International Economic Law and Policy Blog

Joe Biden on Trade Policy

This is from a Joe Biden interview with the NY Times editorial board: 

BA: You’ve talked about the urgency of the climate change. The new NAFTA agreement includes no measures aimed at dealing with climate change. At what point should Democrats stop voting for international agreements that fail to deal with climate change?

Well, first of all, the two things that the new NAFTA agreement has, is they have enforcement mechanisms. I’ve not read them yet. O.K.? I’m told by staff. Enforcement mechanisms that have environmental protections, as well as, not talking for fundamental climate change, but though you cannot compete and disregard existing climate regulations that exist. So environmentalists are at the table, I’ve been told, and labor’s been at the table and they should be. They should be.

Now, if in fact what I propose is as president, I’m, by the way, I’m not joking. I did. I’m the guy that came back and said, we can embarrass Xi Jinping to join the Paris accord. And everybody looked at me like I was nuts. Well, it did. But what happened was that only works if in fact we are the aggressive leader. So number one, I would immediately rejoin the Paris accord, number one. And number two, I would do what the accord calls for. Upping the ante as circumstances change and more science becomes available that we have less time. For example, think of what we should be doing now in the biggest carbon sink in the world, the Amazon. Instead of talking about $2 billion, I’d be organizing, not a joke, organizing the world as I did in Latin America on other issues, like Colombia and so on. Anyway, to make sure that they in fact either, and we would provide, the world would provide, $20 to $30 billion for them to be able to make up for what they’re going to lose by not having agriculture.

BA: Those are good programs, but do you think Democrats should vote for an agreement that does not affirm the Paris accord and does not contain any binding commitments to deal with climate change?

Look, it’s like saying would you sign an agreement with Turkey on a base closure because it didn’t have that in it? It depends on if it’s related to climate. Absolutely they should be part of it.

BA: But this is not a hypothetical. This is a deal that exists and is coming before the House ——

It is, but the deal relates to matters of trade, that in fact, there is no circumstance where we are saying anything that we’re going to do more or less relative to what we’re selling back and forth across the border. Here’s an example that would matter. China. China, in fact, in their “Belt and Road” proposal is in fact exporting more dirty coal around the world and is subsidizing more than anybody in the world. The answer is, what we should be saying to them is, you keep your agreement on the climate accord, which you signed up to. If you don’t, you will pay a price for it. You will not be able to sell product here. And organize the world to make sure that no, they couldn’t sell product anywhere. To make sure that they in fact have a requirement to stick to what they committed to. They’ve already signed it, so I don’t know. It’s a little bit like saying to me, should we ——

BA: Why wouldn’t you apply that standard to Canada, which is a larger energy exporter than China?

Well, no, by the way, I would. That’s what we should be doing to everybody in the world. I’m basically giving you one example. That’s why I oppose what China’s, what Canada’s doing in terms of the pipelines and the dirty crude they’re sending south on us, letting it go forward. We have to do that. We have to. But we can’t do a damn thing if we don’t meet our responsibility. We make up 15 percent of the problem in the world. We walk away from it all and the rest of the world says, what the hell are you holding me accountable for? You’re not doing anything. That’s why this president’s does such incredible damage, incredible damage to our effort to deal with climate change.

Call for Papers - Rethinking the Role of Institutions in Economic Integration

The law journal Legal Issues of Economic Integration will be holding a conference to assess the changing role of institutions in economic integration, including proposed, contested and new institutions in bilateral, regional and global settings. The conference will take place at the Amsterdam Law School on 8 May 2020.  Proposals including abstracts of no more than 500 words and the speaker’s contact details and CV (including affiliation, relevant experience and publications) or inquiries regarding the Conference should be sent to g.vidigal@uva.nl. Given the 15 January 2020 developments that relate directly to institutionalization and de-institutionalization of economic agreements, the deadline for the submission of paper proposals, originally set for that date, has been extended to 27 January 2020. Selected papers will be included in a special Issue of Legal Issues of Economic Integration. Successful applicants will be informed by 31 January 2020 and must submit papers (between 5,000 and 8,000 words, including footnotes) by 20 April 2020. Applicants should in principle be able to cover their own expenses.

Detailed information and proposed areas of particular interest can be found here.

The Uniqueness of WTO Court Elections as Compared to other Multilateral Courts

The Uniqueness of WTO Court Elections as Compared to other Multilateral Courts

Alexandra Dobre* and Steve Charnovitz

            The process and structure of multilateral court elections differ across courts in criteria such as judges’ term lengths, nomination and appointment procedures, possibility for reappointment, desired qualifications, and more. In analyzing the International Criminal Court, International Court of Justice, the World Trade Organization Appellate Body, and the Law of the Sea Tribunal, we explore the differences between these courts across the dimensions listed above. Though the procedures vary slightly across the courts, most notably, the World Trade Organization Appellate Body is the only international court where the election of a judge is dependent on a consensus voting rule. This has important implications for the nomination and selection of judges on the WTO Appellate Body and explains why a single country can disrupt the WTO court in a way that the country would not be able to do to other leading international courts. 

The International Criminal Court

            The International Criminal Court sets out its nomination procedures in the Rome Statute, a multilateral treaty that serves as the Court’s governing document.¹ Currently, the judicial division consists of eighteen judges, all housed within one of three chambers: Pre-Trial, Trial, and Appeals Chambers. In the event of a vacancy, individuals may be nominated to fill the court. The Rome Statute outlines individuals “...shall be chosen among persons of high moral character, impartiality and integrity who possess the qualifications required in their respective States for appointment to the highest judicial offices”.²  Nominees must be well-versed in criminal law, international law, and/or humanitarian law. Any of the 123 State Parties can submit a nomination by submitting a statement outlining how the candidate fulfills the previously mentioned requirements. The individual need not be a national of that country’s state party but must be a national of a party on the Court.

            After the nominees have been proposed, the Assembly of States Parties proceeds in electing the judges from two candidate lists. The first list contains candidates with criminal law qualifications, while the other with candidates possessing humanitarian and/or international law qualifications. These lists are necessary in the election, where at least nine judges must be selected from the first list and at least five from the second. The candidates are then elected by a secret ballot at an Assembly meeting, where the 18 candidates who obtain the highest number of votes with a two-thirds majority of States Parties present and voting are elected. There are certain geographical distribution requirements of judges selected; per the Rome Statute, there cannot be two judges with nationalities from the same member State. This is to ensure equitable geographical representation and principal legal systems of the world. Upon being elected, judges are permitted to hold office for nine years. However, in the event of a vacancy, the judge that fills the seat on the court may run for re-election given that the period was three years or less.

The International Court of Justice

            The International Court of Justice is the principal judicial body of the United Nations with a focus in international law. The Judicial Body of the Court consists of 15 judges, each serving nine-year terms and are eligible for reappointment to the Court.

            State Parties belonging to the Statute of the Court may nominate candidates for a judgeship. However, it is not the state governments themselves that propose the individual, but the Permanent Court of Arbitration (PCA) that makes the selection. The PCA is made up of different National Groups, each representing one country in the organization, and each group may nominate up to four persons. To be elected to the ICJ, at least one National Group must have nominated the candidate at hand. The selection process typically begins nine months before the election (with a minimum of three months in advance) or, in the case of a special election, within one month of a new vacancy.³ Each National Group is expected to consult its highest court of justice, legal institutions, and academies within their country with the decision. Once each National Group has proposed their candidates, the Secretary-General of the U.N. drafts a list with the candidates and submits it to both the General Assembly and the Security Council.

            In order to be elected, judges must win absolute majority in two different bodies—the General Assembly as well as the United Nations’ Security Council. If there is not a sufficient number of candidates that reach the threshold, the election may continue in subsequent rounds.  The nomination and election processes happen every three years, where five judges are up for election each time. In the event of a sudden vacancy, a special election takes place to replace the seat with an individual that will fulfill the rest of the term.

            Judges are nominated for their high moral characters and their qualifications, which are expected to be consistent with “the highest judicial office in their home states” or with competence in international law.⁴ Up to four candidates can be recommended conditional on the fact that no more than two of these candidates are of the country’s nationality. Additionally, there exists quotas in the breakdown of seats by nationality: five seats are reserved for Western countries, three for African states, two for Eastern European states, three for Asian states, two for Latin American states, and two for Caribbean states.

The World Trade Organization Appellate Body

            The Appellate Body of the World Trade Organization was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). The Appellate Body, composed of seven individuals, hears appeals from panel cases surrounding disputes by WTO member states.⁵

            Judges in the Appellate Body are experts in their fields of law and international trade and are unaffiliated with any government entity. They are selected for four-year terms to the body through an appointment process conducted by the Dispute Settlement Body (DSB), as outlined in the Dispute Settlement Understanding (DSU). Notably, the judges are permitted to be re-appointed one time at the end of their term. In the event of a vacancy, new members will be appointed as needed to hold the office for the remainder of the term. Given that the body undergoes the appointment process rather than a formal nomination and election process, there are less procedures that structure the Appellate Body’s judicial makeup.

            Notably, the DSU does not outline many detailed procedures to nominating and appointing members to the Appellate Body. In practice, nominees are pre-selected by their nominating governments, and then, the DSB appoints the judge via a consensus decision. According to close observers, the most important process is the pre-selection stage–nominating governments seek potential candidates that have a demonstrated knowledge of the WTO system, share concerns of the nominating country, and have the ability to influence other members on the Appellate Body.⁶ Additionally, candidates’ views on DSU reforms are considered important in determining DSB likelihood for appointment.⁷

            As mentioned earlier, Appellate Body judges have the ability to be reappointed up to one time at the end of their four-year terms. Commentators have observed in the past how  governments’ decisions to re-nominate their candidates have been dependent on behaviors of their members on the bench. If a member does not fulfill the interests of the nominating country, the government may choose to not re-nominate the judge at the end of their term.⁸

The International Tribunal for the Law of the Sea

            The International Tribunal for the Law of the Sea, created by the mandate of the Third United Nations Conference on the Law of the Sea, consists of 168 signatories and 167 states plus the European Union. The judicial body of the Tribunal is made up of 21 that serve from different States’ Parties.

            In the nomination process of judges, each State Party may nominate up to two candidates. These individuals are expected to be the top tier of excellence in terms of “fairness and integrity and of recognized competence in the field of the law of the sea”.⁹  Once nominated, candidates are elected via a secret ballot by the States Parties to the Convention. In order to be elected, the candidates must receive that largest number of votes with two-thirds of the States Parties present and voting.¹⁰  Like other multilateral courts, no two members may be nationals of the same state “...to assure an equitable geographical representation”¹¹ within the judicial body. Each judge is elected for nine years and one-third of the court’s seats expire every three years. The judges are eligible for re-election.

Summary

        In summary, as shown in the Chart below, the WTO Appellate Body is the only major international court that follows a consensus rule for appointing new judges to the bench.  This reliance on a non-robust consensus process goes a long way toward explaining the WTO court can be vulnerable to the volitions of a single government. 

_______________________________________________________

*Ms. Dobre is an economics student at George Washington University. The research in this study was supported by the GWU Institute for International Economic Policy.  

^[1] “Rome Statute of the International Criminal Court” (International Criminal Court, January 1998), https://www.icc-cpi.int/nr/rdonlyres/ea9aeff7-5752-4f84-be94-0a655eb30e16/0/rome_statute_english.pdf.

² Ibid, 17.

3 Article 5-1, Statute of the International Court of Justice, https://www.icj-cij.org/en/statute.

⁴ “Members of the Court,” International Court of Justice, https://www.icj-cij.org/en/members.

⁵ “Dispute Settlement: Appellate Body,” World Trade Organization, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm.

6 Manfred Elsig and Mark A. Pollack, “Agents, trustees, and international courts: The politics of judicial appointment at the World Trade Organization”, European Journal of International Relations, 31-34.

7 Ibid, 31.

8 Ibid, 35.

¹⁰ Article 2: Composition, Statute of the International Tribunal of the Law of the Sea, https://www.itlos.org/fileadmin/itlos/documents/basic_texts/statute_en.pdf.

1¹Article 4: Nominations and Elections, Statute of the International Tribunal of the Law of the Sea,https://www.itlos.org/fileadmin/itlos/documents/basic_texts/statute_en.pdf.

^[1]2Article 2: Composition, Statute of the International Tribunal of the Law of the Sea, https://www.itlos.org/fileadmin/itlos/documents/basic_texts/statute_en.pdf

Multilateral Court Elections: A Summary
	International Criminal Court	International Court of Justice	World Trade Organization Appellate Body	International Tribunal for the Law of the Sea
Number of judges	15 judges	15 judges	7 judges	21 judges
Length of term	9 years	9 years	4 years	9 years
Reappointment?	Not eligible for reappointment	Eligible for reappointment	Can only be reappointed once	Eligible for reappointment
Desired qualifications	·  Experience in criminal law and/or international law ·  Experience as a judge in criminal proceedings ·  Fluent in one language of the Court	·  Experience in criminal law and/or international law	·  Expertise in law and international trade ·  Broadly representative of membership (geography, development, legal systems) ·  Unaffiliated with government ·  Share concerns with nominating countries on key issues.	·  Expertise in law of the sea
Nomination process	·  Nominated by State Party ·  Follow nomination procedure used for appointing highest judicial offices of the respective State ·  Statement of how candidates fulfill requirements	·  Nominated by national groups within Permanent Court of Arbitration ·  National groups consult high courts of justice, legal institutions, and academic institutions within their countries ·  3-9 months before an election ·  No more than 4 nominees per national group ·  List is submitted to the General Assembly and the Security Council	·  Nominated by the Dispute Settlement Body ·  Intense screening and strategic screening process by each country	·  Each State Party may nominate up to 2 candidates
Election/appointment process	·  Elected by the Assembly of States Parties via secret ballot ·  One representative from each State Party cast a vote for one candidate from List A and one from List B ·  At least 9 judges selected from List A (criminal law candidates) ·  At least 5 judges from List B (humanitarian law candidates) ·  Two-thirds majority of States Parties must be present and voting ·  The 18 candidates who obtain the highest number of votes are elected to the Court	·  Both the General Assembly and the UN Security Council hold their own independent election	·   DSU members appoint judges from the nominated list ·   Consensus vote	·  Elected by secret ballot by the States Parties to the Convention ·  There must be a two-thirds majority of the States Parties present and voting
% of vote required	18 candidates with the highest number of votes	Absolute majority of votes in both elections	Consensus vote required	Candidates with the largest number of votes

CfP: International Investment Law & State Capitalism Colloquium

This is an announcement by the joint organizers of the International Investment Law & State Capitalism Colloquium from Athens PIL; the Tilburg Law and Economics Center (TILEC) at Tilburg University (the Netherlands); and Hamad Bin Khalifa University (HBKU) College of Law (Qatar):

The Athens Public International Law Center (Athens PIL) of the National and Kapodistrian University of Athens School of Law is hosting a Colloquium on ‘International Investment Law & State Capitalism’ which will take place on 15 and 16 October 2020 in Athens, Greece.

The organizers of the Colloquium invite scholars working in the relevant fields to submit abstracts of a conceptual, theoretical and empirical nature on the following, broadly defined areas:

A. The Foundations of International Economic Order in the Age of State Capitalism
B. Sovereign Investors in the Age of State Capitalism
C. Inward and Outward Sovereign Investments in the Age of State Capitalism
D. Arbitrating Sovereign Investment Disputes in the Age of State Capitalism: procedural issues
E. Arbitrating Sovereign Investment Disputes in the Age of State Capitalism: merits issues

Please see the detailed call for papers here.

Authors are invited to submit abstracts of original papers which are neither published nor accepted for publication when the Colloquium takes place, by 15 March 2020. Abstracts must not exceed 800 words, must be anonymous and not identify the name or affiliation of the author(s) in the abstract, the title, or the name of the document, and must be submitted to the following email addresses: agourg@law.uoa.gr; gdimitropoulos@hbku.edu.qa; and P.Delimatsis@uvt.nl.

So Many Questions About the U.S.-China Trade Deal

Having had the text of the U.S. - China "Phase One" trade deal for almost 48 hours, I have so many questions. Here are a few of them:

1. What exactly did China agree to? There are a lot of obligations in here, and many of them are specific and technical. Only experts in a particular area may fully understand them. Here's an example from Chapter 3, Annex 4 (Beef):

5. Within one month of the date of entry into force of this Agreement, China shall adopt maximum residue limits (MRLs) for zeranol, trenbolone acetate, and melangesterol acetate for imported beef. For beef tissues for which Codex has established MRLs for these hormones, China shall adopt the Codex MRLs. For beef tissues for which Codex has not established MRLs for these hormones, China shall adopt its MRLs by following Codex standards and guidelines and referring to MRLs established by other countries that have performed science-based risk assessments.

They are talking about hormones in the context of beef, which leads to an obvious question: Is China going to allow sales of hormone-treated beef? That's kind of a big deal! But I don't know enough about Codex MRLs to have a sense of the significance of this paragraph. It sounds like some hormone-treated beef sales are coming, but exactly how many is unclear to me.

2. By how much will U.S. exports to China increase? Presumably at least a little bit, but will it be the full $200 billion over two years that China promised? That would be a lot. Is there some more realistic, lesser amount that would be enough to make the Trump administration happy?

3. Is the deal enforceable? I questioned that in a previous post. Let's say China and the U.S. are fighting over Annex 4, para. 5 and whether China has properly complied in terms of allowing hormone-treated beef sales. The U.S. thinks China is violating the provision; China disagrees. If the U.S. decides to impose tariffs, would that induce to China comply? It's a little hard to imagine that it would.

4. Will the U.S. loosen up some export controls in order to increase exports to China? Article 6.2, para. 4 says: "The United States shall ensure to take appropriate steps to facilitate the availability of U.S. goods and services to be purchased and imported into China." If the U.S. is too restrictive, will China make a formal complaint?

5. How much did the U.S. agree to do? I haven't read every word yet, but so far I don't think I've come across many issues where the U.S. has to take action.

6. What will the rest of the world think? It seems like the rest of the world could benefit from some of the provisions (e.g. Canada, if hormone-treated beef sales are allowed), but may be harmed by others. The purchase commitments seem particularly problematic. Will China increase its purchases of U.S. goods/services by reducing its purchases of goods/services from other countries? Is there an MFN violation in there somewhere? That may depend on the specific implementing actions China takes. And if there is an MFN violation, is there a GATT Article XXIV defense? This certainly doesn't feel like a "free trade area." Mostly it feels like an "orderly marketing arrangement" or "other similar measure on the export or the import side" under Safeguards Agreement Article 11.1(b).

7. What's the constitutional/statutory authority for this trade deal? Presumably, in part it is being done pursuant to Section 301, which was the procedure under which the U.S.-China tariff battle was launched. But the agreement is broader than I expected and addresses many issues that don't seem related to the Section 301 concerns. Shouldn't we know what all the various constitutional/statutory authorities being relied on are?

8. What will Congress think of all this? Will they try to assert some authority over this deal or future deals like it? (Stop laughing, I'm serious!)

9. What will the 2020 Democratic nominee think of it? How permanent will it be? If Congress is not involved, then in theory the next president could just withdraw. But would he/she do that? Politically, would that make sense? Hard to say right now. You would think there would have to be some alternative China trade strategy in place in order to make withdrawal from this deal possible. Thus, even if the next president wanted to undo all of this, it could be difficult. 

Notification of a Decision To Appeal vs. Notice of Appeal

As I've mentioned a couple times already (sorry, but this intrigues me!), the U.S. filed a notification of appeal in relation to the DS436 Article 21.5 panel report. The U.S. notification said this: 

the United States hereby notifies the Dispute Settlement Body of its decision to appeal issues of law covered in the report of the Panel in United States – Countervailing Duty Measures on Certain Hot-Rolled Carbon Steel Flat Products from India: Recourse to Article 21.5 of the DSU by India (WT/DS436/RW & WT/DS436/RW/Add.1) and legal interpretations developed by the Panel.

However, in its notification, the U.S. did not identify any "alleged errors in the issues of law covered in the panel report and legal interpretations developed by the panel."

Now I see that the U.S. and India have posted a joint communication for this dispute, which states in part:

... On December 18, 2019, the United States notified the Dispute Settlement Body of its decision to appeal the report by the compliance panel. The United States did not file a notice of appeal or an appellant submission because at this time no Division of the Appellate Body can be established to hear this appeal.

The parties understand that the United States will submit a notice of appeal and an appellant submission once a Division can be established and that India may file its own appeal on alleged errors in issues of law covered in the panel report and legal interpretations developed by the panel at that point of time. ...

So the U.S. "notified the Dispute Settlement Body of its decision to appeal," but it "did not file a notice of appeal"? How does a notification of a decision to appeal differ from a notice of appeal? What is the basis for this distinction?

UPDATE:

Rule 20(1) of the Working Procedures for Appellate Review says:

An appeal shall be commenced by notification in writing to the DSB in accordance with paragraph 4 of Article 16 of the DSU and simultaneous filing of a Notice of Appeal with the Secretariat.

So I guess the U.S. is saying that it notified the DSB of the appeal, but it has not filed a notice of appeal. I always thought of those two notices as identical, and that you didn't separate the two. But I see now that the description in the U.S. notice in this case differs from those in past cases. It says:

NOTIFICATION OF AN APPEAL BY THE UNITED STATES UNDER ARTICLE 16 OF THE UNDERSTANDING ON RULES AND PROCEDURES GOVERNING THE SETTLEMENT OF DISPUTES ("DSU")

Compare that to a past appeal:

NOTIFICATION OF AN APPEAL BY THE UNITED STATES UNDER ARTICLE 16.4 AND ARTICLE 17 OF THE UNDERSTANDING ON RULES AND PROCEDURES GOVERNING THE SETTLEMENT OF DISPUTES (DSU), AND UNDER RULE 20(1) OF THE WORKING PROCEDURES FOR APPELLATE REVIEW

The U.S.-China Trade Deal Dispute Chapter: Effective Enforcement or Just More Tariffs?

As I first talked about here, it appears that the Trump administration has convinced China to sign on to a new kind of "unilateral" dispute resolution process as part of the the Economic and Trade Agreement between the U.S. and China, which was released today. Here's the key text from Chapter 7, Bilateral Evaluation and Dispute Resolution:

Article 7.4: Dispute Resolution

1. Appeal. Where one Party (the “Complaining Party”) believes that the other Party (the “Party Complained Against”) is not acting in accordance with this Agreement, the Complaining Party may submit an appeal (“Appeal”) to the Bilateral Evaluation and Dispute Resolution Office of the Party Complained Against. An Appeal shall be in writing and shall contain sufficient information to allow the Party Complained Against to make a proper assessment of the matter. The Appeal may, but need not, include information that could identify any company at issue or business confidential information. The Appeal and any information and matters related to it are confidential and shall not be shared beyond the Bilateral Evaluation and Dispute Resolution Office, absent the agreement of the Parties.

2. Scope of Appeal.

(a) The dispute resolution process covers all matters that occur after the date of entry into force of this Agreement.

(b) Any measure, including an action, of a Party taken prior to the date of entry into force of this Agreement, which is maintained or continues to have effect after that date, is also subject to the dispute resolution process. For an Appeal of such a measure, the Complaining Party shall provide to the Party Complained Against an explanation of the continuing effect of the measure.

3. Assessment. The Party Complained Against shall carry out and complete an assessment of the Appeal. The Party Complained Against shall consider the facts, nature, and seriousness of the issues presented by the Appeal. After the assessment is completed, the designated officials shall begin consultations.

4. Dispute Procedures. Both Parties will attempt to resolve the Appeal in the most efficient manner using the following procedures:

(a) If the Appeal cannot be resolved by the designated officials, the concerns may be raised to the designated Deputy United States Trade Representative and the designated Vice Minister. If the Appeal is not resolved at the deputy or vice-ministerial level, the Complaining Party may present the issue to the United States Trade Representative and the designated Vice Premier of the People’s Republic of China.

(b) If the concerns of the Complaining Party are not resolved at a meeting between the United States Trade Representative and the designated Vice Premier of the People’s Republic of China, the Parties shall engage in expedited consultations on the response to the damages or losses incurred by the Complaining Party. If the Parties reach consensus on a response, the response shall be implemented. If the Parties do not reach consensus on a response, the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship. The Party Complained Against can initiate an urgent meeting between the United States Trade Representative and the designated Vice Premier of the People’s Republic of China before the effective date of the action to be taken by the Complaining Party. If the Party Complained Against considers that the action by the Complaining Party pursuant to this subparagraph was taken in good faith, the Party Complained Against may not adopt a counter-response, or otherwise challenge such action. If the Party Complained Against considers that the action of the Complaining Party was taken in bad faith, the remedy is to withdraw from this Agreement by providing written notice of withdrawal to the Complaining Party.

I'm not sure what to make of the elaborate consultations process they have in mind. Maybe spelling out so much detail will help, maybe not. But the big story is that there is no neutral adjudication mechanism as part of this dispute procedure. Instead, each party can ultimately decide on its own whether the other is in violation, and then suspend obligations, impose tariffs, etc.: "If the Parties do not reach consensus on a response, the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship." The response is then governed by whether the Party Complained Against considers that the action of the Complaining Party was taken in good or bad faith.

It's not clear to me what the point of including this provision is. By now, we know that if the Trump administration is not happy about China's trade practices, it will impose tariffs. What does it add to put in a provision to this same effect? Without a neutral ruling as to whether China is in violation, it's hard to see China responding any differently under the deal than it has responded to the previous tariffs imposed outside of the deal. As a result, I'm not sure how enforceable this deal is. That's kind of a shame, because the provisions on technology transfer in Chapter 2 seem pretty useful (and more detailed than the similar ones in Section 7(3) of China's accession protocol). I think it would be helpful if these obligations were subject to normal trade agreement dispute settlement.

But we'll see how it all plays out. I've never seen anything quite like this before, so it's hard to say anything with too much certainty at this point. Ideally, the parties would be transparent about all of their disputes under this provision, but that may not be how this works in practice, as the text states: "The Appeal and any information and matters related to it are confidential and shall not be shared beyond the Bilateral Evaluation and Dispute Resolution Office, absent the agreement of the Parties." Thus, it may be difficult to evaluate the effectiveness of the process.

Trade in Last Night's Democratic Debate

All the candidates on the stage got a chance to weigh in on trade in last night's Democratic debate. Here's what they said:

PFANNENSTIEL: Thank you, Mr. Steyer. Let's stay with the theme of America's role in the world and talk about trade. Tomorrow, President Trump is expected to sign phase one of a trade agreement with China. And the Senate will likely soon approve a new trade deal with Mexico and Canada, Iowa's largest trading partners. 

Sen. Sanders, you have said that new deal, the USMCA, quote, "makes some modest improvements," yet you are going to vote against it. Aren't modest improvements better than no improvements...

SANDERS: No, we can do much ...

PFANNENSTIEL: ... for the farmers and manufacturers who have been devastated here in Iowa?

SANDERS: The answer is we could do much better than a Trump-led trade deal. This deal — and I think the proponents of it acknowledge — will result in the continuation of the loss of hundreds of thousands of good-paying jobs as a result of outsourcing.

The heart and soul of our disastrous trade agreements — and I'm the guy who voted against NAFTA and against permanent normal trade relations with China — is that we have forced American workers to compete against people in Mexico, in China, elsewhere, who earn starvation wages, $1 or $2 an hour. 

Second of all, every major environmental organization has said no to this new trade agreement because it does not even have the phrase "climate change" in it. And given the fact that climate change is right now the greatest threat facing this planet, I will not vote for a trade agreement that does not incorporate very, very strong principles to significantly lower fossil fuel emissions in the world.

PFANNENSTIEL: But, Sen. Sanders, to be clear, the AFL-CIO supports this deal. Are you unwilling to compromise?

SANDERS: The AFL-CIO does. The Machinists Union does not. And every environmental organization in this country, including the Sunrise Organization, who are supporting my candidacy, opposes it.

So I happen to believe — and I hope we will talk about climate change in a moment — if we do not get our act together in terms of climate change, the planet that we're going to be leaving our kids and our children — and our grandchildren will be increasingly unlivable and uninhabitable.

PFANNENSTIEL: We're going to get to climate change, but I'd like to stay on trade. Sen. Warren ...

SANDERS: Well, they are the same in this issue. 

PFANNENSTIEL: Sen. Warren, you support the USMCA. Why is Sen. Sanders wrong?

WARREN: I do. I wasn't here. I haven't been in Congress long enough to have voted against NAFTA, but I led the fight against the trade deal with Asia and the trade deal with Europe, because I didn't think it was in the interests of the American people, the American workers, or environmental interests.

But we have farmers here in Iowa who are hurting. And they are hurting because of Donald Trump's initiated trade wars. We have workers who are hurting because the agreements that have already been cut really don't have enforcement on workers' rights.

This new trade deal is a modest improvement. Sen. Sanders himself has said so. It will give some relief to our farmers. It will give some relief to our workers. I believe we accept that relief, we try to help the people who need help, and we get up the next day and fight for a better trade deal. 

We need a coherent trade policy. We need a policy that actually helps our workers, our farmers. We need them at the table, not just to trade policy written for big, international companies. I'm ready to have that fight, but let's help the people who need help right now.

PFANNENSTIEL: Thank you. Sen. Sanders, can you please respond to Sen. Warren?

SANDERS: Well, I think that it is not so easy to put together new trade legislation. If this is passed, I think it will set us back a number of years.

Sen. Warren is right in saying we need to bring the stakeholders to the table, that — it is the family farmers here in Iowa and in Vermont and around the country. That is the environmental community. That is the workers. Bottom line here is, I am sick and tired of trade agreements negotiated by the CEOs of large corporations behind doors.

PFANNENSTIEL: Sen. Klobuchar, I'd like to bring you in here. 

KLOBUCHAR: Brianne, I want to hit reality here. I serve on the Agriculture Committee, and I will never forget going to Crawfordsville here in Iowa — and thank you for bringing up Iowa, Brianne, since that is where we are — and I went to this plant and there was one worker left in that plant. That plant had been shut down because of Donald Trump's trade policies and because of what he had done to those workers with giving secret waivers to oil companies and ruining the renewable fuel standard. That worker brought out a coat rack of uniforms and he said, these are my friends, they don't work anymore. And their names were embroidered on those uniforms, Derek, Mark, Salvador. And that guy started to cry.

These are real people hurt by Donald Trump's trade war. So what we should do, and I support the USMCA, I am glad that these improvements were made that are supported by people like Richard Trumka and Sherrod Brown on labor and environment and on pharma, the sweetheart deal...

PFANNENSTIEL: Thank you. 

KLOBUCHAR: ... because I think we need a big trading block... 

PFANNENSTIEL: Thank you, Sen. Klobuchar. 

KLOBUCHAR: ... with North America to take on China. And the way you are stronger...

PFANNENSTIEL: Sen. Klobuchar, your time is up. 

KLOBUCHAR: ... China is with our allies. 

PFANNENSTIEL: Mayor Buttigieg, do you support the USMCA, yes or no? 

BUTTIGIEG: Yes, it has been improved, it is not perfect. But when you sit down with the people who are most impacted, they share just how much harm has been done to them by things like the trade war and just how much we can benefit, American consumers and workers and farmers, by making sure we have the right kind of labor and enforceability, as Democrats ensured we got in this USMCA.

But let's acknowledge why there is such fear and frustration. You know, my part of the country, in the industrial Midwest, I remember when they came around in the '90s, selling trade deals, telling us, don't worry about your slice of the pie, the pie will get so much bigger that everyone will be better off. And that promise was broken.

The part about the pie getting bigger happened. It's just that the part about it getting to most people where I live did not. That is why there is such frustration, the sense that these decisions in boardrooms...

PFANNENSTIEL: Thank you. 

BUTTIGIEG: ... and in committee rooms in Washington are being made not based on what's best for us...

PFANNENSTIEL: Thank you, Mayor Buttigieg. 

BUTTIGIEG: ... but based on their own gain.

PFANNENSTIEL: Vice President Biden, Sen. Sanders has said that Donald Trump will, quote, “eat your lunch” for voting yes on what he calls terrible trade agreements. When it comes to trade, why are you the best candidate to take on President Trump?

BIDEN: There will be no trade agreements signed in my administration without environmentalists and labor at the table. And there will be no trade agreement until we invest more in American workers. We should be putting our money and our effort and our time in preparing American workers to compete in the 21st Century on the high-tech side, dealing with all artificial intelligence. We should be focusing on equipping American workers to do that.

And by the way, the idea — I don't know that there's any trade agreement that the senator would ever think made any sense, but the problem is that 95 percent of the customers are out there. So we better figure out how we begin to write the rules of the road, not China. 

PFANNENSTIEL: Sen. Sanders? 

SANDERS: Joe and I have a fundamental disagreement here, in case you haven't noticed. And that is NAFTA, PNTR with China, other trade agreements were written for one reason alone. And that is to increase the profits of large multi-national corporations. And the end result of those two, just PNTR with China, Joe, and NAFTA, cost us some 4 million jobs, as part of the race to the bottom.

I am sick and tired and will not tolerate, and we will use the power of the federal contracting system. If a corporation in America wants to shut down in Iowa or Vermont or any place else, and then they think they're going to get on line for our generous federal contract, they've got another thing going. 

We need some corporate responsibility here and we need to protect good-paying jobs in America, not see them go to China, Mexico, Vietnam, and all these other countries.

PFANNENSTIEL: Mr. Vice president, what's your response? 

BIDEN: We need corporate responsibility and I agree with that completely. But we also need to have enforcement mechanisms in the agreements we make. Enforceable agreements. That's one of the things that has been improved with the trade agreement with Mexico. And that's what we should be doing in any agreement we have. 

But let's get back to the basics here. If we don't set the rules of the road by going out to our partners, instead of poking our eye — excuse me, poking our finger in the eye of all of our friends and allies, we make up 25 percent of the world's economy. We've got to bring the other 25 percent of our allies along with us to set the rules of the road so China cannot continue to abuse their power by stealing our intellectual property and doing all the other things, using their corporate state system to our significant disadvantage. 

PFANNENSTIEL: Sen. Warren? 

WARREN: You know, our problem is not just that we need corporate responsibility. It has been the structure of how these trade deals have been negotiated. The United States has had this strategy for decades. And that strategy has been to have government trade negotiators, a small number, and then surround them with giant multi-national corporation lobbyists and corporate executives, who whisper in the ears of our negotiators and then get deals cut that are great for the giant multi-national corporations, not good for America, not good for American workers, not good for the environment. 

We need a different approach to trade and it starts by calling out the corruption of these giant corporations that have cut our trade deals. Everybody wants to get to the American market. And we need to put some standards in place. You want to be able to sell your goods here, then you've got to meet some environmental standards. You've got to meet labor standards.

PFANNENSTIEL: Thank you, Sen. Warren. 

WARREN: We need a...

(CROSSTALK)

WARREN: ... approach. 

PFANNENSTIEL: I would like to bring in Mr. Steyer here. 

Mr. Steyer, even though farmers and manufacturers here in Iowa and around the country could see some relief from the China deal, they've been crushed by the current administration's trade war. What will you do as president to help them get back on their feet? 

STEYER: Look, on the first day, I would undo Mr. Trump's tariffs. On the first day, I would get rid of his waivers that Sen. Klobuchar was referring to, to oil refiners, so that not having to use corn-based ethanol.

In fact, these trade deals have been exactly what Sen. Sanders and Warren have been saying, which is that they've been designed to grow the American GDP for the corporations of America, not for the working people of America, and not to protect the climate.

So let me say this. I'm the only person on this stage who says climate is my number one priority. I would not sign this deal, because if climate is your number one priority, you can't sign a deal, even if it's marginally better for working people until climate is also taken into consideration. 

Look, I've got four kids between the ages of 26 and 31. I cannot allow this country to go down the path of climate destruction. Everybody in their generation knows it. Frankly, Mayor Buttigieg, you're their generation. I think you would be standing up more — look, that's why I'm standing up for it. 

We cannot put climate on the backseat all the time and say we're going to sign this one more deal, we're going to do one more thing without putting climate first. That's why it's my number one priority. We can do it in a way that makes us richer, but we have to do it. 

As I said yesterday, Sanders is very blunt about these issues, but at the same time he is quite vague. He seems to oppose competition between American  workers and workers in countries with low wages. Does that mean he would block all competing imports from those countries? There's a (small) part of me that wants to see him become president just to understand what his policies would look like!

Sanders and Warren Talk Trade with the NY Times

Bernie Sanders and Elizabeth Warren both talked to the NY Times editorial board recently, and trade was one of the issues raised (a tiny bit with Sanders, a lot with Warren). This is from the interview with Sanders:

AK: I’m wondering if you could explain how your approach to dealing with China would be different from the president and how it would elicit better outcomes.

China is one of the most powerful and important countries in the world, and it’s a country that we have got to work with and live with. It is a country I voted against permanent normal trade relations with China, which was the right vote because between Nafta and P.N.T.R. [permanent normal trade relations] with China, this country has lost some four million decent paying jobs.

So I’ll get to your question, but in terms of trade, I believe in trade. But it’s got to be based on principles that are fair, not unfettered free trade. So if companies want to shut down in America to find cheap labor in China or Vietnam, I’m against that and that’s how I have voted.

Bernie's answers to policy questions are often blunt and definitive, but then leave me confused as to what he means. He starts by saying he believes in trade, which is reassuring. He then says trade should be "fair" rather than "unfettered free trade," which I could take as concerning, but since currently trade is far from unfettered and free, maybe it's not as worrying as it wounds. Then he gives a very specific example that sounds clear but really isn't: He doesn't want companies "to shut down in America to find cheap labor in China or Vietnam," and he votes against trade deals that lead to that. But obviously it's possible that moving a factory to another country is the only way to stay in business. If the company keeps the factory open in America and a few years later has to declare bankruptcy and shut down completely, that doesn't help American workers. And what if a company is thinking of opening a factory, and has a choice between the U.S and China/Vietnam. Is it OK to choose China/Vietnam in those circumstances, where there is no shutdown? And more generally, is he saying that he is OK with tariff liberalization through a trade agreement where it doesn't lead to factories moving broad?

The conversation with Warren went into much greater detail:

SS: Well, speaking of using leverage, you’ve argued that nations that want to trade with the United States should be held to higher standards.

Yeah.

SS: The Obama administration tried that, Trump administration tried that in different ways, but no results. What kind of leverage would you use? What would you do?

Well, I’m not sure I accept the premise of the question, that they actually tried what I was talking about. Look, our No. 1 leverage is everybody wants the American consumer. They want access to the American consumer. They want to be able to sell us all of their stuff because the American consumer is not only the engine of about 70 percent of our economy; it’s a worldwide engine. So I think it’s perfectly reasonable to say, if you want to be able to trade with United States on the best possible terms, then everybody needs to raise their standards just a little. Who wants to do that?

And you may start out with modest increments and increase them over time, but there’s no reason that we should be treating a country that is producing goods through prison labor or child labor or unsafe working standards or by polluting the earth, that we should treat a country that produces goods in that way the same way we’re treating a country that produces goods with standards that are much closer to ours. We simply put our own businesses and our own workers at a competitive disadvantage, so we end up doing things like exporting pollution. Can’t pollute here in the United States, but move this polluting industry. This way that you’re going to paint dolls or produce chips, move it somewhere else where they have no environmental standards and then resell, and then sell those goods back in the United States.

Binyamin Appelbaum: Would you reduce existing —

We just undercut ourselves when we do that.

BA: Would you reduce existing access in order to achieve that goal?

Yeah.

BA: So you’d put tariffs on existing foreign imports?

It’s that you don’t get the tariff benefit. This is what it’s really about. Where’s the baseline? Right? And is the baseline one that says, across the board, you’ve got to give plenty of notice. You’ve got to work through, make sure you’ve got something that’s achievable for countries we trade with. But this is not like trying to institute a trade war. This is not like saying we’re mad at you and therefore we’re going to impose all these tariffs on you, and doing it as Donald Trump has done by tweet.

But it’s to work with nations and say, you want access to the American consumer, you’ve got to start raising your standards in a meaningful way. And here’s where the long-term goals are, here’s where you are, here’s what constitutes moving toward those. And I think that’s where a lot of folks would like to go, and frankly we should be working with other nations on helping, not just those who lag way behind, but those who have good standards to be using the same kind of approach to trade. The idea that trade is just about tariffs is just old 20th century. Trade today in the 21st century is about regulation. It’s about who’s going to have to meet what regulatory standards.

Whether we’re talking about workers or we’re talking about the environment, who has to meet what standards? And there are big corporations who figured out how to game the system. Where standards are high, then move that part of the operation somewhere else where standards are low and save a nickel. Because these corporations, they don’t have any loyalty to a country, they just have loyalty to their own bottom line. And they play this all around the world.

BA: Are tariffs the leverage that you use to secure those types —

Tariffs are one of the tools. Economic agreements across countries, that many countries join together, and say, we’re not going to let anyone import if they’re using prison labor, for example, or if they’re dumping dangerous chemicals into the water. There are lots of ways to do this, but we can’t simply think of this as a tariff, no tariff protectionism barrier. It’s not. It’s about regulations. Look at the dang NAFTA 2.0, look at what we were negotiating for T.T.I.P. T.T.I.P. was about financial regulations, not about goods that were moving, in a sense, the old way that people think about, that you put a bunch of stuff on a barge and you ship it across the Atlantic Ocean. And we just need to tune into the fact we know what our advantage is and we need to use it, not to try to lock others out, but to try to encourage others to come in.

Nick Fox: What did you think of the standards in the Trans-Pacific deal?

I disagreed with them. So for example, the Trans-Pacific Partnership had a robust investor state dispute resolution mechanism, which multiple of our trade treaties have had for decades now. And I just think that’s fundamentally wrong. It’s a two-tier system that says, in effect, we’ll make a bunch of promises in a trade deal on the environment, on use of prison labor, child labor and on anything else, and then we’ll give two entirely different enforcement mechanisms.

If you are a giant multinational corporation and any regulation comes along that you don’t like, the local country raises the minimum — we’ve actually seen this — raises its environmental standards, you get to sue them to get them to drop those standards. And who will your case be heard by? It’ll be heard by a handful of corporate lawyers, who when they’re not sitting on this arbitration panel are working for big law firms that are doing work for you or other multinational corporations like you. That’s one set of how the path will run.

But the other half, let’s say you have a complaint because the trade agreement had said that some other country would permit unionization or would not use low-wage workers beyond a certain point. Do you get a path like that? A quick resolution? And by the way, I should point out: That quick resolution? There’s no appeal from it. It is immediately enforceable against a government. So you can go straight against Canada for raising its environmental standards. You can go straight against a South American country for raising its standards to protect its children’s health from smoking.

But if your complaint is a labor complaint, that is, gee, here I am in America and I’m trying to compete against workers in a foreign country who are getting paid a dollar a day. What’s your path? Well, first you’ve got to go to the U.S. government and persuade the U.S. government that they should go after this country, for which we know what has happened. U.S. government has repeatedly — and this is not just by — well, yeah, we get your point.

But on the other hand, we have other diplomatic initiatives and it’s really important that we’re trying to work with this country, and they’re important to us strategically for this reason and we have this ongoing negotiation in that political thing. Drag your heels, drag your heels, drag your heels, until the jobs have disappeared here. And then once you go forward, you’ve got to go forward through a different kind of court that’s much slower.

So the effect is that the promises that are put into trade agreements like T.P.P., they may all look the same on paper, but man, they are nowhere close to each other in terms of what happens with enforcement. Multinational corporations are given the opportunity basically to opt out of laws they don’t like, where protections that are supposed to be written for our workers, for the worldwide environment, for human rights standards, just get left by the curb.

Warren says she wants to use tariffs and other leverage to induce other countries to raise their regulatory standards. We already do this to some extent. But as she describes things above, it seems like a major expansion of that policy, although it's hard to get a sense of what exactly this policy would look like in practice. Is she talking about withdrawing from existing trade agreements? Using domestic statutory power to impose new tariffs?

9th Conference of the Postgraduate and Early Professionals/Academics Network of the Society of International Economic Law (PEPA/SIEL) 2020 Jerusalem, 17-19 May 2020

The conference is organised by the Postgraduate and Early Professionals/Academics Network of the Society of International Economic Law (PEPA/SIEL) in collaboration with the International Law Forum and other sponsors at the Hebrew University of Jerusalem.

SIEL’s Postgraduate and Early Professionals/Academics Network (PEPA/SIEL) is, among other things, interested in fostering collaboration and mentoring opportunities for emerging academics and professionals in International Economic Law (IEL). PEPA/SIEL fulfils these goals through various activities such as organising conferences at which emerging IEL academics and professionals can present and discuss their research in a supportive and welcoming environment.

We are pleased to announce that the 9th PEPA/SIEL conference will take place on 17-19 May 2020 at the Hebrew University of Jerusalem Faculty of Law, in Jerusalem.

Call for Papers

The scope of the conference is broad, and we invite submissions on any IEL topic including, but not limited to:

• Law and practice in international economic governance and international organisations and tribunals such as the World Trade Organization, regional trade agreements and investor-state dispute settlement;
• International trade, investment, development, competition, intellectual property, monetary and financial law, including dispute resolution;
• The interaction of IEL branches with other branches of public policy and law relating to public health, gender, inequality, human rights, environment, sustainable development and food safety;
• Bilateral and regional economic integration and the multilateral trading system;
• Comparative economic law, focusing on how international economic law interacts with laws, institutions and actors at the domestic level;
• Interdisciplinary research incorporating economics, international political economy, history, philosophy, psychology or sociology, as well as empirical methods, both qualitative and quantitative;
• International developments and economic law, which may inter alia, refer to current disputes, ongoing negotiations, ‘trade wars’, the Appellate Body crisis, ongoing reform of the international investment system, Brexit and the EU, and the Belt Road Initiative.
• Digital trade, international financial regulation, cryptocurrencies, and monetary affairs.
• IEL issues relevant especially to corporations including, but not limited, to supply chains, trade compliance programs, export controls and corruption
• Educating and teaching IEL in turbulent times.

Submission Guidelines

Submissions should include (1) a CV (no more than 2 pages); (2) an anonymized research abstract (no more than 400 words), to be sent no later than 31 January 2020 as attachments to pepasiel2020@gmail.com, in a single email, including the submitter’s surname in the message title.

Selection Process

Papers will be selected based on a double-blind review conducted by members of the Conference Committee. Successful applicants will be notified by 1 March 2020, after which they are expected to submit a conference paper (no more than 4000 words) and an updated abstract, by 15 April 2020, to the same e-mail. Abstracts will be made available online, and papers will be made available to conference speakers and discussants.

Should you have any questions regarding application or participation, please feel free to contact pepasiel2020@gmail.com.

DO APPELLATE BODY MEMBERS HAVE BIASES WHEN CHOOSING A CONTEXTUAL ANALYSIS TO CLARIFY UNDEFINED RIGHTS AND OBLIGATIONS?

The state of Washington has sworn in its first Native American Supreme Court justice, Raquel Montoya-Lewis. At a press conference announcing her appointment, a reporter asked Montoya-Lewis, “What do you see as the biggest problem with implicit bias in the courts right now?” She replied:

The biggest hurdle is getting people to understand that we all bring biases to our decision-making, that it’s across the board — I do it, you do it, we all do” ... the first place we have to start: to recognize that it’s not something to be embarrassed about, but something to recognize.

The most perilous moments for Appellate Body Members to display their biases are when they have to interpret clauses where rights and obligations are not clearly spelled in the WTO Agreements. Although they are aware that their interpretations “cannot add to nor diminish the rights and obligations” agreed by the Members, they have to clarify through a contextual analysis rights and obligations that are sometimes left undefined in the WTO Agreements. For example, zeroing is not explicitly forbidden but it is also not explicitly allowed, the expression "public body" is not defined in Article 1 of the SCM, etc.

As we all know, this contextual analysis is the ideal situation for displaying biases. Every clever lawyer can easily find two or three contextual analyses leading to different outcomes and will chose the one leading to an outcome comforting his/her bias. 

In the context of the next DSU reform, it is important that AB members recognize that they, too, have biases that lead sometimes to choosing a "bad" (from the perspective of the party unhappy with the ruling) contextual analysis reflecting these biases. 

What are possibly these biases? I see two theoretical candidates: 1) a bias against the Member using trade defense tools  2)  a bias favoring developing countries. I am sure that readers would have noticed other candidates.  Let me underline that these biases play a role only in situations with undefined  rights and obligations in WTO Agreements. When rights and obligations are clearly spelled, the biases do not manifest themselves. 

NB: The role of the Secretariat could also manifest itself in theses biases.The "faceless" Secretariat is certainly concerned to satisfy the majority of Members.

Another Economic Defense for the Multilateral Trading System

Stephen Roach (Yale) has recently published a must-read (“US, China and the Myth of Global Decoupling”), which refutes the logic of trade wars.  Here are main observations.

Today’s global economy is far more integrated than ever before. (…) The tighter that trade is woven into the fabric of global commerce, the tougher it will be to disentangle those linkages (…). —and the lower the odds of a more pervasive and disruptive decoupling. (…)

This diffusion of bilateral trade through multi-country supply chains would dampen the effects of a bilateral decoupling of any two economies, no matter how large.

Without addressing the US saving shortfall, raising tariffs and other barriers on China will simply divert trade away from Chinese sourcing toward America’s other trading partners. Bilateral decoupling does not mean global decoupling; it means trade diversion.

The trade diversion arising from bilateral decoupling would mean that US sourcing would migrate from low-cost Chinese production platforms to a broad constellation of foreign producers. (…) The bottom line is a likely shift to higher-cost production platforms. Ironically, that would be the functional equivalent of a tax hike on US companies, workers, and households.

These observations offer yet another powerful defense for “an integrated, more viable and durable multilateral trading system,” as stipulated in the WTO Charter.  As the WTO panel report on Section 301 highlighted, any unilateralist policy, such as a trade war, has “indirect effect (…) on individuals and the market-place, the protection of which is one of the principal objects and purposes of the WTO.” (para. 7.86).

Slaying Concerns about the WTO’s Faceless Bureaucrats

This is a guest post by Philippe de Baere, Henry Gao, Todd Friedbacher, Iain Sandford, Nicolas Lockhart, Isabelle Van Damme, Tania Voon, Alan Yanovich[1]

Ever since countries first agreed rules to regulate international trade, they have disagreed about what the rules mean.  International trade disputes raise sensitive political and economic issues that touch vested interests in the disputing countries.  The resolution of these disputes has long since been handed by countries to an independent arbiter, who decides based on the agreed trading rules.  Countries accept that they will not always agree with the arbiter’s decision, but they see value in an independent person resolving trade tensions amicably.

Since 1995, the WTO dispute settlement system has played an important global role in resolving trade disputes.  However, the WTO dispute settlement system has been thrust into crisis, just as trade tensions have flared around the world.  The United States has blocked the appointment of new decision-makers to the WTO’s top adjudicator, the Appellate Body.  The WTO has also capped its budget.  The Appellate Body’s work is now officially paralyzed.

The Director General has taken a step in the right direction with the announcement of “intensive consultations” with Members to find a way forward.  The vast majority of Members – if not all – still want dispute settlement that delivers binding, timely, and independent decisions.  Temporary solutions are available to unblock the impasse, at least for the vast majority of Members.  A pathway to a long-term solution for all Members should also be found.

At the end of last year, the debate on the future of WTO dispute settlement took on a distinctly personal tone.  Several media reports tried to lay the blame for the crisis on the current director of the Appellate Body Secretariat.  At the same time, several past and present Appellate Body members defended the director’s role.

The premise of the criticism is that, over the past 13 years, 18 Appellate Body members have been unable to exercise independent judgment, in deciding the 70 appeals that they – and not the director – signed in that time.  Instead, they have simply succumbed to the director’s powers of persuasion.  This is an unlikely explanation.

Over the years, WTO Members have consistently appointed capable and independent individuals to serve on the Appellate Body.  Indeed, anyone who has appeared at Appellate Body hearings knows that its members show a formidable and tenacious grasp of the issues.

More importantly, personal attacks on Secretariat staff – who are prohibited by WTO rules from defending themselves – are an unhelpful distraction.  The Director General’s decision to launch consultations should mark a shift to the substantive debate about the future of WTO dispute settlement.

Part of that debate should be about the support provided to WTO adjudicators.  Currently, the WTO’s Secretariat staff administer the dispute process and advise adjudicators on substantive issues.  Some commentators have challenged this support role as a threat to independent adjudication.  However, the WTO is like many other jurisdictions, in which adjudicators have similar administrative and substantive support.  Support staff typically take on the drafting burden, while the adjudicators make the decisions and direct the drafting.  This allocation of tasks between support staff and decision-makers is common in all walks of professional life.

In the case of the Appellate Body, our own experience, including in the Secretariat, confirms that the Appellate Body members make their own decisions, and the Secretariat implements them.  Indeed, Appellate Body members argue vigorously about appeals – everything from important systemic questions to the choice of particular words.  Disregarding the Secretariat’s position is routine.

Of course, if WTO Members are unhappy with the balance between the Secretariat and the adjudicators, they can change the Secretariat’s role.  In that case, though, the Members would have to enhance the adjudicators’ role to cover the considerable support provided by the Secretariat.  Serving as an adjudicator would become a full-time occupation for extended periods, which would need to be recognized in the terms of appointment, and could exclude many candidates for the role. 

Whatever role the WTO Secretariat plays in dispute settlement, its staff – individually and collectively – must remain faithful to the principle of neutrality.  The independence of the system is the very feature that makes it valuable to all Members.

The WTO dispute settlement system that emerges from this crisis will be different, and there is an opportunity for WTO Members to make a two-tiered system more efficient and streamlined to meet 21st century needs.  Members should seize that opportunity.

 

[1] We are WTO academics and practitioners, many of whom have served as staff of the Appellate Body Secretariat.

Senator Toomey on the USMCA Sunset Clause

This is from the Q & A at a recent AEI event with Senator Pat Toomey, hosted by Derek Scissors:

Derek Scissors: ... Let’s not talk about what we agree on. Let’s talk about what we might disagree on, or at least disagree partly on. And I’ll start with a key element of this for you, and I’m not sure it is for me.

As you probably know, the administration, the president originally wanted a much shorter review period. In fact, he wanted a review period in his second term so he could have the option of bailing out of USMCA while he was still president if he won reelection.

I don’t find 16 years to be a problem. Trade agreements change in 16 years. We should have — be evaluating almost every trade agreement after a while to see, as you mentioned correctly with digital trade, you know the situation has changed. There are new technologies. There are new trade patterns. There are new issues to come up. And actually I find a review period at 16 years to be an excellent kind of enforcement. You know, don’t start cheating because we will be looking at this 16 years later in this case, 16 years later, a lot better kind of enforcement than some of the other things you mentioned, which I would also object to.

So let me come back at you about the review mechanism and say 16 years isn’t six years, which is where we started. It’s a reasonable amount of time. Yeah, it creates some uncertainty at the end of the cycle, but there’s going to be uncertainty anyway because the world changes, politics change in the participating countries. And I’d prefer to have a review mechanism that’s general rather than some of the enforcement mechanisms that I know that you and I both have problems with in the agreement.

Pat Toomey: Yeah. So I would disagree with that, but look, the point about the fact that the world changes and you need to be able to reflect those changes in a trade agreement I think is a valid point. The way I think about it is you can always revisit a trade agreement any time you get the three parties together at any day of the week. Any year, you can revisit it for really any reason if you have a collective will to do so.

The question for me is: What’s the presumption? You know, what is the default setting? Is the default setting that it all goes away unless and until you get all three to agree? Or is the default setting that we'll continue this, what I would hope would be a liberalized free trading environment and we’ll make changes when we all agree on what those changes should be? So I think it’s a question of what’s the better default setting to have

Derek Scissors: Do you — and this is a little bit of a nerdy question — but do you read this particular — so I agree with that. I think that’s the right way to have a review mechanism. But do you think that this particular one with regard to USMCA is the default setting is to rip it up in the text, or do we feel like the default setting is to rip it up because there are protectionists both in the administration and the Congress who support it? So if they’re still around in 16 years, their default is to rip it up. In other words, is that the agreement that’s doing this wrong, or is it the political supporters of the agreement who are really thinking about the review mechanism in a harmful fashion?

...

Pat Toomey: I think it’s both. Yeah, I think the administration would have taken this in an even more protectionist direction if they thought they could and still hold Republicans. So I think that’s part of their motivation is to create an opportunity to do that. But yeah, but I think it’s both. I think it’s just — it’s fundamentally a mistake to have it in there.

I think Senator Toomey has this exactly right. Some key points: (1) You can always revisit agreement (lots of evidence of that recently!), and furthermore you should do it regularly rather than after 6 years; (2) setting things up so that termination happens unless all the parties affirmatively agree to extend is a mistake (having it expire if all the parties affirmatively agree not to extend would be better).

Does Hiring Strikebreakers Violate the USMCA?

This is from Lance Compa of Cornell Law School:

... a more than two-months-long strike provoked by a multibillionaire Mexican business tycoon has cast a cloud over the new trade pact’s provisions to strengthen workers’ rights. Citing management’s bad-faith bargaining, nearly 2,000 workers have walked picket lines since early October at Asarco, the Tucson-based subsidiary of the giant Mexican conglomerate Grupo México.

Now, the company has begun hiring strikebreakers. This move defies the new trade agreement’s requirement of adherence “in law and practice” to the International Labour Organization’s core labor standards. The labor chapter in the new NAFTA declares that “the right to strike is linked to the right to freedom of association, which cannot be realized without protecting the right to strike.”

Here is the relevant USMCA provision (some footnotes omitted):

Article 23.3: Labor Rights

1. Each Party shall adopt and maintain in its statutes and regulations, and practices thereunder, the following rights, as stated in the ILO Declaration on Rights at Work: (a) freedom of association⁶ and the effective recognition of the right to collective bargaining;

^{6 For greater certainty, the right to strike is linked to the right to freedom of association, which cannot be realized without protecting the right to strike.}

Does hiring replacement workers violate the right to strike? My instinct is that it does not, but my only experience with this issue comes from the sports world, and I'm sure there has been an extensive debate about this somewhere.

The Scorecard of the USMCA Protocol of Amendment

This post is by law professors David Gantz and Sergio Puig

 

Introduction

The U.S. House of Representatives approved December 19 the United States-Mexico-Canada Agreement (USMCA) by an overwhelming margin of 385-41. The Senate is expected to do the same in mid-January. As everyone knows by now, USMCA is a revision and replacement for the 25-year-old North American Free Trade Agreement (NAFTA), a regional trade agreement that has generated over $1.3 billion in annual goods and services trade among the three nations. USMCA mostly follows NAFTA but makes significant changes or additions inter alia in automotive rules of origin, investor-state dispute settlement, intellectual property protection, digital trade, “sunset” provisions and protection of labor rights and the environment.

Whether USMCA overall is better or worse overall than the original NAFTA will not be fully clear until USMCA has been in force for some time, and different stakeholders (e.g., automotive producers versus labor unions, the United States v. Mexico) may vary in their assessments. What is perhaps most significant for the three NAFTA Parties and their stakeholders is that the USMCA assures that duty-free, quota-free trade within North America will continue for at least 16 years, more than long enough to outlast the Trump Administration. However, tighter automotive rules of origin and other regional content requirements may adversely affect industrial production, especially in the vehicle sector. Other changes affecting trade in goods are not highly significant, and agricultural trade is largely unaffected except for a modest opening for the United States of the Canadian milk solids market (about 3.6% of demand is promised for U.S. exports). Investor-state dispute settlement is reduced in scope with regard to U.S.-Mexico investment and eliminated entirely for U.S.-Canada investment disputes (Mexico and Canada remain part of the Transpacific Partnership Agreement (TPP), which included ISDS).

The USMCA would not have been approved by the House without a series of significant modifications. These changes were negotiated between the Trump Administration’s U.S. Trade Representative Robert Lighthizer, House leadership in the persons of Speaker Nancy Pelosi and Ways and Means Committee Chairman Richard Neal and, in the early weeks of December, Mexican Undersecretary for Foreign Affairs Jesus Seade. The USMCA Protocol of Amendment signed December 10 is the focus of this post.

Historically, Democrats have not been enthusiastic supporters of regional trade agreements. Less than half the Democrats in the House supported the original NAFTA, and only about 30 of them supported the Trade Promotion Authority legislation given to President Obama in June 2015, which was necessary to completion of the TPP (which President Trump repudiated a few days after taking office in January 2017) as well as to the USMCA. This time it was different, with nearly 200 House Democrats as well as the AFL-CIO and Teamsters’ unions supporting USMCA as modified by the Protocol, along of course with most House Republicans and the Trump Administration.

For Canada, the confluence of interests with the House leadership was strong, as we discuss herein. For Mexico, despite its sharing of some of the House’s objectives, the Protocol is much more controversial because of the labor enforcement provisions, including the “facility-specific rapid response labor mechanism” and provision in the implementing act for the creation of special labor attaches to be stationed in the American Embassy and American consulates in Mexico to monitor violations. This feature has generated considerable unease in Mexico.

The USMCA Protocol of Amendment

What changes did the Protocol make to the USMCA? First, in two areas where both Canada and Mexico failed in the original negotiations, the House prevailed. The Protocol eliminates the controversial ten years of protection for biologic drugs, a guaranty which could have made such drugs more expensive in Canada and Mexico (where the government is the major purchaser of prescription medications). Secondly, other protections for branded drug companies against generic competition are significantly modified to make it easier for generics to compete inter alia by obtaining easier access to confidential test data. The modified provisions resemble those negotiated by the Democratic House and the Bush Administration in the May 2007 in the so-called “Bipartisan Trade Deal” which led to the passage of the U.S.-Peru Trade Promotion Agreement (2007) and ultimately the trade agreements with Colombia, Panama and South Korea (2011).

Third, the Protocol modified the USMCA’s state-to-state dispute settlement mechanism to make more difficult (although not impossible) for any Party (read “United States”) to block the formation of panels. Under NAFTA (and the text of the USMCA), it was feasible for the United States to delay or block dispute settlement proceedings against it simply by refusing to appoint standing rosters of potential panelists as required under Chapter 20 of NAFTA. Because of such actions, the US was frequently able to delay panel proceedings for 15 months or more (as in Cross-Border Trucking Services) or to block them completely (for 4 years in a case involving high fructose corn syrup and sugar). Under the Protocol the United States could still refuse to appoint its ten panelists, but this would no longer block panel formation. Rather, if the responding Party refuses to participate by designating panelists the complaining Party ultimately can designate both panelists and the chairperson from the rosters of panelists appointed by the other two Parties. This in and of itself is a massive improvement brought by the Protocol.

Fourth, the environmental provisions of the USMCA are strengthened in several respects with the inclusion of a list of seven multilateral environmental agreements (MEAs) such as the Endangered Species Convention within the USMCA. In the event of a conflict between the USMCA provisions and an MEA the latter will prevail. The Parties are also required to implement their obligations under these seven MEAs, and a provision enables adding additional MEAs in the future.

Fifth, the Protocol adds an annex to the state-to-state dispute settlement chapter and makes other changes in the labor chapter. Text changes also make it much easier to demonstrate that labor (and environmental) violations are related to trade—an issue in a recent case under CAFTA-DR. The burden of proof is reversed in both areas so that the responding government is tasked with demonstrating that the labor or environmental violations are not related to trade or investment. In addition, any production of goods or services meets the “related to trade” requirements if the goods are exported to other USMCA countries, or if they compete with imports from other USMCA countries in the home market.

The rapid response labor mechanisms (separate for the United States and for Canada) provide an accelerated arbitral mechanism to address alleged violations of Mexico’s labor obligations by specific Mexican enterprises, as reflected in both new Mexican labor legislation and the USMCA. (The legislative obligations relate primarily to a recent reform establishing unions that are independent from the enterprises their workers serve and from government influence and assuring effective collecting bargaining.) If successfully implemented, these arrangements would allow more effective collective bargaining in Mexico, presumably leading to higher wages and better working conditions, objectives shared by both President Lopez Obrador and the Trump Administrations for different reasons. Thus, a complaining Party will no longer be required to show a “persistent pattern of violations” as in many earlier U.S. free trade agreements. Sanctions such as increased tariffs are available for individual enterprises found to have committed violations and failed to correct them, again on a fast track.

Whether these procedures can be applied in an objective manner or will be used as a protectionist tool by commercial interests within the United States remains to be seen. Hopefully, the prospect of such actions will be sufficient to encourage most enterprises to implement the new rules, assisted by cooperative efforts by both governments to facilitate them.

Controversy over Labor Enforcement Provisions

For Mexico, the most controversial aspect of the labor rules was embodied in the United States’ USMCA Implementation Act, which provided for the appointment of up to five U.S. labor attaches to be stationed in the American Embassy in Mexico City and various consulates such as the one in Ciudad Juarez (a major center for Mexican manufacturing for export to the United States). A last -minute dispute arose over these provisions, which Mexican negotiators claimed—without persuasive evidence—that they did not know about in advance, threatened to delay ratification. Fortunately, the dispute was quickly resolved when the United States provided assurances to Mexican negotiators that the labor attaches would comply with all Mexican laws and would not be tasked as “labor inspectors.”

Here as elsewhere, the Mexican negotiating position was weak, given that more than 75% of Mexico’s exports go to the United States, meaning that prompt entry into force of the USMCA is essential if Mexico is to avoid a recession in 2020. (Canada is similarly dependent on the U.S. market, but has a stronger domestic market.)  Whether the modified USMCA labor provisions will function smoothly remains to be determined.. The sensitivity of Mexico’s sovereignty concerns, potential obstruction by Mexican enterprises that wish to avoid collective bargaining because it would result in higher wage costs, and current union leadership that benefits from the existing situation in Mexico could greatly complicate effective implementation and enforcement. Only time will clarify the picture.

Conclusion

The Scorecard of the USMCA Protocol of Amendment could be summarized as follows: Happy Holidays from Nancy Pelosi and Richard Neal to Justin Trudeau and Chrystia Freeland, and (maybe) a lump of coal for Andres Manuel Lopez Obrador and Jesus Seade.

For anyone who believes that increasing the negotiating power of Mexican workers is a benefit for both the United States and Mexico, as is better environmental enforcement, the USMCA as modified by the Protocol of Amendment is a clear improvement over NAFTA. The state-to-state dispute mechanisms, addressing digital trade and intellectual property changes also in our view represent highly desirable upgrades and additions. While the USMCA steps backward from NAFTA’s rules of origin, investor protection or predictability (because of Sunset threats), on balance it is likely to be beneficial for its governments and most private stakeholders. Prompt entry into force, presumably by the end of March 2020, should resolve many uncertainties among North American enterprises about NAFTA’s future that have had a chilling effect on investment and hiring for three years. It should also help to ensure that North American business will maintain its competitiveness with Europe and Asia during trade wars with China and the European Union.

Guest Post: Japan–South Korea Trade Friction

This is a guest post from law professor Bashar H. Malkawi:

Japan imposed tighter export control measures on chemicals used by South Korean companies to produce semiconductors and smart phones and TV displays. In addition, Japan removed South Korea from a "white list" of twenty-seven preferential trading partners that can import Japanese goods without added procedures. Adding to list of countries – such as the U.S.- which rely on punitive economic measures on the basis of national security, Japan justified its actions on security grounds. Japan should evaluate whether the motivation of national security is a reasonable excuse to restrict free trade with South Korea and furthermore – assuming arguendo a good faith bona fide threat exists – whether the export control measures even constitute an effective tool to advance national security.

Free trade is a core component of the global governance architecture and recent decades have witnessed the legalization of international economic law. The institutions that govern international economic relations today such as the World Trade Organization (WTO) grew out of an understanding that peace cannot flourish in a world with trade barriers. Thousands of bilateral investment agreements and free trade agreements have been executed all intending to depoliticize economic relations and WTO rules preclude discriminatory trade conduct.  However, international economic law recognizes the right of states to invoke policies and trade barriers such as boycotts on the basis of national security and the inter-connection between trade and national security is not new.

National security concepts have changed and consist of concerns like funding terrorism, developing and threatening nations with weapons of mass destruction, and cyber-security – none of which point to any national security concerns between Japan and South Korea. Moreover, and significantly, national security is not only military preparedness; national security encompasses a wide range of important bulwarks in defense of the good of the nation such as peace, prosperity, stability and freedom. Thus, ironically, maintaining export control measures may in fact harm the national security of all parties involved.

Given the sweeping regional and international changes and the importance of trade as a pillar of the global governance architecture, the timing of this issue is particularly germane. The interaction between national security and free trade has become an increasingly significant global issue in our internationalized world since invoking the national security exception inherently involves both law and politics.

The initial question in evaluating trade restrictions is from the vantage point of effectiveness. While export restriction can potentially have strong negative effects on bilateral trade for South Korea, other alternative sources of materials can fill in the gap left by Japan. South Korea enjoys one of the most prosperous world economies, with booming trade relations with many of the leading economic powers such as the U.S., China, U.K. and Germany. Parallel to the lack of effectiveness are the likely rewards of formally eliminating the export control restrictions. International economic law and in particular trade law are based upon economic benefits accruing to the trading partners. Free and efficient markets combined with the ability of talented individuals to work and trade without restrictions is the hallmark of the South Korean economy.

Japan's trade restrictions are the antithesis the objectives of GATT – the promotion of cooperative and peaceful relationships. Peace and prosperity through trade was the basic objective of the GATT. Countries must build a world in which they use cooperation to pursue their mutual interests. Countries should recognize that they do better as trade partners, not rivals, which would create both peace and prosperity.

Separate from wealth creation, free trade brings the significant benefits of regional peace and stability and diplomatic resolution of disagreements. Peace is the dividend that develops when free trade reins because free trade makes nations busy, more prosperous with financial interests at risk should conflict arise. A growing literature has confirmed the positive correlations between free trade and the advancement of stability in international relations. Rescinding the export control measures would allow for an exchange of goods and services. Without the opportunities to interact, people do not get to know neighbors and remain ensconced in a perception that may not reflect reality. Ironically, therefore, upholding the Japanese export restrictions may impede full and peaceful relations and in fact run counter to Japan's own national security.

The invocation of the national security exception is the subject of broad questioning particularly the subjective self-judging aspect but also to the substantive extent and contours of the exception as well. Since the national security provision is exceptional inasmuch as the invocation is subjective (unlike other exceptions) and is amorphous, the national security rationale is subject to abuse.

National security concepts should be interpreted as “exigent circumstances” or “national emergency” as enabling a state to override international norms only if a security essential interest was in severe danger and the state’s action was vital to defending the interest. Also, good faith could be an important factor in determining whether national security is a reasonable cause for export restrictions. Furthermore, the good faith argument is also embodied in the international law concept of abus de droit. Accordingly, in evaluating a draconian restriction such as export restrictions, the key is balancing the legitimate need of defending national security with the global interest in encouraging free trade and preventing the harassment of another nation.

Neither Japan nor South Korea benefits from a stagnant economic relationship. Export restrictions should be rescinded. The alternative to formally rescinding the export measures is for the parties to adopt a pragmatic and business like approach. Parties would continue their relationships on an informal basis and conduct business through third countries or parties.  Businesses will continue to transact deals regardless of the political climate, and help industries in Japan and South Korea complement each other albeit secretly or some other indirect ways. There will be progress but following this path is a long journey and substantially limits the potential economic gains and peace dividends that formally rescinding the export control measures would produce. Ultimately, however, export restriction will end. Irrespective of whether the policy of informal relations is maintained or whether the process is expedited through ending export restrictions, this inextricable destiny will happen.

The Resurrection of the Appellate Body: Three Proposals

The Appellate Body is dead.

But not all hope is lost. Instead, we could still bring it back, and there are at least three different ways:

1.

The first is launching the Appellate Body appointment process by forcing a vote through the General Council as per Article IX.1 of the WTO Agreement. This option has been discussed in detail in papers by Prof. Hillman and me, with the only disagreement between us being whether it’s “ugly” (Prof. Hillman) or “good” (yours truly). In case you do not have the time to read either paper, the following is my summary:

“To sum up, my suggestion for solving the AB crisis is very simple. The Members shall first put the issue of AB appointment on the agenda of the meeting of General Council, then try to have the issue decided by consensus. If the U.S. does not block the consensus, then all is well. If, however, the U.S. decides to continue its blockage, the Members can invoke the voting provisions under Article IX.1, which provides that “[d]ecisions of the Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise provided in this Agreement or in the relevant Multilateral Trade Agreement”. As there is no special majority requirement for this issue, the matter can be decided by simple majority, which is much easier to obtain than the two-third majority requirement for DSU amendments or the three fourth majority requirement for official interpretations.”

2.

The second is the brilliant proposal by Prof. Steve Charnovitz, who suggested two years ago that the Appellate Body Working Procedures be amended so that, when the membership falls short of the minimum numbers, an appeal will be automatically completed upon the filing of the notice of appeal. However, this proposal has not been taken up by WTO Members, or even the Appellate Body itself, as Prof. Charnovitz noted in his aptly-titled blog post “The Missed Opportunity to Save WTO Dispute Settlement” published 2 weeks ago.

While I share with Prof. Charnovitz the belief in his proposal, I beg to differ with his assessment that the opportunity has been missed. Instead, I would argue that an opportunity, in fact a perfect opportunity, has been made rather than missed when the membership of the Appellate Body further shrunk from three to one.

Let me explain a bit more here. Prof. Charnovitz concluded his Dec 10th blog post with “the biggest irony”, i.e., “I have recently been informed by a WTO insider that the Appellate Body — which is so commonly and wrongfully accused of considering itself above the rules — was unwilling to adopt my rescue plan because they believed it was against the rules.” Given the recent press coverage of internal division with the Appellate Body, one might well speculate that the proposal was declined because the three Appellate Body members could not agree among themselves. However, with the departure of two members on Dec 11th, the Appellate Body now only has one member left, which makes it much easier to adopt the Charnovitz Solution.

“But you need a division to make a decision!” I can already see trade lawyers pointing finger at me.

Well, that is not quite the case. It is true that, according to both Art. 17.1 of the DSU and Art. 3.1 of the Working Procedures for Appellate Review, “decisions relating to an appeal shall be taken solely by the division assigned to that appeal”. But the same Art. 3.1 also states that, “Other decisions shall be taken by the Appellate Body as a whole.” This is confirmed by Art 17.9 of the DSU, which states that “Working procedures shall be drawn up by the Appellate Body”.

As neither the DSU nor the Working Procedures specify that a quorum required for the Appellate Body to make such decision, it must logically follow that the Appellate Body may make the decision regardless of the number of members left. I know that there are people who'd say, “but the reasonable reading has to be that the decision be made by the seven members of Appellate Body as a whole”. But such interpretation is actually quite unreasonable, as that would mean that decisions can only be made when the Appellate Body has full capacity of seven members; yet when the Appellate Body is in critical shortage of manpower, like it is now, it, ironically, can not make changes to its Working Procedures to keep itself from dying. Such interpretation is too unreasonable to be valid.

Thus, despite the current solo membership, the Appellate Body, as an institution, is still alive and well functioning, at least for the purpose of amending the Working Procedures. If the sole member of the Appellate Body so pleases, she still has the full power and authority to amend the Working Procedures as suggested by Prof. Charnovitz, or, as I would suggest, with the following minor twist:

Rule 20 of the Working Procedures be amended to state that,

“In the event of five or more expired terms in the Appellate Body membership, the Appellate Body will be unable to accept any new appeals. Under such extreme circumstances, the Appellate Body may declare in advance that, the ‘completion of the appeal’ will occur automatically on the same day that any new appeal is lodged.”

3.

Meanwhile, if, upon the departure of her colleagues, the solo Appellate Body member becomes bored and wants to get some work done in her remaining one year term, I'd venture a third option so that she can continue to accept and decide appeals.

The option also involves amending Rule 20 of the Working Procedures, where I would add a part (e) under sub-para (2) as follows:

“In the event that the membership of the Appellate Body falls short of the minimum number required to form a division hearing an appeal, every notice of appeal shall include a statement that the Appellant agrees to the following special rules governing the appeal:
(i) that the division shall compose of one Appellate Body only, and such division shall be deemed as having the full power and authority of a normal division with three members;
(ii) that, given that there is only one division member, the Appellant understands that the member would need much longer time to decide the appeal, and agrees that the proceedings may last as long as the member deems necessary to complete the appeal, and the report shall still be deemed as one issued within 90 days as per Art. 17.5 of the DSU.”

I’m sure that most if not all WTO Members would be very happy to agree to such special terms, as this is the only way to keep the Appellate Body going under the current circumstances. I could imagine some Member reluctant to go along with such arrangement, but I guess such Member has nobody other than itself to blame for ending up in such a mess. And, if such Member doesn't like my solution, it can always protest by not filing appeals! 

Does the present paralysis of the AB mean that the WTO is dead? No, and this is why.

By an odd coincidence, it seems that we have actually returned to the situation that prevailed in the previous GATT 1947 system. Recall that this system was characterized by a strange feature that allowed a veto by the losing party as soon as it communicated that it wanted to explore the feasibility of a mutually acceptable solution.

The only difference is that the previous veto is now replaced by lodging an appeal "in the void" by the losing party and communicating at the same time its intention to explore the possibility of a mutually acceptable solution. This is exactly what the United States did recently in DSC/436 when it communicated that "at this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with India so the parties may determine the way forward in this dispute, including whether the matters at issue may be resolved at this stage or to consider alternatives to the appellate process."

This return to the past is paradoxical since the WTO was precisely created to address the issue of the veto by the losing party in the GATT 1947 system. In this system, according to Davey, the losers "had  to agree to lose before they can lose." 

I would like here to add a note of hope that this (hopefully temporary) return to the past does not mean that the WTO is presently dead.The Panel stages stays alive and is not worthless. This is because, even in the GATT 1947 system, a vetoed Panel Report did not necessarily mean that the it was worthless. As noted by Hudec who was an expert of "commercial diplomacy" in the GATT 1947 system, most vetoed disputes eventually found a “solution” negotiated at a bilateral level where the conclusions of the Panel Report played a certain role. In fact, during negotiations for such a bilateral “solution”, the losing party was in a position of weakness since its interpretation had already been rejected by a neutral panel. Conversely, the party whose position had prevailed in the Panel’s Report would insist on the fact that the negotiated “solution” had to take account of the Panel’s conclusions.

The previous conclusion means that WTO Members should not fall into the trap of thinking that activating a claim before a panel  is now worthless due the paralysis of the Appellate Body.  WTO Members should remember that even in the context of the GATT 1947 system, a negotiated “solution” had to take account of the Panel’s conclusions.

USMCA in Last Night's Debate

This is from last night's Democratic debate:

WOODRUFF: Let's turn now to an issue that is on the minds of all Americans, and that is the economy.

Senator Sanders, today, the House of Representatives voted for a new bipartisan trade agreement among the United States, Canada and Mexico. It was supported by union-friendly leaders like Speaker Nancy Pelosi and big labor groups like the AFL-CIO. They say it is going to be a big job creator.

Senator, my question is, will you support this deal? And, if not, why not?

SANDERS: Judy, you're talking to somebody who, unlike some of my colleagues here, voted against NAFTA, voted against PNTR with China -- two agreements that cost us over 4 million decent-paying jobs.

Now, I don't agree with the -- your statement that people think this is going to be a great job creator. This is a modest improvement over what we have right now. It would allow, hopefully, Mexican workers to organize into unions, independent unions and be able to negotiate decent contracts.

But at the end of the day, in my view, it is not going to stop outsourcing. It is not going to stop corporations from moving to Mexico, where manufacturing workers make less than $2 an hour.

What we need is a trade policy that stands up for workers, stands up for farmers. And, by the way, the word "climate change," to the best of my knowledge, is not discussed in this new NAFTA agreement at all, which is an outrage. So, no, I will not be voting for this agreement, although it makes some modest improvements.

WOODRUFF: Senator Klobuchar?

KLOBUCHAR: I have a different view. I'll go with my friend, Sherrod Brown, who has voted against every trade agreement that's come in front of him, and he's voting for this, and I am, too.

And the reason I am voting for it is that I believe that we have a change with this agreement. I would not have voted for the agreement that President Trump put forward, but we've got better labor standards, better environmental standards, and a better deal when it comes to the pharmaceutical provision, which I also opposed.

Ninety-five percent of our customers are outside of our borders. And we have to make sure that we have trade agreements that are more fair, because if we can encourage work made in America, every time you hold something in your hand that says "Made in America," it is the ingenuity of our workers, it is the quality of a product, it is equality of our workers, and it is the hopes and dreams of the American people.

I think this agreement -- while Senator Sanders is correct, there are some issues with it -- is much better than the one originally proposed. And for those farmers in the Midwest and for those people that have been hurt by the fact that we will not have a trade segment with Mexico and with Canada and the United States, I think that this is a much better deal.

I wish more candidates had a chance to answer the question. Anyway, Sanders gave his usual trade policy answers. We still don't know if there is any version of trade agreements he would support. Does that mean he would pull out of existing agreements? Is there some alternative model he could accept? Klobuchar associated herself with Sherrod Brown and said she would support it. Seems like a safe way to play to both sides of the debate. What would Warren and Buttigieg have said? Hopefully we'll hear something from them soon. (Warren, obviously, will get to vote on it.)

The House Passes USMCA by a Wide Margin

In October of 2017, I noted that U.S. Trade Representative Bob Lighthizer said he hoped to “get back to the days where there was a substantial majority of people in both parties that voted for these trade agreements,” adding “that is my objective right now. I want to have a huge number of Republicans and a huge number of Democrats.” I said that I liked his optimism, and made some suggestions for how he might accomplish that. He didn't follow my guidance as closely as I would have liked, but a few of my suggestions did make it into the final USMCA package. Today, the final results from the House vote on USMCA are in, with 385 for and 41 against. Wow! I've got to give him credit for reading the political landscape well. There is still the Senate to go, but that vote will happen at some point and I don't think it is in doubt.

But there are some questions about what exactly has been passed. Here are four:

-- Is the panel blocking problem actually fixed? Based on the text released last week, I think so, but there are still some Rules of Procedure to come. What will they do with this issue?

-- The biggest trade impact from the USMCA could be that it undermines tariff-free trade in autos and auto parts. But the extent of the impact depends on implementation of the new rules of origin. I can imagine there will be battles over this in the coming months and years. What will auto trade between the U.S., Canada, and Mexico, and between North America and the rest of the world, look like after this is all settled? And as production may shift from internal combustion engines to batteries, will it actually be settled?

-- The new rapid response labor mechanism (described by Kathleen here) is still kind of mysterious. We've only had eight days to consider it, but the House has now voted on it. Only two Republicans voted no. Do they have any idea of what they voted for? How often will this mechanism be used? Will there be two complaints a year? Ten? Hundreds? Will there be complaints against the U.S.? We will find all that out soon enough and then we can hear their explanation as to what they thought they were voting for.

-- How will the joint review/sunset clause work? I would say that rather than a big review after six years that is the basis for a decision on whether or not to extend the agreement, we should be monitoring and reviewing the agreement on a regular basis. And we can always withdraw, so there's no need to force a decision on that after six years. Nevertheless, the first six year joint review is going to be very interesting and I'm eager to see how it all plays out. (My main recommendation is going to be to get rid of the six year joint review/sunset clause and do regular reviews instead.)

The U.S. Appeal in DS436

In the last post, I talked about what might happen as a result of the U.S. appeal "into the void" of the Article 21.5 panel report in DS436. Let me now add to the confusion. The full text of the U.S. appeal, as posted in WTO Docs Online, is as follows:

Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the United States hereby notifies the Dispute Settlement Body of its decision to appeal issues of law covered in the report of the Panel in United States – Countervailing Duty Measures on Certain Hot-Rolled Carbon Steel Flat Products from India: Recourse to Article 21.5 of the DSU by India (WT/DS436/RW & WT/DS436/RW/Add.1) and legal interpretations developed by the Panel.

At this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with India so the parties may determine the way forward in this dispute, including whether the matters at issue may be resolved at this stage or to consider alternatives to the appellate process.

But under the Working Procedures for Appellate Review, the requirements for a notice of appeal are as follows:

Commencement of Appeal

20.

(1) An appeal shall be commenced by notification in writing to the DSB in accordance with paragraph 4 of Article 16 of the DSU and simultaneous filing of a Notice of Appeal with the Secretariat.

(2) A Notice of Appeal shall include the following information:

(a) the title of the panel report under appeal;
(b) the name of the party to the dispute filing the Notice of Appeal;
(c) the service address, telephone and facsimile numbers of the party to the dispute; and
(d) a brief statement of the nature of the appeal, including:

(i) identification of the alleged errors in the issues of law covered in the panel report and legal interpretations developed by the panel;

(ii) a list of the legal provision(s) of the covered agreements that the panel is alleged to have erred in interpreting or applying; and

(iii) without prejudice to the ability of the appellant to refer to other paragraphs of the panel report in the context of its appeal, an indicative list of the paragraphs of the panel report containing the alleged errors.

It's hard to see how the U.S. notice satisfies any of the requirements of sub-paragraph (d). Was the nature of the appeal described elsewhere but not circulated? If not, and this is not a proper appeal, what are the implications for what happens now in the DS436 dispute?

The Future of U.S. Participation in WTO Disputes

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

As discussions among Members continue, the dispute settlement system continues to function.

The central objective of that system remains unchanged: to assist the parties in the resolution of a dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement and mutually agreed solutions.

For instance, today, the United States appealed the compliance Panel’s report in DS436.

While no division can be established to hear this appeal at this time, the United States will confer with India so the parties may determine the way forward in this dispute, including whether the matters at issue may be resolved at this stage or to consider alternatives to the appellate process.

Consistent with the aim of the WTO dispute settlement system, the parties should make efforts to find a positive solution to their dispute, and this remains the U.S. preference.

The panel report in question was in an Article 21.5 dispute related to various U.S. countervailing duty measures. 

So what happens to the case now? This U.S.-India conversation presents an opportunity to see if there is some alternative appellate process the Trump administration can accept. We have heard a lot about the U.S. concerns, but we have not seen a specific U.S. proposal for what it would consider an improved process. Maybe India is about to see one. I can imagine the U.S. would propose something along the following lines:

-- the adjudicators would have trade remedy expertise and would be assisted by independent clerks rather than WTO staff

-- there would be no DSU Article 11-type appeals

-- the scope of appeal would be limited and agreed in advance by the parties

-- there would be a standard of review along the lines of the second sentence of AD Agreement Article 17.6(ii)

-- the time-frames would be strictly observed

The U.S. is setting the agenda, but there are other actors who have a role here. India needs to think about what it wants to do now. Could it reach agreement with the U.S. on an appellate process? In the alternative, would it go forward with retaliation right away, based on the illegitimacy of an appeal into the void, as the EU is considering? Is there a mutually agreed solution possible in this case?

And then there is the Appellate Body. There is one Appellate Body Member left, and some unknown (to me) number of AB Secretariat staff still around. Could they issue a report saying they are unable to complete the appeal, and then the panel report and that short AB report could be put up for adoption?

Debunking the NFTC Report regarding Antidumping

Debunking the NFTC Report regarding Antidumping

Steve Charnovitz

18 December 2019    

Yesterday, the (US) National Foreign Trade Council (NFTC) released a Report Resolving the WTO Appellate Body Crisis: Proposals on Overreach.

The Report proposes that "guidance" be given to the Appellate Body that WTO adjudicators must examine broadly worded provisions and general terms:

     ... with a view to respecting Member sovereignty. Such provisions and terms are often intended to provide   discretion to Members in their implementation, and adjudicators must therefore interpret such provisions and terms in a way that maintains that discretion (p. 7).

The Report further proposes that "Article 17.6(ii) of the Antidumping Agreement must be given meaning" (p. 7) and claims that "The Appellate Body effectively read this provision out of the Antidumping Agreement by concluding in the cases in which it arose that there was only one permissible interpretation of the provisions at issue under customary rules of interpretation of public international law" (p. 8). The Report further argues:

    ... treaty interpreters are obliged to give effect to all treaty terms. In the second sentence of Article 17.6(ii), WTO Members recognized that there could be more than one permissible interpretation of the Antidumping Agreement under customary rules of interpretation of public international law. Adjudicators should reflect that in their approach (p. 8).

As these Proposals and arguments appear to reflect some confusion within the NFTC, let me try to set the record straight:

1. The jurisprudence of the Appellate Body has never denied that under Article 17.6(ii), there could be more than one permissible interpretation of the WTO Antidumping Agreement. For example, in the US – Hot Rolled Steel case (para. 59), the Appellate Body agreed that Article  17.6(ii) "presupposes" that the rules of treaty interpretation "could give rise to, at least, two interpretations of some provisions of the Anti-Dumping Agreement...."
2. In the 12 cases where a second allegedly permissible interpretation was urged on the Appellate Body, the appellators rejected that interpretation as impermissible under the customary rules of interpretation of public international law. In my view, there can be no serious doubt as to the legal correctness of the Appellate Body's refusal to agree to treaty interpretations that were so clearly contrary to the text, overall context, object and purpose, and basic fairness of the Antidumping Agreement.
   
   
3. The phrase "give effect" is itself ambiguous.  For me, a court gives effect to a statutory provision when it considers the applicability of that provision to the matter at hand. While it is true that the Appellate Body has not yet given effect to Article 17.6(ii) in the narrow sense of blessing a second permissible interpretation, that's because the proffered interpretations have been so obviously illegitimate. 
   
   
4. Respecting "Member sovereignty" in the WTO legal system does not mean upholding a right of WTO governments (like the United States) to engage in unilateral measures that violate WTO commitments. WTO member governments used their sovereignty in 1994 to write new rules for global trade and to establish a tribunal to enforce them.  When a brave Appellate Body stands up to US protectionism, that's not "overreach"; rather, it reflects judicial independence which is a precondition for the rule of law on both the domestic and international planes.

 

USMCA Implementing Legislation Provisions on the Sunset Clause

This is from the relevant section of the USMCA implementing legislation submitted to the House on Friday:

Subtitle B—Joint Reviews Regarding Extension of USMCA

SEC. 611. PARTICIPATION IN JOINT REVIEWS WITH CANADA AND MEXICO REGARDING EXTENSION OF THE TERM OF THE USMCA AND OTHER ACTION REGARDING THE USMCA.

(a) IN GENERAL.—Pursuant to the requirements of this section, the President shall consult with the appropriate congressional committees and stakeholders before each joint review, including consultation with respect to—

(1) any recommendation for action to be proposed at the review; and

(2) the decision whether or not to confirm that the United States wishes to extend the USMCA.

(b) CONSULTATIONS WITH CONGRESS AND STAKEHOLDERS.—

(1) PUBLICATION AND PUBLIC HEARING.—At least 270 days before a joint review commences, the Trade Representative shall publish in the Federal Register a notice regarding the joint review and shall, as soon as possible following such publication, provide opportunity for the presentation of views relating to the operation of the USMCA, including a public hearing.

(2) REPORT TO CONGRESS.—At least 180 days before a 6-year joint review under article 34.7 of the USMCA commences, the Trade Representative shall report to the appropriate congressional committees regarding—

(A) the assessment of the Trade Representative with respect to the operation of the USMCA;

(B) the precise recommendation for action to be proposed at the review and the position of the United States with respect to whether to extend the term of the USMCA;

(C) what, if any, prior efforts have been made to resolve any concern that underlies that recommendation or position; and

(D) the views of the advisory committees established under section 135 of the Trade Act of 1974 (19 U.S.C. 2155) regarding that recommendation or position.

...

(d) CONGRESSIONAL ENGAGEMENT AFTER JOINT REVIEW.—

(1) IN GENERAL.—Not later than 20 days after the USMCA countries have met for a joint review, the Trade Representative shall brief the appropriate congressional committees regarding the positions expressed by the countries during the joint review and what, if any, actions were agreed to by the countries.

(2) CONTINUED ENGAGEMENT.—After a joint review, the Trade Representative shall keep the appropriate congressional committees timely apprised of any developments arising out of or related to the review.

I see lots of consultations with Congress and stakeholders in here, which is good. However, it seems like the ultimate decision on whether to extend the USMCA after 6 years is entirely in the hands of the executive branch. I think that's a mistake. If I were Congress, I would push hard for a stronger role. For example, the legislation could indicate that a decision not to extend could only be made if the president and a majority of both the House and Senate agreed.

Unilateral Enforcement in the US-China "Phase One" Trade Agreement

This is from USTR's fact sheet on the U.S. - China "phase one" trade agreement announced on Friday:

Dispute Resolution: The Dispute Resolution chapter sets forth an arrangement to ensure the effective implementation of the agreement and to allow the parties to resolve disputes in a fair and expeditious manner. This arrangement creates regular bilateral consultations at both the principal level and the working level. It also establishes strong procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions that it deems appropriate.

Based on this explanation (and a White House conference call about the agreement), I think that what they have in mind is what I discussed here (and reflects the second paragraph of Section 8 of the draft framework of May 2018). If I'm right, the enforcement mechanism would work something like this. First, there would be consultations. If the consultations don't resolve the issue, each side can decide on its own whether there is a violation and what to do about it. Thus, it sounds like the determination of whether there is a violation would be unilateral, and the determination that the response is proportionate would be unilateral. If, for example, the U.S. believes China is not complying with the IP provisions, then the U.S. can impose tariffs in what it considers to be a proportionate amount. This is still a bit speculative, and I eagerly await the final text, but that's my sense of things at this moment.

As to the impact of all this, I'm not sure it will be an effective enforcement mechanism (the consultations are a good idea, of course). If China thinks it is in compliance but the U.S. does not, these unilateral tariffs probably won't induce China to take any action. If, on the other hand, there were a ruling by a neutral adjudicator that China is not in compliance, China might take some action. What we have here just looks like a process to restart the tariff war if one side is not happy with how things are turning out (which presumably could be done without any special process).

Congressional / Executive Power over Trade and the USMCA Sunset Clause

This is from Jennifer Hillman:

Before it is too late, Congress should insist on including a number of items in the implementing legislation or on essential changes to the May 30, 2019, draft Statement of Administrative Action (SAA).  Indeed, U.S. Trade Representative Robert Lighthizer’s transmittal letter for the SAA emphasized that the submission “is just that –a draft.  It does not in any way prejudice the content of the final implementation package, i.e., the final SAA, final implementation legislation, and the final, binding text.”  Now is the time for Congress to hold Ambassador Lighthizer to his word and insist on changes to the implementing bill and the SAA in the following areas:

...

3. Decision to Invoke the Sixteen-Year Sunset Clause

Article 34.7(1) states that the USMCA shall terminate sixteen years after it enters into force unless each of the three parties affirmatively confirms its desire to continue the agreement for a new sixteen-year period. That confirmation must be made in writing at the six-year joint review meetings.

Congress should treat the decision to allow the USMCA to terminate at the end of the sixteen year period the same as a notice of withdrawal. A decision not to confirm the United States’ continued participation in the USMCA ultimately has the same legal effect as withdrawal. It should be done only following a full process that includes input from all stakeholders and trade advisory committees, a USITC economic evaluation, and a vote of Congress.

The uncertainty created by the manner in which U.S. trade policy has been conducted over the past three years has led to numerous calls for Congress to reassert the power expressly given to it by the Constitution to establish tariffs and regulate foreign commerce. The problem has been the limited opportunities for Congress to do so. The USMCA presents just such a chance. On the essential issue of whether to enter into and whether to exit as important a trade agreement as the one with our two largest trading partners—Canada and Mexico—Congress should insist on playing a central role.  It should make it clear that the president does not have the authority to act without the express authorization of Congress.

Guest Post on the Appellate Body

This is a guest post from law professor Wolfgang Weiss

The Appellate Body is dead - long live the WTO! What will happen with the enforcement of WTO law after the Appellate Body's ability to work has ceased - hopefully not permanently -?

The end of the Appellate Body's ability to function immediately triggers the question of how compliance with WTO law can now be enforced, since all future panel decisions can now be made void by lodging an appeal ("appealed into the void"). The Director General of the WTO has asked the members not to use this situation to introduce new protectionist measures. But such call alone is not enough to ensure compliance with WTO law. The New Green Deal just announced by the EU and its implications for trade law could be a first sign that Brussels could seize the opportunity to take measures against imports that offset their competitive advantages resulting from lower environmental standards in their home country, but whose WTO compliance is uncertain, at least controversial, in order to facilitate the implementation and enforcement of an undoubtedly laudable objective. You might think that you do not have to worry about this as much as before.

In this post, I would therefore like to consider a few alternative ways - especially within existing structures - of strengthening compliance with WTO law even after the AB´s impasse.

First of all, there is the path already taken by some to replace the AB with an arbitration procedure pursuant to Article 25 DSU by bilateral agreements. This requires an abundance of bilateral agreements between WTO members. Second, within the framework of bilateral trade agreements, specific dispute settlement mechanisms are available which can now be used more often by the states, as the EU is already doing. In principle, these mechanisms are perfectly suitable as a substitute for WTO dispute settlement. Very rarely do these agreements give priority to WTO dispute settlement, and even then the parties can deviate from it. The use of the FTA DSM could become difficult if a WTO dispute settlement procedure is already in place with regard to substantially equivalent obligations. But the AB's dysfunctionality could be referred to in order to lift the ban caused by such a fork in the road clause in this instance. Formally, the panels provided for in the FTA DSM do not decide on WTO law but on the FTA rules, but in the area of trade in goods in particular the basic lines of these rules are very close to the WTO basic principles in the GATT and in TBT and SPS, so that ultimately obligations are enforced which could also have been the subject of WTO dispute settlement. However, this only helps those trade relations that fall under trade agreements.

Another way to be contemplated would then be to consider whether the Trade Policy Review Mechanism offers a suitable structure for reminding states of their obligations under WTO law more stringently than before. The TPRM's task was not - and cannot be in the future - to examine individual measures of states for their WTO conformity. However, the criticism of some state regulations with regard to the relevant WTO requirements could be clearer in the future. However, this approach does not achieve much, since the TPRM only carries out the examination in a fixed cycle and in a fixed order, so that it cannot be carried out on a case-by-case basis and cannot respond to most recent challenges to WTO rules.

Other ways of institutionally strengthening compliance with WTO law therefore may seem much more promising:

Since the WTO members now know about the possibility of an "appeal into the void", they could agree by agreement at the beginning of a WTO dispute settlement procedure to dispense with an appeal. Such procedural rules already were sued with regard to the sequencing problem. This figure could also serve to define from the outset the recognition of a panel report as the final one. However, many will not be prepared to agree to this, even if it does have a certain incentive effect for both sides at the beginning, i.e. at a time when neither party knows what the outcome of the procedure will be.

Another recommended course of action for WTO members could be to make greater use of the path of good offices, conciliation and mediation provided for in Article 5 DSU. Towards the end of the consultation phase, a complainant may consider, instead of pursuing a panel procedure that would ultimately lead to nothing, to go down this path in order to bring the other party into a permanent dialogue on the issues at stake. But that also requires the willingness of the other side. Institutionally, the attractiveness could be strengthened by using the possibility for the Director General to offer his services (Art. 5 para. 6 DSU) as a rule (already provided for in Art. 24 para. 2 DSU for the LDCs) and by the WTO coming up with more suitable structures than previously provided for in communications by the Director General in order to stimulate this function, in particular by abandoning the previous renunciation of any legal conclusions. The conciliation and mediation could at least contribute to clarifying which regulations are relevant and what the line of the WTO dispute settlement has been so far in this respect, in the sense of a legal stock-taking.  However, it must be acknowledged that the greater use of Art 5 DSU may promote the settlement of disputes, but admittedly not automatically compliance with WTO law. The stimulation of this way would shift the WTO dispute settlement again somewhat more in the direction of diplomatic negotiations, as under the GATT 1947.

However, the central question seems to me to be what repercussions the inability to work of the AB has on the decisions of the panels, beyond the fact that the parties are likely to become even more demanding in their selection of panelists. For the panels, it is to be expected that they may and should try to further develop their reports in a way that resolves the dispute in a mutually acceptable, if not convincing way. The reasoning of the reports may deal with the arguments of the parties in even more detail and make much greater efforts to present and explain the panel´s position convincingly to the parties. Compliance with AB decisions on relevant issues may no longer play the central role it has played so far. Panels can now move more freely. It will be much more important to appease the parties than to adopt the AB's opinion. In substantive terms, this may imply exploring more thoroughly the room for manoeuvre that WTO law offers for respecting national policy decisions and, for example, softening the very strict requirements when examining the justification of Art XX GATT´s chapeau. Procedurally, the interim review phase might become even more important, and the duration of panel proceedings longer. In this way, compliance with WTO law could be strengthened, but WTO law could also be developed in a way that widens the scope for national action. This would perhaps help address some criticism of the AB, but carries the risk of a more inconsistent jurisprudence which we will see anyway. The panels are not well-advised to apply a somehow petrified WTO law, frozen at the state of play (i.e. standard of interpretation developed by the AB) at 10^th December 2019.

The Labor Rights Rationale to Approve the USMCA

The Labor Rights Rationale to Approve the USMCA

Steve Charnovitz

13 December 2019

Three days ago, the US, Mexico, and Canada completed talks to update the renegotiation of the North American Free Trade Agreement (NAFTA) that had begun in 2017 and had been touted as having succeeded in 2018.  During the past three days, the trade community has perused the most recent version of the United States-Mexico-Canada Free Trade Agreement (USMCA) and widespread support within the United States (US) has been announced for the new agreement.  Although in recent decades, free trade agreements (FTAs) have been a highly polarized issue in US politics, the new USMCA has drawn public support from across the spectrum — Republicans and Democrats, business and unions.  Pulling this off is a notable political achievement for the Trump Administration. 

On purely trade grounds, the United States would be better off if the US Congress rejected the USMCA in favor of just keeping the NAFTA.  The USMCA is a mixed bag of pro-trade and anti-trade features. On the plus side, the USMCA expands FTA disciplines, reduces Canadian agricultural protection, and fixes the main procedural flaws in NAFTA's dispute settlement.  In view of the successful attacks on WTO dispute settlement by the Trump Administration culminating this week in the destruction of the WTO appellate court, assuring the viability of the NAFTA dispute mechanism has grown in importance.  On the minus side, the USMCA guts investor protections, subjects USMCA to automatic termination after 16 years, and enshrines a highly protectionist condition for automobile trade by requiring that certain value added be produced by workers earning at least $16 an hour.  Given that $16 an hour is 221 percent of the US minimum wage, the condition is purely protectionist and has nothing to do with worker rights.  Another problem is that one of the best features of the NAFTA, the acknowledgement of a North American economic, social and environmental community, is now dropped.  By crossing out the "North American" name, the three governments are recasting the FTA into a purely transactional exercise and are digging up the promises planted in 1992 of building continental solidarity.

Recognizing the benefits of just staying loyal to the NAFTA, President Trump has put his thumb on the scale by threatening to pull the US out of the NAFTA if his USMCA is not approved.  Although some analysts have argued that Trump does not have legal authority to pull the US out, I believe that the President does have that authority. A utilization of that Presidential authority would surely be challenged in federal court and given the present volatile legal climate, I would imagine that there would be at least one litigant who could find at least one federal judge to enjoin such a US departure.  But in the end, US courts would uphold Presidential authority to quit a treaty in the absence of a federal law to the contrary. The costs of a US exit from NAFTA multiplied by the probability of its occurrence generates an additional reason to support the USMCA that, for me, puts the go or no-go choice on USMCA in equipoise. 

The new labor rights provisions added to the USMCA change the equation and provide a solid reason to go with USMCA over NAFTA.  The weight that I give to the labor aspect of the USMCA, no doubt, reflects the fact that for most of my career, I have been engaged as a US government official or as a scholar in developing or exploring the labor dimension to international trade agreements.  As an International Relations Officer serving in the US Bureau of International Labor Affairs (ILAB) beginning in 1978, I developed an expertise on the labor-trade connection that in 1983 launched me onto the beachhead of the first US government initiative to lift labor conditions in particular countries as part of a trade liberalization negotiation.  That was the Caribbean Basin Initiative (CBI) which for the first time included a labor condition in US legislation for extending preferential trade benefits.  I credit former Congressman Charles Rangel for originating those provisions. 

In 1983, I served on the US team that negotiated labor law and practice improvements with Haiti, the Dominican Republic, El Salvador, and Honduras.  I inhaled first-hand the lesson that governments with entrenched labor rights violations would put those issues on the table in order to receive trade benefits.  The numerous labor rights concessions promised by those governments were chronicled in an article I wrote at the time, "Caribbean Basin Initiatives: setting labor standards," Monthly Labor Review, Nov. 1984, https://www.bls.gov/opub/mlr/1984/11/rpt5full.pdf.  I thank the two co-heads of that US delegation, Ambassador Robert Ryan and Assistant US Trade Representative Jon Rosenbaum, for supporting my efforts as labor specialist on the US negotiating team, including my investigation of worker rights violations in those countries. 

The positive US experience with the labor condition in CBI catalyzed the incremental expansions over the next 36 years in the labor rights aspirations of future US trade laws and FTAs.  Next up was the inclusion of labor conditions in the revision of the Generalized System of Preferences (GSP) in 1984.  I credit former Congressman Don Pease for originating those provisions.  Then in 1988, Pease championed the addition of a "worker rights" objective to US trade law for bilateral and multilateral trade agreements.  This was an important development because it converted worker rights from an obligation that the US imposed on other countries (e.g., CBI) to a mutual obligation between the US and other FTA party.  Although this worker rights objective was not attained in the NAFTA negotiations in 1992, Presidential candidate Bill Clinton promised to address that omission.  In 1993, the Clinton Administration negotiated a NAFTA side agreement on labor. In 2000, the Clinton Administration negotiated an article on Labor to be included in the Jordan-US FTA.  The expiration of fast track trade negotiating authority did not get fixed during the Clinton Administration, but in 2002, the Congress passed new negotiating authority that contained stronger and more specific worker rights negotiating objectives.  These objectives were used in subsequent FTA negotiations such as the Dominican Republic- Central America Free Trade Agreement.  In May 2007, the Bush Administration and Congressional leaders reached the so-called "Bipartisan Trade Deal" that established a template for incorporating internationally-recognized labor principles into new trade agreements.  The Bush Administration modified three recently negotiated FTAs — for Colombia, Korea, and Panama — to include these new labor principles, but the agreements did not progress to ratification.  The Obama Administration kept these FTAs on the shelf for two years, but in 2011 sent the FTAs to the Congress for approval which was quickly obtained.  For Colombia there was an accompanying Action Plan for labor; for Panama, that government undertook certain labor domestic actions; and for Korea, the Obama Administration demanded some dilution of the free trade provisions.  Although candidate Obama had campaigned in 2008 on the promise to renegotiate NAFTA's provisions on labor, he did not do so during his eight years in the White House.  That failure provided a springboard for candidate Trump to decry the labor aspects of NAFTA as part of Trump's overall sharp criticism of the NAFTA.  Upon entering the White House, Trump and his trade team began the NAFTA renegotiations that culminated in the new labor provisions announced earlier this week.  

When I negotiated the CBI's labor requirements in 1983, the pushback I received from every CBI country was that it was hypocritical of the US to ask other countries to honor freedom of association and labor union rights when the US had refused to ratify the Freedom of Association Convention (No. 87) of the International Labour Organization (ILO).  The gap between US practice and US negotiating demands was troubling to me.  The ILO's Freedom of Association Convention is the most fundamental of ILO conventions.  Adopted in San Francisco in 1948, the Convention was sent by President Truman to the US Senate in 1949 for approval.  For over 70 years, the Senate Foreign Relations Committee has not found the time to hold a hearing on this core convention that has now been ratified by 155 countries (including Canada and Mexico).  Even self-styled internationalists who have chaired the Senate Foreign Relations Committee, such as Senators John Kerry, Joe Biden, and Richard Lugar, have shown no interest in signing onto freedom of association.  I discussed this Senate pathology in an essay in the American Journal of International Law in January 2008 titled "The ILO Convention on Freedom of Association and its Future in the United States" available at https://www.cambridge.org/core/journals/american-journal-of-international-law/article/ilo-convention-on-freedom-of-association-and-its-future-in-the-united-states/D17C8AD77C08056153A8C0673E949B11.

Although the first best approach for the United States to adhere to internationally recognized worker rights is to ratify ILO conventions, the inclusion of labor commitments in US trade agreements constitutes a second-best approach.  In international law, it doesn't matter whether a country's commitment to a particular human right appears in a Treaty on X or a Treaty on Y.  So I have often spoken out in favor of using trade agreements to commit the US government to take on new national commitments in support of internationally recognized worker rights.  For example, see my article, "The U.S. International Labor Relations Act," ABA Journal of Labor & Employment Law, Winter 2011 at https://www.jstor.org/stable/41320580?seq=1#metadata_info_tab_contents.  For those reasons, I was delighted to see how the Trump Administration is pushing the envelope forward so as to expand US commitments in international law in favor of worker rights.

Chapter 23 of the USMCA addresses labor and contains numerous obligations for the United States.  These US obligations extend only to the federal level, not to the state level.  Under this Chapter, Mexico and Canada would be able to bring cases against the US for violations of the labor rights set out in USMCA.  The prospect of establishing US accountability is important because although complaints against the US are sometimes brought in the supervisory mechanisms of the ILO, when the ILO finds a US violation, the ILO has no enforcement mechanism against the US.  In contrast, the USMCA would give Mexico or Canada an enforcement mechanism to levy trade sanctions against the US should the US be found to be out of compliance with Chapter 23 and to fail to correct that violation. 

Numerous USMCA provisions impose new international requirements on the US that the US might not always meet: 

1. Article 23.3(1)(a) requires the US to adopt and maintain freedom of association and the effective recognition of the right to collective bargaining. Helpfully, this provision clarifies that "the right to strike is linked to the right to freedom of association, which cannot be realized without protecting the right to strike." No such clarification existed in previous US FTAs whether ratified or unratified.
2. Article 23.3(1)(d) requires the US to adopt and maintain the elimination of discrimination in respect of employment and occupation.
   
   
3. Article 23.5 requires the US not to fail to effectively enforce its labor laws through a sustained or recurring course of action in a manner affecting trade or investment. The newly revised USMCA provides a rebuttable presumption that a failure to comply does affect trade or investment.
   
   
4. Article 23.6 requires the US to prohibit the importation of goods produced by forced or compulsory labor.
   
   
5. Article 23.7 (Violence Against Workers) requires the US to not fail to address "cases of violence or threats of violence against workers" related to the exercise of labor rights (in a manner affecting trade or investment with the same presumption above).
   
   
6. Article 23.8 (Migrant Workers) requires the US to "ensure that migrant workers are protected under its labor laws ...." This requirement might be of particular interest to Mexico.
   
   
7. Article 23.9 (Discrimination in the Workplace) requires the US to implement policies "that it considers appropriate to protect workers against employment discrimination on the basis of sex (including with regard to sexual harassment), pregnancy, sexual orientation, gender identity and caregiving responsibilities ...." Many aspects of this provision are unclear in the text.  Since this provision is addressed to "policies" rather than to laws, the provision may have applicability to federal policies regarding states and cites. Another puzzle is the enigmatic footnote to this provision which states that this Article "requires no additional action on the part of the United States" in order for the US to be in compliance.  The phrase "that it considers appropriate" would seem to suggest more of a subjective rather than an objective legal standard. 

The FTA's statement about worker strikes is consistent with the jurisprudence of the ILO Committee on Freedom of Association and with the Committee of Experts, but may be inconsistent with the views of the US and international employer community as to the normativity of a right to strike under international labor law. Within the US legal system, this provision could be read as stating that there is federal right to strike embedded in freedom of association.  The US National Labor Relations Act is interpreted as providing for a right to strike, but the Act as applied puts limitations on the right to strike.

The newly revised USMCA also contains a new Annex 31-A which would allow an international panel to make a Rapid Response on-site verification of certain covered company facilities within the US on the basis of allegations from one of the other governments that the facility is denying the rights of workers.  Only US facilities under an NLRB order would be covered. Based on the findings of this independent panel, the complaining government might gain the right to impose “penalties" on goods or services or a denial of entry.  On 12 December, Professor Kathleen Claussen posted a very helpful analysis of this provision as well as the other USMCA labor provisions. 

I have no idea whether either of the USMCA governments would ever bring a labor case against the US.  Except in the area of trade remedies, the USMCA, like the NAFTA, fails to provide any private right of action to bring cases against governments.  Providing such a private right of action would be a much more effective way to enhance worker rights than expecting governments to lodge cases against each other.

In summary, the willingness of the Trump Administration to add strong worker rights to US obligations under USMCA is remarkable and has induced me to support US ratification of this labor-related trade treaty (or perhaps trade-related labor treaty).

 

 

 

 

Is the European Union Outsourcing Public International Law to Save the WTO Dispute Settlement System?

Upon the Appellate Body having being paralyzed, the European Commission has promptly moved to secure its trade interests by arming itself with the retaliatory power, also creating the position of “Chief Trade Enforcement Officer.”  The Commission’s proposal is reminiscent of Nicolas Lamp’s earlier post on the threat of unilateral retaliation to keep the WTO dispute settlement system alive.

As far as the WTO is concerned, the proposal allows the Commission to impose penalty tariffs on a WTO member that lost at a panel stage but refuses to comply with the appellate arbitration mechanism under DSU Article 25 and instead appeal “into the void” to prevent the panel report from being adopted.  Interestingly, the Commission justifies such unilateral retaliation as a “countermeasure” under the “Draft Articles on Responsibility of States for Internationally Wrongful Acts.”  This is what the Commission argues in this regard:

[W]here the responsible party fails to cooperate in good faith in the dispute settlement procedures, thereby preventing the injured party from completing such procedures, the possibility to resort to countermeasures in accordance with the requirements of general public international law necessarily revives. The International Law Commission notes that the revival of that possibility arises when one Party “fails to implement the dispute settlement procedures in good faith” or “where a State party fails to cooperate in the establishment of the relevant tribunal”.

Would this kind of “threat” from a big trading bloc induce other WTO members into buying the proposed appellate arbitration mechanism?  What about the United States?  Obviously, a retaliatory measure may invite another one, and that’s what a trade war is all about.