International Economic Law and Policy Blog

Where Will Biden's USTR Trade Policy Team Take U.S. Trade Policy?

Over the past few days, we have had some new announcements about staffing at USTR, and the Biden administration trade policy team is almost complete now. There are still the important Deputy USTR in Geneva and Chief Agriculture Negotiator positions to fill (as well as some other USTR and possibly some NSC positions as well), but here are a few of the key people in place, or soon to be, with a bit of background on each:

U.S. Trade Representative Katherine Tai: "Tai previously served at USTR from 2007-2014, most recently as Chief Counsel for China Trade Enforcement." Before that, she was chief trade counsel of the House Ways and Means Committee. 

Deputy U.S. Trade Representative (nominated) Sarah Bianchi: "In 2011, Ms. Bianchi was appointed by then Vice President Biden as his head of economic and domestic policy where she ran the economic and domestic policy team in the Office of the Vice President and coordinated all policy initiatives ranging from workforce competitiveness to manufacturing to budget negotiations. ... Bianchi has also served as a senior advisor to the Biden Institute at the University of Delaware where she worked on a variety of economic policies and served as Chair of the Institute's Policy Advisory Board."

Deputy U.S. Trade Representative (nominated) Jayme White: "Mr. White has served in the US Senate since 2009, including as the chief trade advisor for the Senate Committee on Finance since 2014, under the leadership of Chairman Ron Wyden."

General Counsel Greta Peisch: "Ms. Peisch has served as Senior International Trade Counsel on the Senate Finance Committee for Chairman Wyden since 2015."

Chief of Staff Nora Todd: "Prior to her service at USTR, Ms. Todd was Chief Economic Advisor for Sen. Sherrod Brown (D-OH)."

Deputy Chief of Staff Ginna Lance: "Ms. Lance previously worked in the Office of then-Vice President Joe Biden, where she served as the Director of Scheduling and Deputy Director of Operations."

Senior Advisor Jamila Thompson: "Previously served as chief of staff to Georgia’s Fifth Congressional District, and deputy chief of staff for U.S. Representative John Lewis (GA)."

Counselor Brad W. Setser: "Prior to joining the Biden-Harris Administration, Mr. Setser was a senior fellow for international economics at the Council on Foreign Relations, where his work covered global capital flows, financial vulnerability analysis, currency intervention, tax competition and trade imbalances."

Senior Advisor Mark Wu: Previously at USTR and on the faculty at Harvard Law School for a while now, Mark is the one who will be best known to many readers of this blog. His full list of papers on SSRN is here. Some noteworthy papers for current trade policy purposes are: "Managing the China Trade Challenge: Confronting the Limits of the WTO"; "The 'China, Inc.' Challenge to Global Trade Governance"; "The Next Generation of Trade and Environment Conflicts: The Rise of Green Industrial Policy"; "Why Developing Countries Won't Negotiate: The Case of the WTO Environmental Goods Agreement"; "Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and Lessons for the Multilateral Trade System."

Senior Advisor Beth Baltzan: "previously served as an attorney at USTR from 2003 to 2009 [and] served as Democratic Trade Counsel for the House Ways and Means Committee from 2012 to 2016." She is on the progressive critics side of the trade debate (on one side of the progressive side anyway, as many progressives I know would not go as far as she does), and among other things has written that: "we need to return to and update the trade principles in the Havana Charter. Those principles include engineering fair, competitive markets designed to limit corporate power." A model trade agreement she put together is here (a sampling: "there is a valid argument that the non-binding state-to-state dispute settlement regime that prevailed under the GATT may be as useful as the binding dispute settlement regime of the WTO.") I commented on one argument she made about USMCA in this blog post.

(A few other appointees are mentioned here, but I was trying to keep the list manageable. And if you're wondering what the role of a Deputy USTR is, Rufus Yerxa has an explanation here: "The deputy USTR is kind of the intermediary between the political level and the substantive and technical level of work in USTR, and, of course, you also have to be a good negotiator and a good politician.")

One thing that jumps out from this list is how many people have connections to Congress (more so than the usual USTR political appointee staffing, I think). I'm not sure there will be any substantial trade initiatives (like an FTA) that require Congressional approval in the near future, but nevertheless it will help to have Congress supporting the various things USTR wants to do, and these connections should help facilitate a good relationship between the branches.

Another important point may be the connections to Biden himself. I've heard a number of people suggesting that in the Biden administration, USTR under Tai will be pushed aside by the foreign policy crowd. While I think it's clear that trade will be less of a priority under Biden than it was under Trump, I wouldn't be so quick to dismiss the role of USTR in this administration. The trade folks may be able assert themselves, at least on some key issues, as they have technical expertise that others lack.

And finally, you don't see the connections to industry -- either directly or through legal representation -- that you saw with political appointees in the Trump administration. Could that have an impact on how a Tai USTR approaches policy-making? It's hard to imagine industry being shut out of policy-making entirely, but perhaps its relations with this USTR will operate a bit differently (or perhaps not, because the connections with other USTR staff will still be there).

In terms of the substance of trade policy, what I wonder is, how will this group interact with each other and with USTR career staff to forge a new U.S. trade policy? What will their vision be and where exactly will they take us? Will there be a proactive set of revisions to U.S. trade policy, or will things mostly be reactive? I think we know how they will frame it all, as worker-oriented and pursuing social justice in some way, but that doesn't tell you much on some aspects of trade policy. In terms of specific policies, such as dealing with China's trade practices, or WTO reform, or digital trade, we are all eagerly awaiting some indication of the specific path forward.

And there are likely to be complex linkages between some of these issues, such as China and WTO dispute settlement. Many people, including Biden himself, have emphasized that the U.S. should work together with the Europeans and other allies more on China trade issues ("let's build a united front of allies to challenge China's abusive behavior"). But can that united front really happen without addressing current conflicts such as the WTO dispute settlement crisis? The Europeans have shifted their rhetoric on the Appellate Body to accept more of the U.S. concerns, and I think they are expecting a concrete U.S. proposal in this area. I hope USTR is working on something in this regard, because if not it is likely to be significantly more difficult to form that united front. (Along the same lines, this was definitely helpful: "The Biden administration has ceased its push to exclude essential medicines and other critical medical inputs from its government procurement coverage at the World Trade Organization, avoiding a first test of the Government Procurement Agreement’s arbitration procedures and the potential for retaliation from other members.")

Tim Meyer Responds on Exceptions and "Mixed Motives"

This is a response from Tim Meyer to my post on his new article

Many thanks to Simon for his thoughtful take on my new article, A Political Theory of Legal Exceptions, as well as the opportunity to respond.

Simon and I do agree on a lot. Most notably, we agree on the need for more flexibility, as Simon has written about in his recent paper on Digital Trade Agreements. Points of agreement are less interesting, though, so I’ll focus mostly on our disagreements.

First, although Simon & I mostly agree on the benefits of loosening the requirements of GATT XX, Simon is a perhaps a bit more skeptical than I am of the need to do so. He suggests that “Article XX might look very different when applied to Article III than Article XI. In fact, you might not even need Article XX when Article III is involved, if you interpreted Article III in a certain way.” I agree with Simon on Art. III, but these kinds of statements make me nervous! I see no textual reason for Article XX to apply differently to violations of Article III as opposed to Article. XI. And although I know Simon does not intend this, I worry that licensing a different approach will result in less flexibility for allegedly discriminatory measures that pursue non-trade public policy goals, rather than more.

Second, Simon questions whether exceptions add much to the political incentive protectionist interests have to find allies. Greenwashing, Baptists-Bootlegger coalitions, and the like occur in lots of contexts. But this concern assumes too much. A conventional view of trade’s primary obligations (e.g., tariff limits) is that they influence domestic politics and policymaking by incentivizing alliances between exporters & domestic consumers. I’m not sure why some trade rules (primary obligations) would influence domestic politics but others (exceptions) wouldn’t.  Policymaking does not stop with politics, though. A range of government actors shape policies during both their formulation and their enactment. Legal exceptions in treaties can exert a powerful influence over government policies through these actors. Exceptions give government lawyers, such as those at USTR or trade lawyers at the House Ways and Means and Senate Finance Committees, a way to justify—and thus a reason not to oppose—mixed motive policies. Exceptions work both politically and with policymakers.

Next, Simon worries that mixed motive policies may dilute the effectiveness of the non-trade policy, as measured against a hypothetical pure non-trade policy. That is probably true in some cases, and, e.g., environmentalists are free to try to enact a pure policy if they are able. But politics is the art of compromise. Predominantly protectionist measures should not survive review under trade rules, as I argue in the piece, but trade rules should also have a bit more tolerance for the realities of politics and policymaking. Exceptions provide a legal vehicle for creating that flexibility.

Simon ends by arguing “that we as a . . . society are better off overall with NAFTA and the modest liberalization under the WTO,” even given the disruptions trade creates. Happily, we don’t have to make a binary choice! International trade agreements have been a major force for positive change, economic and non-economic, at home and abroad. I am not suggesting otherwise. But that doesn’t mean that we shouldn’t revisit the degree of flexibility those agreements create for governments balancing different kinds of policy and political concerns.

To that end, I agree with Simon that more research is needed into the effects of new trade barriers. But that research needs to look at all of the effects—not just economic costs but also non-economic benefits that may be hard to quantify. And it needs to do so with realistic assumptions about what alternatives are politically feasible in the absence of mixed motive policies. Trade law should not, as the old joke goes, assume a can opener.

Tim Meyer on Exceptions and "Mixed Motives"

My friend Tim Meyer has a new paper entitled "A Political Theory of Legal Exceptions." Back before the pandemic, Tim and I and a few others submitted a proposal for a SIEL 2020 panel entitled "Making Space for Public Policy in International Economic Law Agreements: The Role of Obligations and Exceptions." That panel never happened, of course, and this paper of Tim's predates that proposal, but nevertheless it would have been an opportunity to discuss these things. With any luck, we'll all have that chance soon!

Talking about trade policy with Tim is always interesting because we seem to either strongly agree or strongly disagree on issues. This paper has a little of both. I'm not going to give a comprehensive summary of the paper in this post, so read the whole thing to get the full flavor of his argument. Instead, I'm going to pick out a few aspects to comment on.

First off, where we agree is that existing exceptions language in trade agreements, and the judicial standards derived from them, are sometimes too narrow. Here's how Tim describes a flexible approach he advocates:

An alternative approach within new trade agreements would borrow from the experience of investment treaties. In response to decisions that they perceived as overreaching, a number of states began including clarifications in the investment chapters of their trade agreements and standalone investment treaties. This language provides that “[n]on-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations . . .”

This language was adopted to clarify the meaning of rules prohibiting expropriation, but other countries have adopted the means-ends relationship – “designed and applied to”—to their general exceptions clauses. Specifically, they have modeled the scope of their general exceptions clauses on GATT article XX, but replaced “necessity” with “designed and applied to.” They have also retained the chapeau of Article XX and its nondiscriminatory requirement.

This approach dramatically improves the workability of general exceptions clauses. Unlike the necessity test, the “design and applied to” standard does not preclude the possibility that a measure had more than one motive. It merely requires that one purpose—as evidenced by the measure’s design and application—is a permissible regulatory objective. The original context of this language’s development further underlines this point. The “designed and applied to” standard was created to provide defendant states greater discretion in how they pursue legitimate regulatory objectives. This negotiating history further makes clear to treaty interpreters that multiple objectives should not be fatal to invoking an exception. By contrast, new exceptions clauses that mirror or incorporate by reference existing WTO exceptions risks codifying, in the eyes of future treaty interpreters, existing WTO case law on exceptions.

To be sure, states have adopted the non-discrimination requirement from the chapeau of GATT article XX even in those treaties that have discarded the necessity test. In recent cases like EU—Seals and Brazil—Tyres, the non-discrimination requirement has been the stumbling block to successfully invoking the exception. Modifying the language of GATT Article XX in new agreements could make clear that a Predominant Motive test applies to the non-discrimination test in the chapeau as well. Currently, that language provides that:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade . . .

The chapeau could be rewritten to codify a Predominant Motive test in the following way:

Subject to the requirement that arbitrary or unjustifiable discrimination between countries where the same conditions prevail is not the predominant objective of such measures . . .

This language makes two changes. First, it deletes the prohibition on “a disguised restriction on trade.” This language suggests that tribunals should look for hidden motives, a requirement that should be eliminated in favor of asking directly whether a legitimate objective constitutes the challenged measure’s primary motive. As the Channeling Paradigm suggests, multiple objectives is more likely the norm in policy making. Giving tribunals license to root out motives they deem “disguised” seems particularly unwise in the current context of fragility in international dispute resolution.

Second, this language makes clear that arbitrary or unjustifiable discrimination is only problematic if it is the predominant objective of discrimination among countries where like conditions prevail. This language preserves the fundamental nondiscrimination requirement of the chapeau. At the same time, though, it expands the discretion states have to choose among measures that might incidentally discriminate among countries.

In so doing, it will expand the margin of appreciation member states enjoy from second-guessing by dispute panels. Trade panels will still be able to strike down measures that are predominantly protectionist or discriminatory. But mixed motive measures that predominantly pursue permitted objectives will survive. That rebalancing between the right to regulate and the objectives of trade liberalization will bolster the legitimacy of trade law and its dispute settlement function at a time when such legitimacy is sorely needed.

I think Tim and I would end up in about the same place on these issues, although I might apply a slightly different standard. First of all, I would emphasize the relevant obligations a bit more, and perhaps distinguish between the exceptions being applied to certain obligations versus other obligations. For example, Article XX might look very different when applied to Article III than Article XI. In fact, you might not even need Article XX when Article III is involved, if you interpreted Article III in a certain way. But regardless, for each exception/obligation combination, what I would want to look at is a combination of the degree of discriminatory effect and the degree of discriminatory intent (mostly objective intent, but I wouldn't rule out subjective intent as a supporting element). In terms of the intent, I like the "predominant motive" framing. I just want to make sure that effect is not ignored.

Anyway, I basically agree with Tim here, although what I said in the previous paragraph may obscure that a bit. What I think we agree on is that the fundamental inquiry that should be undertaken -- either in the obligations or the exceptions -- is whether the measure is protectionist. Under the current standards, it's not always clear to me that's the inquiry being carried out, and I worry that non-protectionist measures will be found in violation as a result.

Shifting to the bigger picture, Tim sets out three theories of trade law exceptions. The first two are the conventional ones, and the third is something he came up with:

Despite the variety of exceptions within trade law, this Part argues that there is a conventional wisdom regarding exceptions. I distill that conventional wisdom into two approaches to exceptions: what I refer to as the Policy Space Theory and the Safety Valve Theory. Under the Policy Space Theory, governments invoke exceptions to accommodate objectives from policy domains other than trade policy, such as to fulfill domestic social or environmental objectives. An unlawful trade measures might be justified, for instance, as necessary in order to take aggressive measures to combat climate change.

The Safety Valve Theory, by contrast, holds that governments invoke exceptions to defuse political pressure that trade liberalization itself creates. This pressure typically comes from domestic groups that are harmed by competition from imports. Exceptions for measures that target unfair trade practices, for instance, allow states to reintroduce some protection into the trading system in order to reduce attacks on the trading system as a whole from these interests.

...

I ... introduce the Channeling Paradigm. The intuition behind the Channeling Paradigm is that a certain amount of domestic political pressure for protection from foreign economic activity will remain in any political system. That pressure will seek an outlet, which exceptions provide. Those interested in increasing barriers to foreign economic activity will therefore seek to form political coalitions in favor of policies that both create protection and serve some other objective authorized by the exception. The availability of international legal exceptions, in other words, channels domestic political pressure for otherwise impermissible objectives into policies that plausibly fit within the exceptions. As a result, “exceptional” trade cases are very likely to involve government policies that have mixed motives. A trade jurisprudence that does not have greater tolerance for governments’ mixed motives is one for which governments themselves are likely to have little tolerance.

His explanations of the first two theories make sense to me. But with the third theory, the disagreements may be starting. Tim argues the following:

The basic idea behind the Channeling Paradigm is that exceptions incentivize explicit or implicit bargaining among domestic interest groups. Groups with different potentially trade restrictive policy objectives, such as an environmental group and a domestic import-competing industry, will unite around a single policy that plausibly fits within an exception. Such policies will be more likely to be enacted domestically and stand a better chance of an international tribunal finding that the measure falls within an exception. ...

Here are some questions I have: Do trade exceptions really play much of a role in how domestic politics is carried out? Are the exceptions doing much "channeling"? Wouldn't all this be happening in domestic politics even if trade agreements didn't exist? I can certainly imagine that domestic actors would cite to the trade agreement exceptions as they formulate their positions, as people will always cite to things that support their argument. But I'm not sure the political results would be any different if those exceptions did not exist. It's a question of cause and effect, and I'm just not sure the exceptions are causing anything.

Also, when this does happen in domestic politics, couldn't it lead to a tainting of the non-trade policies? A measure's objectives seem a bit less pure when special interests lobbying for protection from competitors join the team.

Next up, there is the classic disagreement I have with Tim: Doesn't this bargaining among interest groups end up leading to less effective implementation of the non-trade policy at issue? It may be true that local content requirements help with the political task of generating support for clean energy subsidies, but they also put in place policies that undermine the impact of the subsidies in pushing people towards clean energy. 

And finally, there is a disagreement over the economic literature about the impact of trade liberalization. Tim says:

Even the reduction in tariffs achieved through free trade agreements like NAFTA and the dramatic expansion of the WTO in the decades after the end of the Cold War had significant domestic economic effects. These agreements allowed multinational companies to disaggregate their supply chains across countries, moving jobs offshore. While the globalization of supply chains had beneficial effects for companies, and led to job growth in some communities within the United States, it also led to significant and long-lasting economic turmoil in communities in which jobs were shipped offshore.

I agree that trade liberalization is disruptive because it changes the economic status quo. But don't we all agree that we as a (both national and global) society are better off overall with NAFTA and the modest liberalization under the WTO due to that disruption? And that we would be worse off overall if the higher tariffs were still in place? Even taking into account the job losses in some regions, on balance we as Americans (and not insignificantly, poor people outside the United States) are better off. And when I say "we," I don't mean companies, some of whom were helped and some of whom were hurt by all this. I mean ordinary Americans, including those with the least economic security. Yes, we could have kept some tariffs in place and perhaps particular jobs would have been preserved, at least for a little while. But when you take into account the economic harm caused by those tariffs (job losses in other places, higher prices for basic goods), joining these trade agreements was still the right policy. Keeping the tariffs would have been economically harmful to a lot of vulnerable people.

I feel like what we need is more analysis of the disruptive impact of long-standing and newly imposed tariffs, including an examination of who in particular is harmed by them. That would be a useful way to reframe the discussion. People are always putting trade liberalization on trial, and I think we need to put tariffs and other forms of protectionism on trial a bit more. The Trump administration's various unconventional tariffs have been helpful in providing opportunities to measure the impact of tariffs, but there is probably more work to do here.

In Dubio Mitius - 15 years later

Nothing gets a public international lawyer more stirred up than a maxim of interpretation, and few maxims hit a nerve more readily than "in dubio mitius".

Thanks to Petros Mavroidis' recent (and highly recommended) post on transnational subsidies, I found myself squandering a Saturday - when I should have been grading papers -- typing in dubio mitius into the internet.

What I came up with was this interesting article from 2009 by Christophe Larourer: In the Name of Sovereignty? The Battle over In Dubio Mitius Inside and Outside the Courts  

M. Larourer suggests that the concept of in dubio mitius is obsolete, and that the Appellate Body's reliance upon it in Hormones undermined that Body's legitimacy.

Twelve years later, the question I would like to pose is the following: 

Did the Appellate Body (and WTO DS generally) err by relying too heavily on an obsolete principle to the detriment of its legitimacy, or by not resorting to it more consistently?

Any thoughts?

OBOR, No More?

Last year the European Union (EU) imposed countervailing duties (CVDs) against imports of glass fiber originating in Egypt. Nothing shocking so far, other than the fact that the EU measure was counteracting subsidies granted by … China. How should we think about this and similar issues?    

Facts of the Case

Commission regulation 2020/870 of June 24, 2020 raised a few eyebrows, even though, as Evenett et al. (2020) have argued there is an emerging trend in this vein, and we should not be surprised that the EU has adopted this attitude once again. Still, it is not every day that a WTO member countervails FDI (foreign direct investment). Jushi China, an SOE (state-owned enterprise), provided Jushi Egypt, a subsidiary headquartered in the Suez Special Economic Zone, with funds at preferential rates. Jushi Egypt then exported glass fiber products that had benefitted from Chinese subsidies to the EU, only to see their exports countervailed through the above-mentioned regulation. 

Is the EU Approach Lawful?

No dispute has been lodged so far before the WTO. But it would be hard to see how the EU could prevail in light of the unambiguous wording of Articles 1 and 2 of the SCM Agreement (Subsidies and Countervailing Measures), and the legislative intent that gave rise to these provisions. Clearly, it is subsidies paid to producers operating within the territory of the subsidizing government that can be counteracted. It is quite telling that the EU authorities relied on public international law to attribute behavior to Egypt, and when doing so, they have most probably overstated their case.

The legality of the EU approach is a minor concern, we submit. There is a wider policy that is of concern, to which we will return later on.

Of course, one might legitimately wonder why the EU did not choose another path. It could have invoked for example, that it was facing a particular market situation here. This is an amorphous concept, infrequently only used (US has recently invoked it). To the extent that the EU could have shown that a particular market situation exists affecting price comparability because of the Chinese subsidies, then it might have had a legitimate shot when defending its policies. Arguably this is a sleight of hand, but so is a lot of lawyering in antidumping practice. 

Another argument that could, probably, be mounted here is that China is violating MFN here. Subsidies are excluded from national treatment (III.8), but not from MFN. No one of course had anticipated extremely generous governments when the GATT was signed. To the extent that the disbursements in the present case were viewed as “rules in connection with exportation”, then they would have to be extended to all glass fiber products produced around the globe (and probably bankrupt OBOR, the “One Belt, One Road” initiative). Assuming successful complaint, MFN could prove to be the tombstone of a lot of OBOR, at the very least, of the part of OBOR that is linked to specific goods markets. And the challenged measures could not be justified under one of the exceptions to the MFN either: neither Article XXIV nor the Enabling Clause (which explicitly requires nondiscriminatory granting of benefits) would condone this measure. 

Anyway, the EU seems willing to take a firmer stance on foreign subsidies, OBOR being probably the prime target, as the recently adopted White Paper on Foreign Subsidies[1] evidences. The imposition of duties against Jushi Egypt is probably a notch in a belt that European authorities are slowly putting together around the One Belt initiative.

Incidentally, Egyptians enacted a law claiming that goods produced in the Suez zone are of Egyptian origin. Without entering into legal details regarding the conformity of this initiative with WTO, in the absence of this law, the origin of fibers produced in Egypt could have been an issue as well.

But there is a Wider Policy Issue

Unlike the Antidumping Agreement, the SCM protects not only the domestic market from subsidized goods, but also export income impaired by others’ subsidies. If Foreign dumps its goods to the world, Home can protect its market only through antidumping duties. But if Foreign subsidizes its exports to the globe, Home can protect its income everywhere. That mush is true. To this effect, it can introduce a complaint and ask from Foreign to stop subsidizing or else … Else, means of course, that eventually Home will retaliate following permission to this effect. One might of course, legitimately wonder why the threat of retaliation was not perceived as credible by Foreign in the first place, but this is another story. What we care about here is the legislative gap, and not the wider WTO remedies system.

What can one do in a case like the one we discuss here under the SCM Agreement? Nothing much, and this is a paradox. Jushi China profits from increased exports by Jushi Egypt, it might thus have an incentive to subsidize them, safe in the knowledge that it runs no risk to be countervailed under the SCM Agreement.

Yes, there might be a risk that it pays antidumping duties under the Antidumping Agreement, if the claim under particular market situation succeeds. But the trigger effect there, is dumping of the final good. The argument in that case, of course, is that, because of the particular market situation, the imposition of antidumping duties will be facilitated. True. But what if Egypt had investigated Chinese imports and decided that there was no reason to impose CVDs, or if the outcome of the investigation was duties at a low level? And of course, the MFN challenge remains for now a theoretical possibility as no one has gone this way so far. All this to suggest that there is high likelihood that practices like the one discussed in this brief Note, pass the WTO legal regime by stealth. Why is that the case?

The SCM was negotiated with the economy of the late ‘80s in mind. A lot has changed since then. GVCs (global value chains) make wholly-obtained goods an illusion. The very existence of GVCs requires a different thinking about the regulation of conditions of competition in the global market. Is Jushi China, when investing in Jushi Egypt, subsidizing its own production as well? Should not corporate links matter somehow? Can the trading community continue to pretend that national frontiers suspend corporate links? The SCM Agreement needs to be rethought to account for this (different) perspective, otherwise the WTO risks seeing its policy relevance eviscerated even further.

References

Evenett, Simon J., Juhi Dion Sud, and Edwin Vermulst. 2020. The European Union’s New Move Against China: Countervailing Chinese Outward Foreign Direct Investment, Global Trade and Customs Journal, 15: 413-422.

 

[1]https://ec.europa.eu/competition/international/overview/foreign_subsidies_white_paper.pdf  

Assigning Blame for the Impact of COVID-19 on Developing Countries: Markets or Governments

This is from remarks by U.S. Trade Representative Katherine Tai yesterday at a WTO virtual conference on COVID-19 vaccine equity:

We hope to hear more today about how the market once again has failed in meeting the health needs of developing countries.  As part of that we have to consider what modifications and reforms to our trade rules might be necessary to reflect what we have learned.

I don't feel like I've been following vaccine production and distribution issues as closely as some other people have, but nevertheless my sense is that many of the problems result from patents and other IP issues (which are government intervention rather than the free market) and from the way developed country governments structured their purchases of the vaccines (which, again, is the government not the market). And, of course, there were a wide range of new export restrictions imposed by governments, and plenty of existing tariffs, that got in the way of trade in all of the various products needed by developing countries.

I don't know what exactly would have happened if we had a free market in all of the various health products at issue here, and no doubt there would have been some problems. But I think that developed country governments need to consider how their actions have directly led to the failures in meeting the health needs of developing countries. There is still time to change course and I hope the Biden administration is serious about this.

Is USTR Ready To Revisit Necessity Tests?

This is from remarks by U.S. Trade Representative Katherine Tai today on issues related to trade and the environment:

Even as investors take a greater interest in companies’ environmental risk exposure, the multilateral trading system has no rules to address the corporate incentive to participate in the race to the bottom. Rather, the environmental protection measures of WTO members are exposed to challenge. 

While countries can avail themselves of what amounts to an affirmative defense, that defense has proven difficult to invoke successfully. This is part of the reason why, today, the WTO is considered by many as an institution that not only has no solutions to offer on environmental concerns, but is part of the problem. 

If you are worried about affirmative defenses at the WTO being applied too strictly, I would think necessity tests would be an area of concern. In the past, when I've raised the issue of replacing necessity tests with looser "related to"-style tests, people at USTR have not seemed very receptive. Are Tai's remarks a sign that perhaps USTR is ready to revisit the issue?

Tim Meyer has a good new paper on these issues here, which I'll be blogging about soon.

Digital Trade Agreements and Domestic Policy

I did a series of posts recently on digital trade issues, and I have now consolidated them all into a short Cato paper. Here's the intro:

National debates over policies that affect the flow of digital information are heating up as censorship, surveillance, control over personal data, and requirements to store data locally have emerged as contentious political issues. In the coming years, governments will need to carefully craft policies that preserve the free flow of information and avoid data nationalism.

But these policies are not just domestic in nature. The regulations that emerge will have an international dimension due to their impact on companies and individuals in other countries. In an ideal word, domestic regulation would not lead to trade conflict, but in reality it often does. To address the conflicts that might arise from regulatory effects abroad, there have been efforts at the bilateral, regional, and multilateral level to develop international rules on digital governance. The scope of digital trade agreements is still evolving, but, to take one example, the recent U.S.-Japan Digital Trade Agreement defines “digital product” as “a computer program, text, video, image, sound recording, or other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically.” With this and other provisions that establish broad coverage, these agreements will have an impact on virtually all commercial activity on the internet and on smartphone apps.

The international rules for digital trade address specific regulatory issues such as consumer protection and spam, but they also include the broad principle of nondiscrimination, which offers more general international oversight. Two key aspects of that principle are the nondiscrimination obligation, which in the international trade context requires that domestic regulations treat comparable foreign and domestic products alike and treat comparable foreign products from different countries alike; and exceptions for various public policies, which ensure that the international trade regime does not interfere with policymaking on nontrade issues. Under the Trump administration, the United States put forward specific language during negotiations on these digital agreements that results in an overly broad approach to the nondiscrimination obligation and a narrow approach to the exceptions. This paper argues that the Biden administration should reconsider current U.S. policy in this area and adjust the proposals it has made in the ongoing World Trade Organization (WTO) e‐​commerce negotiations.

Having watched the debate over how international economic law intrudes into domestic sovereignty/regulatory autonomy, I worry that we haven't learned those lessons very well and are about to make the same mistakes in international governance of digital trade. My paper addresses one particular aspect of this, but there's a lot more to say. Some time in the next couple months, I'll be hosting a Cato webinar on digital trade governance and will post the details when they are available.

SIEL April Conversation: Special and Differential Treatment under WTO

From the SIEL:

The Society of International Economic Law (SIEL) is pleased to invite you to its February Conversation entitled ‘Special and Differential Treatment under WTO’, with Dr Rashmi Banga (UNCTAD), Prof. Jan Wouters (KU Leuven), Dr Inu Manak (Cato Institute), Vineet Hegde (KU Leuven), chaired and moderated by Jan Yves Remy (Shridath Ramphal Centre, UWI)

22nd April 2021 at 3 pm CET time. Registration available here. More information can be found here.

Economic Law Tweets

The global dialogue here has been more quiet than usual, so here are some of my economic law tweets over the past week:  @SteveCharnovitz.

@SecRaimondo should strengthen USDOC programs without violating international trade law. Recalling my work in the 1970s with Hal Williams to establish the Commerce-Labor Adjustment Action Committee, DOC can implement innovative policies in the 2020s to promote US economic growth. 1:02 PM · Apr 11, 2021

A non state-owned enterprise in an allegedly state-controlled economy (#China) being penalized for competition policy violations in an allegedly lawless country by allegedly capricious regulators.  7:14 PM · Apr 10, 2021

The law of the #GATT refers to “private traders,” “consumers,” and “producers.” But this law on goods does not refer to the workers or to other social actors with views on market or government failure. Time to reform @WTO 9:08 AM · Apr 10, 2021

A Biden Administration commitment to #Taiwan’s defense means little.  Statehood should be granted to Taiwan so that it can regain the UN Seat taken away in 1971.  9:28 PM · Apr 9, 2021

For many years, #China pursued focused pro-growth policies. But now, one gets the impression that China has been knocked off course, and is utilizing irrational policies and instruments.  8:08 AM · Apr 8, 2021

If cryptocurrencies are a commodity rather than a currency, then trade in Bitcoin (BTC) is covered by the WTO GATT agreement.  8:34 AM · Apr 6, 2021

Are GPA Arbitrations Confidential?

Inside US Trade has been reporting on a U.S. request to modify its GPA commitments so as to exclude certain medical products. Back in December 2020, there was this: "The U.S. notified the World Trade Organization last week that it intends to remove certain essential medicines and 'critical inputs' from coverage under the Government Procurement Agreement in accordance with an August executive order mandating that such products be made in the U.S."

Then in January of this year, IUST reported on objections from other Members: "The European Union and Switzerland have formally objected to the United States’ proposed modification of its government procurement coverage to exclude essential medicines, arguing the U.S. has not accounted for the 'likely consequences of the change' for other members."

In February, there were more details on the U.S. notification: "The critical medicines the U.S. wants removed from its Government Procurement Agreement coverage at the World Trade Organization totaled $393 million, or 4.5 percent, in covered federal medical procurement as of 2014, a communication from the U.S. said this week."

And then a few days ago, IUST reported that this issue would go to arbitration:

Now, eight WTO members – the European Union, Switzerland, Canada, Japan, Australia, Israel, Korea and the United Kingdom – are referring their objections to arbitration after bilateral consultations with the U.S. in February and March failed to resolve the objections, the countries said this week in notifications obtained by Inside U.S. Trade.

I immediately went to the WTO's Documents Online to see the objections, but it seems that documents GPA/ARB/USA/1 - GPA/ARB/USA/1/Add. 7 are all restricted. That surprised me, but maybe it shouldn't have. The Procedures for the Circulation and Derestriction of WTO Documents say this:

documents relating to modification or renegotiation of concessions or to specific commitments pursuant to Article XXVIII of the GATT 1994 or Article XXI of the GATS respectively shall be restricted and automatically derestricted upon certification of such changes in the schedules;

I'm not sure exactly how to read this. Does it apply only to Article XXVIII of the GATT 1994 and Article XXI of the GATS? Or does it apply to "modification or renegotiation of concessions" more broadly? Is there some additional document that indicates that these rules apply to GPA modifications under Article XIX? (The GPA arbitration procedures are here). Based on what Documents Online is showing at the moment, it seems that these documents may not be public until the end of the process, which is a shame for transparency purposes.

Tweets on international economic law challenges

This Blog has been a little slow during a holy week, so here are a few of my tweets (@SteveCharnovitz) on how to improve a troubled global ecolonomy:

Congress should quickly pass a law enabling Biden to ratify the 2016 Kigali Amendment which sets rules for the production, consumption, and trade in HFCs.  7:28 PM · Apr 4, 2021

I wish the Biden Administration would bring science back into the White House. But I don’t see it happening yet in trade, health or climate policies. Climate science has long pointed to the need for carbon pricing. But Biden seems to want to tax profit, not carbon emissions.  10:07 AM · Apr 4, 2021

Back in 9/20, I drew attention to the ethical problems of poor COVID vaccine distribution to developing countries. 6 months later, the US and Europe have failed to improve their behavior.  7:42 AM · Apr 2, 2021

The leading global public interest lawyer @philippesands reminds the world that the Chagos Archipelago belongs to Mauritius, not the UK. The UK should implement rulings of the World Court rather than pursue what Philippe calls a brazen, grotesque double standard.  11:41 AM · Apr 1, 2021

Even if violating TRIPS could magically elicit vaccines, no WTO lawsuit could be fully adjudicated in the next 4 years, and by then the elicited vaccines would already be jabbed. So the requested TRIPS waiver delivers no practical benefits, only costs. Say no to it.  7:38 AM · Apr 1, 2021

Gina Raimondo explains on 3/21 CNBC that semiconductor CEOs “need help to build and to employ Americans.” She says Biden's plan is “about outcompeting China” and US needs to “invest in American manufacturing capacity.” For me, the Plan is industrial policy contrary to WTO law.  9:39 PM · Mar 31, 2021

Americans decry state led policies in Beijing but favor them in Washington  8:22 AM · Mar 31, 2021

The Biden Administration continues to threaten the rules-based order in the World Trade Organization that maintains global stability. The US should cease its nationalist attacks on the world trade court.  7:54 PM · Mar 30, 2021

The Biden Administration needs to prioritize US concerns about Brazil. The carbon sink capacity of Brazil is an important issue, but the top issue by far should be cooperation to better manage the P1 threat.  7:39 PM · Mar 29, 2021

I deplore the ongoing NGO and Congressional efforts to push the Biden Administration into diluting the WTO’s intellectual property law. This would be bad for global public health and bad for global trade. Shame on the WHO leadership for supporting this initiative. 7:07 AM · Mar 29, 2021

The Biden Administration should be pressing in the UN Security Council for action in response to the human rights crisis in Myanmar. I don’t know if the UN is up to that challenge, but the peoples of the United Nations should find out.  10:22 AM · Mar 28, 2021

In 2006, I called for a “peaceful evolution of Taiwan’s place in world affairs.” I now advocate nationhood for Taiwan and US support of that statehood objective.  9:34 AM · Mar 27, 2021

Possible Trade Law Violations in Biden's America Jobs Plan

Possible Trade Law Violations in Biden's America Jobs Plan

Steve Charnovitz

31 March 2021

The White House has released a description of the Biden Administration's new infrastructure plan and, as expected, the plan contains several domestic content programs that may violate US obligations under the World Trade Organization treaty:

1. "The plan will require that goods and materials are made in America and shipped on U.S.-flag, U.S.-crewed vessels."

2. The plan "will use more sustainable and innovative materials, including cleaner steel and cement, and component parts Made in America and shipped on U.S.-flag vessels with American crews under U.S. laws."

3. Biden "is asking Congress to include a commitment to increasing American jobs through Buy America and Ship American provisions."

4. Biden's plan contains:  "a $174 billion investment to win the EV market. His plan will enable automakers to spur domestic supply chains from raw materials to parts, retool factories to compete globally, and support American workers to make batteries and EVs. It will give consumers point of sale rebates and tax incentives to buy American-made EVs while ensuring that these vehicles are affordable for all families and manufactured by workers with good jobs."

5. Biden calls for $50 billion in spending under the CHIPS Act which became law in early 2021.CHIPS stands for "Creating Helpful Incentives to Produce Semiconductors for America," a title that itself points to sector-specific federal subsidies for manufacturing that can be expected to be (if not calculated to be) trade distorting. In addition, a provision for advanced microelectronics R&D contains what is termed "domestic production requirements."

To be sure, the WTO allows governments to restrict federal procurement spending to domestic content sources, subject to commitments to trading partners made in the Agreement on Government Procurement.  The information released today by the White House is too vague to ascertain whether any of the newly proposed programs might be government purchases exempt from the SCM Agreement and consistent with U.S. obligations under the Procurement Agreement. 

.  

Are Digital Services Taxes Discriminatory? Who Should Decide?

In my last post, I talked about how USTR is continuing on with the Section 301 proceedings in several cases related to digital services taxes. In its announcement, USTR said: "In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies." With regard to the standard used by USTR to determine whether discrimination exists, you can see this in action in the Section 301 case against France's digital services tax here. (I'm going to leave international tax rules and "burdens" on U.S. companies aside in this post.)

Two members of Congress -- Congresswoman Suzan DelBene (D-WA) and Congressman Darin LaHood (R-IL) -- agree that these digital services taxes are discriminatory. Here's something from a 2019 press release they put out:

“The French tax on digital services will disproportionately affect U.S. technology exporters by setting a threshold that effectively carves out all French competitors,” wrote DelBene and LaHood. They added, “We encourage you to send a strong message to France that the United States agrees global tax rules must be updated for the digital age, but discriminatory taxes against U.S. firms are not an appropriate solution.” 

In March of 2019, the French government proposed a unilateral DST on digital advertising, online platforms, and the transfer of data specifically aimed at U.S. technology companies. Under the proposal, U.S. companies could be charged up to five percent on gross revenue and it would be enacted retroactively to January 1, 2019. The French have made it explicitly clear that this proposal is designed for going after American businesses, and Finance Minister Lemaire has indicated this will raise the French over 500 million euros. ...

A March 29, 2021 letter they sent to Ambassador Tai along the same lines is here.

The question I want to raise on this issue is, who should decide whether the digital services taxes are discriminatory? I understand that USTR and others in the United States think they are discriminatory, but I want to hear both sides of the case. The UK and India clearly think otherwise:

“We want to make sure tech firms pay their fair share of tax,” a UK government spokesperson told Inside U.S. Trade, arguing the British measure is “reasonable, proportionate and non-discriminatory.”

...

“Should the U.S. proceed to implement these measures,” the spokesperson continued, “we would consider all options to defend UK interests and industry.”

... 

India echoed the UK in defending its measure, with a representative of the Indian Ministry of Commerce and Industry telling local media the country’s “equalisation levy” is “not discriminatory and only seeks to ensure a level-playing field.”

I'd like to hear the governments imposing these taxes flesh out their argument and have the question adjudicated by a neutral party, with an examination of questions such as: What exactly do we mean by "discrimination"? And, is the measure justified by a public policy objective? For whatever reason, it does not seem as though USTR is planning to bring a WTO case on these issues (Hufbauer and Lu set out the basics of a WTO claim here). But if the United States really wants to press for changes in other countries' policies, it probably needs to do more than just assert that the taxes are discriminatory and then take unilateral action. Rather, it needs to get the question before a neutral arbitrator who can make an assessment. Without that, other countries may not take the allegation very seriously, and will just retaliate if USTR imposes tariffs under Section 301.

Call for Proposals: 2021 World Trade Forum on "China & the WTO: 20 Years On"

2021 World Trade Forum

China & the WTO: 20 Years On

(book track sessions)

November 2021, World Trade Institute, Bern, Switzerland

Call for Proposals

Dear colleagues,

We invite your submissions of proposals for contributions to a volume on China & the WTO: 20 Years On (World Trade Forum Series, Cambridge University Press) co-edited by Henry Gao (Singapore Management University), Damian Raess (World Trade Institute, University of Bern) & Ka Zeng (University of Arkansas).

Selected authors will be invited to present draft papers at the book track sessions of the 2021 World Trade Forum to be hosted at the World Trade Institute in Bern (tentatively scheduled for November 10-13). We currently envision a hybrid event, with both in-person and virtual participation options for session organizers and attendees, but are prepared to transition to a fully virtual event if conditions require. Funding is available to cover the travel and accommodation expenses for selected participants, particularly but not limited to post-docs and junior faculty. Please submit proposals of up to 500 words along with a CV via the following link https://fs23.formsite.com/mf8wiF/ccnjys8uus/index.html by April 30, 2021. Decisions will be sent out within a month of the submission deadline at the latest.

********

The year 2021 marks the 20^th anniversary of China’s accession to the World Trade Organization (2001), an event that has brought about the unprecedented integration of a large transitional economy into the rules-based multilateral trading system. Since its entry, China has benefited significantly from enhanced trade flows made possible by its WTO membership, becoming the largest trader in goods and second largest trader in services in the world today.

China’s growing participation in the WTO and other international economic institutions has led to what some scholars call a “two-way” socialization between China and these organizations. On the one hand, China has been bound by WTO rules and has been brought more frequently to the WTO dispute settlement system than any other WTO members in the last two decades. On the other hand, however, China’s WTO membership has also presented unparalleled challenges to the multilateral trade institution due to both the size of its economy and its unique economic model. Furthermore, China has sought to bring changes to the organization from within both by submitting various proposals to the WTO secretariat and at ministerial meetings and through coalition-building within the Doha round negotiations. The economic ascent of China has led to power shifts within the WTO, which some argue have contributed to the crisis and relative decline of the organization.

Outside of formal international economic institutions, China has actively promoted bilateral investment treaties (BITs) and, more recently, preferential trade agreements (PTAs) that assure preferential market access for Chinese goods, services, and capital, while its Belt and Road Initiative (BRI) is increasingly subsuming much of China’s economic (and political) involvement abroad.  While these developments have accelerated China’s economic rise, transforming the country into the workshop of the world and unleashing a global buying spree by Chinese firms, they have at the same time provoked strong backlash against Chinese influence. The ongoing U.S.-China trade war, which has completed its third full year and still has no end in sight under the new U.S. administration of President Joe Biden, further speaks to the potential for long-term strategic rivalry between the two largest economies in the world in the years to come.

Overall, progress in China’s long-term integration into the global economy as well as medium-term disruptions provide excellent opportunities to take stock of the implications of China’s economic rise. In particular, they raise important questions regarding the evolution of global economic governance structures, on the one hand, and government responses and policy adjustments (whether domestic or foreign policy related) in countries that are engaging China economically, on the other.  Within these two main lines of enquiry, we are particularly interested in contributions that address the following issues from legal, economic, or political science/international relations perspectives. Recognizing the broad scope of the subject, we are also willing to consider other contributions within the broad scope of the subject of “China and the WTO”.

A) International trade/economic governance

• China’s implementation of its WTO accession commitments;
• China’s involvement in WTO negotiations, especially the current round of plurilateral joint statement initiatives such as the ones on e-commerce and investment facilitation, etc.;
• China’s role in WTO reform;
• China’s participation in the WTO dispute settlement system;
• China’s Belt and Road Initiative;
• China’s free trade agreements including both bilateral ones and regional ones such as the RCEP;
• China’s bilateral investment treaties, and its participation in investor-state arbitration;
• China-sponsored international institutions, such as the AIIB, etc.;

In this area of inquiry, we welcome contributions that include insights into the relationship between domestic politics and China’s role in global economic governance as well as the two-way (or dynamic) relationships between the two.

B) Host government responses/policy adjustments

• The responses of major WTO Members such as the US, EU, Japan, and Canada, etc., including shifts in economic policy, legal rules, and political coalition-building, etc.;
• The responses of developing countries, especially those within the BRI region, including shifts in economic policy, legal rules, and political coalition-building, etc.;
• The impact of Chinese trade and investment on sustainable development in host countries, including the design and impact of the “green BRI”;
• The politics, economics, and legal analysis of the China-US trade war;
• Collective responses by countries at the regional level, such as the CPTPP;
• Collective responses by countries at the global level, such as the trilateral initiative and WTO reform;

We look forward to your submissions.

Henry Gao (Law), Damian Raess (Political Science) & Ka Zeng (Political Science).

The Biden Administration's Approach to Section 301

On Friday, USTR announced its next steps in many of the Section 301 digital services tax cases:

The United States Trade Representative (USTR) today announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners.  In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies.  USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.

Here's what Ambassador Tai said about it:

“The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,” said Ambassador Katherine Tai.  “The United States remains committed to reaching an international consensus through the OECD process on international tax issues.  However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.” (emphasis added) 

The federal register notices related to all this are here. To elaborate on the point about tariffs that Tai made, this is from the Federal Register notice related to the UK:

Section 301(c)(1)(B) of the Trade Act authorizes the U.S. Trade Representative to impose duties on the goods of the foreign country subject to the investigation. Pursuant to sections 301(b) and (c), USTR proposes that the U.S. Trade Representative should determine that action is appropriate and that appropriate action would include the imposition of additional ad valorem tariffs on certain products of the United Kingdom.

In particular, USTR proposes to impose additional tariffs of up to 25 percent ad valorem on an aggregate level of trade that would collect duties on goods of the United Kingdom in the range of the amount of the DST that the United Kingdom is expected to collect from U.S. companies. Initial estimates indicate that the value of the DST payable by U.S.-based company groups to the United Kingdom will be up to approximately $325 million per year.

USTR further proposes that the goods of the United Kingdom subject to additional tariffs would be drawn from the preliminary list of products in the Annex to this notice, as specified by the listed eight-digit tariff subheadings.

Perhaps not coincidentally, there's a Wall Street Journal article today which quotes Tai as saying the following in the context of the Section 301 tariffs on China:

“No negotiator walks away from leverage, right?” she said.

...

“Every good negotiator retains his or her leverage to use it,” she said. “Every good negotiator is going to keep all of their options open.”

We'll never know if Tai and her trade team would have used Section 301 to deal with the digital services tax issue if they had been in charge when it arose. But they inherited a complex situation and are trying their best to manage it. I can imagine they thought that a clear indication that they would not use tariffs here would have come across as too "soft" on the issue, and didn't want to send that signal in the midst of a tough negotiation. At the same time, actually imposing these tariffs is likely to provoke retaliation and probably wouldn't help generate a resolution, and my hope is that they do not expect to use the tariffs, despite how clearly they laid them out in the Federal Register notices.

Tweets on the US and the World Economy

This Blog has long served as a global marketplace of ideas on national and international economic law.  The market seems less active than it used to be, so I am posting a few of my Tweets of the past week:

Trump’s unfair attacks on dispute system of the World Trade Organization are now being copied by the Biden Administration. Venezuela sought to exercise its rights under the international rule of law, but the Biden Administration filibustered against the Venezuela vs US lawsuit. 11:53 AM · Mar 26, 2021.  @SteveCharnovitz 

The economic challenge from China to the US has little to do with China’s form of government. Or, for that matter, with America’s form of government.  4:16 AM · Mar 26, 2021

The Biden Administration’s apparent strategy of pushing China and Russia closer seems like a very risky way to rebalance world power. 7:44 AM · Mar 25, 2021 

The US should be utilizing the WTO to improve global governance including through stronger cooperation with China. The Biden Administration should be working closely in the WTO with Taiwan and Hong Kong as well as with China.  5:46 PM · Mar 24, 2021  

Congratulations to Sudan for ratifying core ILO Convention No. 87 to uphold Freedom of Association. This core labor treaty was written by the ILO in 1948 at its Conference in San Francisco. The US Senate should stop delay tactics and approve this vital treaty.  8:35 AM · Mar 24, 2021

I hope that the Biden Administration and Senate leadership move more quickly to get new leadership in place at the US Dept. of Labor. One of the most important appointments is the US Representative to the International Labour Organization.  8:04 AM · Mar 23, 2021

Looking forward to the WTO’s Aid for Trade “Event” on Tuesday. I hope that this program convinces the Biden Administration to start working within the WTO to promote economic growth through trade in developing countries.  4:38 PM · Mar 22, 2021

The US Defense Production Act is no free lunch. Recourse to it by the Biden Administration is creating shortages in vital drugs needed by many Americans.  7:28 AM · Mar 22, 2021

Attacking maritime piracy has long been a principle of US foreign policy. The US should be partnering with the UK, India, Denmark and other willing naval powers to stop such terrorism.  5:25 PM · Mar 21, 2021

One hopes that the US-China meeting in Alaska had more useful output than the news accounts indicate. The Biden Administration appears to be continuing the ineffective diplomacy of the Trump Administration in strengthening cooperation with China to address global problems.  1:23 PM · Mar 20, 2021

Shame on the Biden Administration for appealing a WTO decision against the US to the appellate court that the US shut down. Doubly hypocritical as the panel is right to call out the US for abuses in trade remedies.  2:51 PM · Mar 19, 2021

What Did the U.S. Originally Have in Mind for the Appellate Body? "Uniform Interpretation" vs “A Coherent and Predictable Body of Jurisprudence”

One of the issues that has come up in the Appellate Body appointments crisis is what exactly the Appellate Body's role should be. You can imagine a range of options here. At one extreme, it could be an arbitrator that decides the outcome without any reasoning at all. At the other extreme, it could be like a Supreme Court of International Trade which people rely on to establish binding constitutional principles. Most people probably want something in the middle, and that's where the Appellate Body was, although where exactly on the continuum it was is the subject of heated debate.

The possibility of issuing decisions with no reasoning at all seems like a non-starter, as the decisions just wouldn't have much credibility. So, the Appellate Body has to say something about the basis for its decisions. And if the Appellate Body is offering any reasoning at all, the interpretations in past cases are going to have some impact on how the parties argue future cases and how the Appellate Body rules in those cases. But the precise role those interpretations play still needs to be decided. If the WTO Members don't make the answer to that question clear, the Appellate Body will end up deciding the question on its own.

As part of its argument that the Appellate Body has overreached, one of the points the U.S. has made is that the Appellate Body is not following the rules as agreed in 1995. That raises the question of what exactly was intended by the drafters for the role of the Appellate Body. There were a lot of drafters, and it's hard to track them all down and quiz them about what they were thinking at the time. Even within a government, there might have been a range of views. The U.S. government is made up of many people, and they may not all have agreed on what they wanted from the Appellate Body.

Nonetheless, it's interesting to note what was said in the Statement of Administrative Action submitted by the Clinton administration as part of the Uruguay Round Agreements Act:

[DSU] Article 17 creates another new procedure, appellate review of panel decisions, which should help ensure uniform interpretation of Uruguay Round Agreements.

Based on the term "uniform," it seems as though the administration had in mind a role for the Appellate Body as providing a set of interpretations that would offer some consistency. GATT panels had sometimes put forward competing interpretations of provisions, which was a problem. The Appellate Body could put an end to that by offering a more definitive conclusion that would generally be followed. There's no reference to the specific role of precedent here, but I can imagine that the drafters of the SAA were thinking of a weak form of precedent, involving a departure from past decisions if there were good reasons to do so.

Now, this is just one sentence, and it's kind of vague, and governments can certainly rethink their policies. But as we debate the future role of appellate review in WTO dispute settlement, it's worth taking into account what the U.S. government's Uruguay Round drafters thought the DSU provisions meant.

Under Lighthizer, the U.S. seemed to be pushing away from the ideal of "uniform interpretation" when it said this:

Articles 17.6 and 17.13 of the DSU do not “vest” the Appellate Body with broad authority to develop “a coherent and predictable body of jurisprudence.”

What exactly is the difference between "uniform interpretation" and “a coherent and predictable body of jurisprudence”? I'm not sure, but it will be interesting to see if the Biden administration's USTR team can come up with a proposal here that can stay true to the SAA guidance and make all the various players happy.

WTO Rules on Chinese Industrial Subsidies and Approaches for Reform

Whether we need new rules to tackle Chinese SOEs and industrial policies and subsidies is being increasingly debated and will remain one of the most important and controversial issues for WTO reform.

In 2019, Henry Gao and I engaged in this debate through a lengthy paper titled “Building A Market Economy Through WTO-Inspired Reform of State-Owned Enterprises in China” (published by the International & Comparative Law Quarterly), which is now available for free download. Our central argument was that the existing rules, particularly a range of broad China-specific obligations, may have already provided sufficient tools to deal with Chinese SOEs, particularly in the context of China’s current SOE reforms. This remains my observation today.

One important issue the 2019 paper does not address in detail is how the existing rules may be applied to tackle China’s industrial subsidies. Now Meng Fang and I have written a lengthy paper (the second in the series) to provide a detailed examination of Chinese subsidies and the applicability of the existing rules particularly the ASCM and China-specific obligations. This paper, titled “Subsidizing Technology Competition: China’s Evolving Practices and International Trade Regulation in the Post-Pandemic Era”, is forthcoming in the Washington International Law Journal (Vol 30, Issue 3, 2021) and is available on SSRN. Although this paper focuses on the high-tech sector, our analysis and observations should apply to other Chinese industries. Moreover, our proposals for future negotiations of industrial subsidies are generally applicable.   

Our major findings and arguments in the 2021 paper, which are consistent with the conclusions in the 2019, are summarised below (largely reproduced from a thought piece published by the Institute for International Trade):

Contrary to widespread concerns about the potential difficulties of identifying Chinese subsidies due to a lack of transparency, we show that most subsidies in China’s high-tech sector fall squarely within the ambit of the ASCM. These include grants, equity infusion, policy loans and guarantees, tax preferences, and provision/purchase of goods at less/more than adequate remuneration. On the controversial issue of “public bodies”, we argue that it would not be so difficult to overcome the evidentiary burden under the AB’s “authority-based” test. At least in the case of China, the case law has evolved in a direction that makes “public bodies” easier to prove than to defend.

The existing rules are not perfect and do not cover all kinds of direct or indirect government support. However, the ASCM is not, nor is it intended to be, the sole source of discipline on government actions that may cause market distortions and adversely affect trading partners. Furthermore, the potential deficiencies in the current rules are not China-specific, but are generally applicable to all WTO Members. In any event, China is subject to more onerous obligations that may be applied to address these deficiencies. One major example concerns the criticism about the lack of discipline on the use of export taxes to indirectly subsidise downstream industries. While WTO Members are generally free to, and do, use export taxes for various policy objectives, China is prohibited from doing so. More broadly, China has an obligation to “allow prices for traded goods and services in every sector to be determined by market forces”, which has the potential to capture Chinese government intervention in all sectors where it affects prices directly or indirectly. Moreover, China must ensure its state entities make purchases and sales based solely on commercial considerations, arguably imposing a more comprehensive restriction on the anti-competitive conduct of SOEs and state-invested enterprises (i.e. beyond non-discrimination). In addition, the well-known problems in using benchmarks for the determination of whether a subsidy has conferred a benefit do not really create any issues for the application of countervailing measures against China. Investigators may resort to external benchmarks, as long as they find it difficult to decide the magnitude of benefits by reference to the terms and conditions in the Chinese market. This provides the flexibility for authorities to deal with State intervention in China and would facilitate a positive finding of countervailable subsidies. Overall, these WTO-plus obligations have provided important additional discipline on Chinese subsidies and market-distortive behaviour and conduct more broadly, leaving significantly less policy space for China. Yet, they have been strikingly under-utilised to date.

The explosive growth of industrial subsidies as a response to COVID-19 has created a unique opportunity for governments to rebuild the political will needed for international cooperation. Such cooperation does not have to take place at the multilateral level but may start at sub-multilateral levels with an aim to lay the groundwork for more inclusive negotiations. Regardless of the forum, governments need to reconsider the overarching principles and approaches for negotiations of industrial subsidies.

For this purpose, we put forward several major recommendations:

Focus on the problems:

The negotiations must not be disproportionately focused on China, and instead should focus on addressing trade-distortive subsidies globally. Given the widespread use of industrial subsidies, a China-focus would be perceived by China as discriminatory treatment, adding unnecessary complexities to already difficult negotiations.      

Maintain a balance:

The negotiations need to strike a balance between tightening the regulation of subsidies and preserving the regulatory freedom for governments to use subsidies for legitimate policy objectives.

Adopt a Scheduling approach:

It is necessary for the negotiations to deviate from the conventional approach to the regulation of industrial subsidies whereby all governments are subject to the same set of rules. Instead, the negotiations must recognise that each country has different regulatory priorities/needs and different economic, political, social and other situations and constraints regarding use of subsidies and the level of support, especially in the post-pandemic era. While the conventional approach may still be used to set out rules that are generally applicable, it must be supplemented by an approach that allows country-specific commitments and exceptions. Specifically, the negotiations should adopt a scheduling approach to produce an Industrial Subsidy Schedule for each country. This approach is nothing new to the WTO and has already been adopted in negotiations of tariff concessions and commitments in trade in services, although it may admittedly be more complex for subsidy negotiations.

Be realistic and incremental:

Future subsidy negotiations need to pursue an outcome that is politically achievable, which would necessarily leave some trade-distortive subsidies un-addressed or under-addressed for political reasons. This means that reform of subsidy rules and removal of trade-distortive subsidies will only progress incrementally. Nevertheless, it would already be a significant step if governments agree to come back to the negotiating table for a collective solution, especially in an era of de-globalisation, nationalism, populism and other unprecedented challenges.

Our proposal is not intended to be exhaustive, but provide ideas that can reinvigorate international cooperation on industrial subsidies in the post-pandemic era. In concluding, we emphasise that many of the systemic challenges we face today, including industrial policies and subsidies, predate the pandemic and will persist after it. Recent trade tensions between the world’s two superpowers have amply shown that unilateral and confrontational actions are not a solution to these challenges. Rather, the solution has to be built upon international cooperation.

Is Non-Discrimination in U.S. Digital Trade Agreements Nationality-Based?

Non-discrimination guru Lothar Ehring had a comment on my last post on non-discrimination in digital trade agreements, raising an issue I hadn't noticed: By eliminating a comparison with domestic products, the wording of certain non-discrimination provisions perhaps steers the provisions away from nationality-based discrimination in an even broader way than the singular vs. plural "product" issue that my post focused on.

Before we get into the details, to refresh everyone's memory, here are some examples of the text of the provisions at issue. First, this is the non-discrimination language in the U.S.-Japan Digital Trade Agreement:

Article 8

Non-Discriminatory Treatment of Digital Products

1. Neither Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of the other Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of the other Party, than it accords to other like digital products.

Similar language exists in the USMCA digital trade chapter:

Article 19.4: Non-Discriminatory Treatment of Digital Products

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

Shifting away from U.S. agreements, here is the CPTPP:

Article 14.4: Non-Discriminatory Treatment of Digital Products

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

And here's the language from the Digital Economic Partnership Agreement (DEPA):

Article 3.3: Non-Discriminatory Treatment of Digital Products

The Parties affirm their level of commitments relating to non-discriminatory treatment of digital products, in particular, but not exclusively:

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

To help illustrate the point I'm going to make, for comparison here is GATT Article III:4:

The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. ...

Notice how Article III:4 explicitly compares the treatment of products from different countries: "treatment no less favourable than that accorded to like products of national origin." Thus, under this provision, you compare the treatment of imported products with the treatment accorded to "like products of national origin." In other words, you compare the treatment of imported products to the treatment of domestic products.

Arguably, the CPTPP and DEPA are nationality-based as well, even though they don't say it explicitly with the same kind of language that Article III:4 uses. In essence, they take the treatment of the group of digital products territorially tied to the complainant, and compare that with the treatment accorded to "other like digital products," presumably domestic products (NT) or products from another country (MFN). Having said that, I think it would be useful to add language clarifying that the discrimination targeted here is nationality-based. For example, in DEPA, "than it accords to other like digital products" could be replaced with something along the lines of "than it accords to domestic like digital products or to like digital products from other countries" (the language may need to be more precise than that).

By contrast, because USMCA/US-Japan refer only to "a digital product," you could make the case that when worded this way, the provision isn't about nationality-based discrimination at all. To take an example, imagine a Mexican law established criteria under which Google Search and Microsoft Bing were treated differently. The U.S. could bring a complaint on the basis that one digital product from the U.S. was treated less favorably than another like digital product from the U.S.

How sure am I that such a complaint would be brought or that a panel would interpret the provision this way? Not very. But I am sure that by using the wording in USMCA/U.S.-Japan, the door has been opened to broad interpretations of this sort.

One caveat to all this is the following. Maybe some governments want non-discrimination in digital trade agreements to go beyond nationality-based discrimination, and to cover discrimination against particular products even if that discrimination isn't based on nationality. If that's the case, I would want to know why they want such a broad provision. What kinds of measures are they targeting here? In the WTO context, there have been occasional attempts to broaden the scope of the non-discrimination provisions beyond nationality-based discrimination. The same thing is true in the investment context. I understand that lawyers bringing cases like to have broader obligations to work with, but as a matter of policy, I don't see why anyone thinks we need obligations that are based on the concept of non-discrimination against certain products, rather than relying on the nationality-based discrimination that has traditionally been at the core of the trading system.

More on Exceptions Language in Digital Trade Agreements

Following up on my earlier posts about exceptions in digital trade chapters/agreements, here's another issue in this same area (thanks to Thomas Streinz for bringing it to my attention). This is the USMCA cross-border transformation of information by electronic means obligation and exception:

Article 19.11: Cross-Border Transfer of Information by Electronic Means

1. No Party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means if this activity is for the conduct of the business of a covered person.

2. This Article does not prevent a Party from adopting or maintaining a measure inconsistent with paragraph 1 that is necessary to achieve a legitimate public policy objective, provided that the measure:

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

(b) does not impose restrictions on transfers of information greater than are necessary to achieve the objective.⁵

⁵ A measure does not meet the conditions of this paragraph if it accords different treatment to data transfers solely on the basis that they are cross-border in a manner that modifies the conditions of competition to the detriment of service suppliers of another Party.

Article 11 of the U.S. - Japan Digital Trade Agreement has practically the same wording.

The obligation in paragraph 1 is clear enough. And the exceptions language in sub-paragraphs (a) and (b) of paragraph 2 all seems familiar from trade in goods/services agreements. But what exactly is footnote 5 about? Sub-paragraphs (a) and (b) would seem to set out sufficient conditions to prevent the paragraph 2 exception from being abused. But then footnote 5 does something extra, and I can't figure out what. Is there a measure that would be disqualified under footnote 5 but not under sub-paragraphs (a) and (b)? Does footnote 5 offer more specific wording to help illustrate how sub-paragraphs (a) and (b) apply? And more broadly, what is the relationship between the following three phrases: (1) a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; (2) restrictions on transfers of information greater than are necessary to achieve the objective; and (3) modifies the conditions of competition to the detriment of service suppliers of another Party? Do the negotiators have a sense of the precise contours of each?

Over the years, trade agreements have become controversial when the application of specific provisions through dispute settlement has intruded too much into domestic policy-making. GATT Articles III/XX and TBT Agreement Articles 2.1/2.2 are good examples of this. Digital governance policy is particularly sensitive, and it would be nice to have a sense of what exactly the international obligations in this area mean before they start to apply broadly.

 

What Does the U.S. Want on WTO DS? (And DSU Article 11 in Particular)

This morning I watched a very interesting IIEL event on "Rethinking the WTO: Opportunities for Transatlantic Cooperation," moderated by Joost Pauwelyn, and featuring Sabine Weyand, Jennifer Hillman, Thomas Graham, and Henry Gao as panelists. (I think they will post the recorded video at some point.)

One thing Tom Graham said jumped out at me and I wanted to comment on it:

What Sabine said earlier, just very briefly, struck me as similar to what the EU has said for a long time, just tell us what you want, the US won't tell us what it wants. [But the] US has been painfully clear, including 121 pages recently, over the years on exactly what it wants, which is more fundamental than the EU has wanted to hear, rather than simply tinkering here and there with procedures and words.

The 121 pages is here. I've read those pages, and the statements by the U.S. at DSB meetings, and other comments by U.S. officials, and I will say that I have very little idea of what the U.S. wants on many of the issues it has raised. Let me illustrate this by focusing on one particular issue: DSU Article 11 appeals. During the event, Graham made reference to a recent piece by former U.S. Ambassador to the WTO Dennis Shea, where Shea said the following on Article 11:

2. The [EU] strategy states that WTO panels are the triers of fact and that the role of the Appellate Body is “strictly limited to addressing legal issues raised on appeal.” Does the European Union now reject the position it previously advanced that the Appellate Body had the right to review whether panels “made an objective assessment of the facts” under Article 11 of the Dispute Settlement Understanding? Even the Appellate Body complained that these “Article 11 appeals” encouraged parties to relitigate their cases at the appellate level.

From this statement, I gather that at least some people at USTR don't want DSU Article 11 appeals that cover "an objective assessment of the facts." But Article 11 is broader than just factual issues. Here's the relevant text:

The function of panels is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. ...

Based on this language, I see three main possible subjects for appeal under Article 11: Did the panel make "an objective assessment of the matter before it"? Did the panel make "an objective assessment of the facts of the case"? Did the panel make "an objective assessment of ... the applicability of and conformity with the relevant covered agreements"?

So here's my question for Tom Graham, Dennis Shea, or any other former or current USTR official: Should there be DSU Article 11 appeals on any or all of the three issues noted above? And if so, what standard of review should be applied to each one?

(Just to remind everyone, as a matter of policy I'm against using Article 11 for appeals. Here I'm just trying to clarify the U.S. view of Article 11.)

A Trade Hackathon

This is from CTEI, the IIEL, and the Geneva Trade Platform:

G-2 CONFERENCE AND HACKATHON CHALLENGE 2O21 - HOW TO MAKE THE WTO FIT FOR FUTURE TRADE 09-11 APRIL | HACKATHON CHALLENGE 14 APRIL - 15:00-20:00 CET | G-2 CONFERENCE

This year, our annual G-2 Conference 14 April 2021, will take a new spin. At a moment when trade is challenged by the COVID-19 pandemic and a resurgence of protectionist sentiments, and the WTO faces crisis across many of its core functions, we want to elevate new, fresh perspectives with bold ideas for the WTO’s path forward. Our focal point will be a three day hackathon for students from around the world, on: ‘How to Make the WTO Fit for Future Trade’. This event is co-organised by CTEI, the Institute of International Economic Law || Georgetown Law and the Geneva Trade Platform . The conference will take place on 14 April 15:00-20:00CET. Please click HERE for conference registration only. We are challenging teams of students (2-4 per team) from anywhere in the world to collaborate and in just 72 hours, develop a fully considered and legally sound proposal for an outcome at the WTO that meaningfully addresses an issue that will be shared at the launch of the Hackathon (9 April 2021). Team members will need to be available from 9-11 April and 14 April afternoon 15:00-20:00 CET. Teams will be asked to: Define a substantive issue (500 words). Propose a specific treaty text or informal commitment/declaration text that addresses the concern (200 words).  Suggest a legal/technical or institutional way to implement the proposal within the broader WTO framework (500 words).  Prepare a short video summarizing the issue and the team’s solution (3-5 minutes) The three most innovative proposals will be featured on the day of the conference and the winning team will receive a cash prize of USD 3,000 followed by USD 2,000 & USD 1,000 for the second and third runner up respectively.  Please register your team to the Hackathon HERE before the 26th of March, 2021, 23:59 CET. More information on the hackathon will be shared with registered participants on a dedicated portal of the Beyond Trade Network.  For more information or if you would like to sponsor this event, please contact us on: events@genevatradeplatform.org

If the AB Appointments Crisis Is Resolved, What Happens to the Pending Appeals?

A trade lawyer I know wrote to me with the following comment/question for this blog's readers:

I believe that any resolution of the AB crisis will be “Walker +”, i.e. the Walker Principles plus some face-saving way of addressing “substantive overreach”.  As long as we avoid linkage with other issues on the “reform” agenda (like new disciplines on industrial subsidies), a resolution by MC12 is fairly easy to envision.

But then we get to the problem of the pending appeals.  There are 18 panel reports under appeal at the moment, 24 appeals and other appeals in total.  Surely there will be more by the time the AB crisis is resolved.  How on earth are those appeals going to get resolved in a manner that allows the AB to get back to 90 days for “new” appeals (as the Walker Principles would require)?  Based on historic patterns, it would probably take three years or so for the new AB just to work through the backlog.  New appeals will continue to pile up, and we’ll be right back to where we were at the end of 2019.

It seems like one of those details that could end up derailing the whole thing.  I would certainly be interested in people’s views on how to solve this problem.  Maybe a “special” AB made up of former members whose sole purpose is to work through the backlog, while the “new” AB starts with a clean slate?  But for the United States, at least, that would be pushing in the wrong direction – making the AB even larger, if only for a period of time.  In an ideal world, I suppose, everyone would agree to drop the pending appeals and allow the underlying panel reports to be adopted.  But it seems unlikely that all of the pending appellants would agree to that.  This includes, ironically, the United States – it has five pending appeals, including Lumber and DS543.  No way is it letting those go. 

I think these are great questions, and I'm not sure I have the answers. Any thoughts from readers?

SIEL March Conversation: Managing Trade, Health and Equitable Access to Medicines during a Global Pandemic

This is from the SIEL:

SIEL March Conversation

The Society of International Economic Law (SIEL) is pleased to invite you to its February Conversation entitled ‘Managing Trade, Health and Equitable Access to Medicines during a Global Pandemic’, with Fatima Hassan (Health Justice Initiative), James Bacchus (Center for Global Economic and Environmental Opportunity, University of Central Florida), Brook K. Baker (Northeastern U. School of Law, University of KwaZulu Natal, Health GAP), chaired and moderated by Gabrielle Marceau (Research Division (ERSD) of the WTO Secretariat).

 
18^th March 2021, 2 pm CET Time. Zoom registration available here. For more information see here.

Jim has a paper and blog post on this topic.

Non-Discrimination Provisions in Digital Trade Chapters/Agreements: "A Digital Product" vs. "Digital Products," and the Impact on Policy Space

I did a couple posts recently on proposed exceptions language in the WTO e-commerce negotiations. My point there was to raise the issue of exceptions that are written in a way that could interfere with non-discriminatory measures that are designed to achieve legitimate public policies. "Necessary," in my view, may be applied too strictly, and we should draft the exceptions with more flexibility in mind.

But before you get to the exceptions, the obligations themselves can also be written in a way that interferes with non-discriminatory public policy measures. One way they can do this is by using the wrong approach to determining whether the measure at issue has a detrimental impact -- or disparate impact or discriminatory effect, if you prefer -- on foreign products. Looking at a few examples from completed digital trade chapters/agreements and the WTO e-commerce consolidated text, it appears that a long-standing problem from GATT/WTO non-discrimination jurisprudence has popped up: When you are determining whether discrimination exists, should you consider the treatment of an individual foreign product in comparison with an individual like domestic product, or should you compare the treatment of the entire group of imported products to the entire group of like domestic products?

To illustrate this in the context of digital trade, imagine a hypothetical world where there are ten search engines, with five Canadian ones and five American ones. Canada then passes a law which adversely affects -- in a de facto way, without targeting nationality explicitly -- one of the American search engines and one of the Canadian search engines. Common sense would tell you that this law does not have a detrimental impact on the basis of nationality, as the number of adversely affected products is equal between the two countries. For each country, four products are not adversely affected, while one is adversely affected. However, there is a strain of thinking that says the adverse treatment of any individual foreign product under a measure is enough to count as discrimination. I think this strain of thinking is wrong (for the reasons set out here), but it's still out there and won't seem to completely disappear. No matter how many times it is rejected by panels and the Appellate Body, governments still raise it in their arguments now and then. And as we will see below, it looks like it may have been given new life in the context of digital trade.

Let's start off by looking at a couple recent agreements where the U.S. has been the driving force. First, here is the non-discrimination language in the U.S.-Japan Digital Trade Agreement:

Article 8

Non-Discriminatory Treatment of Digital Products

1. Neither Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of the other Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of the other Party, than it accords to other like digital products.

Similar language exists in the USMCA digital trade chapter:

Article 19.4: Non-Discriminatory Treatment of Digital Products

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

What these provisions have in common is a reference to "a digital product ... in the territory of [the other/another] Party." I don't know what the drafters had in mind, but the use of the singular "a digital product" here could be taken to mean that you don't need to look at the entire group of imported products. Rather, the treatment of any single imported product is enough to make a determination on whether there is a violation. Thus, even if, on the whole, the measures treat imported and like domestic products equally, a violation could be found based on the treatment of one particular imported product. Taking the hypothetical example from above, if the one adversely affected American search engine is treated worse than one individual Canadian search engine, a violation could be found. In other words, even if the measure has the same overall impact on the whole range of Canadian and American like products, a violation could be found by comparing individual American and Canadian products. And if you take this approach to its logical extreme, even if most Canadian products get the bad treatment, and most American products get the good treatment, a violation could be found as long as one individual American product gets worse treatment than one individual Canadian product. That, in my view, doesn't make much sense.

Now let's turn to some non-U.S. agreements. Here is the CPTPP:

Article 14.4: Non-Discriminatory Treatment of Digital Products

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

And here's the language from the Digital Economic Partnership Agreement (DEPA):

Article 3.3: Non-Discriminatory Treatment of Digital Products

The Parties affirm their level of commitments relating to non-discriminatory treatment of digital products, in particular, but not exclusively:

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

For these two agreements, the text refers to "digital products," in the plural. Arguably, then, the non-discrimination standard under these agreements would require an examination of the treatment of the entire group of imported digital products as compared to the entire group of like domestic products. Thus, under this approach, the hypothetical Canadian law would clearly not constitute a violation.

Interestingly, the version of the TPP that the U.S. helped draft uses "digital products," which means the USMCA/US-Japan text appears to reflect a recent change in U.S. policy. And to further pinpoint that change, the original pre-legal scrub version of the USMCA released on September 30, 2018 also uses "digital products," but then in the scrubbed version that was signed on November 30, 2018, the language changes to "a digital product." How exactly did the USMCA legal scrub lead to the new language? Was someone scrubbing for clarity, or scrubbing for a change in the scope of the provision?

(Also worth noting is that the older KORUS FTA seems to offer a very different U.S. approach to this issue in its e-commerce chapter).

Any other bilateral and regional trade agreements to look at? Those are the main ones I found with provisions of this type, but let me know if I've missed any with a different approach. (The RCEP doesn't seem to have a non-discrimination provision in its digital trade chapter.)

Turning to the WTO, the non-discrimination provision of the leaked consolidated text looks like this:

B.1. Non-discrimination and liability
(1) Non-discriminatory treatment of digital products

...

2. No [Party/Member] shall accord less favourable treatment to a digital product created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another [Party/Member], or to a digital product of which the author, performer, producer, developer or owner is a person of another [Party/Member], than that it accords to other like digital products. [For greater certainty, to the extent that a digital product of a [non-Party/non-Member] is a "like digital product", it will qualify as an "other like digital product" for the purposes of this paragraph.]

Paragraph 2:
• Based on text proposals by JP, US and UA.

What we see here looks pretty similar to the U.S. agreements, which is not surprising given the proposals from which the language was apparently drawn.

As I've written recently, I support the efforts to craft digital trade rules, although I'm skeptical they will have much impact any time soon. But as I suggested in my posts on the exceptions in the WTO E-commerce talks, we should think carefully about the impact of the specific language being put forward. To some extent, you can correct for problematic language later through the jurisprudence, but it would be better to get it right in the original drafting. Digital trade is an area where there could be a big impact on domestic regulation. For those worried about policy space and regulatory autonomy, problems can be avoided if we deal with potential concerns now in the context of core provisions such as those on non-discrimination and exceptions. With non-discrimination, the focus on individual products is a real problem because it means that discrimination may be found to exist in circumstances where common sense would tell you that the measure has been equally applied. That would constitute excessive interference in domestic policy-making, and lead to the same complaints about inappropriate limits on policy space that we have seen over the years in the trade in goods and trade in services contexts.

Guest Post: What’s Sauce for the Goose is not Sauce for the Gander? On Discriminatory Export Quotas for Vaccines

This post is by professors Henrik Horn and Petros Mavroidis

The recent EU regulation restricting exports of vaccines [Commission Implementing Regulation (EU) 2021/111, 2021, O.J., (L 31I)] has caused much debate. One feature of the regime that has attracted less attention is the fact that the EU measure explicitly applies to exports to some, but not all, countries. Is this discrimination in line with the letter,  the rationale, and the objectives of the world trading regime?

The requirements for export restrictions on vaccines to be WTO legal

The legal issue is in a certain respects straight-forward. Article XI.2 GATT, which is a scope provision, provides an exemption for essential products from the prohibition of export restrictions in Article XI.1 GATT: “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party”. Life-saving vaccines are clearly essential products, so the exemption is applicable. But it also requires that the WTO member faces critical shortages, and the restrictions must be temporary as well. The recent export restrictions on vaccine seem to fulfil these criteria as well, although it is not yet clear how long they will remain in place.

However, it is also clear that both the wording of Art. XI.2 GATT, which states that the exemption applies to the prohibition in Art. XI.1 (“the provision of paragraph 1 of this Article”), as well as the context (Article XIII: Non-discriminatory Administration of Quantitative Restrictions), imply that export restrictions on vaccines must be non-discriminatory as per Art. I GATT.

This raises the question: how should export quantitative restrictions be allocated across WTO members to be non-discriminatory? Here the GATT is silent. Art. XIII.2 GATT provides an answer in case of import quotas--the shares should reflect the market shares observed during a pre-quota representative priod --but the agreement does not specify any principles for what constitutes non-discrimination in case of an export quota.  Since XIII.2 is irrelevant for the purposes of export quotas, MFN-applies. 

But the GATT is silent on what constitutes discrimination in the realm of export restrictions. A natural candidate for a definition of non-discrimination could be a proportional reduction in the volumes that would arise absent a restriction, both since this corresponds to a standard interpretation of non-discrimination, and since it applies to quantitative import restrictions in Art XIII.2. However, since export quotas have been left out of Art. XIII.2 GATT, where it could naturally have been included, had the Contracting Parties desired this to be the norm for non-discrimination, this is not necessarily an adequate definition of non-discrimination. One could further contemplate, that the MFN requirement could  be satisfied if quotas were not allocated at all, and either goods would be sold on “first come first serve”-basis, or an ad hoc agreement at the WTO between producers and consumers would be called for to address the issue. Similar agreements have been concluded in the past, and the MFA (Multi-Fibre Agreement) is a prime illustration.

Of course, discriminatory export restrictions could in principle be defended by invoking the public policy grounds embedded in Article XX. The chapeau of this provision imposes an even-handedness test, so the country discriminating will have to explain why, by serving one sauce to the goose (Switzerland) and another to the gander (Brazil), it still acts in non-discriminatory manner. In all likelihood the respondent will here face an uphill battle to persuade the WTO judges. But, a member could possibly claim for instance that by not excluding its neighbor countries, it contributes to the protection of its own public health, since most of the contacts are de facto with the neighbor countries, and not with remote places. The validity of a defense along these lines remains to be tested.

Hence, it is clear that export restrictions have to respect Art. I GATT, unless if they can be justified under Art. XX, but it is not clear what constitutes a non-discriminatory administration of export restrictions. The EU measure can still in all likelihood be said to be discriminatory, however, since, on its face, the export restrictions only apply to some WTO members.

Preferential Trade Agreements and Export Restrictions on Vaccines

The EU has exempted a few of its FTA partners from the scope of its export embargo on vaccine. This raises the question of whether export for such a product can lawfully be lifted vis-à-vis other members of a free-trade area (FTA) or even a customs union, as per Article XXIV.

Whether or not Germany, say, exports the vaccine to Italy, does not affect the legality of an EU export restrictions vis-vis the US. The EU is a member of the WTO on its own right, so the trade between Germany and Italy is an internal EU matter that falls outside the WTO. But the EU must treat all WTO members in even-handed manner, irrespective whether it has signed an FTA with them or not. It cannot, for example, treat Switzerland (an FTA partner of the EU towards who the EU continues to export vaccines) more favourably than say, the United Kingdom (another FTA partner, towards who the EU stopped exporting vaccines), or, China, a country with which the EU has no FTA. This is so, because FTA partners can give each other an advantage only with respect to tariffs and restrictive regulations of commerce, and not with respect to measures, like health policies, which were not meant to protect in the first place.

Health Policies and Trade Agreements

The discussion so far highlights the differential legislative treatment of the administration of import and export restrictions, and the ensuing problems.

Export restrictions on a vital vaccine are surely viewed by many as being morally problematic. While it is in the export restricting country’s national interest to ensure that its citizens get access to the vaccine, this presumably also apply to those countries that would have imported the vaccine. Hence, export restrictions on vaccines effectively constitute exportation of health problems. As such, it might seem a flaw in the WTO Agreement to allow for export restrictions on e.g. vaccines.

However, from the perspective of the Dismal Science, it is not necessarily a signal of a problem with the trade agreement that similar practices are permitted. For instance, if the export restriction only shifts a certain number of casualties from the export restricting country to trade partners, the export restriction will not affect the overall number of casualties from the virus, only the distribution of the casualties across countries. Trade agreements are not meant to solve such purely distributional problems.

But export restrictions on vaccines are likely to not only affect the distribution of a given number of deaths, but also the total toll.  If the (EU) objective is to contribute to minimize the total number of casualties, the vaccine should primarily go to those countries where the impact on health is the largest. One important factor here is presumably the level of development, since poorer countries have less ability produce their own vaccines, to treat those who become ill, etc. From this perspective, the discrimination should be in favor of those who are most severely hit by not having access to the vaccine. This seems to be largely the opposite of what the EU did, when it imposed its export restrictions.

It should be noted that the EU has taken certain actions that suggest it sees its export restrictions as problematic. On February 18, 2021, the EU and the so-called “Ottawa group” issued a communication[1] entitled “COVID-19 and Beyond: Trade and Health”, whereby they promised to eliminate export restrictions, adopt new ones sparingly and to the extent necessary to protect their essential interests, and always observe the WTO, while exporting vaccines to least-developed and developing countries with no access to them. But on February 25, Ursula von der Leyen stated again that the EU will ban vaccines leaving EU if suppliers fail to deliver, without specifying if future restrictions will be discriminatory or not. In the same vein, India seems to be contemplating the imposition of export restrictions on vaccines as well, and one cannot exclude that others might follows as well. If such measures proliferate during the pandemic, the effects risk reverberating on the trading system long after the pandemic is gone.

 

[1] WTO Doc. JOB/GC/251.

A Historical Perspective on India‘s and South Africa’s Threat to Block the Implementation of the Joint Statement Initiatives in the WTO, and a Potential Way Forward

Late last week, India and South Africa circulated a paper on the “Legal Status of ‘Joint Statement Initiatives’ and their Negotiated Outcomes” that was widely perceived as a threat to block the implementation of the four Joint Statement Initiatives in the WTO (Peter Ungphakorn has described it as “pouring cold water” on the talks; Inside U.S. Trade’s Hannah Monicken characterized it as “throwing a wrench in the plans for the WTO to become a plurilateral forum”). The paper was bound to cause some frustration among long-suffering observers of WTO negotiations who had hoped that the confluence of a new DG, a new US administration, and a new EU trade strategy would create the momentum needed to bring these negotiations to a successful conclusion.

A historical perspective can shed light both on the merits of the paper and its limits. There are parallels – and crucial differences – to the conclusion of both the Tokyo Round and the Uruguay Round (unless otherwise indicated, references for the quotes reproduced in this post can be found in my article on the “The Club Approach to Multilateral Trade Lawmaking”).

The Tokyo Round Debate Redux …

As is widely known, the Tokyo Round concluded with the adoption of several plurilateral ‘codes’ that were negotiated among small subsets of GATT contracting parties. What is less well known is that the developing countries attempted to make the adoption of these codes subject to a consensus decision by the Trade Negotiations Committee, or at least the consent of a “large majority” of contracting parties. At a meeting of the Trade Negotiations Committee in July 1978, Yugoslavia, speaking “on behalf of the developing countries”, stated:  

At this stage we are requesting that a rule be established for the decision-making process in the [multilateral trade negotiation] according to which no adoption of a negotiating document would be accepted unless the large majority of participants declared themselves in favour of it. We cannot proceed on the basis that a group of a few countries may consider it appropriate for others to be kept out of arrangements if they are not in a position to accept their conceptual approach.

Like India and South Africa today, Yugoslavia was concerned that the code approach circumvented the amendment provisions of the GATT. Thus, Yugoslavia noted that “whenever amendments are made in the General Agreement, the CONTRACTING PARTIES have to approve them according to the existing rules.” The developing countries attempted to amend the final drafts of the codes to the effect that they “should enter into force when two thirds of the participants in the MTN have accepted them” – a threshold that mirrored the amendment provisions of the GATT. An alternative proposal advanced at the conclusion of the negotiations was that the codes should only be opened for acceptance “after being adopted by the Trade Negotiations Committee” – a decision that would have to be taken by consensus, as was GATT practice.

The developed countries, by contrast, took the view that the multilateral trade negotiation …

… was not a general diplomatic conference, that no agreement was being forced on any government but that on the other hand the Committee could not prevent a number of countries from entering into an agreement if they wished to, unless the provisions of the agreement were contrary to the GATT. 

They argued that subsets of members who wished to enter into the codes were free to do so as long as they “were not imposing anything on other governments but simply moving to higher levels of discipline”.

Why were developing countries upset about the codes, and do those reasons apply today? A first reason was a lack of transparency and inclusivity in the Tokyo Round negotiations. In many instances, developing countries were not part of the negotiations until the basic outlines of the codes had been hammered out by the US and the EC; in fact, in some cases (specifically, the codes on anti-dumping and civil aircraft) the developing countries didn’t even find out that codes were being negotiated until the final stages of the Round.

As far as I can tell, we are in a very different world today when it comes to the transparency of negotiations. It is perhaps an indication of how the trade regime has changed in this respect that India and South Africa do not raise concerns about transparency in their paper.

However, a second reason for the developing countries’ frustration in the Tokyo Round is still present today: if subsets of contracting parties are free to “go off to do business by themselves” (as Hudec memorably put it), the other contracting parties lose control of the agenda. In the Tokyo Round, the developed countries could focus on their priorities, and the developing countries had no leverage to force the developed countries to make concessions on those issues that were of most importance to them. This concern is echoed in India’s and South Africa’s paper, which highlights the “systemic implications” of the Joint Statement Initiatives, including that they

result in Members disregarding existing multilateral mandates arrived at through consensus in favour of matters without multilateral mandates

lead to the marginalization or exclusion of issues which are difficult but which remain critical for the multilateral trading system, such as agriculture, development, thereby undermining balance in agenda setting, negotiating processes and outcomes.

Both in the 1970s and today, there was and is a real frustration among some developing countries that plurilateral approaches allow their proponents to sideline the interests and priorities of developing countries (though it should be noted that many more developing countries are participating in the Joint Statement Initiatives than were involved in the code negotiations).

Finally, both the developing countries in the Tokyo Round and India and South Africa today were concerned not just about the negotiations at hand, but also about the precedential effect of a less-than-multilateral outcome of the negotiations. In 1979, Malaysia lamented that a “precedent” was being “set for various groups of countries to put up Agreements amongst themselves and to seek the umbrella of the [multilateral trade negotiation].” Similar, India and South Africa today warn against “creat[ing] a precedent for any group of Members to bring any issue into the WTO without the required consensus”.

… with a Twist

There is of course a crucial difference between the circumstances at the end of the Tokyo Round and the situation today: the legal default position has changed. In 1979, the developing countries were unable to prevent the adoption of the codes, because adding a consensus requirement for their adoption or a two-thirds majority requirement for their entry into force would have required a change to the codes. Today, by contrast, consensus for the addition of a new plurilateral agreement to Annex 4 of the Marrakesh Agreement is the legal default position. As India and South Africa correctly point out, a single WTO Member can even prevent the certification of other WTO Members’ schedules and hence frustrate the implementation of new plurilateral agreements through that route. In other words, the Marrakesh Agreement empowers developing countries to do exactly what they wished they could have done at the end of the Tokyo Round: to prevent subsets of WTO Members from concluding agreements among themselves within the framework of the multilateral trade regime. That does not mean, however, that India’s and South Africa’s position does not carry risks. And here the Uruguay Round potentially holds a lesson.  

A Lesson about Excessive Legalism from the Uruguay Round

Martti Koskenniemi once wrote that an “international lawyer is in part pleased, in part embarrassed when philosophers contemplating the international order put their hope in international law”. International trade lawyers might feel something similar when they see developing countries relying exclusively on legal rules to protect their interests. An anecdote from the Uruguay Round highlights the risks of excessive confidence in legal rules.

As is, again, well known, India was fundamentally opposed to the integration of substantive intellectual property rights into the multilateral trade regime for at least the first four years of the Uruguay Round. The 1988 mid-term ministerial in Montreal failed in part because India and other developing countries would not agree to continued negotiations on substantive intellectual property rights. How was this deadlock overcome? As the EC negotiators Hugo Paemen and Alexandra Bensch tell it (in their book From the GATT to the WTO, at 143), “the Community negotiator secretly told India and Brazil that the future agreement on TRIPs would not necessarily have to form part of the legal GATT texts. This represented a major concession …”. And here comes the money quote from Paemen and Bensch, which has stuck with me ever since I first read it (my highlights): “India, which tended to adopt a legalistic attitude in matters relating to the GATT, allowed itself to be persuaded.” The EC’s assurance was reflected in the following proviso in the document that recorded the mid-term compromise: “Ministers agree that the outcome of the negotiations is not prejudged and that these negotiations are without prejudice to the views of participants concerning the institutional aspects of the international implementation of the results of the negotiations in this area, which is to be decided pursuant to the final paragraph of the Punta del Este Declaration.” Clearly, India expected that the decision on the international implementation of the results would be taken by consensus, so that it would be free to decide whether to join the TRIPS Agreement or not.

However, it was not to be: once Richard Steinberg and his colleagues at USTR had come up with the ingenious device of creating a new treaty of which both a copied-and-pasted GATT and the TRIPS were an “integral part”, a refusal to join the TRIPS Agreement suddenly meant staying entirely outside of the multilateral trade regime; as a result, India’s leverage and ability to protect its own interests dissolved into thin air (for an account of the conclusion of the Uruguay Round that traces these dynamics in great detail, see pp. 165-181 of my Club Approach paper; for a different reading of these events, see Robert Wolfe’s JIEL article on the single undertaking).

Is the India-South Africa paper another example of a “legalistic attitude” that might give them and other developing countries a false sense of security? I can think of three reasons why that might be the case.

First, at some point the political pressure to concede may simply become overwhelming. Blocking a consensus is politically costly, even for the largest WTO Members: The US had to give up its resistance to the TRIPS waiver in 2003, and India had to concede on the Protocol of Amendment for the Trade Facilitation Agreement in 2014. In both cases, the WTO Member had the “right” to maintain their veto, but because their position was not perceived as substantively legitimate by the vast majority of the membership, it ultimately became too costly from a political standpoint. I suspect that India and South Africa will find themselves in a similar position if they try to block the adoption of the Joint Statement Initiatives: unless they articulate concrete substantive demands that could provide a basis for compromise (more on that below), their position will probably attract little sympathy, especially since they would be able to free ride on the commitments adopted by the participants of the Joint Statement Initiatives.

Second, I wonder whether India and South Africa overestimate WTO Members’ sense of urgency in seeing their schedules certified. Assuming that the proponents of the Joint Statement Initiatives decide to implement their new commitments by inscribing them into their schedules, and India and South Africa proceed to block the certification of those schedules, what would the proponents do? I think the most likely scenario is that they would simply treat the schedules as reflecting their obligations and act accordingly. Delays in the certification of schedules are not uncommon: for example, the EU’s revisions to its goods schedule after the 2004 expansion were not certified until 2017. During the GATT years, the contracting parties routinely observed commitments that were technically not in force (John Jackson notes in World Trade and the Law of GATT (at 217) that “It sometimes seems as if those parts of GATT that are not legally binding have a better record of compliance than those parts that are!” For theoretical background, see also Robert Wolfe’s pluralist account of the role of law in the trade regime). Of course, uncertified schedules would not provide the same legal certainty as certified schedules, but I doubt that the prospect of non-certification will dissuade the proponents of the Joint Statement Initiatives from pursuing that option. Blocking the certification of schedules is such an obscure tool that I cannot see it making a significant dent in the momentum of the Joint Statement Initiatives (such as it is).  

Finally, as others have pointed out and India and South Africa themselves highlight, the likely consequence of blocking the Joint Statement Initiatives in the WTO would be that they are implemented in the context of a preferential trade agreement. It is hard to see why it will be better for developing countries in the long run if these issues are addressed outside the WTO context than within it. If the issues are dealt with in the WTO, developing countries will be in a better position both procedurally and substantively: procedurally, because the participants in the Joint Statement Initiatives will presumably be subject to transparency obligations that they would not have if the agreements were addressed outside the WTO, and substantively because the non-participants would be able to receive the benefits of the Joint Statement Initiatives through MFN. Moreover, a failure of the Joint Statement Initiatives due to vetoes from non-participants would do even more damage to the WTO as a negotiating forum and will further accelerate the tendency to tackle new issues outside the WTO. Further weakening the WTO as a negotiating forum would undermine India’s and South Africa’s objective of reviving negotiations in areas of interest to them.

What Could Be a Way Forward?

Even if their position is not without risks, it is clear that India and South Africa have some leverage over the participants in the Joint Statement Initiatives. How could they use that leverage?

India’s and South Africa’s main objective appears to be to prod other WTO Members to re-engage in negotiations on issues that are of more interest to developing countries, such as agriculture, and to pursue negotiations on issues like services based on multilateral mandates. There are limited prospects that they will be able to employ their leverage to that end: there are complex reasons that those negotiations stalled, and the additional bargaining chip that India and South Africa now have will not be enough to overcome the deadlock. India has once before unsuccessfully attempted to use its blocking power to speed up negotiations on a substantively unrelated subject when it held up the adoption of the Protocol of Amendment for the Trade Facilitation Agreement with a demand to accelerate negotiations on public stockholding. There is no reason to expect that the dynamics will play out differently this time around.

A more promising option would be for India and South Africa to use their leverage to maximize the benefits of the Joint Statement Initiatives for non-participants. Bernhard Hoekman and Charles Sabel have proposed a “multilateral governance framework” for what they call open plurilateral agreements (OPA) (h/t Robert Wolfe), which includes the following principles:

1. Membership of an OPA is voluntary; WTO members that decide not to participate will not be pressured to join at a later date;
2. An OPA must be implemented on a nondiscriminatory basis, with benefits extending to non-signatories;
3. Openness to subsequent membership by WTO Members that did not join when an OPA was first agreed, and inclusion of a section laying out the requirements and procedures to be followed for accession by aspiring members;
4. Language stating that accession to an OPA cannot be on terms that are more stringent than those that applied to the incumbent parties, adjusted for any changes in substantive disciplines adopted by signatories over time;
5. An obligation to provide reasons to accession-seeking countries for decisions to reject membership applications;
6. A provision committing signatories to provide assistance to WTO members that are not in a position to satisfy the preconditions for membership in terms of applying the substantive provisions of the agreement but desire to do so;
7. Where feasible and in instances where capacities must be built for a country to meet OPA requirements, consideration be given to establish a stepwise schedule of compliance;
8. Provisions ensuring that nonparticipants have full information on the implementation and operation of the agreement. These should include:
   1. Compliance with WTO requirements pertaining to publication of information on measures covered by the OPA (along lines of Art. X GATT);
   2. Simple, robust notification requirements for OPA members regarding the implementation of the agreement, which could draw on recent proposals to develop augmented procedural guidelines for the operation of WTO bodies;
   3. Creation of a body to oversee implementation of the OPA that is open to observation by non-signatories, including mechanisms to engage stakeholders in an ongoing conversation about how the agreement is working and future needs;
   4. Annual reporting to the WTO General Council by the OPA on its activities;
   5. A mandate for the WTO Secretariat to assess the effects of implementing OPAs on the functioning of the trading system as part of the Director-General’s annual monitoring report of developments in the trading system.
9. Inclusion of consultation and conflict resolution procedures for non-signatories of OPAs in cases where they perceive that incumbents do not live up to the foregoing principles;
10. Provisions indicating whether the OPA envisages recourse to WTO dispute settlement mechanisms to enforce the agreement, and if so, specifying the standard of review as well as the criteria that will apply in the selection of arbitrators.

Again, there is a historical precedent for non-participants in plurilateral agreements using their leverage in this way: after the conclusion of the Tokyo Round, the non-participants in the codes used the fact that the participants needed their consent to allow the GATT Secretariat to administer the codes to extract important concessions, including a commitment (a) that the codes (with the exception of the Government Procurement code) would be applied on an MFN basis, (b) that the Contracting Parties would receive “regular reports” about the operation of the codes, and (c) that non-signatories would be able to follow the proceedings of the Committees overseeing the codes “in an observer capacity”.   

If India and South Africa were to employ their leverage in this way, the WTO as a negotiating forum would benefit twice over: it would show that it can accommodate plurilateral initiatives, and would build a governance framework that ensures that the WTO Membership at large benefits to the maximum extent possible from those initiatives. Admittedly, however, this solution would do little to address what appears to be India’s and South Africa’s main concern – that control of the agenda of the multilateral trade regime appears to be slipping away from developing countries yet again.

Developing country status and trade remedies

As recently discussed by Inu Manak in this blog, the US and the EU have both proposed using objective criteria to clarify the term "developing Member" in the WTO. Of course, these are simply proposals. Developing Members will certainly resist strongly, and insist on the principle of self-selection, so any immediate outcome to such discussions is unlikely at best.

There is however one area where the initial determination does not rest with the invoking country: trade remedies. Under the SCM Agreement (Article 27.10), an imposing Member must apply a higher (2%) de minimis subsidy rate, and a higher negligible import volume, to developing Members. And under the Agreement on Safeguards (Article 9.1), small developing Member suppliers must be excluded from the scope of a measure. Accordingly, I though it might be interesting to see what approaches were taken by users of trade remedies when defining who is (and is not) a developing Member. Here is what I came up with. 

The United States position is well known. For CVD purposes, it excludes from its list World Bank “high income” countries (such as Barbados), countries with greater than 0.5% of world trade (such as Brazil, India, Indonesia, Malaysia, Thailand & Viet Nam), OECD members and applicants (such as Chile), G20 members (e.g., Argentina and South Africa), former NMEs (e.g., Armenia & Ukraine) and EU member States (e.g., Romania and Bulgaria). 

According to a recent CVD determination on Trout from Turkey (para. 61),  the European Union uses its GSP eligibility list (Annex II to Regulation No 978/2012). That list excludes both “high” and “upper-middle” income countries, and in that respect is more restrictive than the US (“upper middle income” countries include Argentina, Brazil, China, Mexico, South Africa, Thailand & Turkey). But it does not use trade shares, G20 or OECD member status as a basis to exclude. Notably, the EU also excludes countries with which it has a “preferential market access arrangement”. Since the EU has a growing number of FTAs with developing countries (such as Vietnam), this exception is significant.

For safeguard purposes, India has its own list of developing countries. Although the list does not explain how the countries were selected, World Bank “high income” countries (such as Barbados, Chile, Equatorial Guinea, Oman, Trinidad & Tobago and Uruguay) are excluded. By contrast, upper-middle income countries like Brazil and Mexico still qualify. It thus appears that this list is based upon World Bank classifications, although the exclusion of Argentina, for example, leaves me a bit perplexed. Perhaps this reflects the fact that the World Bank categories shift over time?

According to the SIMA Handbook (p. 189), Canada "will regard any country as “developing” for trade remedy purposes if it is listed as a least developed country, other low income country or lower middle income country or territory in the OECD DAC (Development Assistance Committee) List of ODA (official development assistance) Recipients."  Since the OECD list is based upon World Bank classifications, Canada's approach, like that of the EU, focuses on GNI per capita, and excludes "upper middle income" countries like Argentina, Brazil, Mexico, and South Africa from the list. (Information on Canada updated to reflect helpful input from a reader).  

There is certainly a great deal of diversity here.  To date, the dispute settlement system has not been required to resolve a debate about developing Member status in order to resolve a dispute, nor is it clear how it could. Hopefully it will never be faced with the issue.  It is however clear that the current ad hoc approach is a source of legal uncertainty.

USTR's View of GATT Exceptions in Relation to Non-GATT Goods Agreements

At today's DSB meeting, the U.S. - Origin Marking Requirement (DS597) dispute was on the agenda. This dispute involves a complaint by Hong Kong against various U.S. measures requiring that goods produced in Hong Kong must be marked to indicate that their origin is "China." Hong Kong made claims under the GATT, the Rules of Origin Agreement, and the TBT Agreement. At the meeting, the U.S. invoked the GATT Article XXI national security exception as follows:

• The United States regrets that Hong Kong, China, has chosen to move forward with a request for panel establishment.

• In the U.S. reply to Hong Kong, China’s consultation request, the United States made clear that the Executive Order identified by Hong Kong, China, suspended the application of section 201(a) of the United States-Hong Kong Policy Act of 1992 to section 1304 of title 19 of the United States Code. The Executive Order further determined that the situation with respect to Hong Kong, China, constitutes a threat to the national security of the United States.

• The clear and unequivocal U.S. position, for over 70 years, is that issues of national security are not matters appropriate for adjudication in the WTO dispute settlement system. We therefore do not understand the purpose of this request for panel establishment, seeking WTO findings that the United States has breached certain WTO provisions. The WTO cannot, consistent with Article XXI of the General Agreement on Tariffs and Trade 1994, consider those claims or make the requested findings.

• No WTO Member can be surprised by this view. For decades, the United States has consistently held the position that actions taken pursuant to Article XXI are not subject to review in GATT or WTO dispute settlement. Each sovereign has the power to decide, for itself, what actions are essential to its security, as is reflected in the text of GATT 1994 Article XXI.

• Infringing on a Member’s right to determine, for itself, what is in its own essential security interests would run exactly contrary to the efforts to revitalize and reform the WTO that are necessary to ensure that it lives up to its potential.

• There is no basis for a WTO panel to review the claims of breach raised by Hong Kong, China. Nor is there any basis for a WTO panel to review the invocation of Article XXI by the United States. We therefore do not see any reason for this matter to proceed further.

Given its prior invocations of, and stated position on, GATT Article XXI, today's statement isn't too surprising. But what's intriguing here is the apparent U.S. position that Article XXI can apply to non-GATT goods agreements. Hong Kong's complaint included claims under the Rules of Origin Agreement and the TBT Agreement. Is the U.S. really saying that Article XXI applies beyond the GATT?

If they are, I'm fine with that. I have been making a lonely case that GATT Article XX should apply to non-GATT goods agreements, based on the logic that the non-GATT goods agreements are all derived from some part of the GATT, so it makes sense that the GATT exceptions should apply. But no one seems convinced.

Is it possible that USTR sees it the same way I do? Or would they distinguish Article XXI from Article XX? Or perhaps they didn't really mean what they seemed to be saying today to be taken to its logical conclusion? Not that there's any hope of this happening, but maybe some Congressional staffer reading this post can ask Katherine Tai about this on Thursday!