International Economic Law and Policy Blog

Schweikert-Tai Exchange on WTO Dispute Settlement

At today's House Ways and Means Committee hearing on the Biden administration's trade policy agenda, Congressman Schweikert and U.S. Trade Rep. Katherine Tai had the following exchange on WTO dispute settlement:

Congressman Schweikert:

I owe you a thank you for all your work in helping Mr Kind and those of us who are interested in the WTO, we'll call it resolution. But this becomes one of those moments now that you're behind that dais. If you were redrafting it again today, would you draft it differently?

Ambassador Tai:

Well that's a great question, Mr Schweikert, and I could probably write you an essay about this but I know we've just got a little time. So, let me say this. We can't go back in time, but today where we are in 2021, yes, I think that the fundamentals of the WTO itself needs reform and needs to reflect the realities of today.

Congressman Schweikert:

... for many of us here, and Representive Kind and his staff, we've had this running conversation. It's both the adjudicatory body ... but for many of us in particular, it's speed. I actually, truly believe in the coming decade, the disputes are going to be on things from synthetic biology, to things that are truly cutting edge but very disruptive to the economy. But speed will be crucial, and you can't have a decade of the games going back and forth, and by the time you actually come to a decision, the economics of the dispute are gone.

... What can we as members of Congress do to help the argument that the reforms of the WTO also have to be about the timelines, these timelines can't be a decade anymore.

Ambassador Tai:

Congressman, I think that the number one thing that you can do is what you're doing right now which is to be deeply engaged, it matters so much for US leadership and US participation at the WTO, for the WTO and its members to know that the United States cares, that it's not just USTR, it's not just the executive, but that US participation and leadership is backed up by Congressional interest and Congressional requirements.

With respect to the dispute settlement system, I hear you on speed. The large civil aircraft cases, Boeing - Airbus, that we've had, were first launched in the mid 2000s. That is part of what is motivating me in really putting the nose to the grindstone with the European Union to try to resolve these cases now. It's in part to show that all of this time has led to something, that this hasn't been just a colossal waste of time.

I think that there are other aspects to dispute settlement that we really need to think about and we really need to think holistically about dispute settlement, not just as one part of the WTO, but one key component, that is important for itself, but that also directly impacts the other part, which is the negotiating function. As strong as the dispute settlement system has become, it has taken a long time, it has become very active, we have also seen an atrophying of the negotiating function. These two things are connected.

Congressman Schweikert:

But is there a way, I mean there's some articles out there that talk about everything from a a quick ruling and escrow, then continued dispute, something it forces more pressure, more value for actually the negotiations to come to a close, and do we need to produce some mechanism that creates almost a leverage that you will negotiate in good faith to a final decision, instead of the game that appears to be going on now, where make it take forever, and at that point, if it's an IP type case ... , the value of it has already faded away.

Ambassador Tai:

I like the way you're thinking about it, and I would really like to continue to work with you and others on this committee on some of these ideas. 

I have a couple comments here.

First, I sometimes hear people say that WTO dispute settlement has undermined WTO negotiations. I haven't seen evidence of that, though, and WTO negotiators I have asked about this have been skeptical. It seems to me that the main reason for the failure of WTO negotiations in recent years has been the growing number of assertive Members, and the unwillingness of many key governments to compromise, and the difficulty this creates for reaching agreement.

And second, some suggestions for speeding up WTO dispute settlement from Jim Bacchus and me are here.

Katherine Tai on the USMCA Rapid Response Labor Mechanism Developments

U.S. Trade Rep. Katherine Tai testified in front of the Senate Finance Committee today on the Biden administration's trade agenda. She was asked about the USMCA rapid response labor cases I noted in my previous post:

Senator Brown:

Let me talk about what you would expect me to ask about, the Brown-Wyden rapid response mechanism. During your confirmation hearing, you committed to fully enforcing the USMCA agreement with Brown-Wyden. Today under your leadership, for the first time, self initiated an enforcement case under that mechanism. Thank you for that. We have now two Brown-Wyden cases, as you know. I'd like to ask you two or three questions, I'll ask them together and just get you talking a little more about Brown-Wyden, to explain it to people, how it's working, a sense of how many cases we might expect under this mechanism, some sort of ballpark estimate, talk to me about how the hotline works if you would, how do workers file complaints, do you take tips and come in through the hotline seriously, and tell me what does full use of the Brown-Wyden mechanism look like to you in the months and years ahead.

Ambassador Tai:

... On the Brown-Wyden rapid response labor enforcement mechanism, let me just distinguish a little bit between the two announcements this week.

The first one was a petition that was filed by the AFL CIO in partnership with several other labor organizations. That is the very very beginning of a petition process, and as constructed, there is a 30 day period during which USTR, working with the Department of Labor, will review that petition for whether follow up is needed, and whether USTR should then request Mexico to review whether a denial of rights has happened.

In the second case that has been initiated today, that was self initiated, and as you've noted, that is USTR initiating the request to Mexico today that will start the next timeline under the mechanism that's been created.

In terms of the tips and hotline and taking in information from people with experience of what's happening on the ground at some of these facilities, absolutely we take that information extremely seriously. 

 

USMCA Labor Complaints Are Heating Up

On Monday, the AFL-CIO and some other groups announced the filing of a petition under the USMCA rapid response labor mechanism (for background on this procedure, see Kathleen's post here). Now today, USTR announced that it has initiated a request for review under that mechanism on a different matter:

United States Trade Representative Katherine Tai today announced that the United States has asked Mexico to review whether workers at a General Motors (GM) facility are being denied the right of free association and collective bargaining.  The request is the first time any country has used the novel Rapid Response Labor Mechanism in the United States-Mexico-Canada Agreement (USMCA). USTR and the Department of Labor received information appearing to indicate serious violations of these workers’ rights in Silao, State of Guanajuato in connection with a recent worker vote, organized by the existing union, to approve their collective bargaining agreement. 

We'll be covering these issues on WorldTradeLaw.net. (For DSC subscribers, our list of USMCA labor petitions is here). I don't see the U.S. request for review in the GM case yet, but hopefully the relevant documents will be made public at some point.

UPDATE: The request for review is here.

Call for papers for ESIL-supported colloquium on ‘International Investment Law & New Technologies’

This is from the Tilburg Law and Economics Center (TILEC):

The Tilburg Law and Economics Center (TILEC) at Tilburg University (the Netherlands) is hosting a Colloquium on ‘International Investment Law & New Technologies’ which will take place on 9 and 10 December 2021 in Tilburg, the Netherlands.

The Colloquium on ‘International Investment Law & New Technologies’ is jointly organized by TILEC; Athens Public International Law Center (Athens PIL) of the National and Kapodistrian University of Athens School of Law; and Hamad Bin Khalifa University (HBKU) College of Law (Qatar).

The call for Papers can be found HERE. Deadline for submissions: 28 May 2021 

Call for Papers: 2021 CELIS Forum on Investment Security 1-3 December 2021

This is from Prof. Dr. Steffen Hindelang and Mr. Jens Hillebrand Pohl, inviting contribution from followers of this blog:

 

Call for Papers: 2021 CELIS Forum on Investment Security

1-3 December 2021

 

The 2021 CELIS Forum on Investment Security will be held in Warsaw from Wednesday 1 December until Friday 3 December 2021.

 

The 2021 CELIS Forum will address:

 

“The Emerging Law of Investment Control in Europe: Screening, Sanctions and Subsidies”.

 

“…Overhauling existing, introducing new investment control regimes…”

2020 was a watershed moment in the history of European investment control. The entry into full effect of Regulation 2019/452 not only elevated investment screening to a top priority in the EU’s common commercial policy, but it also set in motion a process of reform at the national level. Some Member States overhauled their existing, in part antiquated, laws on investment screening. Others introduced new investment control legislation. On the eve of its first anniversary, what are the early lessons of Regulation 2019/452 and the new EU investment screening framework it established?

 

“…From the New Industrial Strategy for Europe to Strategic Autonomy…”

Meanwhile, the new self-proclaimed “geopolitical” European Commission of Ursula von der Leyen came to office. It launched the ambitious twin policy agenda of the green and digital transitions, coming together in the “New Industrial Strategy for Europe”.  Rather than throwing this new policy agenda off course, the Covid-19 pandemic led to many of the policy initiatives being fast-tracked. At the same time, the pandemic highlighted the role of public health as a paramount societal interest and critical health infrastructures, critical medical supplies and critical health technology as essential strategic interests. “Strategic autonomy” became the catchphrase that encapsulated Europe’s desire to remain resilient against threats to European security and public order, whether man-made or of natural origin. Can we detect an expanded “soft security” concept as a “new grand narrative” to link climate change and sustainability with public health and perhaps other matters of ordre public, such as public morality, public order and public security? Is the Covid-19 trauma giving rise to a new doctrine of “Europe qui protège”?

 

“…Foreign take-over of EU companies financed with third-country subsidies…”

In a parallel development, in July 2020, the Commission presented the White Paper on Foreign Subsidies, which outlined a comprehensive approach to ensuring that the EU would no longer be on the receiving end of alleged unfair practices in the area of trade and investment. The White Paper envisioned a policy blueprint addressing distortions of competition caused by foreign subsidies facilitating the acquisition of EU companies. The White Paper seeks to ensure that foreign subsidies do not confer an unfair benefit on their recipients when acquiring (stakes in) EU companies, either directly by linking a subsidy to a given acquisition or indirectly by de facto increasing the financial strength of the acquirer. Under this initiative, the Commission would review acquisitions of EU companies by third-country companies benefitting from financial support of a non-EU government, above a given threshold. If the acquisition is facilitated by the foreign subsidy and distorts the EU Internal Market, the Commission could either accept commitments by the notifying party that effectively remedy the distortion or, as a last resort, prohibit the acquisition. Are we moving towards using investment control as a means to address global economic distortions and can this be linked to the concepts of resilience, strategic autonomy and economic security?

 

“…Economic sanctions in geoeconomic conflicts…”

Throughout the past year, the use and importance of EU restrictive measures (sanctions) as a foreign policy tool continued to grow. With geopolitical tensions rising and unresolved geoeconomic conflicts growing ever more infected, particularly as between the United States and China, economic sanctions retained their central role in foreign and security policy. Europe too came under the threat of sanctions by its longstanding and closest partner, the United States, with attention focusing on the EU’s relationships with Iran and Russia. The effect, including the chilling effect, on foreign investments of the ever more widespread use of economic sanctions added yet another dimension to the increasingly complex investment environment. Is the regulatory and legal asymmetry between various forms of investment, payment and capital mobility restrictions necessary and desirable? What parallels and lessons can be drawn from sanctions caselaw in the area of investment screening?

 

*          *          *

 

These broad strands of development raise the prospect of re-cast notion of the law of investment control, spanning not only general and sector-specific FDI screening in a strict sense on grounds of security or public order, but also “subsidies-screening” as proposed in the Commission White Paper on grounds of equality of competitive opportunities in international economic relations and, furthermore, investment control by way of economic sanctions. Can the outlines of such a composite conception of investment control regulation be defined?

 

To address the main theme of the CELIS Warsaw Forum, three sub-themes will be further explored:

 

• New European Security: Health Security, Climate Security, Digital Security. The concept of “security” lies at the heart of investment screening. The Covid-19 pandemic, the European Green Deal, and the EU’s digital strategy parallel notions that have been analysed in the area of security studies. At its core, security denotes the ability to prevent, withstand, and recover from (i.e. resilience against) harmful potential behaviour of others. As such, security goes beyond the traditional notion of military security to other areas of societal vulnerability and threats to the orderly functioning of a state, including economic security, food security, cybersecurity, health security, climate security or environmental security, to name a few. Europe’s current core priorities should focus attention on the particularities applicable to the security dimension of those priorities.

 

• Promoting Investments and Strategic Autonomy: Essential Resources and Critical Capabilities. The developments of 2020, notably the Covid-19 pandemic, has highlighted Europe’s potential and actual supply-side vulnerabilities and the importance of supply-chain resilience and access to critical resources and capabilities, as exemplified by the early experiences of personal protective equipment supply disruptions and the problems associated with vaccine delivery. While reshoring of supply chains may in some cases be warranted for reasons of political risk management and strategic operational resilience, taking such factors into consideration may come at an economic cost. This raises the question of how to facilitate strategic investments and whether some offsetting benefits may be required in that regard.

 

• Defence Against Investments Made in Pursuit of Geoeconomic Statecraft and Organized Crime.  Viewed holistically, the rules restricting third-country investments into the EU and their enforcement are highly uncoordinated and incoherent, both at the EU and national levels. This leaves the EU and its Member States ineffective and vulnerable to regulatory arbitrage. Assuming that this state of affairs is not intentional, how can loopholes and inconsistencies in EU investment control regulation be tackled? How can investment control be made more efficient, transparent, swift and predictable, so that unproblematic investments are not negatively impacted, while effectively addressing problematic investments? How can enforcement of investment control be made more effective and consistent?

 

The Organizing Committee welcomes original contributions in the form of submission of proposals for papers addressing the theme and sub-themes above. In addition, submissions are invited on any of the following topics:

 

1. Multiplying instruments for investment control: screening, sanctions and subsidies
2. Sustainability screening: climate change and investment control
3. Digital sovereignty and investment screening: data, media and freedom of speech
4. Health security: Covid-19 implications for screening mechanisms in the Member States
5. Threat analysis and the concept of security in practice, including the nature of threats to security and public order, subjects and objects of threat and approaches to threat analysis
6. Administrative process in connection with investment screening, anti-subsidies enforcement and sanctions, including the application and limitations of fundamental principles of administrative process and the role of mitigation
7. Investment screening in the context of state-owned enterprises (SOEs) 
8. Interaction between investment screening and financial supervision
9. Investment screening and dispute resolution, including the nature and availability of recourse against screening decisions, and the scope and standard of review
10. Investment screening, investor-state dispute settlement (ISDS), and security exceptions
11. Conformity of screening mechanism with international law / EU law / OECD codes.
12. Are Member State screening mechanism converging, because of Regulation 2019/452 or for any other reasons?

 

Submission Procedure and Instructions

Paper proposals, including abstracts of no more than 500 words and the speaker’s contact details and bio-note or CV (including current main affiliation, relevant experience, and pertinent publications, as well as date of affiliation with the CELIS Institute, if applicable), must be submitted by

 

Monday, 31 May 2021 (midnight CEST) via the dedicated web-form, available at www.celis.institute.

 

Every proposal will be reviewed on a double-blind and confidential basis. In evaluating proposals, please note that priority will be given to unpublished papers and works in progress. The Organizing Committee anticipates announcing the results of this call for paper proposals by Tuesday, 15 June 2021.

 

Applicants whose paper proposals are selected should be prepared to submit draft papers (no more than 5,000, including footnotes) by Friday, 1 October 2021.

 

Conference papers will be made available to conference participants prior to the conference. The conference proceedings and the papers presented at the conference, will be summarized in the conference report, the CELIS Investment Security Report, to be published shortly after the conference. In addition, the organizers consider publishing papers presented at the conference either as a special issue in a leading journal or as an edited volume published by a leading academic publisher. In the selection of proposals, preference will be given to those interested in publication. Willingness to submit a paper should be indicated in the response to this Call for Papers. Speakers whose paper proposals are selected should be prepared to submit draft papers (between 5,000 and 10,000 words, including footnotes) by Monday, 31 January 2022. All proposals and finalized papers must be written in English.

 

Conference Fees

Speakers whose paper proposals are selected are expected to register for the conference. The applicable registration fee is EUR 120 (CELIS Fellows receive a waiver).

 

Hybrid Format

The conference will be held in a hybrid format, with speakers and some participants joining a live on-site meeting and other participants and some speakers joining virtually. The number of on-site conference participants will be restricted in accordance with applicable health regulations in force at the time of the conference. Participants who wish to keep an option to join on-site should indicate this on the registration form. Option requests will be queued on a first-come, first-served basis. The conference organizers will be in touch regularly regarding the availability and relevant number of live seats.

 

Contact

Please submit enquiries to events@celis.institute.

 

The Organizing Committee: Konrad Czech Steffen Hindelang, Marek Jaśkowski, Szymon Pawłowski, Jens Hillebrand Pohl

 

About the CELIS Institute

The CELIS Institute is an independent non-profit, non-partisan research enterprise. It is dedicated to promoting better regulation of foreign investments in the context of security, public order, and competitiveness. We produce expert analysis and foster a continuous trusting dialogue between policymakers, the investment community, and academics. The CELIS Institute is the leading forum for studying and debating investment screening policy.

The CELIS Institute’s activities focus on policy-oriented analysis through its publications and events organised around the flagship CELIS Forum on Investment Security and conference publication CELIS Investment Security Report. The CELIS Knowledge and Research Hub hosted on the CELIS Institute website www.celis.institute is the most comprehensive and up to date online tool available for foreign investment screening. Through its network of Country Reporters, the Institute provides full coverage of EU and global screening regimes, including legislation, guidance, court judgments, summaries, academic articles, policy briefs, and is updated up to several times a day. The Hub provides news updates in this rapidly developing area, a target search tool, an FDI screening map, and other resources including podcasts.

Biden Makes Another Good Trade Appointment in Thea Lee

The Biden Administration has appointed Thea Lee to be the Deputy Under Secretary for International Labor Affairs.  This is a thoughtful appointment to an agency that has had an important trade role for at least six decades.  I wish her good luck in having the labor voice heard in the policy arena. I worked in that Bureau for about nine years in the 1970s and early 1980s and I often found it difficult to get DOL's position heard at USTR, State, and Commerce. I hope that the Biden Administration gives Thea Lee ambassadorial rank in her work with the ILO as the Reagan Administration did with Bob Searby.  

 

https://www.foxbusiness.com/politics/biden-administration-to-name-thea-lee-to-top-labor-department-slot  

I commend the new essay in Barron's by my colleague Susan Aarsonon "How Nations Can Build Online Trust Through Trade". Her scholarly contributions to the development of effective trade policy are always enlightening.

https://www.barrons.com/articles/how-nations-can-build-online-trust-through-trade-51620139281?mod=hp_COMMENTARY_4

My Take on the Vaccine/TRIPS Waiver Issue: Buyout Pharma Now, Rebalance the IP System Later, and Meh on the Waiver

After almost two days of intense discussion on Twitter and elsewhere, here's where I am now on the issue of vaccine production and the TRIPS waiver. The most important point here is whether additional factories around the world could produce vaccines. In order to do so, they would need to have licensing deals with the pharmaceutical companies who have the patents and the know how to make the vaccines (obviously, the situation of the mRNA vaccines and the more traditional ones is a bit different). There seems to be a factual debate on whether, or to what extent, other factories would actually have the capability to do this production. I haven't seen anything definitive about what's possible here, but if it can be done at all, we need to make it happen as soon as possible. 

So how to make it happen? It seems to me the quickest way is to pay Pharma a lot of money to get them to go along with it. People keep throwing out $100 billion as a figure, and that's a nice round number I can get behind, but the precise number doesn't matter too much. Whatever it takes.

I suggested this Pharma buyout plan to a progressive friend of mine, and this person seemed reluctant. I understand that Pharma already has made a lot of money here, and that there may be options that involve something more along the lines of governments taking the technology from Pharma. There are a number of problems with this approach, however, one of which is that it will be slower than a buyout. People are dying and we need to act fast.

I think people are aware that I'm a skeptic on IP protection. In my view, it goes too far in many ways at the moment (e.g. this). However, while rethinking the balance of the IP system is important, we can't do it right now. Again, people are dying and we need to act fast. When the pandemic is over, I'm all for a reconsideration of patent policies in general and how they relate to medicines in particular. (Bryan Mercurio and I tried to raise these issues a year ago, but didn't get much traction.)

What about the TRIPS waiver? I don't object, but I'm not sure it adds much to the existing exceptions and flexibilities. Does a TRIPS waiver give a bit more leeway to governments who want to do something that might not be in accordance with TRIPS? I guess it does. But WTO dispute settlement probably isn't a practical option for preventing governments from acting here anyway (even putting the Appellate Body crisis aside), and I'm not convinced that WTO rules are a real barrier to action. The key issue is the positions of the U.S. and other wealthy governments. If they will push for more licensing, we are in good shape, regardless of what is happening at the WTO.

Now, if the waiver is more of a negotiating tool for the talks governments are having with Pharma, it makes a little more sense to me. If that's what the big shift in the U.S. position on the waiver was designed for, I get it and I hope it helps get us to some more licensing arrangements. But it would be crazy, in my view, to wait for the waiver to be signed before pushing Pharma to do more licensing, as some news articles today seemed to imply would be the case. The talks with Pharma should be the priority. The WTO is a great place to discuss the big picture policies, but what's needed now is for governments, who are the ones with the power, to act.

SIEL Conversation on Indirect Expropriation in International Investment Law

From the SIEL:

SIEL May Conversation

The Society of International Economic Law (SIEL) is pleased to invite you to its May Conversation entitled ‘Book Launch: Sondra Faccio, Indirect Expropriation in International Investment Law. Between State Regulatory Powers and Investor Protection (Editoriale Scientifica, 2020), with Sondra Faccio (University of Trento), Prof. Giuseppe Nesi (University of Trento), Prof. Tarcisio Gazzini (University of East Anglia), Prof. Catharine Titi (University Paris II Panthéon-Assas), moderated by Prof. Eric De Brabandere (Leiden University Law School).

11 May 2021 at 11 am CET time. Zoom registration available here.

More information can be found here.

What if the US can't create consensus around a WTO vaccine waiver? A review of the options

Angela Merkel's Kriegserklärung  against America in its effort to to build consensus for a WTO vaccine waiver will come as no shock to those familiar with Germany's punitive moralism  and gratuitous cruelty in the Greek debt crisis a few years back.   But the chancellor's salvo raises an obvious question: what if the US loses the battle for agreement in Geneva?   

One possibility: the US can step back, its global reputation enhanced by having fought the good fight, and focus on other issues.  The WTO will have failed the test of "relevance" or "doing good" in today's world (expressions of USTR Katherine Tai).  While keeping an open mind about efforts of others, the Administration never was that invested in making big changes to revitalize the WTO, at least of the kind that the EU, for instance, has been proposing-such as the ill-timed demand for tighter disciplines on subsidies at a moment when governments are spending flat out to prevent economic collapse from the pandemic. (On subidies reform, the US is supposedly in agreement with the EU in principle but is much more focused now on doing industrial policy as opposed to curbing it).

On the vaccine front, the Biden Administration would have a range of options, some more unilateral while others would focus on cooperation mechanisms such COVAX.  Senator  Elizabeth Warren, former professor at Harvard Law School, has long argued that the federal US government has sufficient legal authority to break patents where overriding public health concerns are at issue.     She is probably referring to "march in" rights in the Bayh Dole Act, which allow the government to engage in compulsory licensing where federal funding has been involved in a patented innovation; one of the criteria is that "action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees." The pandemic seems to be the test case for these provisions, which have so far not been applied, as I far as I can learn. I'm not an IP lawyer but I'm sure that any effort of the Administration to move in this direction for purposes of alleviating global needs would be heavily debated and litigated. As a non-expert on US IP law, I offer no view of who would win the court case, but I'm pretty sure that pharma won't prevail in the moral debate. Mobility of people is a major part of the spread of the virus, and so American "health and safety needs" are compromised if the rest of the world can't get reasonable access to vaccines.  Once it has the intellectual property, the Administration can ensure it is freely available to any country or manufacturer that wants to move into production, and can do so safely and reliably.   This solution isn't as comprehensive as a waiver, as it could only apply to those vaccines invented with US federal funding in the picture.  Still, combined with US technical assistance, and help on ingredients, it could go fairly far.  

But there is another choice-disruptive in its own way.  The US could decide to push the WTO beyond its current consensus-based approach. Ambassador Tai has made it crystal clear that the US will try first for consensus in Geneva.  But this pronouncement also sets the scene for the US if need be declaring at some point that a consensus "cannot" be reached and therefore that, in accordance with the terms of the WTO Agreement (Article IX:1), the matter at issue "shall" be decided by voting.  Yes, "shall", not might or should. In this case (a waiver) a supermajority of 3/4 would be required. If there were any situation that could push the WTO beyond consensus decisionmaking , it would be the exceptional challenge of the pandemic, one shared by the peoples of all WTO Members. Since the consensus practice gives a veto that de facto will be most easily exercised by the major powers, breaking the practice almost certainly needs to be supported by a major power like the US (here India might be on board too).   The nice thing about moving in this direction in the specific circumstances of the pandemic is that it could be presented as a truly unique recourse to unused but totally valid treaty provisions, thus as a limited & fully legal departure from custom, but also serving as a first tentative step in an institutional shift that might lead to faster, more successful negotiations at the WTO and increasing global relevance.   

(Postscript: an important forthcoming article reconsidering consensus decisonmaking at the WTO is Claerwen O’Hara, ‘Consensus Decision-Making and Democratic Discourse in the General Agreement on Tariffs and Trade 1947 and World Trade Organisation’ (2021) 9(1) London Review of International Law.)

TRIPping the light fantastic-fathoming the Biden Administration's support for a vaccine waiver at the WTO

"Come, and trip it as ye go, On the light fantastick toe"- John Milton, "Allegro"

Yesterday's statement by USTR Ambassador Katherine Tai that the US will support efforts in the WTO for a vaccine waiver is a big deal.  "Massive", "huge", "immense" are  adjectives being used.  Even progressives often skeptical that President Biden has really shed his centrist Democrat roots are hailing the move as a sea shift.  Today in the Financial Times' "Trade Secrets" Alan Beattie offers one of the best quick takes on what's really significant here.   (Beattie has been following this issue closely, early on digging beneath the slogans and posturing). 

First of all, as Beattie notes, Tai's statement suggests the US is actively backing only a waiver for vaccines, not the full range of medical products that can be used in treating COVID-19. Thus, the US position will likely be narrower than the original proposal by India and South Africa. But as Beattie shrewdly observes:

[The original draft] was always a tactical position designed to start a debate, idenitfy possible support and flush out possible opponents rather than a likely outcome. To this end, it seems to have worked rather well. Pretoria and New Delhi are in any case in the process of reworking and narrowing their text, with progress likely in a few days. Our supposition is that the US will come up with its own tightly drawn proposal and negotiations will start.

As Beattie further notes, the US position liberates countries to use existing TRIPs flexibilities more boldy (and thus potentially has a positive effect even before any waiver is concluded):

In practice, the US government looking more kindly on overriding IP will probably make other governments more confident that they won't face a lot of political pressure or potential litigation on the issue. If you are an emerging market minister thnking of issuing a compulsory licence, it's going to be a lot easier facing down a multialteral pharma company lobbying against you if you can simply tap the framed printout of Tai's Trips waiver tweet you have prominently displayed on your desk and smile knowingly.

And this is not a case of the US grudgingly accepting to stay on the sidelines and let a properly drafted waiver pass. As Ambassador Tai made clear in interviews yesterday, as reported by Bloomberg, the US is "for the waiver" and will use what Tai calls America's "convening power" in the WTO to assure a positive solution that lifts patent protection for vaccines.  As Beattie puts it succinctly, "the US is leading the debate inside the WTO again."  Tai hinted that the US will be judging the WTO on whether what she calls "the consensus-based nature of the institution" can generate a successful outcome in real time on the crucial challenge of the day.  This is a matter, as she puts it, of seeing "what the WTO is capable of" and of trying to make the WTO "relevant" and "a force for good." 

The US aligning at the WTO with South Africa and India (as well as the rest of the devleoping world  & global civil society) points to a new era of American leadership on trade and the global economy.   Perhaps the only kind of leadership that can really  match China and halt its growing dominance in multilateral institutions.  Supporting the waiver, as many (including Beattie himelf) have said, packs a huge symbolic punch.  Or, as I might prefer to put it, this can change perceptions of America in much of the globe.   Most of the world's population, and certainly its rising generations, have not seen much of the idealistic side of America's global footprint.  Barack Obama talked idealistically but delivered drones and  defended investor-state dispute settlement, special tribunals for corporations largely to attack the regulatory state in the developing world  (something Biden has categorically repudiated, by the way). That now the US Administration is staring down some of its most powerful commercial interests to protect lives around the world is a message that will not be lost on global public opinion.

So much for  aspirations of Europhiles that it is EU's external policies that might enable a global "EUtopia."  Beattie observes: "Katherine Tai's announcement evidently wasn't coordinated with prominent waiver scetpics such as the EU, Switzerland, the UK and Brazil, which are now scrambling to determine their positions."  If Brussels obstructs US efforts at consensus on a waiver, whatever is still left of the EU credibility as an agent of global justice and human rights in its external economic policies will be gone.  Perhaps this matters less to the Commission than serving its big corporate clients and their interests in intellectual property protection.  But the Commission has put itself forward as determined to achieve the renewal and reform of the WTO with a common purpose for sustainable development, a supposed top priority.  Good luck selling that if the EU is the dealbreaker in Geneva on a vaccine waiver that would save untold numbers of lives globally. 

 

 

 

 

 

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Guest Post: European Commission puts forth legislative proposal to tackle “foreign subsidies”

This is a guest post by Victor Crochet of Van Bael & Bellis

The European Commission puts forth its legislative proposal to tackle “foreign subsidies” in the European Union. The text of the proposal can be found here.

There has been lots of discussions on this blog over the Commission’s White Paper on foreign subsidies published by the European Commission last summer (see here, here and even here).

The European Commission’s proposal more or less follows the structure of the White Paper by addressing foreign subsidies ‘actually or potentially negatively affects competition on the internal market’. The proposal focuses on corporate acquisitions, public procurement bids, as well as any undertaking ‘engaging in an economic activity in the internal market’. The potential scope is thus very broad.

In terms of determining what constitutes a ‘distortion on the internal market’, the proposal contains a list of factors to take into account and also an illustrative list of subsidies ‘most likely to distort the internal market’ (e.g. direct facilitation of corporate acquisition, unlimited guarantees). Financial contributions of less than €5 million over the past three years are generally not considered distortive. This substantially raises the much criticised de minimis threshold of €200,000 proposed in the White Paper. In addition, a rather vague ‘balancing’ test is provided for, giving the EU important discretion to exempt subsidies it considers will have ‘positive effects on the development of the relevant economic activity’.  

Enforcement is partly modelled on the EU’s existing competition and State aid frameworks, although the Commission will be in the driver’s seat with Member States having an advisory role only (similar to trade defence). Investigations will follow a two-step model with a ‘preliminary review’, followed by an ‘in-depth investigation’, if justified. There is also the possibility to take ‘interim measures’. Importantly, there is no formal complaints mechanism. The review is thus ex-officio and ex-post for general subsidies. In contrast, for public tenders and corporate acquisitions, there is an obligation of pre-notification. This applies to public tenders with a value above €250 million, and to corporate acquirers with a turnover of €500 million having received a foreign financial contribution of at least €50 million in the past three years.

At the end of the in-depth investigation, if distortive subsidies are identified, the investigated entity may either offer binding commitments or have ‘redressive measures’ imposed on it. These can include divestments; licensing of technology; providing access to infrastructure; or reductions in capacity or market presence. Notably, fines of up to 1% of annual turnover can be imposed on companies which ‘intentionally or negligently’ provide incorrect or misleading information, and fines of no less than 10% of annual turnover can be imposed for failure to comply with a redress decision or agreed commitments. Failure to promptly comply can also lead to additional ‘periodic penalties’ of up to 5% of daily turnover. The incentives to cooperate in the investigations will thus be high and calls for a robust implementation of the brief article on rights of defence (for instance, there is no mention of an independent Hearing Officer as exists in both EU competition and trade defence proceedings).

The proposal is now out of the hands of the European Commission. It is the European Parliament’s turn to debate and amend the European Commission’s proposal before sending it to the Council. The Council can then make further amendments, which in turn would have to be agreed by the European Parliament and so on. It is thus likely that it will take some time, possibly a couple of years, until the legislation is finalised.

For those interested in the potential WTO implications of this proposal, Marcus Gustafsson and I recently published a paper highlighting how to ensure that the final instruments are in line with WTO rules (accessible here). Most of the concerns we expressed with regard to the instruments put forth in the White Paper are equally applicable to the legislative proposal.

Putting aside the procedural differences between State aid rules and foreign subsidies rules or the different remedies available to tackle them, one of our main concerns lies with the raison d’être of the two instruments.

The goal of State aid rules is not to prevent State aid/subsidisation in the European Union altogether but rather to avoid a race to the bottom between EU Member States by centralizing the granting of aid with the European Union’s institutions. Indeed, there is no prohibition on aid being granted by the European Union and its related agencies. On the other hand, the proposed foreign subsidies rules put forth by the European Commission targets all forms of governmental assistance without distinction as to whether this assistance is granted by a central government (as the European Union) or by regional governments (as EU Member States). Such a difference in treatment would be difficult to justify under WTO rules.

Book Launch of “The Protection of Intellectual Property Rights under International Investment Law”

Event Details

Date & Time:

• May 27, 2021
• 11:00 AM - 1:00 PM

Location

• Virtual Event

Contact Information:

• Jennifer Karnakis
• jkarnakis@suffolk.edu

Registration:

• Register now

Event Description

Please join us for a virtual webinar celebrating the launch of “The Protection of Intellectual Property Rights under International Investment Law” by Simon Klopschinski, Christopher S. Gibson, Henning Grosse Ruse-Khan.

This comprehensive monograph provides detailed analysis and treatment for the complex interplay between the protection of intellectual property rights and international investment law, bringing insight to these two dynamic and evolving fields of law.

A flyer for this event is available to download [PDF].

Introduction by:

• Joseph Straus (Max Planck Institute for Innovation and Competition)

Presentations by the authors:

• Simon Klopschinski (rospatt osten pross)
• Christopher S. Gibson (Suffolk University Law School)
• Henning Grosse Ruse-Khan (University of Cambridge, King's College)

With commentators:

• Rochelle Dreyfuss (NYU School of Law)
• Peter Yu (Texas A&M University School of Law)
• Christophe Bondy (Steptoe & Johnson LLP)

Agenda:

11:00 AM ET

• Introduction by Joseph Straus

11:10 AM ET

• Simon Klopschinski on “International Investment Arbitration as an Alternative Forum for Litigating Intellectual Property Rights: The Example of beIN Corporation v Saudi Arabia”
• Commentator: Christophe Bondy

11:40 AM ET

• Henning Grosse Ruse-Khan on “Investor Tribunals Judging Domestic IP Developments against ‘Dramatic’ Changes? How Not to Read the Eli Lilly vs Canada Award”
• Commentator: Rochelle Dreyfuss

12:10 PM ET

• Christopher S. Gibson: “IP Rights as Assets Comprising an Investment, Indirect Expropriation, and State’s Right to Regulate”
• Commentator: Peter Yu

12:40 PM ET

• Discussion, Question & Answer, Concluding Remarks by Joseph Straus

Mini-Deals: A First Look at the World of Trade Executive Agreements

With the deadlines now having passed for moving the UK and Kenya agreements through the 2015 Trade Promotion Authority (TPA) process, there has been some talk about pursuing instead more “skinny” or “mini”-deals especially given that the prospects of renewing TPA remain in doubt.  Even apart from TPA, additional executive-driven trade deals have been in vogue in U.S. trade law over recent years.  Readers of this blog will be well aware of conversations to negotiate these sorts of deals with Brazil, Japan, India, and China, just to name a few. 

Call these deals what you like – and, to be sure, what they are to be called has been a matter of debate – they all have one major quality in common apart from their governance of foreign commerce: they are not subject to congressional review following their negotiation.  Some of that is by design, but for the lawyers among us, that ought to create some question about their legal authority seeing that not all appear to be the product of a congressional delegation. (We’ve heard ripples of that concern before: recall the Anti-Counterfeiting Trade Agreement debates of a decade ago.)  But I want to pause on that question for a moment to talk more about the details of these trade executive agreements (TEAs).

In 2020 alone, 32 of these trade-related executive agreements entered into force.  You hear about them from time to time from different executive branch agencies.  In fact, the total numbers are staggering: my team and I have catalogued a total of 1228 TEAs (with another 500 or so pending our review) concluded by various executive branch agencies.  Most were negotiated in the last forty or so years (i.e., they are not new) and most are still in force today.  They cover a range of topics.  Some are engagement-building agreements such as the several dozen Trade and Investment Framework Agreements that “provide strategic frameworks and principles for dialogue on trade and investment issues”.  Others go far beyond such expressions of cooperation and include binding commitments such as protections for specific intellectual property rights, changes to regulatory processes for U.S. goods, new requirements for foreign products to enter the U.S. market, and more. 

In a series of forthcoming and recent articles, my team and I have tried (and continue trying) to get to the bottom of what is happening with TEAs – the ways through which they are made (including engagement with Congress or lack thereof), their management and monitoring, their transparency and publication, their functions and utility, their termination or replacement, and much more.  We have sought to create a taxonomy of these TEAs to figure out precisely how the trade world might understand them as compared to the traditional free trade agreement (FTA).  Only a small percentage of TEAs are merely cooperative and even those that do not create robust binding commitments have served as the foundation for later binding arrangements.  They cover the waterfront of topics including customs arrangements, food safety, insurance, tax, and autos, to name a few.  In total, the United States has TEAs with 130 countries.    

Bringing the full landscape of TEAs into focus yields several lessons – some of which will already be familiar to trade practitioners.  The most practical and undernoticed realization is that these TEAs are doing a lot of work in our trade law, especially where FTAs are not possible.  We have more than 100 with Japan and near that number with the EU and with China, but we also have several dozen with existing FTA partners.  In some instances, TEAs build out FTAs, elaborate on them, clarify them, and update them.  They are useful in expanding our trade agreements above and beyond the objectives set out in TPA and in resolving market access dilemmas where there is no FTA upon which to draw.  As former USTR Robert Lighthizer told members of Congress at a 2020 hearing, these deals often solve narrow and immediate problems for U.S. industries, farmers, and ranchers.

Second, TEAs, like some other executive agreements, also have a significant and underestimated regulatory impact.  They substitute for regulations despite that Congress has delegated this task to agencies to do through notice-and-comment rulemaking.  A good example is the way agreements are used to protect foreign distinctive alcoholic beverages in U.S. law.  Although there is a traditional rulemaking process outlined for U.S. protection and recognition of those spirits, TEAs have sometimes taken on that role themselves. The many ways through which TEAs are deployed to identify and protect distinctive foreign alcoholic products in turn creates questions about judicial review and international obligations that require further unearthing, which leads to my next point.

Third, TEAs need to be better conceptualized by scholars and by practitioners, including lawmakers themselves.  These deals are doing valuable work to facilitate to U.S. trade but very little is known about them.  To name just a few puzzles that emerge from the data: Why does the United States make trade law in such small pieces?  What does this mean for their administrative review processes?  What impact do they have on international trade law?  How do we measure their economic force?  And, how are they made part of U.S. law?  Recognizing this data set and the momentous shift they have advanced is only a starting point.  Completing the long list of interdisciplinary analysis that recognition demands comes next.

Fourth, and ironic given their ubiquity, is that TEAs are excessively difficult to track down.  Given trade’s special place in our constitutional framework, these deals don’t always get captured by the usual executive agreement review processes.  Instead, one has to go looking for them in a variety of places such as the USTR Annual Report, Federal Register notices and press releases, subscription services, and in some instances, from foreign governments.  Such a search may yield a list of agreements but not necessarily their texts.  Far more could be done on the government side to make these available for the public and for Congress.  In fact, given the difficulties of locating them, these 1228 may just be the tip of the iceberg.

At the end of the day, we need TEAs to serve at least some of the functions that they presently do and have done.  There are arguments to be made for and against codifying TEAs and adding congressional consultations along the way in at least some instances.  It may be that the increasing constraints in TPA have pushed more executive branch agencies toward TEAs.  Our next trade agreement delegation legislation may not look like the old TPA model given present interests.  Regardless of its central focus or aim, it ought to take these no-longer-skinny deals into account.  I’ll lay out more about what that might look like in a future post.  For now, this much is clear: TEAs are unlikely to disappear anytime soon as they have become critical tools in our trade law toolkit. 

Talking Trade Policy on Clubhouse and Twitter

You may have heard about the "drop in audio" craze going on right now. The Clubhouse app was the first, and Twitter got in on the action with Spaces. The basic idea is that it's sort of like a call-in radio show, with a couple hosts kicking off the chat, and then listeners can weigh in when they request to speak and the hosts give them the microphone. This seemed like an interesting idea, so Inu and I are going to give both a try this week, talking about "What to expect from trade policy in the Biden administration." We'll be on Clubhouse on Wednesday May 5 at 9 pm ET (that's Thursday May 6, 3 am CET and 10 am in Tokyo); and we’ll be on Spaces on Thursday May 6 at 2 pm ET (that's Thursday at 8 pm CET, and Friday at 3 am in Tokyo).

The bad news is that both platforms are still sort of in beta, with Clubhouse only available on Apple products (and requiring an invitation to join) and the ability to start a Space only available to some Twitter users at the moment, although I think anyone can join a Space (look for the purple bubble at the top of your home timeline, where you see Fleets). If you have access to either one, please drop by and chat with us!

Call for abstracts: PluriCourts Research Conference on Compliance Mechanisms

This is from PluriCourts:

PluriCourts issues this call for abstracts on the topic of “International Courts versus Compliance Mechanisms: Comparative advantages of non-compliance mechanisms and complaint procedures.”

In this project, we ask:

• Whether and why in some circumstances the use of more informal NCMs might be more effective to bring states into compliance with their treaty obligations or address situations of non-compliance than the recourse to ICTs for breach of a treaty;
• How NCMs and other means of dispute resolution, such as international courts, relate to each other; and
• What their comparative advantages and disadvantages are.

Contributions will be published in an edited volume by Cambridge University Press (tbc) or a special edition of a legal journal (tbc). This project is administered by Prof. Dr. Christina Voigt.

The deadline for submission of abstracts is June 30, 2021.

To learn more and apply, go to:

https://www.jus.uio.no/pluricourts/english/news-and-events/news/2021/290421-cfp-courts-versus-compliance-mechanisms.html

The WTO Appellate Body: Why The Biden Administration Should Allow Appointments to be Reopened

Yesterday, the journal Global Policy published an essay of mine on the case for rebooting the WTO Appellate Body.  In the article, I propose a range of options for deciding what kind of judges the WTO needs going forward, and addressing some of the more justified criticisms of prior judges, especially their decisions in cases concerning trade remedies-where, as with a few other instances like country of origin and tuna-safe labeling, the prior Appellate Body seemed to think it was like the OMB, or a domestic administrative court, putting domestic agencies or sub-regulations  under a microscope. My piece draws on work by such luminaries as Simon Lester, the curator of this blog, Jennifer Hillman, and James Bacchus, among others; I'm not going to repeat or summarize the main arguments here.  Rather I'd like to move ahead to the choices that the Biden Administration faces now, after its first 100 days in office, and with a new USTR and a new WTO Director General fully in place.  In the very early days of the Adiministration, US officials in Geneva suggested that the time was not right, the stars had someone not aligned yet or whatever, for thinking about a process for restaffing the AB.  Whether these words were a placeholder til the Administration got its trade team fully in place or whether they held a deeper, ominous-albeit still cryptic-meaning is impossible so far to say.

What the Administration's impressive new USTR Katherine Tai has said  is that she is committed to using existing tools of trade law to address the unfair and illegal trade practices of other countries, including China.   If one is to take this committment seriously, and I do, it is difficult to imagine how it could be met without taking stock of the current state of WTO dispute settlement.    With the Appellate Body in abeyance (given the Trump Administration blockage of appointments), the panel process continues.  In the absence of the AB, the losing party can either agree to implement a panel ruling against it, negotiate some kind of settlement or "appeal into the void." This last outcome effectively prevents a panel decision from becoming binding on the parties and obstructs any sort of enforcement through retaliation under Article 26 of the DSU. This leaves (as some have proposed) the option of adopting trade reprisals under the guise of general countermeasures under customary international law. 

How does this situation affect US interests in WTO law being correctly applied and effectively enforced?  Some, nostalgic for the GATT in the manner of former USTR Bob Lighthizer may find the status quo attractive-decapitating the AB appears to leave the WTO with a (non-) system where legal rulings in disputes still happen but diplomacy and politics end up determining the extent to which they resolve any given conflict. Now of course that's always true to some extent.  So the difference is probably one of degree.  But unlike in the GATT period for which some are pining, the United States is now far from the hegemonic power in the trading system.  Given the economic and political power they wield, China and also the EU to name two of today's great powers, can certainly afford to stand up to the United States where the US loses WTO panel rulings on trade remedies cases, for example. Retaliation outside the suspended WTO enforcement framework is a completely realistic option, as we know.     

Under Trump, the idea was also (seemingly) that without the Appellate Body, panel rulings would drift in the direction of greater deference to domestic agencies, at least in trade remedies cases.  Is this in fact what panels are doing, or likely to do, in the continued absence of the Appellate Body?  I see little evidence of it so far (though admittedly these impressions are anecdotal).  In the absence of a renewed Appellate Body, it is more likely that panels will continue to apply but in an increasingly mechanistic and simplistic manner established AB jurisprudence.  On most doctrinal questions, they won't reinvent the wheel.  Without appellate judges who are independent jurists,  dispute settlement at the WTO will look increasingly like the product of the very Geneva bureaucracy that the Washington trade community so distrusts.  We still have a system where many panelists aren't legal professionals so the result it that panels often remain heavily dependent on the Secreetariat.  If we lived in a world where the United States could easily gain the upper hand in the Geneva bureaucracy, that might be an attractive outcome-at least from a narrow national interest point of view.  But it is most certainly not where we are at today. Of course, the United State could try and change the rulebook itself, on matters such as subsidies and dumping. But if China is the target it certainly will never agree to that.     

But there is some leverage the Administration can use if it does so shrewdly.  In general, the WTO Membership would welcome the Appellate Body's return.  The step of unblocking appointments, modest in itself, will invest the WTO's Members in the effort to find a solution to US concerns about the kind of judges and judgment that are appropriate for appellate review at the WTO.  By allowing an appointments process to go forward, the Administration is not commiting to agree with China or any other Member on who should or should not be an AB judge. The US will certainly not be the only WTO Member that isn't looking for an AB that is a copy cat of the prior bench.  That's not to criticize any particular judge but to acknowledge that the chance now to appoint a full bench gives rise to an opportunity to reconsider how balance and diversity should be handled given two decades of experience with an appellate instance. 

Of course, the appointments process could break down.  It could turn out that the Membership, especially given divisions such as that between the US and China, won't agree on the kind of rule of law they want for the WTO.      But the failure to appoint a new Appellate Body would itself reveal vital information about the limits of legalism in the WTO, which would affect how the Administration views its options in terms of trade enforcement, and what kind of investment in political capital  WTO Members are prepared to make in revitalizing the WTO as the central institution for rules-based international trade.  

When the Biden Administration lifted the Trump sanctions against officials of the International Criminal Court, America's diplomatic partners widely applauded, even major powers like Russia and China that are skeptical of the ICC.   Secretary Blinken stressed that lifting sanctions did not mean an end to America's disagreement with the Court on some important controversies, but that a more constructive approach to disagreement than sanctions was warranted.  Likewise by lifting Trump's blockade on the Appellate Body, the Administration will not be sweeping our concerns under the rug but inviting our partners to face them candidly.    

Alan Wolff on the Appellate Body Crisis

The always insightful Alan Wolff was talking about The Future of the WTO at the Peterson Institute today. The whole thing is worth a listen, but I wanted to highlight his response to my question on the Appellate Body crisis during the Q & A:

Adam Posen:

Simon Lester asks, do you think the Biden administration will make a concrete proposal for Appellate Body reform that can save us from appeals "into the void" and unlock the process? What he's really interested in is, what you think a Biden administration will do to actively engage on this issue.

Alan Wolff:

I think that there will be, and I'm not in the administration, so I can't speak for them, but I think there will be a willingness to negotiate, which has not existed in the same way in the prior administration. So that opens up possibilities. Will they table something as a proposal? I wouldn't expect that. But they could.

The European Union, in a proposal that I didn't embrace at all immediately, has an alternative dispute settlement mechanism, the multilateral MPIA, the multi party interim agreement, that has some elements that are interesting and worth following up on, like, there are 10 Appellate Body members in their system. If you enlarge that number, you can get members who know what a trade remedy is, who can administer trade remedies; you can get diversity of interests, those who care about small business, those who care about developing countries.

Developing countries currently say, this is not an issue for us, we can't afford to bring disputes, they're too lengthy, they're too costly. So, all this discussion about dispute settlement just leaves us cold, it's just not relevant to us.

Can you change that dynamic? Yes. So does the US table some omnibus proposal? I doubt it. But is it willing to sit down and listen to others' proposals, and table some of its own in the course of negotiations? I think that process can and should and will begin this year, at the end of this year probably.

Katherine Tai's Responses on Phase One, Section 301, and Lumber/Steel/Solar Panel Tariffs

U.S. Trade Representative Katherine Tai testified today at a Senate hearing on "Funding Priorities of the Office of the U.S. Trade Representative." In this context, she answered some substantive trade policy questions. Here are a few of her responses:

China Phase One Enforcement

Senator Moran:

Ambassador, I don't know of any scorecard that's out there in regard to China's compliance with Phase One. How would you rate or great the Phase One agreement compliance, what has happened and what hasn't happened?

Katherine Tai:

Well, that's a very important question and one that I know there's a lot of interest up here in the Senate, in the House, and the hill in general, with stakeholders and our entire economy, and certainly one of the questions that is at the forefront of my mind coming in as US Trade Representative.

I would like to just take a step back and look at the contours of this US China trade and economic agreement. It has a number of parts. There's a lot of focus on the purchase commitments that China made as part of this agreement. There are also a set of rules related to intellectual property, financial services, services access, biotech approvals that China also committed to, and we are drilling down at USTR using the usual discipline that we have to look at the overall compliance picture and to examine China's performance under this agreement in all of its component parts. What I would share with you right now Senator Moran, because we're still in the middle of this review, is that the picture is more nuanced than you might think by just looking at the trade data. And so I look forward to coming back to you with a better picture, and with a more clear sense for where we need to drive harder with our Chinese counterparts.

...

Senator Shaheen:

I want to follow up with Senator Moran's question about the Phase One trade deal with China, because I understand that the deal included the creation of bilateral evaluation and dispute resolution office. Is that office up and running, and can you describe to us how you expect that to work?

Tai:

Well, thank you for the question Senator Shaheen, the I think the office is not in its, it's an, I think it stands for

Shaheen:

a process?

Tai:

a process. Thank you, looking for that word. And so, we have had continued contact at the designated officials level to continue to push and examine the performance of this agreement.

Right now we are looking at the agreement holistically, through the lens of an overall China strategy and so what I would say to you right now is we're looking at the tools that we have across the board, in particular in this agreement, it is a tool that looks a little bit different from our other agreements or traditional agreements, but we're interested, as I will always say, open minded and interested in out of the box and new tools. So, I feel like the bottom line here, we are very focused on this agreement, which is the agreement that we have, and testing its utility and maximizing our use of the tools that are included in this agreement.

Shaheen:

So once that process is up and running, do we expect companies and individuals to be able to actually make use of that process when they have a concern or a dispute that they want to get negotiated?

Tai:

So I would say that one of USTR's functions is to be open to, and we traditionally have been very open to, the engagement with the public, with our stakeholders. Increasingly we are trying to expand out the circle of stakeholders who are used to interacting with USTR. So absolutely, our stakeholders are part of that process.

She later got specific questions on China living up to its Phase One purchase commitments on seafood and lobster.

On Phase One enforcement in general, as I wrote about here, I think the answer is that the agreement doesn't have an effective enforcement mechanism. There's a consultations mechanism; and if the U.S. thinks China is in violation, then the U.S. can impose tariffs, but of course as the Trump administration demonstrated, the U.S. could do that anyway, so I'm not sure what the Phase One deal adds here. 

In my view, if you want trade agreements to be enforceable, you really need a mechanism that provides for neutral adjudication of the issues, and the Phase One deal doesn't have that. Going forward, the best strategy for USTR to salvage the substantive parts of the deal might be to work with the Europeans and others to bring over those substantive parts into a broader plurilateral deal that has a neutral adjudication mechanism.

 

Section 301

Shaheen:

I want to go back to the 301 tariffs on imported goods because, as I said, that has been a real concern that I've heard from New Hampshire businesses. So can you give us any sense of how the administration is going to approach the existing section in the near term, and what your view is about how to use that authority?

Tai:

Senator Shaheen, I know very directly, and I know this is a strong fact that the tariffs and the exclusion process really do touch a very wide swath of our economy, our businesses both large and small. So this is very much on my mind. At my confirmation hearing, Senator Portman asked me for a commitment which I was very ready to make, to undertake a top to bottom review on China at USTR, in particular. And he recommended it as something that he had done in his time as US Trade Representative, so the tariffs, this agreement, this process will be very critical parts of this top to bottom review, and I am looking forward to kicking it off, and being able to come back to you with a thoughtful and strategic recommendation, in terms of how we will proceed from there.

I feel like the question was broad enough that Senator Shaheen was hoping for a general conversation about the use of Section 301, but Tai didn't seem to want to go in that direction, at least for the moment. It may be that she never explicitly rejects the use of Section 301, because why give up that leverage, but hopefully we see its use quietly diminish over the next couple years.

 

Lumber and Steel Tariffs:

Senator Moran:

Steel and lumber prices. They're at record highs. The Biden administration is proposing infrastructure investments, I assume that will increase the demand for those items. I'm thinking about the absence of softwood lumber agreement with Canada and the associated tariffs, as well as the Section 232 tariffs on steel and aluminum. Where do negotiations stand with Canada on softwood lumber? And what's the administration further considering to do to increase the affordability of two very important components to infrastructure and housing?

Tai:

Well, on softwood lumber, let me say this, I think that it will always be a component of the conversation between the US Trade Representative and her or his Canadian counterpart. In my initial conversation with my Canadian counterpart, Minister Ng of Canada, we did raise our bilateral issues the long standing ones especially. They are ones that require maintenance and care and attention. So what I would say to Senator Moran, is softwood lumber will always be in my sights in the conversation with Canada. We have a lot of tools, we have traditionally used them robustly. I intend to continue to do so, and to continue to raise the concerns that we have and try to engage our Canadian counterparts in some out of the box thinking on this issue and others in terms of how we manage long standing differences that we have that really make an economic impact for our stakeholders and our economy.

The other question that you've asked is on the steel tariffs in particular. What I would say here is that we continue to have a global overcapacity problem that is distorting the international market. But what we have right now in the Biden administration is a team of people who are intent on looking for solutions that come through cooperation with our close partners and allies. So, on that, what I'd like to convey to you is, I and others in the administration, including Secretary Raimando at Commerce, are working hard on conversations with the Europeans in particular, to examine how we address the problems that the 232 tariffs have raised, in particular in our relationships, while keeping our eye on the overall steel and aluminum market problems that we really need others help to address.

... 

Senator Braun:

Indiana's a top steel producing state in the US. As a result of repeated surges in steel imports, the Trump administration implemented Section 232 tariffs, which helped kind of stabilize the domestic steel industry, allowed steel makers to invest billions of dollars in new facilities and upgrades to existing mills. I think, nearly half of the world's excess steel capacity is housed within China. These efforts saved 1000s of jobs. As you know, the tariffs are designed to protect against that global overcapacity, and you've got some anti market policies that go along with the glut. So it really creates a condition to where you can get predatory actions that don't play by the rules, necessarily. I know that a number of foreign governments are pressing to have the tariffs lifted. But I remain concerned because I don't know that any of the underlying practices are going to change, and I think certainly that capacity is going to be there, very tempting to try to use it. What assurances can you provide that the Biden administration will preserve the steel tariffs program to prevent a new surge of imports, and to use it as a tool, until you see real change happening, you know, within the way the Chinese handle this excess capacity?

Tai:

That is a really critical question, because the 232 tariffs are very much on everyone's minds, because of the tariffs themselves, and also because of retaliatory actions that our trading partners have taken, including on Tennessee whiskey, as we just heard from Senator Haggerty. I want to assure you that I understand, see, and fully accept that there is a global overcapacity problem with the steel market, and that the tools that have been used, the 232 tariffs, have had an impact on steel production here in the United States, a positive one. But they have also carried with them costs. And so, for the Biden administration, as the US Trade Representative, my focus is to figure out how we improve, and the effectiveness of, the tools that we use in support of American steelmaking, but to try to address some of the unintended consequences, I think, in terms of the frictions that this has generated with our trading partners. and so solutions that we come to with our trading partners, I believe in my core, really have to address the larger issue around the overcapacity market.

You can read different things into Tai's comments here. What I hope is happening is that the Biden administration is talking to the Europeans and others about how to work together on China issues, and to remove the Section 232 tariffs and the retaliatory tariffs.

 

Solar Panel Tariffs:

Senator Van Hollen:

I have some questions on the solar panel tariffs that were imposed by the Trump administration. Back in 2018, they imposed the tariff rates on the import of solar cells and modules under Section 201. That was in addition to the pre existing duties that apply to these products. The tariff was set at over 30% and then declined by 5% over the years. In 2020, so just last year, the Trump administration moved to increase the 2021 tariff from 15%, which had come down, to 18 percent, that's what it is today. These tariffs have hit workers in Maryland hard, especially in the clean energy industry, costing us many jobs, people laid off because solar panel installers were no longer able to do it at a competitive price, and nationally, according to the Solar Energy Industries Association, these Trump tariffs have cost 62,000 American job opportunities. The Biden administration, as I understand, you've said is going to be reviewing these tariffs. This one is scheduled to expire in February of next year, and I listened carefully to the President's statement about jobs and clean energy jobs here in the United States. Have you heard and looked at the reports of how those solar panel tariffs have hurt jobs here in the United States?

Tai:

Thank you Senator Van Hollen. The issue of the solar tariffs are very much on my mind, both in terms of the impacts, and the dilemmas that they present to our economy right now, and the different stakeholders in our economy, specific to the solar tariffs, the role that solar panels play in a future where we are running cleaner energy. But also for me, the story of the solar panel industry in the United States really gets at a fundamental issue that we need to confront in our competition with China.

First thing that I'd like to say is Section 201, this particular Section 201 set of tariffs, were sought by an industry here in the United States, so that there are producers who petition for relief from the United States government. And today, we have a sole producer left in the United States for solar panels, when 10-12 years ago, we had quite a few in this burgeoning industry. Given the role that we think these types of products are going to play, this is is actually a very sad story that we are in right now where we are struggling with the application of these tariffs that are meant to save, maybe the last producer that we have here in the United States.

And so, stepping aside a little bit, what I would say is that I recognize the nuance and the complexity that is presented by the solar tariffs question in particular. I do want to raise the profile of the overall bigger picture so that we don't lose it, which is, if we don't keep our eye on the ball, we will continue to experience these types of fights over the last scraps of an industry that we have lost to a competitor, and in particular to the Chinese. It is a pattern that we see over and over again. I will say that, steel, and aluminum are a leading contender here, solar, and we can see where this pattern will play out again and again, if we are not ready to anticipate the loss of industries to anti competitive practices and massive subsidies that are coming from our biggest competitor ...

I took this answer as offering strong support for traditional trade remedy laws, which was not very surprising. These laws have seen a continued ratcheting up for decades now, and it's not clear to me how to push back on this. (If anyone has ideas, please let me know!) Maybe if China and other countries keep emulating the trade remedy innovations of others, that will change people's perspective? I'm not hopeful though. (If it were up to me, we would focus more on litigation under the WTO and other trade agreements to address the Chinese practices.)

The AfCFTA Secretariat Is Hiring

Over the last four years, U.S. trade policy has kept me so busy that I've missed some important developments around the world, such as the Agreement Establishing the African Continental Free Trade Area. I see from my friend Petina Gappah that the AfCFTA Secretariat is now hiring:

AfCFTA is recruiting heads of five divisions: trade remedies, non-tariff barriers, rules of origin, trade in services and market access, and head of Admin.

Please apply at the links below, or retweet and circulate and help to build the Africa we want. https://t.co/lFTmig5f0h pic.twitter.com/W6cUGMmvib

— Petina Gappah (@VascoDaGappah) April 28, 2021

Looks like some great opportunities here!

Webinar on Institutionalising Global Challenges: A Transatlantic Trade and Technology Council

From City Law School in London (Thursday, 29 April 2021, 17:00 – 18:30, register here):

The EU’s proposed EU-US Joint Agenda for Global Change includes a Transatlantic Trade and Technology Council, proposing a loose institutionalisation of key global challenges currently not well covered or dealt with by, for example, the WTO.

A Transatlantic Legislators Dialogue between the European Parliament and the US Congress is on-going since 1972. Simiarly, Transatlantic annual summits continue to be held since the 1990s.

There is direct contact between the US Supreme Court and Court of Justice of the European Union since 2000, in the form of periodic judicial visits and heightened mutual adjudication themes and tools.

What forms of power and authority could such a council have? Does it have a future outside of reform of global institutions? Is it essential to build back trust in international organisations, i.e. to have a transatlantic powerhouse combination on core planks of the global economy, currently patchily dealt with by international law and international organisations?

Do ‘soft’ or light-touch institutionalisations such as this proposal matter in the current state of global governance? How esoteric is the crossover between trade and technology?

Will reforms of existing global institutions e.g. WTO reforms or the reform of global taxation (e.g. a Digital Services tax) be most crucial to the transatlantic alliance in global challenges?

Speakers:

• Susan Aaronson, Research Professor and Director of the Digital Trade and Data Governance Hub at the George Washington University's Elliott School of International Affairs
• Kristina Irion, Associate Professor at the Institute for Information Law (IViR) University of Amsterdam
• Maria Kendrick, Lecturer in Law and Assistant Dean, City Law School, City, University of London
• Kai Purnhagen, Chair of Food Law, Co-director of the Research unit on German and European Food law, Faculty of Life Sciences & Law and Economics, University of Bayreuth
• Thomas Wright, Director of the Center on the United States and Europe and a Senior Fellow in the Project on International Order and Strategy, Brookings Institution

Chair:

• Elaine Fahey , Jean Monnet Chair of Law & Transatlantic Relations, City Law School, City, University of London

Remembering Miguel Rodríguez Mendoza

We are sad to report that Miguel Rodríguez Mendoza has passed away. Jorge Castro of the WTO prepared the following note of remembrance:

Miguel Rodríguez Mendoza

(Cumaná, Venezuela, 28 March 1948 – Geneva, Switzerland, 25 April 2021)

Miguel Rodríguez had a distinguished career in international trade. He was Venezuela's Presidential Envoy and head of the team that negotiated Venezuela's accession to the GATT in 1990. He went on to be Venezuela's trade minister between 1991 and 1994. Rodríguez played a leading role in the modernization of the Andean Community and in the negotiation of the G3 free trade area agreement between Colombia, Mexico, and Venezuela. Between 1995 and 1998, he was head of the Trade Unit at the Organization of American States, during the negotiations for a Free Trade Area of the Americas. He was WTO Deputy Director General under DG Mike Moore from 1999 to 2002, playing an influential role in negotiations leading to the Doha Ministerial Conference. After leaving the WTO, he provided trade advice to several institutions such as the Interamerican Development Bank and the Andean Development Corporation. He was also frequently called to assist in WTO dispute settlement, where he chaired six panels and was a member of three others.

Miguel Rodríguez was a lawyer by training. He completed a masters in economic development from the University of Manchester and a doctorate in political science from Paris's Ecole des Hautes Etudes en Sciences Sociales, with a thesis on the Italian political thinker Antonio Gramsci. His doctoral research took him to Italy in the seventies, where he developed a love for the country. He recently lived for long periods in Lucca and Pietrasanta, before settling back in Geneva.

He enjoyed teaching courses, including at the University of Barcelona and at Georgetown University. His enthusiasm for trade policy was infectious, and he loved mentoring and supporting new generations of trade officials.

Next to trade, Miguel had a big passion for Italian culture, history and politics, and for cinema. He is survived by his wife, Josefina, and by his two children, Gabriela and Miguel Ignacio, whom he loved dearly.

 

Where Will Biden's USTR Trade Policy Team Take U.S. Trade Policy?

Over the past few days, we have had some new announcements about staffing at USTR, and the Biden administration trade policy team is almost complete now. There are still the important Deputy USTR in Geneva and Chief Agriculture Negotiator positions to fill (as well as some other USTR and possibly some NSC positions as well), but here are a few of the key people in place, or soon to be, with a bit of background on each:

U.S. Trade Representative Katherine Tai: "Tai previously served at USTR from 2007-2014, most recently as Chief Counsel for China Trade Enforcement." Before that, she was chief trade counsel of the House Ways and Means Committee. 

Deputy U.S. Trade Representative (nominated) Sarah Bianchi: "In 2011, Ms. Bianchi was appointed by then Vice President Biden as his head of economic and domestic policy where she ran the economic and domestic policy team in the Office of the Vice President and coordinated all policy initiatives ranging from workforce competitiveness to manufacturing to budget negotiations. ... Bianchi has also served as a senior advisor to the Biden Institute at the University of Delaware where she worked on a variety of economic policies and served as Chair of the Institute's Policy Advisory Board."

Deputy U.S. Trade Representative (nominated) Jayme White: "Mr. White has served in the US Senate since 2009, including as the chief trade advisor for the Senate Committee on Finance since 2014, under the leadership of Chairman Ron Wyden."

General Counsel Greta Peisch: "Ms. Peisch has served as Senior International Trade Counsel on the Senate Finance Committee for Chairman Wyden since 2015."

Chief of Staff Nora Todd: "Prior to her service at USTR, Ms. Todd was Chief Economic Advisor for Sen. Sherrod Brown (D-OH)."

Deputy Chief of Staff Ginna Lance: "Ms. Lance previously worked in the Office of then-Vice President Joe Biden, where she served as the Director of Scheduling and Deputy Director of Operations."

Senior Advisor Jamila Thompson: "Previously served as chief of staff to Georgia’s Fifth Congressional District, and deputy chief of staff for U.S. Representative John Lewis (GA)."

Counselor Brad W. Setser: "Prior to joining the Biden-Harris Administration, Mr. Setser was a senior fellow for international economics at the Council on Foreign Relations, where his work covered global capital flows, financial vulnerability analysis, currency intervention, tax competition and trade imbalances."

Senior Advisor Mark Wu: Previously at USTR and on the faculty at Harvard Law School for a while now, Mark is the one who will be best known to many readers of this blog. His full list of papers on SSRN is here. Some noteworthy papers for current trade policy purposes are: "Managing the China Trade Challenge: Confronting the Limits of the WTO"; "The 'China, Inc.' Challenge to Global Trade Governance"; "The Next Generation of Trade and Environment Conflicts: The Rise of Green Industrial Policy"; "Why Developing Countries Won't Negotiate: The Case of the WTO Environmental Goods Agreement"; "Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and Lessons for the Multilateral Trade System."

Senior Advisor Beth Baltzan: "previously served as an attorney at USTR from 2003 to 2009 [and] served as Democratic Trade Counsel for the House Ways and Means Committee from 2012 to 2016." She is on the progressive critics side of the trade debate (on one side of the progressive side anyway, as many progressives I know would not go as far as she does), and among other things has written that: "we need to return to and update the trade principles in the Havana Charter. Those principles include engineering fair, competitive markets designed to limit corporate power." A model trade agreement she put together is here (a sampling: "there is a valid argument that the non-binding state-to-state dispute settlement regime that prevailed under the GATT may be as useful as the binding dispute settlement regime of the WTO.") I commented on one argument she made about USMCA in this blog post.

(A few other appointees are mentioned here, but I was trying to keep the list manageable. And if you're wondering what the role of a Deputy USTR is, Rufus Yerxa has an explanation here: "The deputy USTR is kind of the intermediary between the political level and the substantive and technical level of work in USTR, and, of course, you also have to be a good negotiator and a good politician.")

One thing that jumps out from this list is how many people have connections to Congress (more so than the usual USTR political appointee staffing, I think). I'm not sure there will be any substantial trade initiatives (like an FTA) that require Congressional approval in the near future, but nevertheless it will help to have Congress supporting the various things USTR wants to do, and these connections should help facilitate a good relationship between the branches.

Another important point may be the connections to Biden himself. I've heard a number of people suggesting that in the Biden administration, USTR under Tai will be pushed aside by the foreign policy crowd. While I think it's clear that trade will be less of a priority under Biden than it was under Trump, I wouldn't be so quick to dismiss the role of USTR in this administration. The trade folks may be able assert themselves, at least on some key issues, as they have technical expertise that others lack.

And finally, you don't see the connections to industry -- either directly or through legal representation -- that you saw with political appointees in the Trump administration. Could that have an impact on how a Tai USTR approaches policy-making? It's hard to imagine industry being shut out of policy-making entirely, but perhaps its relations with this USTR will operate a bit differently (or perhaps not, because the connections with other USTR staff will still be there).

In terms of the substance of trade policy, what I wonder is, how will this group interact with each other and with USTR career staff to forge a new U.S. trade policy? What will their vision be and where exactly will they take us? Will there be a proactive set of revisions to U.S. trade policy, or will things mostly be reactive? I think we know how they will frame it all, as worker-oriented and pursuing social justice in some way, but that doesn't tell you much on some aspects of trade policy. In terms of specific policies, such as dealing with China's trade practices, or WTO reform, or digital trade, we are all eagerly awaiting some indication of the specific path forward.

And there are likely to be complex linkages between some of these issues, such as China and WTO dispute settlement. Many people, including Biden himself, have emphasized that the U.S. should work together with the Europeans and other allies more on China trade issues ("let's build a united front of allies to challenge China's abusive behavior"). But can that united front really happen without addressing current conflicts such as the WTO dispute settlement crisis? The Europeans have shifted their rhetoric on the Appellate Body to accept more of the U.S. concerns, and I think they are expecting a concrete U.S. proposal in this area. I hope USTR is working on something in this regard, because if not it is likely to be significantly more difficult to form that united front. (Along the same lines, this was definitely helpful: "The Biden administration has ceased its push to exclude essential medicines and other critical medical inputs from its government procurement coverage at the World Trade Organization, avoiding a first test of the Government Procurement Agreement’s arbitration procedures and the potential for retaliation from other members.")

Tim Meyer Responds on Exceptions and "Mixed Motives"

This is a response from Tim Meyer to my post on his new article

Many thanks to Simon for his thoughtful take on my new article, A Political Theory of Legal Exceptions, as well as the opportunity to respond.

Simon and I do agree on a lot. Most notably, we agree on the need for more flexibility, as Simon has written about in his recent paper on Digital Trade Agreements. Points of agreement are less interesting, though, so I’ll focus mostly on our disagreements.

First, although Simon & I mostly agree on the benefits of loosening the requirements of GATT XX, Simon is a perhaps a bit more skeptical than I am of the need to do so. He suggests that “Article XX might look very different when applied to Article III than Article XI. In fact, you might not even need Article XX when Article III is involved, if you interpreted Article III in a certain way.” I agree with Simon on Art. III, but these kinds of statements make me nervous! I see no textual reason for Article XX to apply differently to violations of Article III as opposed to Article. XI. And although I know Simon does not intend this, I worry that licensing a different approach will result in less flexibility for allegedly discriminatory measures that pursue non-trade public policy goals, rather than more.

Second, Simon questions whether exceptions add much to the political incentive protectionist interests have to find allies. Greenwashing, Baptists-Bootlegger coalitions, and the like occur in lots of contexts. But this concern assumes too much. A conventional view of trade’s primary obligations (e.g., tariff limits) is that they influence domestic politics and policymaking by incentivizing alliances between exporters & domestic consumers. I’m not sure why some trade rules (primary obligations) would influence domestic politics but others (exceptions) wouldn’t.  Policymaking does not stop with politics, though. A range of government actors shape policies during both their formulation and their enactment. Legal exceptions in treaties can exert a powerful influence over government policies through these actors. Exceptions give government lawyers, such as those at USTR or trade lawyers at the House Ways and Means and Senate Finance Committees, a way to justify—and thus a reason not to oppose—mixed motive policies. Exceptions work both politically and with policymakers.

Next, Simon worries that mixed motive policies may dilute the effectiveness of the non-trade policy, as measured against a hypothetical pure non-trade policy. That is probably true in some cases, and, e.g., environmentalists are free to try to enact a pure policy if they are able. But politics is the art of compromise. Predominantly protectionist measures should not survive review under trade rules, as I argue in the piece, but trade rules should also have a bit more tolerance for the realities of politics and policymaking. Exceptions provide a legal vehicle for creating that flexibility.

Simon ends by arguing “that we as a . . . society are better off overall with NAFTA and the modest liberalization under the WTO,” even given the disruptions trade creates. Happily, we don’t have to make a binary choice! International trade agreements have been a major force for positive change, economic and non-economic, at home and abroad. I am not suggesting otherwise. But that doesn’t mean that we shouldn’t revisit the degree of flexibility those agreements create for governments balancing different kinds of policy and political concerns.

To that end, I agree with Simon that more research is needed into the effects of new trade barriers. But that research needs to look at all of the effects—not just economic costs but also non-economic benefits that may be hard to quantify. And it needs to do so with realistic assumptions about what alternatives are politically feasible in the absence of mixed motive policies. Trade law should not, as the old joke goes, assume a can opener.

Tim Meyer on Exceptions and "Mixed Motives"

My friend Tim Meyer has a new paper entitled "A Political Theory of Legal Exceptions." Back before the pandemic, Tim and I and a few others submitted a proposal for a SIEL 2020 panel entitled "Making Space for Public Policy in International Economic Law Agreements: The Role of Obligations and Exceptions." That panel never happened, of course, and this paper of Tim's predates that proposal, but nevertheless it would have been an opportunity to discuss these things. With any luck, we'll all have that chance soon!

Talking about trade policy with Tim is always interesting because we seem to either strongly agree or strongly disagree on issues. This paper has a little of both. I'm not going to give a comprehensive summary of the paper in this post, so read the whole thing to get the full flavor of his argument. Instead, I'm going to pick out a few aspects to comment on.

First off, where we agree is that existing exceptions language in trade agreements, and the judicial standards derived from them, are sometimes too narrow. Here's how Tim describes a flexible approach he advocates:

An alternative approach within new trade agreements would borrow from the experience of investment treaties. In response to decisions that they perceived as overreaching, a number of states began including clarifications in the investment chapters of their trade agreements and standalone investment treaties. This language provides that “[n]on-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations . . .”

This language was adopted to clarify the meaning of rules prohibiting expropriation, but other countries have adopted the means-ends relationship – “designed and applied to”—to their general exceptions clauses. Specifically, they have modeled the scope of their general exceptions clauses on GATT article XX, but replaced “necessity” with “designed and applied to.” They have also retained the chapeau of Article XX and its nondiscriminatory requirement.

This approach dramatically improves the workability of general exceptions clauses. Unlike the necessity test, the “design and applied to” standard does not preclude the possibility that a measure had more than one motive. It merely requires that one purpose—as evidenced by the measure’s design and application—is a permissible regulatory objective. The original context of this language’s development further underlines this point. The “designed and applied to” standard was created to provide defendant states greater discretion in how they pursue legitimate regulatory objectives. This negotiating history further makes clear to treaty interpreters that multiple objectives should not be fatal to invoking an exception. By contrast, new exceptions clauses that mirror or incorporate by reference existing WTO exceptions risks codifying, in the eyes of future treaty interpreters, existing WTO case law on exceptions.

To be sure, states have adopted the non-discrimination requirement from the chapeau of GATT article XX even in those treaties that have discarded the necessity test. In recent cases like EU—Seals and Brazil—Tyres, the non-discrimination requirement has been the stumbling block to successfully invoking the exception. Modifying the language of GATT Article XX in new agreements could make clear that a Predominant Motive test applies to the non-discrimination test in the chapeau as well. Currently, that language provides that:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade . . .

The chapeau could be rewritten to codify a Predominant Motive test in the following way:

Subject to the requirement that arbitrary or unjustifiable discrimination between countries where the same conditions prevail is not the predominant objective of such measures . . .

This language makes two changes. First, it deletes the prohibition on “a disguised restriction on trade.” This language suggests that tribunals should look for hidden motives, a requirement that should be eliminated in favor of asking directly whether a legitimate objective constitutes the challenged measure’s primary motive. As the Channeling Paradigm suggests, multiple objectives is more likely the norm in policy making. Giving tribunals license to root out motives they deem “disguised” seems particularly unwise in the current context of fragility in international dispute resolution.

Second, this language makes clear that arbitrary or unjustifiable discrimination is only problematic if it is the predominant objective of discrimination among countries where like conditions prevail. This language preserves the fundamental nondiscrimination requirement of the chapeau. At the same time, though, it expands the discretion states have to choose among measures that might incidentally discriminate among countries.

In so doing, it will expand the margin of appreciation member states enjoy from second-guessing by dispute panels. Trade panels will still be able to strike down measures that are predominantly protectionist or discriminatory. But mixed motive measures that predominantly pursue permitted objectives will survive. That rebalancing between the right to regulate and the objectives of trade liberalization will bolster the legitimacy of trade law and its dispute settlement function at a time when such legitimacy is sorely needed.

I think Tim and I would end up in about the same place on these issues, although I might apply a slightly different standard. First of all, I would emphasize the relevant obligations a bit more, and perhaps distinguish between the exceptions being applied to certain obligations versus other obligations. For example, Article XX might look very different when applied to Article III than Article XI. In fact, you might not even need Article XX when Article III is involved, if you interpreted Article III in a certain way. But regardless, for each exception/obligation combination, what I would want to look at is a combination of the degree of discriminatory effect and the degree of discriminatory intent (mostly objective intent, but I wouldn't rule out subjective intent as a supporting element). In terms of the intent, I like the "predominant motive" framing. I just want to make sure that effect is not ignored.

Anyway, I basically agree with Tim here, although what I said in the previous paragraph may obscure that a bit. What I think we agree on is that the fundamental inquiry that should be undertaken -- either in the obligations or the exceptions -- is whether the measure is protectionist. Under the current standards, it's not always clear to me that's the inquiry being carried out, and I worry that non-protectionist measures will be found in violation as a result.

Shifting to the bigger picture, Tim sets out three theories of trade law exceptions. The first two are the conventional ones, and the third is something he came up with:

Despite the variety of exceptions within trade law, this Part argues that there is a conventional wisdom regarding exceptions. I distill that conventional wisdom into two approaches to exceptions: what I refer to as the Policy Space Theory and the Safety Valve Theory. Under the Policy Space Theory, governments invoke exceptions to accommodate objectives from policy domains other than trade policy, such as to fulfill domestic social or environmental objectives. An unlawful trade measures might be justified, for instance, as necessary in order to take aggressive measures to combat climate change.

The Safety Valve Theory, by contrast, holds that governments invoke exceptions to defuse political pressure that trade liberalization itself creates. This pressure typically comes from domestic groups that are harmed by competition from imports. Exceptions for measures that target unfair trade practices, for instance, allow states to reintroduce some protection into the trading system in order to reduce attacks on the trading system as a whole from these interests.

...

I ... introduce the Channeling Paradigm. The intuition behind the Channeling Paradigm is that a certain amount of domestic political pressure for protection from foreign economic activity will remain in any political system. That pressure will seek an outlet, which exceptions provide. Those interested in increasing barriers to foreign economic activity will therefore seek to form political coalitions in favor of policies that both create protection and serve some other objective authorized by the exception. The availability of international legal exceptions, in other words, channels domestic political pressure for otherwise impermissible objectives into policies that plausibly fit within the exceptions. As a result, “exceptional” trade cases are very likely to involve government policies that have mixed motives. A trade jurisprudence that does not have greater tolerance for governments’ mixed motives is one for which governments themselves are likely to have little tolerance.

His explanations of the first two theories make sense to me. But with the third theory, the disagreements may be starting. Tim argues the following:

The basic idea behind the Channeling Paradigm is that exceptions incentivize explicit or implicit bargaining among domestic interest groups. Groups with different potentially trade restrictive policy objectives, such as an environmental group and a domestic import-competing industry, will unite around a single policy that plausibly fits within an exception. Such policies will be more likely to be enacted domestically and stand a better chance of an international tribunal finding that the measure falls within an exception. ...

Here are some questions I have: Do trade exceptions really play much of a role in how domestic politics is carried out? Are the exceptions doing much "channeling"? Wouldn't all this be happening in domestic politics even if trade agreements didn't exist? I can certainly imagine that domestic actors would cite to the trade agreement exceptions as they formulate their positions, as people will always cite to things that support their argument. But I'm not sure the political results would be any different if those exceptions did not exist. It's a question of cause and effect, and I'm just not sure the exceptions are causing anything.

Also, when this does happen in domestic politics, couldn't it lead to a tainting of the non-trade policies? A measure's objectives seem a bit less pure when special interests lobbying for protection from competitors join the team.

Next up, there is the classic disagreement I have with Tim: Doesn't this bargaining among interest groups end up leading to less effective implementation of the non-trade policy at issue? It may be true that local content requirements help with the political task of generating support for clean energy subsidies, but they also put in place policies that undermine the impact of the subsidies in pushing people towards clean energy. 

And finally, there is a disagreement over the economic literature about the impact of trade liberalization. Tim says:

Even the reduction in tariffs achieved through free trade agreements like NAFTA and the dramatic expansion of the WTO in the decades after the end of the Cold War had significant domestic economic effects. These agreements allowed multinational companies to disaggregate their supply chains across countries, moving jobs offshore. While the globalization of supply chains had beneficial effects for companies, and led to job growth in some communities within the United States, it also led to significant and long-lasting economic turmoil in communities in which jobs were shipped offshore.

I agree that trade liberalization is disruptive because it changes the economic status quo. But don't we all agree that we as a (both national and global) society are better off overall with NAFTA and the modest liberalization under the WTO due to that disruption? And that we would be worse off overall if the higher tariffs were still in place? Even taking into account the job losses in some regions, on balance we as Americans (and not insignificantly, poor people outside the United States) are better off. And when I say "we," I don't mean companies, some of whom were helped and some of whom were hurt by all this. I mean ordinary Americans, including those with the least economic security. Yes, we could have kept some tariffs in place and perhaps particular jobs would have been preserved, at least for a little while. But when you take into account the economic harm caused by those tariffs (job losses in other places, higher prices for basic goods), joining these trade agreements was still the right policy. Keeping the tariffs would have been economically harmful to a lot of vulnerable people.

I feel like what we need is more analysis of the disruptive impact of long-standing and newly imposed tariffs, including an examination of who in particular is harmed by them. That would be a useful way to reframe the discussion. People are always putting trade liberalization on trial, and I think we need to put tariffs and other forms of protectionism on trial a bit more. The Trump administration's various unconventional tariffs have been helpful in providing opportunities to measure the impact of tariffs, but there is probably more work to do here.

In Dubio Mitius - 15 years later

Nothing gets a public international lawyer more stirred up than a maxim of interpretation, and few maxims hit a nerve more readily than "in dubio mitius".

Thanks to Petros Mavroidis' recent (and highly recommended) post on transnational subsidies, I found myself squandering a Saturday - when I should have been grading papers -- typing in dubio mitius into the internet.

What I came up with was this interesting article from 2009 by Christophe Larourer: In the Name of Sovereignty? The Battle over In Dubio Mitius Inside and Outside the Courts  

M. Larourer suggests that the concept of in dubio mitius is obsolete, and that the Appellate Body's reliance upon it in Hormones undermined that Body's legitimacy.

Twelve years later, the question I would like to pose is the following: 

Did the Appellate Body (and WTO DS generally) err by relying too heavily on an obsolete principle to the detriment of its legitimacy, or by not resorting to it more consistently?

Any thoughts?

OBOR, No More?

Last year the European Union (EU) imposed countervailing duties (CVDs) against imports of glass fiber originating in Egypt. Nothing shocking so far, other than the fact that the EU measure was counteracting subsidies granted by … China. How should we think about this and similar issues?    

Facts of the Case

Commission regulation 2020/870 of June 24, 2020 raised a few eyebrows, even though, as Evenett et al. (2020) have argued there is an emerging trend in this vein, and we should not be surprised that the EU has adopted this attitude once again. Still, it is not every day that a WTO member countervails FDI (foreign direct investment). Jushi China, an SOE (state-owned enterprise), provided Jushi Egypt, a subsidiary headquartered in the Suez Special Economic Zone, with funds at preferential rates. Jushi Egypt then exported glass fiber products that had benefitted from Chinese subsidies to the EU, only to see their exports countervailed through the above-mentioned regulation. 

Is the EU Approach Lawful?

No dispute has been lodged so far before the WTO. But it would be hard to see how the EU could prevail in light of the unambiguous wording of Articles 1 and 2 of the SCM Agreement (Subsidies and Countervailing Measures), and the legislative intent that gave rise to these provisions. Clearly, it is subsidies paid to producers operating within the territory of the subsidizing government that can be counteracted. It is quite telling that the EU authorities relied on public international law to attribute behavior to Egypt, and when doing so, they have most probably overstated their case.

The legality of the EU approach is a minor concern, we submit. There is a wider policy that is of concern, to which we will return later on.

Of course, one might legitimately wonder why the EU did not choose another path. It could have invoked for example, that it was facing a particular market situation here. This is an amorphous concept, infrequently only used (US has recently invoked it). To the extent that the EU could have shown that a particular market situation exists affecting price comparability because of the Chinese subsidies, then it might have had a legitimate shot when defending its policies. Arguably this is a sleight of hand, but so is a lot of lawyering in antidumping practice. 

Another argument that could, probably, be mounted here is that China is violating MFN here. Subsidies are excluded from national treatment (III.8), but not from MFN. No one of course had anticipated extremely generous governments when the GATT was signed. To the extent that the disbursements in the present case were viewed as “rules in connection with exportation”, then they would have to be extended to all glass fiber products produced around the globe (and probably bankrupt OBOR, the “One Belt, One Road” initiative). Assuming successful complaint, MFN could prove to be the tombstone of a lot of OBOR, at the very least, of the part of OBOR that is linked to specific goods markets. And the challenged measures could not be justified under one of the exceptions to the MFN either: neither Article XXIV nor the Enabling Clause (which explicitly requires nondiscriminatory granting of benefits) would condone this measure. 

Anyway, the EU seems willing to take a firmer stance on foreign subsidies, OBOR being probably the prime target, as the recently adopted White Paper on Foreign Subsidies[1] evidences. The imposition of duties against Jushi Egypt is probably a notch in a belt that European authorities are slowly putting together around the One Belt initiative.

Incidentally, Egyptians enacted a law claiming that goods produced in the Suez zone are of Egyptian origin. Without entering into legal details regarding the conformity of this initiative with WTO, in the absence of this law, the origin of fibers produced in Egypt could have been an issue as well.

But there is a Wider Policy Issue

Unlike the Antidumping Agreement, the SCM protects not only the domestic market from subsidized goods, but also export income impaired by others’ subsidies. If Foreign dumps its goods to the world, Home can protect its market only through antidumping duties. But if Foreign subsidizes its exports to the globe, Home can protect its income everywhere. That mush is true. To this effect, it can introduce a complaint and ask from Foreign to stop subsidizing or else … Else, means of course, that eventually Home will retaliate following permission to this effect. One might of course, legitimately wonder why the threat of retaliation was not perceived as credible by Foreign in the first place, but this is another story. What we care about here is the legislative gap, and not the wider WTO remedies system.

What can one do in a case like the one we discuss here under the SCM Agreement? Nothing much, and this is a paradox. Jushi China profits from increased exports by Jushi Egypt, it might thus have an incentive to subsidize them, safe in the knowledge that it runs no risk to be countervailed under the SCM Agreement.

Yes, there might be a risk that it pays antidumping duties under the Antidumping Agreement, if the claim under particular market situation succeeds. But the trigger effect there, is dumping of the final good. The argument in that case, of course, is that, because of the particular market situation, the imposition of antidumping duties will be facilitated. True. But what if Egypt had investigated Chinese imports and decided that there was no reason to impose CVDs, or if the outcome of the investigation was duties at a low level? And of course, the MFN challenge remains for now a theoretical possibility as no one has gone this way so far. All this to suggest that there is high likelihood that practices like the one discussed in this brief Note, pass the WTO legal regime by stealth. Why is that the case?

The SCM was negotiated with the economy of the late ‘80s in mind. A lot has changed since then. GVCs (global value chains) make wholly-obtained goods an illusion. The very existence of GVCs requires a different thinking about the regulation of conditions of competition in the global market. Is Jushi China, when investing in Jushi Egypt, subsidizing its own production as well? Should not corporate links matter somehow? Can the trading community continue to pretend that national frontiers suspend corporate links? The SCM Agreement needs to be rethought to account for this (different) perspective, otherwise the WTO risks seeing its policy relevance eviscerated even further.

References

Evenett, Simon J., Juhi Dion Sud, and Edwin Vermulst. 2020. The European Union’s New Move Against China: Countervailing Chinese Outward Foreign Direct Investment, Global Trade and Customs Journal, 15: 413-422.

 

[1]https://ec.europa.eu/competition/international/overview/foreign_subsidies_white_paper.pdf  

Assigning Blame for the Impact of COVID-19 on Developing Countries: Markets or Governments

This is from remarks by U.S. Trade Representative Katherine Tai yesterday at a WTO virtual conference on COVID-19 vaccine equity:

We hope to hear more today about how the market once again has failed in meeting the health needs of developing countries.  As part of that we have to consider what modifications and reforms to our trade rules might be necessary to reflect what we have learned.

I don't feel like I've been following vaccine production and distribution issues as closely as some other people have, but nevertheless my sense is that many of the problems result from patents and other IP issues (which are government intervention rather than the free market) and from the way developed country governments structured their purchases of the vaccines (which, again, is the government not the market). And, of course, there were a wide range of new export restrictions imposed by governments, and plenty of existing tariffs, that got in the way of trade in all of the various products needed by developing countries.

I don't know what exactly would have happened if we had a free market in all of the various health products at issue here, and no doubt there would have been some problems. But I think that developed country governments need to consider how their actions have directly led to the failures in meeting the health needs of developing countries. There is still time to change course and I hope the Biden administration is serious about this.

Is USTR Ready To Revisit Necessity Tests?

This is from remarks by U.S. Trade Representative Katherine Tai today on issues related to trade and the environment:

Even as investors take a greater interest in companies’ environmental risk exposure, the multilateral trading system has no rules to address the corporate incentive to participate in the race to the bottom. Rather, the environmental protection measures of WTO members are exposed to challenge. 

While countries can avail themselves of what amounts to an affirmative defense, that defense has proven difficult to invoke successfully. This is part of the reason why, today, the WTO is considered by many as an institution that not only has no solutions to offer on environmental concerns, but is part of the problem. 

If you are worried about affirmative defenses at the WTO being applied too strictly, I would think necessity tests would be an area of concern. In the past, when I've raised the issue of replacing necessity tests with looser "related to"-style tests, people at USTR have not seemed very receptive. Are Tai's remarks a sign that perhaps USTR is ready to revisit the issue?

Tim Meyer has a good new paper on these issues here, which I'll be blogging about soon.

Digital Trade Agreements and Domestic Policy

I did a series of posts recently on digital trade issues, and I have now consolidated them all into a short Cato paper. Here's the intro:

National debates over policies that affect the flow of digital information are heating up as censorship, surveillance, control over personal data, and requirements to store data locally have emerged as contentious political issues. In the coming years, governments will need to carefully craft policies that preserve the free flow of information and avoid data nationalism.

But these policies are not just domestic in nature. The regulations that emerge will have an international dimension due to their impact on companies and individuals in other countries. In an ideal word, domestic regulation would not lead to trade conflict, but in reality it often does. To address the conflicts that might arise from regulatory effects abroad, there have been efforts at the bilateral, regional, and multilateral level to develop international rules on digital governance. The scope of digital trade agreements is still evolving, but, to take one example, the recent U.S.-Japan Digital Trade Agreement defines “digital product” as “a computer program, text, video, image, sound recording, or other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically.” With this and other provisions that establish broad coverage, these agreements will have an impact on virtually all commercial activity on the internet and on smartphone apps.

The international rules for digital trade address specific regulatory issues such as consumer protection and spam, but they also include the broad principle of nondiscrimination, which offers more general international oversight. Two key aspects of that principle are the nondiscrimination obligation, which in the international trade context requires that domestic regulations treat comparable foreign and domestic products alike and treat comparable foreign products from different countries alike; and exceptions for various public policies, which ensure that the international trade regime does not interfere with policymaking on nontrade issues. Under the Trump administration, the United States put forward specific language during negotiations on these digital agreements that results in an overly broad approach to the nondiscrimination obligation and a narrow approach to the exceptions. This paper argues that the Biden administration should reconsider current U.S. policy in this area and adjust the proposals it has made in the ongoing World Trade Organization (WTO) e‐​commerce negotiations.

Having watched the debate over how international economic law intrudes into domestic sovereignty/regulatory autonomy, I worry that we haven't learned those lessons very well and are about to make the same mistakes in international governance of digital trade. My paper addresses one particular aspect of this, but there's a lot more to say. Some time in the next couple months, I'll be hosting a Cato webinar on digital trade governance and will post the details when they are available.