International Economic Law and Policy Blog

China NME case suspended

Since no one else has raised it yet on this blog, I'll note that the WTO Panel hearing China's case against the EU regarding the use of a non-market economy methodology in anti-dumping cases suspended its work on 14 June (DS516/13). Such suspensions come at the request of the complainant, and the proceeding must be reactivated within a year or the panel's authority will lapse.

Despite confidentiality obligations, press reports cite "trade officials" for the proposition that China decided to seek suspension because the results of the interim report were highly unfavorable to China. 

It would be interesting to know more about China's motivations, and how it will now proceed. Is this suspension temporary, or will China allow the panel's authority to lapse? Will China continue to litigate this issue in the WTO - either with a new case against the EU's replacement legal regime on market distortions, or a challenge to the NME methodology of another Member - or will they treat this matter as one for bilateral resolution?  If they choose to revive this proceeding, will they do so before the (seemingly likely) paralysis of the Appellate Body? 

It would also be interesting to know the EU's position on the suspension. The notice of suspension states that "[t]he [EU] commented on China's request, asking the Panel to take a number of considerations into account when deciding whether to grant China's request."  This is remarkably uninformative, and while the EU's substantive submissions in DS516 are available on the EU Commission website, procedural submissions such as its comments on China's suspension request are not.  

 

Congress Asks Lighthizer About the Sunset Clause

I have been suggesting that Congress should clarify its role in the decision required under the USMCA's sunset clause on whether to extend the agreement, and Congressman Steven Horsford came through for me at yesterday's House Ways and Means Committee hearing (starts at 3:37:50). Here's what he asked:

Rep. Horsford: “… And finally, I’m concerned about the sunset clause and the fact that it has some automatic renewal provisions that could go around Congressional authority and approval.”

I understood this to mean that Congressman Horsford was interested in the role Congress would play in the USMCA extension decision. But Lighthizer's answer seems to take the question in a different direction:

Amb. Lighthizer: “… And then on the issue of sunset, I guess I didn’t quite understand the point. We have a sunset provision in here. Most trade agreements, for reasons that don’t make any sense to me, are eternal and this one is temporal, although it’s complicated how it works. So, if there is any usurpation of Congressional prerogatives in trade agreements, it would be, I would suggest, in all the others and less in this one.”

Horsford tried to clarify by adding this:

Rep. Horsford: “So if I could Mr. Chairman, just to clarify, you will come back for approval with any sunset clause. It doesn’t take the Congressional oversight accountability or approval process."

Lighthizer's further response seems to insist they are on the same page:

Amb. Lighthizer: “There’ll be no coming back – that’s how trade agreements work. It’s kind of a crazy thing, but they kind of become, that they’re just eternal. We just pass these things and then they go on forever and ever and ever. What this one does is it has a process, which as you know, that every six years you’ll have a review and see if whether or not this is something you want to extend, and if it isn’t then it will expire in a certain period of time after. But this is, I would suggest, that this is like an extremely important idea, exactly consistent with where you’re coming from. And it’s an innovative way to do exactly what you want to do. And I want to sit and talk to you about it because I think this is right in your sweet spot."

But I'm really not sure they are talking about the same thing. Lighthizer is focused on the sunset clause's requirement of an affirmative decision to extend the agreement, which he sees as a positive; Horsford is thinking about the role of Congress in this decision.

I'll close by repeating what I've said before: "[W]hich U.S. government branch gets to decide on whether the agreement should be extended as part of this review? What is the role of Congress here? Congress has ceded a lot of power to the President on trade over the years, and if it allows this provision to stay in, it better make sure that it has a full say on whether to confirm that the United States wishes to extend the new NAFTA deal as part of the review." I hope Congressman Horsford and others keep pressing Lighthizer on this behind the scenes, and use the USMCA implementing legislation to give Congress a say in the decision on whether to extend (one approach would be that the decision will be in favor of extension unless both Congress and the President agree not to extend).

USTR Lighthizer Comments on NAFTA/USMCA State-State DS Panel Blocking

This is from an exchange between Senator Carper and U.S. Trade Representative Lighthizer at a Senate Finance Committee hearing today (starts at 2:03:07):

Senator Carper: “My second question revolves around USMCA dispute settlement. The state-to-state dispute settlement system in the new NAFTA continues to allow for panel blocking – as I understand it, the main reason a dispute settlement panel hasn’t been established, since maybe the early 2000s. The Trans-Pacific Partnership made changes, I believe, to fix panel blocking, but these improvements were not included in the new NAFTA. From the Statement of Administrative Action the administration sent to Congress, it appears that the White House plans to use Section 301 tariffs to unilaterally enforce USMCA provisions when a dispute occurs. I would just ask if you could explain to us briefly why using Section 301, which will very likely invite retaliation from Canada and Mexico is preferable to a binding dispute system that does not allow panel blocking?”

Amb. Lighthizer: “Well, thank you Senator. First of all, I would point out the obvious, and that is that panel blocking is permitted under the current NAFTA as well as under USMCA. So anyone objectively looking at distinguishing between the two and deciding to vote against the second because of -- there’s an improvement in the first -- couldn’t find that. So, what we did is we kept the current provision. Now, why did we keep… Let me say first of all you’re right that there hasn’t been any in a while, in this context. The reason for that is that people have tended to go to the WTO to enforce those rights and there’s been a number of WTO cases. So second, why did we not make that change? Our view is that we can enforce our laws in the rare circumstance where there was a blockage by using our unilateral law and the 301. 301 says you should go the international organization or the agreement for enforcement if there is a violation of a trade agreement, or the WTO in this case. If the other side blocks, the position you would take is that thus you’ve exhausted your remedies and therefore you could legally use 301. So that’s, like, the nature of it.

And why did we do that? Number one, we think it will be very rarely used. But in a situation where, for example, someone challenged the trade laws of the United States and made some argument about that, about the viability of the trade laws, you want to be in a position where you can preserve your rights. But this is something I am perfectly happy to work with members on and see where members draw their line. It was clearly a U.S. ask, it wasn’t an ask from the other side. The other side since they had signed up for TPP, presumably they would be happy to go along with it.”

This is the longest statement I've heard from Lighthizer on the issue of NAFTA/USMCA panel blocking. It provides some interesting details that help clarify USTR's position:

- Lighthizer acknowledges that panel blocking is permitted under USMCA. (Previously he said this: "The text of Chapter 31 of the United States – Mexico – Canada Agreement (USMCA) is not meant to allow panel blocking.")

- Lighthizer wants to maintain panel blocking in case U.S. "trade laws" are challenged. What kind of trade laws does he have in mind? Trade remedies? There aren't many USMCA rules that would apply here. (Is he thinking about NAFTA Chapter 19/USMCA Chapter 10 here? No panels have been blocked in that context as far as I know). Section 232 actions? These are obvious violations, but the security exception would apply. I hope someone follows up with him about what particular challenges he is worried about.

- Maintaining the ability to block panels was a "U.S. ask." (We know that already -- see p. 3 here, where Mexico's lead negotiator explains that Mexico made proposals to fix the NAFTA flaws.)

- Lighthizer is willing to talk to Congress about adjusting this.

My suggestion for members of Congress who want to make sure USMCA is enforceable -- for trade, labor, or other obligations -- is to go to Lighthizer and demand that the USMCA dispute settlement provisions be fixed, so that panel blocking is no longer allowed. Inu and I made suggestions in this regard in response to a different Congressional hearing that took place recently: https://object.cato.org/sites/cato.org/files/pubs/pdf/lester-manak-public-letter-june-4-2019.pdf.

ADDED: This issue came up again at a House Ways and Means Committee hearing the next day (starts at 2:46:30):

Rep. Boyle: “So that’s a perfect segue into a conversation on enforcement, because when I was first elected to the state legislature over a decade ago, I thought I had an agreement with someone and a wise, 30-year veteran let me know there's a difference between a promise and an agreement, and that difference is the extent to which it can be enforced. So specifically on enforcement, could you explain why the administration seems to still be skeptical about having a binding dispute settlement mechanism?”

Amb. Lighthizer: “So I would say first of all I want to just say what I said many times, just very briefly: I want to work this out, I want to do it quickly, I think I can do it in an afternoon with the group that the speaker has identified. So, we believe the thing has to be enforceable for sure, so what you’re talking about is panel blocking. All right, so the question is: do you want to have the right in a rare circumstance where someone challenges something of particular importance to you, not on a regular basis, but it’s particularly important to you, do you want to have the right to block that panel if you have another way to still enforce your own rights. That’s where we were trying to find that balance. So the question is: what’s the risk that, for example, you’re going to have a problem with a challenge to the trade laws. We have a challenge of the trade laws under the WTO. The trade laws are fundamental to all these workers that we’re all talking about getting laws against unfair trade and the question is do you… that’s the balance that I’m trying to strike here, but I want to work it out with the members. I want members to be happy. If members say, “no, I don’t care about that balance,” then I’ll consider that."

With regard to "panel blocking," the term means just what it sounds like it does: The party complained against can block a panel from being appointed, and therefore any enforcement action is stopped. Lighthizer keeps making reference to "the trade laws," probably meaning AD/CVD or similar laws, which are sensitive issues for the administration. For Mexico, labor might be a sensitive issue; for Canada, agriculture might be sensitive. For members of Congress looking for the proper balance here, the question is whether they want to make certain that these sensitive areas are enforceable against Canada and Mexico. I don't know for sure whether Canada or Mexico would block a panel. But the United States blocked a NAFTA panel in the past, and with Lighthizer indicating that it might do so again for "the trade laws," it wouldn't be too shocking if Canada and Mexico did so as well. The bottom line is that if members of Congress want certainty that USMCA obligations can be enforced against Canada and Mexico, they should push for changes to the USMCA so that panel blocking does not take place.

Call for Proposals: International Economic Law And Security Interests Conference

From the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law:

Call for Proposals – International Economic Law and Security Interests – ACIL-ESIL Amsterdam Conference

On 14-15 November 2019, the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law will host at the University of Amsterdam a Conference on International Economic Law and Security Interests. Besides a roundtable on adjudicating the security exception, the Conference will deal with the main areas of the topic over three axes: International Law and Security, including the history and interpretation of the security exception; Security Interests and International Economic Law, addressing the relationship between security interests and the legal regimes governing trade and investment; and Emerging Security Issues, to discuss issues such as cybersecurity, food security and energy security.

Proposals addressing issues falling within the scope of the Conference’s theme, including abstracts of no more than 500 words and the speaker’s details, or inquiries regarding the conference, should be sent to acil-fdr@uva.nl. The deadline for the submission of proposals is 31 July 2019. The organizers consider publishing papers presented at the conference either as a special issue in a leading journal or as an edited volume published by a leading academic publisher. In the selection of proposals, preference will be given to speakers interested in producing a paper.

India, safeguards and developing Member status

These days, when issues of justiciability or unilateralism arise, the security exception in Article XXI of GATT 1994 comes immediately to mind. However, these issues can arise in very different contexts, such as safeguards.

The Agreement on Safeguards exempts small suppliers of a product from developing Members from safeguard measures, but as throughout the WTO system it does not define developing Member. Most developing countries consider that developing status is based upon self-selection, and is thus not subject to dispute settlement, but this view certainly is not shared by the United States.  

When the United States imposed safeguard measures on solar cells in January 2018, it exempted India as a small developing supplier. In May of this year, however, President Trump suspended India's status as a GSP beneficiary, on the grounds that India does not provide US exporters with fair access to its markets. In the same proclamation, the United States removed India from the list of developing Members benefiting from the small supplier exemption in respect to the solar cells safeguard (and to another safeguard measure on large residential washers).

It appears from the Proclamation that the United States now conflates GSP beneficiary status with developing Member status, and considers that India is no longer a developing country.  Should India disagree, it could challenge the US decision in dispute settlement, and we would then learn whether the WTO DS system is prepared to rule whether or not a Member is a developing country.  

From the US perspective, India might not be the ideal candidate for a test case.  While the developing country status of Singapore, Korea or China may be debatable, India's GDP per capita is only slightly above $2000. That is by far the lowest among G20 countries, and is one thirtieth that of the United States and one fifth that of China.

 

      

Joe Biden on Tariffs and Trump's Trade Strategy

This is from a speech today by Democratic presidential candidate Joe Biden:

America's farmers have been crushed by his tariff war with China.

 

No one knows that better than Iowa.

 

He thinks he's being tough.

 

Well, it's easy to be tough when someone else is feeling the pain.

 

How many farmers across this state and across this nation have had to face the prospect of losing their business, of losing their farm because of Trump's tariffs?

 

How many have had to stare at the ceiling at night wondering how they're going to make it?

 

How many sleepless nights do you think Trump has had over what he's doing to America's farmers?

 

Here's the answer: Just as many as he had when he stiffed the construction workers and electricians and plumbers who built his hotels and casinos. Zero.

 

And how about manufacturing? Trump's tariffs and trade wars are hitting a lot of American manufacturing -- especially the American automobile industry -- Choking it to within an inch of its life.

 

One of my proudest moments in the White House was when President Obama and I led the rescue of the American auto industry.

 

We knew what it meant to the millions of jobs in the auto companies and the supply chain.

 

We also knew what it meant to the pride of the nation.

 

Now I'm watching Trump destroy the industry President Obama and I helped save.

 

Do you think he just backed off his tariff threat with Mexico because he got some tough new deal? Maybe there's some secret development yet to be revealed — But based on what we know, it seems more like old wine in new bottles.

 

And the truth is he's scared -- his economic folks told him his tough talk was about to cost to him Michigan and Ohio and Iowa.

 

But don't kid yourself -- another bad news story -- and he'll be back with tariffs to change the subject. And the people who will get hurt are just pawns in his game.

 

Trump doesn't get the basics.

 

He thinks his tariffs are being paid by China. Any beginning econ student at Iowa or Iowa State could tell you that the American people are paying his tariffs. The cashiers at Target see what's going on -- they know more about economics than Trump.

 

And let me take one additional moment to talk about this — because it's important, and I don't want anyone to misunderstand what I mean.

 

We are in a competition with China.

 

We need to get tough with China.

 

They are a serious challenge to us, and in some areas a real threat.

 

And every single step that Donald Trump is taking is only exacerbating the challenge.

 

While Trump is tweeting, China is making massive investments in technologies of the future.

 

While Trump is name-calling, China is building roads, bridges, and high-speed rail.

 

While Trump is pursuing a damaging and erratic trade war, without any real strategy, China is positioning itself to lead the world in renewable energy.

 

While Trump is attacking our friends, China is pressing its advantage all over the world.

 

So you bet I'm worried about China — if we keep following Trump's path.

 

...

 

So when it comes to taking on China, First, let's invest in ourselves — that's why I've proposed a historic initiative in scientific research, cutting-edge infrastructure, and a modern workforce that will help American workers and entrepreneurs compete and win.

 

Second, let's build a united front of allies to challenge China's abusive behavior. Trump is attacking the very partners we need with us to deal with China. We need to rally more than half the world's economy to hold China to account for their cheating. And get a chorus of voices speaking out on China's repression.

 

Third, let's tighten up our defenses so that American companies don't have to keep giving away technology to China, or having it stolen. In the Obama-Biden administration, we got China to curb its cyber-theft -- it's gotten worse under Trump.

 

Finally, let's find areas to cooperate where it's in our interest. We got the Chinese to agree for the first time to limit their carbon pollution. There's a lot more we can do on climate change, and nuclear weapons, and other issues where our interests converge.

 

But time and time again, on issue after issue, Trump makes the wrong choices. He is motivated by the wrong thing.

I didn't hear it delivered live, but this seems like a passionate rant. But as I asked with the post about Pete Buttigieg, what exactly would Biden's trade policy look like? Would it be the TPP/TTIP again, or has he learned some lessons from those battles and has some adjustments to make?

Pete Buttigieg on Tariffs and Trump's Trade Strategy

This is from Democratic presidential candidate Pete Buttigieg at a recent town hall event:

The San Joaquin Valley helps feed not just America, but the world. The products that are grown here are world-class and yet what we’re finding is because of a short-sighted, I can’t even call it a strategy, I can’t even call it a policy, it’s a pattern, it’s a pattern of poking people in the eye to see what will happen. But when you don’t have — look — I completely get the idea if China is doing something unfair, I get the idea of standing up to them. If there are trade deals that are not benefitting us enough, I get the idea of adjusting them to make sure that it’s fairer trade, but that’s not what we’re seeing right now. What we’re seeing right now is basically politically motivated gamesmanship and it’s coming down on your back.

It’s hurting farmers. It’s hurting workers. It’s hurting consumers. I wonder how many consumers are aware that that the projection is we all on average will pay 800 bucks more a year starting now because of these tariffs, and by the way, a tariff is a tax, so if you ever believe the Republicans don’t raise taxes, that’s what they’re doing right now.

The Democratic candidates are all lining up against Trump's trade policy, but what trade policy are they for? What exactly does it mean to Buttigieg to adjust trade deals to make sure trade is fairer?

Call for Submissions: Trade, Law and Development

This is from the Board of Editors at Trade, Law and Development:

The Board of Editors of Trade, Law and Development is pleased to invite original, unpublished manuscripts for publication in the Winter ’19 Issue of the Journal (Vol. 11, No. 2) in the form of Articles, Notes, Comments and Book Reviews.

Manuscripts received by September 30, 2019 pertaining to any area within the purview of international economic law will be received for publication in the Winter ’19 issue.

Manuscripts may be submitted via e-mail or ExpressO. For further information about the journal please click here. For submission guidelines, please click here.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com. See the full call for submissions here. 

Abraham Lincoln on the Tariff

Some of you may have come across this purported quote from Abraham Lincoln before:

"I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money."

According to economist and professor Frank Taussig, however, it's all just a myth. See his explanation of the origins of the myth here.

Guest Post: Linking international trade to climate action and sustainability

This is a guest post from Rafael Leal-Arcas of Queen Mary University of London:

London will celebrate in July 2019 the first-ever London climate action week:

https://www.e3g.org/news/media-room/mayor-confirms-london-climate-week-in-2019

Linking climate change to international trade has been a topic of academic debate in recent times. In that vein, I have just finished a new book that uses the international trading system as a possible solution to climate change and, ultimately, sustainability: SOLUTIONS FOR SUSTAINABILITY: HOW THE INTERNATIONAL TRADE, ENERGY, AND CLIMATE CHANGE REGIMES CAN HELP, Springer, 2019; ISBN: 978-3-030-23932-9.

Here is a summary of my latest book:

‘This book explores links and synergies between international trade and two of the most urgent challenges of the 21st century: achieving sustainable energy (i.e., energy that is affordable, secure, and clean) and mitigating climate change. It takes the unique approach of not only examining how international trade can help achieve energy and climate goals, but also the impact of emerging tools and technologies such as smart grids and demand response, and the potential role and impact of citizens and prosumers. The book analyzes energy- and trade-related regulations in a range of jurisdictions to assess how conducive the regulation is towards achieving sustainable energy, and identifies gaps and overlaps in the existing legal framework.’

For further details about my book, please visit: https://www.springer.com/gp/book/9783030239329#aboutBook

Should WTO Dispute Settlement Require The Appellate Body To Discuss All Appealed Issues?

I recently read something about the U.S. Judiciary Act of 1925 (the "Judges' Bill"). Here's an explanation:

The so-called Judges' Bill of 1925 fundamentally redefined the Supreme Court's role within the federal judiciary by repealing much of the mandatory jurisdiction of the Court. The act preserved an automatic right of appeal to the Supreme Court in a few types of cases, but in other areas cases would come to the Court only when the justices granted a writ of certiorari in response to a petition from a party in a case before a lower court. ... 

That made me wonder what everyone -- and by that I mean the United States, other WTO Members, and everyone else -- would think of limiting the right of appeal by giving the Appellate Body more discretion over what issues to hear. DSU Articles 17.12 and 17.13 say this:

12. The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.

13. The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel.

But what if these provisions said something like this instead: "The Appellate Body shall address as appropriate the issues raised in accordance with paragraph 6 during the appellate proceeding. In this regard, the Appellate Body may uphold the panel's legal findings and conclusions without further elaboration, or it may modify or reverse those legal findings and conclusions."

In a sense, this change would give the Appellate Body more power, because it could decide which issues to elaborate. But in another sense, it would be giving the Appellate Body the power to limit its own power, by reducing the number of issues it discusses. Importantly, this could lessen the Appellate Body's workload and make it easier to complete appeals within 90 days.

Industrial Policy as a Tool of U.S. Foreign Policy

This is from Jennifer Harris and Todd Tucker in Politico:

President Donald Trump’s threat to levy tariffs on Mexico has triggered a political war in Washington, and not the usual partisan kind. Some Republicans are girding to fight their own president, rightly finding it absurd that he would take out his frustrations over immigration by increasing the cost of trade. As Sen. James Lankford (R-Okla.) told Politico, the White House "is trying to use tariffs to solve every problem but HIV and climate change." Trump supporters like Sen. Marco Rubio (R-Fla.), meanwhile, don’t see many options. “[W]hat alternative do my GOP colleagues have,” he tweeted, “to get Mexico to secure its southern border… & act on intel we provide on human traffickers?”

Much as it pains their colleagues—and as hard as it is for Washington to process this—Trump and his backers have a real point. Not about his immigration policies, which are part of a harmful cultural war and stand a real chance of inflicting long-term damage on the American economy. But the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

For that, the blame lies with Democratic and Republican administrations alike, including Trump’s predecessor Barack Obama, who collectively have let US economic policy shrink in ambition—a battle fought on a narrower and narrower field, leaving us with so few weapons that tariffs have become the most useful last resort.

A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners. In that universe, Mexico’s own immigration enforcement might be part of a much wider package of goals negotiated between the two nations, one that creates strong incentives for Mexico to comply, without hurting American consumers and companies the way tariffs would.

This fuller agenda, which some experts call economic statecraft, has been the norm for much of the country’s history. But unlike America's competitors, the United States has largely shelved this kind of economic thinking. President Obama, for instance, pitched the Trans-Pacific Partnership (TPP) trade agreement as a way to ensure that America, rather than China, would write the rules of the global economy. But under the hood, it was never a very compelling economic argument for the United States: The rules that China negotiates in its own trade deals overlapped considerably with the American proposal, meaning that the TPP was more a matter of diplomatic gamesmanship than a real plan to advance workers here at home.

There are two aspects to their argument: domestic and international. As they put it: "A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners."

With regard to the domestic aspects, they argue for industrial policy rather than neoliberalism:

For the last few decades, policymakers have embraced neoliberalism, a broadly open-market political philosophy whose effects have been to redirect more power toward the economically powerful and marginalize the economic majority. Things may be changing. Leading academics, public intellectuals on both the right and the left, and even the IMF are calling for a return to a robust domestic industrial policy.

I have two reactions to this. First, I would say that, in fact, industrial policy may be more likely to "redirect more power toward the economically powerful and marginalizes the economic majority." Industrial policy means lots of subsidies for big business. Some of that will trickle down, of course, but just as agricultural producers like farm subsidies, manufacturers and other businesses like industrial policy. And second, from what I can tell, rather than some major shift taking place, arguments for free markets vs. industrial policy are about the same as they have always been. The perception on the left that free markets dominated the 1990s is way off base. Harris and Tucker talk about the "the heyday of the global free-market consensus," but I can assure you that, as someone in the free market camp, there was never a time when I thought, "Wow, we are really winning the policy debate!" It was an uphill struggle, and any victory was outweighed by two defeats. At one point, farm subsidies were supposedly being phased out, but they quickly and quietly came right back. And anyway, there have always been U.S. policies that can be classified as industrial policy (e.g., military spending). It might not be the precise industrial policy that some people want, but that's how things tend to go. The ingenious policy innovation you just came up with is not going to be implemented as you hoped. Interest groups of various sorts will get involved and turn it into something else.

But nobody is ever going to convince anyone to change his/her mind on the value of industrial policy as a domestic matter, and I want to focus here instead on the idea of "economic statecraft," or using "carrots and sticks for foreign partners," or to put it more bluntly "using American economic power to boss other countries around." To me, this seems like a strange thing for progressives to want, but I confess that I'm a little unclear on who the progressives are (and for that matter, who the neoliberals are).

First off, I think we could really use some empirical assessment of whether "economic statecraft" is effective in achieving its goals, in both the short- and long-terms. Maybe it does accomplish some things, like restricting asylum seekers from getting to the United States, in the short-term. On the other hand, in the long-term maybe it pushes the countries we are trying to influence into alliances with other countries. I'd like to see some studies of all this before we assume it is effective, as Harris and Tucker seem to.

Second, advocates of this approach to foreign policy need to take into account that they are not always going to be in power. For those on the left who want to use U.S. economic power to do "good things," keep in mind that the specific government action that triggered the Harris/Tucker article was Trump's use of tariffs to get Mexico to take actions to restrict migration. Harris and Tucker are careful to point out that Trump's immigration policies are part of a "harmful cultural war" and they certainly don't support that sort of thing. On the other hand, they do seem to support the general concept of using U.S. economic power to coerce our trading partners:

the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

The problem is, if you endorse the principle behind this sort of "economic statecraft," you kind of have to take some responsibility for whatever comes out of it. 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. I recognize that Harris and Tucker want President Warren/Sanders/or somebody to have this power for some progressive thing, but 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 U.S. government simply didn't exercise this power, or exercised it a lot less.

Finally, it is also worth pointing out that it may be possible to accomplish these things without bullying other countries at all. For example, if we wanted Mexico to be able to handle migrants from Central America better, which Mexico probably wants as well, we could spend some of our own money to help them. That's closer to being a carrot than a stick, although maybe it's not even a carrot, but rather just the right thing to do. By contrast, Harris and Tucker seem like they are just looking for big sticks. They refer to "fixing some of the big policy arguments [the United States] has with its trading partners," but that sounds like a euphemism for what I think they really mean, which is using U.S. power to coerce other countries into doing what we want.

That's not to say that nobody should ever try to influence anything that goes on in other countries. But when you are considering the possibility of doing so, it's worth thinking carefully about what would be effective and appropriate. Sometimes just setting a good example may be the best approach.

The EU's Interim Appeal Arbitration Proposal

Tom Miles provided a link the EU's Interim Appeal Arbitration proposal in the comments, and Steve referred to it in the last post. A searchable PDF version is here. Overall I think it is a good temporary solution and could work pretty well. Some noteworthy elements:

- "under the interim appeal arbitration procedure, appeals will be heard by former members of the Appellate Body, serving as arbitrators pursuant to Article 25 of the DSU. Three persons will serve on any one case. They will be selected by the Director-General from the pool of available former members of the Appellate Body."

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

- "The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat after the suspension of the panel proceedings referred to in paragraph 7 takes effect, and no later than 10 days after that date. The Notice of Appeal shall include the final panel report in the official languages of the WTO." 

- "Under the interim appeal arbitration procedure [WTO Member] and the European Union intend to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU including an appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat."

It will be interesting to see how other governments react to the proposal. Perhaps there will be some refinements as others weigh in. We may see a dual approach, where some parties agree not to appeal and other parties agree to use this Interim Appeal Arbitration procedure.

Comments on The EU's Proposal for Article 25 Arbitration

Steve Charnovitz

6 June 2019

This is a follow-up to my earlier post "The WTO Appellate Body Crisis - A Critique of the EU's Article 25 Proposal."  See <https://ielp.worldtradelaw.net/2019/06/the-wto-appellate-body-crisis-a-critique-of-the-eus-article-25-proposal.html>.

Thanks to Tom Miles for posting the Draft 5.16.19 document that the EU has circulated to the WTO for an Interim Appeal Arbitration Agreement based on DSU Article 25.

The draft agreement would be entered into bilaterally by the EU and another WTO member to agree to resort to arbitration under DSU Article 25 for appeals of final WTO panel reports in the event that the Appellate Body is not operational.  The appeal to the arbitral panel would be instead of Appellate Body review.  The EU paper contemplates using the Director-General (DG) to appoint three former Appellate Body members to hear the appeal and to use the Appellate Body Secretariat for administrative and legal support.  Such duties for the DG and the Appellate Body Secretariat are not contemplated in the DSU, but seem reasonable to me. 

Although the EU has shown creativity with its CETA Investment Court, I am less impressed with the idea of an ad hoc appellate tribunal composed of retired appellators. Using former Appellate Body judges is not the same thing as having an Appellate Body with collegiality to hand down decisions.  I am not aware of any precedent for replacing an appellate tribunal with ADR of retired judges.  I think this idea devalues the idea of an appellate jurisdiction.  I don't see why the second panel of three arbitrators should be viewed as more authoritative than the first panel.  I am not aware that the EU currently offers an ADR fast track to its European Court of Justice. I would not want to see the Appellate Body permanently replaced by ad hoc ADR, or for that matter an ad hoc judicial machine learning apparatus in the event that three retired Appellate Body members were not available.  

Elizabeth Warren's "Plan for Economic Patriotism"

Elizabeth Warren just released "A Plan For Economic Patriotism." Here's how it starts:

I come from a patriotic family. All three of my brothers joined the military. And I’m deeply grateful for the opportunities America has given me. But the giant “American” corporations who control our economy don’t seem to feel the same way. They certainly don’t act like it.

Sure, these companies wave the flag — but they have no loyalty or allegiance to America. Levi’s is an iconic American brand, but the company operates only 2% of its factories here. Dixon Ticonderoga — maker of the famous №2 pencil — has “moved almost all of its pencil production to Mexico and China.” And General Electric recently shut down an industrial engine factory in Wisconsin and shipped the jobs to Canada. The list goes on and on.

U-S-A! U-S-A!

Sorry, I got caught up in the patriotic fervor.

So will this nationalist, anti-corporate rhetoric pull any Trump/Sanders voters over to her? I'm skeptical that it will, but we'll see how it plays out. (Tucker Carlson liked it, which is telling, although ultimately he seemed to conclude that it was not enough to get him in the Warren camp).

And will No. 2 pencils be made in the good ol' US of A again? I'm skeptical of that too, but I think the SATs will survive this.

In terms of the substance, she put forward in this piece a number of proposals related to manufacturing, and it sounds like maybe some more specific trade proposals are coming. While Trump emphasizes that the foreigners are cheating us, Warren seems to look admiringly at the industrial policy of other countries and wants to copy it. I'll come back to that some other time. For now, I wanted to focus on an institutional point she made:

• Consolidating existing government programs that affect job creation into a new agency with the sole responsibility to create and defend quality, sustainable American jobs. The new Department — the Department of Economic Development — will replace the Commerce Department, subsume other agencies like the Small Business Administration and the Patent and Trademark Office, and include research and development programs, worker training programs, and export and trade authorities like the Office of the U.S. Trade Representative. The new Department will have a single goal: creating and defending good American jobs.

...

... there are some government agencies that undermine sustainable American jobs. For example, the Office of the United States Trade Representative — whose mission is to negotiate trade deals on behalf of America — is captured by the interests of corporate executives and lobbyists. Its actions across Administrations demonstrate a deep ideological opposition to anything that might put the interests of American workers above the interests of multinational corporations or Wall Street.

I don't doubt that the U.S. government is, to a great extent, captured by special interests -- corporate, labor union, various NGOs, lobbyists in general. But on what basis would someone say that USTR is more captured than others? And why would her Department of Economic Development be any different? If you are going to expand the role of government and have it spend more money, as she suggests in the piece, it's inevitable that the role of interest groups and lobbyists is going to increase. She spends a lot of the piece trying to sound anti-corporate, but I think that many big businesses are going to be pretty happy to have the federal government throwing more money around. This, for example, sounds like a special interest bonanza:

Our international competitors like China, Germany, and Japan develop concrete plans for promoting domestic industry and then make serious investments to achieve their goals. China’s Made in China 2025 plan aims to dominate advanced manufacturing in the coming decades using various incentives and “hundreds of billions of euros” in subsidies. Germany and Japan have also developed plans that identify long-term goals for domestic production and put real money behind achieving them.

This is a pretty straightforward idea. But outside of the defense context, the United States has nothing remotely like it.

Does Congress Care about Delegating More Power Over Trade to the Executive Branch Through the USMCA Sunset Clause?

Inside US Trade has a copy of the draft Statement of Administration Action for the USMCA here. One thing that jumped out at me was that there was no mention of the sunset clause, i.e., Article 34.7: Review and Term Extension. That provision states in part:

1. This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term, in accordance with the procedures set forth in paragraphs 2 through 6.

2. On the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a “joint review” of the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions. Each Party may provide recommendations for the Commission to take action at least one month before the Commission’s joint review meeting takes place.

3. As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and consider extension of this Agreement term no later than at the end of the next six- year period.

4. If, as part of a six-year review, a Party does not confirm its wish to extend the term of the Agreement for another 16-year period, the Commission shall meet to conduct a joint review every year for the remainder of the term of the Agreement. If one or more Parties did not confirm their desire to extend the Agreement for another 16-year term at the conclusion of a given joint review, at any time between the conclusion of that review and expiry of the Agreement, the Parties may automatically extend the term of the Agreement for another 16 years by confirming in writing, through their respective head of government, their wish to extend the Agreement for another 16-year period.

Under this provision, each "Party" (i.e., the governments of Canada, Mexico and the United States) can decide whether to continue the agreement. But the domestic process for such a decision is not set out. If Congress wants to make sure it has a role in that process, it needs to make this clear in the implementing legislation and the SAA now. Here's what I said about this last year:

... [Congress] better weigh in on how [the sunset clause] is supposed to operate in the U.S. political system. The agreement references "the Parties," but does not make clear who within each Party has the responsibility here. Paragraph 3 states that "each Party shall confirm, in writing, through its head of government," but that's just who notifies, as opposed to who decides the question. So which U.S. government branch gets to decide on whether the agreement should be extended as part of this review? What is the role of Congress here? Congress has ceded a lot of power to the President on trade over the years, and if it allows this provision to stay in, it better make sure that it has a full say on whether to confirm that the United States wishes to extend the new NAFTA deal as part of the review.

The U.S. and China Are Talking about What Went Wrong in the U.S.-China Trade Talks

China has now put out a White Paper on the "China-U.S. Economic and Trade Consultations." Bloomberg has the English translation here. This is one passage::

The US government accusation of Chinese backtracking is totally groundless. It is common practice for both sides to make new proposals for adjustments to the text and language in ongoing consultations. In the previous more than ten rounds of negotiations, the US administration kept changing its demands. It is reckless to accuse China of “backtracking” while the talks are still under way. Historical experience has proved that any attempt to force a deal through tactics such as smears, undermining and maximum pressure will only spoil the cooperative relationship. Historic opportunities will be missed.

And now here is a response from the U.S. government:

U.S. Trade Representative and the U.S. Department of Treasury today released the following statement in response to the “White Paper” issued by China on June 2, 2019

...

It is important to note that the impetus for the discussions was China’s long history of unfair trade practices.  Our negotiating positions have been consistent throughout these talks, and China back-pedaled on important elements of what the parties had agreed to.  One such position was the need for enforceability, a position necessitated by China’s history of making commitments that it fails to keep.  But our insistence on detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty.  Rather, the issues discussed are common to trade agreements and are necessary to address the systemic issues that have contributed to persistent and unsustainable trade deficits. 

There haven't been any substantive leaks here, so it's not at all clear to me what's really going on behind the scenes. Based on the above statement, though, maybe (although maybe not) we can get a vague sense of one aspect of it.

As I've written about before, the Trump administration seems to be pushing the idea of unilateral decisions about compliance with any U.S.-China trade agreement, and unilateral tariffs as a way to enforce the decisions about non-compliance. I'm not convinced that this approach would work as an enforcement tool, but the administration seems pretty attached to the idea. (If it were me, I would rely on neutral adjudication like that used at the WTO and in FTAs, because it works fairly well. But they are in charge and I'm not.)

I can imagine (but I'm not at all sure and I have no information on this) that the Trump trade folks proposed the unilateral enforcement idea to their Chinese counterparts, who perhaps seemed open to it and then brought it back to the leadership in Beijing. At this stage, maybe there was an assumption that the leadership would approve it. But the leadership rejected the idea, either because they objected to the general principle, or because they didn't like how it was being implemented in this instance.

Or maybe that's not what's going on here at all and I'm misreading this. Regardless of whether a deal is ever reached, I hope that some day we find out a bit more about what exactly was under discussion here related to enforcement and how the conversation about the proposals played out.

Kamala Harris on the Proposed Tariffs on Mexico

Here is presidential candidate Kamala Harris being interviewed by Telemundo’s Julio Vaqueiro, talking about Trump's proposed tariffs on Mexican imports to deal with immigration issues:

Vaqueiro: “President Trump just yesterday said that he is going put some tariffs on all Mexican imports, until Mexico stops illegal immigration from Central America. What’s your take on that?”

Harris: “I have a couple of thoughts. One is that this President continues to push forward what I call the Trump trade tax. This is about taxing American consumers. People are going to have to pay more for washing machines, pay more for clothing, pay more for shampoo. When we look at the trade policy he is conducting in terms of China, now with Mexico, it’s going to result in people here paying billions of dollars more a year for consumer products.”

“It is also about an ongoing policy by this administration and Trump to vilify immigrants and to not deal with the real issue, which is that we cannot continue to have policies that are about vilifying people and rejecting those who are fleeing harm. We are creating human rights abuses in a way that this is occurring and it has to stop.”

Vaqueiro: “So how would you describe this approach of using trade to reduce immigration?”

Harris: “I think it’s foolish. I think it’s foolish. And the reality of it is this: We have families who are fleeing the murder capitals of the world in Central America, traveling through the country of Mexico, often paying coyotes to do so. Facing unknown peril. When a mother puts her child in the hands of a stranger to transport them through another country with unknown peril—the only reason mothers are doing that is knowing that if the child stays where they are they face greater harm. But what is this president saying when they arrive here? He says, ‘Go back to where you came from’. (…)”

I suspect that many of the Democratic presidential candidates are agonizing over how to deal with trade issues. With Trump being such an economic nationalist, and polls showing Democratic voters being more pro-trade these days, there will be a temptation to move the party towards free trade. But at the same time, there is important labor union support up for grabs. It's difficult for some of the candidates to figure out how to manage that. These tariffs on Mexican imports were probably an easy call, but still, I thought it was interesting that Harris is using the term "Trump trade tax." It seems like perhaps she is positioning herself, on this issue at least, as the moderate-friendly alternative to Sanders and Warren.

The WTO Appellate Body Crisis: A Critique of the EU's Article 25 Proposal

Steve Charnovitz

2 June 2019

Recent reports indicate that the EU is proposing to use Article 25 of the WTO's Dispute Settlement Understanding (DSU) to provide a temporary solution to the ongoing crisis in the Appellate Body of not having enough appellators to adjudicate appeals and to render panel reports adoptable (see World Trade Online," EU Moving forward with WTO Appellate Body backup plan", 31 May 2019). Although I have not yet seen any EU paper, the urgency of the matter provides a good reason to begin an analysis of pros and cons of this backup plan.  

The crisis in the Appellate Body is that its judicial bench is now down to only three appellators and two of those terms will end in December 2019.  With fewer than three appellators, the Appellate Body will not be able to decide appeals.  Furthermore, under DSU Article 16.4, any panel decision under appeal is not eligible for automatic adoption until the "completion of the appeal." Thus, without the possibility of appeal, any defendant in a WTO case can block the adoption of a panel report merely by appealing "into the void".  Without adoptability of panel reports, the predictability and security provided by the DSU will disappear. 

The reason why four of the seven seats on the Appellate Body remain unfilled is that the WTO Dispute Settlement Body (DSB) has failed in its duty under DSU Article 17.2 to fill vacancies "as they arise."  The cause of this failure is that since 2017, the United States has been blocking the appointment process.  The blocking of appointments was not invented by the Trump Administration -- the prior art came in the blocking of an appellator reappointment by the Obama Administration -- but the Trump Administration perfected the heinous art through the more destructive goal of attacking the tribunal itself rather than just particular judges.  See Steve Charnovitz, "How American Rejectionism Undermines International Economic Law," Trade, Law and Development, Winter 2018.  

Beginning in 2017, the looming danger of a halt in the adoptability on WTO panel reports led to numerous proposals being offered to address this predicament. My own proposal, published in this blog on 3 November 2017, would have headed off the problem by having the Appellate Body change its rules so as to declare ex ante that whenever the Appellate Body bench fell below five judges, then for any appealed case, the "completion of the appeal" would occur on the same day that the appeal was filed.  Unfortunately, the Appellate Body did not adopt my solution for reasons that have not been publicly disclosed.  Ironically, at a time when the Appellate Body is regularly criticized for "activism," the failure of the Appellate Body to adopt a DSU defense measure is an example of its inactivism.  Given the procedural situation in 2017, only the Appellate Body had the power to clear the way for future panel report adoptions even in the worst-case scenario of the number of appellators falling to zero.  In my view, the Appellate Body had the last clear chance (and perhaps the duty) to enable the WTO to avoid the worst aspects of the current predicament.  To quote Professor Peter Van den Bossche in his recent address to the DSB, "History will not judge kindly those responsible for the collapse of the WTO dispute settlement system."

With the calendar advancing to June 2019, the EU proposal is to utilize DSU Article 25.  Under DSU Article 25, WTO governments can employ arbitration as an alternative to DSU Article 6 panels.  Such arbitration requires "mutual agreement of the parties" and DSU Article 25.3 states that parties "shall agree to abide by the arbitration award."  Should a party not abide by the award, Article 25.4 provides for enforcement through the regular techniques of compliance review by an appealable panel report and determination of any SCOO (i.e., a suspension of concessions or other obligations) through arbitration. 

As a solution to being able to achieve finality in WTO disputes, Article 25 arbitration does not offer any advantages over regular DSU panels.  The Article 25 approach works only if there is ex ante agreement of the litigants to use the parallel track. But if litigants can mutually agree to arbitration without appeal, then the same litigants could also mutually agree to enter into a procedural agreement not to appeal the Article 6 panel report and the Article 21 compliance panel report.  Staying within the normal panel process offers considerable advantages over ad hoc arbitration as there are already broadly accepted Working Procedures and thus no need to reinvent them for each arbitration.  Staying within the regular panel process also provides a proven path for adjudicating and enforcing compliance which is absent in Article 25. (While it is true that if governments abide by an arbitration award there would not be any need for enforcement, it is similarly true that if governments followed WTO rules, then would not be any need for dispute settlement.)

The only advantage offered by Article 25 is to employ it in a way that makes improvements on regular WTO dispute settlement.  Specifically, under Article 25, litigants could agree ex ante that the arbitrator may award monetary damages should violation of WTO rules be found and that the monetary award would be rendered in a manner so as to make it eligible for enforcement in domestic courts under the New York Convention (including its defenses).  The use of monetary awards and domestic enforceability is not available in DSU panels, and so experimenting with Article 25 in that way would provide value added.

At this point, the best path forward for WTO members that support the rule of law is to sign on to a Non-Appeal Pact (NAP) in advance so as to agree reciprocally not to appeal WTO panel reports during the ongoing crisis.  If most of the active DSU litigants were to sign this Pact, the ongoing crisis could be mitigated considerably for cooperating countries.  (Obviously this Pact cannot resuscitate the Appellate Body; even my own plan of 2017 recognized that there was no back door rescue for the Appellate Body itself.)

To give concreteness to this idea, here is language that has been suggested for such a NAP:

WTO Membership No-Appeal Pact (NAP)

Recognizing that as of 11 December 2019, the Appellate Body of the World Trade Organization (WTO) may no longer have the minimum required number of members to commence an appeal, and

Being desirous to maintain, even in such situation, rule-based WTO dispute settlement and the adoption of WTO dispute settlement reports by the WTO Dispute Settlement Body (DSB) pursuant to the rule of negative consensus as set out in Articles 16.4 and 17.14 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),  

We agree:

1. To refrain from appealing a panel report in a dispute where all of the other parties in the dispute are signatories to this No-Appeal Pact;
2. That this Pact will go into operation on the date that the number of Appellate Body members falls below three and will end on the date that the number of Appellate Body members rises above four; and
3. That this Pact is an informal understanding of representatives of the Members and does not alter the rights and obligations of the Members.

Signatories:

 

 

 

 

Trump's Threatened Tariffs on Mexico Show the Need for Congress to Curb Emergency Authority

Steve Charnovitz

May 31, 2019

Yesterday on May 30, President Trump threatened to impose escalating tariffs on Mexico unless the Mexican government takes action to stem the tide of individuals lacking US entry visas from seeking to cross over the Mexican side of the US-Mexican border.  Whether Mexico has an obligation under international law to ensure that activities within its borders do not cause (objective) damage to the United States is a matter on which I reserve judgment.  Herein, I do offer the judgment that under US law, in particular 50 USC § 1701 et seq., the Congress has delegated authority to the President to regulate imports into the United States whenever the President has declared a national emergency regarding a threat to the national security, foreign policy, or the economy of the United States, as determined by the President.  

The provision of US law (50 USC § 1702) granting emergency authorities does not clearly indicate that tariffs can be imposed.  Indeed, a purely textual analysis would suggest that the instrument of regulation is available, but tariffs are not.  Nevertheless, the jurisprudence of the US Court of Appeals for the Federal Circuit suggests that the power to regulate in emergency authority includes the power to impose tariffs (see US v. Yoshida International, 526 F.2d 560 (CCPA 1975). 

In my view, Congress should not be delegating so much unconstrained authority to the President to declare national emergencies without sufficient cause and to employ tariffs as a cudgel against other countries. Weaponized tariffs are problematic for three reasons:  First, the US economy gets hurt at least as much as the target country.  Second, such tariffs are usually just a convenient way to disguise protectionism or state mercantilism.  Third, a tariff on Mexico would violate US treaty obligations. 

I get that the Trump Administration's goal is to tear down the international economic order and legal system.  What I don't get is why Congress is so willing to stand aside and allow the Trump Administration to tear it down.  The Congress should be taking action to curtail the excessively broad powers to the President in the International Emergency Economic Powers Act (IEPPA) and to explain to the public why IEPPA needs to be reformed or repealed. 

When IEPPA was enacted in 1977, the Congress reserved for itself an authority (50 USC §1706(b)) to terminate a President’s emergency actions by concurrent resolution.  A concurrent resolution is a resolution of both the House and Senate that cannot be vetoed by the President.  Such a Congressional disapproval procedure was viewed by the Congress a way to retain control over the President’s extraordinary emergency authorities and to maintain a proper balance of powers.  Unfortunately, in 1983, the Supreme Court invalidated the important instrument of Congressional disapprovals (see INS v Chadha, 462 U.S. 919). A quarter of a century later, many useful government programs that were built on ex post Congressional disapprovals have either been terminated or like IEPPA are vulnerable to Presidential abuse.  In some cases, the Congress has replaced the concurrent resolution with a joint resolution, but a joint resolution is vetoable by the President and so could only exert control in situations where two-thirds of both Houses are willing to repudiate the President.    

 

 

 

Canada Introduces Implementing Legislation on USMCA

On May 29, Canadian Prime Minister Justin Trudeau introduced Bill C-100, the "Canada-United States-Mexico Agreement Implementation Act," into the House of Commons. This paves the way for ratification in Canada, which could take place before the parliamentary recess on June 21st. A number of news reports in the United States have noted that this hasty ratification may put congressional Democrats in a bind over making some changes to the text of the agreement before it goes to a vote in the United States. However, as CBC reporter Janyce McGregor aptly noted, Bill C-100 leaves some important room for Democrats to allow for changes to specific obligations in Chapter 20 on Intellectual Property Rights. Here's the relevant part of the implementing legislation:

(2) Subsection 30(3) of the Act is replaced by the following:

Regulations — Canada–United States–Mexico Agreement and WTO Agreement
(3) Without limiting the power conferred by any other subsection of this section, the Governor in Council may make any regulations that the Governor in Council considers necessary for the purpose of implementing, in relation to drugs, Articles 20.48 to 20.50 of the Canada–United States–Mexico Agreement or paragraph 3 of Article 39 of the Agreement on Trade-related Aspects of Intellectual Property Rights set out in Annex 1C to the WTO Agreement.

As a reminder, Articles 20.48 to 20.50 covers the Protection of Undisclosed Test or Other Data, and Biologics. This has been a hot button issue for Democrats who want to lower the 10 year exclusivity period for new biologic drugs that was agreed to in the USMCA. Currently, Canada has an exclusivity period of 8 years, and implementation of the USMCA as it stands would require changes to domestic regulations. For reference, Mexico's exclusivity period is 5 years (which will change as part of the implementation of USMCA), and the United States is 12 years.

This is certainly a creative insertion into the implementing legislation, which essentially allows changes to be made after the agreement is ratified. But is this enough flexibility to address all the concerns Democrats have aired? On issues of enforcement, labor, and environment, no such flexibility is outlined in the implementing legislation. However, it is unclear whether this absence will limit the ability of congressional Democrats to reopen the entire agreement to tackle these issues.

On labor and environment, it is likely that Democrats are more concerned with Mexico than with Canada, so any changes Mexico agrees to with the United States bilaterally may not matter for Canada. However, what would happen if Chapter 31 (state-to-state dispute settlement) is reopened? Presumably there is enough legal flexibility for Canada to make changes post-ratification, since these changes would be limited to the USMCA and have no effect on domestic regulations. If that is the case, why are some Democrats so concerned about early ratification?

As Trudeau faces a challenging election this fall, it makes sense that he would want to push the agreement through parliament now instead of waiting for the results of the federal election. It is not entirely clear what would happen to USMCA if he loses his majority. But Mexico began the ratification process today as well, and this might be more of an issue for Democrats in the end. Getting the deal ratified in Mexico will require its Senate to take up a vote in an extraordinary session this summer. Though President López Obrador cannot force a vote, his party currently holds a majority and is likely to support him. He has also reiterated his reluctance to reopen the agreement. 

Given all this, how reasonable is the chance that changes will be made to the actual text of the agreement if we are to expect ratification to take place this year in all three countries? Does this mean that side agreements are the only option? If so, can the Democrats address their enforcement concerns on labor and environment by including language in the side letters that makes them subject to Chapter 31? The answers to these questions will largely depend on how substantive the changes demanded by the Democrats are. But I think there's a lot of room for creativity to get USMCA passed in all three countries before the year's end, if the political will is there.

Of course, what Canada and Mexico do may not be relevant in the end if the Trump administration aggressively moves to push the deal through Congress. Today, the administration took the first step in that process, by sending a Statement of Administrative Action to Congress, which allows the implementing legislation to be submitted in 30 days. Stephen Claeys suggests that the earliest the draft USMCA bill can be sent to Congress is probably July 9th. 

Farewell speech of Appellate Body member Peter Van den Bossche

Peter Van den Bossche, departing Appellate Body member, delivered his farewell speech to the WTO Dispute Settlement Body on May 28, 2019. The full text is below, and certain to generate discussion:

Ambassador Walker,
Deputy Director-General Brauner,
Excellencies, colleagues, friends, ladies and gentlemen,

I stand here before you with a heavy heart but not because this is my farewell. I served on WTO dispute settlement appeals for nine years, three months, and three weeks, and that is long enough. Some of you may well say that my parting is much overdue and that I overstayed my welcome. I stand before you with a heavy heart because of the current crisis in the rules-based multilateral trading system. While it is a system that needs much improvement to be fair to all, as well as adapted to 21st-century realities, the rules-based multilateral trading system, as it progressively developed since the late 1940s, has served us well. It has allowed hundreds of millions of people to escape from poverty and has brought continued prosperity to many others. It has also been instrumental in keeping trade and broader economic disputes from boiling over and escalating beyond control.

At the core of a well-functioning multilateral trading system is an effective dispute resolution mechanism. The Uruguay Round negotiators understood this. They therefore agreed on the WTO Dispute Settlement Understanding, the DSU, to provide security and predictability to the multilateral trading system and to strengthen that system by prohibiting any WTO member from determining unilaterally whether another member violates its obligations under WTO law. As Prof. Claus-Dieter Ehlermann, one of the original seven Appellate Body members, wrote in 2003, the successful conclusion of the DSU was an extraordinary achievement that comes close to a miracle. With its combination of compulsory jurisdiction, independent and impartial adjudicators, appellate review, and binding rulings, the WTO dispute settlement system is indeed unique among international mechanisms for the resolution of disputes between sovereign states. Not surprisingly, it quickly became the most used state-to-state dispute resolution mechanism, and was acclaimed the jewel in the crown of the WTO. Those working in other fields of international law looked on with envy.

While there was a high degree of satisfaction among WTO members with the functioning of their dispute settlement system, concerns regarding certain aspects of the system were raised almost from the beginning. Many proposals to address these concerns were made and discussed, first in the context of the DSU review in 1998 and 1999, and later in the Doha Round negotiations on DSU reform. These negotiations came to nothing, and this is unfortunate because while some proposals aimed at introducing more member control over dispute settlement, most proposals focused on further strengthening the system. How different is the situation today!

In response to concerns raised by the United States, in particular regarding the functioning of the Appellate Body, and the United States’ obstruction of the appointment of Appellate Body members, more than 20 WTO members have made – individually or in groups – proposals for the reform of WTO appellate review. These proposals seek to address the United States’ concerns relating to the alleged "overreach" by the Appellate Body, the precedential effect of case law, the 90-day timeframe for appellate review, the Appellate Body’s review of factual findings, including findings on the meaning of domestic law and the transition rules for outgoing Appellate Body members. However, unlike most of the proposals for reform made in the context of the Doha Round negotiations, the proposals for reform currently discussed no longer have the ambition to strengthen the system but are merely aimed at ensuring its survival in some form or another. It is not my intention in this brief farewell speech to put up a strong defence of the Appellate Body and its functioning to date, or to engage in a detailed discussion of the reform proposals. Both such defence and discussion deserve more attention than I can give to either of them here and now. For the same reason, I will also not attempt in this speech to put the crisis of WTO dispute settlement in the broader context of the crisis in global governance, a crisis that manifests itself in the re-emergence of unilateralism and the failure to address global issues through earnest dialogue and cooperation.

With regard to the proposals on the reform of WTO appellate review currently under discussion, I will, however, say the following. First, while members have made, and now discuss, multiple proposals on the reform of WTO appellate review to address the concerns raised by the United States, very few, if any, of these members consider that there is something so fundamentally amiss with the Appellate Body and its functioning that blocking the appointment of Appellate Body members – and thus endangering the very existence of the Appellate Body – is an appropriate and proportionate action. In this regard, I note that no less than 75 WTO members have made, repeatedly, a joint proposal urging the DSB to fill the vacancies on the Appellate Body without delay.

Second, to the extent that the concerns addressed in the reform proposals are legitimate, and some of them certainly are, these concerns can be addressed without undermining the essential features of the current system. The proposal made by Thailand on 25 April 2019 (WT/GC/W/769) shows the way forward in this regard. In an attempt to address the concerns raised by the United States, some other WTO members have made proposals that would significantly change essential features of the current system. It is, however, not clear to me, as I am sure it is not clear to most of you, whether any reform of the current system, short of its virtual elimination, will satisfy the United States. The United States has stated – most recently at the General Council meeting of 7 May 2019 – that the Appellate Body should follow the rules set out in the DSU. Nobody would disagree with that, but the United States has largely remained silent on what this actually means and has not engaged in the discussions on any of the reform proposals currently on the table.

I am afraid that – in spite of the most determined efforts of Ambassador Walker - efforts for which I would like to commend him, as well as the efforts of many WTO members – it is ever more likely that the current crisis will not be resolved by 11 December 2019. If this is indeed the case, the Appellate Body will no longer be able to hear and decide new appeals from that day onwards. As set out in Article 16.4 of the DSU, a panel report cannot be adopted by the DSB and become legally binding until after completion of the appeal. One can predict with confidence that, once the Appellate Body is paralyzed, the losing party will in most cases appeal the panel report and thus prevent it from becoming legally binding. Why would WTO members still engage in panel proceedings if panel reports are likely to remain unadopted and thus not legally binding? As from 11 December 2019, it is therefore not only appellate review but also the entire WTO dispute settlement system that will no longer be fully operational and may progressively shut down.

While the United States may welcome such an outcome, most other WTO members obviously would not. A return to some kind of pre-WTO dispute settlement system means a return to dispute settlement in which economic and other might trumps legal right. As Judge James Crawford of the International Court of Justice recently commented, for international trade dispute settlement, this would be "back to square one". Ambassador Julio Lacarte Muro, the first Chair of the Appellate Body, wrote in 2000 that the WTO dispute settlement system gives security to those WTO members that “have often, in the past, lacked the political or economic clout to enforce their rights and to protect their interests". Most WTO members do not want international trade without rules, or to be more precise, international trade with rules that are whatever the strongest party to a dispute says the rules are. They have a strong interest in an effective rules-based dispute settlement system.

Perhaps WTO members will be able to reach in 2021, or sometime soon thereafter, consensus on reforms to the WTO dispute settlement system, and in particular WTO appellate review, that would preserve and even strengthen the key features of the current system, namely compulsory jurisdiction, the independence and impartiality of the adjudicators, appellate review, and binding rulings. However, if consensus among all WTO members on such reforms is not possible, a coalition of willing WTO members should consider establishing a new parallel dispute settlement system that would copy the existing, but dysfunctional, DSU, in order to settle WTO disputes between them in an orderly and rules-based manner. While recourse to Article 25 of the DSU for appellate review or agreements between parties not to appeal may, for some time and in some cases, allow members to ensure the availability of WTO dispute settlement, these are not long-term solutions.

Between December 2009 and March 2019, I have served on 20 appeals and have participated in the exchange of views in another 18 appeals. I feel very privileged to have been given the opportunity to serve the international community in this way. My experience as a WTO appellate judge has taught me – most appropriately – intellectual humility, and it has given me tremendous respect for the knowledge, skills, and dedication of those involved in WTO dispute settlement.

Few of the questions of interpretation or application that come to the Appellate Body have a simple answer. Giving them a simple answer would not do justice to the arguments advanced by at least one of the parties. I have often struggled with what was the correct interpretation and/or application of the relevant WTO provisions in a particular case. The most challenging cases for me were those regarding the balance struck in the relevant WTO agreement between free trade and conflicting societal values, as well as cases regarding the proper role under WTO law of governments in the economy. The Appellate Body rulings in these cases have not seldom been severely criticized by members. I have always – as have my colleagues on the Appellate Body – taken such criticism to heart, even when it was often merely a repetition of the arguments that were already presented during the appellate proceedings, were extensively addressed, and were found wanting by the Appellate Body. Some of these much-criticized rulings may have been in error. To say it in Latin, errare humanum est, but I am confident that wiser women and men on panels and the Appellate Body can and will in the future correct such mistakes, if and when they get the chance to do so. The Appellate Body never proclaimed it is infallible, just as it never proclaimed that its reports constitute binding precedent.

I have very often been impressed by the knowledge and skills of the lawyers, whether government officials or private practitioners, pleading before the Appellate Body. In response to the Appellate Body’s remorseless questioning at the oral hearing, I have seen a lot of impressive "thinking on your feet". I have also admired the lawyers’ patience with our questioning, which may, at times, have revealed that, unlike them, we were still trying hard to come to grips with the complexity of the issues on appeal.

I have been equally impressed by many panels. I have never envied their difficult task to get the facts straight and to have a first shot at the correct interpretation and/or application of the relevant WTO provisions. With regard to the latter, I often found that the Appellate Body very much benefited from the fact that the parties’ argumentation on appeal was more sophisticated and better articulated than their argumentation at the panel stage.

Finally, allow me to pay tribute to my colleagues on the Appellate Body and the staff of the Appellate Body Secretariat. Over the past nine years, I had the privileged to serve with 12 fellow Appellate Body members. While the differences in our professional background and our approach to law were pronounced and our disagreement on important issues often profound, we worked well together. I learned from each of my fellow Appellate Body members, and I am indebted to them for that. I could not have wished for better colleagues, especially in times that were difficult for me on a personal level. As for the Appellate Body Secretariat, I can but say that its director, its senior and junior lawyers (past and present), and its support staff (past and present) are the most accomplished and dedicated professionals that I have ever worked with. It was a privilege for me to work with them on a daily basis for the past nine years. I will miss them dearly and wish them the professional recognition and success they so clearly deserve.

I cannot but conclude this farewell speech on a sombre note. There are very difficult times ahead for the WTO dispute settlement system. This system was – and currently still is – a glorious experiment with the rule of law in international relations. In six months and two weeks from now, this unique experiment may start to unravel and gradually come to an end. History will not judge kindly those responsible for the collapse of the WTO dispute settlement system.

CHINA's "INDUSTRIAL SUBSIDIES": IS THE WTO's AB JURISPRUDENCE ABOUT THE DEFINITION OF A "PUBLIC BODY" AN INSTANCE OF THE WORST KIND OF JUDICIAL ACTIVISM?

Technically, China's  "industrial subsidies" are subsidies granted by State-Owned Enterprises (SOEs) that do not fall under the concept of "public body" as understood by the WTO Appellate Body. Recall that a financial contribution in the sense of Article 1 of the SCM could be granted by a government in the narrow sense or by a “public body.” This is reflected in the expression “there is a financial contribution by a government or any public body … ”.

In its recent paper titled “WTO – EU’s proposals on WTO modernisation” ( Council of the European Union, Document WK 8329/2018 INIT, Brussels, July 5, 2018),  the European Commission criticized the AB's  jurisprudence about the concept of “public body.” This criticism is based mainly on the allegation that this jurisprudence allows a considerable number of Stated Owned Enterprises (SOEs) to escape an adequate application of the SCM to these enterprises:

Subsidies granted to SOEs are [in principle] already captured by the SCM Agreement, in the same way as any other subsidy granted by the state. With regard to...SOEs..., the SCM Agreement captures them through the concept of a “public body”. However, this has been interpreted in a rather narrow manner, which allows a considerable number of SOEs to escape the application of the SCM Agreement.

Moreover, these " industrial subsidies" loom large in the recent trade negotiations between the United States and China.

In US – Anti-Dumping and Countervailing Duties (China), the panel and the Appellate Body explored whether certain Chinese State-Owned Enterprises (SOEs) and State-Owned Commercial Banks (SOCBs) are “public bodies” in the sense of Article 1 of the SCM. In the context of the CVD case before the the US Department of Commerce, the latter concluded that those SOEs and SOCBs were public bodies within the meaning of Article 1.1(a)(1) of the SCM and established on this basis the existence of a financial contribution which is a necessary component for finding a subsidy. China objected to this conclusion, forcing therefore the panel and the Appellate Body to interpret the expression “public body.”

There are three conceptual approaches when interpreting this expression.(See on this matter the excellent article by Ru Ding, “Public Body or Not: Chinese State-Owned Enterprises,” Journal of World Trade 48(1) (2014) ). The first approach (the governmental control approach) holds that governmental control over an entity is the criterion that determines whether such an entity is a “public body.” The second approach (the governmental function approach) holds that an entity is a “public body” if such entity performs a governmental function. The third approach (the Governmental Authority to Perform Governmental Functions approach) is the one ultimately adopted by the Appellate Body.

 Governmental Control Approach

This approach considers governmental control over an entity as the criterion determining whether such entity is a “public body.” However, opinions vary as how to prove such governmental control. In this respect, there are two schools of thought.

The first one holds that government’s ownership, or majority-state-share of an enterprise, is adequate evidence of such control. The majority state-share per se rule advocated by the United States in US – Anti-Dumping and Countervailing Duties (China) is inspired by this approach. The panel (reversed by the Appellate Body) endorsed this approach. Third parties Argentina, Canada, EU, and Mexico explicitly supported the same approach.

Under the second view, the majority-state-share criterion is relevant but not determinative. This means there must be other evidence showing “control” to prove that an entity is a public body. Australia, as a third party, supported this view.

 The Governmental Function Approach

This approach holds that an entity is a “public body” if it performs functions of a governmental character. In US – Anti-Dumping and Countervailing Duties (China), China advocated this approach but only as a component of a more exacting definition. According to China, a “public body” is an entity exercising powers vested in it by a government for the purpose of performing functions of a governmental character.Therefore, China’s complete definition of the term “public body,” not only required an entity’s performance of governmental functions but also a government’s delegation of such powers to the entity.

 The “Governmental Authority to Perform Governmental Functions” Approach

In US – Anti-Dumping and Countervailing Duties (China), the Appellate Body endorsed an approach similar to China’s complete definition. Under this approach, a “public body” in the sense of Article 1.1(a)(1) of the SCM is an entity “being vested with, and exercising, authority to perform governmental functions.”

Although the Appellate Body clarified in this case certain specific aspects, it felt the need to point out the necessity of a holistic analysis about whether an entity is a “public body.” This means that an investigating authority must give due consideration to all relevant facts regarding the characteristics and functions of an entity as appropriate in the particular circumstances of a case. Therefore, investigating authorities and panels must “avoid focusing exclusively or unduly on any single characteristic without affording due consideration to others that may be relevant” to a public body determination. 

Regarding the “vested with governmental authority” component, the most explicit (but still confused and imprecise) passage of the Appellate Body is:

In some cases, such as when a statute or other legal instrument expressly vests authority in the entity concerned, determining that such entity is a public body may be a straightforward exercise. In others, the picture may be more mixed … We do not, for example, consider that the absence of an express statutory delegation of authority necessarily precludes a determination that a particular entity is a public body. What matters is whether an entity is vested with authority to exercise governmental functions, rather than how that is achieved. There are many different ways in which government in the narrow sense could provide entities with authority. Accordingly, different types of evidence may be relevant to showing that such authority has been bestowed on a particular entity. Evidence that an entity is, in fact, exercising governmental functions may serve as evidence that it possesses or has been vested with governmental authority, particularly where such evidence points to a sustained and systematic practice. 

The Appellate Body made it clear, however, that apart from an express delegation of authority in a legal instrument, the existence of mere formal links between an entity and government in the narrow sense is unlikely to be sufficient for establishing the necessary possession of governmental authority. Thus, for example:

the mere fact that a government is the majority shareholder of an entity does not demonstrate that the government exercises meaningful control over the conduct of that entity, much less that the government has bestowed it with governmental authority. In some instances, however, where the evidence shows that the formal indicia of government control are manifold, and there is also evidence that such control has been exercised in a meaningful [an adjective not defined by the AB ] way, then such evidence may permit an inference that the entity concerned is exercising governmental authority.

Regarding the performance of “governmental functions” component, the panel clarified in the recent US – Countervailing Measures (China) (Article 21.5) case  that what is a “government function” may vary among Members. The panel seemed to agree with China and the US that for identifying an entity as a public body, “it is permissible under Article 1.1(a)(1) for an investigating authority to identify a broader government function than the specific action that is alleged to constitute a financial contribution.” Thus, the panel noted without objection that the USDOC identified “maintaining and upholding the socialist market economy” as the relevant government function in China for its public body analysis. This function was broader than selling specific inputs to particular downstream purchasers. The panel concluded:

We do not consider there to be any a priori limitation on what may be the relevant government function for the purposes of a public body analysis. Rather, where an investigating authority identifies a broader government function as part of a public body analysis, it must provide  a reasoned and adequate explanation, based on relevant evidence, to support that identification.

While China clarified that it did not assert that “maintaining and upholding the socialist market economy” is not a government function, or that it is invalid per se to identify an entity as a public body, China did not agree with the UDSOC identification of the government function in this case (recall that the Article 21.5 panel did not object to this identification). China claimed this function is “so broad that it is essentially meaningless” in terms of its connection to the financial contribution at issue in this case. Therefore, China was contesting the degree and nature of the connection between the government function identified by the USDOC and the financial contribution at issue (i.e., the selling of specific inputs to particular downstream purchasers).

The Article 21.5 panel rejected this not- so- subtle attempt by China to insist on a requirement to identify the precise governmental function fulfilled through a given financial contribution:

In our view, the text of Article 1.1(a)(1) does not prescribe a “connection” of a particular degree or nature that must necessarily be established between an identified government function and a financial contribution.

This seems to imply that the identification of a governmental function in a “public body” analysis must be assessed at the level of the nature and the core functions of the entity and not at the level of the precise financial contribution at issue.

Since the previous developments can leave a feeling of imprecision or even confusion, it is useful to see how the recent US – Pipe and Tube Products (Turkey) panel applied them in practice.

Here, the panel faced the USDOC finding that Erdemir and its subsidiary Isdemir are public bodies which provided respondent companies with hot rolled steel for less than adequate remuneration. To justify this finding, the USDOC relied upon record evidence that the Government of Turkey (GOT) exercises “meaningful control” over Erdemir and Isdemir, through its control of OYAK (which holds a controlling ownership stake in Erdemir), and the USDOC found Erdemir and Isdemir to be public bodies. 

First, in order to validate the USDOC’s finding that Erdemir and its subsidiary Isdemir are public bodies, the panel expressed clearly that it would have to verify that the USDOC applied the standard applicable to the public body enquiry under Article 1.1(a)(1) of the SCM, as required by the Appellate Body’s interpretation of this Article. In the panel’s view, this meant establishing that Erdemir and Isdemir “possess, exercise, or are vested with governmental authority to perform a government function.” Note that the panel (rightly confused)  did not hesitate to equate establishing governmental “meaningful control” of an entity with establishing that this entity “possess, exercise, or are vested with governmental authority to perform a government function.” This aspect appears in the following passage:

We found that the USDOC failed to apply the standard applicable to the public body enquiry under Article 1.1(a)(1) of the SCM Agreement in its assessment of “meaningful control”, by failing to establish that Erdemir and Isdemir possess, exercise, or are vested with governmental authority to perform a government function.

Second, in assessing the first entity (i.e., OYAK) in the “chain” of meaningful governmental control, the panel found that the USDOC failed to establish based on evidence on the record that OYAK is under the meaningful control of the GOT, or that OYAK is part of the GOT. To justify this finding, the panel was impressed by the fact that much of the evidence that the USDOC considered in relation to OYAK constitutes mere “formal indicia” of government control, and the USDOC did not establish that OYAK has taken decisions in pursuit of government economic policies. Recall here that the Appellate Body has cautioned that it is only “where evidence shows that the formal indicia of government control are manifold, and there is also evidence that such control has been exercised in a meaningful way, then such evidence may permit an inference that the entity concerned is exercising governmental authority.” Note once again that the adjective "meaningful" is never defined.

Third, from that point on, it was a simple exercise in logic for the panel to conclude that “Based on our review above, we therefore find that the USDOC failed to establish based on evidence on the record that OYAK is under the meaningful control of the GOT, or that OYAK is part of the GOT in either the broad sense or the narrow sense. We are therefore not persuaded that OYAK’s [alleged] control over Erdemir and Isdemir justifies attributing the actions of those entities to the GOT.” 

In sum, does the imprecision (and even confusion) stemming from this jurisprudence amount to the worst kind of judicial activism? Was it necessary for the Appellate Body to adopt such a complex and unworkable definition of a "public body"? Moreover, the Appellate Body gives the impression of "legislating" in a vacuum  since the expression "public body" is not defined in the SCM. A practical "ordinary meaning" analysis of this expression  (in its context and in the light of its object and purpose)  would have been much more convincing and less hazardous.  In any case, it seems that WTO Members will have to define themselves what is a "public body". By leaving such a contentious  issue to the Appellate Body, they only succeeded to force the Appellate Body to legislate in a vacuum in  a confusing and unworkable way.

 

 

 

 

 

Seeking Applications for JIEL Editorial Assistant Position

Sent on behalf of Profs. Joost Pauwelyn and Chris Brummer

The Journal of International Economic Law is seeking applications for the position of an Editorial Assistant. This position is half-time and normally for one year, but it has been extended in the past and we are flexible in this respect. Individuals who have undertaken this important role have usually pursued their own research, or performed the role in conjunction with other professional tasks or work towards a Ph.D. degree. Indeed, we are not rigid about these formats.

 

Also, the JIEL Editorial Office is in the midst of finalizing an additional freelancer for JIEL to carry out most of the administrative tasks that so far were performed by the Editorial Assistant. This means that the Editorial Assistant will be able to focus more on substantive inputs and reviews, and should be a position that is attractive also to slightly more advanced or senior professionals in the field as compared to those who have held the post in the past. This will probably also lead us to rename the title of the position to better reflect the more substantive responsibilities it comes with. Compensation is a lump sum of 32'000 US$ per year. 

We would appreciate it if you could make a recommendation or draw attention to this position to any outstanding student or professional with exceptionally good English writing and comprehension abilities, and knowledge and background in international economic law subjects, particularly international trade/WTO law, but also, if possible, investment law and financial regulation or tax.  A letter of inquiry or application (with references) including a CV can be sent directly to JIEL’s e-mail address: jiel@law.georgetown.edu.

The Book "The WTO Law of Subsidies: A Comprehensive Approach" is now published

Dear Blog Colleagues

Allow me please to signal that my book "The WTO Law of Subsidies: A Comprehensive Approach" is now published and available at Kluwer eStore. Best Regards. Marc

 

 

Call for Papers: ASIL IEcLIG Biennial Conference

From the ASIL:

THE AMERICAN SOCIETY OF INTERNATIONAL LAW
INTERNATIONAL ECONOMIC LAW INTEREST GROUP
IS PLEASED TO ANNOUNCE ITS
BIENNIAL CONFERENCE ON INTERNATIONAL ECONOMIC LAW

February 14-15, 2020

TO BE HELD AT THE UNIVERSITY OF MIAMI SCHOOL OF LAW

CALL FOR PAPERS

The conference will comprise:
• Academic paper presentations drawn from an open call for papers
• Invited papers and keynote speakers
• Roundtable conversations with practitioners in private practice, academics, and government officials

I. Overall Concept and Theme

Theme: Designing International Economic Law: Challenges and Opportunities

Mounting political pressure and the threat of economic disintegration raise fundamental questions about the architecture of international economic law. The decade following the global financial crisis witnessed a burst of creativity with the rise of regional and mega-regional trade agreements, significant efforts toward multilateral reform of the international investment system, and increasing plurilateralism in international financial governance. Economic institutions are nonetheless still struggling to account for new realities, such as the blurring boundaries between economic and national security, the increasing salience of electronic commerce, the changing dynamics of global inequality, and the potentially catastrophic effects of climate change. The impending paralysis of the WTO Appellate Body and longstanding critiques of investor-state arbitration also raise broader questions about the role of dispute settlement in international economic law. This conference will bring together scholars and practitioners to reflect on the current moment, rethink past designs, and seek innovative paths forward.

We welcome unpublished paper proposals relating to the conference theme, but will also consider submissions on other topics in international economic law.

II. Unpublished Paper and Panel Proposal Submissions

The deadline for both unpublished paper and panel proposal submissions is Monday, June 24, 2019. Submissions should be sent to 2020IELconference@gmail.com per the instructions below. Submissions will be peer-reviewed with decisions issued in early July.

Papers:
Please submit an abstract of no more than 500 words and confirm that the paper will not be published before the conference. Please also provide a CV or resume, your current affiliation, and indicate whether you are a member of the ASIL International Economic Law IG.

Panels:
Please submit a proposal, in no more than 1500 words, on the approach, anticipated content and format of the panel, and proposed speakers with their affiliation and their field(s) of expertise. Please note that panel proposals may be combined or amended by the conference organizers to take into account the range of submissions.

All papers will be due on January 20, 2020, and should be sent to 2020IELconference@gmail.com for dissemination to other panelists, moderators and conference participants in advance of the event.

More details here.

III LAwTTIP Young Researchers Workshop - Call for papers

From the LAwTTIP Jean Monnet Network:

In the framework of the LAwTTIP Jean Monnet Network, the Institut de l’Ouest: Droit et Europe (IODE, UMR CNRS 6262) of the University of Rennes 1 organises the 3rd Young Researchers Workshop, dedicated to the internal and external challenges linked to the new generation of EU free trade agreements. 

This workshop is conceived as a training school aiming to help young researchers and doctoral students to write and publish a scientific paper. Each participant will present his/her work during the workshop and discuss it with two senior academics playing a tutoring role. 

After the workshop, the young researcher will receive appropriate advice to finalize his/her final paper. Depending on the quality of the paper and after a review by key staff members of the network, the paper will be published online as part of a dedicated issue of the LAwTTIP working paper series (lawttip.eu/lawttip-working-papers).

The event will start with an opening lecture given by Pr Marianne Dony.

On that occasion, a roundtable dedicated to Opinion 1/17, delivered by the Court of Justice on April 30th, will also take place.

More information is available here.

Democrats Should Embrace the New Economic Sovereignty (not the Old Globalism)

Should the Democrats oppose Trump's tariffs with a return to the ideology of free trade (albeit with handouts for globalism's losers)? That's the view of Edward Alden, writing this week in Foreign Policy.  Alden launches a defense of prior Democratic administrations' support for NAFTA and TPP, where for instance presidential hopefuls Bernie Sanders and Elizabeth Warren have been sharply critical.  

Alden's conceit is that in the case of both NAFTA and TPP prior Republican administrations had set the agenda, and the incoming Democrats in the White House had no choice other than to accept that agenda or walk away from trade deals altogether. Alden writes: "For Democrats, the choice for decades has been a Republican trade policy or no trade policy. A truly Democratic trade agenda would have produced deals quite different from NAFTA or the TPP."  In other words, a bad trade deal is better no no deal.   

Alden's principle is: "Trade is good, period." Never mind rising inequality, sweat shops and slave labor, carbon leakage, essential drugs priced beyond most people in the world; forget about the resource curse states, displacement of indigenous peoples, devastation of forests and decimation of endangered species. To be sure, not all simply a product of free trade. But all undeniably connected to Davos-driven globalization in which free trade is a central creed.

Alden's notion of how the US and its allies won the Cold War (through multilateral economic cooperation, the WTO etc.) is fanciful.The Cold War was over before the WTO even took shape let alone came into existence;the years leading up to the defeat of Sovietism were marked by more tension among allies than cooperation over trade (agriculture, for example) . More fundamentally, our situation is different than that of the Cold War.  Today, in a sense, all security is cyber security.  Our most ruthless economic competitor China is also our ascendant geopolitical rival.     Despite the dreams of some of its leaders the Soviet Union never managed to come close to challenging the West's economic success.

Today national security requires the retaking of economic sovereignty. That doesn't mean tearing apart the WTO because most of the WTO's agreements have safeguards and exceptions provisions that-when properly interpreted-allow for economic sovereignty (whether public morals or security or conservation of exhaustible resources). 

Retaking economic sovereignty does require real skepticism about new trade deals driven by corporate interests and free trade ideologues rather than by the national interest or the needs of people.    Democrats should adopt the exact opposite maxim from that of Alden-better no trade deal than a bad deal. Arguably, Sanders and Warren have already done that.  And it doesn't exclude good trade deals, if we could ever get one. 

But Alden's revisionist history  about Clinton and Obama is more fiction than fact.  Much more truthful is that the Clinton Administration simply dropped the ball on NAFTA. Joseph Stiglitz, who present at the time, recalls there was not even a discussion about the investment chapter of NAFTA (Ch. 11), which allows corporations to sue investors and recover 10s or 100s of millions of dollars, often because governments have changed regulation against investors' interests-for perfectly legitimate reasons.  The Clinton administration did negotiate side deals on labor and environment-it's just that they had no teeth.  As for TPP, President Obama was hardly a reluctant convert-he was an enthusiastic backer of the pact-claiming, without any evidence, that it would somehow help the US with China (an argument that Harvard Law professor Mark Wu demolishes in forthcoming scholarship). Obama's trade officials were not under duress moving forward with a GOP trade agenda that they didn't own; Michael Froman, Wendy Cutler and others were hard-core neoliberals, arguably with fewer hesitations than the Republican mainstream in negotiating trade deals on behalf of Google,Apple and Hollywood (rather than American workers or indeed the people of the world).   And that isn't even to mention Larry Summers.   

Democrats today shouldn't hitch their future to this discredited corporate globalism.  Instead, Democrats should embrace the new economic sovereignty as the only sensible response to America's geopolitical conflict with China-and, equally importantly, as an opportunity for rebuilding public institutions that are needed as much for the country's future security as its prosperity.  Tariffs may not be the best or most important way to retake economic sovereignty-in fairness to Trump, they were probably among the few instruments easily available that could be deployed (within certain constraints) by the executive alone.  Adopting a robust response to China and a larger role for the state in ensuring that the economy works for everyone (including for not against our security) doesn't mean being uncritical about the way in which losers and winners are created by the tariffs; we have a duty to question the fairness of the way the pain is distributed.  Just as there are losers from free trade, there are also losers in a transition where we retake economic sovereignty.  Free trade advocates prove nothing therefore when they point out that there are costs or losses from imposing tariffs. The question is dividing them equitably through taxes subsidies and other measures.  Trump should be given real credit for the tariffs already helping direct supply chains away from China, thus lowering US dependency on our geopolitical rival.  But Trump's inattention so far to vulnerable groups and individuals, to the collateral damage from tariff policies, must be called out. 

Democrats should always remember who gets their hands on the controls when free trade is the mantra; Stiglitz is one of the sharpest minds I know and yet the free trade technocrats were able to slip a lot by him in NAFTA as he freely admitted.  Free trade talks bring with them  big corporate interests who are, at the same time, prepared to resist  liberalization tooth and nail when it harms vested interests.  If, in the real world, free trade worked in favor of progressive values and goals, it would not be green industrial policies that are challenged or disciplined at the World Trade Organization, but fossil fuel subsidies (the latter of course are backed by the kind of  anti-environmental big corporate interests behind Joe Biden's presidential bid).  

Democrats may be perturbed that the retaking of economic sovereignty has been linked on the right to insular nationalist or nativist agendas. The challenge for progressives is to decouple these notions, proposing an alternative conception of national economic sovereignty where America wins through empowering people.  As Representative Ro Khanna, Bernie Sanders campaign co-chair, has set out, this means large-scale public investments in education, infrastructure, non-proprietary research.  China's rise has been facilitated through a shrewd and highly selective imitation of our system.   Whether it's the Green New Deal or cyber security, we'll never win by turning back to neoliberal trade talks; instead we need to relearn the exercise of collective economic sovereignty through a strong progressive state-pursuing prosperity and security but also justice.         

The USMCA Sunset Clause as a "Check on Bad Behavior"

This is from testimony by Beth Baltzan at a House Ways and Means Committee hearing yesterday on "Enforcement in the New NAFTA":

The Ultimate Check on Bad Behavior: The Sunset Clause

The history of U.S. trade policy exposes particular challenges with Europe and Japan, who have had a penchant for agreeing to tariff concessions and then using non-tariff means to undermine those concessions. It was one of the motivations for Congress to authorize USTR to negotiate non-tariff barriers in 1974. At least in the run-up to the Uruguay Round, Europe and Japan were viewed as considering GATT rules to be aspirational norms, rather than binding obligations. That does not seem to have changed for the Europeans, at least, as they, of the WTO Members who have lost more than 10 disputes, have the lowest dispute settlement compliance rate, at less than 40%.

In an effort to foreclose these types of dodges, the U.S. response has been to make trade agreements ever-more prescriptive, with increasing constraints on government flexibility, with binding dispute settlement. However, this kind of constraint on government flexibility is precisely why there are more and more complaints that these agreements are, effectively, vehicles for deregulation. It was one of the reasons the Obama Administration’s negotiations with the Europeans became bogged down. The Europeans were concerned about rules that would compromise their food safety regime, and the Americans were worried about rules that would compromise our post-financial crisis regime.

These prescriptive rules do not stop sovereign entities – particularly ones not subject to the same transparency strictures as those in the United States – from blocking imports. Even with binding dispute settlement. Sovereign entities will do what sovereign entities want to do. For this reason, the assumption that the tariff elimination provisions in TPP would automatically mean more access for U.S. exports is inconsistent with the U.S. experience over the past 70 years. As former USTR Sue Schwab pointed out,

I worked with Robert S. Strauss, who was the United States trade representative in the Carter administration at the time and my first mentor. He took me to Capitol Hill when he met with Congressional delegations. We were trying to get beef into the Japanese market, and I’m still trying to do that 30 years later.

Having these agreements be permanent only encourages that kind of behavior. Binding dispute settlement does not address the issue because the actions are taken either within the letter of the agreement, or through non-transparent means that make it impossible to meet the burden of proof.

If, on the other hand, our trading partners were aware that the agreement would not automatically be renewed, but instead would be subject to an affirmative decision by each of the parties, the incentive to comply with the terms of the agreement would be heightened.

Businesses claim they need certainty. Certainty for what? To recoup their investments. This was an intrinsic part of the discussion of the renewal of the African Growth and Opportunity Act in 2015. Democrats wanted a 15-year term, and Senate Republicans wanted a 5-year term. House Republicans, who wanted to see increased investment in Africa, were focused on the amount of time business would need to recoup that investment. The extension was ultimately granted for 10 years.

The Committee Report had this to say about the period of extension:

As part of its oversight function, the Committee has conducted a thorough process of reviewing AGOA legislation and consulting with interested stakeholders about the possibility of extending and renewing AGOA. This process includes congressional hearings, participation in AGOA Forum meetings by Committee Members and staff, informal consultations with interested stakeholders including the African diplomatic corps and senior African officials, as well as studies from the International Trade Commission and the General Accountability Office. All of these efforts have informed the Committee’s development of this legislation and confirmed the need to extend AGOA for another ten years.

There is no reason bilateral or regional agreements should be treated differently.

Beyond encouraging compliance, these sunset clauses also force us to reconsider provisions that seemed appropriate at the time but are eventually obsolete, or even damaging. At one point, we believed prohibitions on capital controls were appropriately included in our trade agreements; then the financial crisis happened, and countries like Iceland found that capital controls were a necessary lifeline. Sometimes certainty means we are certainly wrong.

Her three main points seem to be about: the sunset clause as an enforcement tool; the sunset clause as a way to provide flexibility in terms of regulatory policy space; and the sunset clause as a way to evaluate how trade agreements are working.

First, in terms of the effectiveness of enforcement through dispute settlement, it may not work in every case, but it does work in a lot of them, even when the discrimination is on a de facto basis. Would a sunset clause create a greater incentive to comply? Anything is possible, but it's a little hard to imagine that it would play out this way. I do see how the threat of withdrawal gets you a few concessions on a one time basis, but after that I would think your trading partners would start to ignore you.

As for flexibility, I'm not sure how shifting from dispute settlement to threats of leaving the agreement as a way to achieve compliance leads to more regulatory policy space. Assuming it is effective (which I'm not sure it would be, but just for the sake of argument), I think it would lead to less policy space.

And finally, with regard to reevaluating trade agreements, I do think that reconsidering the content of trade agreement is a good idea. However, a sunset clause that kicks in after a few years and requires a decision whether to stay in or get out seems like a terrible way to do it. What we need instead are permanent committees that meet once or twice every year to talk about issues as they arise.

In addition to all of these points, the specific sunset clause in USMCA transfers power over trade agreements from Congress to the president in a way that should cause some concern.

Summing up, I'm pretty skeptical that a sunset clause in trade agreements is a good idea. More on all this from Inu and me here.

The Missing Legal Strategy for the US-China Trade War

The Missing Legal Strategy for the US-China Trade War

Steve Charnovitz

23 May 2019

The Trump Administration's strategy against China suffers many flaws, the most serious of which is the failure to use judicial procedures in the WTO.  As my recent study https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3390659 explains, the Trump Administration his lodged only three WTO cases against China, when assuming the various allegations to be true, dozens of cases should have been lodged.

In talks in legal and business circles, I have often heard the excuse that cases against China cannot be easily brought and prosecuted because companies are not willing to go on the record to make claims against alleged Chinese practices such as "forced" technology transfer. Time after time, I have heard that companies won't publicly disclose specific acts of abuse by Chinese officials out of a fear of formal and informal Chinese governmental retaliation. 

This argument ignores the relaxed rules of evidence before WTO panels and the panel's broad power to seek information outlined in DSU Article 13.

Had the United States brought WTO legal cases against China, evidence of an improper Chinese government role could have been presented in the form of anonymized questionnaire data to US (and non-US) companies suffering from abusive practices by the Chinese government or related entities.  The US government could also have presented reports from independent experts who themselves spoke with private sector victims.

Then in a judicial proceeding, the panel would have been able to seek whatever information it needed to verify or refute the US prima facie case.  As DSU Article 13 explains, the panel would have been able "to seek information and technical advice from any individual or body which it deems appropriate."  This could have included the Chinese government as well as market participants and independent experts pursuant to DSU Article 13.2.  As DSU Article 13.1 notes, the panel would have been enable to establish procedures to identify and prevent disclosure of any information given to the panel confidentially.

As I noted in a recent piece in the Wall Street Journal, the Trump Administration has shown little interest in putting law at the centerpiece of its China strategy https://www.wsj.com/articles/u-s-china-talks-ignore-global-trade-rules-11558123934.

With no interest in law as the central means of regulating anti-competitive governmental behavior, Trump's USTR has shown no evidence of even thinking about how to solve the alleged factfinding problems that the business community routinely points to as an explanation for why it may be difficult to bring and win legal cases against China at the WTO.

My study (now posted on SSRN) of the Trump  Administration's strategy on US-China economic relations shows how the Administration has missed the opportunity to more clearly define what China is doing wrong and to articulate the norms that may be needed to regulate state capitalism or state socialism.