International Economic Law and Policy Blog

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

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

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

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

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

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

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

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUTTIGIEG: Well, the president clearly has no strategy.

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

(LAUGHTER)

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

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

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

STEPHANOPOULOS: Would you repeal the tariffs?

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

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

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

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

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

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

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

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

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

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

(APPLAUSE)

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

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

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

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

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

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

(APPLAUSE)

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

(APPLAUSE)

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

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

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

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

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

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

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

(LAUGHTER)

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

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

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

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

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

(APPLAUSE)

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

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

STEPHANOPOULOS: Vice President Biden, he invoked your name.

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

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

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

STEPHANOPOULOS: Senator Booker, close out this round.

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

BIDEN: Exactly right.

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

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

(LAUGHTER)

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

My quick take on each candidate's answer:

-- Yang didn't say much of anything.

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

-- Klobuchar's answer was vague.

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

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

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

-- Sanders repeated his usual talking points.

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

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

The Appellate Body and the Role of Precedent

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

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

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

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

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

US-China Tariff War: A Lesson about WTO Law

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

I. A brief analysis of the legal situation

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

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

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

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

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

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

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

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

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

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

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

Two Points About Dani Rodrik's Latest Piece

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

Guest Post: Energy Policy in EU Free Trade Agreements

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

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

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

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

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

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

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

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

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

...

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

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

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

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

Guest Post: The national security exception in light of US – Certain Measures on Steel and Aluminum Products

This is a guest post from Csongor István Nagy, professor of law, University of Szeged and HAS-Szeged Federal Markets “Momentum” Research Group

In this post, I demonstrate three points. First, at the present stage of development the security exception is only slightly judicialized. Second, acts adopted under this exception may nullify lawfully acquired benefits and, as a corollary, may give rise to non-violation claims. Third,member states whose interests are impaired may have the right to rebalance under Article XIX GATT (safeguard measures).

This post is based on a recent publication, “World Trade, Imperial Fantasies and Protectionism: Can You Really Have Your Cake and Eat It Too?” 26(1) Indiana Journal of Global Legal Studies87-132 (2019). It is available here.

 

Article XXI GATT: theoretically yes, practically no

While security measures are reviewable, they are subject to rather weak clogs. The language of Article XXI GATT gives states an immensely wide discretion and no panel is expected to be keen on second-guessing national policy in this most sensitive field. Although the provision is certainly not fully self-judging (its scope is limited to specified cases, so it is, at least in this sense, not self-judging), it gives states an extremely wide discretion that, as a matter of practice, is almost unlimited. This makes the question rather academic. It would be very difficult to question that the endeavor to maintain a steel and aluminum industry of a certain capacity is reasonably related to national security. The maintenance of sufficient production capacity of materials necessary for the fabrication of military equipment is a text-book example of the use of the national security exception. It worked even in the EU internal market: in Campus Oil Limited, Ireland obliged importers to purchase a certain percentage of their requirements from a state-owned refinery. The Court of Justice of the European Union held, under the European equivalent of Article XX GATT, that the maintenance of sufficient domestic capacity could be justified with reference to public security.

However blatantly abusive and inconsistent the measure is, its connection to national security can be reasonably established. Given the link between steel and aluminum and the military industry, the maintenance of sufficient domestic production capacity seems to be justified, let alone the legitimacy crises that would emerge if the DSB started to review national security policy under some sort of a proportionality standard.

 

Lawful but legally objectionable (non-violation claim): world trade is not about free cake

The fact that a measure is justifiable under Article XXI GATT does not mean that it is not legally objectionable. 

The ultimate reason why the tariffs on aluminum and steel are unfair and sparked an outcry is not necessarily their introduction but the fact that the US increased tariffs while expected others to honor their tariff promises (bindings). The major problem and unfairness of the aluminum and steel tariffs is that they nullify trade benefits other states “paid for”. States offered bound tariffs during various world trade rounds in exchange for comparable concessions from other countries. The system of bound tariffs is based on mutually agreed concessions; hence, any unilateral withdrawal goes counter to WTO’s most basic notion of fairness. While all beneficiaries ought to be aware that the competitive relationship between domestic and import products is dependent on various contingencies beyond the tariff itself and that WTO law does contain various exceptions, there is no reason to tolerate state measures frustrating legitimate expectations and turning the price of delivered benefits to ashes.

The above considerations are exactly the ones accommodated in Article XXIII(1)(b) GATT, which is meant to preserve the reciprocal balance of concessions. The concept of non-violation claims obviates situations where a member state wants to eat its cake and have it too. World trade is not about free cakes but about quid pro quo, so tariff-bindings cannot be dried out without consequences.

 

The difference between “rebalancing” and “retaliating”

Some countries adopted rebalancing duties in response to the tariffs on aluminum and steel. Although the United States did not refer to this provision when justifying the tariffs, it has been argued that they qualify as a safeguard measure and, in turn, Article XIX GATT allows states to withdraw concessions to offset the loss of benefits. But can the measures adopted with reference to national security (Article XXI GATT) be regarded as a safeguard measure (Article XIX GATT).

The interpretation is framed by four tenets that may be deduced from the AB’s recent decision in Indonesia – Safeguard on Certain Iron or Steel Products(WTO Doc. WT/DS490/AB/R/Add.1 & WT/DS496/AB/R/Add.1, Aug. 15, 2018). First, the characterization of the state adopting the safeguard measure is not decisive, although relevant. Second, characterization as a safeguard measure and its legality (permissibility) under Article XIX must not be conflated. A measure need not be lawful to have the character of a safeguard. Third, a safeguard needs to violate a provision of GATT. Fourth, it needs to have a protectionist gravity: Article XIX refers to national measures that aim to protect a domestic industry against imports. Characterization is based both on the object and the effects (as the AB put it: “design, structure, and expected operation”). It does not suffice if the measure, in effect, protects the local industry. To qualify as a safeguard measure, it also needs to have a corresponding design and structure.

This implies that a measure adopted to protect the local industry may qualify as a safeguard measure even if the state did not refer to Article XIX GATT and even if the measure is not legal under Article XXI GATT.

It may be reasonably asserted that WTO law’s different exceptions operate in parallel. The fact that a measure meets the requirements of Article XXI should not exclude the possibility of also meeting the requirements of other exceptions, such as Article XX or Article XIX. This is confirmed by the fact that the purview of the exceptions overlap, and WTO law does not indicate any hierarchy in this regard. For instance, under Article XXI a member state may shelter the national steel industry having unexpected difficulties due to increased imports to make sure that it would have steel production capacities in case of emergency or war. In this sense, the maintenance (protection) of the national industry furthers national security. However, the very same endeavor and logic may justify a measure under Article XIX. None of these provisions is superior to the other.

In most cases, it makes no difference which exception justifies the measure; the only thing that matters is that it is justified. However, Article XIX has a very special facet: it is the only provision that authorizes member states to use self-help. This is a huge advantage given that in case of other exceptions the transgressor enjoys the benefits of its transgression ex tunc, while the victim may retaliate only ex nunc.

 

How to distinguish security measures from “security + safeguard” measures? Proposal for a doctrine modelled after antitrust law’s distinction between “naked” and “ancillary” restraints

As virtually all measures restricting trade shelter the national economy, it is essential to draw a clear line between the exceptional state measures that may attract unilateral retaliation (safeguards) and measures where self-help is strictly prohibited. The starting point of such a delimitation should be the quint-essence of safeguards: these are conditioned but genuine protectionist measures that strive to shelter a local industry. It is not the public interest that compels regulatory considerations or national security that warrants the restriction of trade, it is simply the fact that imports cause difficulties to the domestic industry: a circumstance that naturally pertains to international trade and, in principle, does not justify state intervention in WTO law. Article XIX, in fact, sanctions protectionist measures in case of devastating difficulties that were not contemplated by states when promising the concessions. In this sense, Article XIX is sort of a clausula rebus sic stantibus, which permits states to temporarily suspend a commitment, provided they “refund the price” they were paid (that is, they loose trade benefits of an equal value).

WTO law could use the “naked/ancillary” restraints doctrine elaborated in antitrust law.A naked restraint is an agreement whose direct purpose is the restriction of competition. On the other hand, in case of an ancillary restraint, the parties engage in legitimate cooperation (joint venture, research & development), and the emerging restrictions are merely the by-products of this legitimate aim. Here, the agreement’s direct purpose is a legitimate cooperation, and the accompanying restriction is merely collateral to this legitimate aim.

Translating this to Article XIX: if the protection to the local industry accrues as an ancillary effect (side effect) of a genuine endeavor to protect the local public interest (Article XX) or to stand up to unfair trade practices (dumping, countervailing duties), that should not be regarded as a safeguard measure. One the other hand, if the very purpose of the measure is to preserve a local industry, it should qualify as a safeguard measure.

For instance, when the US government threatened Mexico to jack up tariffs if Mexico did not halt illegal immigrants across the southern border, this could be regarded as an ancillary restraint: the main goal was to put economic pressure on Mexico in an inter-state conflict to get a political result, the protective effects were the by-products of this. In the same vein, if a country embargos British products because, allegedly, an epidemic of mad cow disease rages in the United Kingdom, this should not be considered a safeguard measure, although it certainly protects the local beef industry. On the other hand, if the measure’s primary objective is to secure the existence of a local industry of a certain size, that would be a “naked restriction” of trade and rebalancing under Article XIX should be available. Although the policy to maintain a local mining capacity of iron because that is needed for military equipment may be perfectly legitimate under the national security exception (Article XXI), its primary purpose is to protect the local industry against imports.

Beto O'Rourke on Trade Policy

In a new post, he has a lot to say! Here are some snippets:

President Trump’s disastrous trade war, which he claims was designed to save American jobs, has done just the opposite. “If I’m elected,” President Trump told workers and businesses, “you won’t lose one plant.” Yet, across our country, factory after factory has shuttered its doors. Manufacturing just shrank for the first time in nearly a decade. Trump’s tariffs have amounted to one of the largest middle-class tax hikes in decades. And many farmers — already underwater from climate change — have nowhere to export their crops because President Trump’s tantrums and tweets destroyed their markets overnight.

Off to a good start! Now let's see what he wants to do instead:

Beto has a better way. ...

On day one, Beto will end Trump’s trade wars, which have not only failed to curtail China’s economic aggression, but hurt American workers. And recognizing that trade can unlock opportunity for growth for all communities and enhance small businesses across the country, Beto will aggressively pursue smart trade agreements that defend American values and interests. This will ensure American workers are not only protected, but are the most competitive in the world.

Still good. Now more details:

As President, Beto will:

• End Trump’s trade war
• Defend American values and interests against competitors like China
• Pursue trade agreements that support working families
• Work to enhance the competitiveness of U.S. workers and small businesses

Let's take these one by one:

I. End Trump’s trade war

Donald Trump has enacted tariffs on over $500 billion worth of goods from China, which amount to a $100 billion tax increase on American consumers and businesses, hitting low-income Americans especially hard.

Trump’s tariffs are an attack on U.S. exporters. They have driven up the price of imported intermediate parts, made the dollar less competitive, and caused other countries to retaliate against us with their own tariffs. And they have been a disaster for American farmers and ranchers, destroying their long-standing relationships with customers abroad and forcing many family farms into bankruptcy.

Beto recognizes that targeted tariffs are a tool that may sometimes be necessary, but they must not be used as a threat to drive anti-immigrant agendas or in a way that causes further pain to American businesses and workers. Trump started his trade war with China to reduce the U.S. trade deficit, but the deficit is rising, not shrinking. Auto plants have been closing, not opening. Manufacturing activity has declined. And as the U.S. may now be headed for a recession, it has become increasingly clear that tariffs are not part of a larger strategy, but rather part of a pattern of conducting foreign policy by tweet.

As President, Beto will:

• Suspend Trump’s tariffs immediately. On day one, Beto will end the trade war with China by eliminating the Trump tariffs. In exchange, China would revoke its retaliatory tariffs on American products like soybeans, beef, cars, and planes. 

This is all very good. There are better ways to address trade issues with China, and ending the Section 301 tariffs makes sense.

Now on to his proactive agenda:

II. Defend American values and interests against competitors like China

The failure of President Trump’s strategy is no reason to ignore China’s anti-competitive actions. China made several commitments to open up its markets in exchange for joining the WTO, but it has failed to honor them. Instead, China has used currency manipulation, subsidies, restrictions on market access, corporate espionage and other strategies to frustrate U.S. companies’ attempts to compete in China. And it is deploying these powerful tactics as part of a “Made in China 2025” initiative to dominate industries of the future like green vehicles, telecommunications, and artificial intelligence. This is not just a question of ensuring that the United States is competitive in the 21st century — American dependence on China for our robotics, aeronautics, and information technology also constitutes a threat to our national security.

As President, Beto will:

• Modernize the World Trade Organization to address 21st century trade issues. Our difficulties with China reflect the failures of the World Trade Organization (WTO) to deal with the trade issues of the 21st century. The WTO has generally been successful in reducing tariffs around the world, resulting in lower prices and higher productivity. Yet it has proven itself unable to deal with key topics of international trade disputes, such as currency manipulation and state-owned enterprises. Moreover, despite the hopes of the architects of the post-World War II trading system, the WTO still lacks robust, enforceable labor rights. And it similarly lacks strong, enforceable environmental standards despite the clear need to address global climate change. That is why an O’Rourke Administration will demand the following reforms of the WTO:
• Updating the WTO agreement to tackle currency manipulation, competition, overcapacity, industrial subsidies, and other modern trade issues. These issues are the main obstacles to a level playing field in international trade today and a global body for solving trade disputes needs rules addressing them.
• Creating enforceable labor standards. By amending WTO agreements to include the International Labor Organization’s core conventions, Beto would ensure the WTO combats child labor and protects collective bargaining rights. Countries’ failure to uphold these standards would be considered an unfair subsidy and subject to countervailing duties.
• Making “sustainable development” an explicit goal of the WTO. This would require that WTO rules be interpreted consistent with this fundamental value and ensure that any national efforts to advance the globally established Sustainable Development Goals should be considered presumptively permissible.
• Improving the WTO dispute settlement system. Beto would solve the current impasse over the WTO’s dispute settlement system while ensuring that it respects negotiated outcomes.
• Lead a global coalition to stop China’s anti-competitive behavior.Modernizing the WTO is critical for the long-term health of the global trading system. But as it does not have adequate authority or appetite to address the most pressing problems in international trade, Beto will not take action off the table to defend our values and interests.

As President, Beto will launch an aggressive WTO case with other countries against China, arguing that it has failed to live up to the specific commitments it made when it joined the WTO. If the case does not bring swift changes in China’s behavior, he will also be prepared to act unilaterally to enact a series of progressive actions that will increase pressure on China. Unlike Trump, Beto will work with our allies while bringing that pressure. Actions Beto will consider taking against China if it does not change its behavior include:

• Delisting Chinese companies from U.S. stock exchanges when they refuse to make their audit work-papers available for inspection by the U.S. Public Company Accounting Oversight Board
• Limiting access to the U.S. banking and financial system to Chinese companies that have been found — after receiving due process — to be stealing U.S. companies’ intellectual property.
• Screening and potentially limiting Chinese investment in certain U.S. sectors until it ends its most egregious anti-competitive practices.
• Working with our allies to be prepared to engage in concerted countervailing duties cases in sectors that are injured as a result of Made in China 2025 subsidies. This is in stark contrast to the broad duties Trump has announced, which cover over half a trillion dollars in imports, and which have already pushed the average tariff rate on Chinese imports from 3 percent to around 20 percent.
• Aggressively counter currency manipulation. The most effective way for a country to boost its trade balance is not tariffs — but rather by reducing the value of its currency to make its exports cheaper and imports from other countries more expensive. China recently taught President Trump this lesson when it reacted to a recent round of announced tariffs by letting its currency fall. Over the course of the “decade of manipulation” of 2003–2013, currency manipulation cost the U.S. up to 5 million jobs.

Beto will take real action to address currency manipulation when it arises including:

• Investing in the analysis needed to detect currency manipulation. Countries increasingly rely on informal forms of manipulation that are difficult to detect by, for example, using state-owned enterprises to intervene in currency markets. Beto will invest in the expertise needed to study and detect those forms of manipulation.
• Revamping the U.S. Treasury Department’s currency report to focus on countries that have large trade surpluses and substantial trade balances with the U.S.
• Enabling the federal government to engage in defensive, countervailing currency intervention in extreme cases. When countries continue to engage in currency manipulation after warning from the U.S. Treasury Department, the federal government could intervene by offsetting another country’s purchases of dollars by purchasing other countries’ currency. The U.S. would encourage other countries that have been afflicted by manipulation to participate as well.
• Consider other ways to counter currency manipulation, particularly in the case of China — which forbids the purchase of its domestic bonds by foreigners. The U.S. would consider options such as taxing its purchases of U.S. assets if the revamped currency report finds it to be a manipulator and it ignores our warnings.

Whew. There's a lot going on there. Someone put a good deal of thought into this. There are things I agree with (WTO cases against China, solving the DS crisis) and things I disagree with (labor standards at the WTO), but on balance it's a big improvement on what's happening right now.

Next up, what kind of trade agreements would he support:

III. Pursue trade agreements that support working families

Beto not only believes that trade can unlock economic growth across the country, but that trade agreements can provide opportunities to address income inequality as well as global problems that require international coordination. As president, Beto will aggressively seek trade agreements that center on the needs of working families and will prioritize labor rights and environmental standards during trade agreement negotiations. Trade agreements will not include provisions that restrict governments’ ability to regulate in the public interest, such as locking in pharmaceutical patent lengths. Beto will not sign any agreement unless its benefits for working families and the environment are clear.

As President, Beto will:

• Negotiate trade agreements with strong labor and environmental standards. This will make it easier for countries to compete with one another based on productivity and innovation instead of how successfully they suppress labor unions and how much they pollute the environment. All agreements will:
• Include the core labor rights of the International Labor Organization and other key labor protections such as strong country-specific minimum wages.
• Include the provisions of the Paris Climate Accord and other key environmental protections addressing issues such as deforestation, wildlife trafficking, and whaling.
• Prevent the race to the bottom that is international tax competition by committing to the OECD Base Erosion and Profit Shifting Project.
• Avoid net declines in union membership or increases in U.S. income inequality without offsetting changes to tax, labor and other economic policy as part of the same legislative package.
• Require major employers in industries that would benefit from an agreement to sign neutrality agreements with labor unions that will make it easier for their workers to form a union. This will help ensure that workers share in the gains of trade instead of having their voices diminished.
• Create an independent Trade Enforcement Commission. Beto will call for creating a Trade Enforcement Commission that is independent of the Office of the U.S. Trade Representative to identify violations of labor and environmental standards. It will use dedicated resources, technology, and data to dramatically increase the speed with which violations can be investigated and determined. When the commission concludes that there is a violation, the U.S. government will be required to bring a case. This will come with a commensurate increase in the number of trade prosecutors with the authority and technical tools to investigate violations — and bring cases against violators.
• Build enforcement capacity in developing countries. Recognizing the difficulty some developing countries have in enforcing labor and environmental standards, the U.S. and foreign governments would collaborate on the inspection of facilities that may be violating standards. Facilities found to be in violation would be denied preferential tariffs and, in some cases, access to the U.S. market altogether. This is modeled off the U.S.-Peru agreement’s timber annex.
• Enact strict rules of origin. Rules of origin ensure that only the parties in the agreement benefit from it, but those rules are typically weak. Under the Trans-Pacific Partnership, for example, 55 percent of the components of a car could have been made in countries that were not party to the agreement and its rules on labor and the environment. Beto will enact strict rules of origin in new trade agreements while collecting better data so that exports from countries not party to the agreement do not get the benefit of tariff reductions without playing by those rules.
• Include labor, environmental and consumer groups in trade agreement development. Beto will include representatives from each of these groups and small business in every Trade Advisory Committee to ensure that their voice is heard. U.S. International Trade Commission reports will include specific analyses of industry- and region-specific dislocations and job losses, assessments of environmental risks and opportunities, and potential effects on small and minority-owned businesses, union membership, and income inequality. The ITC will also periodically perform analyses of existing trade agreements and reciprocity evaluations to identify countries with unfair practices that could be worth addressing in future agreements such as labor rights, environmental practices, and misaligned currencies.

This mostly seems like boilerplate language from pro-trade Democrats.

And finally there is this, "IV. Work to enhance the competitiveness of U.S. workers and small businesses," which is more about domestic policy issues, so I'm going to skip it.

Overall, sounds like a reasonable, moderate statement of Democratic trade policy. I'm not sure it's going to give him the surge in the polls he needs, but we'll see. It would be nice if it got some attention at the next primary debate.

The USMCA Sunset Clause Will Not Help Much with Enforcement

A couple months ago, I pushed back on the idea that the USMCA sunset clause will help with enforcement. Now I see it popping up again. This is from Inside US Trade:

... [Tom] Vilsack also argued that the review function in the new agreement -- a watered-down version of a controversial U.S.-proposed sunset clause -- would be good for the industry.

“We’re going to have to see how the Canadians formulate their regulatory system in terms of the implementation of [the increased market access] to make sure that is indeed additional access. We’ve had situations in the past where games have been played by the Canadians,” he told Inside U.S. Trade in an interview ahead of the event. “If they were to play games, the idea that the agreement can be reviewed periodically gives us an opportunity to raise issues on a more regular basis than was the case with NAFTA.” 

In my view, Vilsack's explanation of how the sunset clause could help with enforcement is misguided. On this issue, Inu and I wrote the following last year:

While there is nothing wrong with updating agreements to keep up with changes in the economy and to fix flaws that have been discovered, this provision takes “review” of the agreement a step too far. The possibility of automatic expiration after only 16 years adds an element of uncertainty to the whole enterprise.

If the United States was looking for a way to review the agreement, there were much simpler approaches that already exist. First of all, given that the new NAFTA is a renegotiation based on a review of the old NAFTA, it is obvious that a review of the agreement is already possible. No additional provision was required.

Furthermore, there is also a permanent mechanism embedded in the original NAFTA (and carried over into the new NAFTA) through which the parties can carry out regular reviews: The Free Trade Commission.

The commission is made up of ministerial level representatives of the government, usually the United States Trade Representative, Canada’s Minister of International Trade and Mexico’s Secretary of the Economy. These ministers can and should conduct regular meetings to review the functioning of the agreement.

In addition, the commission oversees various committees, which address all of the wide ranging technical issues covered by NAFTA.

Historically, the commission has done remarkably little. The original NAFTA requires the commission to meet at least once a year, but in reality, these meetings have been rare and have accomplished little. In fact, the most recent joint statement by the commission that appears on the Government of Canada’s website dates back to 2012.

The new NAFTA makes this worse by only requiring the commission to meet within one year of the agreement’s entry into force, “and thereafter as the Parties may decide.”

If the Trump administration wants a periodic review of NAFTA, it should push for a reinvigorated commission and committees that meet regularly, rather than a high-stakes game of chicken at six-year intervals. Such a negotiating environment may produce short-term “wins,” but it will undermine the countries’ relationship over the long-term.

Waiting for the sunset clause before raising these kinds of issues makes no sense. If the United States wants to ensure that Canada provides the promised market access, it should forget about the sunset clause and instead raise the issue in the relevant committees or with the Free Trade Commission, or file dispute settlement complaints. 

News Reports About the U.S.-Japan Trade Deal Raise Some Questions

This is from the Nikkei Asian Review:

Japan and the U.S. reached a broad trade deal Saturday, with Tokyo agreeing to lower its tariffs on American beef and pork to levels set by the Trans-Pacific Partnership while letting Washington maintain its 2.5% levy on Japanese autos for now, Nikkei has learned.

Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump will confirm plans to conclude the talks in late September when the two leader meet Sunday in Biarritz, France, on the sidelines of the Group of Seven summit. The bilateral pact could take effect this year. 

...

If Abe and Trump sign an agreement in late September, the pact will be put forward for a vote in Japan's parliament in the fall, which will conclude the Japanese side of the ratification process.

In the U.S., congressional approval is not always required for a trade pact. The U.S.-Japan trade agreement thus could take effect within one to two months of Japanese parliamentary approval. 

Trump had been asking Japan to cut tariffs on agricultural products. Under the agreement, the 38.5% tariff on imported U.S. beef will be lowered to 9% in phases, according to sources close to the negotiations. Tariffs on low-grade pork are currently at 482 yen ($4.58) per kilogram but will be reduced to 50 yen per kilo. The 4.3% tariff on high-grade pork will eventually be brought to zero.

Japan has already slashed tariffs on pork and beef under the TPP, which took effect in December. If the U.S. and Japan sign a trade pact, the Japanese tariffs on American pork and beef will be immediately lowered to the rates enjoyed by TPP partners. After that the tariffs on U.S. products will be lowered at the same pace as the rates for the TPP trade group. In April, the TPP's tariff rate for beef settled at 26.6%.

...

For its part, the U.S. will set up a tariff-exempt import quota for up to 3,000 tons of Japanese beef, likely fueling the "wagyu" boom spreading in America. 

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Japan also agreed to ease the criteria it uses to invoke emergency import curbs on U.S beef as it does not expect overall import quantities to significantly change; it intends to offset any rise in imports of U.S. beef by adjusting the same criteria it uses for beef from TPP countries like Australia. It expects to enter talks with these countries in the near future.

The U.S. had agreed to abolish tariffs on automobiles in 25 years under the TPP agreed to by then-President Barack Obama. Trump backed out of the pact in his first week of the presidency, after having promised to do so on the campaign trail.

...

... Washington did agree to abolish tariffs on some of 400 auto parts and is set to abolish tariffs on a broad range of manufactured goods, other than autos. Exports of Japanese auto parts to the U.S. reached 929.4 billion yen ($8.8 billion) in 2018, roughly 6% of total exports.

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But there is one more hurdle: Japan will close the deal on condition that the U.S. promises not to use section 232 of its Trade Expansion Act to limit or impose further tariffs on imports of Japanese autos.

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

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

Also, with regard to a "promise not to use section 232 of its Trade Expansion Act to limit or impose further tariffs on imports of Japanese autos," isn't the GATT already a promise not to do this? What is the significance of another promise? Is it that this promise would be more specific and apply explicitly to the product at issue? Is it that it came from the current president, rather than a past president? Political scientists should try to come up with an explanation!

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

Perhaps these questions will be answered if and when an agreement is signed and we see some legal texts.

Humpty Dumpty and the Illusion of 'Evolutionary Interpretation' in WTO Dispute Settlement

This is a new paper from Graham Cook of the WTO:

For those interested, here is a new paper called "Humpty Dumpty and the Illusion of 'Evolutionary Interpretation' in WTO Dispute Settlement" included in Evolutionary Interpretation and International Law (which brings together authors from diverse areas of public international law to offer a comprehensive overview of the approaches to evolutionary interpretation in different international legal regimes). Here is the abstract for this paper:

This paper offers a sceptical perspective on the existence of 'evolutionary interpretation' in WTO dispute settlement. The first part distinguishes the arresting proposition that the meaning of treaty terms change over time (evolutionary interpretation) from the rather unremarkable notion that the factual circumstances to which an old rule applies necessarily change over time (evolutionary application). It then surveys WTO jurisprudence that the prism of that distinction. It seeks to show that there is to date no instance of the Appellate Body or a panel adopting an evolutionary interpretation, in the sense of rejecting the original meaning of the terms at issue, but that there are many examples of WTO panels and the Appellate Body accepting the evolutionary application of provisions to adapt to changing factual circumstances.

Can Industrial Policy Be Kept Out of the Wrong Hands?

Todd Tucker has a new paper in which he argues in favor of "industrial policy and planning." I was planning to follow a policy of industriously ignoring it, because I didn't want to call attention to it. Better just not to talk about it, I thought. But Todd is clever and cited me in his paper, which he knew would induce me to respond. Excellent trolling, Todd!

His cite is to this blog post I did. In particular, he cites one passage, which he describes as follows:

A final objection is more rooted in an observation about the nature of democratic regimes. Simon Lester at the Cato Institute writes that advocates of industrial policy “need to take into account that they are not always going to be in power…You can’t just say, we want economic statecraft but only the good kind. Once the principle has been established, it can be used for anything, and you know that in advance.” Even if one wants the tool for only progressive ends, “that also means President Trump has the power for some non-progressive thing. Given the way such power will actually be used, it’s worth considering whether it would be better if the US government simply didn’t exercise this power, or exercised it a lot less” (Lester 2019).

To clarify, I was talking about "economic statecraft" here, not industrial policy generally. My point was that once you start messing around in other countries' affairs, it inevitably goes in a bad direction at some point. Your intentions might be good (albeit misguided and probably ineffective), but those of your successors might not be good.

Todd offers this reaction:

But to some extent, these critiques could be successfully levied about any activist government policy. Why legislate at all if one’s program could be repealed or co-opted in the future? ...

My response, of course, is: Exactly! This critique CAN be made about any government policy, including industrial policy. Even assuming there is a way to make industrial policy and other activist government policies work in the hands of clever and unbiased administrators, how can you ensure that they won't be ruined later by whomever is in charge next?

Now, I don't mean to suggest that, on the basis of this concern, the government should never do anything. I just mean that people should be a bit circumspect about what governments can do effectively, and "industrial policy" is a great example. How can the government take actions that help specific companies without getting stuck in a cycle of lobbying influence? I'd like to see Todd grapple with that question a bit more. I know he puts "nationalization" out there as a possibility, but it is very unlikely this would play much of a role. In practice, industrial policy is going to involve helping particular industries. Picking the right ones (and cutting them off from aid at some point) and making the whole thing work is really difficult.

To illustrate this point, let me put one of Todd's examples out there for your consideration:

policymakers now are frustrated that China appears to be dominating so many different industrial sectors. The Washington, DC Metro system, for instance, needs new railcars—but there are no American companies left that can supply them. The system also has been stymied by poor rail infrastructure, which has led more and more commuters to switch to driving Chinese-made electric scooters. An inclusive industrial policy might ban scooter imports and fund railcar and bus construction in West Virginia (ground zero of the opioid crisis) and impoverished-majority areas like Black Southeast DC and Prince George’s County, Maryland.

If this is the model, any experiment with some sort of new and expanded industrial policy might not last long. (The flaws seem obvious to me, but we can talk about this proposal if others see things differently).

(I should also note that Todd is not limiting himself to "industrial policy" in the way that most people think of it. He includes "and planning" in the paper's title, which perhaps was a clue that he had something bigger in mind, but when I first read that I took it to mean the planning of industrial policy. In fact, he seems to have in mind economic planning and governance reform more generally. There are many elements of traditional industrial policy in the paper, but he goes much further.)

Can Party Modifications to DSU Rules on Appellate Review Help with the Appellate Body Crisis?

What is the scope of party modifications to the DSU for particular cases, and could it help with the Appellate Body appointment crisis? It may not be an ideal solution, but take a look at the following example and see if it could be applied to the Appellate Body crisis.

Article 17 of the DSU is very clear that the Appellate Body must circulate its report within 90 days:

5. As a general rule, the proceedings shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate Body circulates its report. In fixing its timetable the Appellate Body shall take into account the provisions of paragraph 9 of Article 4, if relevant. When the Appellate Body considers that it cannot provide its report within 60 days, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report. In no case shall the proceedings exceed 90 days.

And yet the participants to an appeal have, in a number of cases, agreed to extend that period. Here's an example, from U.S. - Cotton Subsidies:

8. After consultation with the Appellate Body Secretariat, Brazil and the United States noted, in letters filed on 10 December 2004, that it would not be possible for the Appellate Body to circulate its Report in this appeal within the 90-day time limit referred to in Article 17.5 of the DSU. Brazil and the United States agreed that additional time was needed for several reasons: the issues arising in this appeal were particularly numerous and complex compared to prior appeals, which increased the burden on the Appellate Body and WTO translation services; WTO translation services were unavailable during the WTO holiday period; and the Appellate Body was likely to be considering two or three other appeals during the same period. Brazil and the United States accordingly confirmed that they would deem the Appellate Body Report in this proceeding, issued no later than 3 March 2005, to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.

In recent years, the Appellate Body's decision to take more than 90 days without getting agreement from the participants first has been controversial. But with an agreement between the participants in place, the practice did not appear to be too controversial when it was initially used.

If extending the period for circulation beyond 90 days is acceptable, despite the clear obligations in the DSU, and such reports can be "deemed" to be "an Appellate Body Report circulated pursuant to Article 17.5," are there other DSU provisions that could be modified with the agreement of the participants? With regard to the Appellate Body appointment crisis, I'm wondering if any of the following modifications might help.

First, DSU Article 17.1 says:

A standing Appellate Body shall be established by the DSB. The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case. ...

But perhaps the participants could agree that, in a particular appeal, it would be sufficient for one Appellate Body Member to serve on the case.

Second, DSU Article 17.2 says:

The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once. ...

Perhaps the participants could agree that, in a particular appeal, the four-year term limitation would be suspended, and a recently expired term would be extended.

Taking this even further, perhaps the participants could simply agree to have the case heard by people other than currently appointed Appellate Body Members. Former Appellate Body Members is the logical place to look for candidates, but really it could be anyone the participants want. Putting this into practice, the U.S. - Cotton Subsidies language quoted above could be adapted along the lines of the following:

After consultation with the Appellate Body Secretariat, Member 1 and Member 2 noted, in letters filed on _____, that the failure of WTO Members to agree on nominations to the Appellate Body has resulted in the inability of the standing Appellate Body to hear this appeal. Member 1 and Member 2 have therefore agreed that _______, ______, and _______ will serve as the Appellate Body Division in this appeal. Member 1 and Member 2 confirmed that they would deem the Appellate Body Report in this proceeding to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.

There are a number of other solutions out there already, but I thought I would add these ideas into the mix.

What's the Status of Panel Blocking in the New NAFTA?

This is from Ambassador Lighthizer's responses to the questions for the record from a June 19 House Ways and Means Committee hearing:

From Representative Bill Pascrell to Ambassador Robert E. Lighthizer

1. Using Section 301 could invite retaliation. And Mexico and Canada agreed to fix panel-blocking in the Trans-Pacific Partnership. But this was not changed in the newly negotiated North American Free Trade Agreement. Senators Brown and Wyden have a proposal which sounds worthy of consideration. As we look to improve the enforcement mechanisms in the new newly negotiated North American Free Trade Agreement, can you commit to ensuring there is a binding dispute settlement system that does not allow panel blocking?

Answer: I am committed to ensuring that the agreement is enforceable. My staff and I have been working with the process set up by the Speaker and this is one of the important issues we are discussing.

,,,,,,,,

From Representative Jimmy Panetta to Ambassador Robert E. Lighthizer

.......

4. There remain strong concerns regarding state-to-state dispute settlement, and the ability for one party to block a dispute panel. You have stated to Senate Finance Ranking Member Wyden that the text of USMCA “is not meant to allow panel blocking.”

While that clarification may be helpful, is USTR willing to either update USMCA’s text or negotiate a side agreement that makes that clarification official?

Answer: I am committed to ensuring that the agreement is enforceable. My staff and I have been working with the process set up by the Speaker and this is one of the issues we are discussing.

Those responses were vague and do not inspire a lot of confidence that the panel blocking problem will be fixed. Congress may have to push pretty hard behind the scenes to get this corrected. I hope they are doing so.

Tenure-Track Position in International Economic Law at the University of Ottawa, Faculty of Law, Common Law Section

From the advertisement, hat tip to Debra Steger:  "The Common Law Section of the Faculty of Law at the University of Ottawa invites applications for a tenure-track position as an Assistant, Associate, or Full Professor in International Economic Law commencing July 1, 2020. APPLICATION DEADLINE: September 30, 2019.

International Economic Law at the Faculty of Law at the University of Ottawa: The uOttawa Faculty of Law is one of the strongest international law faculties in the world. It is home to a group of globally recognised scholars in international economic law, has the largest number of international law scholars in Canada and regularly hosts leading scholars from around the world. The Law School provides the opportunity to teach small seminars on a range of international trade and investment law issues to JD students, Master and PhD students, including a trade and investment law clinic, and offers a specialized LLM in International Trade and Investment Law attracting a select and diverse cohort of graduate students every year. The Law School is located at the heart of Canada’s international economic law community and has strong relationships with Global Affairs Canada, international trade institutions, like the Canadian International Trade Tribunal, and the private bar. For more information on international economic law at the Faculty click here."

Collateral Damages of the Trade War

Two researchers from the Kiel Center for Globalization (Haiou Mao and Holger Görg) have just published a working paper entitled “Friends like This: The Impact of the US – China Trade War on Global Value Chains.”  Based on the notion of “cumulative and indirect tariffs” in global value chains (GVCs), the paper demonstrates that higher tariffs on Chinese intermediate products (parts and components) imposed by the United States incur an additional tariff cost to third countries (such as the EU, Canada and Mexico) when they are assembled into final products and re-exported to those third countries.  Any initial tariffs imposed by the United States will continue to hurt multiple trading partners further downstream in GVCs.

This study highlights collateral damages of the U.S. – China trade war.  One might speculate that it calls for a strong “normative” response from the world trade community.  Could, or should, third parties challenge those tariffs imposed by the United States, and retaliatory tariffs imposed by China, before the WTO?

Guest Post: Tariff Authority under the U.S. Constitution and Practice

This is a guest post from Bashar H. Malkawi, Professor of Law, University of Sharjah

Under the Commerce Clause of the U.S. Constitution, the Congress has the power to regulate commerce with foreign nations. In addition, Congress has the exclusive power to regulate commerce among the several states and with the Indian Tribes. U.S. Congress also has the authority to "lay and collect Taxes, Duties, Imposts and Excises" (Article I, section 8, paragraph 1). The U.S. executive must have the authority, delegated by the Congress, in order to negotiate.

Congress later passed the Trading with the Enemy Act of 1917, the Trade Expansion Act of 1962, the Trade Act of 1974, and the International Emergency Economic Powers Act of 1977. These acts gave power to the U.S. president that the Constitution never intended. In effect, the U.S. president who wants to restrict trade enjoys almost wide and unrestricted authority. These days, imposing tariffs on imports from certain countries can implemented on "national security" concerns.

Under the Trading with the Enemy Act of 1917, during time of war, the U.S. President has power over “all forms of international commerce, plus the power to freeze and seize foreign-owned assets of all kinds.” Under the Trade Expansion Act of 1962, the president can “impose tariffs or quotas as needed to offset the adverse impact” on “national security from imports.”

Under the Trade Act of 1974, the president has the authority to “impose tariffs up to 15 percent, or quantitative restrictions, or both for up to 150 days against one or more countries with large balance of payments surpluses” and take “retaliatory actions, at presidential discretion, including tariffs and quotas,” if a “foreign country denies the United States its FTA rights or carries out practices that are unjustifiable, unreasonable, or discriminatory.” Under the International Emergency Economic Powers Act of 1977, during time of national emergency, the president has power over “all forms of international commerce, plus the power to freeze foreign-owned assets of all kinds.”

To limit the executive branch authority in this area of trade, there are several options. For instance, Congress could repeal all these Acts. However, this is not plausible for all sorts of reasons being economic or political. Other alternative would be to align these Acts with their original intent as a powerful trade remedy tool for the president and Congress to respond to "genuine threats" to national security. The alignment could mean an investigation process by the Department of Commerce whether there is increased imports that threat national security. In addition, Congress must be consulted and, in certain circumstances, must have the authority to oppose imposing tariffs.

The U.S., and other countries for that matter, cannot resolve perceived trade imbalances using "national security" rationale for imposing tariffs and other trade restrictions. Real free trade includes no trade agreements, no government subsidies, and no tariffs or quotas. There is a long road ahead before achieving true and real free trade.

New available EBOOK VERSION of my recent book about the WTO law of subsidies

Dear Blog Colleagues, 

Allow me to inform you that a new eBook version of my recent book ( The WTO law of subsidies: A comprehensive approach, Kluwer Law International, June 2019) is now available at Amazon.com. Until now, only a print version was available and a commentator on this blog inquired about this aspect. This new version  can be downloaded and read on several media, including personal computers.

Best regards. Marc

 

"Every line we succeed in publishing..." A response on the state of international law scholarship to EJIL's new co-editor in chief

Around the beginning of World War II, the Jewish-German thinker Walter Benjamin wrote to his friend Gershom Scholem: "“Every line we succeed in publishing today - no matter how uncertain the future to which we entrust it - is a victory wrenched from the powers of darkness.” Benjamin was trying to encourage his friend that, no matter how hopeless or uncertain the times seemed to be, publication was a gesture against that darkness, an implicit statement that it was possible to make a difference, "no matter how uncertain the future."

There are many colleagues who think today we also live in dark times and under radical uncertainty about the future.  But there are some who believe we are publishing too much, at least in international law. This is the view of Cambridge professor Sarah Nouwen,  recently appointed co-editor in chief of the European Journal of International Law, surely among the leading publications in our field. Recently, Joseph Weiler, the other co-editor, interviewed Nouwen, who said: 

There’s more and more and more and I think far too much is published…so much is out there…one cannot even begin to research everything that’s being written on a topic…  we should have slow writing and slow publishing. We buy into a culture of wanting to be seen everywhere…to publish everywhere.

To be precise, Nouwen made this claim about every academic discipline not just international law. Certainly, making a judgment about every academic discipline is way beyond my pay grade.  So I'll stick to international law, where like other followers of this blog, I try to read widely and, where possible, deeply. (I proposed to Nouwen we debate her proposition at some appropriate forum but she declined-understandably-citing the burden of her new responsibilities with EJIL and other heavy commitments).

Let me state several reasons for celebrating the explosion of publications in international law.

1. The expansion is rightly a reflection of the recognition that there are many many regimes/sub-fields that are real international law, not just the use of force, the UN Charter, border disputes and so on that are worthy of sustained scholarly attention.  This is a point that international economic law folks can surely appreciate. Was the world a better place when we had, basically, Bob Hudec,John Jackson with maybe an Eric Stein or Jacques Bourgeois or three?  This is not a judgment about the merits of these brave souls who dared to think that trade was a worthy subject of serious scholarly writing.  In many ways, the vast expansion of scholarship on trade, investment, and finance in international law is a tribute to their original vision. 
2. The expansion of publication has reflected an expansion of voices: developing-world voices, indigenous voices, women's voices, environmentalist and animal welfare voices, and so on.  (Nouwen herself claims to be concerned about women's voices, yet it is hard to say that returning to a more restrictive view of publication would be a positive for gender representation). 
3. By "slow writing" and "slow publishing" we international law scholars cannot reverse the tremendous acceleration of existence in these times, the digital revolution and so on.  We can only succeed in becoming a (perhaps noble) anachronism,  There are reasons to respond to tweets that reframe policy and attitudes on matters like tariffs, China, trade and national security by scholarly analysis not just other tweets. Responding slowly may make a statement for posterity but it ill serves our responsibilities to our students, to the political community, and to the world.  I therefore welcome the fast publishing of recent e books that have addressed the crisis of the WTO dispute system, and trade war with China, for instance.
4. The enemies of international law would like to reinforce their image of us as an effete clique removed from reality, a small self-admiration society fantasizing about a world where international lawyers not power politics determine the outcomes.  The more we publish, the more places we publish, the more we plausibly claim a legitimate place in the public world. 
5. "Scribere est agere," to write is to act, goes the famous Latin maxim. But this is only true where the writing is communicated. We scholars are generally overall reticent to imagine that what we write is really seen out there in the world-or that, if it is, that's it is largely because of the prestige of our institutional affiliation or of the publication venue.  But scholarly writing is a message in a bottle-and the bottle more often than we think gets found by someone in some position to learn from and give real world impact to that missive. And usually, that far away treasure-hunter being indifferent to the artificial hierarchies of the academic world, it is the message that will concern them, not the stamps of elite approval on it. I always enjoy hearing (usually long after the fact) how something I have published in a completely unknown or un-ranked outlet (even a blog!) provoked a debate in the cabinet of some government or among the high officials of an international organization- people typically indifferent to matters such as scholarly pecking-order.
6. This circles back to Benjamin's basic point to Scholem.  Publication is an affirmation that the future is open, and that we, however powerless we may feel in a world where so many forces and constraints seem to be against us, might make a difference, that our message is important.     We might worry that our manuscript is banal, descriptive-but it might just have the specialized information that a policymaker in a poor country needs to advance her country's interests in a complex process of global governance, for example. So always err on the side of publication-you respect yourself, and your belief that others might find value in what matters to you is a respect for the public world of thought and action; or, as the philosopher Immanuel Kant put it  public communication through writing is not just the entitlement but also the duty of a scholar.       

   

UNCITRAL and ISDS Reform: China’s Proposal

By Anthea Roberts and Taylor St John*

On 19 July 2019, China submitted its proposal on investor-state dispute settlement (ISDS) reform to UNCITRAL. A Chinese version is available, though an English translation is yet to be posted. China reaffirms its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it takes note of significant criticisms of ISDS and suggests various pathways for reform including, most notably, supporting the study of a permanent appellate body. In combination with the European Union’s “open architecture” approach, where the EU has signalled that it is open to working with other states that might wish to sign onto an appellate body and/or the multilateral investment court, this means that two of the world’s three biggest economies have now signalled support for significant reform of ISDS, including the possible creation of a permanent appellate body.

China’s UNCITRAL submission

China began in the investment treaty system as an ISDS sceptic but, over the years, has become an ISDS convert. In this submission, China starts from the position that ISDS plays an important role in protecting the rights of foreign investors and promoting cross-border investment, as well as helping to build the rule of law in investment governance and avoiding economic disputes between investors and states escalating into political battles. Given this, China affirms its belief that ISDS is overall a mechanism that is worth maintaining. Given China’s growing interests as a capital exporter, particularly along the Belt and Road route, this endorsement of ISDS should not come as a surprise and is in line with the evolution of China’s treaty practice toward embracing ISDS over a full range of disputes.

Despite this general affirmation, China recognizes that there have been significant criticisms made of ISDS that need to be addressed. These include that: the current system lacks an institutionalized and reasonable error-correcting mechanism; the current system of ad hoc awards lacks stability and predictability; the professionalism and independence of arbitrators has been put into question; third party funding is affecting the balance of parties’ rights; and investment arbitration proceedings are long and costly. Of note, China also states that the phenomenon that the arbitrators and lawyers of investment arbitration are limited to a few experts deserves special attention. China states that ISDS should be more open and inclusive with increased participation of experts from developing countries.

China takes the position that some of the problems with ISDS are difficult to resolve through bilateral investment agreements and instead need to be resolved through improving multilateral rules and mechanisms for the resolution of ISDS. In this way, China affirms its commitment to multilateral international economic law governance. In order to safeguard the legitimate regulatory power of host states, protect the rights of foreign investors, enhance confidence in ISDS, and promote the rule of law in investment dispute resolution, China states that it is open to suggestions for improving ISDS, including but not limited to the following options (described below using wording as close as possible to a translation from the original Chinese):

1. Permanent appellate mechanism

To solve the main problems in ISDS, China states that it supports research into a permanent appellate mechanism as a reform proposal. China believes that a permanent appellate mechanism would mean that there would be fixed procedures, institutions, staff and member states that would play an important role in promoting the rule of law in the settlement of investment disputes. China sees this as important for improving error correction and strengthening the coherence and legitimacy of the system. China points to the WTO example to suggest that an appellate body might be comparatively efficient and cost effective compared to the current situation.

2. The right of the parties to appoint an arbitrator

From the traditional practice of international arbitration, the right of the parties to appoint arbitrators is a fundamental feature of international arbitration and also reflects the will of the parties, China states. China believes that in the first instance of investment arbitration, the right to appoint arbitrators is a widely accepted institutional arrangement that is important to enhance the confidence of the parties to the dispute and should be retained in the reform process. In this way, China signals that it currently seems open to a model based on (improved) ISDS plus potentially an appellate body.

3. The qualifications and independence of the arbitrator

While retaining the appointment of the arbitrator by the disputing parties, China believes that it is necessary to improve rules governing the arbitrators’ qualifications, conflicts of interest, and selection and removal procedures. China notes that Working Group III and ICSID are both studying the possibility of a code of conduct for arbitrators. China believes that considering the public law nature of investment arbitration, arbitrators should have expertise in the field of public international law or international economic law and should avoid potential conflicts of interest and double hatting. China notes that different countries have different understandings of arbitrators’ conflicts of interest so further rules are needed to spell these issues out. There should also be more rational and transparent rules on the selection and removal of arbitrators.

4. Alternative dispute resolution

China reaffirms its commitment to mediation. According to China, alternative dispute resolution mechanisms are conducive to maintaining long-term cooperative relationships between investors and host states and reducing the cost of dispute settlement. Compared with investment arbitration, investment mediation can provide host states and investors with a high degree of flexibility and autonomy, and mediators have more opportunities to adopt creative methods to promote the settlement of investment disputes. For this reason, China endorses the establishment of a more effective mediation mechanism in order to help the parties get to win-win results, thus avoiding a lengthy period of arbitration and high costs.

5. Procedures for pre-arbitration consultation

China supports the inclusion of a mandatory three to six month pre-arbitration consultation procedure to permit notification of and consultation about potential claims before they are brought. This would be used to allow both sides to better understand the position of the other and to see if the dispute could be resolved before it is escalated to arbitration.

6. Transparency for third-party funding

China supports transparency with respect to third-party funding. Relevant parties should continue to disclose relevant funding and avoid direct or indirect conflicts of interest between arbitrators and third-party funders. If the disclosure obligation is not fulfilled, the legal consequences of the relevant party should be clarified.

The EU’s open architecture approach

China has now stepped forward as a proponent of an improved version of ISDS plus potentially an appellate body. In this way, it straddles the divide between being a proponent of “structural” reforms and “other” reforms in the UNCITRAL process. In doing so, it may better represent the current temperature of the negotiating room than any of the other declared powers.

It remains to be seen is whether China strongly stands behind this hybrid approach or whether its own practice evolves over time. It is possible that this mixed approach reflects a compromise position among different positions within the Chinese government that might shift over time. China has also taken a pragmatic approach to its negotiations in the past, accepting a wide variety of terms rather than insisting on a single model.

If China strongly stands behind this hybrid ISDS/AB approach, an important question will be whether it seeks to anchor this approach as the – or one of the – main approaches to reform in an exclusive way, or whether it works flexibly with other major players, like the European Union, to develop an overlapping approach with other proposals like the multilateral investment court and appellate body.

In projecting forward in July 2018, one of us wrote in favour of taking a flexible, open architecture approach to reform options: “Flexibility can also be built into specific reform proposals by, for instance, adopting open architectural approaches that permit differently situated states to sign up for new multilateral approaches or institutional mechanisms.” This could include using a flexible Mauritius Convention-style treaty to permit states to “decide individually whether to opt in to a court and/or an appellate body, or neither.”

As explained in an EJIL: Talk! blog in November 2018, this approach was intended to capture how negotiating dynamics and potential alliances might unfold and develop:

The European Union is unlikely to give up easily on its two-tier solution given its belief in reform and the toxicity of “private justice” in some of its domestic settings. One option would be to try to get agreement on considering an Appellate Body first and a Court second. But if you want an integrated system at the end, this seems far from ideal. Probably a better move would be to consider both at the same time but with a flexible open-architecture structure that allowed states to sign onto either the first level court and/or the appellate mechanism.

One reason for suggesting this was our reading that China’s statements on the floor in UNCITRAL seemed to be signalling that China might be “warming up to a position of supporting ISDS, with possible improvements, but subject to an Appellate Body.”

In its subsequent submission to UNCITRAL, the European Union took up this open architecture approach, citing these articles and blogs. According to its January 2019 submission:

3.16. Open architecture

39. The EU and its Member States consider … that only a two-tier permanent structure can remedy all the identified structural concerns in the current system. A certain level of flexibility would, nevertheless, need to be built into a standing mechanism. This would be necessary, for example, for countries that might want to use the standing mechanism for state-to-state dispute settlement, but which do not use investor-state dispute settlement in their agreements. It may also be the case that some countries may like to retain the flexibility to utilise only an appeal mechanism even if, in the view of the EU and its Member States, such an approach would not effectively resolve a number of the concerns which have been identified. If that is indeed the case, the open architecture of the standing mechanism could be a way of providing for such flexibility for those countries.

Arguably, the EU’s open architecture approach works like an invitation to China and other states to come on board for the creation of an appellate body without having to commit to an underlying multilateral investment court. This approach by the Europeans was smart because there was broader support in the room for the appellate body than for the underlying court and this approach potentially allows them to square the circle. With its submission to UNCITRAL, the question is whether China is embracing a potential appellate body instead of the European’s approach or whether the two could co-exist in an open architecture model.

With two of the world’s largest economies now supporting consideration of a permanent appellate mechanism, other states will need to pay increased attention to this possibility. Like ISDS reform as a whole, any appellate mechanism is likely to emerge through a mixture of multilateral innovations and bilateral actions. If the European Union and China make access to a multilateral appeals mechanism a feature of their own free trade and bilateral investment agreements, they have substantial bargaining power to shift the preferences of third states on this issue. In this way, 1 + 1 has the potential to make much more than 2 … though many discussions remain to be had to figure out what is politically feasible and how the variable geometry of ISDS reform will ultimately play out.

First published on EJIL: Talk!

*Anthea attends UNCITRAL Working Group III as part of the Australian delegation but she acts and writes in her independent academic capacity. Taylor attends UNCITRAL as an observer from PluriCourts.

Trade in the Second Night of the Democratic Primary Debate

Here is the discussion of trade in last night's Democratic primary debate:

HARRIS: First of all, Donald Trump came in making a whole lot of promises to working people that he did not keep. He said he was going to help farmers. He said he was going to help auto workers.

...

Because of this so called trade policy that this president has that has been nothing more than the Trump trade tax that has resulted in American families spending as much as $1.4 billion more on everything from shampoo to washing machines. He betrayed the American people, he betrayed American families, and he will lose this election because folks are clear ...

...

BASH: ...

I want to turn now to a question about trade and for Congresswoman Gabbard. Many saw the Trans-Pacific Partnership issue as something that would be a critical tool to deal with the rise of China. You were against it. How would you ensure that the United States is able to remain competitive against China on the world stage?

GABBARD: By pushing for fair trade, not trade deals that give away the sovereignty of the American people and our country, that give away American jobs, and that threaten our environment. These are the three main issues with that massive trade deal, the Trans-Pacific Partnership.

I think the central one was the fact that it gave away our sovereignty to a panel of international corporations whose rulings would supersede any domestic law that we would pass, either a federal law or a state or a local law. This is extremely dangerous and goes against the very values that we have as a country.

What to speak of the fact that it would have a negative impact on domestic jobs and that it lacked clear protections for our environment. These are the things that we have to keep at the forefront as we look to enact fair trade deals with other countries to make sure that we continue to be a thriving part of our global economy.

(APPLAUSE)

BASH: So to be clear, Congresswoman, would you keep President Trump's tariffs on China in place?

GABBARD: I would not, because the approach that President Trump has taken has been extremely volatile without any clear strategic plan, and it has a ravaging and devastating effect on our domestic manufacturers, on our farmers, who are already struggling and now failing to see the light of day because of the plan that Trump has taken.

BASH: Vice President Biden, would you rejoin the Trans-Pacific Partnership, which, of course, President Trump withdrew from? Please respond.

BIDEN: I'd renegotiate. We make up 25 percent of the world's economy. In order -- either China is going to write the rules of the road for the 21st century on trade or we are. We have to join with the 40 percent of the world that we had with us, and this time make sure that there's no one sitting at that table doing the deal unless environmentalists are there and labor is there.

And to make sure we equip our workers first to compete by investing in them now, in the things that make them more competitive. That's what we have to do. Otherwise, they are going to write the rules of the road. We must have the rest of the world join us to keep them in check from abusing.

BASH: Thank you. Thank you. Vice President Biden, just to be clear, would you or would you not rejoin the TPP, yes or no?

BIDEN: I would not rejoin the TPP as it was initially put forward. I would insist that we renegotiate pieces of that with the Pacific nations that we had in South America and North America, so that we could bring them together to hold China accountable for the rules of us setting the rules of the road as to how trade should be conducted. Otherwise, they're going to do exactly what they're doing, fill the vacuum and run the -- and run the table.

BASH: Thank you, sir. Mayor de Blasio, you also oppose the deal. Please respond.

DE BLASIO: Yeah, and I just want to ask this question of all the candidates, but particularly of Vice President Biden. President Trump is trying to sell NAFTA 2.0. He's got a new name for it. It's just as dangerous as the old NAFTA. It's going to take away American jobs like the old NAFTA, like it did to Michigan. And we cannot have Democrats be party to a new NAFTA.

So, Vice President, I believe you're the only person on the stage who voted for the original NAFTA. Are you ready to say here and now that you will oppose a new NAFTA and that what you will believe in, which is a lot of us hope for, is trade treaties that empower organized labor across the boundaries of the world and give working people power again, not just multinational corporations.

BASH: Mr. Vice President?

BIDEN: Yes.

BASH: Your response? Your response, sir?

(LAUGHTER)

BIDEN: Yes.

BASH: That's it?

BIDEN: No, he said, would I insist that labor be engaged?

(APPLAUSE)

The answer is yes.

Harris seems to be going for the moderate center on trade by being so critical of Trump's tariffs (while going for the progressive left on health care).

Criticizing the TPP as it stands now and saying you'll renegotiate and bring labor to the table, as Biden did, is the safe play. It's unlikely that anyone will ask a follow-up question which demonstrates that you have no idea what you mean by that. The same thing applies to the renegotiated NAFTA. He is against what exists now, and is for some new, undefined improvement.

Gabbard was also against the status quo of trade agreements, but didn't say what she would do instead (although maybe eliminating ISDS would be enough). However, she was pretty bold to say she would get rid of the China tariffs. If she stays in the race long enough, she could get a follow-up about what she would do instead.

Trade In Last Night's Democratic Primary Debate

There was some discussion of trade in last night's Democratic primary debate:

[DON] LEMON: ...

Let's turn now to the economy.

Congressman Ryan, President Trump's tariffs have boosted the U.S. steel industry but hurt auto manufacturers like those here in Michigan, which could drive up the cost of cars. As president, would you continue President Trump's steel tariffs?

RYAN: Look, I think President Trump was onto something when he talked about China. China has been abusing the economic system for a long time. They steal intellectual property. They subsidize goods coming into this country. They've displaced steel workers, auto workers, across the board, eroded our manufacturing. And we basically transferred our wealth of our middle class either up to the top 1 percent or to China for them to build their military.

So I think we need some targeted response against China. But you know how you beat China? You out-compete 'em. And that's why I'd put a chief manufacturing officer in place to make sure that we rebuild the manufacturing base.

We've got to fill these factories that -- in Detroit, in Youngstown, that used to make cars and steel. We've got to fill them with workers who are making electric vehicles, batteries, charging stations, make sure they're making solar panels.

As I said earlier, China dominates 60 percent of the solar panel market. They dominate 50 percent to 60 percent of the electric vehicle market. We're going to make 10 million electric vehicle somewhere in the world in the next 10 years. I want them made in the United States. That's why I have a chief manufacturing officer that will sit in the White House and help drive this agenda.

LEMON: Congressman, thank you. Just as a point of clarification, as president, would you consider President Trump's steel tariffs, yes or no?

RYAN: Well, I would have to re-evaluate. I think some of them are effective. But he's bungled the whole thing, obviously. He has -- see, here's the problem with President Trump. He has a tactical move -- one of many -- he has a tactical move. What's the grand strategy for the United States? China has 100-year plan, a 50-year plan, a 30-year plan, a 20-year plan. We live in a 24-hour news cycle. That spells disaster for our economy and disaster for our global politics.

LEMON: Thank you, Congressman. Congressman Delaney, your response?

(APPLAUSE)

DELANEY: So, listen. This is what I don’t understand. President Trump wants to build physical walls and beats up on immigrants. Most of the folks running for president want to build economic walls to free trade and beat up on President Obama. I’m the only one running for president who actually supports the Trans-Pacific Partnership. President Obama was right about that. We should be getting back in that.

Senator Warren just issued a trade plan...

WARREN: You bet I did.

DELANEY: ... that would prevent the United States from trading with its allies. We can't go and -- we can't isolate ourselves from the world. We have to engage...

LEMON: Thank you.

DELANEY: ... with fair, rules-based trade.

LEMON: Thank you, Congressman Delaney. Senator Warren, please respond.

WARREN: You know, for decades, we have had a trade policy that has been written by giant multi-national corporations to help giant multi-national corporations. They have no loyalty to America. They have no patriotism. If they can save a nickel by moving a job to Mexico, they'll do it in a heartbeat. If they can continue a polluting plant by moving it to Vietnam, they'll do it in a heartbeat.

I have put out a new comprehensive plan that says we're not going to do it that way. We're going to negotiate our deals with unions at the table, with small businesses at the table, with small farmers at the table, with environmentalists at the table, with human rights activists at the table. And then, we're going to use the fact that everybody in the world wants to get to America's markets. They want to sell to you...

DELANEY: That was the TPP.

WARREN: I'll finish.

LEMON: Congressman Delaney...

WARREN: ... is everyone wants to get to America's markets.

LEMON: Thank you, Senator.

WARREN: No. So the question is...

LEMON: Senator, thank you. Please abide by the rules.

WARREN: ... how we need to raise our standards.

LEMON: Congressman Delaney, it's your turn. Thank you, Senator. Congressman Delaney?

DELANEY: So that was the Trans-Pacific Partnership. I think President Obama was right. He did include environmental standards. He did include labor standards. We would be in an entirely different position with China if we had entered the Trans-Pacific Partnership.

We can't isolate ourselves from the world. We can't isolate ourselves from Asia. Senator Warren's plan, basically, that she put out, we would not be able to trade with the United Kingdom.

WARREN: No, what this is about...

DELANEY: We would not be able to trade with the E.U. It is so extreme that it will isolate...

LEMON: Thank you, Congressman Delaney. Thank you, Congressman.

DELANEY: ... the American economy from the world.

LEMON: Senator? Senator Warren. Senator Warren.

SANDERS: I was...

WARREN: I think he said...

(CROSSTALK)

LEMON: Senator Sanders, please let Senator Warren respond.

SANDERS: Oh, I'm sorry.

(LAUGHTER)

WARREN: What the congressman is describing as extreme is having deals that are negotiated by American workers for American workers. American workers want those jobs, and we can build the trade deals that do it.

People want access to our markets all around the world. Then the answer is, let's make them raise their standards. Make them pay workers more. Let their workers unionize. Raise their environmental standards before they come to us and say they want to be able to sell their products.

Right now, the whole game is working for the big multinationals. It's just not working for the people here in the United States, and we can change that.

LEMON: Senator, thank you very much. Congressman O'Rourke, your response?

(APPLAUSE)

O'ROURKE: You know, the question was about tariffs. And they're a huge mistake. They constitute the largest tax increase on the American consumer, hitting the middle class and the working poor especially hard, and farmers in Iowa and across the country are bearing the brunt of the consequences.

When have we ever gone to war, including a trade war, without allies and friends and partners? As president, we will hold China accountable, but we will bring our allies and friends, like the European Union, to bear, and we'll also negotiate trade deals that favor farmers and American workers and protect human rights and the environment and labor, not just here in the United States...

LEMON: Congressman O'Rourke, thank you so much. Senator Sanders, please respond to Congressman O'Rourke.

WARREN: I'd like to respond to this.

SANDERS: Yeah, OK. You're looking, I believe, at the only member of Congress who not only voted against these disastrous trade agreements, NAFTA, PNTR with China, which cost us over 4 million jobs, but also helped lead the effort against these agreements.

Now, Elizabeth is absolutely right. If anybody here thinks that corporate America gives one damn about the average American worker, you're mistaken. If they can save five cents by going to China, Mexico, or Vietnam, or anyplace else, that's exactly what they will do.

As president, let me tell you what I will do. These guys line up at the federal trough. They want military contracts. They want all kinds of contracts. Well, under my administration, you ain't going to get those contracts if you're throwing American workers out on the street.

LEMON: Senator Sanders, thank you very much. Governor Hickenlooper, your response?

WARREN: I'd like a chance to respond.

HICKENLOOPER: So -- so I think -- again, I think Congressman Delaney has got a point here. And there is a way of looking at trade that is therapeutic.

The bottom line is, you talk to any economist, there is not a single example in history where a trade war had a winner. Trade wars are for losers. And the bottom line is we've got to recognize, let's negotiate a better trade deal. But you're not going to win against China in a trade war when they've got 25 percent of our total debt.

And step back and look it. Here's Trump gives a giant tax cut and at the same time -- so we're paying in tariffs about $800 to $1,200 per household and then we give this incredible tax cut to the rich. Essentially what's happening is now he's transferred that tax obligation onto the middle class. That's what's outrageous. But tariffs are not the solution.

LEMON: Governor, thank you. Senator Warren?

WARREN: Anyone who thinks that these trade deals are mostly about tariffs just doesn’t understand what’s going on. Look at the new NAFTA 2.0. What’s the central feature? It’s to help pharmaceutical companies get longer periods of exclusivity so they can charge Canadians, Americans, and Mexicans more money and make more profits.

That's what trade deals have become. They have become a way for giant multinationals to change the regulatory environment so they can suck more profits out for themselves and to leave the American people behind. We have to have the courage to fight back against that corruption.

LEMON: Senator, thank you. Governor Bullock, your response?

BULLOCK: You know, a farmer in Rippy said to me, every time that Trump tweets, we lose hundreds of thousands of dollars. If Montana had to eat all the wheat that we produce, every Montanan would have to eat 40 loaves of bread a day.

But by the same token, what we have is -- I actually agree with Senator Warren on this in part. Corporations can move capital easy. Workers can't move. So going forward, we need to make sure that our trade deals actually are protecting -- thinking about the workers. They can't be the stepchild. But the way to do it, with this blunt instrument of tariffs that the president is doing, that's not how we get a fair deal for farmers anywhere or the manufacturers here in Detroit.

O'Rourke and Delaney made the most sense here. By contrast, Warren says things that are very misleading. For example, whatever you think of 12 year biologic exclusivity (I'm against it), it's not the case that it is the "central feature" of USMCA. And given the scope of labor provisions in modern trade agreements, it is clear that unions already have a big role "at the table" to help draft these agreements. And she didn't have a response to the point that her approach is "so extreme that it will isolate the American economy from the world."

But I don't think voters have strong feelings about trade, and no one got very deep into the issues, so as important as Trump has made trade policy, I'm not sure it will play a big role in deciding this primary. Maybe things will change when we can narrow it down to 4 or 5 candidates, and we can contrast the views of Biden and Harris with those of Sanders and Warren.

Good Questions on the Sunset Clause

This is a good set of questions, as a follow-up to a recent Senate Finance Committee hearing, from Senator Toomey to U.S. Trade Representative Lighthizer on the USMCA sunset clause:

The renegotiated NAFTA agreement contains a new mechanism called “Review and Term Extension,” i.e. a sunset provision, which is codified at Article 34.7 of USMCA. The sunset provision requires that USMCA’s “Free Trade Commission” (as outlined in Chapter 30) meet to conduct a “joint review” of the agreement six years after entry into force. As part of the joint review, “each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of the agreement for another 16-year period.” If a Party does not agree to extend the agreement at the six year review, the Commission must conduct joint reviews every year, until the agreement is extended or terminates.

As you know, USTR’s draft statement of administrative action (SAA), which outlines in part the administration’s view on how the implementing legislation for the agreement will change or effect existing law, was transmitted to Congress on May 30, 2019. While the draft SAA details numerous changes to U.S. law that are “strictly necessary or appropriate” to implement the agreement, it does not include any changes to U.S. law in order to implement the sunset provision.

a. Please explain why the administration feels that no changes to U.S. law are required to implement the agreement’s sunset provision.

b. Assuming that “Party” refers to each USMCA country’s government—e.g. the Government of the United States of America—per the agreement’s preamble, what should the internal process be for the United States to decide whether it wishes to stay in the agreement at the first six year review?

c. Does the administration believe that Congress is included in USMCA’s definition of “Party” as “the Government of the United States of America”? If not, why not? What role should Congress have in determining whether or not the U.S. chooses to extend its participation in the agreement at each joint review?

d. Chapter 30 of USMCA states that the Free Trade Commission tasked with joint reviews shall be composed of “government representatives of each Party at the level of Ministers or their
designees.” In the draft SAA, the administration states that the U.S. Trade Representative (or his or her designee) will represent the U.S. on the Commission. How will USTR ensure that the views of Congress are accurately represented at each joint review?

Unfortunately, Lighthizer's response tells us very little:

The USMCA’s review and term extension mechanism will help ensure that the agreement is working as intended and continues to serve the interests of the United States. I look forward to working with you and other Members to ensure that Congress’s views are appropriately accounted for as part of this review process.

I hope they are having serious discussions behind the scenes about these specific questions and about the the role of Congress here more generally (although it would be better if they were talking about these issues in public). The role of Congress should be decided in advance and defined clearly in the implementing legislation. If it is not, I don't think Congress will have much of a role.

Call for Papers: Research Workshop – Sociological Perspectives on International Economic Law and Human Rights Law

This is from the European University Institute:

International law is rooted in communities, influencing and affected by social groups and their socio-cultural features. Thus, a variety of socio-cultural factors and processes are intertwined in the formation, interpretation and implementation of international law. This fifth workshop on the sociology of international law focuses on various sociological aspects pertaining to international economic law and human rights law, as well as to interrelationships between these two major legal fields. Contributors will explore diverse interactions between sociological concepts (such as identity, socialisation, collective memory, social control or frames) and broad range of legal rules and institutions in these spheres. Contributors are particularly welcome to submit proposals in the following areas:

1. Sociological aspects of international trade law, investment law, intellectual property rights or economic development, including socio-cultural aspects of trade in certain goods and services; cultural exceptions in international trade and investment law; regional economic integration and regional identity; organisational culture of international economic institutions (such as the WTO, ICSID or UNCTAD); the social dimension of recent developments in these fields (such as the crisis in appointments to the WTO Appellate Body, the growing ‘trade war’ between the US and China, or the EU Multilateral Investment Court initiative); and sociological aspects of economic development (including the interactions between rule of law, economic development and cultural features).

2. The sociological dimension of international human rights law and institutions, including interactions between human rights protection and social values, human rights and ideology, social control mechanisms and the enforcement of human rights rules, international actors’ identity and promotion of human rights worldwide, socio-cultural aspects (such as collective memory or organisational culture) of various human rights bodies and tribunals.

3. Sociological issues involved in interactions between international human rights protection and international economic law, including socio-cultural explanation of interrelationships between the WTO law and human rights protection or interactions between investment tribunals’ jurisprudence and human rights protection, human rights conditions in programs relating to trade preferences to developing countries (such as GSP schemes) or in free trade areas agreements, socio-cultural exceptions in international economic treaties (such as the ‘public morals’ exception in the GATT or ‘cultural exception’ in the recent US-Mexico-Canada Agreement (‘NAFTA 2.0’).

To apply 

Please electronically submit an abstract of maximum 300 words and your CV using the link below by 15 October 2019.

Applicants will be informed of the results of the selection process by 30 November 2019. If selected, we will ask you to submit a discussion paper of 3000 words by 10 April 2020. 

Unfortunately, we cannot cover expenses related to travel and accommodation for all participants.  However, the European University Institute will offer a limited number of scholarships to contribute to the travel and accommodation expenses of selected early career researchers who do not have access to sufficient funding.  To apply for a scholarship, please include in your application, in addition to your abstract and CV, a short motivational letter stating why you are not able to cover your travel expenses, how much funding you would need, and how participation in the workshop fits your research plans.

Timeline

15 October 2019 – deadline for submission of abstracts and scholarship applications

30 November 2019 – applicants will be informed of the results of the selection process

10 April 2020 – deadline for submission of short papers

8-9 May 2020 – workshop

Some Quick Thoughts on Warren's Trade Policy Plan

Elizabeth Warren's campaign team has just posted a document entitled "It's Time for a New Approach to Trade." My initial reaction is that it's difficult to see how there would be much, if any, trade liberalization in a Warren administration; however, there would be some experimentation with new forms of protectionism.

Early on she sets out this general principle: "America enters into trade negotiations with enormous leverage because America is the world’s most attractive market. As President, I won’t hand America’s leverage to big corporations to use for their own narrow purposes — I’ll use it to create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices, and raise living standards worldwide."

The reality, of course, is that tariffs and other forms of protectionism are something demanded by big corporations, and unless you support liberalization, you are handing leverage to at least a few "big corporations to use for their own narrow purposes." But that's just the political rhetoric that led off the piece. Let's focus on the substance.

First, she has a new plan for the process of negotiating trade agreements: "In a Warren Administration, we will negotiate and approve trade agreements through a transparent process that offers the public a genuine chance to shape it." Here are some key elements:

• "Trade negotiators will publicly disclose negotiating drafts and provide the public with an opportunity to comment."
• "Trade advisory committees will prioritize the views of workers and consumers."
• "The US International Trade Commission will provide a regional analysis of the economic effects of a trade agreement."
• "The congressional approval process will offer more opportunities for the public and elected representatives to shape trade agreements."

The current trade negotiating process is cumbersome and challenging. Adding these additional elements may make it impossible to get a trade deal done (which is, perhaps, the objective).

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

Those exceptions are very important, and reading through the WTO's World Tariff Profiles is enlightening.

But she's right about the regulatory standards. So what's her plan here? This:

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

My preconditions are that a country must:

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

Yikes! That rules out a lot of countries. (Including the United States, of course, although she expects that her administration will meet all these standards).

Beyond that, she also makes clear that she will be keeping a bunch of U.S. trade restrictions:

I will ensure trade agreements protect Buy American and other programs designed to develop local industry, contain strong rule-of-origin standards to promote domestic manufacturing, ... 

And she may be trying to push to allow more protectionism in green energy as well:

I will push to secure a multilateral agreement to protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges. 

If she means subsidies to consumers of green products that's fine, but if she is talking about allowing producer subsidies tied to local content requirements, that is both protectionist and anti-green.

And protectionist COOL measures might make a reappearance:

I will impose Country-of-Origin Labeling rules to protect American producers and provide transparency to consumers.

Country of origin labeling is fine if it is used to provide consumers with information, but in the past it was used for protectionist purposes, and when says she will impose it "to protect American producers" it sounds like we are going in that direction again.

And here's some more protectionism:

Under WTO rules, a country designated as a “non-market economy” can face more serious trade penalties. I will push for a new “non-sustainable economy” designation that would allow us to impose tougher penalties on countries with systematically poor labor and environmental practices.

I'm not sure exactly how this is going to work, but I'm pretty sure it's going to abused for protectionist purposes, because this kind of thing always is.

And one more:

Unlike the current approach that lets our government ignore unfair trade practices, my administration will create automatic triggers to initiate investigations into unfair trade practices.

She also wants to get rid of ISDS and scale back IP protections, which I have no problem with abandoning, but others might. And there is actually one proposal that sounds like it could act as a constraint on trade remedy abuse:

... when we impose duties to support particular domestic industries, I want to ensure that the money we collect actually goes to American workers, instead of being sucked up by executives and shareholders. I will fight to change our trade laws so that we review duties every six months and lift the duties if companies can’t demonstrate the benefits of the duties are going to their workers.

That seems like it could be difficult to demonstrate, so maybe trade remedies will be a little harder to maintain.

Overall, my sense is that this proposal means there would probably not be any trade deals in a Warren administration, while there would be various proposals to add new protectionism to U.S. domestic trade policy.

Much ado about nothing? The President's Memorandum on Reforming Developing-Country Status in the WTO

Trump's Memorandum on Reforming Developing-Country Status in the WTO issued yesterday aims to "make trade more free, fair, and reciprocal by devoting all necessary resources toward changing the WTO approach to developing-country status such that advanced economies can no longer avail themselves of unwarranted benefits despite abundant evidence of economic strength". To achieve this, the Memo has a section on "ending unfair trade benefits", which states:

"If, within 90 days of the date of this memorandum, the USTR determines that substantial progress has not been made toward achieving the changes described in section 2 of this memorandum, the USTR shall, as appropriate and to the extent consistent with law:

(i)   no longer treat as a developing country for the purposes of the WTO any WTO Member that in the USTR’s judgment is improperly declaring itself a developing country and inappropriately seeking the benefit of flexibilities in WTO rules and negotiations; and

(ii)  where relevant, not support any such country’s membership in the OECD."

The memo is clearly targeting China, but I wonder whether it would just end up as much ado about nothing for the following reasons:

1. China is not, and will not in the foreseeable future, seek accession to the OECD;
2. China did not get full developing country treatments in its WTO accession package. For example, on agricultural subsidy, China agreed to an AMS de minimus level of 8.5%, which is below the normal developing country treatment of 10%. 
3. In the new negotiations, China has not been getting much of S&D treatment (see, e.g., its TFA commitments).

The more important question, though, is what would the US get out of this, or what would they do if they don't get what they want? On accession package, are they going to renege on the limited developing country benefits China gets in its accession package? That's a clear violation of WTO rules and China would retaliate. On new negotiations, are they going to deny China developing country treatment? Well they have already been doing so for the past 12 years.

So I see this move as very strange, as the US doesn't gain anything in substance beyond what they already have, but it could provoke China so much to derail the barely-restarted bilateral talk, which was already fraught with difficulties. The logic is beyond me, and I hope someone can please enlighten me.  

What Does the U.S. Want To See Happen With Appellate Body Reform?

This is from a U.S. statement to the DSB yesterday:

• We have listened closely as several Members have criticized the United States. These Members argue that the United States has failed to participate in ongoing discussions on Appellate Body reform.
• These statements are wrong – and appear to represent public posturing by these Members. The facts establish that no Member has been more constructively and consistently engaged on these substantive issues than the United States. Let us set the record straight.
• Over the past year, in the DSB, the United States has outlined its concerns in exhaustive detail. We have not avoided discussion; rather, we have laid out in the clearest possible terms the U.S. position on the issues raised.
• While the DSU text is straightforward and clear, we recognize that the Appellate Body has ignored that text, and many WTO Members had not focused on just how far the Appellate Body’s practice had strayed from that text.
• And so, beyond our detailed DSB statements, we have made clear our willingness to discuss these concerns further with any Member in order to deepen each other’s understanding of these substantive issues. Several Members have participated in these dialogues and in many instances we have found the discussions to be frank and productive.
• In the Informal Process, the United States has been represented at every stage of the process, seeking to gain a better understanding of each Member’s views on the issues raised. As the United States has made clear, it is critical to understand if Members have a common understanding of the concerns raised.
• Unfortunately, one, or perhaps a few, WTO Members have indicated they do not share the concerns of the United States that the Appellate Body has deviated from the DSU text. These Members have not, however, adequately or persuasively explained how they could read the plain DSU text differently. Therefore, where a different understanding has become apparent, we have registered the lack of any DSU textual basis for that different understanding during meetings of the General Council.
• So the United States continues, as it has always done, to be engaged on these important substantive issues, including by meeting regularly with the Facilitator and Members to exchange views on the issues under discussion.
• Indeed, for several months, both within the Informal Process and outside, the United States has actively sought engagement from Members on what we believe to be a fundamental issue. That is, how have we come to this point where the Appellate Body, a body established by Members to serve the Members, is disregarding the clear rules that were set by those same Members. In other words, Members need to engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to.
• Engagement is a two-way street. Without further engagement from WTO Members on the cause of the problem, there is no reason to believe that simply adopting new or additional language, in whatever form, will be effective in addressing the concerns that the United States and other Members have raised.

Here are some questions I have for U.S. officials: What do you want to see happen now? I know the issues the U.S. is upset about. But what specific actions (and by which actors) do you want to see taken? Are you hoping that the Appellate Body will, on its own, change its approach on some or all of the issues you have raised? Do you want amendments to the DSU to force the Appellate Body to change? Related to this possibility, the U.S. seems skeptical that this would be effective, and keeps raising the question of "why the Appellate Body has felt free to depart from what Members agreed to." So what is the U.S. view on this question?

The discussions of these issues by governments are taking place in private and I don't have a good sense of what is being said. Maybe the answers to my questions are being made clear in there, but this post is intended to let U.S. officials know that most of us are having trouble understanding what they are looking for here.

ADDED: Related to all this, and perhaps as a good illustration, the U.S. said the following at the General Council today:

As we have explained, the Appellate Body ignores that to make an objective assessment under DSU Article 11 is a “function” of a panel, not an “obligation”, and the DSU uses the verb “should” make an objective assessment, not “shall” make. Apparently, further discussion is needed to understand these words to which Members agreed, and to understand why, time and again, the Appellate Body has felt free to review the facts, including through de novo review of the meaning of municipal law.

Is the U.S. saying that DSU Article 11 should be not be the basis of an appeal? I don't think such a position is unreasonable. I'm just not sure what their view is.