International Economic Law and Policy Blog

The draft agriculture text has nothing in it - What a laugh!

I wonder if some of you have had a chance to look at the text produced by the Negotiating group on Agriculture for MC12 https://www.wto.org/english/news_e/news21_e/agri_30nov21_e.htm

The text dated 29/07/2021, JOB/AG/215 (available here https://tradebetablog.files.wordpress.com/2021/08/chair-draft-july-2021_rd-ag-215.pdf ) had hardly anything in it.

However, the text dated 23/11/2021 wins. (it is available here: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/TN/AG/50.pdf&Open=True ) It has absolutely nothing in it. Basically, it says:
We will negotiate on market access
We will negotiate on export competition
we will negotiate on domestic support.
and not much else.

And these negotiators are still drawing salaries - amazing.

We should remember that when Arthur Dunkel put up a text to conclude the Uruguay Round, he was prepared to write the text and fill in the numbers. He did not reduce the content of the text or the numbers to what would not upset the country with the least brave politicians or diplomats. He was prepared to put his job on the line.

The only silver lining here is that they had to cancel MC12. At least that saves the agriculture negotiators from having to face the laughter that would have arisen from the Ministers (and the press) summoned to the MC to consider their brave and bold text.

Can I suggest a better draft text:
"Members may attend meetings of each meeting of the negotiating group on agriculture if they have submitted a new Schedule of Concessions reducing bound rates on all tariffs by 0.1%."

Having done that it wouldn't do any harm for them to turn up to their meetings to engage in "WTO-speak" to their hearts' content.

Angela Ellard on Misperceptions in the US/Capitol Hill about the WTO

At an AEI/Brookings event yesterday, WTO DDG Angela Ellard spoke and offered some interesting insights into how people in the U.S. (and elsewhere) misunderstand the WTO:

Neena Shenai:

I wanted to turn to your perspectives on the WTO, given your experience and your personal experience on Capitol Hill. You've been with the WTO now six months, and so I'm just really curious to get your thoughts on two issues. One, what do you think is the greatest misperception in the US/Capitol Hill about the WTO? ...

Angela Ellard:

Well, that's an interesting question. I do think there there are some misperceptions in the US about the WTO. One is that it's a monolithic organization, that it is this body that independently makes decisions that sometimes don't serve US interests. A related perception, I think, is that the US feels that as a big member, it should be able to have a lot of sway. So I think one of the big perceptions, therefore, is that the outcomes, what the WTO does, should be more reflective of the US view because the US is such a big player. Now the US, of course, punches above its weight in the WTO. There's no doubt about that. But at the same time, it's one of 164 members, so in reaching consensus, the US has to get the buy in of its fellow members in order to reach a result.

I think that sometimes that's hard. I know when I was on the Hill, I would often hear the view, well, why can't we change this? And it's a very understandable view to have until you see how the WTO works in having everyone come together, everyone is a player. And some have more ability, perhaps, to influence others, but still at the end of the day, we're an organization of the Members and the Members all have that equal standing and and I think that's a misperception sometimes, not just in the US, but everywhere, as well.

Tweaking the MPIA Procedures

The Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 of the DSU is here. Annex 1 contains a set of Agreed Procedures that can be used for these arbitrations. Interestingly, the procedures agreed to recently in specific WTO disputes are deviating from Annex 1 in one  specific area. Here's paragraph 4 of Annex I:

4. Following the issuance of the final panel report to the parties, but no later than 10 days prior to the anticipated date of circulation of the final panel report to the rest of the Membership, any party may request that the panel suspend the panel proceedings with a view to initiating the arbitration under these agreed procedures. Such request by any party is deemed to constitute a joint request by the parties for suspension of the panel proceedings for 12 months pursuant to Article 12.12 of the DSU.

The parties hereby jointly request the panel to provide for the following, before the suspension takes effect:

i. the lifting of confidentiality with respect of the final panel report under the Working Procedures of the panel;

ii. the transmission of the panel record to the arbitrators upon the filing of the Notice of Appeal: Rule 25 of the Working Procedures for Appellate Review shall apply mutatis mutandis;

iii. the transmission of the final panel report in the working languages of the WTO to the parties and to the third parties.

In the Costa Rica - Avocados case (DS524), however, while the original procedures reflect the language above, there is now a revised version that reads as follows:

4. Following the issuance of the final panel report to the parties, but no later than 10 days prior to the anticipated date of circulation of the final panel report to the rest of the membership, any party may request that the panel suspend the panel proceedings with a view to initiating the arbitration under these agreed procedures. Such request by any party is deemed to constitute a joint request by the parties for suspension of the panel proceedings for 12 months pursuant to Article 12.12 of the DSU.

The parties hereby jointly request the panel to provide for the following, before the suspension takes effect:

i. the immediate transmission of the final panel report, on a provisional basis, to the pool of arbitrators and the lifting of confidentiality for that sole purpose;

ii. the transmission of the panel record to the arbitrators upon the filing of the Notice of Appeal: Rule 25 of the Working Procedures for Appellate Review shall apply mutatis mutandis; and

iii. the lifting of confidentiality with respect to the final panel report, under the Working Procedures of the panel and the transmission of the final panel report, duly adjusted for translation, in the working languages of the WTO to the parties, to the third parties and to the pool of arbitrators.

A similar revision was made in the Colombia - Frozen Fries (DS591) case.

What this change appears to accomplish is to give the arbitrators more time to digest the panel report by getting it to them sooner, which should help them reach a decision within the required time-frame.

Guest Post: The Worst of Two Worlds: Why the US Blueprint for a Transatlantic Climate Club Authored by Todd Tucker & Tim Meyer Must Be Binned Immediately

This is a guest post by David Kleimann, PhD, writing in personal capacity. He wishes to thank Aaron Cosbey and Simon Lester for helpful comments on an early draft of this post. All errors remain the author’s alone. He would also like to thank Todd Tucker and Tim Meyer for fruitful and inspiring discussions in past and future.

On October 31, the European Union and the United States agreed on temporary measures to settle their dispute over US Section 232 national security tariffs on EU steel and aluminium products. In addition to opening a tariff rate quota for historical EU export volumes, the agreement introduces ‘Global steel and aluminium arrangements to restore market oriented conditions and address carbon intensity’. The passage makes for a curious mix of transatlantic policy objectives in the areas of steel sector decarbonization, carbon border adjustments, trade defence instruments, and inbound investment screening:

Compatible with international obligations and the multilateral rules, including potential rules to be jointly developed in the coming years, each participant in the arrangements would undertake the following actions: (i) restrict market access for non-participants that do not meet conditions of market orientation and that contribute to non-market excess capacity, through application of appropriate measures including trade defence instruments; (ii) restrict market access for non-participants that do not meet standards for low-carbon intensity; (iii) ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; (iv) refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; (v) consult on government investment in decarbonisation; and (vi) screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.

To enhance their cooperation and facilitate negotiations on a global sustainable steel and aluminium arrangements, the EU and the United States agree to form a technical working group. Through the working group, the EU and the United States will, among other things, confer on methodologies for calculating steel and aluminium carbon-intensity and share relevant data. 

The EU Perspective

To be sure, these declared aspirations provide ample space for each party to continue initiatives they are, individually and separately, already implementing or planning to implement, or to describe events that are happening or will happen anyways without any action required whatsoever (as for the last category, quite within the tradition of the EU commitment to import more soybeans and LNG made in the EU – US Joint Statement of 25 July, 2018).

            From an EU perspective, indeed, the two paragraphs don’t require much if anything new at all. In 2017, first, the EU reformed its trade defence instruments (TDI) to replace its non-market economy status AD calculation methodology by a methodology based on ‘significant distortions’ of prices and costs due to state intervention and to broaden the scope of its anti-subsidy rules. Measures adopted on the basis of these instruments restrict and will continue to ‘restrict market access to exporters that, due to conditions of non-market orientation, contribute to excess capacity’. The European Commission’s legislative proposal for a carbon border adjustment mechanism (CBAM) covers the energy intensive trade exposed (EITE) sectors of steel and aluminium, amongst others, and will ‘restrict market access for non-participants that do not meet standards for low-carbon intensity’ starting in 2026. The EU Framework for Foreign Direct Investment Screening coordinates EU Member States' efforts in that area, including the ‘screening of investments from non-market-oriented actors’. The transatlantic ‘technical working group’, finally, would then serve the EU to socialize its approaches with respect to the individual instruments with the US partner. This appears to be particularly opportune with regard to its CBAM, an area where the US is lagging behind substantially, and ‘consultations on investment on decarbonization’. Those are always good. 

The US Perspective: Team Tucker & Meyer’s ‘Green Steel Deal’

Looking at the US side of things, I came across an article authored by Aime Williams from the FT. Ms. Williams notes that…

            “the US administration is heading tentatively down the policy path set out a few months ago by Todd Tucker of the Roosevelt Institute and Timothy Meyer of Vanderbilt University in this paper (which is worth rereading in light of this new deal). They argue that the US doesn’t need to go down the same path as the EU and introduce carbon pricing, but can still work with allies to reach sectoral agreements that agree on how to measure carbon intensity and impose tariffs on carbon-intensive industries.” [If you liked this, you may also like this – h/t to @SteveCharnovitz for the precious find]

            I followed Ms. Williams literature recommendation to learn more about the Biden administration’s reported source of inspiration. Curiosity faded quickly, however, and concern set in instead: the concern that the plan of Team Tucker/Meyer (henceforth: TTM) for a ‘Green Steel Deal’ with the European Union could indeed be the substance US officials are aiming for when they continue negotiations over the announced arrangements over the next two years. This is because the plan is quite dramatically unfit to support the achievement of any of its proclaimed objectives. Rather, it would, if implemented, leave both sides and the rest of the world worse off in terms of climate targets, sectoral competitiveness, market orientation, and economic welfare generated through trade compared to any currently conceivable alternative scenario.

            On a critical note, the plan showcases TTM’s misconception of the objective of carbon border adjustments. Most importantly, however, the ‘Green Steel Deal’ suffers from a number of design flaws that are worth unpacking here with a view to laying bare the plan’s inherent disconnect between policy objectives, means, and outcomes.

            On a more positive note, TTM’s ‘Green Steel Deal’ truly makes for a masterpiece of policy planning, if one is not overly concerned about industrial decarbonization and market orientation, that is. For a policy paper, TTM’s ‘Green Steel Deal’ is not an easy read, with core assumptions of the plan hidden in plain sight yet scattered across the after all lengthy document in non-committal language: victory by implication and ambiguity.

            On substance, I’m going to go out on a limb here and argue that one can only fully appreciate the brilliance of TTM’s art of obfuscation if one reads the document as an anti-thesis to the ‘polluter pays principle’. That is because, in TTM’s plan, literally everyone pays for the industrial decarbonization of the US steel sector, except for the US steel sector. 

Cheeky but clever: Elements of TTM’s Green Steel Deal

In essence, TTM’s ‘Green Steel Deal’ foresees the creation of a transatlantic climate club of the ‘deep integration’ type. Condition for membership is the obligation to ‘green’ the domestic steel sector by requiring the sector-wide adoption of ‘green production methods’ within 10 years time. The document includes somewhere between "very little" and "practically no" further committed language on the transatlantic decarbonization dimension of the plan, which remains, as a result, nebulous at best and clear as mud at worst. This is important as a matter of emphasis placed by the authors who, instead, dedicate considerable attention and detail to tariff based border protection against steel from ‘dirty countries’ - countries that do not commit to TTM’s climate club. Tariffs, we infer, must be useful instruments for decarbonization. And this is where things become magical: TTM “argue that the US, the EU and like-minded countries should harvest an early win in the fight against the climate crisis by imposing a common external tariff on carbon-intensive steel imports, while, - as the Paris Agreement contemplates – allowing each other flexibility to pursue a range of decarbonization strategies domestically.”

            Flexible winning side-by-side with the sword of the transatlantic common external tariff! How could the EU say ‘no’ to such charming courtship. As I would argue: by thinking the plan through starting with the end, and that leads us right to where it hurts: the invoice. The division of costs among the various actors in this play reveals that the web of industrial, trade, and environmental policy measures that TTM spins has one overarching aim and effect: that is to protect the US national steel sector to the maximum possible, if not completely, from the financial burdens associated with an inevitable socio-economic necessity in the history of human civilization: decarbonisation. This is extremely well done because, given that polluter-cost-avoidance (PCA) makes for the key outcome, characteristic, and arguably objective of the authors, it is entirely obscure at the outset and artistically weaved into the different sections and policy instruments of TTM’s manuscript. Carbon priceless, as they say. Cheeky but clever. 

Greedy but Clever: The Transatlantic Common External Steel Tariff

Let’s take the Common External Tariff (CET) proposed by TTM as an example. The EU has a CET. The EU loves its CET. She is proud of her CET because it represents one of the key achievements of the Union, the externalization of its internal market through its common commercial policy, the EU’s trade and investment policy. ‘Let’s give those Europeans their CET’, TTM thought, and propose that domestic administrative agencies on both sides would convert average incremental producer costs of greening production methods (compared to production of conventional steel) into tariff rates for border adjustment. Now, those average incremental producer costs of greening production methods are, in essence, a subcategory of average environmental regulatory adaptation costs of steel producers. Average environmental regulatory adaptation cost is also what other US authors have favored as the baseline for a US border adjustment. There are several important caveats to calculating CBAs on this basis, compared to converting an explicit carbon price (a carbon tax or an ETS) into a CBA, but I will come to that a bit later.

            During the first ten years, steel exporters from non-member countries – that are all presumed to pay less than equal regulatory adaptation costs compared to producers in transatlantic territory – would be subject to a transatlantic common external tariff (CET) based on the average of national cost conversions. TTM’s stroke of geniuses: US producers are currently and for the time being, as discussed further below, confronted with no regulatory adaptation at all but instead receive subsidies that incentivize industrial transformation. The ‘US greening steel production methods within ten years regulation’, as a result of the Transatlantic Green Steel Deal, would thus make for the only regulatory burden applicable on the US side. This compares to the carbon costs charged to European producers via the ETS and various other EU and member state level regulatory constraints. It follows that a transatlantic average of costs arising from ‘greening steel production methods’ converted into CET protection would severely overprotect US producers at the cost of relatively less protection afforded to EU producers. Greedy but clever.

            Citing a Brookings study, TTM claim that a tariff rate of between 25 per cent (coincidentally mirroring Trump’s 232 national security tariffs), at the lower end, to 50 per cent, at the higher end, approximates an accurate border adjustment for costs of greening production methods. But those estimates are not only highly speculative, they also misrepresent the source’s explainer, which states that the numbers make for the conceivable range of greening steel cost premiums at the end of the decarbonization process. TTM, however, are eager to apply at least the lower end estimation at the beginning of the process already.

            In a very bold (read: ‘evidently false’) statement at the beginning of their manuscript, TTM pledge to “explain why the EU’s CBAM approach is technically and politically unworkable basis for transatlantic cooperation; why a steel-focused tariff and strategy is a superior starting place and what legal, political and economic considerations should inform the design of what we call the Green Steel Deal.” This is where the reader may run the risk of a Freudian slip, that is to read green ‘steal’ deal because, to be sure, the Common External Tariff on steel products has no functional purpose for industrial carbonization whatsoever. It’s only raison d’etre is to ‘steal’ revenue from US consumers, EU producers, and Chinese exporters and provide US steel producers with a twofold compensation for the greening costs it did not pay in the first place: first, through tariff protection and second through the steel trade present of R&D subsidies for green steel production methods financed through steel tariff revenue. Greedy but clever. 

Ten Years In: ‘Dirty Steel Ban’ and ‘Green Steel Standard’

After ten years of transition, ‘dirty steel’ imports and dirty domestic production would be banned entirely. What ‘dirty’ really means remains TTM’s transatlantic decarbonization secret. What we know from the manuscript is that it would come in the shape of an origin neutral product standard indicating a maximum permissible embedded carbon intensity by which domestic and foreign producers ought to adhere if they wish to sell steel in the transatlantic marketplace.

            The carbon emission product standard could certainly have applied from year one instead of year ten, and thereby led to zero instead of x-amount exposure to imported embedded emissions. That, however, would have deprived TTM of the only revenue source and confronted the domestic sector with actual costs and sacrifices. But luckily, in view of polluter-cost-avoidance, tariff protection and subsidies apply during the first ten years, the ‘dirty steel ban’ only afterwards.

            Admittedly, we do learn in the course of a seemingly educational discussion of various production methods in a different part of the document - that ‘electric arc furnace [EAF] can be mostly decarbonized if recycled steel is used as feedstock and if the electricity that feeds the furnace itself is decarbonized.’ This makes for crucial information for the US policy-maker because it means that 65 per cent of the US steel sector is ‘mostly decarbonized’ if fed with scrap steel and renewable energy electricity. 65 per cent is the share of EAF mills in the US and, roughly, also in the EU. Moreover, we learn that “[T]he majority of further reductions would then come from changes in the Blast Furnace [BF] process, such as the use of natural gas, carbon capture and storage (CCS), direct electrolysis (DE) of iron ore, or hydrogen reduction.”

            It follows that the brunt if not all costs of the US decarbonization strategy for transatlantic steel sales would have to be borne by electricity generators and sellers that feed the arc furnace with renewable energy; non-club-exporters’ decarbonization costs, which they are presumed to afford gladly in order to access the powerful because lucrative transatlantic market, as well as their tariff payments to the US government. The latter should be “plowed”, TTM tell us, right back into domestic R&D subsidies for green steel production technologies.

            Unfortunately for the People’s Republic of China, which remains the only explicitly mentioned target country of the scheme, EAF makes for only six percent of production in the Middle Kingdom. But that certainly doesn’t mean that the PRC and its producers cannot play a role in TTM’s efforts to organize international support for the decarbonization of the steel sector of one of the richest and most powerful nations in the world. At the very least, Chinese producers would still be eligible to contribute the very share of tariff costs that is not passed through to US consumer.

            Finally, given the stack of WTO legal problems that the implementation of this proposal would cause - because it is deeply and utterly protectionist and discriminatory - TTM have already thought of a solution, of course. Club members would forge a WTO alliance dedicated to amending WTO law to enable the legality of their very regime and other climate change mitigation policies, including green industrial subsidies and public procurement. On the basis of such a dramatically illegitimate policy, a consensus among WTO members will not emerge, while the EU is now stuck with an approach that questions the basic tenets of WTO law, jeopardizing the credibility of not only her international climate but also of her trade policy leadership.

The Worst of Two Worlds: The Ubiquitous Policy Design Flaws of the ‘Green Steel Deal’

The plan, in sum, foresees the creation of a transnational ‘deep integration’ regime that provides for safe passage of Trump’s 232 national security tariffs to an allegedly decarbonizing sectoral arrangement. (However, TTM do not want to rule out that, if opportune, the transatlantic green steel deal CET would apply on top of Trump’s 232 national security tariffs since their raison d’etre, global overcapacity, was still existent, cf. FN 17). The scheme, by implication, would oblige the European Union and other club members to adopt Trumpian steel tariff protection to their own steel imports from China and others. In a second step, the EU would be required to increase such protection over ten years time from the Trumpian baseline of 25 per cent, eventually evolving into a formal ban of dirty steel imports and sales. Interestingly, the plan would extend the reach of the proposal of Congressmen Peters and Coons for an ‘import polluter fee’ – which I discussed with TTM here and here - and export its massive design flaws to the European Union. It is interesting to note, too, that the Coons/Peters bill had reportedly been killed by the White House but now magically resurrects in the shape of a market oriented and decarbonized Trojan Horse in the space of transatlantic cooperation. Cheeky but clever.

            The design flaws of TTM’s proposal and the misconception it is based on are as manifold as they are severe. I discuss the most critical technical issues below. Crucially, overall, the proclaimed decarbonization objectives of the TTM proposal are either completely or largely disconnected from outcomes - due to the employment of sometimes dramatically inadequate policy instruments or their simple omission. It remains entirely unclear, for instance, how and over what time period the US and her partners would implement decarbonization beyond the first ten years. Leaving timing aside, what is most striking is the (careless, at best) omission of a dynamically increasing carbon intensity product standard – a ratchet mechanism – without which decarbonization cannot progress beyond the first decade.

CBAM Objectives: A Misconception

            A preliminary note on the concept and objectives of carbon border adjustments: the plan’s key feature, a transatlantic common external tariff on steel, i.e. a carbon border adjustment for  domestic producers’ regulatory adaptation cost in the shape of a ‘green production methods regulation’, is, according to TTM, aimed at incentivizing China et al to decarbonize. With that, TTM’s CBA is no short of a coercive beggar-thy-neighbour climate policy, which reveals the authors’ misconception of the primary if not exclusive legitimate purpose of carbon border adjustments, that is to prevent or to offset carbon leakage, i.e. production substitution effects that result in the compensation or even overcompensation of emission reductions in abating jurisdictions through increased production in unregulated jurisdictions. CBAs only complement national decarbonization efforts at the border by levelling the playing field among domestic and foreign producers. They can politically secure domestic abatement efforts and guard against abatement losses to polluting jurisdictions. Ex ante empirical studies demonstrate that CBAs can, if properly designed, be effective in preventing or offsetting carbon leakage. The literature provides no evidence whatsoever in support of TTM's hypothesis, however, that CBAs set sufficient incentives for foreign producers to decarbonize. Decarbonization abroad, therefore, remains a leap of faith and the European Commission’s CBAM proposal’s implicit and clearly subordinate aim.

GATT Legal Consistency: Roadblock or Test for Effective Climate and Trade Measures?

The use of tariffs to punish non-club-membership – and therefore induce decarbonization– is possibly a futile effort but it would most definitely have the ‘intended or actual coercive effect on the specific policy decisions made by foreign governments’ that the Appellate Body in the US-Shrimp dispute found to be unjustifiable under the General Exceptions of GATT Article XX. Speaking of WTO legality, a second preliminary note is warranted: TTM want their readers to believe that “making WTO consistency a primary consideration significantly limits the potential for aggressive climate measures, as well as cooperation among like-minded countries”. This is a poisonous allegation at a time when the Democratic Party’s policy elite in Washington DC increasingly embraces Trump’s ‘America First’ paradigm under a different name. Save the fact that TTM’s plan does not actually entail any aggressive climate measures, pitching outcome legitimacy of CBAs against WTO legal consistency suggests, on the first sight, a curious ignorance of the operation of basic GATT rules. It is well known that WTO jurisprudence on Article XX GATT General Exceptions gives WTO members broad discretion to adopt a discriminatory measure as long as the discrimination inherent to that measure is rationally linked to the achievement of the protected legitimate policy objective. It further provides WTO members with an objective assessment of the suitability and effectiveness of a measure to achieve a legitimate purpose. In other words, a measure’s effectiveness makes for a prerequisite of WTO legal consistency. This observation could give rise to the suspicion, on the second sight, that TTM have something else in mind, notably to discredit perfectly functional WTO legal provisions with a view to providing extra-legal justifications for steel protectionism disguised under the banner of climate objectives. Yet, international political support for a CBAM and the credibility of transatlantic leadership will crucially depend on the de jure legitimacy of the measure in question, which, as stated above, can only be derived from the linkage of policy instruments and their effects to the achievement of protected objectives.

            It is unfortunate, in this context, that the ‘Green Steel Deal’ proposal by TTM  consistently employs second or third best and US-centric means that are either disconnected or only loosely linked to stated purposes. 

Caveats of Regulatory Adaptation Cost Conversions: The US needs a Price on Carbon!

TTM’s common external tariff rate applicable during the first ten years, for starters, would be calculated in accordance with a methodology that converts average domestic regulatory adaptation costs  - in this case: the incremental average producer costs of greening production methods - into an ordinary customs duty. This approach is - whatever the precise methodology of cost conversion -, for several reasons, quite clearly second best to the use of average explicit carbon costs (e.g. a carbon tax or an ETS charge). The conversion of average regulatory adaptation costs into a tariff is much less precise and accurate in projecting incentives for abatement at home and abroad. The individual nature of producers’ abatement cost curves implies that cost averages converted into border charges will inevitably over-protect some and under-protect other domestic producers. The selection and conversion of individual regulatory measures into average cost is, moreover,  associated with a degree of econometric complexity and arbitrariness of choice. The US methodology of choice, in other words, is far from an exact science. All of the beforementioned pitfalls would be avoided if the US shifted abatement efforts to a threefold synergistic combination of a carbon price, carbon intensity product standard, and subsidy instruments. This could be done with relative ease in the steel sector in particular, where producers currently face little to no regulatory abatement costs at all. Adding a transatlantic regulatory layer of implicit costs alone, on the other hand, is making one’s life unnecessarily complicated. The US needs a carbon tax, which she can then offset 1:1 at the border if need be.

            Methodological pitfalls are also the reason why the European Commission’s CBAM proposal disregards regulatory adaptation costs at home and abroad as input for cost conversions into a border adjustment. Conversions of implicit carbon costs, in addition, hardly lend themselves to international CBAM cooperation: a requirement to calculate the equivalence of all third country regulatory measures relevant for exports in relation to an explicit or implicit carbon cost imposed at home, to be sure, would confront implementing agencies with a herculean task and may render the adoption of a CBA a mission impossible for many governments that operate in resource scarce environments. The use of explicit carbon prices (i.e. a carbon tax or ETS charge) as the sole variable of carbon cost equivalence across jurisdictions, on the other hand, is a straightforward and, importantly, transparent exercise. It therefore undeniable that it makes for the by far superior policy instrument.

            TTM rightly points at US domestic political obstacles (in the shape of Senator Joe Manchin’s opposition) to the adoption of an explicit carbon price to justify their choice. But Senator Manchin is a US domestic problem. It appears absurd to consider that political opposition from one single US Senator who suffers from regulatory capture by West Virginia’s coal industry, could induce partner governments such as the EU institutions to adopt inferior policy instruments and put a wedge into the machinery of international CBAM cooperation, which would eventually result in less ambitious global climate targets and carbon reductions. TTM’s expectation that US climate cooperation partner governments should submit to systemic US domestic political corruption and lower their climate policy standards and ambitions accordingly, moreover, is outright preposterous. Anu Bradford notes, for instance, that after the US Supreme Court’s ruling in Citizens United (…) many in the United States worry that the extent of business lobbying has distorted the democratic process. (…) Thus, if regulations in countries outside the EU are too permissive, too weakly enforced, or otherwise suboptimal, the Brussels Effect might be a desirable way of overriding them” (The Brussels Effect, p251). And while US domestic political contingencies may make for an insurmountable obstacle to level-up at this point in time, Anu Bradford’s insight provides a realistic and positive outlook in the medium-term, provided that the Union’s institutions do not compromise on the explicit carbon price imperative in the short term.

            TTM leave us in the dark over the question, secondly, which US emission regulations could possibly add up to producer adaptation costs equivalent to a 25 percent or 50 percent border tariff adjustment. These figures need to be evaluated in light of the fact that US steel sector abatement policies are almost exclusively based on positive incentives, i.e. subsidies. Subsidies paid to domestic producers would naturally decrease the converted border adjustment rate because border adjustments are limited by law to the net implicit and/or explicit carbon costs imposed on domestic producers.

            It is noteworthy, in this context, that it was the technological development of electric arc furnace (EAF) run mini-mills in North America which significantly advanced carbon competitiveness in the steel producing sector. But the success of mini-mill production by the end of the 20th century was not a consequence of US emission regulation. It was their promise to revive the US steel sector’s competitiveness as a result of major efficiency gains. In other words, for the US steel sector, economic and carbon efficiency have gone hand in hand rather than in contradiction to each other, casting doubts over the question of necessity and legitimacy of a US border adjustment for steel imports in the first place. It is at least questionable, whether firm level spending for technological upgrades are not at least partially attributable to the normal investment cycle rather than regulatory decarbonization requirements. In comparison to the TTM plan for a generous tariff of 25 percent to over 50 percent, the EU CBAM impact assessment cites an average tariff equivalent of ETS carbon costs paid by EU producers in all five covered sectors of only 4 percent by 2035.

Caveats of Country Wide Average Carbon Intensity Benchmarks

At least notionally, TTM’s plan proposes the use of one average carbon intensity benchmark for all countries for assessing compliance with the transatlantic ‘green production methods’ standard during the first 10 years. This makes, as noted further above, for both an arbitrary and unjustifiable choice of instrument. In planned practice, TTM simply assume that third countries do not adhere to the ‘green production method’ standard if they have not signed up to the club obligation and therefore render them subject to the transatlantic CET. Employing data of average country wide carbon intensities instead of data of actual emissions embedded in individual import shipments vastly distorts incentives for abatement and runs counter to TTM’s proclaimed external decarbonization objectives. Producers from ‘dirty countries’ (i.e. from jurisdictions whose producers on average do not meet the transatlantic green methods standard) receive virtually no individual incentive to advance decarbonization because an exemption from the transatlantic CET depends on country-wide and not individual decarbonization efforts. ‘Dirty producers’ from ‘clean countries’ (i.e. jurisdictions whose producers on average meet the transatlantic green methods standard), on the other hand, free-ride on the decarbonization achievements of competitors who produce ‘clean steel’ in the same jurisdiction.

            In light of these considerations, the European Commission has included, in Article 7 and 8 of its CBAM legislative proposal, what Mehling and Ritz call an Individual Adjustment Mechanism (IAM). The IAM allows individual producers to demonstrate - by means of independent verification of actual emissions data - that the emissions embedded in their products are lower than the scheme’s benchmarks and ensure that carbon cost and embedded emissions stand in perfect correlation to each other, therefore setting highly efficient abatement incentives and providing for a stronger (because perfectly linear) relationship between the (legitimate) policy objective and the (discriminatory) adjustment instrument. In other words, the IAM not only enhances policy effectiveness but also the prospects of WTO GATT legal consistency. In the EU, CBAM emissions reporting will begins three years before CBAM charges apply, allowing for enough time to socialize the new practice with importers, producers, and government agencies.

Caveats of Non-Cost-Crediting CBAM Policies

The provision of transparent, positive, individual and performance based commensurate incentives is also the rationale that should apply to the instrument of crediting explicit carbon costs paid by foreign producers in their home jurisdictions. TTM’s ‘Green Steel Deal’ does not include this option, neither in the transition phase nor after, whereas the European Commission’s CBAM proposal rightly envisages the crediting of explicit carbon costs paid abroad to any CBAM charges that may apply (Article 9). Not to credit carbon costs would set negative incentives against the adoption of explicit carbon pricing schemes in third country jurisdictions because emissions embedded in their exports would be charged – in violation of WTO law – twice. Non-crediting CBA policies also sets incentives for WTO incompatible (in regard of regulatory adaptation and ETS costs) and WTO compatible (for carbon taxes) export rebates, and may, crucially, increase the potential of triggering a global export refund arms race and rising carbon leakage rates that find their valve in international steel markets. Carbon cost crediting policies, as proposed by the European Commission, on the other hand, incentivize carbon pricing abroad, which makes for key source of abatement in TTM’s ‘Green Steel Deal’.

            The functional benefits of cost crediting policies in regard of their contribution to achieving protected policy objectives, as noted above, also greatly increase the likelihood of WTO legal consistency. Non-crediting schemes such as TTM’s ‘Green Steel Deal’ proposal would likely be found to constitute a disguised restriction on international trade and/or an unjustifiable discrimination among different WTO members and therefore fail the basic tests of the chapeau of Article XX GATT. 

Carbon Club Caveats

The perhaps most fundamental problem with TTM’s ‘Green Steel Deal’, however, lies elsewhere. It is the overambitious ‘deep integration’ institutional design of the proposed transatlantic carbon club, which would ironically lead, if implemented, to less net emission abatement compared to looser forms of integration or even the non-cooperation baseline scenario. This fact can be explained by structural differences among the proposed members, the EU and the US. The depth of integration among prospective potential members of a carbon club first and foremost ought to be a function of structural indicators of similarity including a shared (political economy dependent) level of ambition, similar administrative implementation and enforcement capacities, sophisticated existing climate and trade policy frameworks, as well as methodological and technological know-how.

            But the difference between EU and US climate and trade policy toolkits, the structural divergence of the respective political economies and polities as well as overall prohibitive costs of aligning around a lower US denominator render the achievement of TTM’s proposed club features a mission impossible. A transatlantic carbon customs union would require integration at the level of currently inferior US policy instruments as discussed above. The US domestic climate policy toolkit simply does not feature the instruments necessary for effective cooperation on carbon pricing equivalence, a common border adjustment or even credible planning therefor. In consequence, the EU would have to shelve a highly sophisticated CBAM legislative proposal, unlink its CBA plans from its mature and tested ETS, and give way to various evidently less efficient, less effective, and WTO inconsistent solutions. And while it is out of the question that the Union’s institutions would accept such unreasonable demands, the EU’s ‘no’, which has already been expressed by the European Commission’s Director for Transatlantic Trade Relations, is likely to frustrate the widespread expectation of a transatlantic CET that has somehow already been internalized  by the policy elite in Washington DC.

            It should be noted, at this point, that it is not without coincidence that only one effective carbon club exists to date, which has set out to adopt a common external border charge for steel and four other EITE sectors, notably the deeply integrated European Union with its more than six decades old Common Commercial Policy and its Emission Trading Scheme (ETS) operated since 2005. Effective carbon clubs are not built in a day, at the very least, and the devolution of policy achievements to lower standards to accommodate the second best is not an option in light of the existential urgencies that drive 21^st century climate and trade policy.

            In this way, overambitious club design may well – through failure - give the notion of a climate club an unnecessarily bad reputation. Falkner, Nasiritousi, and Reischel note, for instance, that a prospective transatlantic climate club must be assessed on the basis as to whether it adds or distracts from the multilateral climate regime or diverts resources away from more effective national abatement efforts. Baron and Lee find, moreover, that conventional climate clubs built on the Nordhaus example, such as the ‘Green Steel Deal’, are too simplistic to address the complexity of the abatement challenge and therefore make for a “waste of time”.

            Indeed, in light of the prohibitive costs associated with the creation of a transatlantic carbon customs union, the EU and the US should focus their joint efforts on more flexible and pragmatic cooperation objectives that avoid, ideally from the outset, wrangling over which side adopts whose standards and practices. Some observers, for instance, have characterized recent US proposals for an import polluter fee or a clean steel deal with the EU as a ‘first bid in a negotiation’. While such attitudes are somewhat understandable extensions of specific cultural approaches to international negotiations, this, too, is a waste of time. Transatlantic cooperation on climate change mitigation does not seem to lend itself to be approached like a beef quota bargain. Rather, it should be viewed akin to a technical assistance opportunity, which knows only ‘winners’ (i.e. beneficiaries) as long as it is not loaded with secondary (e.g. protectionism) or tertiary (e.g. global power competition) objectives that distract from the only two legitimate ends of climate & trade nexus cooperation: industrial decarbonization and the prevention of carbon leakage.

            A transatlantic arrangement for steel to address carbon intensity is an opportunity for the US in particular to progressively align its climate & trade policies with the EU standard and best practices that are laser-focused on creating efficient incentives for abatement at home and abroad as well as achieving effective decarbonization and carbon leakage policies. At the outset, a carbon customs union is not the right way to achieve this objective. The recent German key issues paper for an international carbon club may well be more suitable to the initial purposes of a progressively and incrementally integrating club because it entails a phased approach that retains full flexibility regarding the elements of cooperation and integration between jurisdictions that diverge from each other in terms of their regulatory, industrial, and political contingencies.

            Priority should be given to cooperation on prerequisites of carbon leakage policies, including first and foremost, the joint development of standards for pricing and measurement of carbon emissions, joint industrial transformation/decarbonization efforts with specific timeframes, a dynamic emission ratchet mechanism, as well as transatlantic market and investment initiatives. Once joint pricing and measurement methodologies and product standards have been developed and enacted, members could envisage the progressive alignment of their border adjustment mechanisms. But the unknown marginal benefit of such initiatives does not render them a top priority. Cooperation with non-members to similar ends, and the provision of technical as well as financial assistance through a greening of aid for trade, would support the notion of a genuinely ‘open’ climate club.

Conclusions

If adopted by US officials in their negotiations with EU interlocutors over the next two years, TTM’s Green Steel Deal is certain to  result in severe repercussions for transatlantic climate and trade diplomacy under the Biden administration and a waste of precious time. These are not empty phrases.

            High ambition, expediency, precision and effectiveness in policy design and implementation are of essence when it comes to transatlantic cooperation on climate change mitigation. Yet, TTM’s ‘Green Steel Deal’ is neither the state-of-the-art nor anywhere near it. Instead, it has considerable potential to frustrate expectations on both sides of the Atlantic at this critical juncture and would, with near certainty, conclude in a high-profile diplomatic setback. That’s because the plan stands precisely zero chance of being adopted by the European side, neither in structure nor in content. The reasons are manifold, as discussed above. The ‘Green Steel Deal’ would tightly link ineffective climate and wasteful industrial policy and thus, figuratively speaking, put green lipstick on a protectionist pig. This unholy marriage would profoundly harm the international credibility and legitimacy of EU and US climate endeavours and carelessly jeopardize the achievement of a top priority policy objective by catering to domestic rent-seekers for short term political purposes.

            TTM’s plan is policy made up of the worst of two worlds: it relies on instruments that are inadequate or third best solutions to the abatement challenge while it is appealing policy only for those on the far left and right whose political fate depends on the costly protection of uncompetitive domestic industries in the way Mancur Olson has so famously described it in ‘The Rise and Decline of Nations’.

            If implemented, the plan would project an image of transatlantic abdication and further US decline instead of global policy leadership based on a role model of domestic modernization and efficient external incentives. The ‘Green Steel Deal’ in Todd Tucker’s and Tim Meyer’s version is unaffordable in multiple dimensions, including the notion of a Carbon Customs Union and should be binned immediately as a matter of principle and example of what transatlantic cooperation must not set out to pursue.

            Climate change mitigation, the by far biggest challenge of our times, deserves nothing less than our undivided attention, policy and technological innovation, and ambition to achieve first best policy solutions and outcomes at all times.

Three Forces of the World Trading System

On November 26, the World Trade Organization (WTO) General Council decided to indefinitely postpone the 12^th Ministerial Meeting (MC12), which was scheduled to convene from November 30 to December 3 this year, due to “an outbreak of a particularly transmissible strain of the COVID-19 virus.”  The prospect of the MC12 now appears to be as uncertain as that of the current pandemic.  The bigger question, however, is: Quo Vadis the WTO?  Today, I would like to introduce one way to approach this complex question.  To answer this question, one needs to understand what kinds of forces may exist around the WTO.  Three forces may stand out: political, legal and sociological. 

First, does the WTO exert any significant “political” force of its own?  The answer may be in the negative.  Yes, the General Council did indeed agree to postpone the MC12, yet it hardly evinces the WTO’s own political power.  While the WTO Charter does have detailed provisions on the collective decision-making mechanism, including simple- and supermajority voting, its legal force has been muted due to the lack of political force behind it.  It is this organizational power vacuum that allowed private force, in the name of “veto,” to dismantle the Appellate Body, despite its legally guaranteed place under the DSU.  Private political force has recently dominated trade narratives at the expenses of the WTO’s political power, as seen in the continuing trade war between the United States and China, the EU’s recent campaign for aggressive trade remedies, China’s Belt and Road Initiative (BRI) and the Russia-led Eurasian Economic Union.  These manifestations of private political force, either unilateral or regional, tend to fragment the WTO’s own political power.  Some argue for empowering the WTO, in a political sense, by boldly executing its never-invoked voting procedure, calling some members’ bluff.  Vote or veto, that’s the question!  It is no exaggeration that the future of the WTO’s political power depends on the sequence of these two vowels (e and o).

Second, the WTO’s legal force emerges from its legal texts.  It is an official force that makes the WTO exist.  Based on this force, WTO members pay their dues and fund the WTO Secretariat.  Under this force, various meetings are held and members still sue each other.  Admittedly, the WTO’s legal force is inextricably intertwined with its political and sociological force, as discussed below.

Finally, the WTO enjoys compliance pull not only from its members but also other non-state stakeholders, including businesses and academia.  They take the WTO norm, especially its precedent, for granted, and act upon it in their everyday lives.  It is tantamount to their “language” in the sense that both WTO members and individual economic players may make themselves understood to each other via the WTO norm.  The WTO norm is a form of social knowledge that both WTO members and private businesses are eager to learn, as seen in impressive public-private partnerships in Brazil, India and China.  This sociological force of the WTO exists with or without corresponding political and legal force.  For example, the WTO precedent still enjoys a normative force as WTO members and other stakeholders continue to cite and quote WTO case law, despite that it is mostly not “binding” in a technical legal sense.  Often, the WTO’s sociological force may complement its weak political force.  The WTO Multi-Party Interim Appeal Arrangement (MPIA) is a case in point.  A substantial number of WTO members succeeded in creating a replica of the now defunct Appellate Body as they wished to continue their long-enduring ritual of trade adjudication.  Note that this sociological force has been harnessed by a legal force emanating from DSU art. 25.  Admittedly, how strong, or effective, this sociological force would eventuate remains an empirical question.  Finally, WTO scholars, as they continue to publish books and articles on the WTO norm in trade law and economics journals, retain and pursue what sociologists refer to “symbolic capital.”  Academia plays an essential role in disseminating social knowledge of the WTO norm to a broader audience, including private business and policymakers.  While WTO scholars observe and investigate actions of social actors, such as businesspeople and WTO members, the former can also influence the latter’s behaviors.  This feedback loop (“double hermeneutic”) does not exist in natural science, as a biologist cannot persuade a virus into changing the course of its movement (“single hermeneutic”). 

Indeed, our own IELP blog may contribute to harnessing the WTO’s sociological force.  So, may the Force be with you!

More Hurdles for the "Green Steel Deal"

This is from a CFR blog post by Jennifer Hillman and Alex Tippett on the "green steel deal":

For the proposed U.S.-EU agreement on green steel and aluminum be successful, however, it will have to avoid several potential pitfalls. First, the deal cannot devolve into a stalking horse for protectionist interests. As currently conceived, the deal appears intended to incentivize reforms abroad by promising largely unrestricted access to U.S. and European markets for countries that meet certain standards. The allure of the European and U.S. markets pushes trade partners to make domestic reforms so they can meet those standards, helping to address overcapacity and reduce carbon emissions along the way. This only works, however, if the standards are clear and genuinely achievable while stringent enough to be impactful.

The United States and the European Union will also have to disentangle improper production or export subsidies from subsidies intended to lower carbon emissions. Greening steel and aluminum production is an expensive endeavor and, in most countries, will likely only occur with state aid. That aid, however, is liable be construed as granting an unfair advantage to recipients. U.S. steel producers, for instance, are already beginning to gripe about subsidies intended to help EU steel producers reduce their carbon footprint. Without clear redlines delineating permissible forms of state action, effort to encourage decarbonization could be derailed by finger-pointing over improper subsidization. At the same time, however, overly onerous restrictions on state action could delay the transition away from carbon-intensive production methods. Developing a shared set of standards for appropriate and inappropriate subsidization should be a priority for U.S. and European negotiators.

Finally, any final deal should include some sort of framework for technology sharing, both between Europe and the United States and between the United States and Europe and those countries working to green their own steel and aluminum industries. Enabling green manufacturing techniques to flow smoothly between the United States and Europe while also demanding ever-cleaner production at home would ensure that a U.S.-EU deal also helps reduce domestic emissions. While U.S. and EU steel producers do emit less than their counterparts overseas, a significant portion of that difference is due to the prevalence of electric arc furnaces in the United States and the EU. Electric arc furnaces are cleaner and smaller than the blast furnaces common in China and elsewhere. Rather than using this quirk of the modern steel market to avoid further modernization efforts, however, the United States and Europe should strive to have even cleaner production at home—with the goal of net-zero steel and aluminum production. At the same time, ensuring these green production technologies are readily available beyond Europe and the United States is essential to ensuring a rapid and equitable transition.

When you combine their concerns with the ones I raised here and here, I'm pretty skeptical this initiative is going anywhere. It's not that something like this couldn't be done. You could definitely have some sort of coordinated international effort to reduce carbon emissions in manufacturing. (I don't think manufacturing should be the only focus, but clearly it's an important aspect). Rather, it's that due to the way the effort is being approached as described so far, there are a number of embedded problem that I don't think can be overcome.

(I should  mention that the overall take on this initiative from Jennifer and Alex is more positive than mine is.)

ITC Institutes Investigation on Distributional Effects of Goods and Services Trade and Trade Policy

Back in mid-October, USTR asked the ITC to carry out a two-part investigation of the distributional effects of goods and services trade and trade policy. The ITC just announced that it would undertake this investigation. The Notice of Investigation is here.

There has been a lot of good economic literature on the impact of recent U.S. protectionist measures. For the most part, the ones I've seen weren't designed to look at distributional effects, but I'm sure they could be adapted to do so. 

The ITC's full explanation in its announcement was as follows:

The U.S. International Trade Commission (USITC) is undertaking a two-part investigation that will catalog existing information and develop new research and analysis capabilities to better identify and measure the potential distributional effects of U.S. trade and trade policy on U.S. workers, including by skill, wage and salary level, gender, race/ethnicity, age, and income level, especially as they affect under-represented and under-served communities.

The investigation, Distributional Effects of Trade and Trade Policy on U.S. Workers, was requested by the U.S. Trade Representative (USTR) in a letter received on October 14, 2021.

As requested, the USITC, an independent, nonpartisan, factfinding federal agency, will provide a two-part response to the USTR.

Part 1: Public Report

The USITC will prepare a public report that catalogs information on the distributional effects of trade and trade policy on under-represented and under-served communities.  The report will:

• include information gathered through roundtable discussions among representatives of under-represented and under-served communities that have been identified in the Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, as well as think tanks; academics and researchers; unions; state and local governments; non-federal governmental entities; civil society experts; community-based stakeholders, such as minority-owned businesses; business incubators; Historically Black College and Universities (HBCUs); Hispanic Serving Institutions (HSIs); Tribal Colleges and Universities (TCUs); other minority-serving institutions (MSIs); and local and national civil rights organizations;

• include information gathered through a symposium focused on academic or similar research on the distributional effects of trade and trade policy on under-represented and under-served communities, including results of existing analysis, evaluation of methodologies, the use of public and restricted data in current analysis, identifying gaps in data and/or in the economic literature, and proposed analysis that could be done with restricted data;

• include information gathered through a critical review of the economic literature on the distributional effects of trade and trade policy on under-represented and under-served communities, including among other things, the data limitations raised in these analyses; and

• identify information on effects on U.S. workers by the groups specified, identifying their specific U.S. region, and make recommendations on future research.

The Commission expects to submit its report to the USTR by October 14, 2022.

Part 2: Expansion of USITC research and analysis capabilities

The USITC will expand its research and analysis capabilities so that future probable economic advice includes estimates of the potential distributional effects of trade and trade policy, including goods and services imports, on U.S. workers.

This capacity building will include the further development of models capable of analyzing:

• the potential distributional effects of trade and trade policy, including with respect to goods and services imports, on U.S. workers;

• the effect of expanded market access for U.S. goods and services products abroad on affected U.S. exporting industries; and

• to the extent practicable, the “indirect” effect on U.S. exports of intermediate inputs when final goods receive preferential access to the U.S. market.

Through this capacity building, the USITC will also identify any data limitations that, if removed, could substantially speed the time to complete the analysis or allow for improved analysis.

The USITC will provide a briefing to USTR on the results of its capacity building on these issues during the course of its work. 

Public participation

The USITC expects to hold a public hearing, a series of public roundtables, and a public symposium in connection with the investigation.  Information concerning these events will be announced as details are finalized.  Interested individuals are encouraged to monitor the investigation-specific web page being maintained for the investigation for up-to-date information.

The USITC will also accept written submissions for the record.  Information concerning written submissions will be announced when details are finalized.  Interested individuals are encouraged to monitor the investigation-specific web page being maintained for the investigation for up-to-date information.

Solar Safeguards and Compensation

In keeping an eye on trade disputes in the pipeline, I was recently looking over the USMCA Chapter 31 complaint brought by Canada against the U.S. solar safeguard measures. I haven't read the submissions closely enough to have a view on who is right and who is wrong here, but what did occur to me was that there's a big picture question related to how governments sometimes react to safeguard measures that puzzles me. Perhaps someone more familiar with either safeguard measures or how governments think has some insights.

Let me note at the outset that I support trade liberalization (obviously), but nevertheless I can see the political need for a "safety valve" by which a government lets affected domestic industries ask for temporary tariff protection from foreign competitors. Safeguards seems like the best way to do this. There's no formal allegation of "unfairness," but rather just a request for some temporary protection to help facilitate adjustment to competition with imports.

But safeguards have not worked very well in this regard, at least according to some people. Maybe it's the requirement that safeguards be imposed on a global basis, rather than allowing them to be used in a country-specific way. Or maybe it's the limited period for which they can be imposed. Or maybe it's the requirement that the imposing country offer compensation to affected countries. Or perhaps it's the explicit tie of safeguard measures to adjustment of the domestic industry. Whatever the reason, in practice, anti-dumping may be acting as the safety valve instead of safeguards. In my view, this has led to serious problems for the trading system, as governments push the boundaries of appropriate dumping methodologies and everyone accuses each other of unfair trade.

Those are some pretty big picture points, but let me turn now to a more specific one. In the solar safeguards USMCA case, Canada has challenged various aspects of the U.S. measure. I can see why Canada would bring a complaint under the USMCA as a matter of principle. What I don't understand, though, is why Canada wouldn't demand compensation right away. (And as I understand it, Mexico hasn't done so either). Filing complaints can be useful in some cases, but pushing for compensation seems like it would be a quicker way to get the result you want (rebalancing or modification/withdrawal of the measure). It may be true that the compensation requirement weakens safeguards as a safety valve in general, but the requirement is in there, and in specific cases I would think the affected countries would want to take advantage of it.

In terms of the mechanics of compensation, the Safeguards Agreement sets it out as follows:

Article 8: Level of Concessions and Other Obligations

1. A Member proposing to apply a safeguard measure or seeking an extension of a safeguard measure shall endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing under GATT 1994 between it and the exporting Members which would be affected by such a measure, in accordance with the provisions of paragraph 3 of Article 12. To achieve this objective, the Members concerned may agree on any adequate means of trade compensation for the adverse effects of the measure on their trade.

2. If no agreement is reached within 30 days in the consultations under paragraph 3 of Article 12, then the affected exporting Members shall be free, not later than 90 days after the measure is applied, to suspend, upon the expiration of 30 days from the day on which written notice of such suspension is received by the Council for Trade in Goods, the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure, the suspension of which the Council for Trade in Goods does not disapprove.

3. The right of suspension referred to in paragraph 2 shall not be exercised for the first three years that a safeguard measure is in effect, provided that the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of this Agreement.

Thus, under the Safeguards Agreement, the procedure is somewhat complicated and you may not even be able to get anything until the measure has been in force for three years.

However, Canada and Mexico also have rights under the NAFTA/USMCA, pursuant to which the rules for compensation are less demanding. Here is NAFTA Article 802.6:

The Party taking an action pursuant to this Article shall provide to the Party or Parties against whose good the action is taken mutually agreed trade liberalizing compensation in the form of concessions having substantially equivalent trade effects or equivalent to the value of the additional duties expected to result from the action. If the Parties concerned are unable to agree on compensation, the Party against whose good the action is taken may take action having trade effects substantially equivalent to the action taken under paragraph 1 or 3.

See also USMCA Article 10.2(6). So under the NAFTA/USMCA rules, there's no need to wait until year 4 for compensation. Canada and Mexico can demand it right away.

The solar safeguards measure went into effect on February 6, 2018, so we are coming up on four years now (and the ITC is hearing arguments relating to an extension of the measure).  And yet, as far as I know, Canada and Mexico have not demanded anything in terms of compensation. That means Canada is litigating under USMCA Chapter 31, but apparently not taking the step of pushing for compensation. (Sometimes these issues fly under the radar, so it's possible there have been conversations that were not reported publicly or that I missed.)

The amounts here are not massive, but they are also not nothing. For the sake of simplicity, just to focus on one of the categories covered by the presidential proclamation, 8541.40.60 (solar cells, whether or not assembled into modules or made up into panels), by my rough calculations based on data from ITC DataWeb, in 2017 Mexico was the 6th leading source of U.S. imports of these products, with about $275 million of imports; and Canada was 10th with about $148 million. By 2020, after the measure had been applied for a couple years, Mexico was down to less than $94 million and Canada was down to around $52 million.

We can argue about the policies, and whether it would be better to loosen up the requirements for safeguards in order to shift people away from anti-dumping, but for the most part the rules are clear: Governments affected by safeguard measures have the right to compensation. So why wouldn't they demand it here?

Webinar on the Appellate Body Crisis

Srikar Mysore Sridhar has organized a webinar on the Appellate Body crisis at Harvard's Kennedy School tomorrow (November 19, 2021 at 10 am EST (4 pm Geneva Time, 8.30 pm IST)). Cherise Valles will be moderating, and Peter Van Den Bossche, Joost Pauwelyn and I will be discussing. I don't expect we will fully resolve the crisis at the webinar, but hopefully it will be a good discussion nonetheless!

The zoom link is here - https://harvard.zoom.us/webinar/register/WN_u078UN5HQqCiF_IYkaipAw

Call for Papers: Workshop on The Political and Legal Theory of International Courts and Tribunals Oslo

From PluriCourts:

The research Centre PluriCourts is planning a multidisciplinary workshop on international courts and tribunals which will take place 20. - 21. June 2022 in Oslo. The workshop will bring together scholars of philosophy, legal theory, and political theory who study regional and international courts and tribunals, and in particular issues surrounding legitimacy and adjudication.

In relation to the workshop, we have an open call for papers with a deadline 1. January. 

More information on the workshop and the call for papers is available on our webpage.  Abstracts can be submitted using this link.

“Resistance Is Futile”: Debunking the Myth of De-Globalization

The World Trade Organization (WTO) released the World Trade Report today. Here are some excerpts:

[E]ven a crisis as devastating and unprecedented as COVID-19 has not resulted in the wholesale unravelling of trade and integration.

 [W]hat became clear over subsequent months was not only how quickly supply chains adapted and new producers emerged, but how the key to greater diversification lay in expanding and facilitating trade with other partners, not restricting or reshoring it.

 According to the WTO’s monitoring reports, a majority of COVID-19-related trade measures recorded since the outbreak of the pandemic were trade-facilitating. Even in the heavily impacted services sector, most COVID-19-related measures were trade-facilitating.

 Developed economies have been able to respond to the COVID-19 crisis with massive fiscal stimuli and far-reaching income support. (…) However, these same shock absorbers and safety nets are simply unavailable to most poorer countries.

 Its core conclusion is that no country is an island in today’s hyper-interconnected world, that global crises require global responses, and that strengthening resilience requires more global trade and economic cooperation, not less.

This is by far the loudest (empirical) riposte to recent inward-looking political narratives along the lines of de-globalization, reshoring and decoupling. Even in the middle of the pandemic, trade has turned out to be a solution, not a problem. Indeed, tariffs have recently been inflationary within the U.S. economy, hurting both domestic manufacturers and consumers.

The WTO report leaves us with two main takeaways. First, this may be another reason why trading nations must reinstate the WTO’s dispute settlement mechanism so as to monitor and discipline oft-destructive domestic trade politics. The WTO may want to proactively coalesce with businesses and the civil society to make this cause heard and accepted more broadly. Second, the world and the WTO must address “development” concerns, not through typical lip services but through actually workable solutions. The Doha “Development” Round still remains unfinished, while more than three quarters of the WTO membership is comprised of developing countries. That’s scandalous!

Australia has published its 1st submission in China - ADD on barley from Australia DS598

To find the submission, go to this page Summary of Australia's involvement in disputes currently before the World Trade Organization | Australian Government Department of Foreign Affairs and Trade (dfat.gov.au)

and scroll down to find this link DS-598 Australia's First Written Submission (dfat.gov.au) in PDF or this link ds598-australias-first-submission.docx (live.com) in Word doc.   

Some Comments on a New Foreign Affairs Piece Discussing Trade and Climate Change

All these recent debates I've had with Tim Meyer and Todd Tucker on trade policy and climate change have me thinking about these issues generally, and I had a few comments on a new piece in Foreign Affairs by political science professor Jessica Green that touches on all this.

In a section entitled "Good Trade Discrimination," the piece starts with this:

WTO reform, too, can shift the momentum of multilateral climate policy. The trade body currently prevents nations from protecting their fledgling renewable industries from foreign competition.

In response, I would say a couple things. First, it's important to recognize that tariffs are permitted under WTO rules (and there are lots of them). Governments negotiate over maximum tariff levels, and make promises not to charge above a certain amount. So, if you want to charge tariffs on, say, solar panels, WTO rules do not prohibit you from doing this. You just have to negotiate for it in the context of the overall balance of commitments that everyone agrees to. (And that's before you even get to all the special trade remedy tariffs on clean energy goods. I wrote about this a few years ago, and these measures continue to proliferate.)

In addition, beyond tariffs being permitted, it overstates things a bit to say the WTO "prevents" governments from doing things. Governments can still do those things, they just may face authorized retaliation if they are found to be doing something in violation of the rules.

So, to sum up: The WTO does not prevent nations from protecting their fledgling renewable industries from foreign competition, although as discussed in the next paragraph, it does have rules about how they can carry out this protection. (And just to state the obvious, I'm not endorsing this sort of protection as matter of policy; I'm just saying it can be done.)

The piece then moves on to local content requirements:

Sustainable energy programs that require the use of local components run afoul of WTO rules. For example, Ontario established a tariff program in 2009 that sought to vastly expand renewable energy capacity in the province while providing jobs through a local procurement requirement. Along with similar programs developed elsewhere, the Ontario policy was brought before the WTO’s dispute settlement system and found to be in violation of the global trade rules. Yet evidence shows that the employment and other economic benefits of “build local” provisions can expand public support for further climate policy. Allowing countries the flexibility to make green investment decisions with these goals in mind can accelerate decarbonization—but only with the reform of the global trading system. 

It is absolutely true that local content requirements of this sort violate WTO rules (e.g., GATT Article III:4 and SCM Agreement Article 3.1(b)). As a matter of policy, however, this is one of those great areas where trade liberalization and fighting climate change can support each other. Regardless of whether including "build local" provisions can expand public support for renewable energy programs, these provisions are a disaster for renewable energy and should be avoided at all costs. If every sub-national entity were trying to promote local production of these products, we would end up with thousands of small, inefficient companies, and we could never make these products in a way that is affordable for the masses. In addition, if you want to protect "fledgling renewable industries from foreign competition," you can, as noted above, do it through tariffs at the national level, which is a more transparent way to do it than burying these provisions in legislation and regulations, and is more efficient than doing it at the sub-national level.

The piece then turns to carbon tariffs:

Some have advocated carbon border tariffs as a useful, WTO-compliant tool to strengthen climate policy. Such a system would permit states that have adopted a carbon price to levy tariffs on imports from nations without an equivalent carbon price. The idea is to create a level playing field where countries are not punished for climate ambition; countries with lax domestic policies must either raise their own carbon prices to match those of their trade partners or face import tariffs. 

This kind of “climate club” came a step closer to reality this summer when the European Union announced its intention to establish a carbon border tariff. Its implementation will be a mammoth regulatory undertaking. With the exception of California’s rules regarding electricity imports, an equivalent policy has never been enacted—and certainly not one on the scale the EU has proposed. A robust system will require strong sector-specific benchmarks to estimate the amount of carbon “contained” in products, as well as a large and competent bureaucratic agency to estimate tariffs and issue allowances.

In the end, the carbon tariff will be only as effective as the policies of the most determined members of this new “club.” Carbon prices must be set high enough that the tariffs they generate will drive other jurisdictions to pursue more ambitious policies. So far, however, carbon prices have remained astonishingly low, and evidence suggests they have produced limited reductions in emissions. In short, until a series of conditions is met, a carbon tariff will be little more than another procedural hurdle in the global supply chain. 

I don't disagree with any of this, although if done correctly, I think of these efforts as more of a non-discriminatory carbon tax, applied to both domestic products and to imports, than as a carbon "tariff." To me, a carbon tax is the most important component of any effort to fight climate change, and taxing only domestic products wouldn't make sense. You need to tax products regardless of their origin.

And then finally, the article has praise for the recent U.S.-EU steel and aluminum sectoral arrangement:

The trade regime can also catalyze significant climate action through the removal of tariffs. On the eve of COP26, the United States and the EU announced what amounts to an international decarbonization policy targeting the steel sector—the first policy of its kind. After a trade dispute during the administration of U.S. President Donald Trump that saw both sides ratchet up import duties, the United States and the EU have each agreed to cut tariffs on the other’s steel and aluminum products, while continuing to apply tariffs to countries that produce “dirtier” steel (such as China). Two of the world’s largest economies are effectively engaging in green trade discrimination, gambling that their combined weight will allow the policy to clear any legal cases brought before the WTO. Importantly, the U.S. steel industry and its union back the measure, demonstrating that trade policy can be a politically popular means of enacting what is effectively climate policy. And there may be more opportunities to wield trade deals in this way. Reaching a similar agreement with China, the world’s largest steel producer, to reduce tariffs contingent on climate action could do even more to advance emission goals.

I talked about this arrangement at length here and here, and for the reasons set out in those posts, I am deeply skeptical that this initiative is going anywhere. I probably don't need to repeat all those arguments here, so let me now just offer a couple comments on the way the argument is articulated above.

First of all, just to state the obvious and so that people won't think I'm endorsing this statement, she writes: "[a]fter a trade dispute during the administration of U.S. President Donald Trump that saw both sides ratchet up import duties, the United States and the EU have each agreed to cut tariffs on the other’s steel and aluminum products." But that is perhaps not the best way to characterize what happened. Rather, what happened was that the Trump administration imposed tariffs on steel and aluminum products from lots of countries based on a national security justification that virtually no one bought, and then the EU and some other countries retaliated with tariffs that applied to a range of products. Through the U.S.-EU arrangement, the U.S. is converting its tariffs to TRQs (hopefully implemented in a way that they won't restrict trade too much) and the EU is removing its retaliatory tariffs. So, this isn't really a tariff "cut," but rather almost sort of, but not fully, going back to the pre-Section 232 tariff status quo.

But putting that aside, it's important to note that at this point, any agreement between the U.S. and EU to cut tariffs on each other's clean steel while imposing tariffs on dirty steel from other places is purely theoretical. We are not there yet, and for the reasons I set out in the linked pieces, I doubt any of this is going to happen. It's not impossible, of course, but the U.S. would need to radically change a number of aspects of both its domestic climate policies and its international trade policies, and that seems unlikely. (For example, it would have to step up its domestic efforts in the fight against climate change, and it would have to rethink its approach to trade remedies, which will get in the way of free trade in clean steel. I don't expect much progress on either.)

In terms of political coalitions, with regard to support from the steel sector, she says: "Importantly, the U.S. steel industry and its union back the measure, demonstrating that trade policy can be a politically popular means of enacting what is effectively climate policy." On this point, what I would say is, for those who are trying to build political coalitions this way, I recommend some very frank and direct conversations with the steel industry and the unions. I have no doubt they support tariffs. They always do, for any reason. But what do they think of decarbonization measures? That's a very different question, and I wouldn't assume they are on board with serious carbon emissions reduction measures. It's definitely worth asking them this, and not just in the abstract, but with reference to specific measures you want them to support.

Next, what she says at the end about China is true but also kind of illustrates why the U.S.-EU sectoral arrangement as it has been described so far is not going to work. She says: "Reaching a similar agreement with China, the world’s largest steel producer, to reduce tariffs contingent on climate action could do even more to advance emission goals." Yes, it could be helpful if this kind of agreement with China were to be negotiated. However, when you take into account that dumping and market-orientation are a part of this arrangement, it becomes clear that there is zero chance the Biden administration is going to reduce tariffs on Chinese steel even if somehow that steel could capture carbon like a peat bog.

Finally, it is worth noting that there is something to her statement that "[t]he trade regime can also catalyze significant climate action through the removal of tariffs." Yes, it can. For example, removing tariffs on clean energy goods through an Environmental Goods Agreement would be very helpful for climate change. But the Biden administration does not seem interested in this, and that's not what the U.S.-EU sectoral arrangement is.

Latest Fisheries Draft Addresses US Concerns on Forced Labor

On November 8, 2021, a revised draft text and explanatory note on the WTO fisheries subsidies negotiations was released by the Chair of the talks, Ambassador Santiago Wills of Colombia. Some changes were simply editorial, others substantive, and some adjustments reflected areas for which more discussion was still needed. Taken as a whole, the updated fisheries text presents a fine balance of compromises, and could get WTO Members closer to finalizing the deal. While there could be significant movement over the next two weeks that could tweak the text further, there is one issue worth highlighting now, particularly as it relates to US concerns—forced labor.

The United States made a proposal in May 2021 to include provisions on forced labor. According to the press release from USTR:

The proposal urges WTO Members to help address this global problem in the ongoing negotiations to curb harmful subsidies to fishing activities that may be associated with the use of forced labor, such as illegal, unreported, and unregulated (IUU) fishing….

The U.S. proposal also calls for WTO Members’ explicit recognition of the forced labor problem and the need to address it, and proposes additional transparency with respect to those vessels or operators that use forced labor.

Some Members considered the proposal to come late in the negotiating process, but with a change in administration in the United States, such an intervention was entirely possible. While the US proposal did not make it into the last versionof the draft text that was released in June 30, 2021, due to the fact that there was little time to substantively discuss it, elements of that proposal now appear in the latest draft.

For those of you who are acquainted with my research on the WTO committees, you have likely guessed that the first provisions I would jump to are those on notification and transparency, currently found in Article 8 of the draft fisheries text. Article 8.2 now includes a transparency requirement for Members to submit notifications of:

(b) [any vessels and operators for which the Member has information that reasonably indicated the use of forced labour, along with relevant information to the extent possible; …]

The Chair’s explanatory note suggests that this is still an issue up for consideration given the “different views” of Members on its inclusion. As Simon has noted earlier, much of the differences reflects disagreement between the United States and China, although other Members certainly have their own opinions on the matter. But this is not an issue that can’t be overcome, especially on transparency. The removal of brackets on Article 8.1 (b) around “to the extent possible” and its repetition in 8.2(b) reflect, in my view, a balance of understanding that this transparency requirement is no more onerous than other notification requirements, and in fact, recognizes the particular challenge of monitoring and notification in the area of fisheries specifically.

Another change to the text that may have useful flow-on effects for addressing forced labor is Article 3.1, which now includes, in brackets, the US proposal:

3.1 No Member shall grant or maintain any subsidy to a vessel or operator⁴ engaged in illegal, unreported and unregulated (IUU) fishing [or fishing related activities in support of such fishing].

As the Chair’s explanatory note details, some Members are opposed to this change because “they said it would be incompatible with the mandate or with the current structure of Article 3 which is based on IUU fishing determinations” but that other Members see this as bringing “Article 3.1 into line with the scope of disciplines in Article 1.1, as well as with other disciplines that apply to both fishing and fishing related activities.” Reading through it, I could see a case to be made for both arguments, but the latter appears to be stronger given that language in Article 1.1 “has been generally acceptable to the Members thus far,” according to the Chair.

The addition to Article 3.1 is useful in that it ensures that vessels that support IUU fishing are also captured in the subsidy prohibition. These could be vessels that supply fuel, crew, provisions to IUU vessels and those that may transship the catch of IUU vessels. As those familiar with RFMOs have explained it to me, this is similar to how RFMOs seek to control IUU fishing, and would therefore be consistent with existing approaches. Of particular consequence may be those vessels that supply crew to fishing vessels, where the crew may be victims of forced labor. We do know that vessels and operators engaged in IUU fishing tend to be more likely to have poor labor standards and also engage in forced labor practices. So while the addition to the text does not directly relate to forced labor, it may still provide important language to help address the issue nevertheless.

If these changes stay in the final deal, this does look to be enough to address US concerns over forced labor in fisheries. Beyond this, there really does not seem to be a need to include additional language, such as a chapeau to Article 3 as detailed in the US proposal, which reads:

Members recognize that the use of forced labor on fishing vessels is often associated with IUU fishing, and therefore that effective disciplines on subsidies to vessels and operators engaged in IUU fishing or fishing related activities in support of such fishing can contribute to Members’ efforts to eradicate forced labor on fishing vessels.

The inclusion and revision of the above two provisions (Articles 8.2(b) and 3.1) is enough to suggest that Members recognize forced labor on fishing vessels as an issue that should be addressed, and any additional language would not likely advance efforts to tackle this problem, or enhance the instruments already offered up in the current draft text. It also risks abandoning the real achievement that could be secured with the current draft. Including language in the preamble on forced labor is equally not necessary, and risks elevating perceptions of imbalance that will make it difficult to conclude the deal. Preambular language is also not required to address disagreements over the mandate, described in the Chair’s note at para. 129 in reference to Article 8.2(b) that “some other Members have expressed opposition on the basis that this issue is outside of the WTO’s competence.”

The US has raised important concerns regarding forced labor, and the fisheries negotiations provide an opportunity to generate an ongoing dialogue on this topic through committee work. As Erik Wijkström has observed in the context of the TBT Committee, this “regular work” can help develop “consensual understandings” and offer a forum for Members to share best practices and raise concerns about actions in an effort to resolve disputes before they arise. The transparency provision that now appears in the draft text could go a long way to embedding discussions on trade-related labor issues at the WTO in the long-run. It also provides an opportunity for WTO Members to submit counternotifications where they may be concerned about the forced labor practices of another Member.

It’s important to keep in mind that this issue is but one of many components that will be part of concluding the fisheries talks. The text must be approached holistically to comprehend the full balance of objectives to be achieved. On special and differential treatment, for instance, there are critical interlinkages that would impact the level of ambition the agreement can achieve (I have a lot more to say on this point, but will save it for more detailed observations I will share later this month). That said, the current draft brings the fisheries deal within reach. But we could risk getting hung up on the smaller points of disagreement—if the United States pushes for more references on forced labor that are not required— and lose sight of the broader goals that can be achieved.

More on the U.S.-EU Section 232 Deal Affecting Carbon Emissions: A Response to the Response by Tim and Todd

Thanks to Tim Meyer and Todd Tucker for taking the time to respond to my questions about how the U.S.-EU Section 232 deal could lower carbon emissions. Not surprisingly, their response raises more questions for me, and I am still skeptical that this new arrangement will lead to lower emissions. I have some very specific questions and comments in this regard in reaction to what they said, and I also have some broader questions that make me wonder whether this approach is at all workable.

First, let me talk about the domestic side of the equation. In my view, the best way to approach the issue of reducing the carbon emissions that result from manufacturing is to first take domestic action to address your own carbon emissions problems, and then come up with an international component that roughly matches the domestic action. What you will end up with, ideally, is something close to a non-discriminatory set of regulatory/tax measures that apply both internally and externally. On this point, Tim and Todd suggest that the U.S. is "contemplating ... subsidies for industrial decarbonization in Build Back Better and the Bipartisan Infrastructure Bill." (Perhaps what they have in mind here is Sec. 30471 of the House Build Back Better Act (see p. 459).) I have some doubts about how much impact this will have on the carbon emissions of the U.S. steel and aluminum industry, but assuming it did, that would be a start. Opening with carbon tariffs is a bad move, in my view, and genuine efforts at domestic improvements are a better approach. So, let's see what happens with reducing U.S. steel/aluminum industry carbon emissions through the Biden administration's infrastructure plans. That could help illuminate whether a carbon tariff plan has a chance to make an impact on emissions. (I should point out that domestic producer subsidies of the sort contemplated here are often problematic, in the sense of leading to trade conflict. Subsidies to purchasers of clean steel/aluminum might be a better way to go).

Second, I'm sorry to have to point to trade remedies again, but if the Biden administration's plans involve subsidies, well then we're back to the sort of problems I raised in my original post. To the extent the U.S. industry is thinking about exporting its new and improved, squeaky clean steel and aluminum, these subsidies could subject it to countervailing duties. Of course, maybe they aren't expecting to export much, in which case it's less of a problem. But if they actually did have the cleanest steel and aluminum, I'm not sure why they wouldn't be trying to market it that way and sell it all around the world.

Third, staying on the trade remedies theme, I really think the fundamental flaw here is the linking together of dumped and dirty products. Tim and Todd say: "the arrangement will result in an ever-expanding wall against dirty, dumped steel and aluminum." But everyone needs to understand (and I think most readers of this blog do) that you can't expect companies to stop dumping. Generally speaking, it's not something they know they are doing. It's not a choice, like, "hey, let's dump our products in this foreign market," and companies won't generally know if they are dumping before some trade remedy agency tells them they are. It's not easy to run an internal calculation of whether your pricing practices will lead to a finding of dumping. (No doubt it can be done, at least to some degree of accuracy, but it would be costly). Rather, for the most part, dumping just involves a set of calculations that, if carried out in a certain way, will lead to a finding that you are dumping. Just about everyone can be found to be dumping under the right methodology. Now, if the issue is with government distortions to markets, that's something you could try to target. (I would very much like to see Tim and Todd push for action against government distortions to markets, and I was excited to see their reference to "market orientation"!) But if you are setting up this new arrangement in such a way as to target both "dumped" and "dirty" products, you may be asking too much. If a foreign producer needs to satisfy both conditions, all their efforts to clean up emissions could be for naught in terms of getting access to the U.S. market. As I said in my original post, if you could set this up in a way that clean steel and aluminum could avoid tariffs regardless of whether there was dumping, then you might be able to create some good incentives to reduce carbon emissions. But I don't think the domestic industry and unions are going to go for that. And in addition, also as mentioned in the original post, while governments could offer domestic incentives for cleaner production, avoiding the carbon tariff only to get slapped with a countervailing duty because of the subsidies would be really annoying. 

Fourth, the response from Tim and Todd makes specific reference to China, and China is clearly one of the keys here. But China's imports of these products are already severely restricted by existing AD/CVDs. I'm not sure this new arrangement will give them much in the way of an incentive to decarbonize production. China's distorted steel sector is a famously difficult problem, and we should definitely think about what actions to take in this regard, but unilateral trade restrictions have been tried to death and don't hold much promise here. Maybe try going to the WTO and invoking some of the expansive WTO-plus accession protocol provisions China agreed to? Worth a shot, in my view.

Turning to the broader questions, I want to make two related points that touch on the credibility of the whole exercise. If I'm in the shoes of India, or Brazil, or South Africa, I might have a negative reaction to all of this for two reasons: 1) It doesn't seem fair to focus so much on industries where U.S. production is relatively clean; and 2) given U.S. per capita carbon emissions, the U.S. isn't really in a position to be telling other countries to clean up.

On the first one, what seems to be happening in the Section 232 deal is that the U.S. is choosing to make steel -- I'm less sure about aluminum in relation to its comparative carbon emissions -- the focus of its carbon emissions plan for industrial manufacturing. However, that's not a neutral and objective choice, picked randomly from a ping pong ball machine. Rather, it seems like a strategic decision to focus on an area where we think we won't have to do as much in terms of cleaning up. I would expect other countries to push back on this. They might say something to the effect of: "Hey, you can't just pick steel because your production does well there. Let's talk about production in a wide range of sectors, and throw in some where your production is dirty and you actually need to do some work."  (This point is connected to a general complaint of mine about trade negotiations, which is that everyone wants the agenda focused on other countries' sins, not their own sins. In my view, this is a big reason why we've had so much trouble getting significant WTO deals finished.) 

On the second one, when you look at comparative figures for per capita carbon emissions, the United States doesn't fare so well. That's something that developing countries who are being told to clean up their production notice. And that takes me back to a point I made above. If I were the Biden administration, I would really focus heavily at the start on reducing domestic carbon emissions. That would add some credibility to efforts to push other countries to reduce their own emissions. The Biden administration is talking a lot about reducing carbon emissions. We'll see how far that goes in practice.

Let me sum up this way. I think there is a way to get to lower carbon emissions in these and other sectors. My main objection is to using "restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets" as the key principle on which the effort is based. Instead of this, I would try to identify the most carbon intense production practices and facilities in these and a number of other key sectors around the world. Then I would try to put together a funding mechanism that helps reduce emissions at the dirtiest ones in a balanced way. In contrast, I think that converting existing tariffs that trading partners thought were unjustified into a new version of the same tariff, with an ostensibly different justification, in order to induce changes in behavior among our trading partners even though it's not at all clear we are particularly virtuous, is the wrong approach and is unlikely to have much success.

Is Weakening the Antidumping Jurisprudence an Essential Condition to Recuperate the WTO?

Former Deputy Director-General Alan Wm. Wolff appears to think so.  In his remarks (“Defining Success for MC12”) delivered at Harvard JFK School on October 29, 2021, Wolff spelled out several candid, and controversial, prescriptions to revive the currently languishing WTO enterprise of both negotiation and dispute resolution.  Here are some relevant excerpts from his remarks:

“An overarching principle is that the WTO is to provide fairness – in line with the founding of the system; part of the answer is to restore trade remedies to their rightful place in the system.”

“The dispute settlement pillar; Quasi-judicial overreach; trade remedies are not to be treated as exceptions to the rules.”

“Re-balancing; Trade remedies are recognized as a necessary price paid for greater openness on average.”

I suspect the enduring popularity of antidumping measures, for either political or intellectual reasons, is here to stay in the contemporary U.S. trade circle.  Jennifer Hillman, former Appellate Body member-turned-academic expressed similar views that demand more deferential standards of review from the Appellate Body, which would undo its current “zeroing” jurisprudence. 

I beg to differ.  Like many scholars, I believe antidumping remedy is fundamentally anti-competitive, catering to the narrowly-defined special interests at the expense of both national and global economic welfare.  Former Federal Reserve Board Chairman Alan Greenspan observed that:

"While these forms of protection have often been imposed under the label of promoting “fair trade,” oftentimes they are just simple guises for inhibiting competition. (…) Contrary to popular notions about antidumping suits, under U.S. and WTO law, it is not required to show evidence of predatory behavior, (…).”

After all, the WTO is an international organization that actively promotes “free trade.”  To what extent should the titular “managed trade” be tolerated in the name of political expediency within a legal organization like the WTO?  Note that it was the European Union that had accepted the Appellate Body’s first-ever anti-zeroing decision (EC – Bed Linen) in 2001.  It then began to challenge the same practice by the U.S. government in the WTO, triggering a series of anti-zeroing case law authored by the Appellate Body.  Isn’t it the “rule of law” that characterizes the merits of the WTO system?  Isn’t it the “rule of law” within the context of the trade organization that disciplines an individual member’s political preferences leading to protectionism?  Do we really want to go back to the old GATT system, which late John Jackson portrayed as “power-oriented”? 

In sum, we must see through what we will have lost before jumping to any solution that might seem obvious in a political sense.

Response from Tim Meyer and Todd Tucker: How Exactly Would the U.S.-EU Section 232 Deal Affect Carbon Emissions?

Guest post from Timothy Meyer (professor of law and the director of international legal studies at Vanderbilt Law School) and Todd N. Tucker (political scientist and director of governance studies at the Roosevelt Institute). Follow them @Tim_L_Meyer and @ToddNTucker.

The United States and the European Union announced a pathbreaking deal this past weekend on trade in steel and aluminum. The deal has two components. First, the United States agreed to lift its 25% tariff on steel imports and 10% tariffs on aluminum imports from the EU, and the EU agrees to stand down on both WTO disputes against the United States as well as retaliatory tariffs. Second, the US and EU agreed to work on a “Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.” The specific terms of this arrangement will be negotiated over the next two years, but we do know a few things: 1) the parties will “restrict access to their markets for dirty steel and limit access to countries that dump steel,” and 2) the arrangement will be open to third countries to join so long as they meet criteria relating to “market orientation and reducing trade in high carbon-steel and aluminum products.”

Our friend Simon Lester has questioned how this arrangement will reduce carbon emissions. Any answer about the specific mechanics is necessarily preliminary because the US and the EU have given themselves until 2024 to work out the details. Even the legal nature of the deal appears up in the air, with the US and EU referring to it as an “arrangement,” rather than an “agreement” – a choice of verbiage that suggests that the final instrument may be non-binding as a matter of international law. Having said that, we do think the broad strokes of how the arrangement might work are fairly clear.

First, as we have written in our proposed Green Steel Deal, the restrictions on market access for dirty steel should be paired with domestic investments in the US and EU on further greening the sector. Indeed, it is the restrictions on market access for cheap, dirty steel—along with domestic measures that both the US and EU are already contemplating, such as subsidies for industrial decarbonization in Build Back Better and the Bipartisan Infrastructure Bill in the US or the EU’s revisions to its Emissions Trading Scheme as part of its FIT for 55 plan—that will create the space for further investment and innovation in green metal production. Put differently, the US-EU arrangement is a complement to and further supports a series of domestically-focused measures in both jurisdictions. It recognizes that in a globally integrated economy, domestic policy and international trade policy must work hand in hand.

Second, the arrangement creates an incentive for countries to green their sectors in order to join the arrangement and gain market access in the US and EU. The theory here is pretty straightforward. Members of the arrangement will have to meet criteria (to be negotiated) regarding both green production of steel and aluminum and market orientation, in order to address overcapacity. In other words, domestic reform in exchange for market access.

Critically, the arrangement will result in an ever-expanding wall against dirty, dumped steel and aluminum. Remember, parties to the arrangement will impose market access restrictions on dirty, dumped steel, backed by strong rules of origin like that now applicable to imports from the EU to the US. Thus, any new members will not only have to invest in domestic reforms in their country that should lower carbon emissions; they will also reduce carbon emissions by drying up markets for the dirty steel produced in countries like China. Each country that joins thus reduces the incentive for, e.g., China to continue to produce dirty steel by reducing the market for that product. Indeed, we see no reason why countries that are primarily consumers of steel and aluminum might not be induced to join (perhaps if membership is tied to other kinds of benefits) and thus shift consumption from dirty steel to clean steel produced within club members. If those countries do not produce significant amounts of steel or aluminum, there are few costs to adopting green standards. The adoption of those standards in law now could, in turn, set those countries on the path to developing clean metal industries should they ever enter the field.

Moreover, the possibility of particularly severe market access restrictions – such as a ban on the import or sale of dirty steel in US and EU markets – sends one of the strongest signals to China yet that investing in decarbonizing its steel sector could be the key to the industry’s thriving past the decade. There’s no reason a priori to think that China could not or would not do so. As one of us (Tucker) wrote with Bentley Allan on the Washington Post’s Monkey Cage blog earlier this week, China’s vast policy bank apparatus enables it to do industrial conversion much more easily than in the US, that essentially lacks those types of institutions at present. Indeed, the US-EU deal is an example of what David Victor and Chuck Sabel call “penalty defaults that destabilize the status quo and motivate innovation.” This could be the impetus China needs to take its already substantial investments in green hydrogen (a key input to the green steelmaking process) and better systematize them. China currently supplies the majority of the world’s steel: if it wants to keep that position on international markets, or even remain competitive, the conversion starts to make a lot of business and common sense.

Simon worries that this mechanism will not work in practice because existing US and EU trade remedies on steel imports are so high that the additional restriction on imports from non-members of the arrangement won’t be enough incentive to join the club. That, though, is ultimately an empirical question to be answered during the next two years. If during negotiations it appears to the US and EU that 25% and 10% is not high enough, they can set the tariffs higher or choose other kinds of market access restrictions (we proposed banning dirty steel entirely, both domestically and via import, after a sufficient transition period).

Moreover, there is something odd about worrying that countries won’t be willing to take costly steps to remove the existing tariffs on metal imports. Since those tariffs were imposed 3 years ago, countries have complained bitterly about them and a number of countries—including the EU, Canada, Mexico, South Korea, Brazil, and Australia—have tried with varying degrees of success to negotiate their way out from under those tariffs. So the evidence is, actually, that countries will take measures to avoid 25% and 10% tariffs on steel and aluminum, respectively. The US-EU arrangement is just the process of turning that leverage into action. The relative market access advantage of club members over non-club members in club markets is a prize that rational exporters will push their governments to seek out.

Finally, there is a normative and political dimension to all of this. As Lauge Poulsen and Emma Aisbett have written, diplomats like joining things. The US and EU have announced a new in-group that there will be bureaucratic, media, and popular pressure to join – both to be on the right side of history and simply “in the room where it happens.” Not all political systems will be equally responsive to all of these mechanisms, but this dimension of the deal isn’t nothing.

How Exactly Would the U.S.-EU Section 232 Deal Affect Carbon Emissions?

I've seen some talk on Twitter and elsewhere about the "Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade" part of the U.S.-EU Section 232 agreement, as the White House referred to it, with people seeming to suggest that this is a big deal (a "green steel deal") and will lead to lower carbon emissions in the steel and aluminum industry. I've been puzzling over something for a couple days now, and I can't figure out an answer, so let me just put a question out there for Tim Meyer or Todd Tucker or any other supporters of this approach: How exactly will this arrangement lower carbon emissions in the U.S., the EU, or other countries?

The most obvious response is probably that by creating a club of countries who have relatively clean steel and aluminum production, with tariffs imposed on steel and aluminum imports from countries that are not part of the club, you can induce them to clean up their own production in order to get access to the club. I assume the supporters have some variation of this in mind. But if that's the argument, it raises a number of specific questions for me.

First, will there be any efforts to improve U.S. and EU carbon emissions, or is everyone just accepting that the U.S. and EU are clean enough right now and the status quo in these two places is OK and thus the focus will be on pushing others to lower their emissions? (For what it's worth, figuring out emissions by country is a challenge, and there is a lot of variation within countries, but here are some reports on it.)

Second, in terms of the other countries, there are probably a number of countries that are similar in emissions levels to the U.S. and the EU, while other countries do worse. 

For those countries that are at similar levels, my question is, are their emissions fine as is and they can just join the club right now, or will there be efforts to push them lower?

But the key issue here, of course, is the countries with dirtier steel and aluminum production. With respect to those countries, my question is, what are the tools that are going to be used to induce them to lower their emissions? In theory, you could impose a 25% tariff on these products if they are dirty, and remove the tariff when they get clean. But as just about everyone probably knows, trade in these products is already so heavily restricted by existing AD/CVD orders that the imposition and removal of a 25% tariff is not likely to have much of an impact here. Now, what you could do is remove all the tariffs on these products, including the trade remedy tariffs, after their emissions are clean, but it seems unlikely that the steel industry would ever go for that. So, in this high tariff environment, I'm not sure being able to join this new club acts as much of an incentive to clean up emissions.

It's worth noting at this point that this new arrangement is not just about carbon intensity of production, but also about traditional "unfair trade" issues, as the White House fact sheet states: "the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply." With the two issues intertwined like this, I'm not sure there is any scope for the arrangement to use the power of the U.S./EU markets to induce lower carbon emissions in our trading partners. As "dumping" is currently defined in domestic law, it's not easy for companies to stop dumping (unless they just stop selling to the market in question), and domestic industries and investigating authorities will use the flexibilities in the law to keep out imports of these products. So just to reiterate what I said above, as long as unfair trade laws are in place, I'm not sure the carbon tariff aspect can offer much of an incentive for changing carbon producing behavior.

With all this in mind, my broad and general question is, how does any of this lead to lower carbon emissions in the steel and aluminum industry? Which countries are going to feel pressured to make changes in their domestic production? China? India? Brazil? South Africa? China is probably out, because there is no way I can see that imports of steel and aluminum from China are going to start flowing into the U.S. and EU any time soon, even if they make their steel and aluminum solely with geothermal power and plant a million new trees. But what about the others? Could they clean up their production so that it produces less emissions and therefore gets easier access to the U.S. market? Putting aside the previous points about trade remedies, in theory they could do this. But it would take some money, and that money probably will have to come from the government, which of course brings the trade remedy issue right back in, because it means that U.S. and EU producers will bring countervailing duty cases against these subsidized imports. Thus, the 25% carbon tariff would simply be exchanged for an uncertain, and quite possibly much higher, countervailing duty.

That's as far as I've gotten with all of this at the moment, but if any of the advocates of this new arrangement who think it's going to bring down carbon emissions can explain how it will do so, I'd love to hear it!

Some Thoughts on the U.S. - EU Section 232 Tariff Agreements

The big trade news over the weekend was a resolution of the U.S. - EU Section 232 tariff disputes. Two key documents are this USTR fact sheet and this EU-US joint statement. The core of the agreement is as follows:

The United States will replace the existing tariffs on EU steel and aluminum products under Section 232 with a TRQ under Section 232.  Under the TRQ arrangement, historically-based volumes of EU steel and aluminum products would enter the U.S. market without the application of Section 232 tariffs to meet the demands of downstream users.

There are a number of other potentially important aspects as well, some of which I'll mention below. Here are a few thoughts I had on these developments so far.

1. Is any of this legal? I have doubts that the new U.S. TRQs are consistent with WTO law, but the original measures were of questionable legality, as was the retaliation, so I'm not sure it's worth getting too worked up over the legal aspects here (although they are certainly interesting as an intellectual exercise).

2. Politics often leads to bad policy. I would have preferred a straightforward repeal of the Section 232 tariffs, but I don't have to deal with the same political constraints the Biden administration does, and I can see how they did the political calculation that pushed them in this direction. I wish they would double-check the math on the calculation, but regardless, they have elections to fight and there are groups whose support they need.

3. How economically harmful will the new TRQs be? In terms of the economic impact of the new arrangement, the precise figures for the TRQs are the key to whether there will still be some lingering restrictiveness under the measures. If you make the in-quota amount for zero tariffs large enough, the measure will not restrict trade much. If, however, the amount is on the lower side, it can trigger various kinds of trade disruption in the implementation. Borderlex reported the figures as 3.3 million tons for steel, plus exclusions worth 1.1 million tons; for aluminum, 18,000 metric tons of unwrought aluminum and 366,000 metric tons of semi-finished wrought aluminum. But I can imagine there will be some uncertainties in how this is implemented (e.g. what are the rules of origin for determining whether something qualifies as EU steel).

4. Similar agreements with other trading partners are on the horizon. Despite any economic or legal concerns I have with the new arrangement, I think it puts us in a better place than we were, and I hope the Biden administration negotiates similar arrangements with other countries. The U.S. fact sheet suggests this might happen: "The United States looks forward to partnering with other trading partners and key stakeholders to address the common global challenge of steel and aluminum excess capacity." (It probably won't happen between the U.S. and China, of course, but imports of Chinese products are so restricted anyway by normal trade remedy measures that I'm not sure it would make much difference).

5. "Working with allies" is happening. I think the Biden administration is doing a pretty good job on "working with allies." With regard to the EU, we now have Boeing-Airbus and Section 232 tariffs out of the way to some extent, and the new Trade and Technology Council providing an opportunity for productive conversations.

6. The WTO panels can stop their work. It's great that the EU-US WTO disputes related to the Section 232 tariffs and the retaliation have been suspended. I've been skeptical that WTO disputes are productive in situations where one party is invoking national security.

Also, there is an interesting agreement to use DSU Article 25 if they to pick up these disputes again at some point.

7. Is there much hope for the carbon initiative? The U.S. press release has this statement from Ambassador Tai: "The first ever carbon-based arrangement on steel and aluminum trade contemplated by the agreements would create greater incentives for reducing carbon intensity across modes of production of steel and aluminum made by American and European companies." A White House fact sheet on this issue is here, and says:

Together, the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply. This arrangement will be open to any interested country that wishes to join and meets criteria for restoring market orientation and reducing trade in high-carbon steel and aluminum products.

I feel like the Biden administration and other folks on the left are going to have a lot more trouble than they think with getting U.S. industry on board with their decarbonization goals. The industry will always support restricting access to the U.S. market, of course, but I'm not sure how excited they -- some producers in particular -- will be about reducing carbon intensity as a general matter. As a result, I'm not convinced this cooperation is going anywhere in the short-term (beyond measures such as tariffs on Chinese steel due to its carbon intensity, but we already have tariffs on Chinese steel). The industry may just play along, while also watching the political calendar to see whether this might all go away at some point.

Why the US Failed to Prevent the Climate Challenge from Turning into the Climate Crisis

Why the US Failed to Prevent the Climate Challenge from Turning into the Climate Crisis

Steve Charnovitz @SteveCharnovitz

31 October 2021

Human-induced climate change poses a threat to planetary life and health.  When the United Nations (UN) spearheaded the UN Framework Convention on Climate Change (UNFCCC) in 1992, the world community cheered the inauguration of a climate regime and was optimistic that climate change would be controlled through international cooperation and global law. 

With the launch today of UNFCCC COP26 negotiations in Glasgow, optimism has dimmed.  Recently, the UN reported that “Climate change is widespread, rapid, and intensifying, and some trends are now irreversible.”

How is it possible that 29 years after the Rio Conference, the value-added from official intergovernmental climate cooperation has been so inadequate?  Why did politicians squander the years and decades during which appropriate economic instruments, especially a carbon tax, could have jumpstarted decarbonization much earlier?  How could successive American Presidents and Congresses blundered through so much policy failure?  How much worse off would the Planet have been if the global business and financial communities had not voluntarily enlisted themselves into transforming the market?

As my personal intellectual contribution to COP 26 meetings in Glasgow, I posted a 20-part series on Twitter noting the high and low points in the much-watched US government role to press for global solutions to climate change.

As my posts make clear, the biggest missed opportunities were the defective non-reciprocal design of both the Kyoto Accord (1997) and the Paris Agreement (2015).  The US was a major player in both negotiations.  For both Kyoto and Paris, the White House made the same mistake of choosing a pathway of zealous partisan end runs around Congress.  Of the two treaties, Paris is the more lamentable because in the 18 years since Kyoto, the climate problem had slowly worsened.  Nevertheless, even though the Paris Agreement was hollow, politicians adopted the overconfident stance of awarding themselves high grades for agreeing to the Paris Agreement.

The media too has been part of the problem of false reassurances by so vigorously applauding the substantively empty Paris Agreement as if it were itself a viable solution.  I still remember my surprise when the venerable newspaper The Guardian (of London) heralded the 2015 Paris Agreement as "the world's greatest diplomatic success." Such over-the-top puffery about the Paris Agreement became counterproductive because of the false assurances given in 2015 that Paris had brought the climate challenge under control. 

Here I collect and memorialize in chronological order my 21 Tweets posted over the past 10 days (including typos that I failed to avoid).  This analysis presents my own perspective and takes note of some of my own law-related scholarship on the climate debate.  Much of my scholarship focuses on the role of international trade law in the formulation of climate policy. 

Although I continue to be disappointed that US and global policymakers have not done more to reduce greenhouse gas emissions, I remain optimistic that even the ongoing too-little, too-late policies will be sufficient to prevent the low probability, highly ecosystem-destructive scenarios. 

 

Why has the US been so unsuccessful over 30 years in leading and participating in an effective #globalclimateregime to prevent a climate change calamity? Let me count the ways. In a series of future Tweets, I will point to the major US missteps.

7:15 PM · Oct 21, 2021

 

Climate1 In the beginning, US got it right. @POTUS GHW Bush 41 and EPA's Bill Reilly work creatively to achieve

@UNFCCC which makes control of greenhouse gasses a global goal. US Senate approves treaty in a 2/3 ratification vote.

@LeaderMcConnell votes for the climate treaty.

9:35 AM · Oct 22, 2021

 

Climate 2. 1992-97. After EarthSummit (1992) which achieves

@UNFCCC, two US Presidents fail to request and US Congress fails to write domestic climate implementing legislation. The @WTO treaty of 1994 is implemented by Congress, but

@UNFCC treaty of 1992 is not implemented.

10:42 AM · Oct 22, 2021

 

Climate.3. 1995. Debate blossoms among climate specialists as to relationship between @UNFCC and @WTO. I contribute this analysis in a conference organized by

@aspenglobal

2:57 PM · Oct 22, 2021

https://charnovitz.org/publications/Aspen_Linkage_of_Trade.pdf

 

Climate.4 1997 The

@UNFCCC climate regime negotiates a @UNFCCC

Protocol to set quantitative emission reduction goals based on science. US Senate adopts a resolution 95-0 signaling Executive Branch not to sign on to an asymmetric treaty that harms US economy.

10:19 AM · Oct 23, 2021

 

Climate.5. 1997 In defiance of bipartisan US Senate advice, and with @AlGore in driver’s seat, US champions @UNFCCC Kyoto Protocol which assigns emissions reduction targets to US, Europe and Japan, but not to China, India, Indonesia, Russia, Saudi Arabia, etc.

12:57 PM · Oct 23, 2021

 

Climate.6 2001. Pres. George W. Bush makes clear that US will not join Kyoto Protocol. But Bush fails in any efforts to work with Congress to craft a domestic climate policy responsive to transborder competitiveness concerns. Climate mitigation devolves to subnational level.

10:08 AM · Oct 24, 2021

 

Climate.7 2003. Pew Center on Global Climate Change publishes cutting-edge interdisciplinary analysis to promote feasible paths forward. I contribute the chapter “Trade and Climate: Potential Conflicts and Synergies.

6:56 PM · Oct 24, 2021

https://www.researchgate.net/publication/316352840_Beyond_Kyoto_-_Advancing_the_international_effort_against_climate_change_Enter_title

 

Climate.8 2004. Fruitlessly, I propose that Congress empower the President to negotiate a global climate deal with other countries.

8:45 AM · Oct 25, 2021

https://www.cambridge.org/core/journals/american-journal-of-international-law/article/abs/using-framework-statutes-to-facilitate-us-treaty-making/A20FB45F7D05E1D3DFBA851CD2ACBE0C

 

Climate.9 2009

@PIIE publishes “Global Warming and the Trading System” by Gary Hufbauer, Jisun Kim & Steve Charnovitz. The study recommends negotiation of a “Trade and Climate Code.” Unfortunately, governments do not undertake such negotiation.

10:03 AM · Oct 25, 2021

https://www.piie.com/bookstore/global-warming-and-world-trading-system

 

Climate.10 2009

@SpeakerPelosi rushes thru House passage of Amer. Clean Energy & Security Act with 219-212 vote. This complicated bill is enacted before its text is publicly available. As it turns out, the haste is unwarranted because the Act is not taken up by US Senate.

12:15 PM · Oct 25, 2021

 

Climate.11 2010

@UNFCCC adopts Green Climate Fund & Technology Mechanism. These programs spur important progress in private climate finance and climate-related technological innovation. For climate, the vision of bottom-up environmentalism in 1992 Agenda 21 is succeeding.

3:00 PM · Oct 25, 2021

 

Climate.12 2012. In @HarvardBiz, Dan Esty & I propose a US carbon charge contingent on major economies, such as China and India, adopting comparable policies. Our contingent carbon tax proposal fails to attract support in Congress or Obama WhiteHouse.

7:15 PM · Oct 25, 2021

https://hbr.org/2012/03/green-rules-to-drive-innovation

 

Climate.13 2015

@JohnKerry leads negotiations fto reach #ParisAgreement. Rather than ambitious deal that gains bipartisan Congressional approval, @BarackObama seeks hollow

@UNFCCC accord without substantive obligations. Goal is to avoid democratic accountability in Congress.

7:37 AM · Oct 26, 2021

 

Climate.14 2015 #ParisAgreement assumes countries will make high unilateral GHG reduction commitments without mutuality, and without knowing whether aggregate commitments will restrain global warming. Another design defect is inattention to state responsibility for traded goods

5:50 PM · Oct 26, 2021

 

Climate.15 2015-17 Obama joins and implements shallow Paris Agreement via Executive branch action. Bipartisan US Congressional approval is neither sought nor achieved. Meanwhile, Paris Agreement experiment plays out with innovation and growing transnational business support

6:01 PM · Oct 27, 2021

 

Climate.16 2017 Donald Trump announces that US will withdraw from Paris Climate Accord, but begin negotiations to reenter the Accord “on terms that are fair to the United States.” Trump effectuates the withdrawal, but forgets to undertake any Paris Accord improvement talks.

11:49 AM · Oct 28, 2021

 

Climate.17 2018 My essay “American Rejectionism” analyzes flaws of #ParisAgreement and proposes US re-engagement with International law. Empty Paris Agreement meets political need of many countries for low-cost virtue signal. Governments continue to fiddle while Earth burns.

3:29 PM · Oct 28, 2021

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3357030

 

Climate.18 2020 Congress passes 2124-page legislation containing Environment and Energy programs. Public Law 116-260 is so complicated that nearly a year later, it remains unpublished in US Public Law series. This law lacks any climate negotiating authority or any carbon tax.

5:09 PM · Oct 29, 2021

 

Climate.19 2021 @POTUS rejoins #ParisAgreement with no strategy for fixing defects. @POTUS refuses to propose carbon tax. Congressional Dems seek unilateral subsidy and regulatory schemes that violate @WTO law. US persists in #TrumpBiden attacks on @WTO appellate tribunal.

1:19 PM · Oct 30, 2021

 

Climate.20 US underperforms on climate due to: (1) excessive partisanship, (2) relying on Executive versus Congressional actions, (3) refusing to enact a carbon tax, and (4) overlooking need to harmonize US mitigation reciprocally with other major economies, especially China.

7:48 PM · Oct 30, 2021

Is it time to bring back the AB?

Greg Shaffer and I think so in our new op-ed in the Hill, but not everyone seems to agree with us, as illustrated in this lively Twitter exchange with Dan Ikenson, Rob Howse and Simon Lester.

However, I think there might be some movement on this issue in the WTO based on new US WTO Ambassador Maria Pagan's recent statement that she "will spend a lot of time having these conversations with our counterparts at the WTO to make sure that we can restore the Appellate Body and the system to the way that we envisioned it at the beginning" and the recent statement by Chinese WTO Ambassador Li Chenggang that the issue needs to be considered "not only in the framework of Sino-US game, but from perspective of multilateral trading system, & perspective of a membership structure with increasingly divergent interests."

So maybe we will finally have a meeting of minds?

Maria Pagan on Reforming WTO Dispute Settlement and the Appellate Body

This exchange is from today's Senate Finance Committee hearing to consider the nomination of Maria Pagan for Deputy USTR in Geneva (Ambassador to the WTO):

Senator Carper:

I would like to start off with a question ... for Ms. Pagan, dealing with WTO reform. Ms. Pagan, I've always felt it's something imperfect, we ought to work to make it better. And there's been a great deal of conversation, really on both sides of the aisle, and across the globe, about the need for reforms in the WTO. And that we know that the WTO has an important role to play in combating unfair trade practices that persist in non market economies like China. Unfortunately, the organization continues to face challenges with its dispute settlement system, including the lack of quorum on the Appellate Body that weakened the WTO's enforcement. The question is this, in your opinion, what strategy should our country take, the US take, to reforming the WTO and addressing the operability of the WTO's Appellate Body?

Maria Pagan:

Thank you, Senator Carper. The good thing is that we all agree, I think there's consensus that the WTO, and particularly the Appellate Body, need to be reformed. I guess on the other hand, we all have different views of what reform means, and particularly with respect to the Appellate Body. What we want, and if confirmed what I will work hard to do, is to have conversations so that we can restore the Appellate Body and the dispute settlement system to what we thought we had agreed to. We never intended the Appellate Body to be a rulemaking body. We believe that rules have to be enforced, but it has to be the rules as they were negotiated and agreed by the Members. So we need to, USTR has been having, these conversations, and we will continue to have these conversations. And I suspect that I will spend a lot of time having these conversations with our counterparts at the WTO to make sure that we can restore the Appellate Body and the system to the way that we envisioned it at the beginning. And I don't think it's going to be an easy conversation but it's something that I look forward to doing while I'm there.

Restoring the Appellate Body sounds positive, and perhaps more positive than other things we have heard from U.S. trade officials for a while. At the same time, restoring "the system to the way that we envisioned it at the beginning" is going to be tricky, because there may be different views on what was envisioned at the beginning, as well as different views on what is appropriate and necessary now.

ACWL 20 Year Anniversary Event

From the ACWL:

The ACWL is celebrating its 20th anniversary this year. To celebrate this occasion, we are hosting a webinar on 28 October from 15:00 to 16:30 CET on the “ACWL: Achievements for Developing Countries and LDCs and Challenges Ahead”.  We are delighted to have Professor Peter van den Bossche, former Chair of the Appellate Body and Director of Studies at WTI in Bern, Ms. Anabel Gonzalez, Deputy Director-General, WTO, Ambassador Usha Dwarka- Canabady, Permanent Representative of Mauritius to the United Nations Office in Geneva, Ambassador Gothami Silva, Permanent Representative of Sri Lanka to the WTO, Mr. Norman Harris, Representative in Panama of the Secretariat for Central American Economic Integration (SIECA), and Ms Patricia Holmes, Chair of the ACWL General Assembly and Deputy Permanent Representative of Australia to the WTO make presentations at the webinar.

Registration link: https://lnkd.in/dpeVeX7Y

Tai: "A Lot of Potential" for Coordinating U.S./EU approaches to China

This is from a two part interview by CNN's Julia Chatterley with U.S. Trade Rep. Katherine Tai:

Chatterley: Another, and it's been described as a pivot point actually, in the relationship between the EU and the United States, when we spoke to the French finance minister this week, and he said, it's on China. and there's a difference of opinions and approach, that the perception in Europe is that America wants to confront and challenge China, whereas Europe wants to engage. Do you agree that China effectively wins if the US and the EU are at odds with this relationship, and how to tackle the issues with China?

Tai: Well, let me take a step back, I think that a lot of this talk has come from comments that Minister Le Maire made, and I wanted to give the Minister the fair shake that he deserves, and I went back and looked at his comments. And I don't think that they're as pointed or as sharp as the reporting seems to make it. And let me say I think that we are very much aligned, from the US and EU perspective, and also from my own conversations with the Minister, the US and French perspectives, in terms of the fact that we share really considerable competitive challenges right now, but also in terms of the values that we share as societies, as economies, in terms of our political philosophies. So what I would say is that we have so much potential here for aligning the US/EU, and in terms of our approaches to China, actually in the conversations that I've been having, and I assure you, I have been having a lot of these conversations, I don't feel that there are gaps. I think that there is just a lot of potential for how we coordinate our approaches.

"Confronting and challenging" is a form of "engaging," and I'm not sure the differences between the two sides are as great as some people think. Tai's response here, along with the progress on putting aside disputes such as Boeing-Airbus, digital services taxes, and perhaps soon the Section 232 steel and aluminum tariffs (which also came up in the interview), gives me some hope that U.S.-EU cooperation on China could actually emerge some time soon.

SIEL October Conversation: ‘Institutions and Dispute Settlement under WTO’

From the SIEL:

SIEL October Conversation

The Society of International Economic Law (SIEL) is pleased to invite you to its February Conversation entitled ‘Institutions and Dispute Settlement under WTO’, with Geraldo Vidigal (University of Amsterdam),  Tommaso Soave (Central European University; Former WTO Appellate Body Secretariat), Marcus Gustafsson (Legal Service of the European Commission), Pınar Artıran (Istanbul Bilgi University; WTO Chair), chaired and moderated by Kathleen Claussen (University of Miami School of Law) 

28th October 2021 at 3 pm CET time. Registration is available here. 

More information can be found here.

Webinar-- The modernisation of the Energy Charter Treaty: Substantial and procedural implications for the IIA regime

This is from the University ‘Parthenope’ of Naples and the Asia Pacific FDI Network:

On 5 November, 14.00-17:30 CET; 08:00-11.30 (NY) we will host a webinar on "The modernisation of the Energy Charter Treaty: Substantial and procedural implications for the IIA regime."

The modernization process of the ECT is in full swing. So far, seven rounds of negotiations have been conducted, with the eight round yet to come in November 2021. This webinar provides the unique opportunity to hear the various perspectives on the modernisation process of the ECT that will be addressed by the representatives of states and international organizations, e.g., the EU Commission and UNCTAD. Also, the academic experts will address the key jurisdictional and substantive issues arising out of the interpretation the ECT in energy disputes.

The webinar is organised by University ‘Parthenope’ of Naples, the Asia Pacific FDI Network and Nyenrode University.

The programme and the registration form can be accessed here.

The webinar is free, but registration is required.

The organizers:
Dr. Yulia Levashova and Dr. Sara Pugliese

The speakers and the moderators:
Keynote address: Mr. Lukas Stifter (Chair of the Modernisation Group, ECT)

Prof. Hans van Houtte (KU Leuven)
Mr. Carlo Pettinato (European Commission)
Ms. Dorieke Overduin (Dutch Ministry of Economic Affairs and Climate Policy)
Ms. Diana Rosert (UNCTAD)
Prof. Paolo Davide Farah (West Virginia University /gLAWcal)
Prof. Julien Chaisse (City University of Hong Kong/Asia Pacific FDI Network)
Dr. Ottavio Quirico (Australian National University, University of New England and European University Institute)
Dr. Yulia Levashova (Nyenrode University/Asia Pacific FDI Network)
Dr. Sara Pugliese (University ‘Parthenope’ of Naples)

What Does the Biden Administration Think About a Power-Based vs. a Rules-Based Trading System?

I wanted to elaborate on a point I made in my post from last week, where I discussed U.S. Trade Representative Katherine Tai's response to my question about ways to improve the WTO panel process. As a reminder, here's what she was asked and how she replied:

Question: ... And then a related question from Simon Lester, I think is, moving away from the Appellate Body, you worked on panels here in Geneva, ... and you mentioned that some of these cases take a long time and aren't working, so he was wondering if there is anything you can suggest, anything you saw to make panels work faster and work better in the US estimation.

Tai: ...

So, with respect to the panel question, the only thing I would add there is that the panel process does take a while. It's very laborious, it can be quite expensive, if you've got outside lawyers working for you. And I think that the issue is not how to make it faster, but how to create more opportunities for the Members to come together and be incentivized to solve the problem, because in every dispute settlement case, when you play it out to the end, you've gone through every appeal and you've gone to the arbitration for your suspension of concessions. The point is not to punish each other. The point at the end of all of this is to create the conditions for the two Members to come together to find an accommodation, because we are all WTO members. And so, if there are ways that we can incentivize those political moments of conversation sooner, I think that that would be a worthy goal.

And here was my blog comment in response:

In terms of my question on the panel process, what I would say is that I completely agree that we should make settlement a priority, but from what I can see, the existing rules already do this. It's really up to the Members whether they want to settle, and sometimes they are able to do so. It's worth noting that most WTO complaints don't go through the whole litigation process. But sometimes Members just can't agree, and when they don't, we end up in litigation. Where that's the situation, there are important issues related to how the litigation process works that are worth improving on. (And I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations).

As I said, settlements are great, and governments should always be thinking of them as the best option. What worries me, though, is that if we don't have a litigation process that works when settlements can't be achieved, we will shift away from a system that emphasizes rules and towards one that gives primacy to power, and that leaves us worse off overall (although some countries might think they benefit from a power-based system). 

To be clear, the trading system will always have some mix of power and rules, so this is not an all or nothing proposition. But my question here is, does the Biden administration want to to shift a bit away from rules and towards power?

I hinted at this issue when I said, "[a]nd I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations." To elaborate a bit, what I meant here is that with the economic power imbalances that exist among different countries, a functioning international trade litigation system that relies on rules can give at least a little more leverage to smaller and developing countries when they raise concerns with larger powers. In particular, the moral force of a neutral ruling, combined with a monitoring system, can help them fight against the bad behavior of more powerful countries. In this way, the existence of rules helps to moderate the role of power.

My concern is that the Biden administration might prefer a more power-based system because it thinks the U.S., as the leading economic power, will get better outcomes under such a system. I don't know if it actually could get better outcomes, especially over the long-term, but my sense is that there are some people who think it could. To take an obvious example, I think that's what the Trump administration believed, and that's where it wanted the system to go. Instead of filing WTO or FTA complaints, the U.S. would just use access to its large domestic market as a way to extract concessions from trading partners. GSP reviews would be one way to do this, but there are plenty of other avenues as well.

Tai's response makes me worry that the Biden administration sees things in a similar way: Rulings by international trade courts are to be avoided, and instead U.S. economic leverage will be the primary basis for inducing changes in foreign government policies.

Now, maybe I'm overstating the importance of one response to one question. And a counterpoint to my concern is the Biden administration's willingness to pursue a USMCA complaint. However, in WTO dispute settlement, there aren't many signs yet that the Biden administration wants to preserve the rule of law. I can see how the Appellate Body crisis is a political challenge for the administration. But in terms of the basics of WTO dispute settlement, there are constructive things that could be done in the meantime to signal general support for a process that relies on rules.

USTR Requests ITC Investigation on Distributional Effects of Goods and Services Trade and Trade Policy

USTR has just requested that the ITC carry out the following two-part investigation of distributional effects of goods and services trade and trade policy:

under authority delegated by the President to the United States Trade Representative and pursuant to Section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)), I request that the Commission conduct a two-part investigation on the potential distributional effects of goods and services trade and trade policy on U.S. workers by skill, wage and salary level, gender, race/ethnicity, age, and income level, especially as they affect underrepresented and underserved communities.

Here's part one:

For part one of this investigation, I request that the Commission prepare a public report that catalogues information on the distributional effects on under-represented and under-served communities of trade and trade policy. In identifying these effects, and to the extent practicable, the Commission should gather information through:

(1) roundtable discussions among representatives of under-represented and under-served communities that have been identified in the Executive Order On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, as well as think tanks, academics and researchers, unions, State and local governments, non-Federal governmental entities, civil society experts, community-based stakeholders, such as minority-owned businesses, business incubators, Historically Black Colleges and Universities (HBCUs), Hispanic Serving Institutions (HSIs), Tribal Colleges and Universities (TCUs), other minority serving institutions (MSIs), and local and national civil rights organizations;

(2) a symposium focused on academic or similar research on the distributional effects on under-represented and under-served communities of trade and trade policy, including results of existing analysis, evaluation of methodologies, the use of public and restricted data in current analysis, identifying gaps in data and/or in the economic literature, and proposed analysis that could be done with restricted data; and

(3) a critical review of the economic literature on the distributional effects on underrepresented and under-served communities of trade and trade policy including, among other things, the data limitations raised in these analyses.

To the degree practicable, the investigation should report on the information provided through roundtables separately from that gathered through the symposium and literature review. It should identify information on effects on U.S. workers by group (as specified in the previous paragraph) identifying their specific U.S. region, and make recommendations on future research. I request that the report on part one of this investigation be delivered twelve months after receipt of this letter. As we intend to make the Commission's report on part one of this investigation available to the public, it should not include confidential business or national security classified information.

And here's part two:

For part two of this investigation, I request that the Commission expand its research and analysis capabilities so that future probable economic effects advice includes estimates of the potential distributional effects of trade and trade policy, including goods and services imports, on U.S. workers. This capacity building should include the further development of models capable of analyzing the potential distributional effects of trade and trade policy, including with respect to goods and services imports, on U.S. workers. The models should also be capable of analyzing the effect of expanded market access for U.S. goods and services products abroad on affected U.S. exporting industries, and to the extent practicable, the “indirect” effect on U.S. exports of intermediate inputs when final goods receive preferential access to the U.S. market. Through this capacity building, the Commission should also identify any data limitations that, if removed, could substantially speed the time to complete the analysis or allow for improved analysis.

I request that the Commission expand its research and analysis capabilities as indicated in the previous paragraph as soon as possible but no later than twelve months after receipt of this letter. During this time, I also request the Commission provide a briefing to USTR to present the results of its capacity building on these issues.

If I were still at a think tank, I would make this a priority project, and dive in to trying to study the negative distributional effects of tariffs, Buy America procurement, the Jones Act and other protectionist policies in general, and the negative effects on under-represented and under-served communities in particular.

Guest Post: ‘The crown and the jewel’ The rise and fall of the WTO Appellate Body: a critical analysis

This is a guest post from law professor Luca Rubini:

In yesterday’s speech in Geneva, Ambassador Katherine Tai, the current USTR, said:

“Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

It is about revitalizing the agency of Members to secure acceptable resolutions.  

A functioning dispute settlement system, however structured, would provide confidence that the system is fair.  Members would be more motivated to negotiate new rules.

Let’s not prejudge what a reformed system would look like. While we have already started working with some members, I want to hear from others about how we can move forward.”

This brief piece, initially written a few weeks ago, is a somewhat basic reflection on the rise and fall of the Appellate Body of the World Trade Organization (‘WTO’), long considered as a very successful – if not the most successful – example of international court. To many its track-record was impressive and spotless. While criticism of some of its jurisprudence, and more generally of some of the features of the whole dispute settlement mechanism, were raised, the Geneva-based “court” continued in its day-to-day work - relentlessly. In 2015 the criticism erupted into a full-fledged crisis with the United States (Obama administration) vetoing the replacement of a retiring member. The main claim, a long-standing one for the US, was that the Appellate Body was systematically ‘creating law’. This veto lasted from through the Trump administration with the result that, one by one, the 7 members were reduced to less than 3 on 10^th December 2019 – the minimum number for the body to adjudicate. In effect this meant killing the Appellate Body.

In this brief note I explore the historical origin of dispute settlement in the trade context and attempt to analyse the causes of this demise, while looking at the future.

The GATT era

At the very beginning, the General Agreement on Tariffs and Trade (‘GATT’) did not have a dispute settlement system. This birth defect depended on the fact that the GATT was designed to be a simple part of a bigger regulatory framework with at its centre a fully-fledged organization, the International Trade Organization. With the US Congress, however, jettisoning the ITO because of its perceived intrusion to American sovereignty, the only part of the deal that remained standing was the GATT which only included two very general provisions on disputes. No mention was made of the adjudicating bodies that should solve them, no reference to their composition or procedures.

What then happened is a miracle of diplomatic pragmatism. The closely-knit community of GATT and government officials created step by step a functioning dispute settlement system. For many years, it operated more as a mediation or conciliation system with working parties which included representatives of the litigating parties, aiming at finding a positive settlement between them. Through the years, with the constitution of ad hoc independent panels, there was a shift from a diplomatic to a more legalistic approach – where litigants argue on the basis of legal points and a winner (and a loser) necessarily emerge from the process.

The miracle is that the system worked and served the world trading system reasonably well for more than 45 years. Importantly, unlike judicial decisions in a domestic system, the reports produced by the Panels were not automatically law but had to be adopted by all Contracting Parties. Although the incentive for the losing party simply to object the adoption was clear, 80% of the Panel reports were adopted (only 8 reports remaining toothless printed paper). The Contracting Parties certainly had the perception that today’s loss could turn in tomorrow’s win. More importantly, however, they valued the system and played by the rules of the game.

If the GATT dispute resolution system is often tagged as an example of a diplomatic means to solve international disputes, it increasingly became more legalised. Perhaps, this had to do with the fact that lawyers were recruited in the mid-1970s for the first time (see Marceau, 2015). With the increasing legalization and judicialization of the system, the birth defects showed that it had reached its full potential, and reform was necessary. (For a masterful history of the GATT dispute settlement the works of Robert Hudec are still unsurpassed; see for example the volume Enforcing International Trade Law, 1993.)

The WTO era

The Uruguay Round negotiations, launched in the mid-1980s, eventually led to the creation of the WTO. The legal package included also a specific agreement on dispute settlement which thus filled the gap of the GATT period. It is, however, clear from the negotiations record that the idea of the Appellate Body was an after-thought, it came late in the negotiations and was not really carefully discussed and pondered. It was the first example in history of an appellate level in international judicature. The literature (Mavroidis, 2016) has recently explained the main political focus of the negotiations on dispute settlement: it was necessary to buy the US in the idea itself of an international dispute settlement and thus constrain their unilateralism.

For many years, the system has been applauded for its success. Since the beginning Members made use of the system. At the time of writing, 606 disputes have been registered. At the same time, many have consistently appreciated its compliance record. The mantra has been that losing parties do comply with the rulings and recommendations of the Dispute Settlement Body and that only in a handful of cases retaliation (the last resort in remedies) had been authorised and in very few of these instances applied. Though one may legitimately question this mantra (what does compliance really mean? See Mavroidis, 2016), we will not deal with this point.

The Dispute Settlement Mechanism of the WTO, with the permanent Appellate Body at its top, was frequently referred to as the ‘jewel in the crown’ of the WTO system.

The problems

Since the beginning, the literature has given large space to the decisions of the Panels and especially the Appellate Body, with analysis which increasingly matched the sophistication of the legal issues raised by disputes. In the early 2000s, the American Law Institute even set up a project where all decisions of the Appellate Body (and many of the Panels) were annually commented by a team constituted of one lawyer and one economist (the reports can be found here). As in any ‘public law’ system, big jurisprudential questions about sovereign prerogatives and their limits were continuously raised. One increasingly common theme in the literature was, however, the dissatisfaction with the attitude and quality of the Appellate Body’s decisions, especially concerning the interpretation of certain key agreements (for example, whether the anti-dumping agreement permits the practice of ‘zeroing’) or the asserted precedential nature of previous Appellate Body’s decisions (for few examples of this literature see, e.g., Mavroidis, 2013; Mavroidis, 2016; Rubini, 2016; for different assessment of 20 years of WTO Appellate Body jurisprudence see Howse, 2016).

This scholarly criticism found its political counterpart in the monthly meetings of the Dispute Settlement Body, the political organ of government representatives called to discuss and adopt the Appellate Body’s reports. Consistently, one of the strongest voices of criticism came from the United States – and this irrespective of the colour of the administration.

An old and rooted conviction of the Americans was that the Appellate Body was undoing the promises and commitments of the parties, it was, using jargon, “adding to the rights and to the obligations” of the parties. In a word, it was an activist body, indulging in creating law. All this, clearly, to the detriment of US’ interests (see Stewart, 2018; Condon, 2018).

Facts followed words. Jennifer Hillman, initially appointed by President George W. Bush, was not re-appointed by President Obama in 2011. Allegedly, she had not sufficiently defended US’ interests in the cases she was involved too. This was clearly a ‘bad omen’ for the trading system (Hufbauer, 2011). Hillman’s farewell speech in December 2011 was a measured defence to the importance of judicial independence. In May 2016 the US blocked the re-appointment of another member of the Appellate Body, this time Seung Wha Chang from South Korea. The reason was the disagreement “with the jurisprudence articulated in four Appellate Body decisions on which Chang was one of the three appellators on the division deciding the case” (Charnovitz, 2016). President Trump continued with the blockage, vetoing all new appointments to come, with the effect that the Appellate Body was doomed. The drama concluded with the fiery farewell speech by Thomas Graham, the last US Appellate Body Member, that seemed to fully back the long-standing US accusations and even escalated them by finger-pointing the Appellate Body Staff leadership (NB: the Appellate Body members used to be assisted by a special unit of the Secretariat).

But is the US the only complainer? According to a recent (2020) empirical study by the EUI, “the data reveal strong support for the basic design of the dispute settlement system but also that the United States is not alone in perceiving that the [Appellate Body] went beyond its mandate. There are substantive questions that need to be addressed if the Appellate Body impasse is to be resolved.” 

Analysis

It is now time for a bit of analysis. Those conversant with the system know that the WTO dispute settlement system has essentially been a two-level court in the shadow of the secretariat. It is highly likely that the helping hand of the officials in charge has often gone too far. This is not limited to the appellate level. Panellists are often not qualified enough. The quality of Appellate Body Members has arguably been decreasing appointment after appointment (I witnessed myself one former Member, excusing himself at a conference celebrating the twenty year anniversary of the Appellate Body, because he admitted not to have sufficient legal expertise to contribute to the debate). In a word, the endemic lack of professional and experienced lawyers on the bench has inevitably led to the Secretariat supplementing. This, in a sense, can also be seen as the lingering impact of the diplomatic GATT dimension within a system which has now the mission of being legalistic.

To be sure, the system has become more legalised in the WTO but the room for judicial gap-filling (and potentially policy-making) is very significant. Partly this was inevitable, and goes to the nature of WTO law which is in large respects an uncomplete contract. Many provisions are more akin to standards rather than rules (see Kaplow, 1992). The cost of negotiating specific rules was simply too high – mostly because agreement could not be found – and the parties concluded vague legal language, sometimes called ‘creative ambiguity’. In a word, it is the Members’ choice and responsibility to have opted for broad and vague language. This has, however, meant that, sooner or later, the standard had to be translated into a rule, it had to be construed. Gap-filling becomes almost inevitable, especially in a context where Members cannot find ways to update a rule-book negotiated in the 1980s/early 1990s (another element of governments’ responsibility). But, here comes the duty, responsibility and pressure of the adjudicators, who can perform their duty in different ways – being more deferential or indeed more creative. Arguably, there have been many instances where their constructions of the law seem to depart from what the parties agreed or, better, could not agree. See Rubini, 2016. Some of the most salient examples can be found in the sensitive jurisprudence on trade remedies (anti-dumping, safeguards, countervailing duties). See Rubini, 2014.

At the same time, jurisprudence has also been growing in complexity. Certainly, this has partly depended on the complexity of claims and facts (the epitome is Large Civil Aircraft litigation on financial support to Boeing and Airbus, the dispute that the system was not ready to handle – but the fault here is for those Members that escalated it into a legal dispute, not the dispute settlement system that was then obliged to deal with the “hot potato”; eventually reason came to town and a settlement was concluded; see Hufbauer, Rubini, Yee, 2009). But, rather than attempting to reduce this complexity to an efficient style of analysis and clear drafting, the judicial style seems to have remained entangled in it, at times even indulging in it. The quality of drafting suffered from it. More than this, this attitude has unduly led to tackling issues not strictly necessary to solve the dispute, to unnecessary obiter dicta, to excessively completing the analysis. The bigger picture emerging from this scenario is one where the Appellate Body was perhaps too much strongly aware of being the guardian of the system. This contrasts with what prevailed in the first years, mostly characterised by caution and self-restraint (see Ehlermann, 2003; Abi-Saab, 2006). In its 25 years of history, what is clear to the observer is an evolution in judicial leadership and strategy. See Rubini, 2016.

And now? Back to the past?

Two reactions have come out from the demise of the Appellate Body. On the one hand, those that have bitterly lamented the loss of the ‘jewel’, its unprecedented track-record in international dispute settlement, its good example as guardian of the rule-based system. On the other hand, others have asked themselves whether exploring the causes that led to this demise would have been a more fruitful exercise – we belong to this quarter. Quite inevitably, even the attitude on what to do with the dispute settlement system has been opposite between the two groups, with the former cohort suggesting that the veto – impasse should be tackled as a matter of urgency and the Appellate Body be reinstated in all its functions, and the latter group suggesting a period of reflection and possibly reform. Various proposals have been tabled (see the ‘Walker Principles’) and an interim appeal system has been signed to by several Members.

The literature is tackling various issues. Arguably, there is a need to go back to the fundamental questions. What type of dispute settlement do we want? Do we really need an appellate level? To do what? In the context of an international organization with no real legislative function, how can ‘wrong’ judicial decisions be remedied? Surely, the elephant in the room is that, not only do we need dispute settlement but, before that, we also need a properly functioning rule-making activity. One without the other will not work. That was partly what happened in the WTO: no rules, too many rulings.

Dispute settlement is necessary for any legal system, but the type of dispute settlement is dictated by the nature of legal system. Legally and politically, the discussion boils down to the following questions:  Is WTO law constitutional? Was the Appellate Body (supposed to be) a constitutional court? Or was the nature of the system and its laws more transactional and contractual? Using an economic language, who was the principal and who was the agent? Did the regulatory framework duly reflect these roles and introduce the necessary safeguards?

It is exactly in times of crisis, like the ones we currently live, that we need to go back to the fundamentals.

Katherine Tai on WTO Dispute Settlement

U.S. Trade Representative Katherine Tai gave a speech on WTO issues in Geneva today at the Graduate Institute's Geneva Trade Platform. Here is the section on WTO dispute settlement:

Over the past quarter century, WTO members have discovered that they can get around the hard part of diplomacy and negotiation by securing new rules through litigation.    

Dispute settlement was never intended to supplant negotiations.  The reform of these two core WTO functions is intimately linked.  

The objective of the dispute settlement system is to facilitate mutually agreed solutions between Members.  Over time, “dispute settlement” has become synonymous with litigation – litigation that is prolonged, expensive, and contentious.  

Consider the history of this system.  

It started as a quasi-diplomatic, quasi-legal proceeding for presenting arguments over differing interpretations of WTO rules.  A typical panel or Appellate Body report in the early days was 20 or 30 pages.  Twenty years later, reports for some of the largest cases have exceeded 1,000 pages.  They symbolize what the system has become: unwieldy and bureaucratic. 

The United States is familiar with large and bitterly fought WTO cases.  Earlier this year, we negotiated frameworks with the European Union and the United Kingdom to settle the Large Civil Aircraft cases that started in 2004.  

We invoked and exhausted every procedure available.  And along the way, we created strains and pressures that distorted the development of the dispute settlement system.

With the benefit of hindsight, we can now ask: is a system that requires 16 years to find a solution “fully functioning?”

This process is so complicated and expensive that it is out of reach for many – perhaps the majority – of Members. 

Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

It is about revitalizing the agency of Members to secure acceptable resolutions.  

A functioning dispute settlement system, however structured, would provide confidence that the system is fair. Members would be more motivated to negotiate new rules.

Let me address a couple of her points. Starting with the length of the reports, let's take a look at the earliest Appellate Body reports and the last Appellate Body reports in terms of the page length of the reasoning sections:

First 5 AB reports page length:

US - Shirts and Blouses: 9 pages

Brazil - Coconut: 12 pages

US - Underwear: 12 pages

Japan - Alcohol: 24 pages

US - Gasoline: 19 pages

Last 5 AB reports page length:

Australia - Plain Packaging: 204 pages

US - Supercalendered Paper: 25 pages

Russia - Railway Equipment: 71 pages

Ukraine - Ammonium Nitrate: 42 pages

Korea - Pneumatic Valves: 132 pages

These were rough calculations based on a quick glance, so feel free to check my math! But the figures should be approximately accurate. Clearly, Appellate Body reports got longer as the years went on. There are a number of possibilities for why that happened, including the following:

• Some of the difference has to do with the WTO Members themselves, of course. What kinds of issues, and how many issues, did they raise on appeal? Clearly, the appropriate scope of appeals expanded in the minds of the Members over the years.
• As the jurisprudence grew in volume, the AB had more past cases to cite to, and that added to the length. (I remember working on early SCM Agreement cases, and the provisions had never been interpreted before, which made it possible to keep things relatively short.)
• The Appellate Body itself may have seen its role as more expansive, and that led it to try to provide more clarity, which of course took up more pages.

In addition, it is true that 16 years to resolve a case is quite long, but it's worth noting that this is not the norm for these cases. If a case is complex enough that it is likely to take 5 years or more to litigate, it may be worth considering whether it is even worth bringing.

In the Q & A, two issues (one from me) related to WTO dispute settlement came up. The first question was about bringing the Appellate Body back, and the second was about making the panel process faster and more effective:

Question: So we've received a number of questions asking whether the US plans to move on the Appellate Body, on the conditions required to end the ban on new Appellate Body judges, justices. And so that was one strand of questions. And then a related question from Simon Lester, I think is, moving away from the Appellate Body, you worked on panels here in Geneva, ... and you mentioned that some of these cases take a long time and aren't working, so he was wondering if there is anything you can suggest, anything you saw to make panels work faster and work better in the US estimation.

Tai: So it's two questions. The first one specifically on the Appellate Body, the second one a little bit broader about the dispute settlement system and how to make it more efficient.

So on the first question, let me just say this. It is my hope that, as part of this reform effort, we can bring a different energy to our negotiations, and instead of my slapping down a full on proposal that I've dialed up to about 250, because I know that over the course of working through 164 members, ... it's going to get moved quite a bit from where we're starting. Instead of starting out that way, what I would like to do is start with the conversations, the talking to and the listening to each other, in terms of how the dispute settlement system, the whole thing, can serve the interests of Members better. And I've given you some examples in the speech today in terms of where the dispute settlement system has fallen flat in our estimation, but I can also point you to, and I don't think anybody wants me to do this, ... reams of documentation, papers, statements that the United States has made over the course of 15 years and three different administrations where we were saying to the Members of the WTO, we have concerns with the way the dispute settlement system is functioning, and we think that there needs to be a course correction, and frankly I think that over the course of those 15 years, not enough members listened. And so I want to take that lesson in this moment of reform to say, if you will listen to us, we will listen to you, and let's start the reform process from there.

So, with respect to the panel question, the only thing I would add there is that the panel process does take a while. It's very laborious, it can be quite expensive, if you've got outside lawyers working for you. And I think that the issue is not how to make it faster, but how to create more opportunities for the Members to come together and be incentivized to solve the problem, because in every dispute settlement case, when you play it out to the end, you've gone through every appeal and you've gone to the arbitration for your suspension of concessions. The point is not to punish each other. The point at the end of all of this is to create the conditions for the two Members to come together to find an accommodation, because we are all WTO members. And so, if there are ways that we can incentivize those political moments of conversation sooner, I think that that would be a worthy goal.

On the part about the Appellate Body, my comment here, and I'm sure I've said this before on this blog, is the following. I've read the U.S. criticisms of WTO dispute settlement and the Appellate Body over the years, and I understand the various issues the U.S. has concerns about. What I don't understand, though, is what the U.S. wants to see instead. For example, what should the scope of the appeals process be? Should there be DSU Article 11 appeals, and if so what should they look like? What should the GATT Article III non-discrimination standard be? The U.S. has criticized all of these areas and others, but it has not offered up much in the way of proposals. I'd really like to see some concrete proposals here, which could serve as the basis for a discussion. Tai seemed reluctant to put forward a "full on proposal," but I'm not sure there is any other way to move forward. Without this, I think it's likely we'll end up with the MPIA coming into operation as the appeals mechanism for those who want to use it. I do welcome the conversations, and maybe something can come out of them. However, based on what has been made public (I don't know what has been said in private), I have very little idea of what the U.S. vision for appellate review and broader dispute settlement reform is, and I think it's a big problem what we don't have a sense of this.

In terms of my question on the panel process, what I would say is that I completely agree that we should make settlement a priority, but from what I can see, the existing rules already do this. It's really up to the Members whether they want to settle, and sometimes they are able to do so. It's worth noting that most WTO complaints don't go through the whole litigation process. But sometimes Members just can't agree, and when they don't, we end up in litigation. Where that's the situation, there are important issues related to how the litigation process works that are worth improving on. (And I would note that the option for litigation may be particularly important for smaller and developing countries that have less leverage in settlement negotiations).