than narrower, discretion – but also on whether the application of the precautionary principle contradicts the harmonization measures adopted at EU level on the basis of the precautionary principle. Thus, while the CJEU will not in principle have a role in the interpretation of the NPA per se, to the extent that the NPA incorporates portions of the EU legal framework, the interpretation of the corresponding provisions, and therefore of the extent of the UK’s obligations, will be left to the CJEU.

In other words, while much has been made in the UK about the role of the CJEU, this role is not problematic per se, and may even work to the advantage of the UK. The CJEU's role becomes challenging to the extent that it is the consequence of a commitment by the EU's counterpart to adopt EU laws and regulations as part of a bilateral agreement in which the parties are otherwise on equal footing. The EU appears to believe that demanding such adoption is warranted in its dealings with countries in its 'near neighbourhood', which it sees not as counterparts in a purely bilateral trade agreements but as natural candidates for integration into the EU's economic governance structures. Seen from this perspective, the dynamic alignment commitments in DCFTAs appear not as the ostensible signs of an unequal bilateral treaty but as the voiceless choreography to be performed by a new entrant to the communitarian European stage, in preparation for the moment of full alignment, when the new entrant will be able to add its voice to the European chorus. The question, then, is how this approach can resonate with a singer whose declared aim is to leave the band and go solo.

4. A War of Slides: Between Trade and Governance

As if to illustrate the point, days before the Negotiating Directives were formally issued, a short ‘slides war’ took place between the UK Prime Minister’s Press Office and the European Commission. The Press Office fired the opening shot on Twitter, tweeting the famed ‘staircase chart’ circulated in late 2017 by Michel Barnier, the European Commission’s Chief Negotiator in the Task Force for Relations with the United Kingdom (UKTF). The staircase chart foresaw, among the options for the EU-UK future relationship, a purely bilateral FTA of the type the EU has with Korea or Canada. Indeed, the chart appeared to imply that this would be the expected outcome of the UK’s decision to avoid any regulatory alignment or trade policy coordination. These FTAs, on which the UK based its proposed CFTA, are ‘shallow’ in that they cover essentially mutual tariff elimination or reduction, provide only aspirationally for regulatory cooperation, do not feature any expectation of adoption by the other party of EU standards, and as a consequence do not provide for CJEU involvement. The Press Office’s tweet stated that the slides implied that ‘a Canada type FTA was the only available relationship for the UK’, claiming that the European Union’s new position was that such a shallow FTA was ‘not on offer after all’.

The next day, the Commission’s UKTF replied by publicizing a new document, entitled ‘Trade Agreements: Geography and trade intensity’, consisting of a graph comparing the UK’s distance from the EU and level of bilateral trade with those of other EU FTA partners. The graph sought to contrast ‘close’ EU partners, such as Switzerland, Turkey and Norway, with ‘distant’ ones, such as Canada, Korea or Japan. In a section entitled ‘UK is different from other trade partners’, the UKTF claimed that ‘economic interconnectedness and geographic proximity are such that it is in our mutual interest to agree on fair competition standards between us, as well as on their effective enforcement’. In another section, entitled ‘Background’, the UKTF argued that this point had been clearly stated by the EU institutions in their negotiating positions from early 2017.

The divergent positions of the UK and the EU not only reveal different objectives with respect to the specific economic relationship they seek for the future but also stem from fundamentally different perspectives with regard to the purpose and effects of trade agreements. The UK’s vision for the CFTA trusts that trade agreements can and should remain limited to what is sometimes called ‘negative integration’: the elimination of ostensible barriers to trade (essentially, tariffs and quotas) and the ad hoc adoption of mutual recognition schemes by the parties, which accept imported products from each other while still determining individually their regulatory framework. This hands-off approach finds favour not only with those who believe in deregulated capitalism but also, and perhaps paradoxically, with some on the left, who esteem that international agreements have become too intrusive and hamper state ‘regulatory autonomy’.

The EU’s vision has a different starting point. For the EU, negative integration with regulatory autonomy, i.e. without somewhat harmonized rules and standards, creates incentives for a regulatory race to the bottom, in which each party is competing with its trade partners to adopt the most efficient (i.e. the least costly for companies) set of disciplines on issues such as the environment, labour, competition, and taxation. This race to the bottom is viewed as incentivizing not efficient governments but regulation-shopping by companies, rewarding with short-term economic advantages those states that that impose the least costly regulatory requirements at the expense of other states and even their own populations. Regardless of the short-term redistributive boon a state might experience, over time the race to the bottom would  lead to a tragedy of the commons scenario, in which each party’s attempt to lower its own domestic regulatory costs leads to an overall loss for all the states parties, to the advantage of companies that are able to move around their production site or tax residence, and to the serious detriment of environmental protection, the share of labour in overall income, and the overall amount of taxation available to governments to spend in fulfilling the economic and social needs of citizens.

The challenge posed by the EU’s vision of economic integration is that it cannot take place without a common regulatory framework and institutions for dynamic adaptation. The common regulatory framework limits each party’s regulatory sovereignty in favour of commonly adopted standards. Common institutions, required to ensure the adaptation of the common regulatory framework to new demands and situations, must be able to make decisions other than by full consensus among the parties – hence the panoply of EU institutions and decision-making procedures. The project of positive integration thus depends on each party accepting that it will no longer be able to define autonomously its own domestic regulations. Given that ultimately any regulation generates externalities, the states entering into positive integration arrangements must be willing to trade their right to opt out of commitments (to exit) for the right to have a say (a voice) in shaping the collectively determined regulatory framework which will allow them to overcome the tragedy of the commons scenario.

The key objective underlying the UKAN has been repeatedly mentioned by those in the United Kingdom who promoted withdrawal from the European Union the desire to withdraw the UK from the EU’s shared regulatory framework. The common theme among many of their statements was that it was possible to withdraw from the EU's institutional apparatus while keeping market access through a de-institutionalized and regulation-neutral trade agreement, such as that proposed for the CFTA. From the EU’s perspective, however, this institutional and regulatory framework is not an optional accessory to economic integration but an essential component of an integration scheme that keeps governments in control – collectively rather than individually – of the integration process and their economic structure. Seen from this perspective, the British government’s professed vision of integration without governance, in which a free-trading UK would go around the world entering into bilateral agreements that eliminate mutual barriers to trade while preserving each party’s right to determine autonomously its domestic policies, does not lead to greater sovereignty but to a sovereignty that is illusory and whose necessary implication is the race to the bottom and a loss of collective political power vis-à-vis capital.

Between these two visions, it is difficult to see how any middle ground is possible.

Can the WTO Discipline China's Export Credits?

This is from an article by Kristen Hopewell about China's growing use of export credits:

6.2. Inadequacy of World Trade Organization disciplines

Amid the weakening of the OECD Arrangement’s authority and the inability to reach agreement on a new version to replace it, one might expect the US and other advanced-industrialized states to turn to the WTO to compel China and other emerging economies to reign in their use of export credit. However, for the purposes of disciplining export credit, the WTO is a poor substitute for the Arrangement. Export credit is covered by the WTO Agreement on Subsidies and Countervailing Measures (ASCM), which disciplines the use of export subsidies. The OECD Arrangement is incorporated into the ASCM as a carve out to the illustrative list of prohibited export subsidies. This operates as a “safe harbor clause,” ensuring that any use of export credit by a WTO member that conforms to the Arrangement’s disciplines will not be considered a prohibited export subsidy under WTO rules (Wright 2011). Consequently, any WTO member who acts within the conditions set out in the Arrangement, regardless of whether they are a participant to it, is deemed to be in compliance with their WTO obligations (Shaffer et al. 2015).

This means that, technically, the Arrangement’s disciplines are incorporated into WTO rules. However, they are nearly impossible to enforce at the WTO. Part of the reason the Arrangement was created in the first place is that the dispute settlement mechanism provided in the WTO, and its predecessor the General Agreement on Tariffs and Trade (GATT), is largely ineffective for disciplining export credit (Moravcsik 1989). First, WTO dispute settlement is generally considered too cumbersome and not fast enough to work well in this area. Given the lengthy nature of the WTO dispute settlement process, which often takes many years for a case to reach a conclusion, even if a country were to succeed in winning a determination that a competitor’s financing for a specific transaction constituted a prohibited export subsidy, the case would not be concluded until years after that transaction had been completed and its exporter had lost the contract.

Second, in contrast to the real time transparency provided by the Arrangement, the WTO contains no comparable mechanism for the routine exchange of detailed and confidential transaction data. While Arrangement participants are required to share extensive information about their practices with one another, the export credit practices of non-participants are generally secretive and non-transparent, with the result that their competitors lack detailed information about their export credit policies and programs, as well as the specific terms of individual transactions. This lack of information renders it extremely difficult to challenge export credit practices at the WTO.

Third, each time a state provides export credit, whether or not it is considered a subsidy will depend on the specifics of that transaction. As one negotiator stated, in order to challenge a state’s export credit policies at the WTO:

[Y]ou would need to bring a systemic case, but the terms and conditions of each transaction are different, so it is difficult if not usually impossible to bring a systemic case. Since it is very difficult to challenge a whole program, you would be left challenging individual transactions.

Consequently, there have only been two cases to date on (non-agricultural) export credit in the history of WTO dispute settlement – out of a total of over 500 disputes.

There are thus fundamental differences in how disciplines work in the Arrangement compared to the WTO, with crucial implications for the governance of export credit. As one WTO official stated:

The Arrangement works very well. Our rules are completely different in how they work and what they do. Short of prohibiting all use of export credit, there’s little the WTO can do. Our structure and the way our rules work are not well-suited to this issue. The system at the WTO really only works for broad systemic issues, and it is almost completely useless for dealing with export credit because it’s ex-post. Our system would never provide the day-to-day working and certainty of the OECD Arrangement.

As a result of the way its rules and dispute settlement mechanism are designed and function, the WTO is ill equipped to regulate export credit and cannot provide a viable alternative to the Arrangement.

Thus, while it would be theoretically possible to use the WTO’s dispute settlement mechanism to challenge the use of export credit by China and the other emerging economies, WTO trade lawyers indicate that in practice this would be “extraordinarily difficult if not usually impossible.” As one indicated:

China’s use of export credit is potentially actionable at the WTO, yes. But the reason they created the system for governing export credit in the OECD in the first place is because our rules [at the WTO] have some profound weaknesses. Here, it’s a two to three year process to take a case, plus 18 months of implementation, so maybe five years later – long after you have lost the contract – you could get a finding that the exporting country violated its WTO obligations. But by then, it’s not like the transaction and the financing can be undone. So, in theory, one could challenge China on export credit, you could litigate it for five years, but what would you have at the end of five years?

In sum, “China could be vulnerable to a WTO challenge, but it would be expensive, take years to occur and be very hard to get a meaningful victory.” The WTO system is thus inadequate for disciplining state-backed export credit and provides little means for the US and other traditional powers to compel China to restrict its use of export credit.

(footnotes omitted)

I have more hope for a systemic case against China's export credit practices than the lawyers quoted in the piece do. The claim would be that the practices constitute a prohibited export subsidy under Article 3.1(a), and any attempt by China to invoke Item (k) of the Illustrative List of Export subsidies would fail because the terms of the OECD Arrangement are not met. The article provides, in parts not quoted above, some evidence of China's practices, and I think that a complainant could gather more evidence on its own. It could also request that the panel ask China for information under DSU Article 13.1. If China didn't supply it, the panel could draw adverse inferences.

It would have made sense to start this case many years ago, but starting it now would still be useful. For one thing, doing so could discipline China's practices and force China to change its approach going forward. For another, the article suggests that it is a U.S. objective to convince China to sign on to rules on export credits. Pursuing a WTO complaint might help achieve this.

DSU Article 11 vs. DSU Article 12.7

Last week I blogged about U.S. concerns with DSU Article 11. In the U.S. view, the Appellate Body has set the standard for such appeals too low (if such appeals should be allowed at all), leading to a proliferation of such appeals and contributing to the slowdown in the timetable of the Appellate Body's work. I am sympathetic to the U.S. concerns here, although I would have taken a very different approach to addressing those concerns.

As I've watched the developments with Article 11 appeals over the years, I've also worried about DSU Article 12.7, which can serve as a basis for similar appeals related to the quality of a panel's analysis. The second sentence of Article 12.7 states:

the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes.

(emphasis added)

This "basic rationale" requirement seems like it could be interpreted broadly, and I worry about its abuse. I count 13 such appeals over the years in our case law index (plus one more that I'm about to mention), so it has been mostly kept in check so far. But if Article 11 is scaled back, I could see how people might try to use Article 12.7 as a replacement.

So I was surprised to see the U.S. rely on Article 12.7 in the recent Supercalendered Paper appeal (the report is here). Here is an excerpt from the U.S. appellant submission in the case:

39. Article 12.7 of the DSU provides that “the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes.” Here, the Panel failed to explain how the so-called “ongoing conduct” is inconsistent with Article 12.7 of the SCM Agreement. Specifically, the Panel did not identify the legal obligations of Article 12.7 of the SCM Agreement with respect to “ongoing conduct,” nor did it apply the elements of the “ongoing conduct” to any legal requirements. Consequently, the Panel breached its obligations under DSU Article 12.7 and as a result, the Appellate Body should reverse the Panel’s findings.

40. The Appellate Body has found that Article 12.7 of the DSU “establishes a minimum standard for the reasoning that panels must provide in support of their findings and recommendations,” and “the reasoning of the panel must reveal how and why the law applies to the facts.” It has explained that Article 12.7 of the DSU promotes procedural fairness, particularly “in cases where a Member has been found to have acted inconsistently with its obligations under the covered agreements, that Member is entitled to know the reasons for such finding as a matter of due process.” And, that “the requirement to set out a ‘basic rationale’ in the panel report assists such Member to understand the nature of its obligations and to make informed decisions about: (i) what must be done in order to implement the eventual rulings and recommendations made by the DSB; and (ii) whether and what to appeal.”

Confusingly, the U.S. DSU Article 12.7 appeal relates to the panel's findings on SCM Agreement Article 12.7. Once you get your ahead around the multiple 12.7s, here's part of the U.S. argument:

42. Here, there is neither an explanation as to how Article 12.7 of the SCM Agreement should be interpreted nor a discussion as to how the identified measure is inconsistent with Article 12.7 of the SCM Agreement. Instead, the Panel simply concludes that “an investigating authority may not simply infer that a respondent’s failure to respond fully to the ‘other forms of assistance’ question resulted in a failure to provide information necessary to establish the existence of additional subsidization of the product under investigation.”

43. The paragraph lacks any analysis revealing how the Panel reached its conclusions, and does not identify how the United States breached its specific obligations under the covered agreement. The best guess for the Panel’s reasoning is that the Panel improperly generalized its findings on the specific application of facts available in the supercalendered paper investigation to the separate measure it has called “ongoing conduct.” But even this is uncertain. The only reference to its “as applied” analysis in the “ongoing conduct” section is found in the opening clause of paragraph 7.333 that reads: “in line with the findings in Section 7.4.1.4 above.”

...

48. As explained above, the Panel has not provided any basic rationale for its finding that the purported “ongoing conduct” is inconsistent with Article 12.7 of the SCM Agreement. Accordingly, the United States requests that the Appellate Body reverse the Panel’s findings.

In my view, the various issues related to appeals of a panel's reasoning or objectivity need to be addressed together. If we are thinking about whether there should be appeals under DSU Article 11, and if so what the standard should be, we should be thinking about the same questions in relation to DSU Article 12.7.

When considering these issues, I think it's worth noting that both provisions have predecessor provisions in the Tokyo Round Dispute Settlement Understanding, at a time when there was no appeals mechanism. The Article 11 predecessor provision is in paragraph 16: "a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the General Agreement and, if so requested by the CONTRACTING PARTIES, make such other findings as will assist the CONTRACTING PARTIES in making the recommendations or in giving the rulings provided for in Article XXIII:2." With regard to panels providing a "basic rationale," an Annex entitled "Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement" says the following in para. 6(v): "Panel reports have normally set out findings of fact, the applicability of relevant provisions, and the basic rationale behind any findings and recommendations that it has made."

Is a return to the appellate body as originally intended possible?

I was struck by two particular passages in the USTR Report on the Appellate Body, and wonder whether they signal the USTR’s intention about the future of the WTO Dispute Settlement system.

The first is paragraph 3 of the Introduction:

On a more fundamental level, this [AB] overreaching also violates the basic principles of the United States Government. There is no legitimacy under our democratic, constitutional system for the nation to submit to a rule imposed by three individuals sitting in Geneva, with neither agreement by the United States nor approval by the United States Congress. The Appellate Body has consistently acted to increase its own authority while decreasing the authority of the United States and other WTO Members, which, unlike the individuals on the Appellate Body, are accountable to the citizens in their countries – citizens whose lives and livelihoods are affected by the WTO’s decisions.

Since all the individuals sitting in Geneva on the AB have been approved by the US government, the USTR must be referring to the “rule” making activity allegedly committed by the AB. Given the inevitable “gap filling” effect of treaty interpretation, it seems the only way to prevent some individuals sitting in Geneva from making binding interpretations of the WTO agreements is to make the acceptance of all dispute settlement decision voluntary, i.e., going back to the GATT days.

However, the following passage in the report on the negotiating history seems to suggest that, rather than going all the way back to the GATT days, the USTR may be willing to return to the design of a modest AB as originally intended. It states on page 24:

3. Negotiating Members Wanted an Appellate Mechanism that Would Be Limited and Used Sparingly

Even those countries in favor of an appellate mechanism made clear that the mechanism was to be limited in its role, that the mechanism would be used rarely, and that recourse to appeal would not be a common occurrence. As Canada explained:

“In rare cases, where a party to a dispute considered, despite the review by the panel, that a report was so fundamentally flawed that it should not be accepted, the GATT dispute settlement system should provide for a means of correcting errors. The addition of an appellate mechanism would serve that purpose. The intent would not be to have appellate review become a quasi-automatic step in the dispute settlement process. Rather, in those cases where a party to a dispute considered that the panel had made a fundamental error in interpretation of rights and obligations, that party could ask for appellate review. Decisions of the Appellate Body would be final.”

… Unfortunately, in practice, appeal of panel reports has been the norm, not the exception, with over 60 percent of panel reports appealed. [italics original; footnotes omitted]

Although most WTO members do not seem to mind that the AB has developed from a mere “afterthought to centerpiece” (per Prof. Peter Van den Bossche) and may view such a development as progress in international rule of law, the United States strongly disagrees. Given that the AB institution did evolve away from the original mutual intentions of the WTO members, the US opposition is understandable - even though the United States itself has contributed to such evolution along the way.

Compared to returning to the old GATT days, having a limited but binding appellate review mechanism as originally intended is clearly preferable. The question is (i) whether the idea of returning to the original vision of the AB is acceptable to all members, and (ii) if so, how to redesign technically the mechanism so as to realize this vision.

The U.S. Critique of the Appellate Body's GATT Non-Discrimination Jurisprudence

In its Report on the Appellate Body issued earlier this week, USTR makes the following point about the Appellate Body's non-discrimination jurisprudence:

Articles I:1 and III:4 of the GATT 1994 and 2.1 of the TBT Agreement set out Members’ national treatment and most-favored-nation (“MFN”) obligations. These provisions are concerned with origin-based discrimination.

The Appellate Body’s recent approach under both Article 2.1 and Articles I:1 and III:4 is to first look to see if a measure has a “detrimental impact” on imported products of a Member compared to the like products of the importing Member or imported products of any other Member. Where there is a detrimental impact, then the Appellate Body’s approach with respect to Article 2.1 is to conduct a further analysis to determine if any such detrimental impact stems exclusively from a legitimate regulatory distinction. With respect to Articles I:1 and III:4, however, there is no further analysis. The existence of a detrimental impact is alone sufficient to demonstrate a breach of those articles under the Appellate Body’s approach. The only recourse for a Member maintaining such a measure is to attempt to invoke an affirmative defense, such as Article XX of the GATT 1994. The Appellate Body’s approach does not find support in the text of the relevant provisions, nor in the manner in which they were applied under the GATT 1947 nor in prior panel or Appellate Body reports.

I agree with the U.S. criticism here, and I am concerned about the scope for policy space/regulatory autonomy as a result of the Appellate Body's reasoning. Generally speaking, in my view, you need to get both aim and effect (or whatever terms you want to use if "aim" and  "effect" have become toxic) into Article III:4 (and Article I:1) somehow. We do that under Article III:2, second sentence and it has worked well, and I don't see a convincing textual, contextual, object and purpose, negotiating history, or policy reason not to do it under Article III:4. (Obviously, the text of Article III:2, second sentence is different from the text of Article III:4, but it is not different in a way that suggests you shouldn't look at some version of aim/motive/purpose/intent under Article III:4).

However, I want to push back against a couple arguments USTR makes in support of its general point. First, there was this one:

The “detrimental impact” standard is problematic and should be of serious concern for WTO Members. First and foremost, it would appear to be a standard that could easily result in a finding of a WTO violation even where there is no difference in treatment due to national origin. Under the Appellate Body’s approach, if any producer in any other WTO Member satisfies the requirements under the measure, while a producer in the exporting WTO Member does not, that would appear to suffice to find that the measure has a detrimental impact on the exporting WTO Member’s products. 

There has been a long battle over this "diagonal test"/individual product view in the GATT/WTO and I'm pretty sure this argument has been mostly vanquished by now. It may be that a party to a dispute will make the argument from time to time, and a stray panel here and there might seem to rely on it, but I think the Appellate Body has been clear in rejecting it. The Appellate Body would not make a finding of detrimental impact based on a consideration of individual products (or producers). Rather, it would look at the entire group of products, and examine whether the group of imported products is disproportionately affected as compared to the group of like domestic products. Thus, I don't think there is a real threat that such a broad interpretation would be used as long as the Appellate Body is around. (Without the Appellate Body, I am less sure, and I can imagine an occasional panel adopting individual product language in response to a party's argument).

USTR also argued the following:

Another problem with this approach is that a measure that may not have a detrimental impact on imports in the present could very well have a detrimental impact in the future, depending on whether an exporting producer decides to change its product characteristics or production method. Thus, even where a WTO Member makes a significant effort to ensure that a measure is non-discriminatory, the WTO Member has no assurance when adopting a measure that the measure will withstand a challenge in the future based on changes in the market or changes by exporting producers.

They are probably thinking of cases such as Tuna here, but in my view, whether there is a finding of detrimental impact in these circumstances depends on the facts of the case and the way it is argued. I think there is a pretty strong defense to claims made in this way, even under the Appellate Body's standard.

But on this final USTR point, I agree:

This low and unpredictable threshold is not the concept of discrimination to which WTO Members agreed. It is difficult to imagine that WTO Members would have agreed to an obligation under which any measure that had a disparate impact on the goods from another WTO Member – even if the impact was entirely accidental – would be in breach of GATT Articles I:1 and III:4.

The Appellate Body appears to have given us an extremely broad Article III:4 standard. I wonder if, in a sensitive case, they would actually apply it as broadly as it seems, but nevertheless, it looks to me like we have a "low and unpredictable threshold." I agree with the U.S. that there is (and was) a better approach:

In fact, the Appellate Body’s approach is contrary to the fact that the phrase “treatment no less favourable” in Article III:4 was, in the past, always interpreted as providing regulatory space for WTO Members to take otherwise legitimate measures that may restrict trade unevenly across the membership of the WTO.

The general principle of Article III:1 of the GATT 1994, which informs the meaning of Article III:4, makes it clear that considerations of discrimination and “protection” are inherent in Article III:4. The second sentence of Article III:4 conveys a similar concept. It states: “The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.” Thus, Article III:4 itself embraces the concept that the reason behind a measure is important for purposes of the Article III:4 analysis, and that “nationality of the product” is a key concept.

(footnotes omitted)

I'm not completely sure what standard the U.S. wants to see here, but if it wants something along the lines of the approach used in Chile - Alcohol under Article III:2, second sentence (discriminatory effect plus some sort of objective look at the intent of the measure), then I am on board.

I'm curious as to whether other governments see the issue differently. There may be subtle differences in views as to how exactly to articulate this standard, but I would have thought most people wanted something along these lines, rather than what the Appellate Body appears to have said. 

Statement on USTR Report on the Appellate Body

On February 12, 2020, I provided this statement to reporters inquiring about the recent USTR report.  I post it here for anyone interested:

It’s a sophomoric Report teeming with misstatements.. The Report avers that the Appellate Body “chronically violates the rules imposed by WTO Members” which is false regarding the Appellate Body but true with regard to USTR which does chronically act in ways that violate WTO rules.  For example the USTR’s Section 301 sanctions. Sadly, the US Commerce Department is also a chronic WTO rules violator.  The US has by far lost more WTO cases against it than any other country has.

The gist of the USTR Report is that WTO tribunals should allow the Trump Administration to continue to impose protectionist measures such as abusive antidumping duties.

The Trump Administration has succeeded in shutting down the Appellate Bod,y but there never was any legitimate reason to do so.

The Appellate Body has been enormously successful at strengthening the WTO legal system including enforcement of panel decisions.

Even assuming that the USTR’s objections to appellator actions have validity, the Report itself fails as a balanced assessment of the contributions and deficiencies of the Appellate Body.   Certainly, its positive contributions outweigh any mistakes the Appellate Body has made. In my 24 years of scholarship on the Appellate Body, I have noted many WTO judicial decisions that I did not fully agree with.  But I don’t agree with every US Supreme Court decision either and obviously even justices on the Supreme Court also don’t agree with many decisions which is why there are so many 5-4 or 6-3 decisions.  It’s the nature of courts, like the Appellate Body, to issue decisions that reasonable people won’t always agree with.  But in legal systems, courts are not abolished for issuing questionable decisions.  That’s why USTR’s attack on the Appellate Body has been so shameful and unprincipled.  

Defenestrating the Appellate Body will severely weaken the WTO dispute system and without dispute settlement, the effectiveness of the WTO will diminish.