International Economic Law and Policy Blog

Seminar on Legal Architecture of Remedies in the WTO Agreement

Announcement:

Interested WTO lawyers are invited to a one-hour academic feedback seminar on Zoom, hosted by Prof. Geraldo Vidigal, University of Amsterdam, to comment on a draft article by Lothar Ehring, written to pay tribute to Frieder Roessler. The paper explains the legal architecture of remedies in the WTO Agreement and how certain parts of it importantly depart from the standard GATT Article XXIII model. These differences have been disregarded in a majority of relevant cases in the practice of WTO adjudicative decisions.

This could be of interest to WTO litigation practitioners and other WTO lawyers who are sufficiently interested in these intricacies. The draft paper and the connection details will be shared with the participants ahead of the session, which is planned for Monday, 7 October at 2 p.m. Brussels time. After a rapid summary of the findings, the participants will be invited to share their remarks on the draft paper. To participate, please register in advance for this meeting:

https://uva-live.zoom.us/meeting/register/tZIqduCsrTktH9OIgsz1ao3InY63e_Tlhfd6 

After registering, you will receive a confirmation email containing information about joining the meeting.

The EU-Singapore Digital Trade Agreement: Experimentation with Data Flows Obligations and Exceptions Continues

Over the past couple years, I've been looking at how digital trade agreements set out data flows obligations and exceptions. I've got a new one to examine, as the EU has published a pre-legal scrub version of its digital trade agreement with Singapore, building on their previously signed FTA. In prior posts, I've looked at the EU-Japan trade agreement and the EU-NZ trade agreement provisions in this area, so I'll throw in some comparisons to those agreements.

First off, I'll just note quickly the appearance of the right to regulate in Article 3 of the EU-Singapore digital trade agreement:

The Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, social services, public education, safety, environment or public morals, social or consumer protection, privacy and data protection, and the promotion and protection of cultural diversity.

I'm skeptical that these provisions have much impact, but someone seems to like putting them in there (the EU-NZ agreement has one too).

Now we get to the core data flows obligations:

ARTICLE 5 - Cross-border data flows

1. The Parties are committed to ensuring the cross-border transfer of data by electronic means where this activity is for the conduct of the business of a covered person.

2. To that end, a Party shall not adopt or maintain measures which prohibit or restrict the cross-border transfer of data set out in paragraph 1 by:

a. requiring the use of computing facilities or network elements in the Party's territory for processing of data, including by imposing the use of computing facilities or network elements that are certified or approved in the territory of the Party;
b. requiring the localisation of data in the Party's territory for storage or processing;
c. prohibiting storage or processing of data in the territory of the other Party;
d. making the cross-border transfer of data contingent upon use of computing facilities or network elements in the Party’s territory or upon localisation requirements in the Party’s territory; or
e. prohibiting the transfer of data into the territory of the Party.

In the same Article, we then get an exception for "legitimate public policy objectives":

4. Nothing in this Article shall prevent a Party from adopting or maintaining a measure inconsistent with paragraph 2 to achieve a legitimate public policy objective FN1, provided that the measure:

a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and
b) does not impose restrictions on transfers of information greater than are necessary to achieve the objective. FN2

FN1: For the purpose of this Article, “legitimate public policy objective” shall be interpreted in an objective manner and shall enable the pursuit of objectives such as to protect public security, public morals, or human, animal or plant life or health, to maintain public order, to protect other fundamental interests of society such as social cohesion, online safety, cybersecurity, safe and trustworthy artificial intelligence, or protecting against the dissemination of disinformation, or other comparable objectives of public interest, taking into account the evolving nature of digital technologies and related challenges.

FN2: For greater certainty, this provision does not affect the interpretation of other exceptions in this Agreement and their application to this Article and the right of a Party to invoke any of them.

The structure of data flows obligations and exceptions here looks a little more like the EU-Japan version than the EU-NZ one, with standalone public policy exceptions embedded directly within the data flows obligations Article.

One thing that was noteworthy about the EU-NZ digital chapter was the separate Article on "Protection of personal data and privacy" that seems to be a broad exception-like provision, of a scope that is a bit uncertain to me. The EU-Singapore agreement also has something that is perhaps along these lines:

ARTICLE 6 – Personal data protection

1. Parties recognise that individuals have a right to privacy and the protection of personal data and that high and enforceable standards in this regard contribute to trust in the digital economy and to the development of trade.

2. Each Party shall adopt or maintain a legal framework that provides for the protection of the personal data of individuals.

...

4. Each Party shall ensure that its legal framework under paragraph 2 provides non-discriminatory protection of personal data for natural persons.

...

11. Nothing in this Agreement shall prevent a Party from adopting or maintaining measures under its respective legal frameworks referred to in Paragraph 2 that it deems appropriate, including through the adoption and application of rules for the cross-border transfer of personal data, provided that the law of the Party provides for instruments enabling transfers under conditions of general application for the protection of the data transferred.

12. Each Party shall inform the other Party about any measure it adopts or maintains according to paragraph 11.

The wording here is different from the EU-NZ one, with the EU-Singapore version reading more like a traditional trade agreement exception ("Nothing in this Agreement shall prevent ..."), but the "deems appropriate" language in para. 11 perhaps gives it a similar scope to what we saw in EU-NZ, with a broad exception for privacy and personal data protection.

And then finally, in case the various exceptions and exception-like provisions set out above don't give the respondent what it wants, some of the exceptions set out in the EU-Singapore FTA apply to these digital trade agreement obligations as well, so you can try them too:

ARTICLE 29 – General exceptions

Articles 2.14 and 8.62 of the Free Trade Agreement shall apply mutatis mutandis to this Agreement.

ARTICLE 30 – Security exceptions

Article 16.11 of the Free Trade Agreement shall apply mutatis mutandis to this Agreement.

I have no idea whether we are ever going to see litigation under any of the digital trade texts that are proliferating these days, but if we do, making sense of the provisions of any particular agreement, given the context of all the textual variations in other digital agreements, is going to be a challenge.

Will USMCA Be Renewed in 2026?

At a Baker Institute event last week, C.J. Mahoney, who was a Deputy U.S. Trade Representative during the Trump administration, argued that renewal of the USMCA under the Article 34.7 review clause was unlikely to happen in 2026. He first provided some background on the provision:

... USMCA is up for renewal in the summer of 2026. Unlike prior trade agreements, USMCA has a fixed term of 16 years. But at the six year anniversary mark, the parties have the opportunity to extend the agreement for another 16 years. If they fail to do so by July of 2026, a 10 year clock will start to run for the eventual termination of the agreement.

The idea behind this provision, which I maintain was a sound one, was to create an incentive for policymakers to continue to upgrade the agreement periodically, so that we never find ourselves again in a situation like we were in 2017, with an agreement that was badly outdated and politically unpopular.

And then here is his argument about why it is unlikely USMCA will be renewed in 2026:

[Regardless of who is elected president,] next year will be dominated by domestic issues, mainly taxing and spending. I therefore expect that a year from today, the negotiating agenda for the United States will be unsettled and the fate of USMCA uncertain. My best guess is that the chances for an immediate renewal are quite low.

Mexico and Canada, which are heavily dependent on trade with the United States, would renew the agreement tomorrow, preferably with no changes. But from the US perspective, the costs of not renewing the agreement at the six year anniversary mark are relatively low. The agreement would still have 10 years to run. US leverage in the negotiations arguably would increase rather than decrease during that period. Yet for both a president Harris and a President Trump, the political costs of renewal would be non-trivial.

The passage of USMCA was, in my view, one of the great political hat tricks of recent years. ... name the last time that the AFL-CIO, the Teamsters, steelworkers, the Business Roundtable, Chamber of Commerce, the Farm Bureau, Nancy Pelosi, Mitch McConnell, Joe Biden and Donald Trump agreed on something. It was USMCA. Unfortunately, I don't see that same political constellation of stars aligning anytime soon.

...

So if I'm right, we are headed towards an anti-climax in the summer of 2026. The parties will miss the renewal date, at which point the slow clock towards the theoretical termination of the agreement will start to run.

Finally, he put forward some things that might change this assessment:

Now what could change the dynamics? I can think of a couple things.

One is the attitude that Mexico and Canada take to the negotiations. ... the typical [negotiating] playbook is for the parties to take very extreme positions at the beginning and hold all concessions to the end. I would suggest to my friends in Mexico and Canada that that would be an unwise strategy in this instance. The biggest challenge that Mexico and Canada will face in urging a swift renewal will be getting the attention of the next administration. An indication to move in the US direction early on, on issues like energy, labor, dairy, auto rules of origin, just might grab the attention of White House. This is an unusual approach, but unique times call for novel strategies.

The second way to break the impasse would be if the next administration sees USMCA as a way to reset US trade policy generally. That could be done by expanding the scope of the agreement to strengthen the critical minerals supply chain in North America, adding new disciplines on AI governance, export controls and inbound investment restrictions, and, perhaps most intriguingly, opening the door to new members of USMCA. The two most promising candidates, in my view, would be Australia and the United Kingdom. Think of it as a merger of USMCA and AUKUS. ... it would allow the United States to bring its closest security and economic partners together under a common umbrella. In time, this bloc might use its combined leverage to negotiate with other techno democracies, like Japan, India and the EU. One might see this perhaps as the start of a new global trading system, at least one for the US and its allies, that could eventually take over, or at least supplant, the WTO. This vision might strike one as farfetched, but I think that outside of the box thinking will be necessary if we have any hope of an immediate or even near term renewal of USMCA.

Just a couple quick thoughts on his suggestions for how to get USMCA renewed in 2026. First, I'm not sure it makes sense for Canada and Mexico to give up so much to get a renewal of USMCA in 2026. It's true that they rely heavily on trade with the U.S., but if the deal starts to look unbalanced, the Canadian and Mexican governments will have a hard time defending it to their own citizens, and that puts them in a bad political position domestically.

On the expansion of USMCA, I can imagine some new rules being added, although that could be tricky because there is disagreement within the U.S. on what the rules on issues such as AI governance should look like, so it might be hard to negotiate them internationally. On the possibility of adding new USMCA members, I hear a fair amount of talk about some sort of trade club of allied democracies, but it's hard to see Trump getting on board with that because it would involve liberalization. I suppose Harris might consider it though.

Meredith Lilly of Carleton University later weighed in to agree with Mahoney on the prospects for renewal in 2026:

C.J. set this up very well, talking about the review clause. We didn't have one of those in NAFTA. It was an ongoing agreement that would last forever. And so this review clause actually is less than a page of text in the overall agreement, yet it actually stands to potentially really, really jeopardize it, frankly. And so, as C.J. outlined, if all three countries don't agree to renew the agreement in 2026, then we go into this period of annual reviews. I agree with him, that I don't think we're going to see a renewal in 2026. There are absolutely zero reasons for politicians to do that. And so I do think we're going to be in a world of annual reviews every year for 10 years.

Tony Payan of the Baker Institute then expressed some surprise about these assessments and also some reluctant acceptance:

This is the first time ... that I hear that the renewal of the USMCA is not a given. I thought it was 99%, but now I'm beginning to think, oh-oh, there's a lot of political interests underneath that, and there's a lot of different dates that don't make it politically convenient for renewal.

I was where Tony was on all this. I thought renewal in 2026 was very likely under a Harris administration (less so under Trump, as he would try to extract more concessions), and I was surprised to hear this skepticism. But the more I thought about it, the more I thought the skeptics may very well be right. At the same time, it's hard to say anything with much certainty until we see the results of the 2024 U.S. elections, the 2025 Canadian elections, and how new Mexican President Claudia Sheinbaum governs.

And just to restate my (politically unrealistic) position on all this, I would use the 2026 review process to remove the existing Article 34.7 and replace it with one that involves more frequent reviews (maybe every two years rather than no reviews for the first 6 years) but no automatic termination mechanism (there are separate provisions under which the parties are able to amend the agreement and to withdraw, so there is no need for this termination provision). In addition, on the U.S. domestic side of things, I would make the withdrawal decision a joint one by Congress and the President, with U.S. withdrawal contingent on support from both branches.

New Discussions of Appeal/Review in the DS Reform Process

In July, I mentioned that the the WTO Dispute Settlement Reform Process is underway, and that people can follow it a few weeks behind the actual developments, as meeting minutes are derestricted.  The Minutes of the Heads of Delegation meeting from July 18 are now available.

Focusing on the Appeal/Review aspects of the discussions, here are some excerpts from the report by Jessica Dickerson (Australia), on behalf of the Co-Convenors, on the technical work under the DS reform process:

I will turn now to our recent discussions on Appeal/Review. Since our last update, experts have discussed the following sub-topics:

a. Reducing or changing incentives to appeal,
b. Clarifying Members' expectations of adjudicators,
c. Form of the mechanism, and
d. Access to the mechanism.

At each of the meetings, Mr. Joel Richards (Saint Vincent and the Grenadines) and I – as the responsible Co-Convenors – provided a summary of the previous discussions and ideas from the informal process under each of these sub-topics, noting the direction from our Ministers and the Facilitator, to build on the progress already made.

In the discussion on reducing or changing incentives to appeal, many Members underscored their interest in preserving the right of appeal so as to correct legal errors. This notwithstanding, several Members also emphasized the importance of establishing guardrails to reduce tactical or frivolous appeals. Further, it was noted by some Members that there needed to be a degree of caution and some balance in not reducing legitimate incentives to appeal. Against this backdrop, there appeared to be some shared interest in exploring how Members could address incentives to appeal through:

a. making better use of interim review at the panel stage;
b. a political commitment to reduce appeals;
c. adjusting the reasonable period of time (RPT) for compliance; and
d. establishing parameters for the scope and standard of review.

With respect to clarifying Members' expectations of adjudicators, several Members agreed that it was important to clarify expectations with respect to timeframes, word limits, as well as the output expected from adjudicators. In this regard, several Members expressed the view that it was important to ensure that timelines were met, and that adjudicators' reports focused only on what was being argued by the appellants. Furthermore, several Members thought that it would be beneficial to build on the work from the informal process such as with respect to issues of precedent and judicial economy, which can be applied to appeal/review adjudicators.

In the discussion on the form of the mechanism, Mr. Joel Richards and I encouraged Members to focus on interests and solutions, rather than on whether there should be a two-tier or single-tier dispute settlement system. Many Members underscored that a standing adjudicative body met their interests, which included correctness of decisions, legitimacy, efficiency, predictability, and consistency. However, another perspective expressed was that a standing body did not guarantee correct decisions, and created a perception that the body had greater authority and legitimacy than other adjudicators such as panellists. It was suggested that it could be fruitful to consider the different features of the institutional design of the appeal/review mechanism, with a view to identifying potential reforms. To give an example of one such feature, experts could consider the appointment process for appeal/review adjudicators.

Regarding access to the mechanism, we again encouraged Members to focus on their interests by responding to some discussion questions. Many Members said that automatic, compulsory access was essential to meet their interests. It was noted by several Members that such access protected them against power dynamics and was particularly important for developing Members. Some Members observed that compulsory jurisdiction was vital for the system's legitimacy and for Members' trust in the system. An alternative view expressed was that automatic access to an appeal/review mechanism was not essential to have a system that supported parties to resolve their disputes. Under this view, the parties could decide the features of the system would be useful to them, which would go towards addressing a concern about the perceived superiority of the second tier and the consequences flowing from that perception. In view of the difficulty of finding a middle ground on this sub-topic, it was suggested by some Members that it may be more beneficial to focus on other ideas, including those that would reduce incentives to appeal/review, and by establishing guardrails with respect to the scope and standard of review. In this connection, some Members also considered it important to assess the overall package of reforms and not view the issue of access to the mechanism in isolation.

This is a useful summary, but it leaves me wondering about the prospects for success here. The report mentions "another perspective" and an "alternative view," and presumably that is the United States. So what are the chances that a solution can be found here? Can this question only be answered after we know the results of the U.S. presidential election?

ANZSIL International Economic Law Interest Group: Call for Papers

This is from the ANZSIL International Economic Law Interest Group (IELIG):

2024 Workshop

The 2024 IELIG Workshop will be held via Zoom on Friday 29 November 2024. Its aim is to provide an informal setting for discussion of topical issues and works in progress.

We are honoured to have Prof Em Thomas Cottier as this year’s keynote speaker.

Thomas will speak on ‘The Impact of the Multi-Party Interim Appeal Arbitration Arrangement’. We invite paper proposals from ANZSIL members, practitioners in the field as well as staff from MFAT, DFAT, and the Attorney-General’s Department. We encourage PhD students and early career practitioners and academics to submit a proposal. Paper proposals may be on any topic within the work of the IELIG. All speakers are invited to submit their paper following the workshop to the Australian Year Book of International Law or the New Zealand Yearbook of International Law for possible publication. We also invite ANZSIL members and MFAT/DFAT/AGD staff to attend the workshop even if not presenting a paper.

Submission of proposals

If you wish to submit a paper proposal, please submit an abstract of 300 words by email to [email protected] by 10 November 2024. Please include the heading on your email message ‘ANZSIL Conference IELIG Workshop Proposal: [Your Name]’.

Best wishes,

Prof Chris Riffel (University of Canterbury) and Mr Jose-Miguel Bello Villarino (University of Sydney)
IELIG Co-Chairs

Designing an Economic Security Safeguards Mechanism to Reform the WTO Security Exception

During the WTO Public Forum, the TradeExperettes published a report entitled, Ten Quick Wins for: Re-globalization and Resilience in Trade. The report captures a collection of terrific trade analysts (who happen to be women) short, policy briefs that capture ideas and potential solutions for urgent issues for the multilateral trading system – from investment facilitation, AI, and climate adaptation. Please do check them all out!

My contribution (reproduced below) carries forward my work on economic security and is a (very) short snapshot of a working paper of mine on reimagining safeguards (though consistent feedback I receive is to not call these safeguards, for it folds in WTO safeguards jurisprudence). A consistent theme of the WTO Public Forum was how to think about rules reform in light of members' industrial policies, which may or may not have to do with defence concerns. This mechanism focuses on how to preempt economic security problems; before risks turn to damage. The solutions governments take need not be limited to production subsidies. A goal is for open, inter-connected cross-border cooperation to sift security out - and to enable members to design and evaluate their policies in light of spillovers.

*    *    *

Responding to the perception that aspects of international trade create economic security risks, some WTO members have implemented unilateral, trade-inhibiting measures that lack clear endpoints. Members may justify violations of trade rules by invoking the WTO security exceptions, provided all requirements are met. However, security exceptions are not a long-term solution for persistent, unpredictable challenges and may even preclude multilateral approaches to anticipate and mitigate economic security risks. It is time to view security as more than an exception to WTO rules and principles. Members should build a new mechanism for economic security issues using the WTO’s safeguards procedures as a model.

A new Economic Security Safeguards (ESS) mechanism could create ‘breathing space’ for protecting domestic industries that are strategic to economic security objectives while setting limits on the duration and the extent of remedy. When designing such a mechanism, members should decide how to characterize economic security safeguards and deliberate on a framework for evaluating risks. Members may agree that traditional wartime interests do not characterize economic security or that the assessment of economic security should strictly control how a product could indirectly contribute to a member’s defense capabilities .

While existing WTO safeguard rules require a demonstration of injury to industries caused by increased imports, the ESS could instead target industry risks associated with economic security. ESS implementation would thus depend upon improved information sharing concerning economic security risks rather than strict causation analysis. Practically speaking, knowledge of risk may be hard-to-observe for applying the ESS, as supporting evidence establishing chains of cause and effect may be difficult to show.

To resolve this tension, Members could coordinate their strategic foresight practices that examine future government planning and contingencies and weigh their implications. As part of this, members could the short-term and long-term risks for economic security. They would need to agree on an approach that assesses how imports create supply dependencies and related risks in relation to domestic manufacturing capacity and consumption. Finally, the WTO could work with the OECD’s risk likelihood and impact framework to design an ESS impact assessment based on different risk levels. Domestic authorities would rely on this risk assessment to evaluate the relevant factors for the right to impose trade restrictions. For example, to reduce uncertainty or early mitigation of risks, members could prioritize source diversification and set a high standard for imposing limited trade restrictions. In contrast, for vital products at high risk of severe impacts, members could set a deferential standard for evaluating the situation of the domestic industry. On this basis, there may be scope for members to choose between ESS that apply universally to all imports or moderate risk exposure from specific sources.  Members could carefully circumscribe ESS usage by conditioning the duration of ESS implementation with a ‘corrective action’ plan.

WTO security exceptions for extraordinary circumstances may still be required. However, to address ongoing concerns with economic interdependence, the ESS could allow members to advance economic security goals as part of, and not exceptional to, members’ long-term commitments to work together.

Guest Post: A Tribute to Frieder Roessler from Petros Mavroidis

This is a guest post by Petros Mavroidis of Columbia Law School. The piece will be published in a forthcoming issue of the World Trade Review.

An Uncommon Mind: Frieder Roessler’s Legacy

Petros C. Mavroidis*

*Columbia Law School

1. Doubts, Persistent Doubts

“U-huh”. This is what I recall being Frieder’s routine reaction whenever he was exposed to an argument. He rejected nothing, but at the same time he agreed to nothing right away. He needed his time to process, and would reach his conclusions only at a later stage. He applied this standard to his own, spontaneous thinking which might have sounded entirely convincing to me when we were working together, but not to him. “Let us think this issue through” he would say to me, a literal translation of the German “durchdenken” that we on occasion spoke together.

The scope of his intellectual endeavors was breathtaking. With his often interlocutor, Bob Hudec, he shared the urge to transcend the ostensible. Nothing was taken for granted irrespective who the source of information was. “Nullius in verba”, as the motto of the Royal Society dictates. I recall numerous discussions about what some might have considered obvious. Frieder was never shy to confront well-established dicta, and bring to light inconsistencies and errors. He was irreverent towards the past, but in an honest, intellectually challenging manner.

Nothing in my view exemplifies his strive for improving on past knowledge than his contributions to the understanding of non-discrimination in the GATT (General Agreement on Tariffs and Trade).

2. Likeness in GATT: the House That Frieder Built

GATT case law did not seriously delve into the question of “like products”, the foundational element in understanding non-discrimination, until the end of the 1970s. For reasons eminently explained in Baldwin (1970), and Jackson (1969), the “bite” of behind-the-border policies was hard to assess (and anyway a concern of secondary order) in presence of high import duties. Japan-Alcoholic Beverages I emerges as the first panel report that provided a comprehensive discussion on this score adopting what later became known as the “marketplace” test: consumers would define “likeness”.

The theoretical underpinning of this interpretation was the construction of Article III of GATT (where the term “like products” appears) as an instrument to avoid concession diversion. Were it left to governments to decide on likeness, they might be led (for political economy reasons) to adopt an understanding of the term that would reduce the value of tariff concessions. Trading nations, so the thinking goes, would not sit idle. For what is the purpose of reciprocally reducing the level of tariffs if protection can reemerge through the back door under the guise of unilateral regulatory distinctions? Consumers’ choices on the other hand, are heavily guided by scarcity of economic resources, hence buying national is definitely not the cardinal preference for the critical mass of the citizenry.

There you go. A sound rational basis for substantiating a plausible outcome. Who would disagree with this construction?

At that time (1978), Frieder was not dealing with panels. Indeed, there was no GATT Legal Office back then to start with.[1] But he understood only too well the importance of the question, as well as the potential shortcomings of the approach adopted in the aforementioned case. In his subsequent writings, namely Roessler (1996), (2003), after he had left the GATT/WTO, Frieder left no doubt that he was siding with the approach developed in the two reports I discuss next.

2.1 Change (the House that Frieder Help to Build)

US-Malt Beverages[2] was an odd case. A tax distinction favoring a variety that only seldom appears and was present in the territory of the regulating state, was challenged for violating non-discrimination. The outcome is irrelevant for the purposes of our discussion. What matters is §5.25 of the report:

The purpose of Article III is thus not to prevent contracting parties from using their fiscal and regulatory powers for purposes other than to afford protection to domestic production. Specifically, the purpose of Article III is not to prevent contracting parties from differentiating between different product categories for policy purposes unrelated to the protection of domestic production. The Panel considered that the limited purpose of Article III has to be taken into account in interpreting the term "like products" in this Article. … While the analysis of "like products" in terms of Article III:2 must take into consideration this objective of Article III, the Panel wished to emphasize that such an analysis would be without prejudice to the "like product" concepts in other provisions of the General Agreement, which might have different objectives and which might therefore also require different interpretations.[3]

This paragraph provided the impetus for what became known as the “aims and effect” test to define likeness. The advent of this test did not wait for long. In US-Taxes on Automobiles,[4] the panel held in §5.10:

The Panel then proceeded to examine more closely the meaning of the phrase "so as to afford protection." The Panel noted that the term "so as to" suggested both aim and effect. Thus the phrase "so as to afford protection" called for an analysis of elements including the aim of the measure and the resulting effects. A measure could be said to have the aim of affording protection if an analysis of the circumstances in which it was adopted, in particular an analysis of the instruments available to the contracting party to achieve the declared domestic policy goal, demonstrated that a change in competitive opportunities in favour of domestic products was a desired outcome and not merely an incidental consequence of the pursuit of a legitimate policy goal. A measure could be said to have the effect of affording protection to domestic production if it accorded greater competitive opportunities to domestic products than to imported products. The effect of a measure in terms of trade flows was not relevant for the purposes of Article III, since a change in the volume or proportion of imports could be due to many factors other than government measures.

The regulatory aim pursued emerged the centerpiece of the analysis of “likeness”. As Frieder used to say, governments may very well make legitimate distinctions across goods that consumers treat as “like products”. What is wrong with that?

Indeed, what is wrong with that? And yet, this understanding of “like products” flies against the previous understanding of “likeness”, does not it? Can they both be right?

It defies the purposes of this short paper to analyze in more detail Frieder’s thinking. The house that he built, like all ideas that he was consistently willing to discuss and debate, was not meant to be a permanent edifice. Frieder wants to bring in a platform, a more complete background that would host new ideas so as to build a better house than the one before. And so he did. 

2.2 Onto the WTO

WTO case law rejected the aims and effect analysis as practice in the first likeness dispute. But it did not dismiss the relevance of regulatory aim in deciding on likeness out of hand. Few have observed that in Japan-Alcoholic Beverages II, the panel conspicuously added that Japan had advanced no regulatory justification for its tax differential between sochu (a predominantly Japanese drink) and a series of predominantly Western drinks. This report then, adopted the marketplace-test when dealing with a domestic tax differential for which no (plausible) justification had been advanced.

And of course, the Agreement on Technical Barriers to Trade (TBT) explicitly endorsed the legitimacy of distinctions based on the process of production of competing goods.[5]

I would not be far off from the truth stating that the basic intuition of Frieder (the relevance of regulatory aim in likeness-analysis) has gained pace over the years. The manner in which it has been practiced has been rightfully (in my view) criticized.

3 Frieder and Me

It is hard to over-estimate Frieder’s influence on my thinking. He hired me in the GATT Legal Office in 1992, and did not lose time to realize that he had seen too much in me. But he gave me the time and space necessary for me to understand the basic logic of the system, by asking me to continue the excellent work of Friedl Weiss in updating the GATT Analytical Index. He then threw me to panel work, and involved me in a various of his discussions with luminaries in the field: Bob Hudec, John Jackson, David Palmeter, and Ernst-Ulrich Petersmann were his preferred “Stammtisch” and he generously offered a seat at that people to the “Nachwuchsgeneration” including me. My years next to him were the best complement I could have hoped for to add to my years in various schools.

In my eyes, he did everything right. He even picked the most able and suitable successor in Bill Davey who headed the Legal Office during the first years of the WTO, and picked up from where Frieder had left.

As years passed by and I started forming my own opinions on the issues we had discussed in the early nineties, I came to realize that he was secretly proud of all of us as we developed through time. And it is not the case that we all agreed.[6] What mattered to him most I discovered, was the internal coherence of the argument. The external validation could wait. For Frieder was a legitimate intellectual. 

I never managed to pay him back. I did (and continue to do) try to pay forward. I know that this is the way he would have liked it anyway.

Frieder lived during good times, or maybe times back then were good because people like Frieder made them good. While preparing this short note, I turned back to a re-reading of the reports I mention above (and a few other where Frieder was involved as legal advisor to panels). At the risk of waxing lyrical here, I was overwhelmed with nostalgia. I would kindly ask the reader to focus on the choice of words in the cited passages. And then take a step back and reflect on the logical construction permeating the quoted paragraphs.

These passages reflect a deep thinking about the most fundamental issues circumscribing trade integration. They also embed a coherent approach when expressing these ideas: how understand agreed contractual terms in context? What is the most plausible across competing interpretations? Why is it the case? In a few pages, a solution to a dispute is provided, and its intellectual underpinning is explained as well. I dread the moment when a new report is issued these days, as I know I am in for a repetition of platitudes, a concatenation of empty sentences and lengthy citations the usefulness of which is hard to discern.

When thinking about Frieder and his generation, I am reminiscent of Benjamin Franklin, the American polymath and Founding Father. When asked during the negotiations that led to the enactment of the US Constitution about the choice of regime that he and the others had made, he replied (almost stoically):

    - A Republic, if you can keep it.

Frieder and his generation bequeathed us with a Republic. I am afraid this is not what we will leave to those who come next.

References

Baldwin, Robert E. 1970. Non-Tariff Distortions in International Trade, The Brookings Institution: Washington, D.C. 

Charnovitz, Steve. 2002. The Law of Environmental PPMs in the WTO: Debunking the Myth of Illegality, Yale Journal of International Law 27: 59–109.

Grossman, Gene M., Henrik Horn, and Petros C. Mavroidis. 2013. Domestic Instruments, pp. 205-345 in Henrik Horn and Petros C. Mavroidis (eds.), Legal and Economic Principles of World Trade Law, ALI, The American Law Institute Reporters’ Studies on WTO Law, Cambridge University Press: New York City.

Hudec, Robert E. 1998. GATT Constraints on National Regulation: Requiem for an Aims and Effect Test, International Lawyer, 32: 619-649.

Hudec, Robert E. 2000. “Like Product”: The Differences in Meaning in GATT Articles I and III pp. 101-123 in Thomas Cottier and Petros C. Mavroidis (eds.), Regulatory Barriers and the Principle of Non-discrimination in World Trade Law, 101–123, University of Michigan Press: Ann Arbor, Michigan. 

Jackson, John H. 1969. World Trade and the Law of the GATT. Bobbs-Merrill: Indianapolis, Indiana.

Marceau, Gabrielle (ed.) 2015. A History of Law and Lawyers in the GATT/WTO, Cambridge University Press & the WTO: Geneva, Switzerland.

Mavroidis, Petros C. 2019. Last Mile for Tuna (to a Safe Harbour): What is the TBT Agreement All About? European Journal of International Law, 30: 279–301.

Petersmann, Ernst-Ulrich. 2000. International Trade Law and International Environmental Law: Environmental Taxes and Border Tax Adjustment in WTO Law and EC Law, pp. 127-165 in R. Revesz, P. Sands, and R. Stewart, (eds.), Environmental Law, The Economy and Sustainable Development, 127–165, Cambridge University Press: Cambridge, United Kingdom.

Roessler, Frieder. 1996. Diverging Domestic Policies and Multilateral Trade Integration, pp. 21-64 in Jagdish Bhagwati, and Robert E. Hudec (eds.), Fair Trade and Harmonization, vol. 2: Legal Analysis, 21–64, Cambridge University Press, Cambridge, United Kingdom.

Roessler, Frieder. 2003. Beyond the Ostensible: A Tribute to Professor Robert Hudec’s Insights on the Determination of the Likeness of Products under the National Treatment Provisions of the GATT, Journal of World Trade, 37: 771–781.

 

[1] Marceau (2015) edited an excellent volume tracing the history of the Legal Office of the GATT/WTO.

[2] https://www.wto.org/english/tratop_e/dispu_e/gatt_e/91alcohm.pdf

[3] On this last issue, see Hudec (2000).

[4] https://www.wto.org/english/tratop_e/dispu_e/gatt_e/93autos.pdf

[5] Even though case law has turned the logic behind Arts. 2.1 and 2.2 TBT to its head, as I have argued in Mavroidis (2019). See also Charnovitz (2002), and Petersmann (2000).

[6] In Grossman et al. (2013), for example, while we see the relevance of regulatory aim, we take distance from the “aims and effect” test as practiced.

Trump the China Trade Deficit Hawk and China Security Dove?

Trade policy came up at last week's presidential debate, with a somewhat traditional discussion of tariffs at the start, and then a shift at the end to security-related issues.

Kamala Harris started it off by referring to Trump's proposed universal baseline tariffs as a sales tax:

... My opponent has a plan that I call the Trump sales tax, which would be a 20% tax on everyday goods that you rely on to get through the month. Economists have said that Trump's sales tax would actually result for middle-class families in about $4,000 more a year because of his policies and his ideas about what should be the backs of middle-class people paying for tax cuts for billionaires.

She has been consistent in criticizing his tariffs, going all the way back to when she was running for president in 2019.

Trump then responded as follows:

First of all, I have no sales tax. That's an incorrect statement. She knows that. We're doing tariffs on other countries. Other countries are going to finally, after 75 years, pay us back for all that we've done for the world. And the tariff will be substantial in some cases. I took in billions and billions of dollars, as you know, from China. In fact, they never took the tariff off because it was so much money, they can't. It would totally destroy everything that they've set out to do. They've taken in billions of dollars from China and other places. They've left the tariffs on. When I had it, I had tariffs and yet I had no inflation. 

(Let me interject a couple points here: 1) Trump continues to misrepresent who pays tariffs; 2) I would like to hear what Harris has to say about keeping some of Trump's tariffs in place; and (3) saying there was "no inflation" is a distraction from that fact that prices rose for the goods on which the tariffs were imposed.)

Moderator David Muir then asked this follow-up:

Mr. President, I do want to drill down on something you both brought up. The vice president brought up your tariffs, you responded, and let's drill down on this because your plan is what she calls ... essentially a national sales tax. Your proposal calls for tariffs as you pointed out here, on foreign imports across the board. You recently said that you might double your plan, imposing tariffs up to 20% on goods coming into this country. As you know many economists say that with tariffs at that level costs are then passed onto the consumer. Vice President Harris has argued it'll mean higher prices on gas, food, clothing medication arguing it costs the typical family nearly four thousand dollars a year. Do you believe Americans can afford higher prices because of tariffs?

Trump responded with more of the same:

They aren't gonna have higher prices, what's gonna have and who's gonna have higher prices is China and all of the countries that have been ripping us off for years. ... I was the only president ever, China was paying us hundreds of billions of dollars and so were other countries and you know if she doesn't like 'em they should have gone out and they should have immediately cut the tariffs but those tariffs are there three and a half years now under their administration. We are gonna take in billions of dollars, hundreds of billions of dollars. I had no inflation, virtually no inflation, they had the highest inflation, perhaps in the history of our country because I've never seen a worse period of time. ...

Muir then asked Harris the question I had in mind about Biden keeping some of the tariffs: 

Vice President Harris, I do want to ask for your response and you heard what the president said there because the Biden administration did keep a number of the Trump tariffs in place, so how do you respond?

In response, Harris criticized Trump's tariffs in general terms, and then, interestingly, turned this into more of a China security issue:

Well, let's be clear that the Trump administration resulted in a trade deficit, one of the highest we've ever seen in the history of America. He invited trade wars, you wanna talk about his deal with China, what he ended up doing is under Donald Trump's presidency he ended up selling American chips to China to help them improve and modernize their military, basically sold us out when a policy about China should be in making sure the United States of America wins the competition for the 21st century. Which means focusing on the details of what that requires, focusing on relationships with our allies, focusing on investing in American based technology so that we win the race on A.I. and quantum computing, focusing on what we need to do to support America's workforce, so that we don't end up having the, on the short end of the stick in terms of workers' rights. ...

Trying to figure out what Trump thinks can be a challenge, but it seems to me that his big concern on trade is the trade deficit, and the fix he wants to use is tariffs. (He misunderstands both of these issues, but let's put that aside). By contrast, he does not appear to be particularly concerned about the security issues related to China that most Republicans and many Democrats in Washington are worked up about these days. For example, Trump has said several times that if Chinese companies want to sell autos in the U.S., they should produce them here. But I'm not sure many other national Republican politicians would want to let such investments happen. And while a lot of people in Washington are focused on winning the technology race with China, Trump seems to envision the economic contest as one over older industries such as steel and traditional autos, rather than advanced tech. I don't think I've ever heard him talk about the Chinese accessing Americans' data, which many other people in Washington worry about and which is why there are concerns with Americans driving Chinese autos full of software that can gather data.

More broadly, I'm not sure Trump thinks of China as much of a security threat. The main threat that he sees -- from China, the EU, and others -- is a trade threat. He thinks their trade policies and our trade policies, working together, have cost American jobs. His analysis is all wrong here, but that seems to be what he thinks.

Having said all that, I wouldn't say this means a Trump administration would not have a security focus. In all likelihood, Trump will hire a lot of people who share the security concerns that most Washington policymakers have.

Tariff History Emerges as a Key Issue in the U.S. Presidential Contest (Just Kidding!)

As the culture wars have dominated the political debate in recent years, it feels as though the quality of the economic policy discussion has suffered. Some of the economic topics that keep coming up are of little interest to most voters, and are being talked about in a way that is disconnected from reality. Here's an illustration from a recent speech by former president Trump, in which he makes reference to some events in U.S. tariff and economic history:

Under my leadership, America will encourage domestic production instead of punishing it. As you know, our country's vast manufacturing wealth was created at a time with very little domestic taxation, few regulations, and most revenue came from tariffs from other countries. That was when we were at the wealthiest ever. Proportionately, we were the wealthiest country ever during those days. That was before income tax came along. Now we foolishly do the opposite. We impose lower tariffs and no tariffs on foreign producers. We have the lowest tariffs of any nation in the world, and we relentlessly punish our own companies for doing business in America. You do business in America, you're punished tremendously. I had many, many companies come to me, sir, I can't compete. They're sending kitchen cabinets, washers and dryers, everything ... motorcycles, they're sending them here, sir, we can't compete. And I made it so they could compete and thrive. Every one of those people, we should get them up and talk to you one day, because every one of those people comes up to me, and every time I see them, they hug me, they kiss me, they love me, because I saved their businesses.

I intend to reverse this model and once again turn America into the manufacturing superpower of the world. We can do that just with being intelligent. The key to this effort will be a pro-American trade policy that uses tariffs to encourage production here and bring trillions and trillions of dollars back home. ... My plan is that if you open your factory in Wisconsin, Pennsylvania, Michigan, Minnesota, anywhere else in our country, you don't pay a tariff tax, you don't pay a tax. You make the product here. But if you move your production outside of the United States and send it back here, which people are doing now, and I stopped it, stopped it cold. But they've changed that already. Then you'll have to pay a very substantial tariff to get your product back into the country. The result will be that everybody in the world will want to be here, and they'll want to produce here. They're going to want to produce their product in America. It's going to say made in the USA. We will be able to build ships again. We will be able to build planes again. We will be able to build our military again from within, all from within. We will create the biggest, greatest and strongest middle class in the history of our country. We will have 10s of millions of high paying jobs in manufacturing, transportation, defense, as well as all of the sales and support of export jobs. Our auto industry will be the biggest beneficiary.

In short, it will be a national economic renaissance just by using our heads, by being smart, by not letting other countries take advantage of us. They've been doing it for so long. It's so sad to see, and I know them all, and they laugh at us behind our back. They can't believe how stupid our leadership has been for so many years.

We will ensure that the United States has a giant steel industry, and aluminum industry, a manufacturing base and a defense base. We want a industrial base that can take care of our defense needs 100%.

And you can call it what you want. Some might say it's economic nationalism. I call it common sense. I call it America first. This is the policy that built this country, and this is the policy that will save our country. In the words of a great but highly underrated president, William McKinley, highly underrated, the protective tariff policy of the Republicans has ... made the lives of our countrymen sweeter and brighter. It's the best for our citizenship and our civilization, and it opens up a higher and better destiny for our people. We have to take care of our own nation and her industries first, in other words, take care of our country first. This is when we had our greatest wealth. He was assassinated, and he left his group of people that followed him. Teddy Roosevelt became a great president spending the money that was made by McKinley. So McKinley got a bad deal on that one. He built tremendous wealth.

They had the Tariff Act of 1887, and they had a committee that studied, what are we going to do? They had a big problem, a problem like I hope to have with this country someday, so much money was coming in from foreign countries that they didn't know how to spend it. They had no idea. So they set up a committee. We'll set one up with the people in this room. How do we distribute the wealth that we have? And Roosevelt built dams and built railroads and did national parks, but he did it with the money that was made with tariffs from McKinley. So you have to remember that very highly underrated, a very underrated president, let's give them both credit. Smart tariffs will not create inflation. They will combat inflation. I had almost no inflation, and I had the highest tariffs that anyone seen. They were going a lot higher. Foreign nations will pay us hundreds of billions of dollars, reducing the deficit and driving inflation down to largely reduce our deficit. In my first term, we imposed historic tariffs with no effect on consumer prices or inflation.

The anti-tariff people, many of them, I believe, honestly, work for these other countries in some form, get tremendous amounts of lobbying money and other money, because it doesn't make sense what they're saying.

As you might expect, I have some reactions. It's hard to know where to start with this, but maybe let's go with McKinley's tariffs, which Trump has been talking about for many years. One thing to note here is that the McKinley Tariff took effect in October of 1890 while McKinley was in Congress, whereas during McKinley's presidency the big tariff increase was implemented through the Dingley Act in 1897. It's not clear whether Trump realizes this. Anyway,  some people have studied these issues in great depth. In Clashing over Commerce, Doug Irwin points out that Teddy Roosevelt, who Trump mentions, was not happy about the impact the McKinley Tariff had on the tariff-supporting Republican party in the 1890 midterm elections, saying: "The overwhelming nature of the disaster is due entirely to the McKinley bill." (Irwin also notes that "[t]he perception that high tariffs protected monopolistic big businesses and trusts also contributed to the unpopularity of the McKinley Act.")

With regard to Trump's references to the relative wealth of the U.S. during that period, for anyone who has this sort of nostalgia, there are some things you may want to consider because they complicate the more simplistic hot takes. For those on the right who are anti-immigration as well as being protectionist, keep in mind that this was a period of very open immigration, which helped drive economic growth. And for anyone who likes Social Security and Medicare, note that those programs didn't exist at the time, which is why the relatively low amount of revenue brought in by tariffs could fund the much smaller level of government spending from this period. If Trump wants the tax system to rely on tariffs for revenue rather than on income taxes, that would almost certainly mean the end of those programs.

Turning to the impact of Trump's first term tariffs on U.S. prices, Trump says they had no impact, but numerous economic studies show otherwise. (And obviously "foreign nations" don't pay tariffs, but rather importers do.)

As to whether the U.S. has the "lowest tariffs in the world," the WTO tracks this data. I would first note that New Zealand, Australia and a few others actually have lower MFN applied average tariffs. In addition, it's worth noting here that trade remedy tariffs don't get tracked as part of this calculation, and with the U.S. being such an active user, I'm not sure the U.S. tariffs would look as low in relative terms if trade remedy tariffs were included, although I haven't seen a calculation that takes this into account (it would be great if someone did one!)

On the issue of the role of lobbyists in trade policy, just about all policies have lobbyists on both sides, but I don't think there is much doubt that it is lobbyists (corporate and union) that are the driving force pushing for tariffs. It's nice for them that Trump believes in their cause, and may save them some lobbying money, but it's pretty clear that lobbying is and has always been the main source of support for tariffs.

And finally, there's the matter of retaliation by other countries, which happened before with Trump's tariffs and will happen again. Trump seems to think the U.S. could start exporting more manufactured goods such as autos (which does not seem particularly likely at the moment), but regardless of whether the U.S. production and export mix shifts away from agriculture, natural resources, and services and towards manufacturing, U.S. trading partners will have plenty of possible targets for retaliation.

There was also this:

China was built on doing exactly what we're going to be doing, and what I started doing four years ago.  What we're putting forward is the most pro-American manufacturing and jobs policy in modern history for any country. This plan will bring jobs and growth into our country at levels never seen before. Every business on earth will flock to America, from Europe, Asia, the Middle East and all over the world. By contrast, comrade Kamala Harris wants to sacrifice our wealth, kill the economy and drive jobs overseas to punish businesses, more businesses will leave.

So on the one hand, Trump admires what he thinks are the tariff policies of the Chinese Communist Party and wants to emulate them (although in reality, China actually reduced its tariffs considerably as part of its accession to the WTO), but on the other hand he is suggesting that "comrade Kamala" is a communist. That's a hard one to get my head around.

Why the US Should Respond Honestly to China's WTO Complaint

Why the US Should Respond Honestly to China's WTO Complaint

Comments by Steve Charnovitz

Federal Register m0n-2px7-nq3f

3 September 2024

China has properly lodged a lawsuit (DS623) against the United States (US) at the World Trade Organization (WTO) regarding the domestic content conditions of US subsidies granted in 2022 in US Public Law 117-169.  Such unfair, discriminatory regulations are a blatant violation of the law of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).  SCM Article 3.1(b) prohibits "subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods."  During the Biden-Harris Administration, the US has increased its reliance on nonmarket economic nationalism to the detriment of the US economy and the broader interests of all WTO Members.

Environmental instruments need not be, and should not be, protectionist.  In 1992, Rio Declaration reiterated the norm that governments should use economic instruments "without distorting international trade and investment" (Principle 16).  For the climate regime, the United Nations Framework Convention on Climate Change (UNFCCC) articulated the climate law principle that "Measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade" (Article 3.5). Thus, the discriminatory US measures detailed in China's complaint are anathema to both world trade law and global climate law. 

Although subsidies can be appropriate policies to lessen climate change, subsidies are much less likely to reduce emissions than first-based policies of carbon taxes.  Unilateral subsidies are also inferior policies because climate change is a global problem that necessitates multilateral solutions. Without effective transborder environmental solutions, trade disputes can ensue.

The US overcapacity in dollars allows the US to engage in excessive subsidization. Most other countries with their budget constraints cannot afford to bestow subsidies on the same scale that the US does.  Yet because the effectiveness of any US climate measure depends on the measures being taken by the rest of the world, the US overreliance on subsidization sets a bad example for other countries, particularly developing countries.  This dysfunction could be corrected in part by more generous US government funding of climate investments in developing countries, but those US programs are pathetically small. 

Whatever unilateral US climate subsidies could accomplish will be further diminished when US subsidies are conditioned on import substitution policies.  Such a beggar-thy-neighbor scheme raises the costs of clean energy domestically while making it more difficult for many other countries to grow their clean energy input sectors through exports.  Supply chain resiliency — even for the largest economies — is more likely achievable through economic integration than through dogmas of autarky. 

Although the Office of the US Trade Representative (USTR) has falsely claimed that China's lawsuit "seeks to undermine US efforts to address the global climate crisis...", the truth is that the protectionist US efforts in dispute make it harder for the US and other countries to address the global climate crisis.  China seeks to challenge the lack of cooperation by the US to use nondiscriminatory measures in addressing the worsening global climate crisis. China is right to seek to hold the US accountable to respect both international trade law and international climate law.  China recognizes that the effectiveness of US climate efforts (and indeed the efforts of all countries) is impeded by unjustified US trade discrimination.  While WTO law does not prohibit a government from lavishing financial benefits on politically favored beneficiaries, WTO law does prohibit granting subsidies in a manner that externalizes costs on other countries. 

In lodging this WTO case against the US, China seeks to encourage US policymakers to respect the rule-based international order.  China (but not the US) appears to understand that governments need not violate international trade law to achieve multilateral environmental objectives.   Thus, China's cause of action against the US functions as a public good in the international legal system. China's bold lawsuit should be applauded by everyone who supports the transnational rule of law

With China's overdue litigation against the US now going forward, the Biden-Harris Administration should stop undermining the WTO judicial system by blocking the appointment of WTO appellators.  If the US is unwilling to stop despoiling the Appellate Body —even though the lack of effective judicial review continues to imbalance the WTO — USTR should pledge to the WTO Dispute Settlement Body that the US will (join China to) support immediate adoption of the panel report.  During its time in office, the Biden-Harris Administration has shown bad faith in appealing four (!) WTO cases that the US has properly lost knowing full well that the appeal cannot be heard because of the US sabotage of the WTO appellate tribunal (see DS 539, 544, 552, 556, 562, 564, 597).

Because China's SCM Art. 3.1 claim against the US is correct in WTO law, the US should not engage in facetious (and time-wasting) defenses as USTR frequently does.  Since the SCM Agreement does not contain an environmental exception, USTR should not assert an environmental defense which, in any event, would be unjustified because the UNFCCC makes clear that discriminatory trade measures must not be used.  Since the SCM Agreement does not contain a national security exception, the US should not assert a national security defense as the US did unsuccessfully in the Steel and Aluminum Products case.  (That bogus US claim was rightly dismissed by the WTO panel.)  Since the SCM Agreement does not provide for reverse SCM Article 29 defenses, the US should not assert that it needs to discriminate against China because the US is in the process of transformation from a market, free enterprise economy into a centrally planned economy. 

Because China is acting responsibly to uphold the multilateral trading system and to challenge US illegality in a peaceful way, the US should cooperate by facilitating the rapid response mechanism envisioned in the DSU for the adjudication of trade complaints.  Let the panel do its job to call out the US for engaging in a cadence of protectionism that flagrantly violates WTO law.  

If the US stopped treating China unfairly in trade — including for example, cancelling the WTO-illegal US Sections 301 and 232 tariffs — China might become more willing to act cooperatively to address the most pressing global problems. 

Guest Post: A Tribute to Frieder Roessler from Ernst-Ulrich Petersmann

This is a guest post by Ernst-Ulrich Petersmann, emeritus Professor at the European University Institute, Florence (Italy), and legal consultant at the World Trade Organization (Geneva); former professor of European law at Geneva University, and of international economic law at Geneva’s Graduate Institute of International Studies

Frieder Rössler (1939-2024): International civil servant, academic teacher, and Socratic explorer

Frieder and I met in 1981 in the GATT Secretariat following my appointment as first ‘assistant legal officer’ ever employed by the GATT Secretariat, and Frieder’s return to his GATT office (as Secretary of GATT’s Balance-of-Payments-Committee) from an academic leave at Washington University. We realized commonalities in our careers: both of us had studied law and economics at Freiburg University and at Geneva’s Graduate Institute of International Studies; we admired the ‘Austrian school of economics’ (like G.Haberler, F.A.Hayek) and ‘constitutional economics’ (like J.Buchanan, J.Tumlir); we had both published on international monetary, trade and economic development law using our professional experiences in international organizations like the World Bank. As both of us were sailors (notwithstanding my lack of ambition to emulate Frieder’s repeated crossings of the Atlantic and the Mediterranean Seas in his own yacht together with his family) and enjoyed our GATT offices overlooking Lake Geneva, we started a tradition (lasting more than four decades) of joint ‘philosopher walks’ along the Lake of Geneva discussing our shared belief in the need for transforming the ‘anti-legal pragmatism’ cultivated among GATT diplomats into a rules-based multilateral trading, legal and dispute settlement system. Yet, our two worldviews often differed, which transformed our regular discussions into mutual learning processes: both of us admired Hayek’s theory of knowledge (e.g. using markets and competition as decentralized information, coordination, sanctioning and ‘cybernetic steering mechanisms’) and Hayek’s arguments for ‘evolutionary constitutionalism’ (e.g. in his books on The Constitution of Liberty and his three volumes on Law, Legislation and Liberty); but Frieder had been less engaged than myself in the successful ‘construction’ of European integration law and of its ‘ordoliberal foundations’ justifying systemic legal limitations of ‘market failures’ (e.,g. through competition, environmental and social rules and institutions), ‘governance failures’ (e.g. to protect human rights, democratic input-legitimacy and republican output-legitimacy of multilevel governance of public goods), and ‘constitutional failures’ (e.g. justifying Europe’s multilevel democratic, republican and cosmopolitan constitutionalism protecting transnational public goods like Europe’s common market, ‘social market economy’ and ‘democratic peace’).

Frieder as an international civil servant

Frieder belonged to the post-1945 generation of young Germans traumatized by two World Wars and committed to public service protecting human rights, constitutional democracy and transnational rule-of-law among ‘open societies’. As his professional work inside the World Bank at Washington had not satisfied these ambitions, he returned to Geneva’s Graduate Institute of International Studies and accepted an offer by Professor O.Long to work inside the GATT Secretariat. Like the first GATT Director-General W.White, the second GATT Director-General Long had been a lawyer emphasizing the ‘limits of GATT law’ and the need for ‘pragmatic dispute settlements’ in view of the only ‘provisional application’ of the General Agreement on Tariffs and Trade (GATT 1947). After the US Congress had refused ratifying the 1948 Havana Charter for an International Trade Organization (including GATT 1947), the 1947 Protocol on the Provisional Application of GATT 1947 continued to include ‘grandfather clauses’ exempting legally binding ‘existing legislation’ from the GATT disciplines, thus creating only a legally weak framework for reciprocal trade liberalization and politicized ‘trade diplomacy’ subject to GATT-inconsistent trade legislation and power politics (like ‘voluntary export restraints’ for cotton, textiles, agricultural and steel products). When the parliamentary ratification and entry into force of the 1979 Tokyo Round Agreements transformed this ‘soft law’ into a ‘hard law’ trade regime with increasing criticism of its ‘pragmatic diplomat’s jurisprudence’ and legally inconsistent GATT dispute settlement findings, the third GATT Director-General A.Dunkel succeeded in persuading the major trading countries to consent to the establishment of a GATT Office of Legal Affairs in 1983. An experienced GATT diplomat (A.Lindén) was nominated director, and Frieder and myself offered legal advice as legal counsellors in GATT dispute settlement panels (e.g. in the drafting of their legal findings) and, since 1987, in the Uruguay Round Negotiating Groups mandated to elaborate the new WTO agreements, the WTO Dispute Settlement Understanding, and the transition from the old GATT to the new WTO legal system. As the first Director of the new GATT Legal Division established in 1989 as well as of the new WTO Legal Division since 1995, Frieder was rightly credited as one of the intellectual founding fathers of the successful GATT and WTO dispute settlement systems and related jurisprudence of GATT and WTO dispute settlement panels.

Cooperating with Frieder inside GATT’s Legal Office and Legal Division remained an intellectual adventure based on mutual trust, frank criticism and decentralized, independent work of the small group of GATT lawyers assisting GATT dispute settlement panels, other GATT institutions and negotiating groups. The dozens of GATT and WTO agreements include numerous rules with indeterminate terms and principles (like GATT Article XXIII:1 differentiating between ‘violation complaints’, ‘non-violation complaints’ and ‘situation complaints’ with diverse state responsibilities and dispute settlement procedures). Interpreting and clarifying indeterminate trade rules and the more than 60’000 pages of WTO law coherently required good knowledge of general international law (like the customary rules of treaty interpretation and state responsibility), which most GATT/WTO diplomats lacked. The political pressures leading to the establishment of a new ‘Rules Division’ in 1991 (notably for administering anti-dumping, subsidy and countervailing duty rules and disputes) curtailed the jurisdiction – and politicization - of the GATT Legal Division; the establishment of the WTO Appellate Body in 1995 and its ‘appellate jurisprudence’ changed the dynamics of the WTO dispute settlement system and promoted its progressive ‘judicialization’. Frieder’s independent and self-assured leadership and cooperation with both the Rules Division and the Appellate Body ensured mutual synergies promoting the transformation of the GATT/WTO dispute settlement system into the world’s most frequently used, worldwide dispute settlement system. When Frieder retired from the WTO and accepted to serve as Executive Director of the Advisory Center on WTO Law at Geneva (2001-2015), he enjoyed serving the WTO legal and dispute settlement system from a different perspective enabling Frieder to devote also more time to teaching WTO law and policies to trade diplomats from all over the world.

Frieder as an academic teacher and professor of law

Frieder regularly combined his practical work as international legal advisor with academic teaching of students, for instance as visiting professor at the University of Lyon and during repeated ‘academic leaves’ at George Washington University and Georgetown Law School in Washington. As director of the GATT and WTO legal divisions, he cultivated close contacts with all academic researchers in the field of international trade law and policies, notably with his friends Professors Robert Hudec and John Jackson from the USA. During his work in the World Bank, as secretary of GATT’s Balance-of-Payments Committee, and as director of the GATT and WTO Legal Services, Frieder published a large number of articles and book contributions criticizing problematic legal practices and ideologies (e.g. for a ‘New International Economic Order’). His close cooperation with GATT Director-General Arthur Dunkel and with the successive directors of GATT’s Economic Research Division (like J.Tumlir, R.Blackhurst) prompted Frieder to emphasize the ‘Constitutional Functions of International Economic Law’ for improving domestic policy-making, as illustrated by the legal ranking of ‘optimal policy instruments’ in some GATT/WTO agreements, or by the ‘domestic policy functions’ of international legal guarantees of equal freedoms, non-discriminatory conditions of competition, transnational rule-of-law and national sovereignty for promoting transparent policy-making, non-discrimination, legal accountability, welfare-enhancing policies and rule-of-law protecting general consumer welfare.[1] During his studies of law at Freiburg University, Frieder had not attended the economics lectures of Professor F.A.Hayek; he never perceived himself as a disciple of the ordoliberal Freiburg school of law and economics. His views on the need for protecting democratic input-legitimacy and republican output-legitimacy in trade policies (e.g. by judicial protection of rule-of-law in conformity with the WTO agreements ratified by parliaments) were rather informed by insights from ‘constitutional economics’ and ‘public choice’ explanations of the risks of welfare-reducing interest group politics redistributing domestic income through discriminatory import restrictions undermining democratically ratified trade agreements.[2]

In his recent book on Vienna – How the City of Ideas Created the Modern World (2024), the historian R.Cockett acknowledged the historical contribution of Frieder to the transformation of the ideas of G.Haberler and F.A.Hayek for a liberal trading system into GATT/WTO law. Contrary to Q.Slobodian’s description of Frieder (in his 2018 book on Globalists – The End of Empire and the Birth of Neoliberalism), Frieder was never a ‘neoliberal advocate’ for a self-regulatory market order but shared the ordoliberal belief in the need for legally limiting the ubiquity of market failures, governance failures and constitutional failures so as to better protect citizens and their human rights. Many international trade lawyers and trade diplomats openly acknowledge their intellectual debt to Frieder’s deep insights into the economic, political and legal logic underlying world trade law. As the WTO’s Centre William Rappard and Geneva’s Graduate Institute of International Studies are located only a few hundred meters apart, Swiss trade diplomats (like W.Rappard, O.Long, A.Dunkel, F.Blankart) and GATT/WTO officials (like Frieder) promoted a vibrant ‘Geneva school of ordoliberalism’. The history of this close intellectual cooperation in creating the post-war world trading system remains to be written. After Frieder’s death, finding an informed author will become more difficult.[3]

Frieder as a ‘Socratic explorer’

Most people having discussed with Frieder recall his Socratic method of explaining problems by asking pertinent questions and demonstrating why the arguments of his interlocutors may not be fully convincing. Similarly, when Frieder was informed of his illness, he practiced Socrates’ Stoic approach by accepting what he could not change; and by detaching from other life projects (like his hope to follow the example of his father who died at the biblical age of 99). As a sailor, Frieder loved his personal freedom to cross the Mediterranean Seas with his family on his sailing boat. The family went ashore also on the island of Ithaca, the home of the legendary Greek king Odysseus; Frieder’s eldest daughter Tina called her son ‘Ulysse’, and Frieder undertook his last sailing trip together with Tina laying to rest some of their earlier family disputes. Homer’s epic poem ‘The Odyssey’ – describing the conflict between Odysseus’ desire to return to a happy family life and the forces impeding him to realize this goal during many years – symbolizes also Frieder’s heartbreak following his divorces from his first and second spouses; marrying Kristina Schellinski enabled Frieder to enjoy a happy family life during his last two and a half decades in their wonderful home at Perroy. In April 2024, in the vineyard in front of their home, Frieder and I continued our last discussions on a little wooden bench. Breathing the fresh wind, overlooking the Alps and the Lake of Geneva, and ‘reconnecting’ with this uniquely beautiful landscape reflecting all building elements of life helped us understand the Latin term ‘re-ligio’ underlying the word religion. Frieder felt privileged by the beauty and harmony surrounding his family home at Perroy, and by his decades of exploring and promoting sustainable development in the near-by Centre William Rappard. He was an intellectually inspiring friend and engaged advocate for international rule-of-law and more social justice, albeit fully aware of our human weaknesses and disagreements in constructing a liberal rules-based international order. Frieder’s kindness, intellectual curiosity and courage to defend his views for making this world a better place will be missed by all of us. My last personal advice to Frieder was to listen to, and reflect on, the wise ‘Anthem’ sung by Leonard Cohen a few years before his death: 

            ‘The birds they sang at the break of day. Start again I heard them say. Don't dwell on what has passed away or what is yet to be. Ah, the wars they will be fought again. The holy dove, she will be caught again. Bought and sold and bought again. The dove is never free. Ring the bells that still can ring. Forget your perfect offering. There is a crack, a crack in everything. That's how the light gets in.’

Frieder had the courage to ring many bells; he enjoyed seeing the light entering through the many cracks in our imperfect human lives.

[1] Cf Frieder’s seminal contribution on The Constitutional Function of the Multilateral Trade Order to: M.Hilf/ E.U.Petersmann (eds), National Constitutions and International Economic Law (1993), 53-62 (based on a joint publication by A.Dunkel and F.Rössler in French language and citing publications by GATT’s former chief economist J.Tumlir explaining the economic theory of ‘optimal intervention’ justifying the legal ranking of policy instruments in GATT law). As market failures and governance failures can be corrected most effectively by non-discriminatory domestic regulation, GATT and WTO legal restraints on non-transparent, discriminatory trade policy instruments tend to strengthen democratic constitutionalism rather than to circumvent democracy; nor does GATT law impose laissez faire policies and free trade, or prevent social policies redistributing income. As GATT rules regulate primarily conflicts of interests within - not among – nations, their ‘constitutional functions’ can be rendered more effective by making precise and unconditional GATT rules legally and judicially enforceable inside domestic legal systems.

[2] Rössler’s conception of GATT/WTO law was strongly influenced by GATT’s chief economist J.Tumlir, who explained the need for protecting non-discriminatory trade and market competition through democratic constitutionalism and multilateral trade and economic integration rules limiting market failures, governance failures and constitutional failures. For a summary of Tumlir’s work on ‘economic policy as a multilevel constitutional problem’ see the contributions by H.Hauser and E.U.Petersmann to: ORDO Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft 39 (1988), 219-255 (in German with English summaries).

[3] On the ‘Geneva school of ordoliberalism’ promoting an interdisciplinary ‘Geneva consensus’ for political, legal and economic cooperation among the UN and GATT/WTO institutions at Geneva see E.U.Petersmann,  Transforming World Trade and Investment Law for Sustainable Development (2022, chapters 4-5); P.Lamy, The Geneva Consensus. Making Trade Work for All (2013). William Rappard’s initiatives for founding Geneva’s Graduate Institute of International Studies (IHEI, 1927), for inviting Austrian economists and lawyers (like von Mises, Haberler, Hayek, Kelsen), German ordoliberals (like Röpke), British liberals (like Gerard and Victoria Curzon) and other members of the Mount Pèlerin Society to teach at the IHEI on the need for promoting liberal international trade, human rights and labor laws and policies (e.g. as explained in Rappard’s book on The Future of Peace according to Cordell Hull, 1944) were continued since the 1960s by the Swiss GATT Directors-General O.Long and A.Dunkel, and by other Swiss politicians (like F.Blankart) and lawyers (like T.Cottier), for instance by promoting the teaching of GATT economists (like J.Tumlir, R.Blackhurst) and GATT lawyers (like E.U.Petersmann) at the IHEI. The ‘Geneva ordoliberals’ cooperated closely with other Swiss institutions like the University of Geneva, the World Trade Institute at the University of Bern, and the Institute for International Economic Relations at the University of St. Gallen.

Call for Papers: Geoeconomics, Trade and Investment: What role for Latin American countries?

This is from the Latin American Network of International Economic Law:

Third Edition of the Global Jurist Award

Call for Papers (CfP) - Deadline extension

Geoeconomics, Trade and Investment: What role for Latin American countries?

The Law Faculties of Universidad Externado (Colombia) and the Federal University of São Paulo, along with the Latin American Network of International Economic Law (Red LATDEI), with the support of the World Trade Institute at the University of Bern, are pleased to present the 3rd Edition of the Global Jurist Award under the title Geoeconomics, Trade, and Investment: What Role for Latin American Countries?

...

The 3rd edition of the Global Jurist Award seeks to receive papers contributing to developing International Economic Law (IEL) and exploring its response to current world dynamics. With a temporal perspective spanning a decade, the award aims to acknowledge authors providing precise assessments of the current institutional status of IEL and offering compelling proposals on the role of Latin American countries in this new geopolitical landscape.

The deadline for submissions is September 6. More details here: https://redlatdei.blogspot.com/2024/04/third-edition-of-global-jurist-award.html 

Call for Submissions: Trade, Law and Development

The journal Trade, Law and Development has issued a call for submissions for its Winter 2024 issue (Vol. 16, no. 1). The theme is: "Navigating the Murky Waters of Economic Treaties in International Trade."

The deadline is October 1, 2024.

Call for Papers: ASIL International Economic Law Biennial Conference

This is from ASIL’s International Economic Law Interest Group:

The next ASIL International Economic Law Biennial Conference will be held on May 16-17, 2025, at Michigan Law, in Ann Arbor, Michigan. Applications are now open for paper and panel proposals, and the deadline by which to submit a proposal is October 15, 2024. To learn more about how to submit a proposal, please see the Call for Papers, available here. We look forward to seeing you in Michigan next May!

J.D. Vance on Tariffs

It was not a particularly productive discussion, but here is a transcript of NBC's Kristen Welker talking to J.D. Vance about tariffs last weekend:

Welker:

Vice President Kamala Harris, in making her case, said that the tariff plans Donald Trump is proposing will hurt the middle class. Here's what she said specifically: "he intends to enact what in effect is a national sales tax, call it a Trump tax, that would raise prices on middle class families by almost $4,000 a year." Now the estimates vary, but how do you respond to that charge that Trump's tariffs would hurt the middle class?

Vance:

If you step back a little bit, Kristen, there's this whole thing that Kamala Harris did at the convention where she made a bunch of claims about what would happen and not enough actually reflection on what already happened, right? Because Donald Trump was already president. He used tariffs to bring manufacturing jobs back to our country. And I think he'll do it again. And he did it while keeping prices extremely low. Because if you go back to the Trump presidency, we had 12,000 factories that were built during Donald Trump's presidency, inflation never really ticked above 2% his entire administration, in fact, it was sort of around one and a half percent most of the time that he was president. So when Kamala Harris says, if we do the thing that Trump already did, it's going to be way worse than it was last time, I just don't think that makes a lot of sense.

Welker:

Well, let's talk about Trump's record during his first term. He did impose rounds of tariffs, and it cost Americans nearly $80 billion in new taxes. Do you acknowledge that imposing more tariffs will ultimately cost consumers?

Vance:

Well, what it really does is it penalizes importers from bringing goods outside the country into the country. And I think that's just a necessary thing. We know that China and a number of other countries are using effectively slave labor to undercut the wages of American workers. Donald Trump thinks that has to stop. And again, what Kamala Harris here is saying, Kristen, is that if you do this, you're somehow going to cause skyrocketing inflation. In reality, Donald Trump already did it. He brought a lot of jobs back, and it didn't cause inflation.

Welker:

But it caused consumers to pay more. They paid more in taxes, $80 billion worth. Do you acknowledge that consumers ultimately will pay more if there are more tariffs?

Vance:

I think economists really disagree about the effects of tariffs, because there can be a dynamic effect, right? So what some economists will say is, what you just said, that it will actually raise costs for consumers. But what other people say, and I think the record supports this other view, is that it causes this dynamic effect where more jobs come into the country. Anything that you lose on the tariff, from the perspective of the consumer, you gain in higher wages, so you're ultimately much better off. You have more take home pay, you have better jobs, and also you have more reliance. Because one of the things we learned during covid -- I don't, by the way, blame Democrats for this -- but one of the things we learned during covid Kristen is that if our supply chains are really brittle, if we depend on the Chinese to make too much of our stuff, then prices can skyrocket at a time of crisis. The economists who say the tariffs are bad, they don't take that into account. We've all learned at the hard way.

Welker:

And it is economists across the board, really. I mean, the Wall Street Journal says economic data show that Donald Trump's trade war with China did not achieve its objectives of reversing the declines in US manufacturing, or reshoring factory jobs. I hear what you're saying. It's a complicated picture. But just on that bottom line point, you can't guarantee that Americans won't wind up paying a penny more, can you?

Vance:

Well, I think what you can guarantee is that if you don't bring more manufacturing jobs back into this country, you don't make our supply chains more stable, you're gonna cause higher prices over the long term. I think that is what is absolutely true ...

Welker:

But you acknowledge they could wind up paying more?

Vance:

What I acknowledge, Kristen, is that unless we bring more manufacturing jobs back to this country, we are going to end up paying more in the long term. Remember the whole promise -- again, this was a bipartisan thing. My own party was as wrong about it as Democrats were, and Donald Trump was right about it -- what they said is that if you shift all of our manufacturing to East Asia and to Mexico, Americans would pay lower prices. Well, here we are now, and Americans are paying higher prices. And just one more thing on this, Kristen, because it's really important to go at what Kamala Harris actually said her convention speech. She says that she wants to stand up to China on behalf of American workers. If you're not willing to impose tariffs on companies that are manufacturing in China using slave labor in China, you're not standing up to the Chinese and Americans are going to suffer.

I'm going to make a few points here.

First, over on social media, plenty of people piled on to debunk his suggestion that economists disagree about the effect of tariffs. As they noted, there really isn't much disagreement that tariffs raise prices for consumers. And there is little support for the idea of the "dynamic effects" of tariffs (if Vance has anything he thinks is evidence from the "other people" he referred to, he should cite to it).

Second, the cost figures Harris was referring to are based on the 10-20% universal baseline tariffs proposed by Trump. The $4,000 figure could be derived from the following studies: "The Center for American Progress released a report concluding that costs for American families would increase by $3,900 per year if Trump were to impose a blanket 20 percent tariff on imports, while the National Taxpayers Union estimated in February that Trump’s original suggestion of a 10 percent tariff would cost households $3,942 per year." In his response, Vance focused mainly on China, which ignores the point that Harris was making about the universal tariffs, and therefore his comments don't add much to the discussion of Trump's proposal to impose these tariffs.

With regard to China, I think it's worth noting that Trump's tariffs on China have not changed China's non-market practices, if anybody has that in mind as a goal (it's not clear to me how many people do -- there seem to be a mix of opinions on this at the moment).

As to Chinese labor issues, there is a whole system in place for addressing certain aspects of this, and as far as I can tell the various tariffs that have been imposed on China have little to do with this issue and little impact on it.

And as a general point, I think people would be shocked at the price rises that would result from Trump's recent tariff proposals, and that would put an end to the debate about tariffs. But I hope we don't have to actually experience this to learn that lesson.

Given the prominence of the tariff issue due to Trump (and Vance) constantly raising it, it would be nice if some media folks would press the candidates on the specifics a bit more. Based on the exchange above, I'm not hopeful that these discussions will be very informative, but you never know for sure until you try.

(The Harris/Walz campaign responded to Vance's remarks with this.)

U.S. Leadership on Trade and Climate Policy

In a recent Foreign Affairs piece entitled "The Case for a Clean Energy Marshall Plan," Brian Deese -- the Director of the White House National Economic Council from 2021 to 2023 and a current economic adviser to Kamala Harris -- sets out a vision for how a Harris administration might lead international action against climate change. My overall reaction was that I'm not sure how well some of his arguments will be received in other countries, in particular in the developing world. I'm going to focus on two points in particular.

First, if I understand Deese correctly, he is trying to make the case that the U.S. should take the lead in manufacturing clean energy products and then sell these American-made products in developing countries (and provide subsidies to help people in developing countries make these purchases). Deese starts out by offering up the Marshall Plan as a blueprint:

... the clean energy transition remains the most important planetary challenge. It also presents the greatest economic opportunity: it will be the largest capital formation event in human history. And it presents the United States with a chance to lead. Thanks to its still unparalleled power and influence, Washington maintains a unique capacity—and a strategic imperative—to shape world outcomes.

In 2022, the United States recognized these opportunities when it passed the Inflation Reduction Act, the world’s largest-ever investment in clean energy technologies. This transformative industrial strategy was a crucial first step for the United States in positioning its economy for success by accelerating the clean energy transition at home. Now is the time to take this leadership to the global stage, in a way that promotes U.S. interests and supports aligned countries. But the United States need not create a new model for doing so.

Seventy-six years ago, also facing a fractured world order and an emerging superpower competitor, U.S. President Harry Truman and U.S. Secretary of State George Marshall launched an ambitious effort to rebuild European societies and economies. Although often associated with free-market neoliberalism, the 1948 Marshall Plan was hardly laissez-faire. It was, in fact, an industrial strategy that established the United States as a generous partner to European allies while promoting U.S. industries and interests. Generations later, the Marshall Plan is rightly understood as one of the great successes of the postwar era.

Although today’s challenges are undoubtedly different, the United States should draw lessons from that postwar period and launch a new Marshall Plan, this time for the global transition to clean energy. Just as the Marshall Plan assisted those countries most ravaged by World War II, the new Marshall Plan should aim to help countries most vulnerable to the effects of climate change: the United States’ partners in the developing world. Developing countries and emerging markets will need access to cheap capital and technology to transition away from fossil fuels quickly enough to halt global warming.

This idea sounds plausible in general terms, although it would be politically difficult domestically for a number of reasons. But when he gets to the details, the plan takes a turn towards economic nationalism, as he appears to suggest that U.S. products will be the only/dominant ones sold in developing countries:

The United States again has the chance to help others while helping itself. Putting its own burgeoning industries front and center in the energy transition will generate further innovation and growth. ... By creating global markets for its own clean energy industries and innovators, the United States can scale these economic gains and strengthen domestic support for an energy shift that has not always been an easy sell to voters.

The fracturing world order and the ominous climate crisis lead some observers to focus on the potential tensions between those two developments. But they also provide an opening for the United States to deploy its innovation and capital in a generous, pragmatic, and unapologetically pro-American way—by launching a Clean Energy Marshall Plan.

Like the original Marshall Plan, a Clean Energy Marshall Plan should meet other countries’ development needs while advancing U.S. interests. In this case, the goal is to speed the adoption of low-cost, zero-carbon solutions, such as the manufacture of batteries, the deployment of nuclear and geothermal energy, and the processing of critical minerals. This approach reflects the basic intuition that, as useful as it can be to make carbon pollution more expensive by putting a price on it, the most credible way to accelerate the adoption of zero-carbon technologies is to make that technology cheap and widely available.

...

Implementing a Clean Energy Marshall Plan won’t be easy, but the process must begin now. As after World War II, the United States can be generous as well as pro-American in its approach. It can promote U.S. interests by scaling its industries to meet global needs while winning greater influence in this new geopolitical landscape. And it can meet developing countries where they are—supplying them with the energy they need to expand their economies and the innovation they need to decarbonize efficiently.

...

The United States should begin with a focused investment and commercial diplomacy effort, akin to that of the Marshall Plan. The Marshall Plan had a straightforward aim: subsidize European demand for U.S. products and services needed to rebuild Europe. Today, the United States should establish a Clean Energy Finance Authority with an updated mission: subsidize foreign demand for clean energy technology and put American innovation and industry at the front of the line.

...

The Clean Energy Finance Authority should be capitalized with a significant upfront commitment of money—enough to generate market momentum that tips the balance of clean energy investment toward the private sector; ultimately the private sector, not the public sector, will need to provide the majority of the financing the energy transition needs over the coming decades. If this new authority is set up and deployed properly, U.S. companies and innovators would gain more foreign demand, on favorably negotiated terms, and new market share. Foreign consumers, for their part, would gain access to new channels of cheap clean energy technology. For emerging-market countries and major emitters—such as Brazil, India, and Indonesia—the United States could act with both generosity and its own interests in mind.

He later adds: "... the [U.S.] needs to turn to foreign markets to boost demand for U.S. products."

The first problem I see here is that many developing countries -- he mentions Brazil, India, and Indonesia -- want to be producing these products themselves. They aren't going to like a plan that makes them dependent on the U.S. for these products. There are producers in the U.S. that complain about subsidized imports, and there are producers in these other countries that will do the same. As a result, I don't think the reaction to Deese's plan will be to thank the U.S. for the subsidies and happily rely on U.S.-made products. Rather, I think these countries are more likely to adopt policies that attempt to stimulate their own domestic production and to limit competition from subsidized U.S. producers. 

Now, as this blog's readers know, I'm not a fan of this type of tit-for-tat protectionism/industrial policy, either from those who start it or those who respond to it. Nevertheless, as a matter of political reality, I think this is where we would likely be headed under a U.S. approach such as this one.

Another problem is that producers in Europe, South Korea, Japan and other places will have their own objections, and are likely to respond with subsidies or trade complaints of their own. Subsidy races of this kind end up being contentious, and trade wars are not a very efficient way to expand these industries.

In addition, this kind of subsidized production designed to supply the rest of the world appears to be similar to the overcapacity the U.S. has been complaining about in relation to China. The U.S. government has been struggling for years to come up with an effective response to Chinese non-market practices, and this plan might make the issue even more difficult: Why would China change if the U.S. is now doing something very similar?

Having said all this, I do think there is room for international cooperation on reducing carbon emissions. However, if the goal is to get developing countries on board with U.S. efforts, I think there's going to have to be acceptance of the idea that developing countries can make these products as well. It's worth noting that more competition has the benefit of bringing prices down and helping adoption by consumers happen more quickly.

Second, Deese wants to use tariffs as a tool to promote the fight against climate change:

As part of the Clean Energy Marshall Plan, Washington must level the global playing field through the active yet measured use of trade tools such as tariffs. Doing nothing and being resigned to China’s statist approach is neither economically nor politically sustainable. And using blunt tools to effectuate what amounts to a unilateral retreat is dangerous. Former U.S. President Donald Trump's call to essentially end all imports from China within four years is a cynical fantasy playing on populist fears. In 2022, U.S. goods and services trade with China amounted to over $750 billion. It is not practicable to decouple from any major economy, let alone the United States’ third-largest trading partner. Global trade delivers important benefits, whereas unilateral, asymmetric escalation would leave the United States isolated and vulnerable.

The right approach is to harmonize more active trade policies with like-minded countries. Indeed, Brazil, Chile, India, South Africa, Thailand, Turkey, and Vietnam, among others, are all investigating or imposing tariffs on Chinese dumping practices. China is now the object of twice as many retaliatory measures as it was four years ago. This growing pushback represents a chance for the United States to address the Chinese-driven global trade imbalance by crafting a global coalition to galvanize a coordinated response while creating more global trade in clean energy goods and services.

To accomplish this, the United States must use expanded, stronger, and smarter trade authorities. For example, Washington should build into its tariffs on imported goods an assessment of how much carbon was used to produce them. Tariffs should be determined by the emission intensity of the trading partner’s entire industry, rather than company by company, to avoid “resource reshuffling,” whereby countries try to dodge penalties by limiting their exports to only products manufactured with clean energy instead of reducing their emissions overall. These tariffs should be aimed at all countries, but given its current production practices, China would be hit the hardest.

This form of tariff regime could be coordinated with what other countries are doing on the same front. The effort should begin with the steel sector. Chinese-made steel is two to five times as carbon-intensive as U.S.-made steel and is being dumped in markets around the world. The United States has been working on an arrangement with the European Union to harmonize tariffs on steel and aluminum. But the EU need not be the United States’ first or only partner in this initiative. There is a global appetite to enact a common external tariff regime on China to respond to its overproduction and carbon-intensive practices. Washington should work to pull this group together through the G-7 and G-20.

...

A carbon-based tariff, or a carbon border adjustment, should further motivate climate action by exempting countries that are hitting their nationally determined goals under the 2016 Paris climate agreement or those that fall below certain income and emission thresholds. To complement the Clean Energy Finance Authority, the tariff could be lowered in exchange for foreign procurement of clean energy technologies or of clean products made in the United States. For many developing countries, the tariff would act as a powerful accelerant to their energy development plans.

This approach would allow the United States to transition from its current indiscriminate, broad-based tariff regime to a more comprehensive carbon-based system that more accurately targets Chinese overcapacity and trade imbalance concerns. And the United States should leave the door open to cooperating with China in this context, as well.

Policymakers will have to reimagine existing trade rules—and be willing to lead the World Trade Organization and other international institutions in thinking about how trade can accelerate the clean energy transition. The WTO’s objective was never just to promote free trade for free trade’s sake; its founding document includes a vision for sustainable development. The WTO must reform if it is to deliver on that vision, but in the meantime, the United States shouldn’t cling to old trade conventions when more targeted and effective approaches exist.

I'm skeptical that tariffs on products associated with high carbon emissions will have the impact Deese thinks. The main reaction I would expect from the developing world is annoyance and resentment. From their perspective, the U.S. is much more of a problem in terms of carbon emissions, so why should the U.S. be trying to punish them through tariffs on their exports? Some people in the U.S. like to focus on carbon emissions related to manufacturing, but for people elsewhere that just feels like cherry-picking to make the U.S. look better. And with regard to whether this tariff and a possible exemption would motivate countries to take action on climate, it's worth noting here that even if they could avoid this particular tariff, U.S. trade remedy tariffs are likely to be used against them if their exports reached a significant level.

In addition, the reports of an increase in trade remedy actions by other countries against China are a bit misleading. As Huan Zhu and I explain on China Trade Monitor, there has been a pretty steady use of these measures dating all the way back to China's WTO accession. It may turn out that there is a slight increase in trade remedy measures against China in 2024, but this isn't really a big new development. Rather, it's just a core feature of the trading system since I've been involved in it (and a lucrative feature for trade lawyers!). Can these measures be ratcheted up and coordinated? Maybe. But past usage was already pretty strong.

What I might suggest, instead of an emphasis on punishing others with tariffs, is a more positive approach, perhaps along the lines of the new Agreement on Climate Change, Trade and Sustainability (ACCTS). Deese talks about reimagining trade rules so as to promote the clean energy transition. That, I would say, is what the ACCTS negotiators have done, and it would be interesting to see Harris's reaction to some of the ideas in there.

Guest Post: Are the revisions to the EU’s ‘Bolar’ system compatible with TRIPS?

This is a guest post from Maarten Meulenbelt, Chris Boyle, Lauren Shapiro, Maryanne Kamau, and Alix Vermulst of Sidley Austin. The full article on which the post is based is available here.

In the EU, much has been written about the so-called “Pharma Review” proposals, published  by the European Commission (“Commission”) on 26 April 2023.  One of the main goals of the Pharma Review (set out in a proposed Pharmaceutical Directive and a Pharmaceutical Regulation) is to steer investment into areas of unmet medical needs by reducing and “modulating” the main intellectual property (“IP”) and regulatory rights – such as regulatory data protection (“RDP”) and orphan market exclusivity – and to speed up generic and biosimilar market access.[1]  The Pharma Review is currently going through the legislative process.[2]

One of the proposed EU measures to speed up generic and biosimilar market access deserves particular attention from an international IP law perspective: the proposal to expand the so-called “Bolar exemption”.  This wide-reaching proposal raises significant concerns under international law, as it is likely incompatible with the EU’s obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).  

Currently, the EU’s Bolar exemption exempts from patent infringement the “necessary studies and trials” conducted by generic/biosimilar applicants and “consequential practical requirements” to obtain a marketing authorisation.  As part of the Pharma Review, the Commission’s proposal seeks to expand the scope of the Bolar exemption to include, inter alia, situations where a reference medicinal product is used to generate data for an application for pricing and reimbursement (“P&R Bolar”).  If amended as proposed by the  European Parliament on 10 April 2024, the P&R Bolar would allow, potentially years before  the relevant patent expiry date (“Day 1”), any activity reasonably related to pricing and reimbursement (“P&R”) procedures or approvals at Member State level, including negotiations with payors on prices and quantities (and potentially listing) of generic and biosimilar products. There has been no published impact assessment for these proposals. They offer no mechanism to determine the “Day 1” date, no clear safeguards, and no clarity on whether the “signalling” function of P&R steps would be preserved for the enforcement of patents.

The present article is limited to assessing the consistency of the P&R Bolar with TRIPS, as applied to patents (Supplementary Protection Certificates are not discussed).  We find strong arguments that the proposal is inconsistent with the EU’s obligations under TRIPS.

There is no doubt that the P&R Bolar encroaches upon the rights set out in Article 28.1 of TRIPS (“Rights Conferred”).  Indeed, the sole purpose of the P&R Bolar is to permit any generic or biosimilar applicant seeking a marketing authorisation (“MA”), a health technology assessment (“HTA”) or P&R to engage in activities that would otherwise be reserved to the patent holder during the patent term.  The EU would bear the burden of proof of justification of this infringement under the three cumulative conditions of Article 30 of TRIPS (“Exceptions to Rights Conferred”).

The EU is unlikely to be able to meet this burden of proof under Article 30 of TRIPS.  Given the wide scope of activities permitted, and the lack of definition of the core concept of “Day 1” market entry, the P&R Bolar can hardly be called “limited”.  The P&R Bolar interferes with “normal exploitation”, especially where it would permit offers for sale before the expiration of the patent.  The “legitimate interest” of patent holders does not appear sufficiently protected, and there is no consensus view in society that generic and biosimilar companies should be able to engage, for an undefined period of time before the expiration of the patent, in any activities including offers and negotiations of post-expiry supplies to obtain P&R.

The P&R Bolar also appears inconsistent with Article 27.1 of TRIPS (“Patentable Subject Matter”) because it unjustifiably imposes differentially disadvantageous treatment to inventions in the field of medicinal products relative to inventions in all other fields of technology.  The P&R Bolar differs from the measures examined in the Canada – Pharmaceutical Patents case in this respect: the Canadian laws at issue in that case were not, as the P&R Bolar, limited to medicinal products.

By adopting the P&R Bolar, which we find to be inconsistent with the relevant requirements in Articles 27.1, 28.1, and 30 of TRIPS, the EU would not be giving effect to all provisions of TRIPS – and is contravening certain provisions of TRIPS – in violation of Article 1.1 of TRIPS.

 

[1] The  Pharma Review should be assessed together with the Patent Package, published by the Commission on 27 April 2023, which includes proposals on Supplementary Protection Certificates, Compulsory Licensing and Standard Essential Patents.

[2] See https://goodlifesci.sidley.com/2024/03/19/eus-overhaul-of-pharma-legislation-amended-with-uneasy-ip-compromises/.

Guest Post: Why couldn’t the Russia-Ukraine BIT be used to claim compensation for war damage and frozen Russian assets to satisfy these investment awards?

This is a guest post from Csongor István Nagy, Professor of Law at the University of Galway, Ireland, and at the University of Szeged, Hungary, and research professor at the HUN-REN Center for Social Sciences, Hungary

At first it may raise eyebrows. But think it over! Why couldn’t the Russia-Ukraine BIT (RUBIT) be used by Ukrainians to claim compensation for war damage in certain cases? And why couldn’t a part of the frozen Russian assets be used to enforce these investment awards? In my paper forthcoming in the University of Pennsylvania Journal of International Law I argue that both are possible. The pre-print version is available at SSRN.

The key issue of applicability is territorial scope. In the Crimea cases, arbitral tribunals consistently applied the RUBIT to Russian measures and treated Crimea (strictly for the purpose of the BIT!) as the territory of Russia on account of de facto control and legal incorporation. This is a question of treaty interpretation (one may say a contractual dispute and not a quiet title action!) and the foregoing principles should be valid outside Crimea in cases where Russia occupies a territory and/or unilaterally incorporates (annexes) it. And if these territories can be treated as a territory for which Russia bears responsibility under international law, Ukrainians may be able rely on this responsibility.

The Crimea arbitral awards’ notion of territorial scope is not unprecedented in international law at all. For instance, in Loizidou v. Turkey and in Cyprus v Turkey, the European Court of Human Rights applied the European Convention on Human Rights to Turkey by reason of its occupation of Northern Cyprus. In Al-Skeini v. United Kingdom, it found the Convention applicable to the UK’s operations in Iraq on account of the occupation of the country.

Legal title, effective control (occupation) and unilateral claim (incorporation) generate the following matrix of scenarios for the territorial applicability of RUBIT.

1. Ukrainian territory controlled by Ukraine and neither claimed, nor controlled by Russia;
2. Ukrainian territory controlled by Ukraine and claimed by Russia (those parts of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts that are not occupied by Russia);
3. Line of contact (line of battle) on Ukrainian territory claimed by Russia (the line of contact in the above four oblasts);
4. Line of contact on Ukrainian territory not claimed by Russia (the line of contact during the offensive towards Kyiv);
5. Ukrainian territory controlled but not claimed by Russia (e.g. the areas captured during the offensive towards Kyiv, such as Bucha);
6. Ukrainian territory controlled and claimed by Russia (e.g. Crimea, occupied parts of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts).

The applicability of the RUBIT is not an academic question. Russian assets of enormous value were frozen throughout the world. It is highly dubious if these can be used for the purpose of war reparations under international law. Nonetheless, a good part of these assets can be used to enforce (investment) arbitral award. Although “non-commercial” assets, such as the property of diplomatic missions, military assets, cultural property, items displayed at an exhibition and, most importantly, the property of the central bank are immune from enforcement due to sovereign immunity, sovereign direct investments, airplanes, ships and the assets of persons attributable to the state can be used to satisfy investment awards.

Although the RUBIT was recently terminated by Ukraine, it remains in force until January 27, 2025, and has a “continuing effects” clause in Article 14(3), which sustains investment claims for ten years after termination.

Non-Market Economy Status and Inducing Market-Oriented Reforms

For the purposes of U.S. anti-dumping/countervailing duty law, the Commerce Department maintains a list of non-market economies. Vietnam is one of the economies on that list. A March 2024 Congressional Research Service paper on "Vietnam’s Nonmarket Economy (NME) Status" notes that the government of Vietnam "has long sought to remove the designation, arguing it may hinder closer ties." Vietnam officially submitted a removal request in September 2023, and on October 30, 2023, the Commerce Department initiated a review of Vietnam’s NME status.

On August 2, the Commerce Department announced its determination that "Vietnam will continue to be classified as a non-market economy (NME) country for purposes of calculating U.S. antidumping duties (ADs) on imports from Vietnam." While acknowledging "Vietnam’s substantive reforms made over the past 20 years," Commerce nevertheless concluded that "the extensive government involvement in Vietnam’s economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating U.S. antidumping duties." Therefore, Commerce "will continue to use market-based prices and costs from a country at a comparable level of economic development to Vietnam that produces comparable merchandise to calculate ADs."

In terms of the practical impact of this determination, the Congressional Research Service paper explains that "Commerce’s usual practice of applying alternative methods when calculating dumping margins in antidumping investigations involving NMEs generally leads to higher tariffs in affirmative determinations."

Commerce's full reasoning on this issue can be found in a memo entitled "Review of Vietnam’s Status as a Non-market Economy Country." In the memo, Commerce explained that:

Vietnam has implemented notable market-oriented economic reforms for nearly two decades under a broader economic initiative known as the “Doi Moi” (often translated as “renovation” or “innovation”). Those reforms aimed to transition Vietnam out of an economic system that relied on intensive government direction and intervention, which Commerce characterized as an NME for purposes of U.S. AD laws when it last reviewed Vietnam’s NME status in 2002.

However, Commerce said, "based on the assessment of the record evidence, persistent structural and institutional issues in Vietnam remain," as "[t]he extensive and pervasive government involvement in Vietnam’s economy that pertains to the six statutory factors Commerce relies upon in making a market economy determination distorts Vietnamese prices and costs, and ultimately renders them unusable for purposes of calculating U.S. AD duties." The six factors considered were:

• The Extent to Which the Currency of the Foreign Country is Convertible Into the Currencies of Other Countries
• The Extent to Which Wage Rates in the Foreign Country are Determined by Free Bargaining Between Labor and Management
• The Extent to Which Joint Ventures or Other Investments by Firms of Other Foreign Countries are Permitted in the Foreign Country
• The Extent of Government Ownership or Control of the Means of Production
• The Extent of Government Control Over the Allocation of Resources and Over the Price and Output Decisions of Enterprises
• Such Other Factors as the Administering Authority Considers Appropriate (here, rule of law and corruption)

Commerce said its determination to maintain Vietnam’s status as an NME country "is the result of a collective analysis of all statutory factors, and not any singular issue or statutory factor."

It's interesting to read this analysis, but it leaves me wondering about the way forward on the big picture related to the structure of Vietnam's economy.

The Commerce Department seems happy with the reforms Vietnam has undertaken so far, but disappointed that it has not gone further. So what might cause Vietnam to adopt further reforms? Will this updated NME classification for AD purposes induce Vietnam to make additional reforms and become more market-oriented? Or is the NME classification simply designed as a defensive mechanism while Vietnam remains an NME, without any sense that it will lead to additional reforms?

If the NME classification will not push Vietnam in a market-oriented direction, what might do so? One option is to make use of the commitments Vietnam made in its 2006 WTO Accession Protocol and Working Party Report. For example, on the issue of the price and output decisions of state-owned enterprises (see factor 5 above), the Working Party Report states:

78. The representative of Viet Nam confirmed that Viet Nam would ensure that all enterprises that were State-owned or State-controlled, including equitized enterprises in which the State had control, and enterprises with special or exclusive privileges, would make purchases, not for governmental use, and sales in international trade, based solely on commercial considerations, e.g., price, quality, marketability, and availability, and that the enterprises of other WTO Members would have an adequate opportunity in accordance with customary business practice to compete for participation in sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of Viet Nam would not influence, directly or indirectly, commercial decisions on the part of enterprises that are State-owned, State-controlled, or that have special and exclusive privileges, including decisions on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement and the rights accorded to non-governmental enterprise owners or shareholders. The Working Party took note of these commitments.

(Not all explanations and statements in the Working Party Report are incorporated into the Accession Protocol as binding commitments, but paragraph 527 of the Working Party Report notes that paragraph 78 is, and para. 2 of the Protocol states: "This Protocol, which shall include the commitments referred to in paragraph 527 of the Working Party Report, shall be an integral part of the WTO Agreement.")

The commitments in paragraph 78 are a good start, but from what I could see, many of the other factors relied on by Commerce are not mentioned in the Working Party Report/Accession Protocol. That suggests additional rules may be needed. Given the difficulty of negotiating rules at the WTO, one way to approach this is with a bilateral or regional trade agreement through which Vietnam agrees to make structural changes to its economy in exchange for concessions or commitments of some sort from the U.S.

How the U.S. government approaches this issue going forward depends on its goals. Is it a priority to push trading partners with high levels of state involvement in the economy in a more market-oriented direction? On balance, this would be good for both them and us, but there has been a reluctance to pursue this objective recently. U.S. government officials express concern about foreign non-market practices in various ways, but few concrete actions are taken. It often feels like restrictions on trade are the U.S. priority these days, and that may mean no action is taken on Vietnam beyond the Commerce Department NME determination.

(And yes, to state the obvious, the logic above does apply to China as well, although the geopolitical considerations are different of course. I will have more to say on this at some point.)

What Do Americans Think about Trade Policy?

Scott Lincicome and some Cato Institute polling experts have worked with YouGov to put together what I think is the definitive work on Americans' views of trade policy. For me, two of the most important findings are: (1) American voters think of trade as much less important than other policy issues; and (2) they are mildly pro-trade, but their views on trade policy are complex and a bit hard to pin down.

Let's go through a couple of the questions/responses. First up is the importance (or lack thereof) of trade:

Maybe the role of swing states makes trade slightly more important in presidential elections, as Pennsylvania, Michigan, and Wisconsin are states where competition with foreign manufacturing matters more than average. But overall, trade is clearly not a top issue for voters.

Nest up is a question about "free trade," which people seem to like:

Of course, there are endless debates on what exactly is meant by "free trade," but it would be difficult to get that much nuance into these questions, and what we have is a clear majority that sees free trade favorably.

Turning to a question about tariffs, even though people are strongly pro-free trade, they are somewhat pro-tariff as well, which is hard to make sense of:

The breakdown by particular demographic category is also interesting on these last two questions. Democrats, Republicans, and Independents were all favorable towards free trade, with Democrats slightly more in favor; and Democrats, Republicans, and Independents were all favorable towards tariffs, with Republicans slightly more in favor.

With actual trade experts involved in crafting the questions, they could get a bit more sophisticated with the questions than is usually the case with polling. Here's an example related to tariffs, where the question offers information on the costs of tariffs and distinguishes between fair/unfair trade:

For those who are in to these issues, it's worth taking a look at the full survey as well as the crosstabs. 

Tim Walz on the Foreign Policy / Trade Policy Relationship

After Kamala Harris announced Tim Walz as her running mate yesterday, there has been a lot of discussion of Walz's policy views. Vice-Presidents don't typically take the lead on trade policy, but nonetheless I thought it was worth mentioning something Walz said in a speech back in 2007 on the interaction of foreign policy and trade policy (starts at 12:50):

So this focus on the global war on terror has distracted and is teaching the next generation of leaders that that is all that matters, that is how foreign policy is carried out. And I say this because I think there's some glaring examples where we're missing opportunities, and I'd like to share a couple of those. One thing is, this administration has been very aggressive, very outgoing, and I think there's a positive side to this, and it's a realization that the world is very globalized. And they've gone out with a lot of trade agreements, reaching out. Well, I think there's one that shows something very interesting that's a lack of this. And this should be a very close ally of ours and a very close trading partner, but unfortunately, they're not, and that is New Zealand. New Zealand has failed to be included in some of these trade agreements. Whether it's Australia, we're getting ready for the Caribbean Basin, we just signed one on April 1 that'll come to Congress on South Korea. But New Zealand is missing from this. And I think when I look at this, there is really only one factor. There's a possibility, there's great markets there, there's great ability to trade, there's a common heritage. Everything seems to say New Zealand should be a much broader trading partner than they are. But many of you in this room know probably what the reason for that is. New Zealand has a very strong stance, and if you can remember back in the 90s, when they made the decision, they have refused to allow our nuclear submarines and our warships to dock there. So New Zealand doesn't play a role in this so called strategy theory or this security theory of our foreign policy. So New Zealand was kind of left out, and I think it's an interesting omission.

The role of foreign policy in setting trade policy priorities doesn't always get the attention it deserves, and I appreciate Walz pointing out the link between the Bush administration's foreign and trade policy tradeoffs. Walz seemed to doubt the wisdom of excluding New Zealand from the Bush administration's FTA efforts, and I think he was right to be skeptical.

On more general trade policy issues, Walz said this in 2015 after voting against Congressional authorization of Trade Promotion Authority:

I’m for trade as long as it’s fair trade, but we can’t ensure that is the case if we fast-track this agreement and keep Congress—and constituents—in the dark. Trade can be a powerful tool for good, but as we’ve seen in the past with agreements like NAFTA, sometimes these agreements work against the American worker. We need a trade deal that’s fair, that restricts currency manipulation, promotes ‘Made in America’ manufacturing, and opens foreign markets for our agricultural products. Unfortunately, TPA—and by extension TAA—by its very nature, makes it so Congress cannot ensure that is the case, which is why I voted against these measures today.

This particular variety of trade skepticism is fairly typical among Congressional Democrats. However, the position of Democrats in the Executive branch tends to be different from those in Congress, because they represent all Americans rather than just their constituents, and also international relations plays a bigger role for them. As a result, someone's views as a member of Congress may not carry over directly to their views as President or Vice-President. It may be unlikely that Walz as VP would play much of a role in trade policy, but nonetheless it will be interesting to see if there is any shift in his views if the Harris/Walz ticket is elected.

Is the U.S. Going to Propose Security Exception Reforms?

During a DSB meeting in January 2023, the U.S. indicated that it would be seeking an "authoritative interpretation" of the GATT security exception:

The United States believes that Members need to deepen their collective understanding of this issue that is so critical to all of us. We intend to raise this fundamental issue as part of our discussions on reform of the WTO dispute settlement system. Ultimately, we believe Members need to clarify and adopt a shared understanding of the essential security exception, and we therefore intend to seek an authoritative interpretation of Article XXI of the GATT 1994, pursuant to Article XI of the WTO Agreement.

In April 2023, I tried to press Ambassador Tai about when we would see a formal proposal, but didn't get anything definitive (although she did make a good joke!).

Now it appears that the security exception is one of the holdups to U.S. support for the Agreement on E-Commerce that WTO Members are working on. This is from the U.S. statement on the E-Commerce Agreement text that was released on July 26:

as the United States has repeatedly communicated to the co-conveners and participants, the current text falls short and more work is needed, including with respect to the essential security exception.

The security exception in that text states: "For the purposes of this Agreement, Article XXI of the GATT 1994 and Article XIV bis of the GATS shall apply, mutatis mutandis."

So my question is, with security exceptions getting in the way of progress, are we going to see anything from the U.S. on what its authoritative interpretation of Article XXI (and related exceptions) would look like? Is there one floating around in Geneva that hasn't been leaked yet?

To me, this seems like an area where more U.S. engagement would be helpful. Everyone understands that the U.S. objects to recent WTO panel interpretations of GATT Article XXI, and of course everyone also has a general sense of the interpretation preferred by the U.S. based on its arguments in various WTO disputes and statements at DSB meetings. But it would still be useful to see the precise wording of how the U.S. would want to see Article XXI (and the other WTO security exceptions) interpreted, if it has something in mind here (as it suggested it did). Some specific and clear positions could help everyone evaluate the possibilities for moving the discussion forward on this and related issues.

At this point, I'm not sure what the chances are for achieving a breakthrough on the broader issues in WTO dispute settlement reform. However, it is worth noting that in the context of security exceptions in particular, in the USMCA and various FTAs the U.S. and other governments did agree to what is arguably a broader security exception. But those situations were different in a number of important ways, including fewer countries being involved.

What Would a Kamala Harris Trade Policy Look Like?

There was a lot of speculation last week about what Kamala Harris would do on trade policy (and various other policies). I thought this piece by Alan Beattie of the FT offered a very thoughtful and objective evaluation of where things might go on trade and industrial policy in a Harris administration.

An important aspect of this issue is who ends up advising her, both during the campaign and afterwards if she wins. My guess is that the Biden administration policy insiders and advisers are going to be pretty successful at putting themselves in positions of influence. That could signal a good deal of continuity between the Biden administration and a Harris administration. 

At the same time, the situation in 2025 would be a very different political one than what the Biden administration has been faced with. If Harris beats Trump, Trump would then have lost the popular vote in three straight elections and the electoral college vote in two. That could lead to a shift in the Republican party: How much losing will Republicans be willing to take? And if Trump's influence diminishes, and the Republican party leaders are no longer ultra-protectionist, that could change how a Democratic president approaches the issue. (Also note that the makeup of Congress will be important here, and we have no idea what that will be.)

Of course, in recent decades the Democrats have been the more protectionist party (in terms of their political leaders at least), and that remains true today even though Trump has shifted the Republicans towards the protectionist side, so I'm not expecting a Democratic president to emerge as a free trade crusader. Nonetheless, Trump having less influence could provide the basis for a President Harris to diverge at least a bit from President Biden. Biden was worried, rightly or wrongly, that Trump's protectionism could have an impact on votes in certain important swing states, but that might not be as much of an issue going forward.

What I find interesting about Harris is that she has seemed skeptical of both tariffs and trade agreements. On tariffs, she has tied them to the price of consumer goods and emphasized their impact on ordinary Americans, saying this about Trump's trade policies back when she ran for the 2020 Democratic nomination: "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." More recently, she said this about Trump's proposed 10% baseline tariffs: "On the issue of the cost of living, Donald Trump says he will implement a ten percent tariff on all imported goods. Well understand, independent economists agree, his tariffs would increase the cost of everyday expenses for families, the cost of gas, groceries, and clothing." (More broadly, at a primary debate in September 2019, she said: "I am not a protectionist Democrat.")

The logic of her arguments about the impact of tariffs apply beyond Trump's tariffs, and her explicit and consistent recognition of their negative impact could extend to other tariffs. For example, although it is not focused on consumer goods, the Biden administration's push to convert the Section 232 steel and aluminum tariffs into a tariff-centered carbon emissions reduction regime has not been received well by U.S. trading partners, and isn't likely to reduce carbon emissions anyway (if you think it will reduce carbon emissions, feel free to walk me through how you see this happening!). That's the kind of trade policy I can imagine Harris revisiting, as there are many ways to reduce carbon emissions that are more effective options here.

On the other hand, she has opposed all the trade agreements she has been asked about:

• She said this about NAFTA: "I would not have voted for NAFTA, because I believe that we can do a better job to protect American workers."

• She said this about the USMCA: "after careful study and consultation with environmental and conservation leaders, I have concluded that the USMCA’s environmental provisions are insufficient—and by not addressing climate change, the USMCA fails to meet the crises of this moment. Californians know that the climate crisis is already here. Communities across our state have experienced exacerbated fires, storms, floods, and drought, and the devastation will only get worse if we fail to take bold and immediate action to address it. This agreement will set the standards for decades, and I believe Californians and all Americans deserve better and more immediate action. For these reasons, I oppose this deal."

• And there was this about the TPP: "As I’ve long said, I will oppose any trade deal that doesn’t look out for the best interests of American workers and raise environmental standards, and unfortunately the TPP didn’t pass either test. I also raised concerns at the time about the lack of transparency in the process.

So is there any kind of trade agreement she would approve of? She might not be interested in backing any brand new trade agreements, but I can imagine she might be proactive with some existing ones. For example, in the 2026 USMCA review, she could argue for adding a climate change provision to the agreement. And there has been a push from progressives to remove ISDS from existing FTAs and BITs, and I can see her supporting that.

It's worth noting that trade is not something most voters care about, so from a domestic politics perspective, it's probably not that important an issue and there won't be an incentive to do things. Politically speaking, there isn't much to be gained from a big new trade initiative, so why aggravate the small group of people who get aggravated by this? I suppose she could use it as a way to demonstrate that she is on the center left rather than the far left, but there are obvious downsides and she may not think it's worth the risk and hassle.

As to what her advisers might think, I've seen Mike Pyle mentioned several times as someone who is likely to be a top economics adviser in a Harris administration. Pyle was an adviser to Harris as VP, and then later served in the NSC with the Biden administration. He said the following back in June of 2023: "in a lot of respects, we don't see tariffs as being at the core of trade policy. We don't see trade policy as being at the core of international economic policy." (You can hear a recent discussion with Pyle on "The Rise of Economic Statecraft" here. He responded to the question, "Could you let us know how [Harris's] views on economic policy potentially differ from Biden's views?" at around 34:45; also check out the question on responses to China at 48:10.)

At the same time, many U.S. trading partners do care a lot about trade policy, so their views might be something that could influence a Harris administration in a particular direction. She's going to be looking for things from them on various international and foreign policy issues, and giving them something they want on trade policy -- especially if it benefits, or at least doesn't harm, the U.S. as well -- seems like a possibility.

Summing up, there's a lot of uncertainty about what a Harris administration would do on trade policy. Early speculation is fun, but it's hard to say what the world will look like in January 2025, so I won't be shocked if things go in a different direction than I suggested above.

WTO Member Statements on Appeal/Review in the DS Reform Process

The WTO Dispute Settlement Reform Process is underway. The WTO website provides brief overviews of the meetings as they happen, but for those of us who want more than just a short summary, we can follow it a few weeks behind the actual current developments as meeting minutes are derestricted. The Minutes of the Heads of Delegation meeting from May 30 are now available.

The Facilitator of the process is Usha Dwarka-Canabady of Mauritius, who has been a panelist herself several times. For this meeting, Dwarka-Canabady had "encouraged Members to share ideas on how experts could take technical work forward on" the issues of "appeal/review and accessibility." On appeal/review, her specific question for Members was: "Being mindful of the interest-based negotiating modality that Members have been using to make progress on dispute settlement reform, describe your delegation's interest on appeal/review, including possible characteristics and ideas for developing convergence." Here's a sampling of what delegations said on the issue of appeal/review, which is obviously one of the most important elements in getting the dispute settlement mechanism fully functioning again:

Australia:

"Turning to Question 1, the right to appeal/review is fundamental to meeting Australia's interests in a dispute settlement system that produces coherent, robust and legally sound outcomes. Such outcomes reinforce the security, predictability, legitimacy and credibility of the rules-based multilateral trading system in the WTO. Appeal/review also provides an important check and balance to mitigate against legal error and encourage consistent decision-making. This is vital to maintaining confidence in the system. Retaining an appeal/review tier in a reformed system is therefore important to Australia. We do, however, acknowledge that the Appellate Body was not functioning, in some respects, as intended under the Dispute Settlement Understanding and that we need to address the concerns that arose. To do this, we will need to focus on ways to change the behaviour of both Members and adjudicators so that appeal/review works in the interests of all Members. For Members, we need to incentivise a more disciplined approach to appeals. For example, we could explore options for streamlining appeal processes to ensure adherence to time limits, including by setting word limits on submissions. We could also consider options to make better use of interim review at the panel stage. For adjudicators, we need appropriate guardrails around their role. This could include reforms that go to the standard and scope of review, and clarifying our expectations that adjudicators should focus on resolving the dispute between the parties. We will also need to think about the type of institutional structures that will support Members' interests, including the proper role of the Secretariat. Some of these ideas have already been raised in the informal process, so we should build on that work.

Switzerland:

"On appeal/review, for Switzerland, a reformed dispute settlement system must preserve the right of Members to have an appeal or review of panel reports. It is also essential to preserve the rules-based nature of the system, that it is protected from power dynamics and ensures predictability for Members. It is key for us that the appeal/review process allows for the final and binding resolution of trade disputes. We also believe that the procedural rules for appeal/review rules should not be overly prescriptive or too detailed, and leave some degree of flexibility. That being said, we find it useful to discuss possible "filters" in order to have a more selective number of issues going to appeal/review. In this regard, we are in particular open to discuss how the interim review phase of the panel process could be strengthened. Given the little time that we have, it may be efficient to focus our discussions in a first step on principles, before turning to more detailed rules. It may also be useful to approach the discussion on appeal/review based on different sub-topics. In our view, the following topics would deserve particular focus: First, access to appeal/review – how do we make sure that the most significant legal issues go to appeal/review. The scope of the review is also an important topic – for instance, with regard to the objective assessment of facts. On these topics, very useful discussions have taken place last year and at the beginning of this year, and we should really build on those discussions. Further, discussions on other issues such as the standard of review, institutional aspects, monitoring of the mechanism, and the interplay with the panel process may also be useful.

EU:

"At the outset, I would like to recall that, for the European Union, a fully functioning dispute settlement system is crucial. The system has not been fully functioning for over four years. The more time passes without a solution, the more we undermine the rules underpinning the WTO system and its credibility. At MC13, the Ministers instructed us "to accelerate discussions in an inclusive and transparent manner, build on the progress already made, and work on unresolved issues, including issues regarding appeal/review and accessibility to achieve the objective by 2024 as we set forth at MC12." It is clear that, if we want to achieve our objective, this process must be strictly focussed on resolving the outstanding issues. We must avoid ending up in an exercise similar to that of the DSU review process – those discussions have lasted for over two decades and did not lead to a result. To that end, we must build on the progress already achieved through interest-based discussions in the informal process. That work is reflected in the text contained in the report of the DSB Chair in JOB/GC/385. It is against this background that I will address the two questions asked by the Facilitator.

As for the first question, in relation to appeal/review, we have heard at MC13 that the overwhelming majority of Members wants to preserve a two-tier system. The EU explained its interests at the outset of the informal process. I will not repeat all of those interests today but let me recall and clarify the EU's interest in the right to appeal review before a standing adjudicative body. This interest supports our broader, overarching interests.

a. Firstly, we are interested in a system that effectively preserves the WTO rights and obligations, which implies correctness of decisions, and the therefore the right to review legal errors on appeal.

b. Secondly, we have an interest in a dispute settlement that supports the rules-based multilateral trading system. In order for the dispute settlement system to do that, it must guarantee a degree of consistency, security and predictability.

c. Thirdly, dispute settlement must be legitimate and fair.

The consolidated text only contains a placeholder on the issue of appeal/review but detailed discussions on this issue already took place. Some ideas have emerged to try to reconcile the interest of Members in having a two-tier system and the interest to avoid that this leads to "law-making" or overreaching by adjudicators. The interests of Members were discussed in detail in the informal process. While the discussions should remain "interest-based", we now need to focus on solutions. Going forward, we propose that the experts pick up discussions on appeal where they were left off before MC13. Building on the work done already, the task should be to identify solutions that meet the interests of all Members. In doing so, they should be mindful about the package of reforms that is being developed, including those reforms that are part of the consolidated text and go towards addressing the concern with law making and overreaching by adjudicators. The EU will continue its constructive engagement and openness to reform. We will seek to preserve the right to appeal review, the adjudicators' ability to review and correct legal errors, and a standing adjudicative body. We believe it is possible to reconcile these characteristics with the interests of all Members, including the interests in avoiding law-making by adjudicators and in focussing the dispute settlement function on resolving disputes.

Antigua and Barbuda, on behalf of the ACP Group:

"On appeal/review, the ACP's core interest remains the full restoration of a binding two-tier dispute settlement system in the WTO. Recourse to appeal/review of panel decisions should be automatic. Rather than diminishing the role of such a mechanism, our reform efforts should strengthen it by focusing on the following:

a. shielding appointed members to any appeal/review mechanism from any attempt by any Member to unduly influence their decisions.

b. guaranteeing the right of due process for all WTO Members.

c. institutionalizing reasonable timelines for the appeal review mechanism to conclude its work.

d. ensuring that the appeal/review mechanism Secretariat has the necessary resources – human, technical and financial – to do its work adequately and easily. 

e. keeping open the possibility of expanding the number of members appointed to any appeal/review mechanism and also keeping open the possibility of making adjustments to the duration of their tenure so as to ensure continuity and reduce the chances of collapsing the entire system.

Under the informal process, we are aware of a number of ideas which have emerged to reform what is currently the Appellate Body. Members have floated ideas with respect to standards of review for example. However, what we do not want is any outcome which would create a chilling effect for any Member to avail itself of its right to appeal a panel decision. It is also important that we look at the overall balance of issues. For instance, if Members want to establish an accountability mechanism, improve panel composition, implement word limits and time limits for written and oral submissions respectively, along with a host of other new reforms, then the antecedents are there for a new system to emerge which addresses some of the longstanding issues of some Members. Therefore, we anticipate that in the context of overall improvements to the system, restoring two-tier dispute settlement is certainly not a difficult ask.

Singapore:

"In response to your first question, Singapore's interests as a small developing country who attaches the highest importance to a rules-based multilateral trading system, are two-fold. One, Singapore values the security and predictability of a dispute settlement system that is underpinned by (i) compulsory jurisdiction, (ii) automaticity and (iii) binding and enforceable outcomes. The appeal stage of the dispute settlement system, served by a standing body, is a key feature of the rule of law which is critical for instilling confidence in the system. For sovereign nations to accept and implement the Dispute Settlement Body's rulings and recommendations, they must have confidence that these recommendations are "right" in that legal errors have been corrected and WTO rules had been consistently and fairly applied. The right to appeal ensures this. From discussions in the past year, we note that many other Members share these interests, and we have also heard other interests, including those articulated by the United States. Experts have been exploring promising ideas to address all interests in a balanced way and we support continuing discussions on two specific issues: (i) a proposed standard of review called "material impact on implementation" to filter claims that would be eligible for appeal; and (ii) make better use of the interim review stage of the panel process to correct egregious errors of fact."

United Kingdom:

"You asked two questions, the first of them on appeal and review. We have four overriding interests on appeal and review. The first is that we have high quality prompt decision-making from adjudicators in the system. The second is that we have a system which promotes a coherent and predictable set of rules and therefore secures a predictable and stable trading environment for businesses and the Members who represent them. The third is that we have an appeal review mechanism which does not have an overweighted influence on the substantive rules themselves, i.e. there is no gap filling. And fourth, that we have a reduction in the number of appeals because we are concerned that, to an extent, appeals have become routine, rather than something more significant and substantive. Beyond those four points, we are flexible and pragmatic. We have tried to remain so through the rather excellent informal process that we have had over the last year or so. We have tried to engage substantially in it and in good faith through that interest-based approach and we hope to continue to do so.

You asked about particular ideas for trying to develop convergence. So again, four points. First, as I mentioned, we put forward a paper – some of you may have seen it, some of you may have even read it – back in October, a non-paper which set out a few ideas – not an attempted solution, merely an attempt to generate ideas and stimulate discussion. Second, we have had various discussions on that non-paper and the ideas it contains during the Marco Molina process. Third, we are pleased to see that others have engaged with those ideas and that some of those ideas have now developed and evolved thanks to that interaction. That is something we should try and continue – which brings me to my last point. We welcome further discussions on the ideas put forward and we do think that this is a potential landing zone with room for developing those ideas further.

Japan:

"On the first issue, appeal/review, this is a proposal for enabling our experts to most effectively work at an outcome of this file, rather than this delegation's interest. We tend to consider the form of mechanism issue like standing two-tier system or a single tier system as the entrance question of this file. This issue, however, will tend to end up with being a binary choice issue. Instead, we should start with discussing the substance of the system design, like (i) concrete ideas on defining the scope and reducing the number of cases which are eligible for appeal, and (ii) the issue of the standard of review. We could also include in the priority agenda (iii) streamlining of the appeal procedure."

China:

"On appeal review, like many others, it is China's core interest to retain an independent, impartial, binding, two-tier dispute settlement system. This is the central element in providing security and predictability to the multilateral trading system as enshrined in the DSU. Based on the intensive discussions of the past two years, I detect two elements that are crucial for our further work.

a. First, the imperative to take a holistic approach to address the appeal review issue. We should also bear in mind that Members have collectively explored tools to balance and improve a mutually supportive system as reflected in the consolidated text. For example, treaty interpretation, no precedential effect, focus on what is necessary to resolve dispute, and advisory working group to review interpretations in particular, as well as strengthened panel stage and accountability mechanism in a more general sense.

b. Second, the value of a "filter and focus" approach to explore a more focused and efficient appeal review mechanism. Under this approach, Members have conceptually discussed what I summarize as a "seven-element framework", which covers Interim Review, material impact on implementation (MII), admissibility check, order of analysis, streamlined process, output of appeal, and incentives to reduce frivolous appeals. The above elements, in our view, could serve as a good basis for finding balanced and comprehensive solutions to this critical issue."

Of course, the key to all of this is the U.S., whose statements at this meeting seemed to reflect its previously stated views:

United States:

"With respect to the first question, we have heard today some interests – though many more positions – on the issue of appeal/review. The United States has an interest in a dispute settlement system that supports parties in the resolution of their disputes and that has legitimacy, not just here but also at home. In that context, we would like to explore further with delegations whether appeal/review is a necessary feature of a system that supports parties in resolving their disputes. We have heard points made about the need for consistency and the ability to correct legal errors. We do not view a standing Appellate Body as the only way of achieving those objectives. Consistency, if wrong, does not serve anyone's interests. In addition, you can have a binding system without having a second tier – and by "binding," we mean finality in the dispute. We have seen how an appeal/review mechanism – and by extension the dispute settlement system – can stray from this foundational purpose. USTR published a report on the Appellate Body in 2020 that identified several U.S. concerns with that appeal mechanism. I encourage my colleagues to look at that report if you are not familiar with it – even if just the Executive Summary. It is a useful document in understanding the U.S. perspective and is available on the USTR website. Notwithstanding these concerns, we have made clear our commitment to work towards a system that meets the interests of all delegations."

More from the Biden Administration on Chinese Overcapacity

A couple months ago, I did a post on "Subsidies, Overcapacity, and Domestic Demand/Savings," in which I argued that, in the context of concerns about Chinese overcapacity, it would be better to focus on Chinese subsidies than on differences in U.S./China domestic demand and savings rates.

At a recent CFR event, U.S. Treasury Under Secretary for International Affairs Jay Shambaugh spoke about the Biden administration's position on macroeconomic imbalances, savings rates, and Chinese overcapacity, elaborating on earlier statements by Secretary Janet Yellen. First, in his prepared remarks, Shambaugh said:

As an international macroeconomist, I have studied the economic relationship between the United States and China for decades – both as an academic and as a policy official.  And throughout this time, perhaps the defining characteristic of this relationship has been macroeconomic imbalances and their effects. 

Take, for example, China’s savings rate. China has maintained an exceptionally high savings rate for decades and over the past 20 years it has been roughly 45 to 50 percent of GDP.  That is more than twice the historical OECD average and about 10-20 percentage points above comparator East Asian economies.  China comprises 28 percent of total global savings, while only 18 percent of global GDP.  The corollary of high savings is low levels of household consumption.  At less than 40 percent of GDP, China’s consumption is low relative to other countries at similar levels of income. 

It is textbook economics that these savings must be channeled somewhere, which leaves the Chinese economy reliant on a combination of domestic investment and foreign demand to drive growth.  The mix between these two factors has fluctuated over time.  Twenty years ago, China relied on foreign demand and had large growing current account surpluses.  In the last decade, Chinese investment in infrastructure and real estate has absorbed much of the savings.  But the recent downturn in China’s property sector and the underperformance of its domestic economy raises questions about the drivers of future growth – and, in particular, China’s likely reliance on foreign demand to sustain its growth going forward. 

...

China’s large imbalances have spillovers on their own, but China’s non-market policies and practices amplify this effect by distorting markets, undercutting fair competition, and concentrating the spillovers into certain sectors.  In particular, the combination of China’s enduring macroeconomic imbalances and large-scale government support to specific industrial sectors drive industrial overcapacity. 

The scale of this support is striking: China’s industrial subsidies are simply much larger than those of other countries.  ...

Then during the Q & A, someone asked the following question:

I want to go back to the overconsumption discussion, and in particular, what I would call the China savings rate dilemma. Because I just spent two months back in Beijing, so I have a very narrow Beijing China sample, but there's still issues with healthcare, cost of healthcare, so that's why you save. The lack of adequate government pensions, an unstable stock market, and gold is looking pretty good to my Chinese friends. So how do you deal with this excess in manufacturing at the same time of needing a Chinese economy that is stable, but yet not having anything in place that's going to really juice consumption at this point in time. So I think that's the dilemma, and I'm interested in what is your policy recommendations from that point of view.

Shambaugh responded:

So the policy recommendations that I would give, transparently, aren't ones that are new, they're ones I think the US Treasury and US government has had for a while, is that we think China should do more to strengthen the social safety net. That would be better for Chinese citizens and better for their economy. It would lower the need for precautionary savings, as you said. I think actually shifting more income to households is an essential part of that also. So a lot of the savings you see in China is actually from the corporate sector, and some of that is because not enough of the revenues are going back to households through higher wages or profits being distributed. And so that would be another way that would help increase the consumption. It would make people maybe need to save a little less. But there are a number of other things beyond that. I think one of the things I mentioned in the speech is a reform of the internal migration system, or the Hukuo system, which would actually be really helpful, because if people had more legal rights to where they are, they have better access to whatever healthcare or education systems there are where they live, it also would make it easier for them to buy property, buy homes, which you then start to buy other stuff because you have that. So I actually think there are a lot of things that we see as very, very good for China that would also then help deal with the issues that we're concerned about. I agree that the reason we started, or I started the speech with the savings rate is because, from our perspective, that is, in some ways the starting point of these issues. It then gets filtered through a government focus on manufacturing and non-market policies and practices that steer those savings towards particular sectors. But you're right that the fundamental issue there is the savings rate. And I think there are a number of things China could do that I think would be really good for China that would help in this way.

There was then this follow-up question:

Can I just follow up and ask, do you talk to the Chinese about these things, and do they appreciate it when you talk about their internal migration system or their healthcare system?

Shambaugh replied:

So the internal migration one is one I don't usually raise with them ... because that gets a little into things that I know cross out of economics purely, but I have had it raised with me by Chinese interlocutors. I mean, they know that ... I didn't just come up with these, like they're well aware that that is a way to increase consumption. They're well aware that there's precautionary savings because social security and pension and healthcare systems aren't good enough. They know these things. And so, yes, I mean, we have extensive conversations about this. This is the whole point of the economic working group, is to be able to have conversations like this and go back and forth in detail around issues of overcapacity. And not just starting with, we're worried that you have overcapacity in industry X, but we're worried about the macroeconomic imbalances and where that takes us. And this is something that Secretary Yellen, given her career and her stature as an economist, is very well placed to make these arguments to the Chinese. And she does every time we talk to them, she starts talking about savings rate and how you could reduce it in a way that would be good for China.

I found all of this discussion helpful, and for me it supports the thinking in my earlier post: It's going to be extremely difficult for the U.S. to push China to change its domestic policies related to the level of demand/savings. It's possible that, on its own, China will some day adopt policy changes that affect demand and savings, such as by reforming the social safety net. But it's hard for me to see how unilateral U.S. pressure is going to have much of a positive impact here.

On the other hand, on subsidies and other non-market practices, China agreed to a set of international rules to discipline these domestic measures. That provides an opportunity to push China to comply with its international obligations, which is the kind of pressure that has, at least in some instances, been effective at inducing policy change.

Safeguards Without Compensation -- A New Normal?

Mexico’s push for exclusion from the United States’ solar safeguard measure, which jumped into the news this week, raises a point of potential interest for the IELP Blog audience.

The escape clause / efficient breach theory of safeguards holds that a WTO Member can temporarily retract a trade concession, hiking tariffs and thereby providing an opportunity for orderly adjustment by its domestic producers, while preserving the balance of concessions by compensating affected trading partners during the time the tariff umbrella is up.  There is a general 3-year grace period for compensation, but that has long since lapsed in the case of the solar safeguard measure which has been in place for nearly 7 years without compensation being provided to anyone.  The silence on this point, both from governments and from trade geeks, has been rather odd.

While all WTO members have been entitled to compensation for their trade losses resulting from the solar safeguard measure since Day 1 of Year 4, Mexico – by virtue of the NAFTA and the USMCA – has been entitled to compensation (or else exclusion from the measure) since Day 1 of Year 1.

According to the news reports, Mexico is currently seeking not compensation but exclusion from the measure … consistent with instructions President Biden included in his February 2022 proclamation extending the measure for four additional years.  The issue has taken on increased importance with the measure’s recently-restored coverage of bifacial solar modules, which dominate Mexico’s solar exports to the United States.  Suddenly, the measure has, in respect of intra-North American trade, a more painful bite.

If an exclusion is not quickly implemented, the compensation which Mexico could demand (and lawfully help itself to) would not be trivial.  During the four-year reference period prior to the safeguard measure, 2013-2017, Mexico accounted for roughly 10% of U.S. solar panel imports.  During the safeguard measure’s time in force, Mexico’s share of U.S. imports has fallen dramatically.  Switching to absolute numbers and looking at the last calendar year (2023), if Mexico had been supplying 10% of U.S. imports (as during the reference period), the value of its solar exports would have been about $1.4 billion.  Actual Mexico-to-U.S. shipments in 2023 were roughly $400 million.  So the current run rate, in regard to Mexico’s trade losses as traditionally measured, is about $1 billion/year.  Suspension of concessions on south-bound trade flows of that magnitude could be expected to cause a bit of a stir.

There are many contested items in the Mexico-U.S. bilateral trade agenda at the moment.  This solar issue sticks out as one where Mexico has undisputable legal (treaty-based) rights, which its neighbor to the north is not respecting.  A simple exclusion would be good for Mexico but also – given the $1 billion/year price tag if Mexico should decide to stop sleeping on its rights – would avoid an awkward problem for Uncle Sam.

The broader question of compensation's disappearance from the public discussion on safeguards merits attention in its own right.  Is this the new normal?  And if so, what aspect of the safeguard system might disappear next ... adjustment plans?  I had always thought -- and have been telling law students for the last ~22 years -- that these elements of the safeguard system were fundamental ones, even if it is the safeguard tariffs themselves that garner most public attention.

The Trade Section of the GOP 2024 Platform

I'm not sure how important party platforms are, but they probably have at least some relevance. Here's the section of the Republicans' 2024 platform on trade policy, which has been shaped by Trump's protectionist views on trade:

CHAPTER FIVE: PROTECT AMERICAN WORKERS AND FARMERS FROM UNFAIR TRADE

Our Commitment:

The Republican Party stands for a patriotic “America First” Economic Policy. Republicans offer a robust plan to protect American Workers, Farmers, and Industries from unfair Foreign Competition. We commit to rebalancing Trade, securing Strategic Independence, and revitalizing Manufacturing. We will prioritize Domestic Production, and ensure National Independence in essential goods and services. Together, we will build a Strong, Self-reliant, and Prosperous America.

1. Rebalance Trade

Our Trade deficit in goods has grown to over $1 Trillion Dollars a year. Republicans will support baseline Tariffs on Foreign-made goods, pass the Trump Reciprocal Trade Act, and respond to unfair Trading practices. As Tariffs on Foreign Producers go up, Taxes on American Workers, Families, and Businesses can come down.

2. Secure Strategic Independence from China

Republicans will revoke China’s Most Favored Nation status, phase out imports of essential goods, and stop China from buying American Real Estate and Industries.

3. Save the American Auto Industry

Republicans will revive the U.S. Auto Industry by reversing harmful Regulations, canceling Biden’s Electric Vehicle and other Mandates, and preventing the importation of Chinese vehicles.

4. Bring Home Critical Supply Chains

Republicans will bring critical Supply Chains back to the U.S., ensuring National Security and Economic Stability, while also creating Jobs and raising Wages for American Workers.

5. Buy American and Hire American

Republicans will strengthen Buy American and Hire American Policies, banning companies that outsource jobs from doing business with the Federal Government.

6. Become the Manufacturing Superpower

By protecting American Workers from unfair Foreign Competition and unleashing American Energy, Republicans will restore American Manufacturing, creating Jobs, Wealth, and Investment.

Compare this platform to the Republicans' 2016 platform (there was no new platform in 2020), which offered the more traditional mix of pro-trade and trade-skeptical sentiments that has characterized U.S. trade policy over the last several decades:

International trade is crucial for all sectors of America’s economy. Massive trade deficits are not. We envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a “Reagan Economic Zone,” in which free trade will truly be fair trade for all concerned.

We need better negotiated trade agreements that put America first. When trade agreements have been carefully negotiated with friendly democracies, they have resulted in millions of new jobs here at home supported by our exports. When those agreements do not adequately protect U.S. interests, U.S. sovereignty, or when they are violated with impunity, they must be rejected

We cannot allow foreign governments to limit American access to their markets while stealing our designs, patents, brands, know-how, and technology. We cannot allow China to continue its currency manipulation, exclusion of U.S. products from government purchases, and subsidization of Chinese companies to thwart American imports. The current Administration’s way of dealing with these violations of world trade standards has been a virtual surrender.

Republicans understand that you can succeed in a negotiation only if you are willing to walk away from it. A Republican president will insist on parity in trade and stand ready to implement countervailing duties if other countries refuse to cooperate.

At the same time, we look to broaden our trade agreements with countries which share our values and commitment to fairness, along with transparency in our commercial and business practices. In pursuing that objective, the American people demand transparency, full disclosure, protection of our national sovereignty, and tough negotiation on the part of those who are supposed to advance the interests of U.S. workers. Significant
trade agreements should not be rushed or undertaken in a Lame Duck Congress.

There's a lot to critique in the 2024 version of the trade platform, and others may weigh in with responses to things I left out, but here are a few thoughts.

Starting with a general point, I think that having someone like Trump lead the party is very useful for certain big businesses and other interest groups: He gives them what they want without any need to lobby for it, because he actually thinks tariffs and other forms of protectionism are good policy. The benefits mainly accrue to those groups, but Trump mistakenly believes there is an overall benefit to the economy. For corporations that want to limit the competition they face, you can't ask for anything better than this.

Turning to some of the specifics of the platform, first, even with all the protectionism and industrial policy being tossed around recently, I haven't heard anyone try to come up with a plan for making the U.S. a "manufacturing superpower," as mentioned it item 6 above. There's no question that the U.S. government could, at a cost to the overall economy, protect U.S. production from import competition in the U.S. market. That market is a big one, so U.S. producers can be profitable just by selling in their home market. But I would think that being a "superpower" means exporting to foreign markets too, and on that issue, I'm not sure what the plan is. Limiting competition in the home market has not been enough to help other countries become world market leaders. All of the countries who have achieved this in recent decades (e.g. Germany, Japan, South Korea, China) had an approach that did more than just limit imports. So what is the plan for selling lots of U.S. manufactured goods abroad?

Second, the part about stopping China from "buying American Real Estate and Industries" is interesting, because Trump himself has suggested he would be happy to have Chinese companies build cars in the U.S. This is an area where I think it would be useful to push Trump and other Republicans on exactly what they think. It seems like there is a split here, and it's not clear where they would end up if they tried to reconcile the different views.

And finally, the platform offers a concern with the trade deficit: "Our Trade deficit in goods has grown to over $1 Trillion Dollars a year." It then states, "Republicans will support baseline Tariffs on Foreign-made goods, pass the Trump Reciprocal Trade Act, and respond to unfair Trading practices," suggesting that the platform's authors think these actions will reduce the trade deficit. But unless there is a plan to address the macroeconomic causes of the trade deficit, I don't see how there will be any significant change in the status quo.

The Passing of Frederick Ikenson

My friend and former colleague Dan Ikenson informs me of the sad news of the passing of his father, Frederick Ikenson, who was a long-time Washington, DC-based trade and customs lawyer. Fred practiced in this field for over five decades, so many of this blog's readers probably got to know him at some point. 

An obituary is here. There will be a service on Wednesday, July 10 at 10 a.m. in Olney, Maryland. Details are at the link.

Multiple Permissible Interpretations under Chevron and AD Agreement Article 17.6(ii)

Here's an excerpt from the majority opinion in the recent Loper Bright U.S. Supreme Court decision that puts an end to Chevron deference, in which the majority says that it does not make sense to talk about "permissible" interpretations because there is always a "single, best" interpretation:

Courts, after all, routinely confront statutory ambiguities in cases having nothing to do with Chevron—cases that do not involve agency interpretations or delegations of authority. Of course, when faced with a statutory ambiguity in such a case, the ambiguity is not a delegation to anybody, and a court is not somehow relieved of its obligation to independently interpret the statute. Courts in that situation do not throw up their hands because “Congress’s instructions have” supposedly “run out,” leaving a statutory “gap.” Post, at 2 (opinion of KAGAN, J.). Courts instead understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning. That is the whole point of having written statutes; “every statute’s meaning is fixed at the time of enactment.” Wisconsin Central Ltd. v. United States, 585 U. S. 274, 284 (2018) (emphasis deleted). So instead of declaring a particular party’s reading “permissible” in such a case, courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.

In an agency case as in any other, though, even if some judges might (or might not) consider the statute ambiguous, there is a best reading all the same—“the reading the court would have reached” if no agency were involved. Chevron, 467 U. S., at 843, n. 11. It therefore makes no sense to speak of a “permissible” interpretation that is not the one the court, after applying all relevant interpretive tools, concludes is best. In the business of statutory interpretation, if it is not the best, it is not permissible.

In the WTO law context, we are all familiar with the idea of permissible interpretations as set out in AD Agreement Article 17.6(ii):

In examining the matter referred to in paragraph 5:

...

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

In Colombia - Frozen Fries, the MPIA arbitrators, when discussing Article 17.6(ii), emphasized the possibility of there being multiple permissible interpretations, rather than having to reach a single "final" or "correct" interpretation in every case:

4.13. Reading these provisions together, we aim to integrate the elements of interpretation under Article 17.6(ii). As a result, we will begin by asking ourselves whether Colombia's proposed interpretation of the phrase "where appropriate" in Article 5.2(iii) – reflected in MINCIT's decision to initiate its investigation, in part, on the basis of third-country sales prices – is a "permissible" one. As a yardstick for "permissibility", the first sentence of Article 17.6(ii) refers us to the customary rules of treaty interpretation. However, we will not engage in our own, de novo interpretation of the terms "where appropriate" so as to arrive at what we consider to be the "final" or "correct" application of Articles 31 and 32 of the Vienna Convention. Instead, we will ask whether a treaty interpreter, using the method for treaty interpretation set out in the Vienna Convention – that is, an interpretation "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose" and, where appropriate, "supplementary means of interpretation" – could have reached Colombia's interpretation. And this even though we, as de novo treaty interpreters, might have reached a different conclusion.

4.14. Our approach assumes, as the second sentence does, that different treaty interpreters applying the same tools of the Vienna Convention may, in good faith and with solid arguments in support, reach different conclusions on the "correct" interpretation of a treaty provision.43 This may be particularly true for the Anti-Dumping Agreement, which was drafted with the understanding that investigating authorities employ different methodologies and approaches. Treaty interpretation is not an exact science and applying the Vienna Convention's method does not magically and inevitably lead to a single result. In most cases, treaty interpretation involves weighing, balancing, and choice.

4.15. Thus, the ultimate question for us when testing a proposed interpretation is to draw a line beyond which an interpretation is no longer "permissible" under the Vienna Convention method for treaty interpretation. Dictionary meanings support the idea that the search for "permissible" interpretations differs from an attempt to find one's own – "final" and "correct" – interpretation.44 Rather, the question is whether someone else's interpretation is "permitted", "allowable", "acceptable", or "admissible" as an outcome resulting from a proper application of the interpretative process called for under the Vienna Convention. Obviously, not just any interpretation put forward by an authority can be accepted as "permissible". The interpretative process under the Vienna Convention sets out an outer range beyond which meanings cannot be accepted. Just as permissible interpretations cannot be limited to a single "final" and "correct" answer as determined by a given tribunal, not all interpretations have the required degree of solidness or analytical support for them to be given deference as "permissible" within the bounds of the Vienna Convention method for treaty interpretation.

The approach set out by the MPIA above can be distinguished from earlier WTO decisions that seemed wary of a standard that was open to multiple permissible interpretations.

(Jackson and Croley laid out the connection between Chevron and the Article 17.6(ii) standard here).

I'm not sure I understand the reluctance to accept that statutes or treaties may be vague or ambiguous enough that there are multiple permissible interpretations. In some instances, the choice between one interpretation or another is a very close call. If a court is considering multiple interpretations, and one is slightly better than another (say, 55% to 45%, to put concrete figures on this), I'm not convinced that declaring the 55% interpretation to be the "best" one, which therefore must be followed, is always the right approach. At some degree of uncertainty about which interpretation is best, I would have no problem saying, in the circumstance where an agency is crafting an implementing regulation based on its interpretation of the statute, that there are multiple permissible interpretations.

Of course, if you do adopt a "best" interpretation approach, the statute or treaty drafters can step in to correct the interpretation if they don't like how the court came out. But in practice, that's often difficult for practical political reasons, and the court's interpretation is likely to govern. It's worth noting in this context that there are policy implications from these interpretive choices, and we should think about which government actors are best placed to take responsibility for these policy decisions.

I suspect that many people will consider this suggestion to be a bit off the wall, but to deal with the political and policy-making concerns, I would be interested in thinking about a process through which courts could say to the legislators/treaty drafters something to the effect of: "We're not sure what you meant with regard to how this ambiguous provision should be interpreted in the context at hand. Could you please clarify?" I haven't given any deep thought to how this might work in practice, but perhaps something along the lines of this, this, this, or this in the U.S. domestic context.

The Anti-Neoliberal View of Where Things Went Wrong on China Trade

Farah Stockman of the New York Times recently had a piece about former Biden administration official Jennifer Harris. If I understand their views correctly, Stockman and Harris are part of a group of people who are skeptical of past "neoliberal" policies, whereas I -- as I mention here from time to time -- am in the group that is skeptical that "neoliberal" is a useful term in the U.S. politics and policy debate (at least until people who use it can get on the same page about what exactly they mean by it). But beyond those general disagreements, I want to focus here on U.S.-China economic relations. Stockman says the following about how Harris's views changed during a previous government stint with the Bush administration in the 2000s:

... After she joined a student delegation to a NATO summit in Prague in 2002, a faculty adviser on that trip offered her a job in Washington working at the National Intelligence Council. In those early years, she believed what everyone else in Washington believed about the economy — that governments ought not meddle with it.

Her outlook changed in 2007, after she joined the policy planning staff at the State Department. It was her job to track China’s use of subsidies, industrial espionage and currency manipulation to fuel its rise as a manufacturing powerhouse. Ms. Harris argued that tariffs on China were a necessary defense. Nobody agreed. “I was kind of just banging my head against this wall,” she told me. “The wall was a foreign policy establishment that saw markets as sacrosanct.”

In reaction, let me first note that in this period of U.S. policymaking (like at all other times!), I think it's an exaggeration to say the U.S. foreign policy establishment, or any other part of the establishment, saw markets as "sacrosanct"; and along the same lines, I don't think it's the case that everyone in Washington believed that governments "ought not to meddle with" the economy. Of course, I'm sure you can find a few people in government who believed that, but in practice those people generally got outvoted. U.S. economic policy at that time involved a wide range of government intervention in the economy (in trade policy, that meant ordinary tariffs, trade remedy tariffs, farm subsidies, Buy America provisions, etc.). Were people in Washington more in favor of markets in the 2000s than, say, during the 1960s and 1970s? Probably. But I can assure you that the free market folks (like me!) were pretty frustrated with all the government intervention in the economy during this period. (To illustrate this, you can see what my former Cato colleague Dan Ikenson was complaining about at the time here.)

At the same time, while that characterization of U.S. economic policy may be an exaggeration, I can imagine that Harris got pushback from free market advocates within the Bush administration on issues such as the possibility of imposing tariffs on Chinese imports under Section 421. There were six petitions filed under Section 421 during the Bush administration, four of which resulted in affirmative determinations of market disruption, but the Bush administration rejected the use of tariffs in each of these. In terms of the pure economic considerations, these tariffs would have helped specific companies but harmed the overall economy, and that probably led many of the economics folks in the Bush administration to argue against them (AD/CVDs were widely used though, so it's not as though all Chinese imports were coming in duty-free). In addition, the foreign policy establishment had their own non-economic objectives during this period of the War on Terror, and challenging China on trade would have interfered with their goals. In this regard, the U.S. needed China's non-objection on various foreign policy initiatives, so I can imagine it was the view of this group that it was best to avoid trade confrontation with China.

Turning now -- finally! -- to the main point of this post, an important consideration that I think gets overlooked in the context of how to address concerns with China's trade practices is what would actually be effective. There seems to be an assumption from the critics of neoliberalism that taking measures such as the Section 421 tariffs would have been the tough approach to China's trade practices, but I'm not sure that's right. Which measures are actually toughest may depend on the objectives. If your objective is to change China's trade practices, I don't think Section 421 tariffs are likely to get you there. (Indeed, tariffs were imposed on Chinese tires under this provision during the Obama administration, and I don't think anyone would suggest this changed China's trade practices). Instead, WTO complaints would likely have been -- and in many instances actually were -- more effective for inducing policy change. 

All of that leads to me some questions for the people, on both the left and the right, who seem to be believe that the U.S. was not tough enough on China's trade practices during this period:

• What is your specific goal with respect to Chinese trade practices? Do you want China to become more market-oriented? Or are you not interested in that one way or the other, and would rather just keep China out of the U.S. market and/or have the U.S. adopt industrial policies of its own?
• If you do want China to become more market-oriented, do you think unilateral actions such as Section 421 tariffs or Section 301 tariffs will help achieve that? And if you think they will, why do you think this, given past experience?