International Economic Law and Policy Blog

Where Did "Scientific Basis" Come From in Trade Rules?

At a Congressional hearing recently to confirm Alexis Taylor as Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, Taylor offered the following comments on "science-based" regulation as an international trade law principle:

I think from the question of new trade deals, what I'm very interested in is a couple of fundamentals to bring to the conversations within the administration around what is meaningful market access for a cross-section and diversity of US agricultural products that we are producing and exporting. How do we address non-tariff barriers and ensure that science-based regulatory processes and decision-making is being implemented within those various trading partners. And then having enforceable standards within those trade commitments. And then the final step is ensuring that when commitments are not being made or lived up to, that will have been made to US producers, that we are then enforcing those standards that we have negotiated. And that is the kind of fundamental approach that I want to bring to the conversations around the trade policy for the administration. And then finally, as you mentioned, with the reorganization the Codex office has moved under the TFAA [Trade and Foreign Agricultural Affairs’] mission area, and fundamentally, that body has helped bring science-based clarity for food products, for the international export market, and keeping that science-based decision-making and conversations that are rooted in science is absolutely paramount and something I am very committed to should I be confirmed.

The idea that scientific basis is an appropriate trade law principle to guide food safety regulation seems to have widespread support. Even trade skeptic Bob Lighthizer agrees with it. As I noted a couple years ago, "Lighthizer seems very comfortable using the absence of a scientific basis as a proxy for rooting out disguised protectionism. If it's not based on science, in his view, we can assume it is protectionist." Here's one thing Lighthizer said in this regard: "making every regulation science-based is the equivalent of getting rid of protectionism." (It's interesting that Lighthizer supports getting rid of this kind of protectionism, but wants to ratchet up other kinds of protectionism. Presumably that has something to do with who he thinks is engaging in the protectionism.)

But how close is the correlation between regulation that has no scientific basis, on the one hand, and protectionism, on the other? I'm sure there is some degree of overlap, but overall it seems like a fairly weak connection to me. I would guess that most non-science-based regulation is not protectionist in the sense that most people use that term. While such regulation may be ineffective and can distort markets and trade (see, e.g., here), that ineffectiveness and those distortions are not generally the result of protectionist goals, as far as I can tell.

To be clear, I can see how the issue of whether there is a scientific basis for a measure could be a factor to consider in determining whether a measure is discriminatory under various trade obligations. But I'm not sure scientific basis should be a free standing obligation. If it is, it could catch a lot of measures that are not protectionist.

But obviously, other people have a different view, and today, despite all the disagreements over trade policy that we are seeing, this principle appears to have bipartisan support.

What this all makes me wonder is, how did scientific basis take off as a principle in trade obligations in the first place? At some point a while back, I tried to look into this and answer questions such as: Who wanted it in there? And what did they think it meant? But I am now distracted with other things for the foreseeable future, so I'll just put these questions out there for anyone else who is interested. It seemed to me that the early to mid-1980s work of the Cairns Group and various agriculture organizations might hold the answers, if someone wants to dig around.

Another Thing Spiking in 2022 America: Harm to the WTO

Friends of the World Trade Organization (WTO) experienced some distress during the US government’s 2017-2020 cycle.  They did not expect American disrespect for the WTO and its rules to reach a new, much-higher watermark in the current cycle.  But that has occurred.  Responsive commentary has been curiously low-volume so far, perhaps because of “outrage fatigue” and perhaps because the latest U.S. affront to the WTO is in the form of an environmental measure.  Some additional volume is appropriate, because American harm to the WTO enterprise has spiked with the enactment of an electric vehicle (EV) provision in the 2022 budget reconciliation bill known as the Inflation Reduction Act (IRA).

Sitting alongside other EV-related provisions in IRA is one that makes generous purchase subsidies, aimed at promoting transition from gas-powered to electric vehicles, available only in respect of EVs assembled in North America.  This incentive is delivered through the tax system rather than at point-of-sale as in the case of the 2009 “Cash for Clunkers” program, but it changes a vehicle’s effective purchase price on a dollar-for-dollar basis.

This measure is quite explicitly WTO-inconsistent.  It violates National Treatment (GATT Art. III) as it accords to imported EVs treatment less favorable than that accorded to like domestically-assembled EVs.  It violates MFN (GATT Art. I) as it accords to EVs assembled in the territory of other WTO Members treatment less favorable than that accorded to EVs assembled in Canada/Mexico.  And in regard to the WTO’s subsidy rules, it makes access to a consumption subsidy contingent on the purchaser choosing a domestically-assembled rather than imported EV; this is one of two types of subsidies that WTO rules categorically prohibit.

US officials may believe that these discriminatory aspects were necessary politically, in order to get an EV incentive passed.  That argument may get some (limited) traction in the court of public opinion, but it will be useless in the event of a legal challenge if the United States seeks to justify its GATT breaches by invoking GATT Art. XX.  Compressing the analysis quite a bit, the core problem is that the nationality-based element makes this measure a less, not more, potent consumer incentive for transitioning to EVs.  It therefore interferes with, rather than being essential to, the articulated US objective of spurring transition.  So even if the EV measure could be provisionally justified under one of the GATT Art. XX indents (not guaranteed), it would plainly fail the test imposed by the GATT Art. XX chapeau.  The nationality-based trade-restrictive element is not only unnecessary; alternative measures lacking this element would contribute more strongly to meeting the claimed objective.

These WTO legal considerations were and are well-known to the officials who worked on the IRA in the administration and on Capitol Hill.  They did not blunder into a WTO breach.  During prior U.S. government cycles, enactment of such a provision would have been hugely improbable.  Chairs, Ranking Minority Members and Committee Staff at the Senate Finance and House Ways & Means committees have always regarded it as their obligation to call out, and try to purge, any WTO-inconsistent elements of pending legislation long before the time of floor consideration.  When WTO-inconsistent proposals have somehow worked their way into bills that cleared one or both chambers, that fact has ordinarily been considered to justify a veto threat or a veto.  As a result, it has long been possible to proudly observe that the United States does not knowingly and intentionally put new WTO-breaching legislation into effect.  It might sound mundane, not a proper subject for giving out medals, but this is in fact one of the key ways that international trade agreements deliver value over time to the countries that have negotiated and approved them.  The agreements act as a filter on new measures and help to ensure that applied trade policies at the national level generally evolve in a liberal, rather than illiberal, direction.

That didn’t happen here.  The EV provisions in question were largely authored by Majority committee staff in consultation with administration officials.  The filters not only didn’t filter; they wrote the bill.

You don’t have to feel any particular way about climate change, or about government leadership in promoting an EV transition, to appreciate that this is significant.

No national public conversation has ever occurred in America about carbon control and the WTO.  In the commentariat, some have long insisted that WTO rules were incompatible with timely/effective carbon control action, and would have to be either rewritten or simply breached.  Others have contended that it makes sense to discover how much effective action we can achieve WTO-consistently, and negotiate internationally for additional “policy space” only if events prove that to be necessary.  One could imagine a US administration using its convening and bully pulpit powers to turn that academic debate into something larger and more accessible … with a view to achieving at least more predictability and ideally some level of public understanding and acceptance.

Again, that didn’t happen here.  If Congress even momentarily considered WTO-consistent EV incentives, it left no record of that consideration.  The same is true of the administration.  The result was a knowing, explicit, legislated breach of the WTO’s most central non-discrimination obligations.

Could this really be worse than what happened during the USG’s last cycle?  Let’s compare.  Apart from periodic Presidential insults and tweeted ad hominem attacks, WTO supporters had three main grievances.

The US administration implemented Section 232 import relief on steel/aluminum and when challenged at the WTO invoked a GATT Art. XXI defense; many saw the latter as a clearly unacceptable stretch of the national security exception.  The US administration also asserted that access to the GATT Art. XXI defense is self-judging; while this stance reflected longstanding conventional wisdom, at least in the United States, some WTO supporters saw actually articulating it before a panel as an “anti-WTO” thing to do.  Comment:  With the “self-judging” argument having been rejected in a separate WTO case, the US 232 measures may be held ineligible for a GATT Art. XXI defense.  How the United States responds in that scenario could have systemic implications.  The acts already taken – applying 232 measures, invoking GATT Art. XXI, and contending that a GATT Art. XXI claim is non-justiciable – are not especially harmful to the WTO itself and do not reflect a high level of disrespect for the Organization’s rules.  Also, this whole endeavor was a purely administrative action by the United States, attracting much more opposition than support on Capitol Hill.  (And it has been left in place, which by now means affirmatively embraced, by the current US administration.)

The US administration implemented Section 301 tariffs on products from China, consciously exceeding tariff bindings (hence breaching WTO rules) with respect to products of that country.  Comment:  I look at this as taking a bilateral fight out to the parking lot, with the result (among other things) that there ought to be less damage to breakable furnishings inside the building.  It is unfortunate that things have deteriorated so significantly, but there was not a particularly WTO-friendly path for this confrontation to follow.  The US-China trade relationship is effectively no longer WTO-based.  The possibility that would happen to a particular bilateral relationship has always existed – see the Uruguay Round Statement of Administrative Action on Section 301(b) – and indeed is baked into the WTO treaty structure which recognizes that any Member can breach particular obligations and accept WTO-authorized countermeasures of equivalent commercial effect.  No country would have joined a WTO which did not, or purported not to, allow such tactics.  The US administration did not contend that its actions were WTO-consistent, and therefore did not express disrespect for (any or all of) the WTO’s substantive rules.  Also, and again, this whole endeavor was and remains a purely administrative action.

The US administration stopped joining consensus on approval of new appointments to the WTO Appellate Body (AB), eventually rendering that WTO organ non-operational.  Comment:  The harm to the WTO itself associated with shuttering the appellate part of dispute settlement is unknowable at this point.  Dispute settlement continues, and formal adoption of panel reports continues though not universally.  Negotiations and committee work also continue.  If you think the principal virtue of the WTO involves legal-norm-articulation and rule-of-law bolstering – in other words, if you look at things through a lawyer’s prism – you might see what has happened as hugely undermining.  If you are more concerned with practical matters such as the balance of concessions, the propagation of best practices through WTO committee processes, etc., then you might not miss the appellate level of dispute settlement much at all.  My own view is that far more damage to the WTO enterprise was authored by the WTO adjudicators engaging in over-reach for 25 years than by the reaction that over-reach predictably generated.  Additionally, as the rules involved here are purely procedural, what the United States has done cannot be seen as an attack on the Organization’s core substantive disciplines.  Indeed, the USG’s chosen tactic was to use a procedural rule (the consensus requirement) and therefore amounts to “painting within the lines” even if in an unexpected and infuriating manner.  Lastly, and like the other two cited examples, this hiatus on AB approvals was and remains a purely administrative US action.

My purpose here is not to try to get inside anyone’s head and, for example, compare one US President’s actual quantum of respect for the WTO (and its rules) with another’s.  Rather, the point is that objectively, the US government as a whole has now inflicted more damage on the WTO in the current cycle.  Public comment so far (scant as noted above) has tended to focus on the combination, i.e., the fact that the current USG has both embraced the WTO-disrespecting actions of the prior one and enacted the EV provision.  They see this as signaling that parochialism in US trade policy is not temporary and that statements of American dedication to multilateralism cannot be relied upon.

I think this account, accurate enough in its punch-line, understates the EV provision’s significance.  Yes, disrespect for international obligations was already above historical norms, but the EV provision represents what Bridge players call a jump-shift.  Unlike prior US actions, it is a body-blow to the WTO for many reasons but two especially:  (1) because it was consciously enacted by the USG’s two political branches acting in concert, and (2) because it so clearly signals that the USG does not consider WTO-consistency as a relevant filter when new policy and legislation are being developed.  Nothing we might do (or might have done) administratively in regard to AB appointments, or in regard to a particular bilateral trade relationship, or in regard to “national security”-based trade restrictions in a couple of sectors, could be as systemically impactful.

That the offending measure is an environmental one should not make WTO supporters (among whom I count myself) any less concerned.  The WTO rules pertinent to behind-the-border measures apply to – and codify guardrails for – environmental just as much as other types of measures.  Environmentally-themed protectionism is not necessarily more virtuous than other sorts of protectionism.  Most important, WTO-indifference displayed in one context cannot easily be limited to that context; it broadcasts a wider message.  A WTO whose core substantive rules a major founding Member displays no compunction about explicitly violating, in enacting new legislation, is a WTO with little potential to deliver value by shaping national behavior.

WTO flouting of course has never been an exclusively American pastime, and just during the time period being discussed there have been some priceless non-US examples.  In a world where the United States can get blamed for just about anything regardless of its actual degree of responsibility, one hears charges that the national officials involved were simply walking through a door that America had swung open.  If you subscribe to that narrative, then you should be especially worried because with the EV provision we have now quadrupled the width of that open door.

DSU Article 25 Arbitration: A Long-Term Solution for the Appellate Body Crisis?

To date, proposals for the reform of WTO dispute settlement have focused on institutional improvements of the AB, as represented by the Walker proposal, or possible replacement of the two-tier adjudication with one-tier adjudication by a standing body of full-time panelists, as suggested by Hoekman and Marvroidis (“To AB or Not to AB: Dispute Settlement in WTO Reform” 23 JIEL 703 (2020)). But the successful use of Article 25 arbitration for appellate review in Turkey–Pharmaceutical Products has raised a third possibility: instead of serving merely as a stop-gap measure, Article 25 arbitration could be structured for WTO appellate review on a permanent basis. Significantly, this third possibility appears to have the explicit support of the United States. As reported in this Blog, the US said: “If a Member supports dispute settlement reform, then a bilateral arrangement presents a unique opportunity to explore alternative approaches.” This positive attitude of the US is in stark contrast with its general silence on other reform proposals.

Compared to the other two proposals, Article 25 arbitration has some potential advantages. First, it may bring WTO appellate review back closer to its original design. As is well known, the Uruguay Round negotiators established an appellate review mechanism to ensure that “fundamentally flawed” panel reports would not be adopted automatically under the negative consensus rule of the DSU. With this goal in mind, the negotiators did not expect that recourse to appellate review would be frequent. But subsequent WTO practice has proven otherwise. Because appeal is part of the compulsory adjudication, the losing party at the panel stage would be tempted to exhaust available remedies. The expectation that a panel decision would be subject to the scrutiny of the AB led to a tendency toward overlitigation, resulting in substantial delays in dispute settlement. In contrast with the compulsory adjudication by the AB, Article 25 arbitration is voluntary and consensual in nature. In a system of voluntary dispute settlement, parties respond to incentives different from those in a system of compulsory adjudication. They are more likely to settle differences through negotiation than litigating every issue before the tribunal. Consequently, under DSU Article 25, resort to appellate review may become less frequent and resolution of disputes more expeditious.

Second, Article 25 arbitration is inherently more flexible than a standing AB. Such institutional flexibility is needed to ensure that major legal errors be corrected rather than cemented into WTO jurisprudence. Judges are fallible humans and must be allowed to make mistakes. The key is for the system to have a mechanism to correct mistakes. Unfortunately, such a mechanism does not exist at the WTO. In theory, the Members may overrule the AB by adopting an authoritative interpretation of WTO provisions (per WTO Agreement IX:2). But in practice, this is unlikely ever to happen. As a result, the task of rectifying mistakes fell onto the AB itself. However, for whatever reason, the AB in its 25-year existence never acknowledged making any error, let alone providing self-correction. Instead, the AB insisted on treating its rulings as de facto precedent. Such insistence may have eroded the flexibility necessary to maintain a balance between law and political constituencies of the system. In contrast with the standing appellate body, Article 25 arbitration will be conducted by arbitrators on an ad hoc basis. The arbitrators will not have the same power and authority as the AB. Consequently, it would be possible for one panel of arbitrators to disagree with another on the same issue, or for a WTO panel in a subsequent case to disagree with the appeal arbitrators in a prior case. While such disagreement might create some inconsistencies in case law, over time the better reasoning could emerge and be accepted as the proper precedent.

Thirdly, compared to the other proposals, adopting Article 25 proceedings for appellate review would require fewer changes to the existing system. Substantively, all that would be required for amending the DSU would be to delete the single provision on the Appellate Body (Article 17), while the panel proceedings and the negative consensus rule on the adoption of panel reports would all be kept intact. Technically, it would be necessary also to delete all other references to the Appellate Body in the DSU, and to adjust Article 16.4 (the adoption of panel reports) so as to clarify that “appeal” would be available via Article 25. This adjustment could be made by adding a simple footnote to Article 16.4, so the provision would read as follows:

4. Within 60 days after the date of circulation of a panel report to the Members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal* or the DSB decides by consensus not to adopt the report. If a party has notified its decision to appeal*, the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal*. This adoption procedure is without prejudice to the right of Members to express their views on a panel report.

            * The appeal of a panel report may be made via arbitration under DSU Article 25.

With this amendment, it would not matter whether a particular Member, such as the United States, would choose ever to use Article 25 arbitration itself, since any panel report not submitted to appeal arbitration would be automatically adopted by the DSB. Given the minimum changes required to amend the DSU, it could be easier for the 164 Members to reach consensus, which is a legal requisite for any DSU amendment (per Article X:8 of the WTO Agreement).

On the whole, Article 25 arbitration seems a possible compromise between the reinstitution of the AB, which the US has resisted, and a new system of one-tier adjudication by permanent panelists, which may not satisfy many other Members. There are, however, major institutional issues to be addressed. One is the pool of potential arbitrators. In principle, the disputing parties have control over the selection of arbitrators. In Turkey-Pharmaceuticals, the parties decided that the three arbitrators should be picked through a random selection from a list of former AB members and ten MPIA arbitrators. If Article 25 appeal arbitration were to become “institutionalized”, how should the pool of arbitrators be determined? Another issue is the role of the WTO Secretariat. In Turkey­–Pharmaceuticals, the arbitrators were apparently assisted by the Secretariat, but presumably not by the same staff that had assisted the Panel in this case. Recall that the MPIA participants requested that the WTO provide separate secretarial support to the MPIA arbitrators so as to ensure the quality and independence of the proceedings, but the US opposed that request as it perceived the MPIA to be an attempt to create a substitute AB. Again, if Article 25 appeal arbitration were to become “institutionalized”, how should the arbitrators be assisted by the WTO Secretariat? In this regard, the analysis and suggestions by Joost and his coauthor in their recent AJIL article deserve special attention.

MPIA Update: Another Article 25 Arbitration Appeal Likely Coming Soon, New Dispute Sees Procedures Agreed

There are two new developments with the MPIA.

First, Australia and China have agreed "to enter into arbitration under Article 25 of the DSU to decide any appeal from any final panel report as issued to the parties in dispute Australia – Anti-Dumping and Countervailing Duty Measures on Certain Products from China (DS603)." That dispute is a long way from a panel report, though, with the panel just having been composed on September 5.

Second, it looks like another DSU Article 25 appeal arbitration might be coming soon. On September 16, the panel in Colombia - Anti-Dumping Duties on Frozen Fries from Belgium, Germany and the Netherlands (DS591) issued a communication in which it indicated that the final report had been issued to the parties on August 29. The panel said that on September 12, it received a communication from Colombia requesting the Panel to suspend its work in the dispute in accordance with Article 12.12 of the DSU, in order to facilitate arbitration under the Agreed Arbitration Procedures. Upon receipt of this request, on September 13 the Panel instructed the WTO's Dispute Settlement Registry to "transmit immediately the original English language version of the final Panel Report … to the pool of arbitrators." (The pool of arbitrators is here.) The Spanish and French translations were transmitted on September 16, and on that date the Panel granted the request to suspend the panel proceedings.

Under the Agreed Arbitration Procedures, "[t]he arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 20 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect." So, unless there is a settlement here, it seems as though we will see a notice of appeal filed in the coming weeks. And, of course, "the Notice of Appeal shall include the final panel report in the working languages of the WTO," which is when we in the general public get to see the report.

This dispute will be an interesting test of how DSU Article 25 arbitration appeals handle trade remedy disputes. Trade remedies are a sensitive area, and one of the main issues that led to U.S. objections to the Appellate Body. How much deference will the MPIA arbitrators give to the panel and to domestic anti-dumping authorities? That is something many people, including U.S. government officials, will be watching closely.

And the dispute will also be interesting because it's the first MPIA appeal. The Turkey - Pharmaceutical Products DSU Article 25 arbitration appeal was an ad hoc appeal arbitration because Turkey is not a party to the MPIA, but the Frozen Fries dispute will be a full-fledged MPIA case. The Agreed Procedures in the case say that selection of the MPIA arbitrators will take place as follows:

The selection from the pool of arbitrators will be done on the basis of the same principles and methods that apply to form a division of the Appellate Body under Article 17.1 of the DSU and Rule 6(2) of the Working Procedures for Appellate Review, including the principle of rotation.⁴

⁴ However, at the request of a party to a dispute, any member of the pool of arbitrators who is not a national of a participating Member shall be excluded from the selection process. Two nationals of the same Member shall not serve on the same case.

(As far as I can tell, neither element of the footnote applies here.)

Rule 6(2) of the Working Procedures for Appellate Review says:

The Members constituting a division shall be selected on the basis of rotation, while taking into account the principles of random selection, unpredictability and opportunity for all Members to serve regardless of their national origin.

Which 3 of the 10 arbitrators in the pool will make it through the random selection process? My understanding is that everyone in the pool has been working hard to prepare for the possibility of being put to work, and they should soon have an opportunity to show us what the MPIA can do.

Enforcing the IPEF: Unilateralism and Incentives vs. Adjudication

This is from an Inside US Trade article from last week:

Members of the Indo-Pacific Economic Framework for Prosperity agree on a need to pursue binding commitments, ministers told Inside U.S. Trade last week, but those commitments likely will differ from those in other trade arrangements as countries consider self-enforcing and incentive-based rules.

Philippine Trade and Industry Vice Minister Ceferino Rodolfo is one of the proponents of an incentive-based approach rather than the punitive system enshrined in traditional trade agreements. Rodolfo told Inside U.S. Trade that "binding commitments" could mean IPEF-compliant countries are the ones allowed to participate in regional supply chains. Conversely, countries that aren't living up to IPEF provisions would be left out.

I would like to hear more details about all this, but if I understand what is being suggested in the article, I see some problems with this approach, as follows.

When you are dealing with tariffs, it is often very clear whether a particular government measure is in violation of a trade agreement. There may be some instances where there are questions about customs classification or something similar, but most of the time, compliance with the obligations is easy to judge: Either the tariff exceeds the bound rate or it does not.

By contrast, with obligations that are based on substantive legal principles and their various exceptions, compliance can be difficult to determine. In most cases where compliance questions arise, the parties will disagree about whether the measure is in compliance. In these circumstances, adjudication is helpful in making a definitive determination that everyone can accept.

IPEF won't have any tariff reductions. Instead, it will focus on substantive obligations that apply to domestic laws, regulations, and practices. As a result, there are likely to be disagreements about whether particular domestic measures are in compliance with IPEF, and without adjudication it is going to be a challenge to determine whether compliance exists.

If I understand the IUST quotes above, the current vision for IPEF is that determinations of compliance are going to be unilateral. Thus, if the U.S. is concerned about the actions of one of the other IPEF parties, the U.S. would on its own make a determination about whether the other party is in compliance. The U.S. would then use "regional supply chains" as the incentive to enforce its judgment. That is, having determined that the other party was not in compliance, the U.S. would not let that country participate in a particular supply chain initiative it was developing. I'm not completely sure what that would mean, but what it could mean, to take an example, is that if there were U.S. government financing being offered for the production of a raw material or product in an electric vehicle supply chain, producers from that other party would not be eligible for the financing.

Could this approach work? It depends what we mean by "work." 

Would it provide a short-term incentive to comply with U.S. demands related to IPEF compliance? I see how it could. If the carrots being offered are attractive enough, there would be an incentive to comply. But over the long-term, how will other parties feel about these sorts of unilateral judgments and demands, which will have an impact on their domestic policies that are affected by the substantive obligations of IPEF (e.g. the domestic regulation of digital policy or environmental policy or labor policy)? They might not like it very much.

And does this approach work for everyone? It comes across as unequal and imbalanced, as it is likely to be enforced by the United States but not by others. It's hard to see, for example, Australia and Japan using this kind of enforcement against each other.

As a result, I'm not sure how durable this kind of approach to enforcement would be. While other parties may be saying positive things now about the theoretical idea of such a mechanism, would they like it being applied to them in specific cases of enforcement? Maybe not. On the other hand, whether any of these obligations would actually be enforced seems very far off at this point; and perhaps people are not expecting an aggressive use of such an enforcement mechanism. 

If the idea here is that if other countries just join the IPEF club they can get access to regional supply chain initiatives, I see how this vision of IPEF can get off the ground. I'm just not sure how enforcement of the club rules will go if it turns out people are interpreting the obligations differently.

CfP: A deep dive into the legal world of Trade and the Environment

This call for papers comes from the co-editors of The quest for a Greener tomorrow! A deep dive into the legal world of Trade and the Environment:

This book project seeks articles, essays, research papers, legislative comments or case commentaries from interested participants on the following potential sub-themes, -

• The historical trade and environment debate: Is environment on the trade table justified?
• Environmental provisions in the new trade agreements: Are potential questions for the future sufficiently addressed?
• Multilateral Environmental Agreements and Free Trade Agreements: where does the answer lie?
• Developing economies and environmental protection: Better policy models for adequately addressing climate concerns
• Island nations at risk from climate change: questions of responsibility
• The WTO and Sustainable Development Goals (SDGs)

The word limit for a full paper along with an abstract is 3000 – 5000 words (excluding footnotes) submitted in MS Word Format. Articles upto 5000 words (excluding footnotes) would also be considered. Legislative comments or case commentaries up to 3000 words may also be considered.

For full details, please see the call for papers here. 

For further queries, the co-editors can be contacted, -

Dr. Ankit Awasthi Assistant Professor, Hidayatullah National Law University, Raipur, India. Email: ankitawasthi.hnlu@gmail.com Mobile: 7355235075

Ms. Stuti Toshi HNLU (2011-2016); MILE, World Trade Institute (2016-17) Senior Research Fellow (legal) deputed to work with the TBT/SPS/TRIPS Desk, Trade Policy Division, Department of Commerce, Ministry of Commerce and Industry, Government of India; from the Centre for WTO Studies, Indian Institute of Foreign Trade. Email: toshi.stuti@gmail.com

China Trade Monitor Post on Banned Fish Products and USMCA

China Trade Monitor is subscriber-only, but our recent post entitled "China-Mexico Trade in Banned Fish Products under Discussion in USMCA" has a tuna-dolphin/shrimp-turtle feel to it and thus may have broad appeal, so I thought I'd open it up to everyone. Here's the intro:

Illegal fishing has led to trafficking in products of an endangered fish, with consequences for an endangered porpoise that swims near it. The trade in these products has been from Mexico to China, with the United States sometimes in the middle, and Mexican, Chinese, and American officials have been talking to each other about the issue in various fora. The latest developments involve two processes under provisions of the United States-Mexico-Canada (USMCA) trade agreement.

Read the whole post here.

The Latest Effort To Clarify FET and Indirect Expropriation

Over at Investment Arbitration Reporter, Damien Charlotin has a piece about a draft text developed by Germany and the European Commission to clarify the interpretation of the obligations on fair and equitable treatment and indirect expropriation in CETA.

The draft text document is characterized as a "Draft Decision of the CETA Joint Committee." For now, I don't see this draft decision anywhere other than behind IAReporter's paywall, so I don't feel like I should post the whole document here. But here's one example of language that would be added through the draft decision:

c) For greater certainty, a measure or series of measures constitute “manifest arbitrariness” in the meaning of the Article 8.10.2(c) if:

- it does not contain the reasons on which it is based;
- it is patently not founded on reason or fact;
- it is based on unreasonable discretion, prejudice or personal preference; or
- it is taken in wilful disregard of due process and proper procedure.

This latest effort to clarify these obligations gives me a feeling of déjà vu. Back in 2014, I did a post about a leaked CETA text in which I said: "With each attempt to clarify the 'minimum standard of treatment' in investment obligations, the scope becomes less clear to me." I have the same feeling this time. For instance, what exactly do they have in mind with "personal preference"? Doesn't personal preference play a pretty big role in the formulation of government measures, at least on the legislative side?

The primary response to complaints about the broad scope of FET and indirect expropriation has been to add words that are intended to clarify the scope. But as noted above, these added words often raise new questions about the scope. What I think might be more helpful is if drafters provided examples of government measures and actions that they believe should be covered by the provision. What's a real world example of the problem they are trying to address here? When I've raised this question in the past, investment law experts have pointed to specific ISDS cases, but my question is directed at the drafters. What specifically are they concerned about here?

Law prof Ben Heath has his usual good Twitter thread on these issues here.

Katherine Tai on Policy Space and Sovereignty

This is something U.S. Trade Rep. Katherine Tai said at a Carnegie Endowment for International Peace event last week:

There often is a tension between how international trade rules interact with our own domestic policies and regulations. International trade rules tend to discipline what countries can do and there's a natural friction point with domestic policymaking. For Democrats, we talk about this often as the need to preserve and retain policy space when we are negotiating trade rules to ensure that trade rules are not unduly taking away the jurisdiction for domestic policymakers, especially in a democracy. For Republicans, you often hear concerns around sovereignty and how sovereignty interacts with international trade rules. And you unpack those sovereignty concerns, they end up being very, very similar.

In my view, the core trade principle of nationality-based non-discrimination doesn't constrain policy space or sovereignty very much, and if we stick to that, there is not much friction with domestic policy-making. The friction mainly arises from trade rules that go beyond nationality-based non-discrimination. Here are a few examples:

-- intellectual property protection

-- fair and equitable treatment / indirect expropriation in investment protection rules, enforceable through ISDS

-- SPS rules that require a scientific basis for domestic regulations

-- certain digital trade rules

-- labor rights protections

-- environmental protection

These kinds of rules in trade agreements come from a number of places, but the U.S. is certainly a leading source. In terms of U.S. politics, Republicans push for some of these rules, Democrats push for others. And of course the compromise is that just about everything is included (we shift back and forth about which are being pushed hardest at any given moment).

So perhaps the message someone needs to take to the folks who are upset about the intrusion of trade rules on domestic policy space and sovereignty is: This is the policy you asked for. Now, some of those complaining are people who voted against trade agreements, so they are not responsible. But there are others I can think of who seem to want trade rules that infringe on other countries' policy space or sovereignty but not on American policy space or sovereignty. One example may be farm state legislators who want trade rules that can stop foreign governments from adopting specific food safety regulations, but then get upset when those rules interfere with their ability to legislate.

Do Appeals Have To Go into the "Void"?

Reading over some DSU provisions again, I wonder if there is an argument that appeals need not go into the "void" in the absence of the Appellate Body, at least not permanently.

DSU Article 16.4 says: "If a party has notified its decision to appeal, the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal." Thus, a decision to appeal delays the adoption of a panel report until the appeal has been completed.

And Article 17.5 says: "In no case shall the [appellate] proceedings exceed 90 days." In other words, the delay in adoption is expected to be a brief one.

It is worth noting here that Article 16.4 doesn't say, "the report by the panel shall not be considered for adoption by the DSB until after an Appellate Body report has been circulated." Rather, it refers to "completion of the appeal": After the appeal has been completed, the panel report report shall be considered for adoption. So, a notice of appeal starts the delay in adoption, and completion of the appeal ends the delay.

Importantly, Article 17.5 puts a time limit on appeals: 90 days is the maximum. Of course, sometimes appeals do go longer (and this is one issue the U.S. has been complaining about), but the parties in a particular dispute should be able to prevent this. If there are good reasons for an extension, the parties will go along with a delay, but I would think that in most circumstances, either party could insist that the report be circulated within 90 days. The WTO is a member-driven organization after all.

Taking into account both of these provisions, when 90 days have elapsed since the notice of appeal, if both parties have not agreed to an extension in the time period, it seems to me there is an argument that the appeal proceedings are completed, whether or not an Appellate Body report has been circulated (and whether or not an Appellate Body even exists).

As a result, instead of letting a dispute go into the "void" when a Member appeals in the absence of the Appellate Body, perhaps the other Member who is a party to the dispute could just put the panel report on the DSB agenda for adoption after the 90 day appellate period is over, based on the view that the appeal has been completed. This approach would eliminate (void?) the void.

In support of this argument, we could add context such as Article 3.10, which says: "... if a dispute arises, all Members will engage in these procedures in good faith in an effort to resolve the dispute." Is appealing into the void really "good faith"?

And we could question whether there can even be an appeal in circumstances when there is nobody to hear the appeal.

Is this interpretation of the DSU a bit of a stretch? Maybe. But under the current interpretation, Members can appeal panel reports to an Appellate Body that doesn't exist, thereby preventing a final decision in a dispute for ... well, for a long time so far. To me, interpreting the DSU in a way that allows a void to open up and swallow most of WTO dispute settlement is just as much of a stretch, if not more.

UDPATE:

In a comment to this post, someone pointed out that something along these lines happened in the Morocco - Exercise Books case. Maybe I missed that entirely, or maybe I just forgot about it. Either way, here's a brief rundown from the DSB minutes.

August 30, 2021 - Tunisia raises Article 17.5

7.2. ... Tunisia recalled that on 27 July 2021, the Panel had circulated its report to WTO Members, the conclusions of which confirmed the basis for Tunisia's claims under Articles 2.2, 2.2.2, 2.4, 3.1, 3.2, 3.4, 3.5 and 5.3 of the Anti-Dumping Agreement. The following day, Morocco had notified its decision to appeal under Article 16.4 of the DSU in a Notice of Appeal circulated in document WT/DS578/5. Morocco did not, however, provide an appellant's submission "on the same day as the date of the filing of the Notice of Appeal", contrary to Rule 21(1) of the Working Procedures for Appellate Review. In response, Tunisia, which would have liked Morocco to comply with the conclusions of the Panel Report, was obliged to submit a letter on 16 August 2021, stating that it was not in a position to respond to Morocco's arguments, as Morocco had not provided its appellant's submission within the required time-frame. Tunisia was entitled, pursuant to Article 16.4 of the DSU, to request the adoption of the Panel Report in this dispute in accordance with the negative consensus rule. Furthermore, in Tunisia's view, this right might be suspended should Morocco decide to appeal. In that case, the Panel Report shall be adopted after "completion of the appeal", as set out in Article 16.4 of the DSU. For that reason, Tunisia was not requesting at the present meeting that the DSB adopt the Panel Report in this dispute. However, the suspension of Tunisia's right to request the adoption of the Panel Report was not boundless. In particular, Article 17.5 of the DSU provided for a general time-frame of 60 days for completion of the appeal, and the last sentence stated that "[i]n no case" shall the appeal proceedings "exceed 90 days". Therefore, and in light of Tunisia's reading of Article 17.5, the "completion of the appeal" referred to in Article 16.4 could not exceed 90 days from notification of the decision to appeal. It followed, therefore, that the suspension of the right to request the adoption of the Panel Report had to be lifted 91 days after the date of formal notification of appeal. From that point forward, either party should be entitled to request the adoption of the Panel Report in accordance with the negative consensus rule. Morocco had notified its decision to appeal on 28 July 2021, such that the 91st day would fall on 27 October 2021. Therefore, Tunisia would be able to request that the DSB adopt the Panel Report at its meeting on 29 November 2021. Nevertheless, Tunisia, which had spared no effort in seeking the conclusion of this case, intended, before 29 November 2021, to exhaust all available means to resolve this dispute. In order to do so, Tunisia hoped that the Chair would agree to convene a meeting with the parties as soon as possible with a view to reaching an agreement under his leadership, either on the merits of the dispute or on an ad hoc appeal procedure. Tunisia hoped that his prompt involvement would be very useful in reaching common ground in this dispute

September 27, 2021 - Morocco responds, EU weighs in

Morocco:

7.2. ... Once a Notice of Appeal was filed with the DSB, the adoption of the panel report was automatically suspended, pursuant to Article 16.4 of the DSU. The DSB could no longer consider such a report for adoption until after the completion of the appeal. Therefore, until such time as the Appellate Body circulated its report, adoption of the Panel Report depended neither on Tunisia nor on the DSB, including the Chair of the DSB. For that reason, the request made by Tunisia for the Chair of the DSB to become involve could not be justified, since the DSB Chair had no jurisdiction over this report. Contrary to Tunisia's claim, there was no provision regarding the automatic adoption of a panel report if the deadline for completion of an appeal under the DSU had expired. Moreover, the DSB Chair did not have the right to place such a panel report for adoption on the DSB Agenda. In Morocco's view, Tunisia's statement demonstrated a subjective and extraneous reading of the DSU provisions. If Tunisia's interpretations were accurate, the Appellate Body deadlock would not in any way have affected the functioning of the WTO dispute settlement system since panel reports would have been automatically adopted 90 days after the date of filing of the Notice of Appeal. This would be irrespective of whether such reports were reviewed by the Appellate Body. Morocco had not violated Rule 21(1) of the Working Procedures for Appellate Review since it had not filed a written submission. That would be done in accordance with the Appellate Body's working procedures once the Appellate Body became operational. The Panel Report was subject to an appellate review. Pursuant to Article 16.4 of the DSU, the Report shall not be considered for adoption until after completion of the appeal. Thus, consideration by the DSB of a report whereby an appeal had not been completed would be a clear violation of Article 16.4 of the DSU. Consequently, the report in question was outside the purview of the DSB and the DSB Chair. Tunisia's proposed reading of the provisions of the DSU had serious systemic implications for the rights and obligations of the parties to this dispute. Morocco was and remained ready to settle this dispute with Tunisia through bilateral consultations, but was opposed to the proposed mediation by the DSB Chair. As Morocco had indicated on several occasions and most recently to Tunisia, technical consultations at the bilateral level would allow both parties to resolve the substantive issues in this dispute.

EU:

7.6. The European Union also noted that the parties had expressed certain views on the effect of the passage of 90 days without an Appellate Body report in this case. The European Union wished to underscore that Article 16.4 of DSU was clear: "… the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal". While Article 17.5 of the DSU provided for certain time-frames for appellate proceedings, it attached no procedural consequences to the fact that those time-frames were exceeded. Consequently, there was no basis in the DSU for the assertion that a panel report that was under appeal could be adopted by the DSB after the expiry of the 90-day period following the notice of appeal. This was all the more so in the exceptional circumstances where the Appellate Body was unable to function. Indeed, the lack of at least three Appellate Body members was not a legal bar to a Member exercising its right to an appeal, and this was the right of any WTO Member under the DSU. ...

Further discussions took place at the DSB meetings of October 26, 2021, November 29, 2021, December 20, 2021, and January 25, 2022. At the January 25 meeting, Tunisia's statement refers to this positive outcome:

At the present meeting, Tunisia was pleased to inform delegations that on 12 January 2022 the Moroccan trade authorities had sent a proposal, through diplomatic channels via the Capitals, for revision of the dumping margins and review of the assessment of injury and causation, based on the Panel's recommendations. The proposal, which included a recalculation of anti-dumping margins imposed on Tunisian exporters of exercise books, had been received at the end of the previous week by the Tunisian Ministry of Trade and Export Development and was under consideration by its relevant departments. The Tunisian trade authorities wished to thank their Moroccan counterparts and considered this revision to be a constructive basis for the continuation of the consultations. He noted that the Moroccan authorities were continuing their analysis of compliance with the other Panel findings, in particular those relating to injury and causation. Therefore, Tunisia welcomed the intensified level of collaboration with its Moroccan colleagues, and wished to thank the Chair of the DSB, whose good offices and involvement continued to assist the parties to arrive at a mutually acceptable arrangement as quickly as possible.

With regard to the DSU interpretation that was the subject of this post, I do see the flaws in interpreting Article 17.5 in the way I argued for. But I also think this interpretation is less flawed than one in which appeals go into the void.

Tenure Track IEL Job at Fletcher

The Fletcher School is seeking a professor of international economic law.  Posted here:  http://apply.interfolio.com/112725  

Description

The Fletcher School of Law and Diplomacy, a leading graduate school of international relations, seeks to fill a full-time faculty position in international economic law at the assistant professor level. The study of international economic and business relations is central to the Fletcher School’s mission, and intersects with many of the School’s other academic and disciplinary strengths. 

The successful candidate will be responsible for teaching, research, and graduate student research supervision, and will engage in service to The Fletcher School as well as to the broader community. The Fletcher School’s faculty is multi-disciplinary, with a focus on preparing tomorrow’s leaders with a global perspective. The successful candidate should be prepared and eager to participate in this School-wide interdisciplinary dialogue. The School undertakes research and prepares master’s and doctoral students to use the latest legal, political, economic, business, and other analytical tools, to generate pragmatic policies and make decisions that will successfully shape global events.  In addition to its flagship Master’s in Law & Diplomacy (MALD) and Master’s in Global Affairs (MGA), the Fletcher School also offers a Master’s in International Law (LLM), a Master’s in International Business (MIB) and a PhD.  

Qualifications

The candidate should have excellent expertise and research capabilities in international economic and business law, particularly with respect to international trade, international investment, and international monetary matters. Teaching experience in this field is desirable, but not required. In addition, the ability to teach courses in international legal aspects of governance, sustainability and environmental justice, technology, cybersecurity, or development would be an added benefit.  Relevant professional experience is desirable, whether in government, international organizations, business, non-governmental organizations, or academia. A J.D. or equivalent law degree is required. 

Application Instructions

Candidates should submit a cover letter, a research statement, and teaching statement, including concrete descriptions of plans for research as well as their particular interest in the position at The Fletcher School, a curriculum vitae, a list of at least three references, and any previous student evaluations.  The search committee will begin reviewing applications on October 1, 2022, and will continue reviewing until the position is filled.

Comments by WTO Members on the First Article 25 Arbitration Appeal (Plus Some U.S. Domestic Politics)

The Turkey - Pharmaceutical Products Article 25 arbitration award, which functioned as an alternative appellate review mechanism while Appellate Body appointments are still blocked, was discussed at the August 29 DSB meeting. Here's how the WTO web site summary of the meeting described comments from WTO Members on the systemic issues related to using Article 25 in this way:

The EU said it was particularly pleased with the appellate review proceedings, which demonstrated that there is a functional and efficient alternative to preserve the right of appeal for the parties, which is very similar to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). The EU said it expects that Türkiye will take the necessary steps to implement the arbitrators' findings promptly and stands ready to discuss and agree on a reasonable period of time for implementation.

The United States said it welcomed the agreement of the parties on a way forward in this dispute, which led to Türkiye’s announcement of its intention to comply with the panel’s and arbitrators' recommendations.  The aim of dispute settlement is to facilitate the prompt settlement of a dispute between members, the US said, and it does not object to members utilizing Article 25 of the DSU or other procedures to help resolve disputes.

Under a separate item, Japan said it welcomed members' use of the Article 25-based arbitration as a means of dispute settlement under the current situation. The arbitration has played a provisional complementary role to review the appealed findings of the panel report during the time of the Appellate Body dysfunction, Japan said. Moreover, the arbitration award was issued within the prescribed 90-day period, contributing to the prompt resolution of the dispute.

And here is the full reaction by the U.S. in its statement to the DSB:

The United States welcomes the agreement of the parties on a way forward in this dispute, which led to Türkiye’s announcement today with respect to implementation of the arbitrator Award.

The aim of dispute settlement is to facilitate the prompt settlement of a dispute between Members.

Members have a variety of means under the DSU through which they can achieve a resolution, including pursuant to Article 4, “Consultations”; Article 5, “Good Offices, Conciliation, and Mediation”; Article 6, “Establishment of Panels”; and Article 25, “Arbitration.”

The United States does not object to Members utilizing Article 25 or other procedures to help resolve disputes. If any Member considers that use of the arbitration provision may assist it in securing a positive solution, then the United States in principle supports such efforts.

In this instance, the parties entered into “Agreed Procedures for Arbitration under Article 25 of the DSU.” The agreement provided for an arbitration that incorporated many of the most troubling practices of appellate review under the Appellate Body.

The U.S. concerns with certain practices of the Appellate Body are well known. We encourage Members to consider different approaches to resolving a dispute, rather than furthering the Appellate Body’s problematic interpretations or conduct. If a Member supports dispute settlement reform, then a bilateral arrangement presents a unique opportunity to explore alternative approaches.

Nevertheless, we welcome the engagement between the parties to this dispute that led to the agreement.

We also want to draw attention to another issue of systemic importance. In accordance with the parties’ agreed procedures, and consistent with Article 25.3 of the DSU, the arbitration award has not been adopted by the DSB.

Accordingly, the arbitration award does not contain “adopted recommendations or rulings” within the meaning of the DSU.

The United States therefore takes note of Türkiye’s statement today with respect to implementation of the arbitrator award, although we do not consider such statement of intentions as required under Article 21.3 of the DSU. 

How should we take the U.S. statement? Does it mean that the U.S. is unlikely to use Article 25 arbitration appeals because they look too much like appellate review as practiced by the Appellate Body? Or does it mean the U.S. might consider using Article 25 arbitration appeals if they avoided certain practices of the Appellate Body? It's worth noting that the Article 25 arbitrators in this case did circulate the award within 90 days, so that addresses one of the U.S. concerns about the Appellate Body. What other process changes might the U.S. insist on in order to agree to use Article 25 arbitration as an appeals process for one of its disputes? I'm looking at the list of ongoing WTO disputes, and I'm not sure I see any disputes for which it is likely that another WTO Member will ask the U.S. to use Article 25, but you never know.

Just to be clear, while that last paragraph might have made it sound like I thought there was a decent chance the U.S. would use Article 25 arbitration some day, I don't really have high hopes for that. I just thought I'd put the idea out there and see if anyone picked it up. One reason (of many) for my skepticism is where U.S. politics is right now on the issue of the WTO and the Appellate Body. Take a look at this letter from Senators Cotton, Grassley and Rubio to Ambassador Tai. When I say "take a look," I don't mean read and consider the substance, because it will just irritate you. I could take it apart sentence by sentence, but I don't think it's worth the effort. The key point is a political one, which is that some Republicans are pushing Tai not to allow Appellate Body appointments to go through (not that we even saw many hints that she would do so). That means any U.S. compromise on these issues could get caught up in U.S. domestic politics, which is a mess right now. (Establishing whether a consensus exists for a particular Appellate Body nominee could be subject to court challenges, recounts, and calls for election integrity! That's a joke. I think).

It's one thing to hear this from Senators Cotton and Rubio, who are both fairly "nationalist" in some sense of that word, but Grassley has traditionally been a promoter of agriculture exports who supports trade agreements. If he loses interest in using trade agreements and enforcement of those agreements to promote exports, that's a real problem for the trading system in general and also for getting WTO dispute settlement fully operational again. To be fair, the letter does say this: "to the extent Members want to agree to truly binding dispute settlement, they have numerous options to do so – including, for example, an agreement not to appeal the results of a panel decision." That is certainly an option, but I think if someone is citing it in this way, they should advocate for it rather than just mentioning it as an aside. If agreements not to appeal panel reports are Grassley's solution, that's fine, but he should say this directly and clearly and flesh out the details. And what does he think about Article 25 arbitration appeals? The absence of any mention of this possibility is telling.

Meet the New Industrial Policy, Same as the Old Industrial Policy

Here is a piece I published last week on the Baker Institute blog:

MEET THE NEW INDUSTRIAL POLICY, SAME AS THE OLD INDUSTRIAL POLICY?

With the recent enactment of the CHIPS and Science Act, longtime advocates of industrial policy are feeling a sense of triumph, and proclaiming that U.S. economic policy has entered a new era. The old “laissez-faire” approach is dead, they say, and state-directed economic policies are back in favor. While this new legislation is clearly significant, portraying it as transformational may be overstating its impact, and big questions remain: How much has actually changed in U.S. economic policy? And will the new initiatives work?

Let’s start with whether there really is a big shift in policy here. It is fair to say that “industrial policy” has long been looked down upon by many leading economists. Nonetheless, a wide range of actual U.S. economic policy falls squarely within it: ethanol subsidies, high tariffs on steel and aluminum imports, very long copyright terms, and price supports for sugar are just a few examples of how the U.S. government has tried to support specific U.S. industries. Whether or not people referred to this as “industrial policy,” that’s what it is. Thus, regardless of what leading policy thinkers had to say about industrial policy, policy makers have been very willing to adopt it (often at the behest of the corporations that benefited).

But now people are using the term “industrial policy” more, and expanding the scope of industries covered, with semiconductors the most prominent one. That is a shift, although not an unprecedented one. In the beginning of Bill Clinton’s first term, industrial policy was also a hot topic. And in the 1980s, the Reagan administration pushed its own version of support for the semiconductor industry.

Longtime advocates of industrial policy such as Dani Rodrik say the new CHIPS Act is significant “because it is a sign that we have moved well beyond market fundamentalism and because it shows there is now bipartisan support for industrial policies.” Of course, the idea that we were ever in a place of “market fundamentalism” is contradicted by the facts of actual U.S. economic policy, as noted above, which involved a wide range of economic interventions by the government. Industrial policy advocates are looking to spin these new developments in a triumphalist way, in an effort to demonstrate that their policies are in vogue. But the degree of change is less clear, and it will likely take a few years to gather enough evidence on past and current U.S. government economic interventions to do a proper comparison and make an assessment of how big a shift we are seeing.

The second question is whether new initiatives such as the CHIPS Act will be successful. This law offers more than $50 billion in subsidies to semiconductor companies to build new production facilities in the United States. Will this work? This depends in part on how we define “work.”

One problem is that these companies might just be trying to extract government money for projects they would undertake anyway. Such efforts are fairly common, as companies play governments off one another to extract financial concessions for already planned investments. (This is why Bernie Sanders and others worry that these subsidies are just “corporate welfare.”) So we might see new semiconductor investment in the United States in the coming years, but it will be hard to determine whether it is more than what would have happened without the subsidies.

Assuming that these subsidies do increase investment beyond what we would have seen otherwise, we then run the risk that the industry has been distorted in ways that are unsustainable in the market in the long run. If we incentivize companies so much that they over-produce, it could lead to some companies becoming unprofitable, and then demanding a new round of subsidies to keep then afloat. Once companies become dependent on government support, it is hard to wean them off it.

Underlying all of this is a fundamental question: Is there a problem with U.S. semiconductor production being too low right now? Surely there are some sectors (e.g., military aircraft) where we would not want to be too dependent on other countries. But is semiconductors in that situation at the moment? It can be hard to answer this, because some of the data being used as a justification for the subsidies is misleading. For example, a Washington Post article titled “A new era of industrial policy kicks off with signing of the Chips Act” noted that: “About 37 percent of the world’s semiconductors were manufactured in the United States in 1990 versus about 12 percent in 2020.” But in 1990, China was not an economic powerhouse, and as its consumption of semiconductors in domestic manufacturing sectors grew, it was sure to increase its share of global semiconductor production. It may be that the U.S. industry is performing badly, but commonly cited figures such as these are not convincing evidence of that. The public debate needs an objective assessment of just how many semiconductors the United States needs to produce domestically or buy from friendly countries in order to be secure.

There are many questions about the future of U.S. industrial policy, and it could take years to answer them. Will the CHIPS Act’s semiconductor subsidies have their intended effect? Will these types of economic interventions be extended to other industries? Will the current enthusiasm for industrial policy fade away as it did after an early burst in the Clinton years? And could the sudden prominence of the issue lead to a rethink of any of the long-standing industrial policies in sectors that are much less strategically important? The conversation over industrial policy has started up again, but it remains to be seen where we end up.

Constructing an effective industrial policy is a challenge, because of (1) inherent limitations in policymakers' ability to direct the economy in a positive way and (2) lobbying by interest groups. The ethanol subsidies I mentioned in the piece are a good illustration of both. Note that these subsidies are not only industrial policy, but some people used to argue that switching to ethanol was a good way to reduce carbon emissions: "research conducted at Argonne National Laboratory (ANL) compared the greenhouse-gas emissions of ethanol and gasoline. That research, which has been widely accepted by federal agencies, found that the use of corn ethanol as it is currently produced—using coal-fired and natural gas-fired plants—reduces life-cycle greenhouse-gas emissions by about 20 percent when compared with the use of gasoline." I'm not sure many people believe this anymore, but despite this and all the other flaws with this policy, ethanol subsidies are still around.

How Will Authors React if Software Can Identify Authorship of WTO Dispute Rulings?

Back in 2019, I wrote about a paper by Joost Pauwelyn and Krzysztof Pelc on the role of the Secretariat in WTO disputes, following up on Joost's own post about the paper. As Joost put it, this is what they did and what they found:

We begin by comparing the textual similarity of rulings on the basis of their potential authors. We then collect external texts written by all the potential authors of WTO rulings to create stylometric profiles for each. Using computational authorship-attribution tools, we then apply these profiles to determine who the more likely author of a given ruling is. The findings are unambiguous: the WTO Secretariat appears to exert significantly more influence over the writing of WTO panel reports than the adjudicators themselves. 

Joost and Krzysztof have continued their work on this issue, and have two EJIL blog posts, an EJIL article (free version here), and an AJIL article. Their EJIL article also discusses the identification of authors of dissents:

The WTO is the only major international tribunal to allow dissenting opinions but require that they be anonymous. The ostensible purpose of anonymity is to provide cover from political retribution to individual adjudicators wishing to express a minority opinion. ... We use text analysis to confirm just how thin this veil of anonymity currently is. To demonstrate the point empirically, we analyse the most recent AB dissenting opinion, issued in a politically sensitive case brought by China against the United States, US—Countervailing Measures. Using external texts by all the candidate authors, we build a stylometric profile for each one, and compare it to the text of the opinion, which allows us to identify the likely author of the dissent—the Appellate Body member from the United States—with a great level of certainty. Our intent in doing so is merely to demonstrate that given the current design of three-member-divisions, the veil of de jure anonymity is insufficient to protect the identity of individual opinions from the scrutiny of Member-states.

Starting with the role of the Secretariat, now that it is more widely known -- and has been clearly established with evidence rather than just something insiders talk about -- that the Secretariat folks play such an important role in writing panel reports, Joost and Krzysztof have offered some suggestions for reforms that will maintain the appropriate "equilibrium." For example, they propose "disclosing the names of staff involved in a proceeding and circulating the 'issues papers' and any econometric advice provided by Secretariat staff to the parties to a dispute, and then publishing these memos alongside the final ruling, would prove significant"; and they suggest that "[t]erm limits could be imposed on the number of years that specific individuals can work for the Legal Affairs or Rules Divisions or for the AB Secretariat."

While I'm curious what governments and others think of these suggestions, for now I'm thinking more about the reaction to Joost and Krzysztof putting this information out there. They have shown that, in many cases, software can be used to identify the authors of WTO dispute rulings. How will these authors react?

If I were a Secretariat official assisting on these cases, I would consider it important not to be identifiable as the writer of an opinion. The point of that job is to assist the actual adjudicators. In doing so, it's possible that the Secretariat could have some substantive influence here and there. Maybe on occasion a Secretariat official would come up with a good argument that the adjudicator adopts. In my view, though, if I as a Secretariat official am so involved that my writing style comes through in the ruling, I'm probably playing too big a role and I should step back a bit. If I were asked to draft part of a ruling, my goal would be to emulate the voice of the person who asked me to write it, and if software demonstrated that my own voice was coming through, I would make some adjustments.

Turning to adjudicators writing dissents, the issues here are slightly different. The rules may require anonymous opinions, but it is not clear that anonymity can always be preserved. In most AB dissents, I think many close observers of WTO dispute settlement can make a pretty good guess without the benefit of software (panel dissents are probably more difficult). If it were me in this position, I might try not to use too personal a style, and my dissent from a majority opinion would not read like, say, my blog posts. But other people may be less worried about this, and thus they wouldn't make efforts to avoid being detected by software or just people's intuition.

So what will happen now? With Joost and Krzysztof having demonstrated the capability of the software, and people at the WTO Secretariat now on notice that their writing is being scrutinized, how will the officials who work on WTO disputes react? We may find out soon whether the authors of these rulings have the same view as I do. Will they adjust their writing? Will the WTO purchase a copy of the text analysis software to help authors avoid detection? In three years or so, will Joost and Krzysztof still be able to identify the authors of WTO rulings? I encourage them to revisit the issue and see if there have been changes in the capability of their software.

Regardless of what happens here, the role of the Secretariat is an important question and we should discuss it, and I'm curious what WTO Members think. What might be helpful is if they had a better understanding of the Secretariat's role at present. Some government officials already have a sense of this because they have worked on cases, but others may not. A survey-based study of what goes on behind the scenes, and the range of approaches that panelists and the Secretariat take, could be useful here.

Forced Labor in International Economic Law: U.S. and Chinese Initiatives, and the Persistent Silence of the Exploited

In the United States, August is the time of year when professors and students scramble to get their affairs in order before the academic term. I should be doing those things. Instead (I’m not procrastinating, you’re procrastinating), I’ve decided to share my thoughts on the recent forced labor initiatives in international economic law. I do so not (just) to procrastinate but to draw attention to misconceptions about forced labor and how those misconceptions risk further silencing exploited workers.

First of all, why has forced labor become such a buzz term in trade? Trade agreements in the United States and Europe require trade partners to agree to four fundamental labor rights, one of which is forced labor. The other three are: freedom of association and collective bargaining, child labor, and non-discrimination in employment (the International Labor Organization (ILO) recently added a fifth, occupational safety and health, but that’s a different story). Why silo those rights by adopting initiatives that target only forced labor?

The answer is straightforward. Some of those rights, including freedom of association and collective bargaining, are politically fraught and difficult to achieve. Rights associated with trade union activities implicate concerns about political opposition and, in some countries, trigger suspicions of color revolutions. The right concerning non-discrimination in employment is also cumbersome. Many countries remain unwilling or unable to require parity in the treatment of women and men’s labor. If governments and trade negotiators prioritize these rights, they risk undermining their broader economic goals and trade negotiations.

Contrary to those problematic and politically-charged rights, who’s going to protest protecting innocent children or eradicating the vestiges of slavery, even if it means curtailing liberalized trade and regulatory space?

Not the United States. Recent events demonstrate the burgeoning popularity of efforts in trade to eradicate forced labor, particularly in global supply chains. A New York Times article exposed the brutal conditions in Xinjiang detention camps, resulting in global calls to protect vulnerable ethnic and religious minorities and the recent passage of the Uyghur Forced Labor Prevention Act. A 2016 revision to the Customs and Border Protection (CBP) mandate expanded its regulatory reach to prohibit goods made in whole or in part by forced labor. Negotiated text in the U.S.-Mexico-Canada trade agreement identifies forced labor, specifically, as a cooperative and regulatory priority. As Steve’s great post the other day reminds us, the Office of the US Trade Representative (USTR) recently requested public input into its forced labor strategy (while remaining silent on the other fundamental labor rights).

We can probably all agree that prohibiting forced labor has become en vogue.

So, what’s the problem with that? While forced labor prohibitions have become a recent political mantra, the ILO and the United Nations (UN) have always devoted resources and priorities to this right, given the nexus between forced labor, slavery, and post-colonial labor exploitation. The longstanding cultural, religious, and political ideologies embedded in labor exploitation warrant a special place in the trade agenda, and USTR’s concentrated efforts should be applauded.

The problem, however, is that while we now acknowledge the importance of prohibiting forced labor, we ignore the ILO’s longstanding lessons on how to do so. Of course, the ILO’s governance system suffers from its own drawbacks. It nevertheless offers over a century of experience, including voluminous documents on forced labor and governments’ reactions to the same types of reputational and financial threats that are now subject to international economic law’s experimentation. Through trial and error, the ILO has already made the mistakes we are currently making. It has learned how to improve its approach, and we should take notice.

I’ll give you an example. As mentioned, current efforts, particularly in the global supply chain discourse, prioritize forced labor over the others, including workers’ associational rights. Conversations among policymakers and corporations center on how progress has stalled because we lack data. If only we had data, they complain, due diligence programs would better identify and redress exploitative labor practices. Proposed solutions inevitably shift to DNA sprays, auditing programs, and blockchain programs to better identify labor practices throughout the chain of production. We have reduced forced labor to a question of technology. We have forgotten the human faces behind the forced labor phenomenon.

The ILO’s lessons strongly suggest that those policies will continue to be ineffective. It takes a holistic approach to fundamental labor rights, foregrounding the rights concerning freedom of association and collective bargaining. If workers have no way to organize and countervail the conditions placed on them by employers and enabled by governments, the ILO has discovered, their exploitation is bound to continue. Under this approach, workers are the data. Rather than identifying obstacles to accessing technology, international economic law must identify obstacles to accessing the workers.

That approach bodes ominously for current initiatives in China, where independent and grassroots trade unions are non-existent. Historically, when it came to committing to fundamental labor rights in its trade instruments, China bucked the trend. However, its days of doing so may be numbered. Its neighbors increasingly commit to the ILO’s labor rights in their trade instruments. China’s trade partners have begun to require it to commit to those rights, including eradicating forced labor.

This past Friday (Aug. 12, 2022), China ratified the ILO’s two forced labor conventions. Many will assume that China did so purely for the optics. Having witnessed nearly a decade of governments’ stark inability to implement their ratified conventions at the ILO, I, too, am deeply skeptical. Nevertheless, by deciding to participate in the ILO’s forced labor system, even if just to check the box in its trade negotiations, the Chinese government may now be vulnerable to repercussions.

In exactly one year, the ILO’s supervisory bodies will review China’s forced labor practices under those newly ratified conventions. Given the Chinese government’s severe restrictions on independent trade unions and its use of detention camps in Xinjiang, the supervisory bodies are poised to rebuke the government for failing to implement the conventions effectively. Those conventions prohibit governments from imposing prison labor “as a means of labor discipline,” such as engaging in strike activities, especially to criticize governmental economic or social policies. They also prohibit governments from imposing prison labor or “as a means of racial, social, national or religious discrimination.” History suggests that the Chinese government will not take these public admonishments lightly. Irrespective of the Chinese government’s reactions, those public comments will further arm its trade counterparts with objective information on how China implements fundamental rights commitments on the ground.

In the meantime, we, as policymakers, advocates, and researchers, play a role in global efforts to eradicate the vestiges of slavery and exploitation of workers in our markets. Whether we hope to bolster CBP’s investigations, U.S. trade agreements, or Xinjiang cotton bans, our efforts will only be successful if we shift our mindset. The problem is not solely about forced labor, and it is certainly not about technology. It is that vulnerable workers and children face harrowing conditions while making and producing our goods. A forced labor strategy must center on strengthening the collective voices of the vulnerable rather than accepting their silence.

Electric Vehicle Tax Credits and Non-Discrimination under the Inflation Reduction Act

The Inflation Reduction Act (IRA) that was recently passed by the Senate has a complex set of assembly and content requirements for its electric vehicle (EV) tax credits. This post offers a few thoughts on domestic content requirements as a matter of policy, possible U.S. justifications under WTO law for those requirements as they are set out in the IRA EV tax credit provisions, and the practical effect of this measure given the strictness of these requirements.

The full text of the legislation is here, but since reading legislative text is often a nightmare, I'm going to rely on this overview from U.S. trade policy expert Tori Smith:

Regional Content Requirements

In addition, the bill adds production requirements for automakers to have their vehicles qualify for the tax credits. For a vehicle to qualify, it must undergo final assembly in North America. This provision is less restrictive than a previous version of the policy, which required American production and favored unionized factories to manufacture these vehicles. Because of the integrated automotive supply chains in North America, neighboring countries were very concerned with the original proposal. Canada even suggested that the previous version would violate the United States-Mexico-Canada Agreement. The Inflation Reduction Act avoids that issue, but it could still be viewed as discriminatory against other foreign automakers, namely those based in the United Kingdom, the European Union, Japan, and South Korea. Automakers have diverse global supply chains, and some may not be as present in North America.

Starting in 2024, under the Inflation Reduction Act, EVs would need to have at least 40 percent of their critical minerals sourced for batteries from countries with which the United States has a free trade agreement (FTA).[4] Critical minerals can also be made from materials recycled in North America. The required percentage of content for critical minerals would then increase over the following two years and by 2026 the regional content for critical minerals would rise to 80 percent.

The bill also specifies that no vehicle produced after 2024 can have a battery with critical minerals that were “extracted, processed, or recycled by a foreign entity of concern.” A “foreign entity of concern” is defined very broadly and could feasibly apply to China.[5] That China performs an estimated 80 percent of global mineral processing and refining makes this particular provision problematic.[6]

Under the bill, the battery of an EV would be required to have at least 50 percent North American content by 2024 and be of 100 percent North American origin by 2028. In 2020, the United States was home to 70 percent of battery cell capacity, meaning an overwhelming portion of the end process to make a battery takes place domestically. The raw materials in a lithium-ion battery, however, represent most of the total cost of the battery. The cost of cathodes and anodes, the positive and negative electrodes in a battery, alone are estimated to represent 40 percent of the total cost of a lithium-ion battery.

In terms of the consistency of the IRA provisions with WTO law, I'm going to focus on the WTO's non-discrimination obligations as applied to the assembly/content requirements, but there is also an issue with how the tax credit itself would be examined under the subsidy provisions. (And let me note that my thinking here has been informed by discussions with David Kleimann and Jesse Kreier, but of course all errors are my own).

As a general matter, domestic content requirements will violate GATT Article III:4. The law is clear on this, and in my view the policy is a good one. The WTO doesn't prohibit protectionism entirely, but it does try to steer it towards more transparent methods such as tariffs. If governments want to protect their domestic EV industry from competition, they are allowed to do so, but they have to negotiate for that ability as part of an exchange of tariff concessions. If governments undermine the carefully crafted balance of tariffs by using domestic content requirements in national and local laws and regulations, the system could quickly fall apart. If one government does it, others are likely to respond with their own content requirements, and we could get into a protectionist spiral. A core purpose of trade agreements is to prevent this sort of thing from happening.

In addition, large wealthy countries would have a general advantage in a system without rules, but also a specific advantage in a system with complex domestic content requirements, because implementation of such measures is more technical than tariffs and requires more resources.

As a result, there is broad agreement that domestic content requirements are a bad idea, and they should be, and are, prohibited by WTO and FTA rules. Obviously, there are some protectionists (and perhaps a few others) who disagree, but I'm just saying the consensus is pretty clear on this.

Of course, this consensus doesn't mean that governments never use these measures. It just means that when they do, a WTO complaint is brought in response, and there have been several WTO disputes over the past few years reaffirming all of this.

In the case of these new IRA EV tax credits, however, things get a little complicated. I'm not sure I have all the answers at this point, but I'm going to set out two key issues here and offer a few thoughts.

First, a "final assembly" requirement strikes me as different than a content requirement in ways that could be important. In theory, final assembly can take place with 100% foreign parts, and as a result, maybe it does not actually require that inputs be from any particular place. Thus, perhaps it is not the same thing as a "domestic content" requirement. Now, in practice, such a requirement might steer the assembler to use local or regional inputs, because those inputs are physically close to where the assembly has to take place. But that ends up being a de facto content requirement rather than a de jure one, and those can be difficult to prove.

Second, there is a question that comes up under all three of the aspects of the IRA EV tax credit measure (final assembly, critical minerals, batteries): Could these requirements be justified under GATT Article XXIV as measures related to a free trade area? Each of the three requirements works a little differently, but all of them are tied to the North American region (and thus perhaps to the USMCA) or to U.S. FTAs. I don't see how else the U.S. can justify these measures under WTO law, so I'm wondering if at least someone involved in the creation of this measure had in mind an Article XXIV defense (others may not have been concerned about WTO law). 

It's important to think about what WTO obligations we are talking about, and the obligations that come to mind here are GATT Articles I:1 and III:4, as well as SCM Agreement Article 3.1(b). With 3.1(b), there is a question about whether Article XXIV could apply at all to a non-GATT agreement. But putting that aside, does Article XXIV even work here? How do these requirements fit under GATT Article XXIV:8(b), which states:

(b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.

Are these North America/FTA assembly/content requirements just part of the elimination of duties and other restrictive regulations of commerce on substantially all trade in the free trade area, and therefore justified under Article XXIV? At this point, I'm not sure, and I'm reluctant to spend too much time thinking about it until 1) the measure actually becomes law, and 2) the U.S. actually invokes Article XXIV. If the U.S. doesn't invoke Article XXIV, it's not clear to me what they will cite as a justification though. (Obviously there is GATT Article XX(g), but I don't see how these requirements could satisfy the Article XX chapeau).

One other legal point here: The “foreign entity of concern” language probably means that GATT Article XXI (security) would be invoked for that specific provision.

Finally, with regard to the effectiveness of the policy as set out in this statute, Tori raises a point about the difficulty of fulfilling the particular requirements in the IRA:

The regional requirements in the Inflation Reduction Act are likely impossible for automakers to fulfill because they severely reduce the sourcing options for inputs. For example, Argentina is responsible for roughly 10 percent of lithium production, but the United States does not have a free trade agreement with Argentina. Moreover, virtually all cathode and anode production is concentrated in China, Japan, and South Korea. South Korea is the only country with which the United States has a free trade agreement, and it represents only 15 percent of cathode production.[7]

If we want these tax credits to be helpful in encouraging people to buy electric vehicles, fewer restrictions on their use would be better. A version of the measure that did not have assembly/content requirements would lead to more electric vehicles being used, but that is not the version we have right now. It will be interesting to see whether the vehicle-makers and government officials interpreting and applying the rules will find a way to adapt so that consumers can actually make use of them.

UPDATE:

I don't know if I got the assembly requirement analysis quite right. See my discussion with Jesse Kreier in the comments.

Here is a link to the transcript of my July 2022 Podcast on the optimal components of a worker-centered US trade policy. (Thanks to Torres Trade Law)

https://www.torrestradelaw.com/podcast_images/transcript/8528.%20Episode%208%20-%20Worker%20Centered%20Trade.pdf

Using Trade Strategies to Combat Forced Labor

Using Trade Strategies to Combat Forced Labor

Steve Charnovitz

10 August 2022

What is the role of trade strategies in combatting forced labor?

As an international lawyer addressing an international problem, I always begin analysis with international strategies. Since forced labor is inherently a labor issue, one should begin with multilateral labor strategies.

The international community has long recognized forced labor to be a heinous labor practice. The International Labor Organization (ILO) first legislated against forced labor in 1930 in its Forced Labour Convention (No. 29). 179 nationshave ratified this fundamental Convention. But two major economies – the United States (US) and China – have neglected to sign on.

In 2022, China announced its intention to ratify the Forced Labour Convention (No. 29).

When governments violate the Forced Labour Convention (No. 29), the tripartite ILO can investigate and make recommendations. This is what happened in 1981 when ILO worker delegates complained about the use of forced labor by the Dominican Republic (DR). In 1983, the ILO-appointed Commission of Inquiry issued a detailed report regarding defects in the DR's performance under the Forced Labor Convention (No. 29) and three other fundamental ILO conventions.

Coincidentally in 1983, I was tasked to serve on the US trade negotiating team for the Caribbean Basin Initiative (CBI) which was the first national trade preference program to utilize a labor condition. The DR wanted to gain the new CBI trade preferences, and I crafted a strategy for using expanded market access to the US to incentivize the DR to address forced labor. When I discussed the ILO's review with the DR government, the DR officials remarked to me that the ILO had acquired jurisdiction because the DR had ratified the four ILO Conventions. By contrast, the US had not ratified any of the four applicable ILO Conventions, I was reminded.

Nevertheless, because the US was offering valuable trade benefits, the US had leverage to ask the DR government to commit to labor law reforms. This strategy worked and the US able to secure some commitments from the DR to correct some forced labor abuses (see Steve Charnovitz, "Caribbean Basin Initiative: setting labor standards," Monthly Labor Review, Nov. 1984 at 54; Steve Charnovitz, "International Trade and Worker Rights," SAIS Review, Vol. 7, 1987 at 185, 190).

Over the next 37 years, the new US practice of using positive trade conditionality to upgrade foreign labor rights was repeated for many other countries in trade preference programs and bilateral trade agreements. Despite the unprecedented labor-related trade conditionality in the CBI, the US was able to secure a General Agreement on Tariffs and Trade (GATT) waiver for the CBI.

As an exemplary multilateral organization, the ILO constantly updates its legal norms and strengthens programs toimprove national implementation. In 2014, the ILO adopted a Protocol to the Forced Labor Convention (No. 29) to broaden its regulatory strategy (e.g., trafficking).

Because forced labor involves a vile governmental labor policy, perforce the first-best strategies to address such misbehavior is for governments, unions, and employers to use the ILO to improve deficient national government labor regulations and their domestic enforcement.

When a national labor law underregulates as compared to an applicable ILO convention, the most direct remedy of theinternational community is to try to convince the laggard government of the wisdom of adopting the ILO convention and then implementing it. In other words, the ILO seeks to use legalization to upgrade the law and practice of each ILO member country. To give a symbolic example, if Country A is relying on forced labor, then the ILO will try to get A to improve its domestic laws and stop the forced labor for A's workers.

Although the idea of using trade sanctions to remedy a violation of an ILO convention was provided for in the ILO's 1919 constitution, the ILO has maintained its focus on persuasion rather than sanction (Steve Charnovitz, "The Lost History of the ILO's Trade Sanctions," in ILO 100. Law for Social Justice ILO, 2019).

The ILO has also avoided using trade controls as an instrument for implementation (Steve Charnovitz, "Promoting Higher Labor Standards," The Washington Quarterly, Vol. 18, 1995 at 167, 173). That is, the ILO has not asked Countries B, C, and D to ban the importation of A's products that have forced-labor content. In 1956, the ILO began drafting a supplementary and more focused convention against forced labor. During that debate, the US proposed a prohibition of international trade in goods produced by forced labor (Steve Charnovitz, "The Influence of International Labour Standards on the World Trading Regime," International Labour Review, Sept.-Oct. 1987, at 565, 571). This US proposal presented an opportune moment for the ILO to reconsider whether the ILO should add trade controls to its toolbox. For better or worse, the ILO did not accept the US proposal. I've often wondered whether the challenge of forced labor would have been better overcome if the ILO had agreed to the US proposal to add trade controls to the Abolition of Forced Labour Convention (No. 105).

The ILO has extensive, sophisticated mechanisms for treaty implementation. For the Forced Labour Convention (No. 29), as noted above, a complaint by a labor union can trigger an ILO on-site investigation in the respondent country.Even a century after the ILO first offered individuals a right to apply for a Commissions of Inquiry against a scofflaw government to remedy a treaty violation, the inclusive ILO mechanisms are still cutting edge in comparison to the weak inclusivity of other multilateral regimes toward private actors.

For the Forced Labour Convention (No. 29), a government does not entail any liability until it ratifies the Convention.Thus, if a worker organization wants to complain that China is using forced labor in violation of the Convention, the ILO will not undertake an investigation because China has not yet ratified the Convention. The same lack of supervision exists for the US which has not ratified the Forced Labour Convention (No. 29).

If China achieves ratification of No. 29 in 2022, then the ILO would be able to investigate allegations regarding forced labor in Xinjiang. The ensuing international processes could put pressure on China to reveal and correct forced labor.Such an investigation on forced labor could be triggered by a labor union or by a government that has ratified theForced Labour Convention (No. 29). Because the US has not ratified No. 29, the US would not have standing in the ILO to ask for an investigation of China.

In my view, as the international organization with the clearest legal competence over forced labor, the ILO should be the lead agency to tackle this problem. Many countries regularly accused of harboring forced labor, such as Burundi, Cambodia, Cuba, Eritrea, India, Indonesia, Iran, Malaysia, Myanmar, and Pakistan, and the Russian Federation have ratified the Forced Labour Convention (No. 29), and therefore are reviewable by the ILO. Although any forced labor isreprehensible, the ILO should be particularly vigilant in calling out politically-motivated forced labor. (The country that most notoriously uses forced labor, North Korea, is not an ILO member government).

Since 2000, the ILO has only convened two Commissions of Inquiry regarding forced labor: a case against Qatar in 2014 and a new case against Myanmar in 2022. In my view, the ILO should be vastly expanding its efforts to identify and stamp out forced labor by using independent international commissions of inquiry. In recent decades, although the US has provided more project funding to the ILO, US initiative in the ILO is lacking.

For two fundamental ILO Conventions, the ILO decided in 1951 to establish a special mechanism that acceptscomplaints that a respondent government is violating the terms of those Conventions even when the respondentgovernment has not ratified the treaty. This exceptional mechanism is known as the Committee on Freedom of Association (CFA). The CFA has jurisdiction to oversee implementation of the ILO Convention on Freedom of Association and Protection of the Right to Organise (No. 87) and the ILO Convention on the Right to Organise and Collective Bargaining (No. 98). Although both Conventions No. 87 and 98 are widely ratified, several major economies — notably China, India, and the US — have refused to ratify them. Over the decades, there have been many CFA cases filed against large non-party economies such as China, India, and the US.

I have long lamented the shameful US failure to ratify Convention No. 87. See Steve Charnovitz, "The ILO Convention on Freedom of Association and its Future in the United States," American Journal of International Law, 2008, at 90.

The ILO has not established any special mechanisms for individual complaints on forced labor that would apply to respondent governments (like China and US) that are not parties to the Forced Labour Convention (No. 29). The ILO could do so however.

Today, international action against forced labor involves a contesseration of actors including governments, internationalorganizations, civil society, business associations, and companies.

Among the constructive developments is Alliance 8.7 linked to the United Nations Sustainable Development Goals. Yet when I look back to the World Employment Conference of 1976, the moment in which I first got engaged on forced labor as a global problem, I wonder how much net progress has occurred.

In that context, I will offer commentson what new US trade strategy to combat forced labor should be undertaken in 2022.

 

1. What actions could the S. Government pursue with like-minded trade partners and allies to combat forced labor as an unfair trade practice?

 Forced labor is not a trade practice. It is a labor practice.

Forced labor is a violation of basic human rights. What's unfair about the scourge of forced labor is that individuals areensnared into it. The US should focus on better international legal strategies to help these victims escape forced labor and secure decent work.

The key to a successful international effort to combat forced labor is that individual governments, such as the US, should not get distracted by the mythology of unfair trade. Commodifying forced labor can lead to tariffs or imports bans centered on the erroneous notion that merely blocking trade is sufficient to solve the human rights problem.Therefore, the US should refrain from pursuing any activities, alone or with allies, based on the premise that forced labor is an unfair trade practice.

 

2. How can the S. Government bolster the forced labor components of trade agreements and trade preference programs to have greater effect?

1. Multilateral trade agreements

Back in 1977, as a US Department of Labor (USDOL) staffer, I assisted in drafting the US proposal to implementthe Congressional directive in the Trade Act of 1974 to seek a labor clause in the GATT (See Steve Charnovitz"Fair Labor Standards and International Trade," Journal of World Trade Law, Jan.-Feb. 1986 at 61, 65).

The US proposal was for a new GATT rule on Minimum International Labor Standards (MILS), including forced labor.But that effort made no progress in the GATT Tokyo Round negotiations. The historical accounts of the Tokyo Round portray this as a failure of the US to gain support, and while that account is technically correct, what really happened ismore sinister. The efforts by USDOL's Bureau of International Labor Affairs to promote a GATT coalition in support of MILS were subverted by the US Department of State.

Now, 45 years later, I would guess that a US initiative for a WTO rule on forced labor might be pursued with greater bureaucratic cohesion. But given the consensus decisionmaking in World Trade Organization (WTO), the outcome would be the same as it was in the Tokyo Round: TheWTO is not going to adopt a substantive rule against forced labor or mandate that goods in international trade be free of forced labor content.

Unlike the WTO, the ILO is not stymied by a consensus rule. Still, I doubt that the ILO would legislate a ban on trade of goods produced by forced labor. Because any strategy to use trade bans on forced labor will only work if a critical mass of economies participates, I suggest that the US ask the ILO and the WTO to do a joint study of what could be accomplished by a global ban on goods (or services) produced with forced labor. Such a study should also proposesolutions to the central problem of regulating goods made with forced labor which is that there is no easy way to objectively determine the process and production methods (PPMs) used in producing goods.

 

1. Free trade agreements (FTAs)

Contemporary US trade agreements contain provisions on forced labor. The US-Mexico-Canada Agreement (USMCA)commits each party to maintain in its statutes "the elimination of all forms of forced or compulsory labor" and to "prohibit the importation of goods into its territory from other sources produced in whole or in part by forced or compulsory labor, including forced or compulsory child labor" (Art. 23.3(1)(b)). The USMCA provides for cooperation to identify goods produced with forced labor, but I have not yet seen any results of that cooperation.

Ideally, the identification of goods produced with forced labor would be done by an international institution in order to provide the greatest likelihood of objectivity. With unilateral determinations as to whether a foreign-made good is produced with forced labor, there will always be suspicions of indirect protectionism.

The use of US FTAs to combat forced labor runs into two practical problems: First, the US has lost its self-confidence to engage in any new FTA. Second, governments relying upon (or tolerating) forced labor are likely to have many othereconomic and political pathologies that will render them unlikely candidates for new US FTAs.

Recently, the US has promoted a new Indo-Pacific Economic Framework with Australia, Brunei, India, Indonesia,Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam. From what I can tell, this Framework is not meant to include free trade, so is not an FTA. Other than India, Brunei and the US, all of the other countries on this Indo-Pacific list have ratified the Forced Labour Convention (No. 29). The ideal provisions on forced labor for the Indo-Pacific Economic Framework would be:

1. All parties commit to ratifying and faithfully implementing the Forced Labour Convention (No. 29) and its new Protocol.
2. All parties agree not to export any goods produced domestically with forced
3. All parties agree to develop a mechanism within the Indo-Pacific Framework to identify goods in globaltrade made with forced labor and agree not to import any such

Leaving aside the issue of why provisions on forced labor or other worker rights are included in trade agreements, one can clearly see a trend toward such inclusion particularly in US agreements. Since 2000, all US free trade agreements (FTAs) have mentioned forced labor.

Yet in some other countries, chapters on labor are omitted in contemporary FTAs. For example, the world's largest free trade pact, the 2020 Regional Comprehensive Economic Partnership (RCEP), does not contain a labor chapter and does not contain provisions on forced labor.

Some observers had hoped that RCEP would include a forced labor discipline because there had long been allegations about the use of forced labor in Malaysia. Recently, Malaysia ratified the ILO's new Protocol to the Forced Labour Convention (No. 29). Of the 10 RCEP nations, eight have ratified the Forced Labour Convention (No. 29), but two nations, China and Brunei, have not.

In my view, RCEP missed an opportunity to combat forced labor by not requiring all RCEP members to ratify orcommit to ratifying the Forced Labour Convention (No. 29). This type of requirement was included in the new European Union-Canada Comprehensive Economic and Trade Agreement (CETA) which commits parties to "make continued and sustained efforts to ratify the fundamental ILO Conventions if they have not yet done so" (Art. 23.3(4)).

The June 2022 New Zealand-European Union Free Trade Agreement commits the parties to "respect, promote andrealise the principles concerning the fundamental rights at work, which are the subject of the fundamental ILO Conventions," such as "the elimination of all forms of forced or compulsory labour" (Art. X:3(3)(b)). Since the European Union countries and New Zealand are ILO member governments, there is nothing in this fluffy FTA provision that is ILO-plus. Of course, the European Union (EU) is not an ILO member and so the EU's commitment to New Zealand on forced labor might be viewed as an enhancement of the EU's external obligations on labor.

1. Trade preference programs

For many decades, the US Generalized System of Preferences (GSP) has been used by the US to raise concerns about worker rights in beneficiary countries. I was a close observer of the statutory changes made in 1984 that first added the worker rights provisions to the US GSP, and so I was appalled in 1985-86 at how unwilling USTR was at that time to undertake an effective implementation of those provisions. When I joined the Advisory Council of the International Labor Rights Education & Research Fund circa 1987, one of the issues on which we focused was USTR's poorimplementation. A lawsuit against the Executive Branch raised these problems, but was dismissed on jurisdictional grounds (International Labor Rights Educ. & Research Fund v.Bush, 854 F2d 745). As the years went by, USTR began improving its GSP implementation on worker rights.

In 2022, the Congress has allowed the GSP program to expire. Since GSP is designed to help developing countriesthrough trade access, the US Congressional disinterest in maintaining GSP is yet another example of how US isolationism is marginalizing the United States as a global leader.

 

3. What new and innovative trade tools can the S. Government develop and utilize to advance efforts to combat forced labor in traded goods and services?

Open trade and trade liberalization are not a new trade tool, but given how little trade liberalization the US has doneover the past decade, a new round of trade liberalization would be innovative for the US economy that has grown more dependent on unilateralism and protectionism to shelter US companies from foreign competition.

Opening US markets can also provide more leverage for the US to use in bargaining with other countries to achieve thehighest-priority US objectives. Over the years, I have observed that the leverage gainable by the US in granting market access is likely to exceed the leverage gainable by threatening to remove market access.

The forced labor import ban (Section 307) of the Tariff Act of 1930 was an innovative provision in 1930, and has been more effectively implemented in recent years than it had been in the past (See Steve Charnovitz, "Environmental and Labour Standards in Trade," The World Economy, May 1992, at 335, 339).

In my view, the new statutory changes involving Section 307 in Public Law No. 117-78 are a step in the wrong direction because they manifest some of the worst tendencies in US foreign policy: unilateralism and discrimination.By making it more costly to import goods from China, the new US law (UFLPA) may violate WTO rules, undermine sustainable US cooperation with China, and fertilize new vested interests in the US domestic economy that rely on US government tariffs and nontariff barriers.

As with any US unilateral trade sanction, the likelihood of using it successfully to correct foreign government misbehavior is low.

 

4. How can the S. Government make the development of trade policy on forced labor a more inclusive process?

 This notice and comment exercise is an important step in the right direction of inclusivity and I applaud USTR for doing it.

Here are three suggestions:

First, as has always been the case, the membership of the USTR Labor Advisory Committee is imbalanced and does not "accurately represent the composition of the American workforce," particularly in an era when less than 11% of US workers are unionized. Instead, the Labor Advisory Committee should be reconstituted to include self-employed and civil society representatives.

Second, USTR should establish an advisory committee to represent the interests of US consumers.

Third, US trade agreements should feature transnational advisory processes. One model is the Joint Public Advisory Committee of the North American Agreement on Environmental Cooperation (1993). I note that the USMCA labor chapter (Art. 23.16) provides a Public Engagement commitment, but no provisions exist for input of transcontinental interests.

Next generation FTAs should include mechanisms to encourage workers, civil society, and business to find common ground in issuing advice. For example, the USMCA environment chapter (Art. 24.5(3)) calls on parties to establishneeded advisory committees, but no USMCA provision sets up a trinational advisory committee to the USMCA Commission. In converting the North American Free Trade Agreement (NAFTA) to the USMCA, the three governments rendered the treaty more nationalistic with a loss of the North American vision and spirit.

 

5. Do you have additional recommendations for monitoring, tracing, or eliminating forced labor in traded goods and services in supply chains?

Although forced labor is a moral and legal problem whether or not goods flow in international trade, one can imagine a system in which any good entering into the channels of global trade is associated with bar coding in blockchain that would identify validated information regarding the labor or environmental conditions associated with production.There should be constant vigorous experimentation with different monitoring systems tested by region or by sector.

Among the goods sectors where tracing experimentation should be pursued are textiles, extractive industries, fisheries, and agriculture.

This is a corrected version of my filing in USTR-2022-0006.

Can Tariffs Help Bring Down Carbon Emissions? Maybe, But Probably Not Under Current Proposals

Recently, I came across two arguments for the U.S. and EU to use tariffs as penalties designed to bring down carbon emissions:

• Senator Sheldon Whitehouse suggested that "laggards and high polluting countries [will be] forced to step up and comply by virtue of the economic pressure on them to stop having their goods tariffed so heavily";
• And Joseph Stiglitz, Todd Tucker, and Isabel Estevez argued for tariffs that "restrict imports of dirty steel and aluminum—that is, metals produced with a high intensity of carbon emissions—from entering their markets."

For reasons I have set out before on this blog, I think an approach that relies on U.S./EU tariffs to punish other governments for their carbon emissions will be ineffective. In response to the arguments set out above, I offer two additional/supplementary reasons. (I'm going to focus here on the policy as it arises in the U.S. more than the EU, because both of the arguments above come from a U.S. perspective).

The first reason is that many people in the U.S. seem to be operating under the assumption that the U.S. is cleaner than most others in terms of carbon emissions, and as a result the U.S. government has the moral high ground to push others to reach our level. But focusing on the key metric, per capita carbon emissions, this is simply not true. Among larger economies, only Canada, Australia, and Saudi Arabia are worse than the U.S. That leaves the U.S. with low credibility to pressure others here. (Maybe the latest developments in U.S. legislation will make a big dent in these figures, but my sense is that there is a lot of uncertainty about that and the achievements will be modest at best.)

The proponents of this approach focus on manufacturing, where U.S. carbon emissions are relatively low. They want to focus on production because the U.S. is good there, but then ignore consumption, where the U.S. is bad. However, from what I can see based on the per capita figures, it is clear that the U.S. is among the worst overall, and focusing on an area where the U.S. is better can't disguise that. If the U.S. takes the approach of penalizing other countries in areas where they are worse (e.g., manufacturing), there is a good chance these other countries will retaliate in kind, e.g., imposing tariffs on the U.S. for its overall higher per capita emissions in order to induce the U.S. to "step up and comply."

Not surprisingly, the focus of these arguments is often China, as Whitehouse makes clear with this statement: "You know, you can hector and plead and wheedle with the Chinese all day long about trying to do better in terms of pollution, but what's really going to get their attention is when their exports to the US and the EU are being tariffed heavily. They will move much more rapidly to get away from that pressure than they will to try to meet the approval of the West at functions in Davos." Whenever someone brings up China these days, the discussion tends to go off the rails, so let's think about India instead. How would India react if the U.S. imposed tariffs on its steel/aluminum because it is relatively dirty in terms of its carbon emissions? Well, there have already been calls in India for action based on the level of per capita carbon emissions in a country, so no one should be too surprised if that happens. (And then going back to China, we already saw what happened when the U.S. imposed tariffs on China under Section 301: China retaliated with tariffs of its own).

The second reason I'm skeptical about this approach is that the steel and aluminum sectors are particularly bad industries in which to carry it out because of their history with trade remedy tariffs. If the idea behind these tariffs on dirty steel/aluminum proposals is that high tariffs would be imposed on dirty steel/aluminum and low tariffs would be imposed on clean steel/aluminum, so as to give countries an incentive to produce the cleaner variety, I can see how that would work to some extent. (I don't think it's a particularly effective approach to the problem, and a revenue-neutral carbon tax would be better, but I see the logic.)

But it's important to understand that the Global Steel and Aluminum Arrangement under discussion right now will not provide those incentives, because clean steel will not be charged low tariffs. Ordinary U.S. tariffs are not very high on these products, but trade remedy tariffs often are: "As of April 19, 2017, Commerce has 152 antidumping (AD) and countervailing duty (CVD) orders in place on steel from 32 countries." (See also, World Tariff Profiles 2021:  AD, p. 209; CVDs, p. 218; Safeguards, p. 225) The point here is that even if India or China could come up with a way to produce steel that, let's just say for the sake of argument, sucks carbon out of the atmosphere, it would still get hit with high U.S. tariffs. And if you are already subject to 100% AD tariffs, an extra 25% because your products are dirty won't have much impact.

So if these proposals won't accomplish their environmental goals, what might we do instead? One way to have an impact here would be to change the current system so as to charge lower tariffs for clean steel/aluminum. To this end, the U.S. could lead an effort for governments to lower tariffs on clean versions of these products in order to provide an incentive to produce this way. While U.S. ordinary tariffs are low, other countries have higher tariffs, so convincing them to charge lower tariffs on clean steel and aluminum could have an impact. Exempting these goods from anti-dumping tariffs could allow the effort have an impact in the U.S. as well. 

An initiative along these lines is kind of a variation of the negotiations for the Environmental Goods Agreement. The EGA identifies goods that are considered green, and lowers tariffs for them; this initiative would lower tariffs for goods that are not inherently green but have been greened to some extent.

Another possibility is to encourage governments to provide subsidies to upgrade domestic manufacturing facilities to ones that emit less carbon, with part of this effort being a promise not to impose countervailing duties against those subsidies or to challenge them at the WTO (which could lead to authorized tariff retaliation). In effect, there would be an environmental exception applied to these particular subsidies that exempts them from tariffs that might be applied under domestic and international trade law.

To sum up, my basic point is this: If we want to provide incentives to change behavior, we have to offer something substantive in terms of opening markets to clean energy products or otherwise providing incentives to make these products. Unfortunately, under the current "tariffs as penalties" proposals, there does not seem to be much chance of progress. In contrast, a "removing tariffs as an incentive" approach could work.

The Turkey - Pharmaceutical Products Article 25 (Appellate Review) Award

Meet the new appellate review, same as the old appellate review? That was my first thought as I read the Article 25 arbitration award in Turkey - Pharmaceutical Products, the first time Article 25 has been used for appellate review. But I have only just skimmed it quickly at this point, so don't hold me to that. After a more thorough read, differences between this award and Appellate Body reports may become more apparent. 

My sense at this point, though, is that this award falls within the range of different types of Appellate Body reports we saw over the Appellate Body's 20+ years. The Appellate Body was not totally uniform over that period, as the reports read a bit differently over time. But this one seems to fit within the general framework of what the Appellate Body was doing. If a WTO lawyer had been in a coma for the last few years, came out of it, and was handed this report with no label on it and no context provided for what had happened to the Appellate Body, I think that lawyer would believe this was a real Appellate Body report.

In terms of substance, I'm just going to mention one point here, and it relates to a discussion in the comments of this post (there may be another point in the award that supports this, but I'm going to have to give it more thought). If you look at the panel's findings under GATT Article XX(d), they are very brief (see paras. 7.215-218), and mostly just refer back to its findings under Article XX(b). It's understandable that panels do this sort of thing at times, because they have a lot on their plate in examining the facts of the case and the full range of claims. Panel proceedings already take too long, and without these kinds of shortcuts they would take even longer.

However, a failure to provide a full analysis of each issue does increase the risk of error. The Article 25 arbitrators may have had this in mind when they said: "In our view, it would have been more prudent had the Panel followed the order of the relevant analysis and articulated the applicable legal standard in assessing Türkiye's invocation of Article XX(d) of the GATT 1994." (See paras. 6.154-164) The arbitrators ultimately found that "the method of analysis followed by the Panel" did not constitute a legal error in this case. Nevertheless, it's good to have appellate review in these circumstances, to provide a second look at issues where the panel may not have had time to do a full analysis.

Dani Rodrik's Latest

For almost as long as I've been working in trade policy, Dani Rodrik has been pushing for more protectionism and industrial policy, less trade and globalization, and weaker international trade institutions. He calls his latest argument for this approach "productivism," and he recently wrote a short piece called "The New Productivism Paradigm?" in which he explains it as follows:

... a new bipartisan consensus may be emerging around “productivism,” which emphasizes the dissemination of productive economic opportunities throughout all regions and all segments of the labor force. Unlike neoliberalism, productivism gives governments and civil society a significant role in achieving that goal. It puts less faith in markets, is suspicious of large corporations, and emphasizes production and investment over finance, and revitalizing local communities over globalization.

Here are a few criticisms of, and questions about, this perceived paradigm shift.

First, as with many people who don't like "neoliberalism," he is sure that neoliberalism is ending: "Today we are in the midst of a transition away from neoliberalism ... ." During neoliberalism, he explains, political leaders "pushed for deregulation, financialization, and hyper-globalization, while paying lip service to ameliorating the consequent rise in inequality and economic insecurity." I'll get back to the future of neoliberalism later, but for now let me just respond to two of these points:

1) "hyper-globalization": It's difficult to understand how the current international economic regime could be referred to as "hyper-globalization," given that protectionism has remained a constant around the world over the period in question and that international trade institutions have fairly weak enforcement mechanisms. It's true that there has been globalization in the sense of reduced trade barriers, but I would say it's "modest" rather than "hyper."

2) "economic insecurity": When exactly was "economic insecurity" less of a problem? The 1950s? Some other period? Whatever period people have in mind when they say things like this, I think they should look more closely at the realities of the period, as it was a lot less secure for most people than they are imagining. That includes people in the West, but applies even more clearly to people in developing countries.

Second, he says he wants fewer technocrats: "productivism diverges from both of its antecedents by reflecting greater skepticism toward technocrats." But he also wants "industrial policies to facilitate the green transition, rebuild domestic supply chains, and stimulate good jobs." Who will be running these programs if not technocrats? The reality is that Rodrik's preferred policies are likely to be, if I could borrow a term from above, "hyper"-technocratic.

Third, he seems to think "friend-shoring" is a new invention: "When the administration’s most senior economist, Secretary of the Treasury Janet Yellen, extols the virtues of “friend-shoring” – sourcing supplies from US allies – over the World Trade Organization, we know the times are changing." But haven't we been "friend-shoring" for quite a while now, since the beginning of the GATT even? Isn't that what all those regional trade agreements and bilateral FTAs are? To a great extent, these are trade agreements that governments sign with their friends to increase bilateral trade and investment with them.

Fourth, he wants more suspicion of big corporations, noting that the Biden administration is "blaming large corporate profits as a culprit behind inflation." And yet he also notes that "Republicans have made common cause with Democrats in pushing for investment and innovation policies to bolster US manufacturing." But what exactly will this "bolstering" look like? From what we have seen so far, a big part of it appears to be giving subsidies to big corporations in key sectors (such as semiconductors).

Fifth, it's not clear what he means by "localism": "there are signs of a major reorientation toward an economic-policy framework that is rooted in production, work, and localism instead of finance, consumerism, and globalism." With respect to the U.S., does that mean each state (or even city) will have its own industrial policy? And if not, isn't "nationalism" a better term? 

And sixth, how do his ideas apply outside the U.S.? For example, is every country around the world supposed to use industrial policy to develop its own semiconductor industry? Or is the U.S. supposed to be the only producer and then supply everyone else?

I understand why people try to come up with a take on current events in which their preferred policies are suddenly about to sweep into power. We all want to believe that our views are catching on, and there may be a feeling that we can talk that outcome into existence. But if you look at the history of U.S. trade policy (Doug Irwin is always a good place to start!), it is clear that protectionism and industrial policy have always been there, and that recent calls for more protectionism and industrial policy are not that out of the ordinary. Back during the heart of "neoliberalism" in the 1980s and 1990s (as I accept the critics' paradigm for the sake of argument), people were writing things like "Trading Places: How We Are Giving Our Future To Japan & How To Reclaim It"; Pat Buchanan got a lot of mileage out of his version of America First; Ira Magaziner was pushing industrial policy in the Clinton administration; Ross Perot did surprisingly well as a third party presidential candidate talking about the "giant sucking sound" of jobs going to Mexico; and what was the TRIPS Agreement if not industrial policy?

So is there a big new era of economic policy coming, either in a new marketing package or just the old one? I'm skeptical, and I think the mostly likely future involves basically the same mix of markets and government intervention we have had for a while, with a few tweaks around the edges.

ANZSIL IEL Interest Group Call for Papers and Invitation to Workshop

This is from the Australia and New Zealand Society of International Law:

CALL FOR PAPERS FOR AND INVITATION TO 2022 WORKSHOP

The ANZSIL International Economic Law Interest Group (IELIG) was established in 2011 to provide a forum for those interested in international economic law, especially international regulation of trade, investment, intellectual property, and monetary law. The work of the Interest Group covers all areas of international economic law and its implementation in domestic law, embracing both theoretical and practical aspects. The IELIG aims to maintain relevance for government, practitioners and academics alike and encourages discussion and exchange of ideas among all those involved in this field.

2022 Workshop

The 2022 IELIG Workshop will be held via Zoom on Friday 18 November 2022, starting at 9am (AEST)/11am (NZ time). Its aim is to provide an informal setting for discussion of topical issues and works in progress. The programme will include a dedicated session for the presentation of current PhD research.

We are honoured to have Simon Lester as this year’s keynote speaker. Simon will speak on ‘The US Challenge to China’s Role in the World Trading System’.

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

Submission of proposals

If you wish to submit a paper proposal, please submit an abstract of 300 words by email to christian.riffel@canterbury.ac.nz and esme.shirlow@anu.edu.au by 31 October 2022. Please include the heading on your email message ‘ANZSIL Conference IELIG Workshop Proposal:
[Your Name]’.

TOWARDS A NEW APPELLATE BODY TAKING THE FORM OF A REAL STANDING TRIBUNAL

With regard to the rigidity of the old appellate Body to overturn its own jurisprudence, I think an "INSTITUTONAL" (instead of cultural) angle of analysis is the most promising path to understand this rigidity.

The old Appellate Body was NOT a standing tribunal as for example the ICJ. From the beginning, its features were intriguing (part-time judges not residing in Geneva, heavy political and geostrategic bias in their nomination, judges continuing their work in their law firms, judges with a sword of Damocles over their head concerning the renewal of their mandate, etc. ).

In such an unconventional context, I would hesitate to overturn a previous ruling emanating from a chamber composed of de facto colleagues (without mentioning that this overturn might be seen as unfriendly from a geopolitical perspective)

In sum, the reform of the old AB must, one way or another, take the path towards creating a standing tribunal.

The President’s (and USTR’s) Trade Agreement Authority: From Fisheries to IPEF

This is a post by Kathleen Claussen and Tim Meyer.  It is cross-posted on Lawfare.

Over the last few years, separation-of-trade-law-powers questions have grown in importance. We know the basics: according to the Constitution, the regulation of commerce with foreign nations is expressly and unmistakably a congressional prerogative. Treaty-making, on the other hand, is a presidential power (of course subject to the advice and consent of the Senate). So, who has the first and last word on treaties related to foreign commerce? The question is complicated by the fact that, historically, congressional consent to trade agreements has come from both houses of Congress via legislation, rather than through Senate advice and consent—a procedure driven by the House of Representatives’ interest in protecting its role in regulating foreign commerce. Some thought the 1974 creation of fast-track authority—now called Trade Promotion Authority (TPA)—resolved the issue by establishing a special procedure for congressional review of agreements negotiated by the executive. Scholars debated the constitutional issues surrounding TPA decades ago and by now its constitutionality seems settled.

The issue today is not whether the full Congress must consent or only the Senate. Instead, the real issue is whether and when Congress’s consent is required at all. In recent years, the United States has entered into hundreds of trade agreements not approved by or subsequently implemented by Congress. What we appear not to know with certainty (or rather, what we still debate) is whether those trade executive agreements (TEAs) are legally permissible and, if so, how.

The most recent iteration of the conversation began in earnest around the time of the U.S.-Japan deals negotiated by the Trump Administration (but recall similar discussions around the so-called Anti-Counterfeiting Trade Agreement, among others). The buzz began on the Hill: could the Administration negotiate and conclude a trade-related deal without congressional approval? Initially, there was some discussion about authority in statutory delegations. For example, the Trump Administration invoked Section 103(a) of TPA 2015 (19 U.S.C. § 4202) to justify its bilateral tariff adjustments with Japan. That provision allowed the president to enter into trade agreements before July 1, 2021 and adjust tariff rates (but only tariff rates) accordingly, if he determined that duties or other import restrictions were unduly burdening and restricting the foreign trade of the United States. As deals were made around the Section 232 and 301 tariffs, we all re-read those statutes too to understand what the executive branch could or could not do.

At some point, however, the statutory delegations become harder to pin down. As one of us has noted, it is difficult to identify a delegation for many of the more than 1200 TEAs concluded in the last 40 years. Few of the statutes that agencies have cited when entering into those agreements could reasonably qualify as congressional consent—explicit or implicit.

Members of Congress have raised these concerns with the Biden Administration as it moves toward the Indo-Pacific Economic Framework (IPEF) and similar agreements, and they likewise raised them with prior administrations. With the Japan deal, for example, members questioned whether the rules of origin annex exceeded the president’s authority under Section 103(a). We have little detail about the contents of the IPEF but we are told that it will have binding and enforceable trade-related commitments. When Ambassador Tai was asked by the press “Does Congress vote on these or not?”, she said “let’s see where these negotiations take us”.

These difficulties extend to more conventional trade actions as well. Last month in Geneva, the United States entered into a “protocol” on fisheries subsidies, among other declarations and agreements, that by its terms amends the Marrakesh Agreement Establishing the World Trade Organization. In the past, TPA has provided a path to congressional approval of agreements negotiated under the auspices of the WTO. TPA expired last summer, however, so any congressional approval would have to come via ordinary legislation—putting these agreements’ legal status in the United States in doubt.

Despite the absence of TPA, the Biden Administration will continue entering into agreements that unquestionably regulate commerce with foreign nations and some of those agreements might be long and heavily substantive. So, we’re back to the central question: under what circumstances, if any, can the executive enter into such an agreement without congressional consent of any kind? Or put differently, must Congress consent to a trade-related agreement either before or after the executive signs it for that agreement to have force? We have heard three primary responses to these questions (a comprehensive list will be left for another day).

The first response that we often hear is that Congress has acquiesced to this executive branch practice; congressional silence means effective consent and there’s no turning back now. After all, look at the 1200 TEAs, these advocates say—Congress did not object to very many of those; ergo, it clearly has consented. This response is not very convincing for several reasons. For one, Congress does not know about many of these agreements due to transparency issues within the executive branch. The occasional legislative acceptance of TEAs is insufficient to create the quasi-constitutional custom that may exist elsewhere. Until recently, most members of Congress were not attuned to the vast expanse of the TEA landscape. The acquiescence argument carries even less weight in the context of far-reaching plurilateral or multilateral trade agreements: there are no examples of agreements of that sort coming into force without congressional consent.

The second response is one on which USTR principally relies in conversations with Congress. USTR argues that Congress has consented to USTR’s entrance into trade agreements based on the authorities delegated to it in its organic statute: 19 U.S.C. § 2171, originally part of the 1974 Trade Act. That statute provides that USTR has primary responsibility for the development of U.S. international trade policy. The statute also notes that USTR has “lead responsibility for the conduct of, and shall be the chief representative of the United States for, international trade negotiations”. Relying on this statute to justify USTR’s approach concedes that Congress must consent, but rather than referring to Congress’s silence, proponents here point to the organic statute as an implicit delegation not only to negotiate, but also to conclude agreements. Constitutional scholars may find that construing that language to permit USTR to enter into trade agreements poses nondelegation doctrine or major questions doctrine problems. Further, as noted above, Congress has expressly given and taken away trade agreement authority to and from the executive for more than a century—long before USTR existed—and every presidential administration has likewise sought congressional consent to enter into significant bilateral, plurilateral, or multilateral trade agreements since at least the 1970s. Relying on such an implicit delegation seems to go too far.

The third and most common response is that Congress has to approve only those agreements that change U.S. law. Under this view, Congress does not need to consent to agreements that do not require a change to federal statutes. This may be a variation on the acquiescence argument: Congress typically has not approved agreements that do not purport to change U.S. law, so why should it start now? Moreover, the executive can negotiate without congressional consent and enter into what we typically refer to as sole executive agreements, such as certain military agreements, without consent. Indeed, the Obama Administration took the position that it did not need congressional consent for at least some international agreements, including those that cover areas outside of trade, as long as it had the authority under general statutory delegations to implement U.S. commitments. At the same time, the Obama Administration also conceded that many of these types of commitments, such as those in the Iran Nuclear Deal and the emissions reduction commitments in the Paris Agreement, were non-binding, “soft law”, commitments.  

This view rests on a constitutional division of power in which the president has a general foreign affairs power and Congress is responsible in the first instance for domestic matters. Although a common view in some circles, this division of authority defies the plain text of the Constitution when it comes to foreign commerce. If Congress has the power “to regulate commerce with foreign nations” and to “make all Laws which shall be necessary and proper for carrying into Execution” that power, then surely Congress has the right to choose the instrument through which it regulates foreign commerce, including by insisting on consenting to the creation of international commitments related to foreign commerce. Congress made this point as early as 1974 where, in at least a handful of statutes, it demanded that it must approve an agreement for that agreement to have effect under U.S. law.  

Each of the last three administrations has entered into international agreements that lacked explicit congressional consent and rested on at best shaky claims of ex ante delegations of authority. Absent a course correction, future administrations, regardless of party, are sure to do the same. So, what can members of Congress do? We can come up with a list of things Congress could do but the better question is—what do members want to do? So far, the ideas behind IPEF and its siblings seem popular on both sides of the aisle—much like the WTO ministerial outcomes. Still, we’re only beginning to learn what the Administration is considering in form or substance for the upcoming negotiations, and, as noted, members are already demanding greater congressional involvement despite general support. Moreover, as tempting as it may be to let the executive get these deals done with minimal congressional involvement, doing so risks weakening the delicate institutional balance of authority. Tenuous claims of delegated authority are not limited to popular agreements.

There are also intersections between this discussion of congressional consent and congressional or executive implementation that may present both opportunity and risk. While there may be several options for working through those intersections, building consensus around the specifics is not easy.  More work is needed to determine whether any of the potential options makes sense for this moment or whether they would manage sufficiently the inter-branch relationships, especially with an eye to future administrations that may wish to take the foreign commerce authority more fully into their own hands.

Challenging China's Export Credits at the WTO

A couple years ago, I wrote about the possibility of challenging China's export credit practices under WTO rules. In that post, I noted the skepticism of others about such a challenge, and concluded with this:

I have more hope for a systemic case against China's export credit practices than the lawyers quoted in the piece do. The claim would be that the practices constitute a prohibited export subsidy under Article 3.1(a), and any attempt by China to invoke Item (k) of the Illustrative List of Export subsidies would fail because the terms of the OECD Arrangement are not met. The article provides, in parts not quoted above, some evidence of China's practices, and I think that a complainant could gather more evidence on its own. It could also request that the panel ask China for information under DSU Article 13.1. If China didn't supply it, the panel could draw adverse inferences.

I don't see this issue come up very often, but at a European Parliament hearing last week, Eoin O'Malley, Deputy Head of Unit at DG Trade, had this to say (at 10:06:02): 

A bigger challenge perhaps is that emerging economies are not members, are not participants to this OECD arrangement. So this includes China obviously. They are in theory disciplined by more limited rules on this that exists at the WTO, but in practice the transactions that China supports, and others support, are not excessively transparent. So the ability to hold them to account in terms of WTO rules is limited. 

This statement triggered a bit of additional thought about these issues for me. The second Brazil - Aircraft, Article 21.5 panel had the following to say about the burden of proof under the second paragraph of Item (k) of the SCM Agreement Illustrative List:

5.60 The Panel recalls that the text of the second paragraph of item (k) reads as follows:

Provided, however, that if a Member is a party to an international undertaking on official export credits to which at least twelve original Members to this Agreement are parties as of 1 January 1979 (or a successor undertaking which has been adopted by those original Members), or if in practice a Member applies the interest rates provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited by this Agreement. (emphasis added)

5.61 On a reading which gives meaning to all of the terms used, the second paragraph suggests that export credit practices which are in conformity with the interest rates provisions of the relevant international undertaking are export subsidies -- and, as such, would normally be prohibited under the provisions of Article 3 of the SCM Agreement --, but that they are nevertheless not prohibited under the SCM Agreement.

5.62 This interpretation leads us to the conclusion that the second paragraph of item (k) provides for an exception from any prohibition on export subsidies laid down elsewhere in the SCM Agreement. The fact that the second paragraph does not, itself, impose obligations supports that conclusion.

5.63 Consistently with our view that the second paragraph of item (k) makes available an exception, it must be possible to invoke it as an affirmative defence to a claim of violation. As is clear from relevant WTO jurisprudence, the burden of establishing an affirmative defence rests with the party raising it.

(footnote omitted)

It seems to me that what a complainant could do here is claim that China's export credit practices, either as such or as applied in particular instances, constitute export subsidies and therefore violate SCM Agreement Article 3.1(a). This should be a fairly easy claim to win because that's kind of the nature of these programs, and I would think you could at least gather enough evidence for this part of the case. Obviously the "as such" claim would be more difficult to win than the "as applied" one, but again, I would think the nature of these programs gives the complainant a good chance here.

Then China would invoke the second paragraph of item (k), and would have the burden of proving it satisfied this exception. To do so, it would have to submit evidence. Either that evidence would be insufficient to satisfy the exception, or it would constitute proof that China is complying with the exception. Either way, we would have made some good progress in assessing the compliance of one particular form of Chinese subsidies with WTO obligations.

Sabine Weyand Comments on WTO Dispute Settlement Reform

At a CSIS event today on "Rethinking Trade In a Geopolitical Context: Trends and Transatlantic Cooperation," European Commission Director General for Trade Sabine Weyand spoke with Bill Reinsch about a number of issues, and they had this exchange on WTO dispute settlement reform:

Reinsch:

This [question] comes from our old friend Gary Horlick. What changes will the EU seek in WTO dispute settlement while maintaining a neutral binding mechanism?

Weyand:

... What we are looking is to ensure the effectiveness and efficiency of the whole dispute settlement. So we want to get back a second step in the process, an appeal process. That is essential for us. But we also need to look at the efficiency of the panel stage. We also need to look at the quality of the panelists and of the arbitrators. And then I think we will have to see, and ... I cannot prejudge that, because we are currently engaged in a process that the US has launched in Geneva, which is to say, okay, what are the interests of the membership in the reform of the dispute settlement system. We are not going to cut that short. This will continue into the autumn and then we will move into the phase of looking at possible solutions. So we are open here to address concerns of the US, some of which, or a lot of which, we actually share, and we have set that out in great detail in a communication in early 2021. So I think that overall assessment is still there. And then we have to find a way that the membership is comfortable with this sort of dispute settlement process.

... 

We need to look also at a situation where we revive the negotiating capacity of the WTO so that we can reassure Members like the US, who feel that the dispute settlement has encroached on Members' ability to shape the rules by engaging in gap filling. So I think we need to give reassurances in that.

So we are willing to work with the US across this whole space, and with other partners across this whole spectrum. I think we have in the meantime set up the Multi Party Interim Arrangement, MPIA, in order to make sure that we can get to final arbitrations of disputes. And I think the success that that has, but also the discussions we've had in the run up to MC12, show that the membership in general is very much attached to an effective independent neutral dispute settlement mechanism with two stages.

Comments Regarding U.S.-Taiwan Initiative on 21st Century Trade

U.S.-Taiwan Initiative on 21st Century Trade

Prof. Steve Charnovitz

I support the Biden Administration's efforts to improve cooperation with Taiwan. Strengthening Taiwan's economic and political sovereignty is important both for the people of Taiwan and for stability in East Asia.  Taiwan improved its international legal standing and legitimacy by joining the WTO in 2002.  In so doing, Taiwan's WTO Accession Agreement contains many Applicant WTO-Plus legal commitments, some of which are arguably more stringent than US obligations.  Today, Taiwan enjoys a highly competitive economy boosted by a Freedom House rating of 94.  The US rating is only 83, but much higher than China which is only 9. 

Here are specific comments on the issues in the Docket:

1. General negotiating objectives.The Federal Register Notice states that the Biden Administration is "not seeking to address tariff barriers."  Neglecting tariff barriers is a strategic USTR mistake because foreign tariff barriers continue to handicap US exporters.  The most recent WTO Trade Policy Review of Taiwan (WT/TPR/S/377) points out that "the tariff remains one of the main trade policy instruments and a significant source of tax revenue" for Taiwan.  The WTO Report also notes that Taiwan's agriculture tariff protection averages 17.8% with peaks as high as 1059.6%. The US should be seeking a Free Trade and Investment Agreement with Taiwan. 
2. Customs and Trade Facilitation.US-Taiwan trade would provide a good laboratory for testing more transparent and efficient government regulation of and operational interaction with digitized trading solutions including blockchain.
   
   
3. Transparency and Good Regulatory Practice Issues. The USTR Notice states that "The United States and Taiwan hold shared values of good governance and respect for the rule of law...." Of the two governments, Taiwan seems far more respectful of the rule of economic law than does the US. For example, there have been zero complaints filed against Taiwan at the WTO in contrast to the US which has far more complaints against it (156) than any other government.  So I would hope that Taiwan can export some of its lawabidingness values to the US. 
   
   
4. Agriculture.The objectives stated in the Notice are reasonable.  Probably most of the problems with lack of science are on the US side. 
   
   
5. Anti-corruption related matters.The relatively high rankings of Taiwan (68) and the US (67) in the Global Corruption Perceptions Index (2021) are similar.  I am not aware that either Taiwan or the US provide a "safe haven" for foreign officials who engage in corruption, but I see no harm in a bilateral US-Taiwan treaty prohibiting both parties from doing so.
   
   
6. SMEs.SMEs are very important to future US economic growth, but the US problems with its business environment are home-grown and are not affected much by what occurs in Taiwan.  US productivity in 1Q/2022 was a shocking MINUS 7.3% which points to the need for much better US competitiveness policies.
   
   
7. Digital economy-related matters. I agree with the points in the Docket.
8. Labor-related matters.I agree with the Docket Notice that the world needs "more durable and inclusive trade policies that demonstrate that trade can be a force for good by creating more opportunities for people...."  Going back to my earliest involvement in US trade policy in 1975, I've lamented how USTR has failed over many decades to provide effective leadership in improving US policies to address worker dislocations (e.g., trade adjustment assistance).  These pathologies persist into the Biden Administration which, even after 16 months, has failed to publicly convene the Adjustment Assistance Coordinating Committee (19 USC §2392).  The Notice further states that the US and Taiwan "also seek to support the protection of labor rights, including the elimination of forced labor in global supply chains."  If the US were truly serious about boosting the international protection of labor rights, the US would join the 157 other countries that have ratified the San Francisco Convention on Freedom of Association and the Protection of the Right to Organise (ILO No. 87). I support the goal of removing goods produced with forced labor from global supply chains, but this challenge is best managed internationally, rather than through bilateral Initiatives.

9. Environment and climate-related matters.The stated objectives (e.g., "exchanging information") are fine as far as they go, but they do not go very far to solving the planet's worsening climate problems. The COP26 outcomes were desultory, but Taiwan is not to blame for those missed opportunities because the US and other countries excluded Taiwan from those meetings, an outcome that Taiwan rightly criticized at the time as "unfair."  Even 20 years after Taiwan's WTO accession,[1] the WTO remains the only multilateral organization willing to admit Taiwan as a member. 
10. Standards.I have long supported the development and use of higher international standards.  I would like to see greater US-Taiwan cooperation to shape international standards.  In doing so, the negotiators should engage full participation of transnational enterprises, labor unions, SMES, and civic society from both countries.  The Docket does not describe any mechanisms that the US-Taiwan Initiative would use to provide assure that the participants in these talks are not just bureaucrats, but also include economic and social actors.
    
    
11. State-owned enterprises. The WTO has robust rules to address state-owned enterprises, but these rules are underenforced. Unfortunately, the Biden Administration has done nothing to step up WTO enforcement regarding the practices of state-owned enterprises. On the contrary, the Biden Administration has hobbled the WTO dispute system by refusing to appoint new WTO appellate judges.  Taiwan should raise this issue in the bilateral talks and point out to the US why its continued verbal attacks on international judges undermines democracy and rule of law around the world.
    
    
12. Non-market policies and practices.Good governance requires both markets and governmental regulation.  Best practices are to pursue needed government regulation with market-based instruments, such as a carbon tax.  I agree with the Docket Statement that countries that use harmful nonmarket policies can "threaten the livelihoods of their people and harm their workers and businesses." This sometimes happens in Taiwan, but lately more  domestic problems have arisen in the United States.  During the Biden Administration, the US has doubled down on its nonmarket schemes through, for example, the Defense Production Act.   
    
    
13. Other Measures.One issue not covered well in the Docket are investment restrictions.  In forthcoming talks, there can be opportunities to address how US investment restrictions "undermine fair market opportunities for U.S. workers, farmers, ranchers, and businesses."

Taiwan has been a model WTO Member and I wish the United States acted as courageously. 

[1]Steve Charnovitz, "Taiwan and the WTO," International Conference on the United Nations and Taiwan, New Century Institute, New York, September 5, 2003, https://charnovitz.org/publications/Taiwan_1.pdf.

General vs. Specific Non-Discrimination Obligations and Exceptions in Digital Trade

Following up on my last post, let me go into more detail about an issue that was under the surface in that post but I didn't really get in to: I think there is some overlap between a general non-discrimination obligation, on the one hand, and a specific obligation focused on cross-border data flows (paired with exceptions), on the other hand. So which should we use? One or the other? Both?

Recall that digital trade agreements often have a general non-discrimination obligation, such as this one from the CPTPP:

Article 14.4: Non-Discriminatory Treatment of Digital Products

1. No Party shall accord less favourable treatment to digital products created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another Party, or to digital products of which the author, performer, producer, developer or owner is a person of another Party, than it accords to other like digital products

(The language change from "digital products" to "a digital product" in two U.S. agreements was why I started writing about this issue.)

These agreements also have an obligation related to cross-border data flows, with some variation in the wording and overall construction. Here is the CPTPP, which has a broad obligation and then an exception directly after the obligation:

Article 14.11: Cross-Border Transfer of Information by Electronic Means

... 

2. Each Party shall allow the cross-border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person.

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

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and

(b) does not impose restrictions on transfers of information greater than are required to achieve the objective. 

By contrast, the EU-NZ FTA has a more explicitly defined obligation, combined with a reference to general exceptions in another chapter:

ARTICLE X.4

Cross-border data flows

... 

2. To that end, cross-border data flows carried out in the context of activity that is within the scope of this chapter shall not be restricted between the Parties by:

(a) requiring the use of computing facilities or network elements in the Party's territory for processing, including by imposing the use of computing facilities or network elements that are certified or approved in the territory of the Party;

(b) requiring the localisation of data in the Party's territory for storage or processing;

(c) prohibiting storage or processing in the territory of the other Party;

(d) making the cross-border transfer of data contingent upon use of computing facilities or network elements in the Party’s territory or upon localisation requirements in the Party’s territory.

3. For greater certainty, the Parties understand that nothing in this Article prevents Parties from adopting or maintaining measures in accordance with Article X.1 (General Exceptions) to achieve the public policy objectives referred to therein, which, for the purpose of this Article, shall be interpreted, where relevant, in a manner that takes into account the evolutionary nature of the digital technologies. The preceding sentence does not affect the application of other exceptions in this Agreement to this Article.

The EU-NZ FTA General Exceptions chapter is here, and says the following:

1. For the purposes of Chapter X [Trade in Goods], Chapter X [Customs and Trade Facilitations], Chapter X [Energy and Raw Materials], Chapter X [State Owned Enterprises], Chapter X [Digital Trade] and Section Y of Chapter X [Investment liberalisation], Article XX of the GATT 1994, including its Notes and Supplementary Provisions, is incorporated into and made part of this Agreement, mutatis mutandis.

2. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on investment liberalization or trade in services, nothing in Chapter X [Investment Liberalisation and Trade in Services], Chapter X [Digital Trade], Chapter X [Energy and Raw Materials], Chapter X [Capital Movements] and Chapter X [State-Owned Enterprises] shall be construed to prevent the adoption or enforcement by either Party of measures:

(a) necessary to protect public security or public morals or to maintain public order1;

(b) necessary to protect human, animal or plant life or health;

(c) necessary to secure compliance with laws or regulations which are not inconsistent with
the provisions of this Agreement including those relating to:

(i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts;

(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts;

(iii) safety.

I'm not going to use up any more space here by going through all the various approaches to constructing the cross-border data flows obligation and its general exceptions, but I'll just note that there is some variation here.

This all leaves me with two broad categories of questions:

1) Should there be a general non-discrimination obligation or a more specific obligation related to cross-border data flows?

2) How should the exceptions work?

With regard to the obligation, in a sense, a general non-discrimination obligation is similar to GATT Article III, whereas an obligation not to impose restrictions on cross-border data flows is like GATT Article XI. This makes the obligation related to cross-border data flows potentially much broader than a general non-discrimination obligation, and therefore makes the exception more relevant. (Arguably, a properly functioning non-discrimination obligation wouldn't need an exception, because legitimate policy purposes could be taken into account in the obligation itself.) So which one is better? And if it's the cross-border data flows obligation, how should it be defined? The EU-NZ FTA definition here is much narrower, as it is closely tied to specific examples of non-discrimination.

With regard to the exceptions, some key questions are: Should they be attached to the provision itself? Should they rely on the general exceptions somewhere else in the agreement? Should they refer to the GATT/GATS exceptions? And how should the exceptions be worded?

Ideally, these fundamental questions would be thought through carefully by negotiators before any negotiations start. In reality, while there may be some good thinking going on, we have already plunged into a fair number of these negotiations, and we have multiple approaches coexisting out there. It would be helpful if the various governments involved in these discussions could get on the same page sooner rather than later, or else the variations could continue to multiply and the differences in the texts will add to the confusion about what the exact scope of each provision is.

Russian Aggression on Ukraine from the International Economic Law Perspective - Webinar

This is from Professor Marcin Menkes about an upcoming webinar:

Russian Aggression on Ukraine from the International Economic Law Perspective

14 July 2022

Time zone: CET

Venue: This is an online conference. Please register here

Conveners:

Prof. Marcin J. Menkes, Warsaw School of Economics
Prof. Csongor István Nagy, University of Szeged & ELKH Center for Social Sciences

The final programs is here.

Non-Discriminatory Treatment of Digital Trade Products in the EU-NZ FTA

Last year, I did some blog posts and a short paper that looked at the wording of the provision in digital trade chapters/agreements on "Non‐​Discriminatory Treatment of Digital Products." The basic point was that the usual language in this provision refers to "digital products," but during the USMCA legal scrub this was changed to "a digital product," which could be significant for the interpretation of the provision (the same language was used in the U.S.-Japan Digital Trade Agreement). In particular, the change could be seen to reflect the GATT/WTO debate over whether to compare the entire group of foreign and domestic products, or to compare individual foreign and domestic products, and the change was likely to steer the outcome in the direction of the flawed individual‐​product comparison. 

The point of my paper was to convince the U.S. to go back to the group approach, but I was also interested in how other countries -- who had been using the group-oriented "digital products" language in agreements such as the CPTPP, DEPA and certain bilateral agreements -- would approach the issue going forward. We now have the example of the recently negotiated EU-New Zealand FTA to look at, with New Zealand as an important player on these issues as it helps lead the effort on the DEPA. So what did the EU and New Zealand do with the provision? The Digital Trade chapter of their FTA is here (Chapter 12). To my surprise, it doesn't have this provision at all.

Why not have this provision in there, when New Zealand at least was part of previous agreements that used it? (The EU never had it in its brief "electronic commerce" chapters or in its digital trade chapter proposals as far as I can tell). My understanding is that they thought the non-discrimination principle was already covered by other provisions. For one thing, Chapter 2, on National Treatment and Market Access for Goods, has a basic national treatment provision:

National Treatment on Internal Taxation and Regulation

1. Each Party shall accord national treatment to the goods of the other Party in accordance with Article III of the GATT 1994[, including its Notes and Supplementary Provisions][1]. To this end, Article III of the GATT 1994 [and its Notes and Supplementary Provisions are] [is] incorporated into and made part of this Agreement, mutatis mutandis.

Presumably this would apply to digital products, although we could get into debates over the scope of "goods" vs. "products," as well as when something digital is actually a service.

In addition, the provisions on cross-border data flows in digital trade chapters act as non-discrimination obligations even though they don't use that term.

After having seen this development in the EU-NZ FTA, I thought about other recent FTAs and what they might be doing with the issue. Also to my surprise, the UK-Australia FTA digital trade chapter takes the same approach as in the EU-NZ FTA, as do the digital trade chapter in the UK-NZ FTA and the UK-Singapore Digital Economy Agreement (although these cross-border data flows provisions look very different than the EU-NZ ones, which is interesting).

This all makes me wonder whether my criticism of the U.S. approach scared some people off from these provisions entirely. If so, that may not be a bad result in terms of avoiding too much intrusion into domestic policy-making. If other provisions do the job, perhaps it's better not to have duplicative provisions out there that are vague and could lead to overbroad obligations. But whether these provisions should be included depends on what exactly the negotiators thought they were supposed to accomplish.

It will be very interesting to see how the U.S. approaches these issues in the IPEF, although it may be a while before we see any text.