International Economic Law and Policy Blog

The Trump/Lighthizer Legacy on Trade

With the Trump administration now finished, we are in the period where people will be spinning Trump's time in office into the narrative they want to create. On trade policy, Trump's U.S. Trade Representative Robert Lighthizer spent some of his final weeks in office trying to create a favorable narrative with the talks and interviews he gave. At an event last month with the Confederation of Indian Industry, he said the following (starts at 1:25:34):

"I think the China awakening will last. I'm very hopeful that changing the direction of trade policy, or the objective towards workers, will also last.

I think the President got elected on this issue. And he ran on it. And it was interesting, the other side, Biden didn't really run against our views at all. It was very interesting. And so, it's an enduring part of the Trump legacy."

He offered a similar perspective to the BBC: 

• "what we tried to do was reorient the purpose of international trade more towards working people in the United States"; "I think that the Democrats as well as the Republicans realise that we needed to shift the paradigm on trade more in the direction of working people in the United States"; "The real question is, 'What's the objective?', and the objective can't just be efficiency, the objective has to also be working men and women"; "We want strong communities in the United States. And if that means that T-shirts cost another nickel, then T-shirts will cost another nickel"
• "And that we needed to recognise that China is a real problem for our system, and that we had a very, very unbalanced relationship and we can't go back to where it was."
• "I wouldn't really say that we started a lot of trade wars. I don't think that's accurate. ... where would you really say we started a trade war?"

And perhaps with the most detail, at the Milken Institute he responded to questions such as: "as you think back to the Trump administration's four years, what are the lessons learned?", and "What are things that people can take away, to compare these four years, say, to prior presidential administrations?":

• "I would say, to me the two most important things are, one, we have reoriented the purpose of trade policy, more towards working men and women, and farmers, and what's good for them, and less away from the notion of global corporations, long supply lines, outsourcing, and efficiency."
• "The number two thing is [Trump] showed that there is a major issue with China. … this president realized that [the trade system] needed to be reset .. in terms of realizing that we have to deal with China as the biggest growing economy in the world, and a very different system. Not a capitalist system."
• "In the 90s there was this notion, which turned out to be a foolish notion, but there was this notion that well if you just draw China in and deal with China, China will become like America, right. … Just a common view in the Clinton administration, that if they trade they'll become democratic."
• "I have always been an economic nationalist in the sense that I always wanted a strong US economy, I wanted a strong manufacturing economy, I wanted good services jobs."
• "And then we put in place as part of that [at the WTO], we put in place this dispute settlement process. What you've noticed since then in going forward is no more negotiations. So we have a negotiating body that has now become like a court. And it was never intended to be that way. … So what has tended to happen is people are not negotiating. And they're just litigating."

Lighthizer's spin on the legacy of Trump's trade policy raises a number of questions:

• Did Biden run against Trump's trade policy?
• Did the Trump administration start any trade wars?
• How did U.S. trade policy change with regard to China under the Trump administration?
• Is U.S. trade policy now more oriented towards workers?
• Did Trump get elected on the issue of trade?
• What is the relationship between WTO dispute settlement, on the one hand, and WTO negotiations, on the other?
• What is "economic nationalism"?

Let's go through these one by one. The first two are the easiest.

Did Biden Run Against Trump's Trade Policy?

Yes, Biden ran against Trump's trade policy. One example is this speech. Some choice quotes from the speech are: "Trump's tariffs and trade wars are hitting a lot of American manufacturing -- especially the American automobile industry -- choking it to within an inch of its life"; "Trump doesn't get the basics. He thinks his tariffs are being paid by China. Any beginning econ student at Iowa or Iowa State could tell you that the American people are paying his tariffs"; "Trump is attacking the very partners we need with us to deal with China. We need to rally more than half the world's economy to hold China to account for their cheating. And get a chorus of voices speaking out on China's repression."

While I don't think trade policy plays that big a role for most U.S. voters, to the extent that Biden talked about trade policy, he clearly indicated that he would not be following Trump's approach. That's not to say he'll be a free trader, but he will diverge considerably from what Trump did.

Did the Trump Administration Start Any Trade Wars?

Yes, the Trump administration started trade wars! We could quibble over whether specific actions constituted a trade war, and who started particular trade wars, but no one has any doubt that the Section 232 tariffs and quotas on steel and aluminum were trade wars started by the Trump administration. The steel and aluminum tariffs were of questionable legality, favored special interests over the economic welfare of the country as a whole, and led to retaliation from trading partners. 

How Did Trump Change U.S. Trade Policy Towards China (and Was That Change Effective)?

With regard to China, I think the legacy of the Trump administration is a lack of focus and many missed opportunities. Keep in mind that China was high on the U.S. trade agenda even before Trump, as the Obama administration used the TPP (and the TTIP), at least in part, to counter China's rise and keep it in check. You can question whether that was the right approach, but certainly the Obama administration was pressing hard to work closely with allies and to "write the rules instead of letting China write them," as Obama and his trade policy team often said. The Trump administration talked a lot about China, but at the end of it all got just about as much as the Obama administration did with TPP/TTIP. There's a "phase one" deal in effect, but outside of a few sectors/issues here and there, it doesn't seem to have changed much in terms of China's trade practices; and there are now lots of additional tariffs in place, on both sides. Basically, if the goal was to induce China to liberalize, we went backwards. Now, maybe this was all part of a longer-term strategy, and the ultimate goal really was to use the tariffs to change China's practices. However, when you have a President who calls himself a "tariff man," it's also possible that the tariffs themselves were the main goal, and inducing change in China was a secondary consideration.

As for the notion that trade with China would make it more democratic, this Bill Clinton speech I linked to a while back is helpful in understanding the thinking at that time. Lighthizer puts this straw man out there: "there was this notion that well if you just draw China in and deal with China, China will become like America." However, Clinton's speech clearly says something very different.

Did the Trump Administration Reorient Trade Policy Towards Workers?

On the issue of workers, the Trump administration's trade policy was clearly intended to help certain U.S. companies in particular industries, such as steel and aluminum. To a great extent, then, this trade policy was about enriching particular corporations. Now, there are workers at those corporations, so I can see how you would spin things to say that the policies were designed to help the workers rather than the CEOs and shareholders. But there are many more workers in other industries who were hurt by the steel and aluminum tariffs, so on balance the case for these policies helping workers is pretty weak. And his argument about efficiency is too simplistic. Yes, you can maintain an inefficient system for a while by imposing costs on the masses for the short-term benefit of a few well-connected corporations. That kind of approach works only until it collapses though. At a certain point, it just becomes too expensive to prop up the inefficient companies.

On labor rights, the USMCA famously has some innovative new provisions that could promote worker's rights in Mexico, but those were pushed by Congressional Democrats. Perhaps the appropriate narrative on this point is that the Trump administration acquiesced to the demands of Democrats on issues related to workers. When you put it that way, it seems less compelling in terms of the Trump administration's legacy.

Did Trade Policy Help Trump in Elections?

As to the role of trade policy in elections, Trump did talk a lot about trade during both his presidential campaigns. In the 2016 election, Trump got beaten pretty handily by Hillary Clinton in the popular vote, but was able to win the electoral college. Then, after four years of implementing his trade policy, and giving voters a chance to see what that trade policy looked like in practice, Trump got trounced by Joe Biden in both the popular vote and electoral college. So, putting aside the merits of the policies, they don't look quite so helpful politically.

As I said above, I don't think trade policy plays that big a role in U.S. politics. Most people's views on trade policy are not that strongly held. But if you want to judge protectionist trade policy on the standard of how it fares in elections, it doesn't look all that successful.

What is the relationship of dispute settlement and negotiations at the WTO?

As I explained here, the Trump administration's view seems to be that governments have been unwilling to negotiate at the WTO because they could more easily litigate and get what they wanted that way, without having to offer concessions. That shifted the WTO from a negotiating forum to a litigation forum, with the U.S. paying the price as it lost cases brought against it. 

I think this view completely mischaracterizes the reasons for the failure of WTO negotiations in recent years. As I see it, the main reason for this failure is the unwillingness of certain governments to make concessions. People often point to countries such as India and Brazil, and that's fair. But I would also point at the U.S., the EU, Japan, and other developed countries. The developed countries may look at the current set of rules and say, we have made the biggest commitments (e.g. on bound tariff levels), and now it's time for the developing countries to do more. It's up to them to make concessions. But the developing countries look at issues such as IP protection (e.g. long copyright and patent terms) and think, we gave way too much already, and now it's time to rebalance things towards us. And I think the developing countries have a point here. As I see it, the result of all this is, until all major trading countries are willing to give something, the negotiations are going to mostly remain stalled. Importantly, the negotiations being stuck has nothing to do with the ability to litigate. Yes, at the margins, governments can bring cases against the U.S. and win some minor victories. And the U.S. can do the same against other governments (although the Trump administration didn't make much use of this ability). But issues related to litigation tend to be narrow and are not the cause of any broad negotiating failures.

What Is Economic Nationalism Anyway?

Finally, there was this: "I have always been an economic nationalist in the sense that I always wanted a strong US economy, I wanted a strong manufacturing economy, I wanted good services jobs." OK, but if the standard is "wanting a strong US economy," we are all economic nationalists. The real issue here is whether ratcheting up protectionist policies to levels not seen in decades is good for the U.S. economy. We all saw the harms to specific U.S. companies and their workers, especially manufacturers who make use of imported inputs. Trump's policies reaffirmed that economic nationalism in the sense of high levels of protectionism and unilateralism is bad for the domestic economy as a whole.

So What Is the Trump/Lighthizer Legacy on Trade?

What is the Trump/Lighthizer legacy on trade? Maybe it is this: For the foreseeable future, the Trump administration's trade policy will provide everyone a long list of examples of things not to do. Tariffs being wildly overused as negotiating threats; tariffs outside the normal legal processes; tariffs that lead to trade wars; tariffs that undermine international trade agreements; and unilateralism on trade policy in general. All of it had the expected negative results. None of it had the benefits that were promised.

The reality of the trading system that existed pre-Trump is that it did not come close to full free trade. Rather, a major part of the system was a carefully negotiated balance of modest constraints on tariffs and other protectionism. Trade was liberalized a bit, but there was plenty of protectionism still allowed. Interest groups certainly put their policy preferences in the mix at times, but probably less so than they would in a system without the international constraints. The Trump administration tried to move away from that, with an ideological approach based on higher tariffs and unilateralism, and designing trade policy largely for the benefit of a few favored industries.

So what now? The path ahead is a bit unclear, but in my view just about everything the Trump administration pushed over the last four years should be avoided. When people study trends in U.S. trade policy, they should go from Clinton to Bush to Obama to Biden, with the four year period under Trump characterized as just a weird anomaly. Normally, trade policy tries to take into account all of the various domestic interest groups and to promote good relationships with foreign nations. We took a break from that approach during the Trump administration, but hopefully we can get back to it now.

Americans on the WTO Indicative List of Panelists

Back in April of 2017, I said this:

while the indicative list of panelists does not have much correlation to people who actually serve as panelists, a former intern of mine named Christina Woo put together this cool table of Americans on the indicative list since the GATT era. The Obama administration never appointed anyone, and the list has kind of been frozen in time. Will the Trump administration take a look at this?

Looking at the latest version of the WTO's indicative list of panelists (the roster), there have been no changes. I know the Biden administration is likely to spend a lot of its WTO dispute settlement energy on the Appellate Body, but is it possible they would also think about updating the Americans on the panelist roster?

Also, for WorldTradeLaw.net subscribers, we now have data on whether panelists on completed panels were on the roster. Where the panelists were appointed by the DG, 140 were on the roster, whereas 307 were not on the roster. Where the panelists were agreed by the parties, 57 were on the roster, whereas 153 were not on the roster.

Trade Policy and Race/Ethnicity

There was some Twitter discussion last week of a new paper from Global Trade Watch called "Trade Discrimination: The Disproportionate, Underreported Damage to U.S. Black and Latino Workers From U.S. Trade Policies." I can see how it would be useful to study the impact of U.S. trade policy, and of economic policy more generally, on the economic well-being of different ethnic groups. Unfortunately, I don't think the report does a very good job with the issue. It seems to me that it mostly just takes the traditional trade critic approach (e.g., "U.S. Bureau of Labor Statistics’ data show that during the NAFTA-WTO-China PNTR era, over 60,000 U.S. factories have closed"), and then adds in an ethnicity/race component to the analysis of the lost jobs. This approach misses a lot.

First of all, I've seen many critiques of the factory/job loss numbers, and it seems to me that some critics are accepting the headline numbers on faith without doing any analysis to make sure those numbers are accurate. 

Second, a lot of other things have been going on in the economy from 1994 (when NAFTA went into force) to today, and there are other reasons for factory closures/job losses over this period (technological advances being the main one). I'm not sure how you can write a paper about manufacturing job losses and not mention that.

Third, there were also job gains during that period, and surely that should be taken into account. Identifying the job losses over a period without talking about job gains is a big oversight and paints a misleading picture of what has been happening in the economy.

Fourth, there are economic benefits to consumers from lowering tariffs, which means there are benefits for all Americans, and in particular this helps Americans with lower incomes. If you are serious about assessing the impact of trade liberalization, you should make some effort to take this into account.

And finally, even if your focus is on the well-being of Americans, it's at least worth noting the benefits of trade to people in other countries.

If the Global Trade Watch paper comes up short, what should others do with this issue instead? If I were an economist and had the skills to do this kind of work, I would break the analysis down into sub-categories, because "trade policy" covers a lot of ground. To this end, I would look at the impact of tariff liberalization, tariff imposition, intellectual property protection, regulatory standards, investment protection, etc. For example, what was the impact of Trump's tariffs (and the resulting trade wars) on different ethnic groups, in terms of their ability to consume and in terms of employment in manufacturing or other sectors?

None of this will be easy of course, and it's probably too much to do it all at once in a single paper. But this is the kind of objective research that would be useful for a discussion of U.S. trade policy and race.

As a final point, the authors seem to want to disassociate themselves from Trump. For instance, they say:

Donald Trump hijacked progressives’ critique of corporate globalization and job offshoring, but reframed it into a narrative of resentment with racialized appeals to white working-class voters.

But did he hijack it? Trump has been offering his critique of U.S. trade policy/trade agreements for decades, as have Global Trade Watch and various other critics. There has always been some overlap between his critique and the Global Trade Watch critique. In addition to having similar concerns about offshoring, Global Trade Watch continues to be very focused on the trade deficit, just as Trump is.

Of course, there are some differences as well. Trump bashes foreign countries for cheating us, and U.S. negotiators for doing a bad job. Global Trade Watch focuses more on corporate influence. And with progressives, it's important to note that there are a range of views within the group of people who consider themselves critics of the existing system. (Some progressives are more supportive of it.) 

Regardless of how we should think about the relationship between the views of Trump and those of progressive critics of the trade regime, we are now about to move forward. Trump will soon be out of office, and it's possible these critics will have some say in what the Biden administration should do. So what exactly do these progressives want? The report states that:

what already is well documented is that Trump did not deliver his promises to working-class people. Instead of stopping trade-related job loss and offshoring, during the Trump administration 311,427 American jobs have been government-certified as lost to trade, with 202,543 explicitly listed as offshored.

Trump's approach to stopping offshoring involved lots of tariffs and trade wars. What specifically does Global Trade Watch suggest as an alternative? If they are concerned about the impact of trade policy on various groups, as their report suggests, I hope they will consider why tariffs and trade wars led to the negative results they noted under the Trump administration.

FTA safeguard exclusion clauses . Do they bite?

In a recent post discussing the NAFTA/USMCA provision relating to conditional exclusion of FTA partners from global safeguards under the WTO, I stated that "this type of exclusion is unique to a handful of US FTAs". Count on Amy Porges to catch me in a gross error.  Amy pointed me to an excellent 2013 paper written by former WTO colleagues mapping numerous such RTA provisions. Of the 232 FTAs surveyed in that paper, no fewer than 62, or roughly 25%, had some type of provision relating to the possible exclusion of an RTA partner from WTO global safeguards.      

Despite the large numbers, I found myself pondering how much real-world impact these provisions (outside NAFTA/USMCA) have had. I suspect the answer is not much, for the following reasons.

First, many of the countries whose FTAs contain exclusion clauses rarely if ever use safeguards. For example, no EFTA country has imposed a safeguard measure since 1995. The same is true for Australia, New Zealand and Singapore, whose FTAs, according to the paper, were, as of 2013, the only ones with automatic exclusion clauses. Other users of such clauses, such as Canada, scarcely use them. There appear to be few such FTA provisions involving the leading safeguards users (India, Indonesia and Turkey). It seems that, outside the United States, the more frequent the user, the less likely it has been to accept such constraints. 

Second, the WTO Agreement on Safeguards Article 9.1 requires that small developing country users (less than 3% of imports) be excluded from safeguard measures. It seems likely that many of the smaller countries whose FTAs contain such provisions would be excluded from a safeguard measure on this basis irrespective of any FTA provision. And larger suppliers who exceeded these thresholds might not qualify for exclusion where the FTA exclusion hinges upon the suppliers’ small import share and limited (or no) contribution to the serious injury.

Third, only two of the FTAs examined involve automatic exclusion, while in all remaining FTAs exclusion is conditioned upon small import shares and/or limited (or no) contribution to the serious injury. Of this latter group, 26 of the 60 seem to involve discretionary exclusion (“may” rather than “shall”), even where the relevant conditions for exclusion are met. Interesting to note that more recent US FTAs, such as KORUS,  have such general, discretionary language (a Party "may" exclude if the imports are not a "substantial cause" of serious injury). Query how likely a country is to actually exclude in such circumstances, but language I found in an Indian safeguard determination on “single mode optical fibre" (p. 63)  suggests that India, at least doe not give the language much weight.  . 

All this said, there may be situations, outside US FTAs, where such exclusion provisions have actually changed the scope of safeguards measures. If anybody out there is reading this blog, and knows of such situations, I’d love to hear about it!

US Solar Safeguard: How much discretion is too much?

Yesterday Canada requested consultations under USMCA regarding the “imposition and ongoing application” to Canada of the US safeguard measure on solar measures. Canada argues that the application of the safeguard to Canada violates the US obligation to exclude USMCA Parties from the scope of the safeguard unless imports from that Party account for a “substantial share of total imports” and “contribute importantly” to the serious injury (USMCA Art. 10.2). It further argues that the US breached its obligations to entrust serious injury determinations to a “competent investigation authority” and to not modify negative injury determinations, except by judicial/administrative review (Art. 10.3).

This case is interesting on many levels. I am a dabbler, and have no involvement in this matter, so I may have missed many relevant considerations and misunderstood what is happening. But my quick thoughts, for what they are worth.

First, this safeguard was imposed back in January 2018, in the NAFTA era. Canada requested consultations at that time, but apparently received no response. Presumably they are now taking advantage of the new and improved DS provisions of the USMCA. This does however potentially raise issues of temporal application, since the USMCA did not exist when the measure was imposed. Hence the reference to “continuing application? While the WTO Agreement contained transitional provisions governing the application of its disciplines to existing measures, I am not aware of any comparable provisions in the USMCA. But the experts may know more.

Substantively, exclusion is an interesting issue. Essentially, USMCA, like NAFTA, requires the exclusion of FTA partners from a safeguard unless the volume of imports is substantial and the contribution to injury is important. This type of exclusion is unique to a handful of US FTAs (note, for example, that there is no such provision in the new EU/UK TCA). Of course, safeguard measures are in principle applied on an MFN basis, and whether such an exclusion is permitted by the WTO is unresolved. While the US-Line Pipe Panel found such an exclusion permissible, the AB resolved the issue on narrower grounds and declared the Panel’s ruling “moot” and without legal effect. WT/DS2020/AB/R, para 199. So Canada is alleging that the US is breaching a USMCA obligation the WTO-consistency of which has never been definitively established.

NAFTA/USMCA require exclusion where the relevant conditions are not met (USMCA Article 10.2), and set out indicative criteria (is the Party among the top-five suppliers, is the rate of growth of imports from the Party lower than the growth rate of total imports?). Unfortunately for Canada, although the USITC found that Canadian imports did not meet the criteria and should be excluded, US implementing legislation provides that the President makes the final “determination”. Here, the President’s Proclamation simply reversed the USITC’s findings, without explanation, and the CAFC has found that course of action to be within the President’s discretion under US law.

Fortunately for Canada, USMCA itself addresses this issue. Or does it? Article 10.3 says that each Party “shall entrust determinations of serious injury” to a competent investigating authority, subject only to judicial review, and that “negative injury determinations” shall not be subject to modification”, except by such review. Thus, the USITC decides, and a negative finding cannot be reversed by the President. But does the determination regarding “serious injury” encompass also the findings regarding import volumes/contribution for exclusion? I am no expert, but that looks far from clear to me. Assuming that the USMCA DS process actually works, time will tell.

Whether or not US actions here are found to violate USMCA, the Trump Administration’s approach is bad governance in action. The extent of Presidential discretion to arbitrarily disregard the reasoned findings of an investigative body, without fear of judicial review, is troubling at the least. I doubt American exporters would be happy if Revenue Canada found that a US exporter was not dumping, and the Prime Minister without reasoning simply reversed the finding. Discretion is based on trust. And the lawless arbitrariness of the current Administration has shown that such trust is not always warranted.

Guest Post from the European Commission: Candidates for adjudicators in EU trade agreements

This is from Colin Brown of the European Commission:

Candidates for adjudicators in EU trade agreements

On 18 December 2020 the European Commission and the EU’s Member States initiated a call for candidates to be appointed as adjudicators in EU trade agreements. The aim is to establish a pool of highly qualified individuals from which to draw persons to act as adjudicators in particular state-to-state dispute settlement proceedings or to appoint them to rosters of adjudicators (which is the fall-back option for state-to-state dispute settlement in EU agreements where there is no agreement between the Parties on adjudicators for a particular dispute). The EU is seeking both 3^rd country nationals to act as chairpersons and persons with the nationality of an EU Member State. This initial call covers arbitrators for State-to-state dispute settlement and for panellists in trade and sustainable development disputes. A call will be made at a later date for adjudicators for investor-state disputes. 

Applications can be made either to the European Commission or to Member State authorities and should be submitted before 23:00 Brussels time on 1^st February 2021. Applications will be screened by Member States and/or a Selection Panel (which the Commission has just established) to ensure that candidates have both the expertise and the required high ethical standards to act as adjudicators. The Commission will also shortly proceed to seek candidates for the Selection Panel. Once candidates have been screened they will be placed in a pool, and the Commission will draw from that pool to appoint adjudicators in specific disputes or to propose nominees for rosters under specific agreements. For more information on the process, including how to apply see: https://trade.ec.europa.eu/doclib/press/index.cfm?id=2224

This initiative is taken to ensure that the EU’s bilateral dispute settlement mechanisms, when needed, operate as effectively as possible. It also provides the Commission the chance to address the lack of gender balance in its practice to date. At the same time as initiating the call, the Commission adhered to the Equal Representation in Arbitration Pledge (http://www.arbitrationpledge.com/ ) as regards its dispute settlement activities in the field of trade and investment.

Jake Sullivan on the Biden Administration's Trade Policy Towards China and Towards Allies

Joe Biden's choice for National Security Adviser is Jake Sullivan. Sullivan was on Fareed Zakaria's TV show yesterday, and they had the following exchange:

ZAKARIA: ... Jake, one of the things that Joe Biden said on the campaign trail often and forcefully was that Donald Trump's trade wars with China had not worked, that it had imposed huge costs on American consumers, there was an ad, I recall, that aired in which he pointed out, you know, manufacturing is in recession, farmers are paying the price, the whole thing has not worked, and that we've lost.

And yet the Biden administration, Joe Biden says he will not reverse those tariffs. So explain to me, if you have a bad policy that didn't work, why would you continue it?

SULLIVAN: Well, the fundamental shortcoming of the Trump administration's trade strategy was that it was a go-it-alone strategy. It was taking on China as the United States by itself without allies and partners that comprise up to 60 percent of the global economy. And frankly, worse than go it alone, it was also open two and three front trade wars by picking fights with those very allies and partners that we would want on our side.

So what President-elect Biden wants to do is have a period where he can consult with our partners and allies in Europe and Asia and elsewhere to talk about how together we can bring leverage to bear on China to change its most problematic trade abuses, including dumping, including illegal subsidies for state-owned enterprises, including forced labor and environmental practices that hurt American workers and farmers and businesses.

He hasn't had the opportunity to do that during the transition because of the one-president-at-a-time principle. We're not engaging with foreign officials while President Trump is still in office. So we need that opportunity to consult. That will give us the chance to develop a common strategy with allies and partners to exercise the kind of clear-eyed leverage-based approach to bring China to the table and get them to alter or amend their most problematic trade practices that harm the American economy.

ZAKARIA: You talk about allies in Europe and Asia, but yet they seem to be going along and cutting their own deals with China. "The New York Times" points out that you tweeted essentially hinting to the European Union that they should hold off on this huge China-European Union Investment Treaty until you guys got a chance to consult with them. In fact, they accelerated and have already signed it.

Asian allies, 50-nation countries signed up with China for this Regional Comprehensive Economic Treaty. I mean, it feels as though the world is moving ahead, forging these trade alliances, and the country that used to do that, the United States, is sitting at the back of the bus putting up tariff barriers and walls. And again it seems like Joe Biden is not really changing that course.

SULLIVAN: Well, but, Fareed, that's not a repudiation of Joe Biden's approach. That's a repudiation of Donald Trump's approach. That is the wages of four years of alienating our allies and of refusing to work with them on these issues, and that's true. Both in the Asia-Pacific and in Europe.

And so when Joe Biden takes office on January 20th, and sits down in consultation out of mutual respect with key like-minded economies that as I said collectively comprise almost 60 percent of the world's economy, we are confident that we can develop a common agenda on issues where we share deep concerns about China.

And it's not just on trade. It's on technology. It's on human rights. It's on military aggression. And so our proposition, which we will begin testing when we take office, because, of course, we are not in office yet, is that that will put us in a stronger position to be able to deal with China effectively, in a clear-eyed way and in a way that ultimately delivers the kind of results that have entirely escaped the Trump administration over the last four years.

ZAKARIA: There is a domestic political reality about the China -- about China policy, which is that the Republican Party or certain key Republicans have clearly decided that they are going to attack you relentlessly from the right and claim that whatever you do is some kind of soft on China policy, is appeasement.

When the Democratic Party has faced those kinds of attacks from the right in the past, it is often gone along with a kind of, you know, me-too hawkishness that hasn't ended up so well. I'm thinking about the Johnson administration terrified that it would be attacked from the right, that it was going to lose Vietnam to communism. I'm thinking about the Iraq war when a whole number of Democrats, including Joe Biden, were clearly worried about being outflanked on the right by the Republicans.

Is this a real and present danger in China policy now? Are you -- do you have the room to maneuver and create a sensible China policy without worrying that it is going to be excoriated by Republicans?

SULLIVAN: This is the -- one of the many benefits of having somebody with the experience and the judgment and, frankly, the relationships on Capitol Hill that President-elect Joe Biden has. He knows his mind on China and he is going to carry forward a strategy not based on politics and not based on being pushed around by domestic constituencies, but based on the American national interest.

It's a clear-eyed strategy. It's a strategy that recognizes that China is a serious strategic competitor to the United States, that they act in ways that are at odds with our interests in many ways, including in the trade realm that we were talking about before, but others, too. It is also a strategy that recognizes that there are areas where we will work with China when it's in our interest to do so on issues such as climate change. And so Joe Biden is going to work hard to invest in our sources of strength here at home so that we can more effectively compete with China on technology and economics and innovation.

More effectively invest in our alliances so that we're building up leverage to be able to shape China's choices going forward and to be present in international institutions so that it's the United States and our partners and not China who is calling the shots at the key tables on issues ranging from nuclear proliferation to international economics.

The Trump administration walking away from those tables has given China a golden opportunity to advance its agenda in the world. So this is the approach that we intend to take. It's an approach rooted in a clear assessment of the challenge we face, a clear assessment of America's national interests, and what our sources of strength are that we can bring to bear in this competition.

ZAKARIA: And just, finally, and returning to the top, are you going to then waive or reverse the tariffs on our European allies and on Canada, for example?

SULLIVAN: Well, this comes back to the point I was making earlier about not having had the chance to consult with them, to work them. Our goal is to go out right away and sit down not just on the question of China, but to work out the economic differences that we have so that we can end the multifront trade war that the Trump administration started. And we intend to do that work right out of the gate in the early days and weeks of the administration.

Sullivan was very careful in how he answered some of Zakaria's direct questions. He did not promise to get rid of the Section 301 tariffs on China, instead focusing on improving trade relations with allies as a way to approach issues with China. He also did not promise to get rid of the Section 232 tariffs on allies, instead just saying he would "work out the economic differences that we have." And he did not complain about the EU-China investment agreement when prompted (even though he tweeted concerns about it recently), blaming these developments on Trump instead.

For me, the big question here is how the Biden administration approaches trade relations with the EU. The Section 232 steel and aluminum tariffs are, to some extent, an easy issue. Repealing them would be good economics and good for relations with the EU. (On the other hand, the domestic politics of this are challenging). But "the economic differences" with the EU are broader than this. Among other things, the Trump administration could soon impose Section 301 tariffs in response to France's digital services tax; there is tariff retaliation in effect from both sides in the Airbus-Boeing dispute; and there are, as always, U.S. concerns about EU food regulation. There is plenty of opportunity for deal-making, but these issues will be difficult to resolve.

Enforcement of subsidy provisions in the EU-UK TCA

The EU-UK TCA is here, and it has extensive provisions on subsidies.  It is fair to say, I think, that these are the most detailed rules on subsidies to be found in any FTA negotiated to date, which is not surprising, given that they replace the EU’s state aid regime for the UK.

I have been wrestling to understand the subsidy enforcement aspects of the TCA. I have probably misunderstood these rules, which are horrifically complex, but it seems to me that five distinct tools are available to address subsidy issues affecting trade and investment between the Parties.

The first tool involves domestic procedures.  Each Party must have “an effective system of is subsidy control” that ensures that the granting of a subsidy respects a set of “principles” (Art. 3.4.1), i.e., the substantive disciplines.  These principles must be implemented into domestic law “such that the legality of an individual subsidy will be determined by the principles” (Art. 3.4.3). Each Party must create an “independent authority or body” to oversee its subsidy control regime (Art. 3.9.1). Decisions by a granting authority and by the “independent authority or body” are subject to judicial review under the domestic law (Art. 3.10). This is a private right of action, including possibilities for damages and “recovery” (i.e., repayment), although a Party can intervene in the proceedings (Article 3.10.2).

The second tool is “remedial measures” (Art. 3.12).  This is a state-to-state tool.  A Party may request consultations regarding a subsidy that “it considers causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties” (Art. 3.12.1).  In the absence of an agreed solution, the Party may after 60 days “unilaterally take appropriate remedial measures” (Art. 3.12.3), which must be restricted to what is “necessary and proportionate” to remedy the significant negative effect (Art. 3.12.5).  The subsidizing Party can challenge the determination of significant negative effect, and the necessity and proportionality of the remedial measures (Art. 3.12.8) before an arbitration tribunal, and can suspend concessions if the remedial measures are found to be inconsistent with TCA and are not withdrawn.

The third tool is the WTO Agreement, including most notably anti-subsidy (CV) measures.  Again, a private remedy. The continued use of CV measures between the Parties is specifically authorized by the TCA (Goods Art. 17.1). The only real constraint (beyond WTO requirements, of course) is what appears to be a prohibition on double remedies: a Party must, when determining the level of a “remedial measure” on a product, “take into account” countervailing (and anti-dumping) measures applied or maintained on that product (Art. 3.12.14).    

The fourth tool is “rebalancing”, which Simon has already posted about.  State-to-state. This remedy is available for labour and social, environmental or climate protection issues, in addition to subsidy control. Under Article 9.4, If “material impacts on trade or investment” between the Parties arise as a result of “significant divergences” between the Parties, either Party may take appropriate rebalancing measures to address the situation. Such measures are restricted in scope and duration to what is strictly necessary and proportionate to remedy the situation. Like remedial measures, rebalancing is subject to arbitration to confirm that “material impacts” have occurred and that the measures are necessary and proportionate, and a Party can take countermeasures if the arbitration tribunal rules against the rebalancing measures and they are not withdrawn (Art. 9.4.3). A Party cannot simultaneously use remedial and rebalancing measures to remedy an impact caused by the same subsidy (Art. 3.12.15).  

The fifth tool is the general dispute settlement mechanism of TCA. The subsidy control chapter is subject to dispute settlement, but with significant limitations. It does not apply to obligations in respect to the independent body or authority, nor to those regarding judicial review (Art. 3.12.1). Nor does it apply to “an individual subsidy”, except those that breach the TCA’s equivalent to prohibitions (unlimited state guarantees, rescue and restructuring subsidies, export and local content subsidies). It thus seems to be more for review of systemic implementation of the subsidy control requirements (and even that with limitations), than a forum for litigation regarding the consistency of individual subsidies with the TCA.

A few closing observations:

The TCA contains detailed specific rules governing the grant of subsidies, but enforcement of these rules is assigned principally to domestic mechanisms within the Parties, and only in a limited fashion to TCA dispute settlement.

At the same time, the TCA allows potentially significant unilateral actions where subsidies have “significant negative” (remedial measures) or “material” (rebalancing) effects on trade or investment, irrespective of whether or those subsidies comply with the specific subsidy disciplines in the TCA.

It will be very interesting to see how often these tools are used, and which ones. If the domestic procedures prove to be effective, the system could work well. If not, and there is extensive use of unilateral tools, the possibility for very significant disruptions in EU-UK trade in both goods and services is substantial.        

The EU/UK FTA and Trade Remedies

No surprise, but the EU/UK FTA imposes effectively no constraints on trade remedy use between the parties.

Eight short, one-sentence paragraphs, with paragraph 8 carving paragraphs 1-6 out of dispute settlement. There is no value-added here beyond an (unenforceable) requirement to consider information on public interest (para. 6). The hortatory ("may") language on lesser duty (para 5), which applies only to AD, not CVD, reflects the increasing conditionality the EU has attached to the lesser duty rule.

The trade remedies text is even thinner than that in CETA, and means that, in regards to trade remedies, EU/UK trade relations are governed by the WTO and nothing more.

One trade remedy between the parties will already come into effect on 1 January (reciprocal safeguard measures on steel products, in the form of TRQS). It will be interesting to see how frequently trade remedies are in fact used between the parties. Experience in other FTAs between closely integrated economies (USMCA, Mercosur) suggests it may not be uncommon.

----------------------------------------------

Article GOODS.17: Trade Remedies

1. The Parties affirm their rights and obligations under Article VI of GATT 1994, the Anti-Dumping Agreement, the SCM Agreement, Article XIX of GATT 1994, the Safeguards Agreement, and Article 5 of the Agreement on Agriculture.

2. Chapter 2 [Rules of origin] of this Title does not apply to anti-dumping, countervailing and safeguard investigations and measures.

3. Each Party shall apply anti-dumping and countervailing measures in accordance with the requirements of the Anti-Dumping Agreement and the SCM Agreement, and pursuant to a fair and transparent process.

4. Provided it does not unnecessarily delay the conduct of the investigation, each interested party in an anti-dumping or countervailing investigation¹ shall be granted a full opportunity to defend its interests.

5. Each Party's investigating authority may, in accordance with the Party's law, consider whether the amount of the anti-dumping duty to be imposed shall be the full margin of dumping or a lesser amount.

6. Each Party's investigating authority shall, in accordance with the Party’s law, consider information provided as to whether imposing an anti-dumping or a countervailing duty would not be in the public interest.

7. A Party shall not apply or maintain, with respect to the same good, at the same time: (a) a measure pursuant to Article 5 of the Agreement on Agriculture; and (b) a measure pursuant to Article XIX of GATT 1994 and the Safeguards Agreement.

8. Title I [Dispute settlement] of Part Six does not apply to paragraphs 1 to 6 of this Article.

A Few Quick Thoughts on the "Rebalancing" Provisions in the "Level Playing Field" Section of the UK-EU Trade Agreement

As a Christmas gift of sorts, the UK and EU gave us their new trade agreement yesterday (still needs to undergo a legal scrub I think). There is a long section on creating a "level playing field." Here is a key bit of the part relating to "rebalancing" in response to measures that upset the level playing field:

TITLE XI: LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT

...

Chapter nine: Horizontal and institutional provisions

... 

Article 9.4: Rebalancing

1. The Parties recognise the right of each Party to determine its future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control, in a manner consistent with each Party’s international commitments, including those under this Agreement. At the same time, the Parties acknowledge that significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement.

2. If material impacts on trade or investment between the Parties are arising as a result of significant divergences between the Parties in the areas referred to in paragraph 1, either Party may take appropriate rebalancing measures to address the situation. Such measures shall be restricted with respect to their scope and duration to what is strictly necessary and proportionate in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement. A Party’s assessment of these impacts shall be based on reliable evidence and not merely on conjecture or remote possibility.

3. The following procedures shall apply to rebalancing measures taken under paragraph 2:

(a) The concerned Party shall, without delay, notify the other Party through the Partnership Council of the rebalancing measures it intends to take, providing all relevant information. The Parties shall immediately enter into consultations. Consultations shall be deemed concluded within 14 days from the date of delivery of the notification, unless they are jointly concluded before that time limit.

(b) If no mutually acceptable solution is found, the concerned Party may adopt rebalancing measures no sooner than five days from the conclusion of the consultations, unless the notified Party requests within the same five day period, in accordance with Article INST.14(2)  [Arbitration procedure]64, the establishment of an arbitration tribunal by means of a written request delivered to the other Party in order for the arbitration tribunal to decide whether the notified rebalancing measures are consistent with paragraph 2 of this Article.

(c) The arbitration tribunal shall deliver its final ruling within 30 days from its establishment. If the arbitration tribunal does not deliver its final ruling within that time period, the concerned Party may adopt the rebalancing measures no sooner than three days after the expiry of that 30 day time period. In that case, the other Party may take countermeasures proportionate to the adopted rebalancing measures until the arbitration tribunal delivers its ruling. Priority shall be given to such countermeasures as will least disturb the functioning of this Agreement. Point (a) shall apply mutatis mutandis to such countermeasures, which may be adopted no sooner than three days after the conclusion of consultations.

(d) If the arbitration tribunal has found the rebalancing measures to be consistent with paragraph 2, the concerned Party may adopt the rebalancing measures as notified to the other Party.

(e) If the arbitration tribunal has found the rebalancing measures to be inconsistent with paragraph 2, the concerned Party shall, within three days from the delivery of the ruling, notify the complaining Party of the measures65 it intends to adopt to comply with the ruling of the arbitration tribunal. Articles INST.23(2) [Compliance review], INST.24 [Temporary remedies]66 and INST.25 [Review of any measure taken to comply after the adoption of temporary remedies] shall apply mutatis mutandis, if the complaining Party considers that the notified measures are not in compliance with the ruling of the arbitration tribunal. The procedures under Articles INST.23(2) [Compliance review], INST.24 [Temporary measures] and INST.25 [Review of any measure taken to comply after the adoption of temporary remedies] shall have no suspensive effect on the application of the notified measures pursuant to this paragraph.

(f) If rebalancing measures were adopted prior to the arbitration ruling in accordance with point (c), any countermeasures adopted pursuant to that point shall be withdrawn immediately, and in no case later than five days, after delivery of the ruling of the arbitration tribunal.

(g) A Party shall not invoke the WTO Agreement or any other international agreement to preclude the other Party from taking measures pursuant to paragraphs 2 and 3, including when those measures consist of suspension of obligations under this Agreement.

(h) If the notified Party does not submit a request pursuant to point (b) within the time period laid down therein, that Party may without having prior recourse to consultations in accordance with Article INST.13 [Consultations] initiate the arbitration procedure referred to in Article INST.14 [Arbitration procedure]. An arbitration tribunal shall treat the issue as a case of urgency for the purpose of Article INST.19 [Urgent proceedings].

This is a pretty big innovation and it will take a while to fully digest what has been done here. Here are a few quick thoughts:

- Paragraph 2 says that "A Party’s assessment of these impacts shall be based on reliable evidence and not merely on conjecture or remote possibility." In theory, a government could make this assessment on somewhat of an ad hoc basis, with a decision made by the executive branch that the evidence is sufficient in a particular case. However, if the government wants its decision to withstand the scrutiny of an arbitration tribunal, it will probably have to establish detailed procedures and run a quasi-judicial proceeding on these issues. I can imagine that both the UK and EU will designate some agency for this task, perhaps adapting existing trade remedies procedures for use here.

- There are a lot of substantive provisions to flesh out in order to determine how hard it will be to prove that the playing field is not "level" somehow: The scope of the covered policies (which is defined elsewhere in the text); what are "material impacts on trade or investment"; what will the "arising as a result of" causation standard look like; what are "significant divergences"; and how will the "strictly necessary and proportionate" standard be applied.

- In some ways, this seems like a powerful new trade remedy that will expand on the domain of anti-dumping, countervailing duties, and safeguards. But with LPF remedies, neutral arbitrators will be able to look at the measures before they go into effect. That could seriously limit their use.

- It's important to note that these provisions cover investment as well as trade. That could be a significant expansion in their scope.

- Will this approach be copied by others? I can see how U.S. progressives would be tempted to adopt it. Also, the EU may try to work this into its other PTAs. Will other countries go along? Many countries would probably raise objections.

- Paragraph (g) says "A Party shall not invoke the WTO Agreement or any other international agreement to preclude the other Party from taking measures pursuant to paragraphs 2 and 3, including when those measures consist of suspension of obligations under this Agreement." But will other affected WTO Members raise WTO complaints? Let's say a U.S. company is sending inputs to a factory it owns in Germany, and the UK imposes rebalancing measures that affect products from the German factory. Could the U.S. bring a WTO complaint against the UK measures? 

- Overall, I think it was a mistake to go down this road, but it seems like we are going, and now we'll just have to see where it leads us. Will it take off like investment arbitration did, with the provisions copied and an eventual litigation explosion? Or will it turn out that governments do not actually use the covered policies to distort trade and investment in the way that some people fear, and these provisions will not end up being used much?

Countervailing Weak Environmental Protections

This is from a Draft Ministerial Decision submitted by the U.S. under the title "Advancing Sustainability Goals through Trade Rules to Level the Playing Field":

Believing that no Member should gain a comparative advantage in trade due to insufficient or unenforced environmental laws, regulations, and standards;

...

Recognizing that the value of a subsidy is not the cost of the subsidy to the granting government but the benefit received by an industrial entity;

Realizing that industries located in certain countries benefit from weak or unenforced environmental laws and regulations by not being required to incur, and properly internalize, the costs of preventing or remediating environmental damage resulting from their production processes;

Recalling that the Agreement on Subsidies and Countervailing Measures (ASCM) permits Members to impose a countervailing duty to offset a government subsidy benefit received by an exporter to ensure that domestic producers should only have to compete with those other firms that are subject to the same competitive market conditions;

Accepting that imposing countervailing measures on subsidies that take the form of weak or unenforced environmental standards would promote stronger environmental standards and enforcement, would encourage the proper internalization of environmental costs into the calculations of production costs, and would correct policies that create transaction-specific market inefficiencies which thereby distort trade;

Decides as follows:

1. The failure of a government to adopt, maintain, implement and effectively enforce laws and regulations that ensure environmental protections at or above a threshold of fundamental standards shall constitute an actionable subsidy under the ASCM.

2. If an industry disproportionately benefits from pollution controls or other environmental measures set below a threshold of fundamental standards, a Member may impose a countervailing duty equal to the benefit received by the industry when the goods from such an industry enter the Member's customs territory.

I have some questions about all this.

First, while developing countries may be the intended target, isn't it likely that these provisions would be used against the U.S.? I don't think of the U.S. as having the highest level of environmental regulation. Wouldn't the Europeans and others make use of this to impose CVDs on U.S. products? I'm thinking of agriculture products in particular. "Environmental protection" and "environmental measures" seem like pretty broad terms, and it seems likely this could be applied to a wide range of U.S. farming practices.

Second, what specific impact would this decision have on the interpretation of the SCM Agreement? Would it override the requirement that there be a financial contribution, benefit, and specificity? That is, if you prove that the conditions in 1 and 2 exist, you can countervail?

And finally, if your goal is sustainability or environmental protection, are tariffs really the way to get there? It seems likely there are more effective approaches.

Some Comments on the Trump Administration's Final Statement to the DSB on the Appellate Body

In what may be the last official statement by the Trump administration on the Appellate Body, Ambassador Shea offered these comments at the December 18 DSB meeting. I have some responses to his comments. I will do this in three parts, quoting him and then responding.

First up, he said this:

Over the past three years, we have engaged in many discussions with Members – on a bilateral basis, in small groups, and in large settings. After three years of effort, what have we learned?

• First, we have learned that the Appellate Body thinks it did no wrong. We know this because, despite U.S. action on appointments under both the Obama Administration and the Trump Administration, the Appellate Body did not change its approach. In fact, it expanded and deepened its WTO-inconsistent practices and interpretations. This reflects an institution that came to view itself as more important than the rules – and the Members – that created it.

• We have learned that the Appellate Body turned out to be less expert than panelists in adjudicating disputes under the DSU. We know this because the United States catalogued numerous substantive interpretive errors by the Appellate Body. In most cases, a panel reached a correct interpretation, and the Appellate Body got it wrong. And so, while some Members may think the Appellate Body did a better job than panels – we think the record shows the opposite: panels generally respected WTO rules, and the Appellate Body far too often did not.

• We have learned that some Members think the Appellate Body did no wrong. This is regrettable because we have not heard any convincing defense of the Appellate Body’s errors in interpreting the DSU or substantive WTO rules. The ongoing denial by some of any AB errors reflects, in part, a fundamental divide among Members on the proper role of the Appellate Body in the WTO and the global trading system more generally.

• We have learned that some other Members may think the Appellate Body did wrong, but are content to maintain the status quo. We do not understand how a Membership that proclaims its support for a rules-based trading system can nonetheless accept persistent rule-breaking by its dispute settlement system. This unwillingness on the part of some Members may unfortunately reflect a Membership incapable of holding WTO institutions, including the Appellate Body, accountable. Experience shows, however, that without accountability, there can be no reform.

• And we have learned that some reform-minded Members think the Appellate Body did commit serious errors, and bravely see a need for real, fundamental reform – reform so that the WTO dispute settlement system supports the WTO as a venue for discussion and negotiation between Members, rather than undermining the WTO and converting it into a mere litigation forum.

Let's take these one by one.

With regard to the idea that "the Appellate Body thinks it did no wrong" because it did not change in reaction to U.S. actions, the U.S. reference to "the Appellate Body" here could mean all of the Appellate Body Members, or some of them, or the Secretariat staff. I'm not sure exactly what they have in mind. Regardless, I can imagine that the Appellate Body, whichever part of it Shea is thinking of, was wary of appearing to cave in to the very public U.S. pressure on appointments. Doing so would not have been appreciated by many other WTO Members and could have undermined the credibility of the Appellate Body and of the dispute settlement system more broadly (and it could have led to other governments trying to take a similar approach when they had concerns about the Appellate Body).

In addition, it seems to me that a big problem with the U.S. approach has been the lack of clarity and lack of focus. Which specific issues were of most importance to the U.S., and what exactly did the U.S. want changed? I can imagine that some people who worked on these issues will say that they explained it all very clearly. For whatever it's worth, though, I'll just note that I had trouble following it for many of the issues the U.S. raised. In my view, what USTR should do now is decide what issues they are most concerned about and make the case to everyone else -- other governments, business groups, civil society, etc. -- as to why their view should prevail. To take some examples, what specific standard would USTR like to see for DSU Article 11 appeals? How should the special standard of review under AD Agreement Article 17.6(ii) operate in practice? What should the scope of GATT Article III:4 be? I think these debates are all winnable for the U.S., but there has to be a clear position, and then a concerted effort to convince everyone. In some cases, the wins can come quickly, but for others it may take more time (e.g. engaging in scholarship, attending conferences, etc.).

As to the suggestion that "the Appellate Body turned out to be less expert than panelists," I think that is often the case on trade remedy disputes. Panelists who have worked at national trade remedy agencies probably know more than most Appellate Body Members about these issues; and the Rules Division staff are real experts on these issues as well. The problem with panels, though, is that they just have too many issues to deal with (both factual and legal) in each case. The Appellate Body can do a deeper dive on the small number of points that get appealed, and sometimes that allows it to do a better job on those particular issues. That's not to say they always will do a better job, but when reading the reports in these cases, the different nature of the panel and appellate processes becomes apparent. Because of time constraints, the panel simply has to breeze through certain issues, whereas the Appellate Body can take the time to go in depth. Of course, if the issue is just how to get trade remedy experts to work on appeals in those cases, there are ways to do that, and the U.S. could propose something along these lines.

Beyond trade remedies, when the Trump administration says, "In most cases, a panel reached a correct interpretation, and the Appellate Body got it wrong," I can't see how they reach that conclusion. There are plenty of disputes out there where the U.S. preferred the Appellate Body report to the panel report (e.g. Shrimp/Turtle). I know they have a bunch of Appellate Body reports they don't like, but this assertion seems like a stretch.

Finally, did some WTO Members "think the Appellate Body did no wrong"? That's kind of hard to believe. I can imagine that other Members disagreed with specific U.S. criticisms, but I would guess that everyone thinks the Appellate Body got something wrong at some point. On the other hand, did some Members "think the Appellate Body did wrong, but are content to maintain the status quo"? That is very believable. When you evaluate the Appellate Body's contributions as a whole, most people within the system probably think we are better off with the Appellate Body than without, even if there were mistakes here and there. The question is the degree of wrong. I see plenty of wrong with the Appellate Body, but likely not more than a system without the Appellate Body.

Next up, the "why" question:

There is the question that everyone here knows well – the “why” question. Some Members may be tired of hearing it, and we could similarly tire of having to ask it – but the question is too important to the future of the WTO to ignore it.

• Despite best efforts by the United States to push the conversation forward, we have heard very little from other Members on their views of how we arrived to this situation – where the Appellate Body had ignored the clear limits placed on it under the DSU and rewrote the substantive rules set out in the WTO agreements.

• In meeting after meeting, we posed this question to the Members. We explained why the “why question” was so important. But most Members did not want to undertake this critical, reflective exercise.

• In the absence of engagement from Members, we offered several potential explanations based on conversations and on our own reflections. For example, we noted:

o One cause could be the ongoing challenges facing the WTO negotiating function and its oversight function, leading to unchecked “institutional creep” by the Appellate Body.

o Another cause could be that some WTO Members believe that the Appellate Body is an independent “international court” and its members are like “judges” who have more authority to make rules than the focused review provided in the DSU.

o Relatedly, some Appellate Body members viewed themselves as “appellate judges” serving on a “World Trade Court” that is the “centerpiece” of the WTO dispute settlement system. Of course, such an expansive vision of the Appellate Body is not reflected in the DSU.

o Finally, we also noted that the compensation arrangements for AB members rewarded their delays and staying on beyond the end of their terms, and we learned that there was very little transparency and accountability for the compensation claimed.

With regard to the relationship between the WTO negotiating function and the dispute settlement function (which came up in the first quoted part from Shea in this post as well), I am deeply skeptical of the Trump administration's arguments here. As I understand it, their view seems to be that governments have been unwilling to negotiate because they could more easily litigate and get what they wanted that way, without having to offer concessions. That shifted the WTO from a negotiating forum to a litigation forum, with the U.S. paying the price as it lost cases brought against it. 

I think this view completely mischaracterizes the reasons for the failure of WTO negotiations in recent years. As I see it, the main reason for this failure is the unwillingness of certain governments to make concessions. People often point to countries such as India and Brazil, and that's fair. But I would also point at the U.S., the EU, and Japan. The developed countries may look at the current set of rules and say, we have made the biggest commitments (e.g. on bound tariff levels), and now it's time for the developing countries to do more. It's up to them to make concessions. But the developing countries look at issues like IP protection (e.g. long copyright and patent terms) and think, we gave way too much already, and now it's time to rebalance things towards us. And I think the developing countries have a point here. As I see it, the result of all this is, until all major trading countries are willing to give something, the negotiations are going to mostly remain stalled. Negotiators can always find something to talk about, and maybe they can sign some small deals here and there, but any big new liberalizing deals are going to require everyone to do something that makes them a bit uncomfortable, and I don't see that happening.

Importantly, the negotiations being stuck has nothing to do with the ability to litigate. Yes, at the margins, governments can bring cases against the U.S. and win some minor victories. And the U.S. can do the same against other governments (although the Trump administration didn't make much use of this ability). But issues related to litigation are not the cause of any negotiating failures.

As for words like "court" and "judges," I generally try to avoid those, and on this blog there is no need to use them. But when you try to talk to the public about these issues -- like writing op-eds or giving presentations to non-law students -- it becomes clear pretty quickly that if you say "Appellate Body" or "Appellate Body Members," no one knows what you are talking about. So, yes, language like "court" and "judges" is used from time to time, but for the most part I think it is pretty innocuous. My view of the Appellate Body's role is that its mandate should be more limited than it has been (e.g., a reduced scope for the issues that can be appealed), but I don't see any way around the fact that it is acting like a "court," regardless of all the various nuances of its role. Sometimes I say "quasi-judicial" to be as precise as possible, but in some settings that just confuses people.

In terms of how particular Appellate Body Members see this issue, I guess it would be interesting to ask them. Some have written about their role. But with regard to the ones I have worked with and talked to, in terms of the substance, it didn't seem to me that they saw their role as particularly expansive. They had to come up with reasoning and conclusions in cases brought before them, but they weren't looking for ways to expand the role of the Appellate Body. (And for what it's worth on a topic that is perhaps related, my own concerns about an overly expansive role for the WTO and for the dispute settlement system arise from the broad scope of rules pushed by some governments and the broad interpretations these governments have put forward in cases where they invoked those rules. Any "sovereignty" and "policy space" issues are mainly the result of what governments have put into trade agreements, although there are some problematic interpretations as well.)

Finally, Shea pointed to some views put forward by former Appellate Body Member Tom Graham:

Besides these, we also heard from a former member of the Appellate Body, Mr. Graham, who was willing to speak out candidly on these issues. He put forward a number of reasons “why” the Appellate Body erred and was unwilling to correct those errors – and these remarks deserve attention from all WTO Members. Among his observations on why the Appellate Body behaved as it did:

o (1) A “prevailing ethos” to act like a court, and not be accountable to WTO Members,

o (2) the degree of control by Appellate Body staff,

o (3) an over-emphasis on “collegiality” that created “peer pressure to conform”,

o (4) an “excessive striving for consensus” that “led to excessively long and unclear compromise reports” and “encouraged over-reach, gap filling, and advisory opinions”,

o (5) “a sense of infallibility and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular dispute, so as to create a body of jurisprudence”, and, finally,

o an “undue adherence to precedent”, “not only as to outcomes, but also as to reasoning, definitions, and obiter dicta”, which “made it more important to know the past” than to “openly consider[] whether the past should be reconsidered.”

It's still a relatively small number of people who have been Appellate Body Members or who have worked in the Appellate Body Secretariat, and I always find it useful to get the take of other people who have seen things from the inside. It's interesting to compare the eras. Based on what I saw when I was there, I have opinions on some of the points he makes, but I'll have to think more about what to say about any of this. All of the issues raised here are real ones: the nature of the institution; accountability to WTO Members; role of the Secretariat; importance of collegiality; over-reach and related issues; and the role of precedent. The U.S. has put them on the table for discussion, and a resolution of the Appellate Body crisis will have to deal with at least some of them. The Trump administration made its views clear, at least in the sense that it was clearly opposed to the status quo. Soon we'll see what the Biden administration thinks of all this. I can imagine that they would make proposals to deal with some of the issues noted above, as well as others. But we'll see how things go.

Countervailing the EU's Emissions Trading Scheme, Part 2

Back in November, I posted about a preliminary US Commerce Department decision to treat certain free allowances under the EU's Emission Trading System as a countervailable subsidy.  The other shoe has now dropped, as the DOC on 11 December confirmed its conclusions in the final determinations in Forged Steel Fluid End Blocks from Italy and Germany.

DOC's reasoning can be found in its Issue and Decision memoranda in the two investigations, accessible through its Access portal. Essentially, DOC found that while the 44.2% free allowances accessible to all facilities subject to ETS are not subsidies, the 100% free allowances accessible to a narrower group on facilities on the "carbon leakage list" are.  Here is DOC's reasoning on financial contribution (footnotes omitted):

"...we find that the ETS program has established a system in which all installations (regardless of whether the installation is on the carbon leakage list) are allocated a certain amount of free standard allowances based on the standards of that industry. In other words, we find that there is a standard amount of allowances that are provided throughout the country on a consistent, equal basis. Therefore, we find that the allowances that cover 44.2 percent of the emissions of the most efficient installations, regardless of whether they are provided to a company on the carbon leakage list, are not countervailable, as there is no revenue forgone that is otherwise due.

The ETS program also provides for additional emissions allowances to specific company installations as a result of those installations being placed on the carbon leakage list. We find that these additional allowances are countervailable. Companies on the carbon leakage list that receive these additional allowances are relieved of the obligation to purchase additional allowances – beyond the standard allocation of free allowances – from the government or other parties. The respondent parties state that an operator only receives what the system has established from the outset that it should receive in order to comply with the obligations set by the system, and, thus, such allowances are not countervailable. However, the regulatory system specifically establishes a distinct set of rules for the companies on the carbon leakage list that is unique from the set of rules for other companies under this program. In other words, the ETS system specifically designates certain companies that do not have to incur the full costs incurred by other companies. In this sense, we find it similar to a tax program in which the taxing authority allows all filers to claim a rebate of – for example – 5 percent, but then allows a certain class of filers on a special list to claim a rebate of 10 percent. In that scenario, as in the ETS program, the government has forgone revenue that would otherwise have been due from the companies on the special list....

Further, we find it significant that the ETS program, which the EU characterizes as an environmental protection program, provides additional free allowances to pollute to essentially the worst polluters, while installations that are not on the carbon leakage list are not entitled to these additional allowances. By allowing these listed installations to not have to purchase additional emissions from the government, the government has given up its entitlement to collect revenue. Thus, we find that these additional allowances provided to companies on the carbon leakage list constitute a financial contribution....

If the Biden Administration is really going to tackle climate change, it is going to need to find common ground with the EU and other actors that have taken serious action, at significant risk to their own competitiveness, to do the same.  As in so many areas, the legacy being left by the Trump Administration is not going to be helpful. 

   

GSP and GSP Conditionality under the Trump Administration

I am somewhat of a skeptic on giving tariff preferences to developing countries, because my instinct is that discrimination in trade relations is bad and should generally be avoided. But with GSP programs, the goal is development and the means is lowering tariffs, and I can see how there would be benefits here, so I am least not opposed to these programs, even if I'm not fully supportive. There may be better ways to promote development, but GSP is a real world program that exists now, and we shouldn't let the perfect be the enemy of the good.

On the other hand, I am deeply skeptical of conditionality in GSP and other preference programs. As far as I know, it is only the U.S. and the EU that impose policy-based conditions in order for developing countries to access tariff preference programs. I think it is a big mistake that they do so, as it can undermine the development benefits. There are various policy goals that have been pursued through conditionality: stronger IP protection, investor protections, fighting the illegal drug trade, and worker rights, to name a few. In my view, regardless of the specific policy goal, tying it to something meant to be a development program is problematic. Yes, you can argue that your policy goal is in some way crucial for development. But keep in mind that you might not like the other person's policy goal, and at some point the political winds will mean that the other policy goal will be the one pursued. If conditionality exists in principle, sometimes it will be used for policies you like, and sometimes it will be used for policies you don't like.

There is talk right now in the U.S. about expanding the scope of conditionality to cover additional policies, such as gender rights. Let me be clear: Promoting gender rights is a good policy goal! But I'm not sure GSP conditionality is the right way to do it.

With all this in mind, it has felt to me like the Trump administration was pushing conditionality more than past administrations, perhaps as a way to promote particular policy goals or perhaps just to have an excuse to raise tariffs. So, when Cornell law prof Chantal Thomas asked me if I had any suggestions for topics that students in her Law and Development seminar could write about, I said, yes, I think I have a good one! Based on my suggestion, as part of that seminar, Cornell law student Josh Coker wrote a paper in which he explored the Trump administration's policies and practice relating to GSP and GSP conditionality. I thought it was a good paper and that others might want to see it as well, so I'm posting it here. Enjoy!

The Shadows of WTO Irrelevance

The Shadows of WTO Irrelevance

Steve Charnovitz

14 December 2020

On 10 December 2020, WTO Deputy Director-General Alan Wolff gave a thoughtful presentation entitled “The WTO must not continue as it is.”  In his speech, DDG Wolff warns that “if the WTO does not engage fully with environmental issues, with the existential threat of climate change … and does not address the suite of issues affecting well-being, the institution will move deep into the shadows of irrelevance.”  Wolff further advises that “WTO Members must put sustainable development at the core of WTO reform efforts.”  In particular, he recommends “discussions at the WTO” on “how” the WTO can ensure that “climate-related trade measures” contribute effectively to “transatlantic ambitions on climate change….”  Wolff also calls for updating the WTO Secretariat’s “book” discussing the United Nations (UN) Sustainable Development Goals (SDGs) so as to help “WTO Members to engage and conclude negotiations that have a direct impact on achieving the SDGs.”

DDG Wolff’s suggestions are right in some ways and wrong in others. 

Wolff, of course, is right that international trade, the environment, and sustainable development are interconnected.  Looking back at my scholarship and activism on sustainable development over the past three decades, I would be the first to agree that the WTO should have an agenda related to the environment.  See, for example, Charnovitz, “The World Trade Organization and the Environment”, Journal of International Environmental Law, 1998; Charnovitz, “The WTO as an Environmental Agency” in a 2008 UN University research volume.  

Yet Wolff is wrong to seek to retrofit the WTO to be an agency with a “core” mission as nebulous as “sustainable development.”  While this is not the place to discuss all of the weaknesses of the SDGs, I would note that the SDGs give short shrift to what is most valuable about the world trading system. 

As I have written on this Blog and elsewhere for many years, what is moving the WTO toward irrelevance is not that the WTO is insufficiently green, but rather that WTO Member governments are being seduced by protectionism and nationalism in defiance of the rule of law in international trade.  Any idea that the WTO can increase its relevance by flirting with green protectionism is foolish.  To be sure, the Paris Agreement, now celebrating its 5th anniversary, has been unsuccessful in heading off the calamities of climate change.  But the pathologies of the Paris Agreement cannot be fixed at the WTO.  Seeking to do so will harm the WTO much more than it will repair the Paris Agreement.

As Wolff notes, looming unilateral “climate-related trade measures,” such as border carbon fees, will cause problems in the multilateral trading system.  Unilateralism is being resorted to because the UN Framework Convention on Climate Change and its progeny since 1992 have not gotten around to addressing how international commerce should be dealt with in climate regulation and accounting.  These complex issues are a fundamental challenge for the climate regime to solve.

For that task, the WTO can only be of marginal help.  As an institution that has failed to consummate its green liberalization negotiation begun in 2001 on environmental goods and services, the WTO should be the last place anyone looks for enlightenment or encouragement to environmental regulators across the planet who are tackling the complex issues of reducing and sequestering greenhouse gas emissions.  Successful international environmental negotiations have to be open to the participation of scientists, civic society, and transnational business groups.  Unfortunately, the WTO remains largely closed to nongovernmental participation, although some transparency gains have occurred since the early WTO years (see Steve Charnovitz, “Transparency and Participation in the World Trade Organization,” Rutgers Law Review, 2004).

Guest Post: Leveraging Capacity Building and Technology Transfer under TRIPS for Online Teaching in Africa

This is a guest post by Susan Isiko Štrba of International Lawyers and Economists for Development:

COVID-19 caused a number of learning institutions, especially in the developing world, to come to a stand still. On the other hand, developing countries faithfully domesticated international Intellectual Property (IP) standards in an effort to become compliant with the international law they agreed to. The World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), similar to the international IP instruments governed by the World Intellectual Property Organization (WIPO), offers limitations and exceptions (L&Es) as a lawful way to use IP protected works. Thus most national laws in developing countries provide for limitations and exceptions (L&E) for teaching. A WIPO Study on Limitations and Exceptions for Copyright and Related Rights for Teaching in Africa, shows that legislation does provide for face-to-face and to some extent long distance teaching, but not online teaching.

At the commemoration of 25 years of the TRIPS Agreement on 24 November 2020, H.E. Xolelwa Mlumbi-Peter, South Africa's Ambassador to the WTO and current Chair of the TRIPS Council, called for the preservation of the objectives and principles of the TRIPS Agreement, particularly in relation with the protection of public health and nutrition, public interest and international technology transfer. She highlighted that “We must ensure that the discussions on WTO reform preserve the objectives set out in the TRIPS Agreement and explore how IP can facilitate inclusive growth and development. This includes how IP can contribute to the sustainable development goals.”

Education, regardless of the means of delivery – face-to-face or online – remains a key sustainable development goal as stipulated under goal four. As we explain below, capacity building and technology transfer, in the field of intellectual property, would go a long way in contributing to the realization of this goal.

As Prof Carys Craig has stressed, copyright law is both the root of the problem and source of potential solutions. For example, the Supreme Court of Canada has stated that copyright is supposed to achieve “a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator.” Indeed, in some developed countries like Canada, many educational activities are already protected within the scope of users’ rights. Canada’s Copyright Act contains exceptions for reading in public, for education and training (including for lessons communicated online), and a fair dealing defence for the purposes of education or private study. These provisions are to be interpreted with a view to the copyright balance, which “should be preserved in the digital environment.” If reading aloud to a class or showing an illustrative image on a PowerPoint slide was lawful in a classroom, it should be lawful in the online classroom.

In my book, International Copyright Law and Access to Education in Developing Countries, I provide a “models of practice relating to limitations and exceptions to copyright for educational purposes”, which involves, but is not limited to, taking examples from developed country practices and adjusting them to national circumstances. It makes sense to copy Canada’s practice related to fair dealing, for example. This works well in face-to-face teaching. However, there are limitations for several countries in the developing world of Africa when it comes to online teaching.  Indeed many countries in Africa did not have a seamless transition to online teaching for a number of reasons, including copyright and technological limitations.

What happens if the copyright law does not provide for online teaching or if it does, copyrighted works are locked by technological protection measures (TPM)? Many jurisdictions in Africa depend on foreign material for teaching. A lot of access to educational materials has depended on poor or non-enforcement of copyright. However, online teaching makes cross-border exchange of works easier, much as these works are not free from copyright. In terms of enforcement, owners of copyrighted works can legally protect their works by applying TPM locks, granted by the WIPO Copyright Treaty. In addition, software applications, which are really pertinent in online teaching are protected by patents in some jurisdictions like the USA, providing double protection in some works – by both copyright and patents.

Prioritizing online and digital uses for education

One possible solution would be to adapt exceptions to permit teaching and learning through digital and online tools, by changing the law to accommodate online teaching and to apply educational exceptions beyond mere reproduction to include communication and distribution-related rights, of all types of protected works. It has been suggested that international instruments should permit “flexibility in the implementation” and not be “highly specific and highly tied to today’s technology.” But legislative reform takes time. At the international level, the outcomes are uncertain so there is no guarantee that the outcome will reflect what is needed to allow access to online teaching. In the short run, we suggest a solution that is not tied on limitations and exceptions, as explained below.

Beyond exceptions to capacity building and technology transfer

At the said celebration of the 25 years of TRIPS, Mr Antony Taubman, Director of the WTO Intellectual Property, Government Procurement and Competition Division, reminded that the technological, economic, cultural and social contexts of the intellectual property system have been utterly transformed. The TRIPS negotiations were convened under the heading of trade in goods, at a time when trade negotiators basically conceived IP as part of the value added embedded in physical goods. “Today … IPRs are traded internationally in their own right, if you like as tradable goods in themselves.”[1] This transformation to trading in IP has greatly impacted both face-to-face and online education in both negative and positive ways. Further, more and more important,  this transformation may point to the need for an evolutive working methodology for organs like the TRIPS Council and the TRIPS Secretariat that oversee the implementation of TRIPS, to reflect the developments in the 25 years of the TRIPS implementation.

Can the TRIPS Agreement, which was negotiated with a view to the analogue environment, address technological issues? Yes, but it may need to adjust to the “new normal” created by technology, including online teaching and learning. Two responses to interviews conducted with professors from LDCs in Africa provide insights of what can be considered useful capacity building provided for under article 67 and/or technology innovation and technology transfer stipulated under articles 8 and 66.2 of TRIPS.

There is need to encourage creativity among teachers or instructors to create learning content that can be accessed among communities where students and even non-school going individuals who want to enhance their skills can have access. During a telephone interview on 2 November 2020, Professor Michael Kaluya, originally from an LDC but currently teaching at Tarrant County College   in the USA, opined that a community library could be such a facility, where learners could access the material through Internet.

The TRIPS Secretariat acknowledges that “[t]he early days of TRIPS TA [technical assistance] focused more on institution building and bringing IP laws into compliance with international obligations ... but now  increasingly, TRIPS TA focuses on cross-cutting IP-related policy issues.” One policy issue that has been clearly highlighted by COVID-19 is the ability to provide access to educational materials online while protecting IP.

Africa hosts 33 out of the 47 least Developed Countries (LDCs) on the UN List of LDCs. TRIPS mechanisms on capacity building and technology transfer could be adapted to possibly help the 33 African LDCs build their capacities for online education. Capacity-building could be aimed at improving the ability of LDCs (and other countries) to generate intellectual assets and thus become contributors and not remain only users.

It is arguable that the TRIPS Agreement aims at achieving the transfer and dissemination of technology as part of its objectives, as stipulated in article 7. Furthermore, under its art article 66.2, the Agreement obliges developed country Members to encourage their companies to promote the transfer of technology to least-developed countries. Arrangements by a developed country to encourage its company to carry out technology transfer (TT) are subject to review every three years by the TRIPS Council, as required under Decision IP/C/28. But since technology changes fast, an additional avenue of providing TT outside the lengthy process of the TRIPS Council might be necessary. Indeed, David M. Fox has argued that developed countries are not meeting their obligations under article 66.2 of TRIPS.

On technology transfer, in an email exchange on 22 November 2020, Professor Antony Kakooza, from the Uganda Christian University expressed the view that technology transfer could be effected in assisting innovative Ugandans in the country instead of encouraging brain drain.

In addition, TT could be provided for each country at the time, when it is needed and requested by an individual country, instead of waiting for a group of LDCs to indicate their needs. This would require a transformation in the way the TRIPS Council and the TRIPS secretariat operate. It will require that the WTO Member States grant permission to the TRIPS Secretariat to provide needs-driven capacity building and technology transfer to each country individually. Technology changes so fast that its effective use or transfer should not depend on the slow pace of negotiations in a TRIPS Council.

 

[1]For a meticulous elaboration of this point, see the recent article, Taubman Antony, 2020, “The Shifting Contours of Trade in Knowledge: the New ‘Trade-Related Aspects’ of Intellectual Property”, World Trade Organization, Staff Working Paper ERSD-2020-14, Economic Research and Statistics Division.

"WTO cases" in FTA fora: will it be a thing?

How quickly things change. Just a few years ago some trade lawyers were proposing that FTAs refer their disputes to the WTO DS mechanism. Now, it seems that there is a new trend – addressing what are in effect WTO disputes through FTA dispute settlement.

This week, an Arbitration Panel under the EU-Ukraine Association Agreement (“AA”) released its decision in what is, according to the EU Commission, the first-ever EU trade dispute under a bilateral agreement. Yet this decision does not relate to new, innovative obligations under the FTA. Rather, it arises under WTO obligations which have been incorporated into the AA, to wit, whether Ukrainian export restrictions on wood products are inconsistent with Article XI GATT and, if so, whether they can be justified by Article XX(b) and (g).

The decision looks a lot like a WTO report. Two of the three panelists, Christian Haberli and Giorgio Sacerdote, are highly experienced WTO jurists, and the report is rife with references to WTO cases. The table of authorities – listing dozens of WTO decisions – is even formatted identically to a WTO report.

So why did the EU decide to bring this dispute under the AA, and not in the WTO? Is this explained by the current impasse in the WTO dispute settlement system? Ukraine is an MPIA party, so the AB blockage is not fully effective, but perhaps the EU did not know this would be the case in January 2019, when it sought consultations.

In any event, like so many FTAs, the AA incorporates a range of WTO obligations. This has become standard operating procedure in FTAs, especially where the parties find it difficult to agree to any further, deeper disciplines. And with the current challenges of WTO dispute settlement, we may see more “WTO cases” brought to FTA arbitration.

And yet, since a treaty provision must be interpreted in its context and in light of the treaty’s object and purpose, even the verbatim transposition of a WTO provisions does not guarantee the same outcome. Here, chapter 13 of the EU-FTA deals with sustainability. While the Arbitration Panel did not agree that chapter 13 created “exceptions” to other AA provisions, it did rely on provisions in that chapter as context for the interpretation of the general (Article XX) exceptions in the AA.

Further, GATT Article XI was not transposed verbatim in the FTA.  Rather, Article 35 AA first sets out in its own language a prohibition of QRs, and then states that Article XI and its interpretative notes are incorporated by reference.  Although the Arbitration Panel concluded that Article 35 and Article XI “impose identical obligations”, it took substantial intellectual gymnastics to get there.

My point here is not to suggest that the Arbitration Panel erred, or that the results here necessarily differ from those that would have been reached in the WTO.  But this decision highlights that the simple incorporation of WTO rules into non-WTO agreements is not as simple as it sounds, and that outsourcing WTO litigation to FTAs could generate unexpected and divergent outcomes.    

The Official Announcement of Biden's Nomination of Katherine Tai

Here was President-Elect Biden's introduction of Katherine Tai as his nominee for U.S. Trade Representative (starts at 14:42):

For the United States Trade Representative, I nominate Katherine Tai, a trusted trade expert, a dedicated public servant who knows government, and who has spent her career levelling the playing field for American workers and their families.

That's not hyperbole, that's a fact.

She currently serves as the chief lawyer on trade on the powerful House Ways and Means Committee, sharing praise from lawmakers of both political parties, and from both labor and business as well. Now that's a feat across the board. But all kidding aside, you have. I have gotten more calls complimenting me on your appointment than you can imagine.

During the Obama-Biden administration, she was the chief trade enforcer against unfair trade practices by China, which will be a key priority in the Biden-Harris administration. She understands that we need a more strategic -- to be considerably more strategic than we've been in how we trade, and that makes us all stronger, one that leaves nobody behind.

She is going to work closely with my economic and national security and foreign policy teams. Trade will be a critical pillar in our ability to build back better and carry out our foreign policy. A foreign policy for the middle class. When I announced my candidacy, I talked about a foreign policy for the middle class, and I meant that in a literal sense.

She also brings a sophisticated understanding of the threats of climate change to trade, as well as addresses the climate crisis with urgency.

She also embodies a powerful immigration story of America. Her parents were both born in China. They moved to Taiwan, and then came to the United States where Katherine was born. Her parents became government scientists at Walter Reed and NIH, inspiring their daughter to pursue a career in public service.

Katherine says she's the first American born member of her family, and a second generation US government servant. That's a great way to express it. If confirmed she will be the first Asian American and the first woman of color to serve in this position.

Our nation, our economy, our workers, our businesses, will be fortunate to have her serve in this role.

And here are Tai's remarks (starts at 33:07):

Mr President Elect, Madam vice president elect. I'm grateful for this opportunity to serve and look forward to working with you, with our partners across the administration, and with the bright and dedicated public servants at USTR, to deliver for the American people.

When the President Elect approached me about taking on this role, two memories from my past sprang to mind.

The first was from when I initially joined USTR in 2007. I was filling out paperwork and providing information about my family history. My parents were born in mainland China, and grew up in Taiwan. In the 1960s, President Kennedy's immigration reforms welcomed them to America as graduate students in the sciences. My dad would become a researcher at Walter Reed, helping the army advance treatments for afflictions that debilitated Americans GIs fighting in the Vietnam War.

My mom still works at the National Institutes of Health, developing treatments for opioid addiction.

They were naturalized in 1979, five years after I was born in Connecticut. And it wasn't until decades later, filling out that paperwork, that it occurred to me that I became an American before my parents. The very first American in our family.

The second memory that came to mind was from several years later, when a colleague and I from USTR went to Geneva to present a case suing China before the World Trade Organization. We sat down at the table: She, whose parents had emigrated from South India; and I, whose parents had come from Taiwan. And my heart swelled with pride as we raised our placard and stated that we were there to present the case on behalf of the United States of America.

Two daughters of immigrants, there to serve, to fight for, and to reflect the nation that had opened doors of hope and opportunity to our families.

Those memories fill me with gratitude for being an American, and for what America is at our best, and they remind me of the extraordinary responsibilities that come with the honor as we navigate our relationships with the world.

Trade is like any other tool in our domestic or foreign policy. It is not an end in itself. It is a means to create more hope and opportunity for people. And it only succeeds when the humanity, and dignity, of every American, and of all people, lie at the heart of our approach. I am proud to join with leaders who instill their policy with purpose, and who never lose sight of the humanity and dignity, the opportunity and hope, that make trade a force for good in our nation and the world.

I am very proud to be an advocate for American workers, to stand up for their ingenuity and their innovation, and for America's interests, across the globe. I look forward to harnessing the power of our trade relationships to help communities lift themselves out of the current crisis, and I'm grateful for this chance to serve, fight for, and reflect America, on behalf of all of our people. Once again, thank you.

We'll have to wait a bit more to learn about the direction of U.S. trade policy under a Biden administration, but I thought these remarks were a pretty compelling and powerful indictment of the immigration policies and views of Trump and his administration.

UK FTAs - EU content and rules of origin

When RCEP came out, analysts emphasized the importance of cumulation rules.  While many of the RCEP countries had FTAs among themselves, binding all those FTAs into a single mega-regional meant that all RCEP content would be counted for origin purposes, and this would allow products with complex RCEP value chains to qualify for duty-free treatment throughout the region. 

The departure of the UK from the EU has given rise to the opposite situation.  While the UK is rapidly negotiating FTAs, or at least "continuity agreements", with countries that have FTAs with the EU, what would happen to UK products with a high EU content?  Would Minis and Bentleys qualify as UK products, or would their high EU content mean that they could not benefit from the UK's new FTAs?

Having looked at the UK's agreements with Japan and Canada, it seems that the UK has come up with a solution.  Both agreements provide that EU inputs into UK products will count towards UK origin. See UK-Japan FTA, Article 3.5.2, UK-Canada Continuity Agreement, Protocol on rules of origin and origin procedures, paragraph 3.3.2A.

While this outcome ensures that UK products with high EU content will get UK origin, it creates significant asymmetries. First, UK products do not contribute to EU origin under EU FTAs. Thus, the UK's FTAs give EU products more favorable treatment than EU FTAs give to UK products.  Second, UK content does not count towards origin for exports to the EU from partners such as Japan and Canada. Finally, and perhaps most critically in the real world, would inputs from the UK's FTA partners count towards UK content under an (increasingly doubtful) UK-EU FTA, such that, for example, a Nissan built in Sunderland with high Japanese content would count as a UK product?      

The practical difficulty is that these issues cannot be resolved through the UK's FTAs with third parties, but must be addressed in FTAs with the EU.  I don't know whether this issue is under discussion in the UK-EU negotiations, nor whether the EU would be likely to agree to such provisions.

The UK-Japan FTA addresses this asymmetry problem by providing that the UK and Japan "may seek to agree with the European Union" on cumulation rules (Article 3.5.10).  The UK-Canada continuity agreement more generally states that "the parties shall continue to seek and work towards mutually beneficial and more liberal rules of origin that best reflect Canada's and the UK' supply chains and sectoral interests", but also provides that the provisions counting EU inputs towards UK origin will expire after three years, unless extended. This presumably would incentivize the EU to negotiate.

Yet another complication in this complicated divorce.

Thanks to David Kleimann for attracting my attention to this interesting issue. 

      

       

Katherine Tai Will Be the Next U.S. Trade Representative

Reports indicate that Katherine Tai, Chief Trade Counsel for the House Ways and Means Committee, is Biden's choice for U.S. Trade Representative. About a month ago, I wrote the following:

the job of the next U.S. Trade Representative will be a serious challenge. The person who takes it will need experience and objectivity in order to navigate through all these issues. We need someone who is knowledgeable, pragmatic, non-ideological, familiar with both the key Congressional players and foreign government officials, and not closely tied to special interests. 

From what I can tell, Tai meets these criteria pretty well and seems like a good choice for the job.

So what will her specific agenda be as U.S. Trade Representative? That's hard to say. In an earlier post, I provided a transcript of some of her recent statements on trade policy issues. But in these contexts, she was offering general thoughts during somewhat casual discussions of trade policy issues, rather than committing to particular policies. And, of course, her thoughts about some of these issues may change a bit as she moves into the role of chief U.S. trade policy-maker and has to balance out the views of various interest groups and make definitive choices on the direction of policy.

One thing that struck me is how she was able to get support from both the progressive and moderate wings of the Democratic party. That's not an easy thing to do in trade policy. How she balances the competing demands of those groups will be one of her big challenges, especially if she also has to deal with a Republican-controlled Senate.

Finally, it will be interesting to see who gets the Deputy positions and other key staff positions. The background of the people chosen may tell us a little more about the direction of trade policy in a Biden administration.

The First USMCA Complaint

The first USMCA consultations request is here. Not surprisingly, it relates to Canadian dairy TRQs, a frequent source of trade irritation. Is there a violation? I have no idea! Some of the issues seem factual in nature. For example, there is a claim under this provision:

11. A Party administering an allocated TRQ shall ensure that:

...

(b) unless otherwise agreed by the Parties, it does not allocate any portion of the quota to a producer group, condition access to an allocation on the purchase of domestic production, or limit access to an allocation to processors; 

The claim is that:

the measures appear to be inconsistent with Article 3.A.2.11(b) because Canada is setting aside and reserving a portion of the quota to processors.

So is Canada doing that? Maybe someone who knows about Canadian TRQ programs has some thoughts, but I really don't know.

 

ADDED:

 

There may also be a legal interpretation issue here: Is "limit access to an allocation to processors" the same thing as "setting aside and reserving a portion of the quota to processors"? What exactly does USTR mean by its allegation?

China-US Dialogues in the Biden Administration

China-US Dialogues in the Biden Administration

7 December 2020

An article by Brett Fortnam in Inside US Trade reports on a speech given today by China's Foreign Minister Wang Yi to the US-China Business Council.  Based on this report, I believe that Minister Wang is giving good advice to the incoming Biden Administration as to how to US can restabilize its relationship with China at this "critical historical juncture."  Wang states that China is "willing to work with other countries to build an open world economy"  That's good news.  In my own mind, after nearly four years of Trump, I wonder whether the United States is willing to work with China to build an open world economy. 

Wang properly criticizes what he sees as the US position of viewing China from a "zero-sum game perspective" and regarding "China as an opponent or even an enemy."  Again, Wang scores a bulls-eye.  Making a constructive suggestion, Wang proposes that the US and China "should open dialogues at all levels" on issues like responding to the pandemic, climate change, and "cooperation in the economic and trade fields."

I hope that the Biden Administration will take Wang's advice and respond positively, on or after January 20, to seek to start dialogues between the United States and China.  The one suggestion I would make to China and to the United States is to initiate new dialogues not just among governmental leaders of both countries but also among nonstate groups including civic society and business.  To the extent that the genuineness of China's nonstate participation is questionable, I say that seeds will sprout when planted in fertile soil and given sunlight.  As I have long maintained, the United States should not hesitate to engage China on vital issues beyond the economy and the environment such as adherence to internationally recognized human rights.  I note both China and the United States are on common ground as non-parties to the Freedom of Association Convention (No. 87) of the International Labour Organization (ILO).  Why not engage in dialogue about how both countries could come on-board?

Specificity in DOC Currency Undervaluation Findings

A couple weeks ago, Jesse Kreier wrote about the Commerce Department's decision to treat currency undervaluation as a countervailable subsidy in a case against tires from Viet Nam. As he explained it, one aspect of the Commerce Department's reasoning was related to the specificity of the subsidy:

Finally, in respect to specificity, DOC found that the subsidy was de facto specific to the “group of enterprises constituting the traded goods sector”. In doing so, it recognized that there were other “channels” of exchange involving USD inflows, such as the export of services, portfolio and direct investment and earned income from abroad, but found that the trade goods sector was the “predominant user” of the subsidy as exports of goods represented the “vast majority” (72%) of USD inflows. I have always thought that specificity meant targeting within the goods sector (otherwise, since the goods sector is a small share of most economies, a subsidy that went to all goods production might not be specific), but here DOC is including non-goods users in the denominator.

The Commerce Department decision is here. The reasoning on this point was, in part, as follows:

In determining whether currency undervaluation by the government of Vietnam is specific, we considered 19 CFR 351.502(c) and preliminary find that the subsidy is predominantly used by the group of enterprises constituting the traded goods sector. ... 

Based on the IMF data considered, we estimated the total proportion of USD inflows Vietnam has received in the POI through the following four major channels of exchange: (a) exports of goods, (b) exports of services, (c) various forms of portfolio and direct investment, and (d) earned income from abroad. To add precision to the amount of USD inflows received from Vietnam’s exports of goods, we discounted Vietnam’s exports of goods value by the amount of intermediary imported inputs (based on OECD estimates) to arrive at a reasonable estimate of exports that earned foreign exchange. Even after adjusting Vietnam’s exports by its share on intermediary imported inputs, this analysis has found that among the four channels, the vast majority (71.94 percent) of USD inflows coming into Vietnam during the POI came from goods exports. As a result, we preliminarily determine that enterprises that buy or sell goods internationally are the predominant users of the GOV’s currency undervaluation subsidy, and, therefore, this program is de facto specific under section 771(5A)(D)(iii)(II) of the Act. 

The specificity provisions of the SCM Agreement are in Article 2:

2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as "certain enterprises") within the jurisdiction of the granting authority, the following principles shall apply:

(a) Where the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises, such subsidy shall be specific.

(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification.

(c) If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy. In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation.

Let's say WTO dispute settlement starts functioning again under a Biden administration. If Viet Nam were to challenge the Commerce Department reasoning on currency undervaluation (there is similar reasoning in a case against China as well, which could also be challenged), how would a panel and/or the Appellate Body consider the Commerce Department action pursuant to Article 2? Do "enterprises that buy or sell goods internationally" constitute a "group of enterprises" as referred to in these provisions? Is this an area where the standard of review is critical, and a compromise on appointing AB Members could involve setting a special standard for CVD cases? If we do get to the point where negotiations on restoring the AB are happening, I can imagine that the U.S. negotiators will be concerned about cases like this one.

China - Preliminary AD Determination on Australian Wine

Co-authored with Sandeep Chandy

The growing trade tensions between China and Australia have been widely reported in the press. In a recent manifestation of these tensions, China last Friday issued an affirmative preliminary determination regarding alleged dumping of wine from Australia, and imposed provisional duties of between 107.1% to 212.1%.

While China uses anti-dumping regularly (with 232 measures imposed since 1995, it is the world’s sixth most frequent user), this investigation follows a recent trend, in that the petitioner argued the existence of a “particular market situation” (PMS) in the Australian wine industry. MOFCOM ultimately did not rely on the existence of a PMS to calculate the preliminary margins, but rather relied upon facts available to determine the exporters’ costs. Nevertheless, MOFCOM’s determination discusses Australian market conditions in detail, and based upon the facts available finds the existence of “non-market conditions”.

According to MOFCOM, the Australian wine industry benefited from government intervention in the form of (1) regulations and restrictions on production and sales of wines and grapes by the government or public bodies; (2) legislation to regulate and control the wine industry; (3) industrial planning and development strategy; (4) supportive measures through inter alia R&D funds, investment subsidies (5) controlling entry into the wine industry; (6) controls on import and export of wines; and (7) price controls. An informal translation of the most relevant portions of the determination is available here.

These findings of “non-market conditions” parallel findings of government intervention in the US energy market in a preliminary determination regarding n-propanol from the United States (discussed here). Although China has not yet taken the final step, a finding of the existence of a particular market situation could be the basis to disregard exporters’ costs and replace them with “undistorted” market costs. Given the widespread use of such methodologies in other AD users, including Australia, these findings look like a shot across the bows by China, indicating that it too can play this game.

Call for submissions: UCM-Study on the notion, characteristics, legal status and targets of unilateral sanctions

This is from Dr. Michael J. Strauss, Professor of international relations and international law, Centre d'Etudes Diplomatiques et Stratégiques (Paris), Instructor in international economic law, Université de Paris 5 - Paris Descartes, and Academic advisor to the UN Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights:

The UN Human Rights Council's special rapporteur has issued a call for submissions on the negative impact of unilateral coercive measures on the enjoyment of human rights. The report aims to bring more clarity to the status of these measures in international law with a view toward the potential development of an international legal framework.

Submissions are due by 1 February 2021.

See the full call for submissions here.

Katherine Tai on Various Trade Policy Issues: China, Supply Chains, A Biden Administration Trade Agenda, USMCA, WTO, ISDS

It's hard to know what to make of the reporting on who might be the next U.S. Trade Representative, which has mentioned a wide range of possible candidates, but I've seen two Politico articles describing support for Katherine Tai, the Chief Trade Counsel for the House Ways and Means Committee ("A group of ten Democratic representatives wrote to Biden’s transition team late Tuesday, urging him to nominate ... Katherine Tai"; and "Multiple members of Congress, including members of both parties in the Senate, have suggested Tai as the potential leader of USTR in conversations with the President-elect Joe Biden's transition team"). Will she get the U.S. Trade Representative position? A Deputy slot? Who knows! But as she seems to be a leading candidate, I thought it might be interesting for people to read more about her views on trade. She spoke recently about trade policy at two separate events: "Progressive Visions for Trade," at the Center for American Progress, on August 5, 2020; and Int’l Law and the 2020 Presidential Election, Engaging the Global Economy: International Law, Trade & Investment, at ASIL, September 2, 2020. Here is a transcript of some of the things she said. I bolded a few passages that I thought people might find particularly informative.

Progressive Visions for Trade Event:

U.S.-China Trade

Mara Rudman (Moderator): (30:28) I’m going to ask you to focus particularly on China-related issues given your experience and vantage point at Ways and Means in the House as well as at USTR handling China trade enforcement. How would you characterize how the United States has approached economic and security competition with China, given the very strong competitor that China is at this point, and then would you have any kind of specific commentary on the current administration's approach in that respect as well, and how should we be thinking about this going forward? It's a big and challenging topic but we'd really like to get your perspective. (31:15)

Katherine Tai: (31:15) Thank you so much Mara, and thanks to CAP for having me and allowing me to participate alongside these really wonderful colleagues. I also want to preface my remarks to say that unusually for me today, I'm not speaking for my boss Chairman Neal or Subcommittee Chairman Blumenauer, but I am really glad to have this opportunity to share thoughts and observations that I have gathered from the incredible privilege of working with our members on committee and in the caucus.

So, on your question on China, let me just start with also saying that I so appreciate that we are having this conversation. And to me, this is an important indication that we are on a good path because we are talking about what a progressive vision for trade is.

I think, with respect to China, as a part of our trade landscape, what I would say about the dynamics on U.S.-China competition, which has both economic elements and also strategic elements, which make it very challenging but also incredibly important, is that the lessons that we have had over these most recent years in trying to formulate, articulate, and advance a progressive trade agenda should also be taken into consideration in the approach to China.

And I think one of the most important lessons is to have robust political support and that is within the Congress and also with the American people in terms of what you're going to do on trade. With the China issues, one of the really special aspects of the U.S.-China trade dynamic is that traditionally, you have really broad robust bipartisan support on the issue of China and U.S.-China competition. What I would say is you know we need to apply the same progressive principles to the U.S.-China competitive aspect, which is to think hard about where the political support is, in terms of rising up to all of the different China challenges, and also to be inclusive, which I think is a key part of a progressive trade policy in our strategy. And I think that also gets at the most critical part is we have to be really smart about what we are going to do here.
So, you know, on the China issue, I think that it's not for fractured political support for taking steps. I think that there will be really robust, and we are seeing it, really robust political support for taking aggressive and bold steps with respect to how we compete with China. But what we need to do, and this will be my sort of oblique commentary on this administration's approach, is we have to be really strategic about it. We have to think about the fact that yes, we are facing very stiff competition from China, but China is not going away. And so, I think that critically a good and progressive trade policy has to have both offensive and defensive elements. And on this, I would say that in terms of what we've experienced over these most recent years with this administration, they have been very strong on confronting China, very aggressively. But I would characterize those measure as actually largely defensive. And again, you must have both defensive and offensive. But with respect to counteracting unfair trade practices and enforcing our trade rights, I see those primarily as defensive maneuvers that is to make sure that China is playing by the rules or if not playing by the rules that we are taking countermeasures.

I think the offense has got to be about what we are going to do to make ourselves and our workers and our industries and our allies faster, nimbler, be able to jump higher, be able to compete stronger, and ultimately be able to defend this open democratic way of life that we have. It is about more than just economics and economic values; it is also about our political and our broader values. But there's a lot at stake, and I think that there is a lot of opportunity. There is clearly also a very very great challenge. (36:21)

Supply Chains

Mara Rudman (Moderator): (46:21) I would like your views on what is the most, what is the smartest approach for the United States now in dealing with the supply chain concerns we have and looking at that as an opportunity for domestic manufacturing. Do we need a domestic industrial policy? Have we been lacking that, for example? What's the best way to frame how we go forward on these issues. (46:47)

Katherine Tai: (48:15) I just wanted to say you know, we've obviously been in the thick of the supply chain revisitation and thinking really hard about it along with everybody else, I think, for the past several months. And I just want to say I think that the idea of the policymaker who wants to bring everything home is a bit of a straw man, and I just want to say from my vantage point of being in contact with a lot of our members in the House, there's not a single one that I have encountered on, you know, either end of the spectrum or anywhere in between who is saying “let's bring everything home.” I think it is very instinctive for them that to the extent that what we're experiencing right now is vulnerability from concentrated sourcing, unregulated, over-complicated supply chains that bringing everything home creates the same kind of vulnerability. I think, Fred, you know, the other thing that you said which is something that we have been thinking a lot about with our members and talking a lot about also is that, you know, resilience requires us also to be trading. Resilience also requires us to be versatile and to be able to pivot. You're right. You know whether it's masks or ventilators, those ended up being the key things that we didn't have enough of this time around. We know there will be another national emergency, we don't necessarily know the contours of it, but in our consultations with our friends in labor, our friends in the manufacturing community, our friends who rely on globalized supply chains, one of the things that's become very clear and very powerful to me is that it is critical for any nation, it is critical for us because I think we've lost quite a bit of this, to have a critical mass, if you will, of ongoing manufacturing activity to maintain the versatility and also the innovation ecosystem that we need to be able to pivot and to be able to respond. And Mara to your question about whether or not this is something we call a domestic industrial policy, I know that there are friends of ours who are very comfortable with that terminology and that are friends in this greater family that we live in who are very allergic to that particular terminology. I don't know what we call it. Do we just call it an industrial strategy, do we just call it strategic thinking, whatever it is, yes absolutely, I think we need to be thinking ahead. The future is everything that lies ahead of us. And you know, we need to make sure that our policies, our broader economic policies, our social policies, our safety net policies, all these things are not only working in concert but that they are working towards making sure that the beneficiaries are the American people in all of the different ways that we mean the American people. (51:27)

Int’l Law and the 2020 Presidential Election, Engaging the Global Economy: International Law, Trade & Investment event:

Biden Administration Trade Policy

Moderator Alvaro Santos: (3:22) To start with the first question about general direction, let me just say that the Trump Administration seems to have broken with the global liberal consensus of the last three decades in a variety of issues. The Administration withdrew from TPP, renegotiated NAFTA. It has adopted a challenging stance towards the WTO. It's engaged in a tariff war with China, and it is taking national security measures related to trade. So, to kick off the discussion and given this background, I'd like to start with Katherine, asking her, “what would be the overall vision and agenda for trade and investment of the Biden Administration?” What would it seek to accomplish and in what ways would it differ or continue the direction of the last four years? (4:22)

Katherine Tai: (4:26) Thank you so much, Alvaro, and thank you for having me. And it's wonderful to see Kelly Ann. We go back quite a long way and have worked together quite a bit. To your question, I think if I'm going to go to the bottom line immediately and to be very very honest, my answer is I don't know, right? Because this is a speculative exercise, but that's what makes this entire discussion I think very interesting. I think, you know, let me also start off with a disclaimer that for purposes of today's discussion, I'm speaking only for myself based on my personal views. Obviously, my personal views are informed by my day job, advising and working for the committee Democrats and the caucus on trade. But you know, let me give you my best guess in terms of what a Biden Administration would bring in terms of a vision for trade and investment. You know, as a reader of policy papers and the discussion pieces that are being populated in the general public right now, if you look at the Biden plans, I think there are a couple things that you can glean from those plans. The first one is that as you read through the plans, there's a very very clear emphasis placing a priority on the American worker, on the building up of and prosperity for individual Americans and different American communities. So, I think there's a very very clear theme in terms of an inclusive prosperity that Biden is working toward. The other thing I would note is that if you're looking at the plans that the campaign has put out, there is one on building back better. There's one on, I forget the precise title, but essentially making things in America and manufacturing, having Americans manufacture. And there's another one on supply chains. What I think is quite interesting about this is that there are trade implications in each of these plans. But you don't see a plan specifically dedicated to trade itself. And so, what that tells me as well is that the Biden Administration's posture on trade and investment policy is to approach it in a more holistic manner, so that's what I would expect. And I think that they're very promising ideas and I would love a chance for all of us to see what the Biden administration would bring on trade. (7:15)

USMCA as a Model

Moderator Alvaro Santos: (12:26) Do you see the USMCA as a new model, as a template for your trade policy and future trade agreements? And I'm particularly interested in the question of labor and investment, but feel free to add anything that you like there. But is this, can we expect that this will be or could be what a potential Biden or Trump Administration would continue? And so, let me turn again to Katherine for this question. (13:00)

Katherine Tai: (13:01) Thank you, Alvaro. I think that's a really important question and a really good focal point for talking about trade as we're looking forward to the next couple years. I would say this in terms of working on trade with the Democrats in the past three and a half years, which is perhaps unique or different from colleagues of mine who work on other policy areas. There has been in the past three and a half years a huge amount of growth and exercise that those of us who work on trade have been forced to do. And that is that the Trump Administration has a brand of being a rule-and-norm breaking, of being really in-your-face, confrontational, provocative. But on trade I think that the number one takeaway that I have from the past three and a half years is that the Trump Administration has not been 100% wrong on trade policies and push in terms of the substance that we've really had to work through and think through and that there has been opportunity for a commonality of purpose between Democrats on the hill and this administration. And I think that is actually quite unusual for the policy landscape over the past couple years. So with respect to your question on whether or not USMCA serves as a model or as a template, the one thing I wanted to do is just say, I think I like your framing as a model better than as a template. I think that in the past in U.S. trade policy we have gotten very used to this idea of doing our free trade agreements by template. And over time, one of the problems that we have encountered is that with respect to these trade agreements and trade partnerships, one size does not fit all. And I think that in this moment where we have approved and entered USMCA into force and there are two currently ongoing trade negotiations, what you see is, how do you adapt what was accomplished in USMCA to new agreements that are being formed: one in discussions with the United Kingdom one in discussions with Kenya, two very very different countries, two very different economies with different contexts and with different opportunities presented? So that's a long way of saying, not as much as a model but as an important block or foundation to build off of. And to your point about the really high levels of bipartisan, bicameral support for USMCA, for me, I think the biggest lesson from this exercise is that our trade policies and the trends in globalization over the past couple decades have hit or, let me put it this way, have come to a crossroads where there are serious questions being asked about the wisdom of the policies, whether these policies still serve the public interest. And what is most critical in my mind about USMCA is that it was the first attempt to revisit or reimagine how our trade policies, how our globalization policies can be modified and meet with more robust support, not just with the Congress, but the Congress as a proxy with the American people. So, I think you know it's not a one size fits all: you can't just take this and go stamp it in the UK and Kenya. But I think that you know, the right lesson to take from it is that our policies deserve a revisitation and some new ideas. And I don't know that all of the new ideas are going to work, but we really do need to try them. (17:18)

ISDS

Moderator Alvaro Santos: (19:50) I just wanted to follow up on the USMCA question to get a little bit more focus in the details, and particularly on the investment front. So, the Trump Administration's position has been that the investor-state dispute settlement system is encouraging outsourcing that, you know, American companies go abroad and this serves as a kind of insurance for them, if something goes wrong. And there's a lot of emphasis in trying to keep production in the United States, right? So, there's this link between what the U.S. policy has been up to now in terms of promoting the bilateral investment treaties or investment chapters in trade agreements and this retreat in some ways. USMCA shows it by first having no ISDS with Canada and then having a reduced form of investor rights with Mexico, right? Do you think that, so maybe this is a question for Katherine first, but do you think that the Biden administration would continue with that policy? ... (21:11)

Katherine Tai: (21:17) So, is a really neat question and thanks for letting me have a first go at it. I will let Kelly Ann fill in the details in terms of the Trump Administration's vision. Before I go there, I do have a follow-up on Kelly Ann's references to the accomplishment of USMCA by the President and Ambassador Lighthizer. I think that from our perspective it was very much a joint effort, and this is a baby you know that was created with bipartisan effort. And you know, all credit to Ambassador Lighthizer for having the credibility with Democrats in particular in the House to have the trust to make something like that happen. But certainly, there's a lot of ownership about that from our side too. Alvaro, to your question on investment and what we might see from a different administration and the Biden Administration in the future, I guess a couple things. Now you've taken us the starting point the revisitation of ISDS in USMCA. I might take it back a couple years further, back to TPP times and when there was an active TTIP negotiation going on. ISDS has been red-hot in some places radioactive for quite a while now. I think there was a real moment when John Oliver dedicated most of an episode to the topic of ISDS when I thought, “wow, trade policy has really arrived.” Now that's before the Trump Administration. I feel more relevant now than I certainly did in earlier phases of my career. But you know, if you recall during the negotiation of TTIP, there were massive demonstrations in Berlin, I believe it was, where hundreds of thousands of people I think came out. I think that should create, that should be a reason for us to pause, and you know the policy lessons we take away from it, I think will be important. I think it is worth looking at the logic that has driven how ISDS has landed in USMCA. Again, I'll let Kelly Ann speak to that, but I may have additional thoughts to add. But let me take a slightly different tack, which is if you look at critiques of world trade rules and the rules in our FTAs. The FTAs and BITs are really where ISDS has come into play. There has been an increasing discomfort with the outcomes from this liberalization and globalization program, which is to look at the balance between the interested stakeholders in our economies and the sense that, you know, the trade agreements that we have are between governments but beneficiaries and cost bearers are outside of those governments, right? And you have workers who are an important piece of that puzzle, you have firms who are an important piece of that puzzle. I would argue that the environment is a piece of that puzzle as well. But if we look at firms in particular, there is a sense that multinational corporations have done very very well under the current program. And that's fine, except that I think the increasing discomfort is that the multinational corporations have done so well and others have done not so well. In fact, there are others who have done and maybe even harmed by the programs. ISDS is an interesting element of the modern free trade agreement that we've seen in that not only in ISDS are firms not on this side of being held accountable, they are in a part of the agreement where firms are given extra private rights of action that no one else has. And so, you know, I think that with respect to ISDS there are other ways of looking at it. There are other ways of trying to understand the discomfort around ISDS that are going to be very very important to thinking about how these investor rights, you know, play out in new agreements and how we think about investor and firm responsibilities as well. (26:14)

WTO

Moderator Alvaro Santos: (34:24) What would be a position of the potential Biden Administration on multilateralism, particularly, how do you approach the WTO? (34:30)

Katherine Tai: (34:32) I mean, I think you know, I want to revisit something I said a little bit earlier in terms of Democrats have found common ground with this administration on trade. What I would also say is that I don't think that there's many Democrats, I haven't met a single Democrat but that's not to say that there might not be some out there, who would have done things in the same way that the Trump Administration has. That said, with respect to the WTO, and this is the point that I want to make, if you look at the substance of the concerns and issues that this administration has been raising in Geneva and here at home, I think that you find very little difference in the substance from the kinds of concerns and interests that previous administrations from both parties have made. And so, this is one of those issues where I really, as I said, it hasn't been a partisan issue, and I really hope that it doesn't become a partisan issue. The WTO is a great idea. It has done really important things and I would argue that the WTO has been very effective in accomplishing a number of things. I would say that it is now 25 years old, and to Kelly Ann's point, the world is quite different now than it was 25 years ago. We just went through this whole exercise with USMCA where, you know, there were supporters of the renegotiation of NAFTA because of just the passage of time and the need for modernization. But there also was importantly an element of revisitation and a course correction in the spirit of being a little bit provocative for purposes of this audience, you know, I would posit that NAFTA and the WTO agreements are from the same era of our economic history, our global economic history. And you know, in addition to digitalization of our economy, of changes in technology, and the way that we communicate with each other in the way that we transact commerce, the one incredibly important development has been the economic growth and rise of China in the global economy. And that too so far has not been a partisan issue. 2020 is really giving everybody a run for the money in terms of dynamics around China and China trade. But this is an issue where I really hope that it doesn't become partisan because it really is so important, not just for the United States but for our global economic community in terms of dealing with the ways in which the WTO has disappointed expectations, or the ways in which the WTO has not been effective over the course of the past 25 years. (37:44)

U.S.-China Trade

Moderator Alvaro Santos: (45:29) The next question I'd like to raise here is the central one of the U.S.-China trade relationship. And so, what would be the goal of a potential Biden administration regarding this this relationship and how would it seek to accomplish it? (45:50)

Katherine Tai: (45:59) I think this is not a controversial statement that China's growth and development in recent decades has presented new challenges, a new dynamic around the world that we are all orienting to. You know, I think that given our experience that Kelly Ann referenced at the WTO with China and overall in terms of thinking through, for instance, the debate and discussion in Congress when China PNTR came up in 2000 and 2001 normalizing permanently relations with China as part of China's accession to the WTO, I think that there was a lot of hope and expectation that the reforms that the Chinese leadership at the time were willing to undertake was a signal that China would not only be joining the WTO but would over time also become part of the community of the norms, the economic norms, and maybe even, and hopefully even the political norms that a lot of the WTO membership had in common. What we've seen over the course of the past 25 or years in the WTO and China's actually been a member for just shy of 20 years is different from what people had expected. Now has China experienced enormous economic development and growth? Yes. But what has been the implications of that growth, and what are the impacts on our economic system and our growth? That I think runs into a lot of disappointment of expectations that our members of Congress for instance had 20 years ago. There were obviously a lot of naysayers at the time who would tell you now, that folks were naive to expect something different from China. But I think what I would say about where we are with China now and where we have to go next is, we do have to recognize with very clear eyes the nature of the China challenge. And to the extent that China poses risk and threat to the way that we operate, to the way that we compete, to the way that, you know, our ideals, in terms of the way we live our lives and the way we operate our society and our economy, those are things that we need to be very very attentive to. What I would say in terms of what a Biden administration will hopefully do is come in and really crystallize the questions that we are asking which is “what is the nature of the Chinese challenge and the threat?” And then, have that lead us to conversation around what are the measures then that need to be taken to manage the risk and the threat. I think that without that clear process in place part of what makes me nervous about the China dynamics that we're experiencing in 2020 is that reactions become highly emotional, highly political, and risk becoming either ineffective at addressing the risk or threat which is bad but even worse the threat is that the actions and the measures that we take are not just ineffective but are actually actively harmful to the goals that we have. So that's one piece of it which is to ask the right questions that will lead to the right kinds of measures. The second piece I would say is build a partnership with Congress. Again, this should not be a partisan issue, and in the past, it has not been a partisan issue. And the third piece is that then, you know, take effective action. Do what you need to defend against anti-competitive practices, but then also do what you need to both here and with others who should share your interests to take the active affirmative measures to make yourself stronger to withstand the competition. (50:57)

Moderator Alvaro Santos: (50:58) Thank you so if you don't mind let me press you a little bit to try to see if there is, if you see there is a difference. So, I really like the way you lay out the different steps that administration would need to follow to engage with China. So, in the case of the Trump Administration it's done its diagnosis it's decided that China represents a threat, that it's a threat for the model of the Chinese economy in several respects in the way it translates to trade competition, it's affecting certain U.S. industries, and so it's taken effective action in the way of raising tariffs, for example, or using mechanisms to try to block those imports. Is that something that you think a Biden Administration would continue or would it do it in a different way because its diagnosis is perhaps different and the kind of instruments or tools that you'd like to use would also differ. (52:03)

Katherine Tai: (52:04) I think I would like to make this observation which is we have in the past in the U.S. had a tendency to conduct our trade policy in a silo that trade policies have been disconnected from other policies. Now not entirely disconnected I know that there have been critiques that our trade policies have been driven too much by foreign policy considerations. The origin story for USTR, the Office of the U.S. Trade Representative, is that it was taken out of the State Department to ensure that trade policy would be driven more by economic interests and less be an appendage of the foreign policy establishment. So, I will acknowledge that. But I think that one of the things that we've seen, and this is with respect to China and also I think more across the board as well in the past three and a half years of the Trump Administration, is that this administration came into power with a very very strong mandate that it perceived that it had on trade. And that mandate primarily was to rebalance trade relationships. You see that play out with respect to China and with respect to Mexico and NAFTA. That's just my observation. But one of the things that we've seen is that in taking measures to rebalance those relationships this administration has continued this kind of siloed approach in activating trade tools only to address or correct for these imbalances and these dynamics and trade that have been criticized over time. I think that my concern is that, and my hope is that, in the next administration, what you have is a much better coordinated policy between trade and international economic policies and domestic economic policies. Now, that doesn't mean that you just take the template of, you know, sort of the past trade trajectory and then, you know, hook it into other things. I think it means that you have to take a holistic view to what you're trying to accomplish and the trade doesn't exist in its own silo. So bringing it back to your question on China, what I would say is this administration has effectively built a wall, a tariff wall, in the name of China trade enforcement. That's a fact, right? And you know, whether it's a term two for the Trump Administration or you know, a new Biden Administration, the next couple years are going to have to deal with the landscape that has been created over this time. I think that my main point is that if we perceive that there are national security concerns in the way that we relate to China economically, if we perceive that there are competitive concerns, if there are concerns with respect to our ability to maintain our leadership in the innovation economy, if there are concerns around what happens to U.S. user data, that all of this needs to be taken together but put through a very rigorous intellectual process, so that what we are doing makes sense. Because I think that what is at stake and this goes to the title for this discussion is what is at stake is the ability of the U.S. to maintain its leadership position in the global economy. And that leadership position has to be earned, and that, you know, I think what will be critical is to harness what I know is a very deep bench and what I hope will be a bipartisan bench in bringing really strategic thought to how we manage our relationship and our competition with China. (56:30)

Katherine Tai: (60:28) I'll just do one follow-up, and it's unfair of me because I know it's an area where Kelly Ann can't go. But you know I think that there is a tremendous amount of energy and policy energy around the U.S.-China relationship right now. I think a really critical piece to this, and I feel I have more confidence in the Biden Administration than what might happen in a continued Trump Administration, which is that I really do think it is important for this China policy to be driven by policy and to be driven by U.S. national interests rather than by politics. And this is where I'm going to take my advantage because I know Kelly Ann can't go here, I would say this. I don't exclude the possibility that there are national security implications and concerns with respect to TikTok and WeChat, but I feel quite confident that if what we are trying to deal with are national security implications of our trade relationship with China, that those would not be the number one and number two executive orders that we would start with in addressing that relationship and addressing that risk. So that goes back to my initial point about trying to keep the bipartisanship around the approach to China and really focusing on the strategy short, medium and long term. (61:52)

Domestic Policies

Moderator Alvaro Santos: (64:57) What would be an agenda that could really be linking this trade policy to domestic change in the U.S.? (65:11)

Katherine Tai: (65:13) Thank you, Alvaro. That's another critical question. I actually have a lot of hope here for the Biden Administration. I would say, in looking at the plans, I really like the build-back-better plan. And part of the reason is it takes into account the economic dysfunction and the economic recession really that we're in right now. It takes into account that Covid-19 is having an impact on our economy and that there will need to be a rebuild from what happens. I think that the landscape is quite complicated. We don't know what it will look like I know people have talked about a V-shaped recovery, path to recovery U-shaped, a K-shaped. I still can't quite visualize how the K-shape makes sense, but I do understand what the point is in terms of the K-shaped recovery. But I think you're right, and I guess once again I'd like to come back to theme of not thinking about trade in a silo. I think that not only for the United States, but I think for the world economy, right, there's going to need to be a rebuild from a very serious public health crisis that we've been in that has had very serious economic implications. And I think that this presents an opportunity and I think that you do hear this very clearly from a Biden Administration which is what you do is that you need to build back, but you need to build back better. And that there is a real focus on workers, on empowering workers, on workers and inclusive prosperity through this program. And what I would say also is in my own thinking about this is to go back again about 12 years to the start of the Obama Administration where the U.S. economy and the global economy similarly had gone through a quite traumatic period and there was a need to build back. And I think that what was quite successful in the years that followed was a resumption of prosperity that GDP levels that you know, these economic metrics recovered and that you had further growth. But, and I think that this is a really important issue that explains quite a bit of what we've been through since then, the prosperity that was created in the build back was concentrated in parts of our economy and that there were significant parts of our economy including regular people, people mid-career, people at the start of their career, at the ends of their career, who over the course of that build back didn't ever feel like they re-achieved the levels of prosperity or the hopes that they had prior to that crisis. And so to your point, and this is taking a slightly bigger picture view beyond trade and trade adjustment assistance, I think that it is going to be critical and I feel very confident that this is the focus of the Biden campaign's thinking, based on what I'm reading from the campaign that it is going to be and require a whole, holistic policy approach to building back and that trade has a job in all of this but that the other policy areas economic policies need to be seriously revamped and built out in order to accomplish what needs to be accomplished. (69:06)

Webinar on the European Commission White Paper on Foreign Subsidies

Here are the details for a webinar presented by the Centre of European Law, King’s College London & George Washington University Law School (register here):

Webinar – Towards a European Economic Sovereignty? Some reflections on the Commission White Paper on Foreign Subsidies - 1 December 2020

The European Commission is concerned that subsidies granted by non-EU governments to companies active in the European Union appear to have an increasing impact on the Single Market. Although the EU has tools at its disposal to address some of the distortions caused by foreign subsidies, the Commission is concerned that the existing tools do not fully address all possible distortions caused by these foreign subsidies, including in EU public procurement markets. In June 2020 the Commission therefore adopted a White Paper on Foreign Subsidies, which proposed ways to level the playing field and called for new tools to address this regulatory gap. The White Paper and its challenges were assessed in a prior webinar by our colleagues Professor Michal Kania (University of Silesia) and Roland Stein (BLOMSTEIN, Berlin), and at online conferences hosted by Concorrenze and Wolters Kluwer. The White Paper put forward several approaches:

Module 1 would introduce a general market scrutiny instrument to capture all possible market situations in which foreign subsidies are provided to beneficiaries in the EU and may cause distortions in the Single Market.

Module 2 is intended to address distortions caused by foreign subsidies facilitating the acquisition of EU companies.

Module 3 would address the effect of foreign subsidies on EU public procurement procedures.

Finally, the White Paper sets out an option to review foreign subsidies in the case of applications for EU financial support.

As a follow-up to the White Paper, the European Commission announced different options to address distortions caused by foreign subsidies. According to the Commission Work Programme 2021, a legislative proposal for levelling the playing field would come forward in the second quarter of 2021. To prepare the ground for future action, on 6 October 2020 the Commission published an Inception Impact Assessment, available on the consultation website; the feedback on the Inception Impact Assessment is published here.

At the same time, the UK Government has published its own proposed approach to a related trade issue, under the UK’s proposed National Security and Investment Bill — how to address to national security threats posed by acquisitions in sensitive industries, through a review mechanism akin to the U.S. government’s Committee on Foreign Investment in the United States (CFIUS).

 

Brexit and Steel Safeguards

If we need any reminder that the Brexit transition period is drawing to a close, and of the implications for UK/EU trade, then two public notices issued over the past few months should do the trick. These notices, one by the UK and the other by the EU Commission, relate to safeguard measures on steel products.

It has been clear for some time that trade remedies (anti-dumping, anti-subsidy, safeguards) would exist in UK/EU trade. Attention has tended to focus on the numerous existing EU AD and anti-subsidy measures, and the extent to which the UK will continue to apply measures originally imposed by the EU after the end of the transition period. The UK has developed a methodology to decide which measures to transition, and how to review the continuing need for such measures. But since there are of course no existing AD or anti-subsidy measures between the UK and EU, these measures relate to third countries.  Any UK AD and anti-subsidy measures against EU exports (and vice-versa) will perforce be new measures, pursuant to investigations initiated after the end of the transition period.

Safeguards however are different. Since safeguards measures are applied on an MFN basis, the transition of existing EU safeguards implies their extension by the UK to imports from the EU, and vice versa. And this is precisely what is happening.  At the end of September, the UK published a notice initiating a transition review of the only existing EU safeguard, which applies to a wide range of steel products.  Pending completion of that review, and beginning 1 January 2021, EU steel products will be subject to tariff quotas, with out-of-quota imports subject to a 25% duty.  On 30 October, the EU published its own notice "adapting" its safeguard measure, including through the application of a new, expanded tariff quota that includes imports from the UK. Hence, as of 1 January 2020, the free movement of steel products between the UK and EU is a thing of the past.

These measures will, like the transition of AD and anti-subsidy measures, present many interesting legal issues for the UK and the EU.  Some Members will likely argue that no transition of these measures is possible, and that the UK (and possibly also the EU), must start from scratch with new investigations.  More narrowly, issues will be raised (in fact, have already been raised in the Committee on Safeguards) about how the new TRQs were calculated. Doubtless, questions will also be raised about the UK's methodology for deciding whether to continue the measures.  As with subset/expiry reviews, the UK will be posing a counterfactual regarding what would happen if the measures expired (It cannot of course logically ask about whether its industry is currently suffering serious injury caused by increased imports, as the presence of the existing measures should, in principle, have eliminated any such injury). 

I do not know how hard these tariff quotas bite for UK steel producers.  Perhaps, given the effects of the pandemic, their impact is limited.  But this will depend upon how the EU has allocated the TRQs. One thing however is clear -- EU/UK steel trade will be facing new challenges, and soon.        

 

        

    

Solving the Challenges to World Trade (New Essay by Steve Charnovitz)

My new Essay, "Solving the Challenges to World Trade" has been posted as GWU Legal Studies Research Paper 2020-78.  The paper is available for download on SSRN at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3736069.  Here is the abstract of the Essay:

World trade faces fundamental challenges. This essay examines six threats to the intellectual case for open trade: to wit, worries about ecology, fairness, morality, equity, security, and geopolitics.  Together, these threats implicate a huge swath of international trade.  One of the biggest indicators of diminishing support for trade is the moribund status of the leading institution of the trading system, the World Trade Organization (WTO).  There are three branches of WTO governance and all three are in trouble: the judicial branch and its vacant Appellate Body, the executive branch and its vacant post of WTO Director-General, and the legislative branch where the WTO Ministerial Conference has failed to meet since 2017.  Solving global problems often requires focused international policies and sometimes specialized international agencies to administer such policies.  Unfortunately, during the 21^st century, the growth in international problems has not been matched by a growth in international solutions.  The faltering of the trading system is one example of that mismatch, but the same pathology exists in many areas of global governance. The biggest problem may be the shallow Paris Agreement on Climate Change that lacks any mutually agreed commitments, such as a carbon tax, for harmonized actions to combat global warming.  Yet even without any international commitment to impose a carbon tax on domestic commerce, there are political demands to impose carbon taxes on imported products for ecological and fairness reasons.  This essay introduces the term “tradeclimate” questions as nomenclature for the set of environmental issues relating to transborder trade that should be resolved in the climate regime, not in the WTO.  In discussing China, the essay notes that the trade war between China and the United States spills into the WTO, and explains why the WTO should not arrogate to itself the task of re-educating China.  Gaining China’s cooperation is critical to achieving better policies in the WTO, the Paris Agreement, and the World Health Organization. 

 

 

Carbon Trading - Countervailing Free Allowances

I guess I must be the only lawyer on either side of the Atlantic that missed two pending US countervail cases involving the EU's Emission Trading Scheme. The investigations, involving Forged Steel Fluid End Blocks from Italy and Germany, include allegations that the free emission allowances given to the exporters represent countervailable subsidies.  

The ETS requires that certain heavy emissions installations (producing such goods as iron and steel, cement, glass, aluminum, petrochemicals and paper) must acquire allowances covering their carbon emissions.  Most such installations received free allocations amounting to 44.2% of the most efficient installation's emissions, and have to buy the rest, through government auctions or in the market.  But certain installations, in sectors where the additional costs of ETS, or the trade intensity, is particularly high, are placed on a "carbon leakage" list, and receive free allocations amounting to 100% of the most efficient installation's emissions. The alleged subsidy is the difference between the 44.2% and 100% free allowances.

Technically, the principal issue here relates to whether there is revenue foregone that is "otherwise due", i.e., is the "normal" rate of free allowances 44.2%, such that the government is giving up revenue when it gives out a higher rate of free allowances to selected enterprises?  This issue of identifying the "normative benchmark" is one that the dispute settlement system has wrestled with in numerous disputes, such as US - Foreign Sales Corporations and US - Large Civil Aircraft. Indeed, the problem is a lot like that in US - FSC: The government imposed an obligation on its enterprises  that its foreign competitors do not face (in the EU case, the obligation to pay for carbon emissions, in US - FSC, the obligation of US corporations to pay income taxes on revenues generated by overseas activities), but then relieves the actors in part of the obligation.

But the bigger issue of course is the interaction between subsidy disciplines and the competing policy objectives the subsidies are (sometimes) designed to advance. Is it realistic to expect that countries take vigorous action to address carbon emissions without also making accommodation for the most vulnerable and severely impacted sectors? After all, even enterprises whose installations are on the "carbon leakage" list must meet certain carbon efficiency levels or pay for the failure to do so, and are thus overall disadvantaged by the ETS in their international trade. While technically we may insist that there should be no "offsets", in practical terms countervailing these free allowances is punishing EU economic actors for a scheme which hurts them individually but generates overall benefits not just for the EU but for all the planet's residents. 

While a final determination in these investigations may emerge before inauguration (I am not sure of the current schedule), the broader issue is one that the new Administration could and should seek to resolve.  If the United States wants to show its partners that it is willing to cooperate on issues of common importance, then a conversation about how to ensure that international trade rules do not interfere with efforts to address climate change is an obvious first step, and a new approach to free allowances would be a good signal of its good faith.