International Economic Law and Policy Blog

The Possibility of a U.S.-EU Resolution on the Section 232 Steel and Aluminum Tariffs

In an article from last week, Politico Pro had some interesting quotes from U.S. Trade Representative Katherine Tai on the issue of the Section 232 steel and aluminum tariffs. I wish I had the full transcript on this, but I don't, so I'll have to make do with the excerpts in the article. Here are the key points:

U.S. Trade Representative Katherine Tai on Tuesday called on the EU to join America in tackling what she said was a national security threat stemming from global steel overcapacity — suggesting that both the EU and the U.S. should work together in restricting imports of Chinese steel.

... While Tai indicated America was in no mood to totally reverse Trump’s measures because of the risks posed by Chinese overcapacity, she hinted that there could be room to go easier on Europe if it joined forces on confronting China’s state-backed mills.

“We’re really committed to figuring out how we can work with Europe on a national security threat that we think that Europe faces as well, in terms of the impact of overcapacity in steel and aluminum on the EU market and the EU’s ability to produce.”

Speaking to a a small group of reporters, Tai defended the way Washington cited national security to tax steel and aluminum imports, arguing that under U.S. law, that exemption was meant to protect critical industries.

“This action really wasn’t about declaring that Europe is a national security threat. It’s declaring that the impact of global overcapacity driving down prices, distorting markets, undermining the ability of U.S. producers in steel and aluminum to produce — that is a national security threat,” she said, adding that the EU faced the same concern.

...

“Steel and aluminum as basic industrial inputs are critical to a country’s national security. I think on that we probably don’t disagree,” Tai argued. “These are industrial products that really are the base for a country’s ability to defend itself, but also to keep its economy going and to build its infrastructure.”

...

Tai said she would seek to apply the Airbus-Boeing playbook — pausing transatlantic tariffs to jointly tackle China — to end the transatlantic trade dispute that has resulted in both sides slapping tariffs on steel. ...

“I want to emphasize that the Section 232 [national security] conversation that we’re going to have, and we’ve actually started with the European Union, that conversation shares the basic fundamentals of the one around large-scale aircraft,” Tai said.

“First of all, it is taking tension right now between the U.S. and the EU, which are these tariffs on both sides of the Atlantic, converting that into collaboration on a shared challenge that we have, which is global overcapacity that is driven primarily by China.”

One of the options discussed by the former Trump administration was to exempt allies such as the EU from tariffs and instead impose quotas. Tai did not directly comment on that approach, but admitted it was a “contradiction” that Washington was taxing EU imports.

“I think that the consternation that we encounter, which is completely understandable, is that in imposing the tariffs at the border, that those tariffs have gone on in a global nature, so that they’ve affected imports that come from everywhere, including from countries that we consider to be strong allies and good friends and that’s the contradiction,” Tai said.

...

“There are hard questions that we have to face,” Tai said. “There are feelings, deep feelings that we’re going to have to address. And it’s serious. It’s really serious.”

I have a few comments here.

First, the underlying issue seems to be this:  What can be done about Chinese overcapacity? I don't know that I've ever seen the problem fleshed out in detail, but I assume it arises from some combination of SOE behavior and government subsidies, with the Chinese government using these actions to maintain production at higher than market levels in order to keep employment up. It is these industrial policy-type actions by the Chinese government or related entities that create the overcapacity problem.

It's not clear to me why people think existing WTO rules in this area are insufficient, and I would start by filing more complaints and seeing how they go. China's accession protocol/working party report have rules on SOE behavior and the SCM Agreement has rules on subsidies, and those provide a good start. An alternative approach that has been tried here is to file domestic AD/CVD complaints, but those just offer protection to the domestic industry and are unlikely to change a foreign government's behavior (that's my sense anyway). If the goal is to change foreign government behavior, I would pursue multilateral remedies rather than unilateral ones.

Second, in terms of working with allies, the longstanding EU view here has been that the right approach to challenging Chinese trade practices is to use a combination of WTO litigation and negotiations. At this point, it's not clear to me how the Biden administration would want to approach things differently. Do they have some alternative in mind? If so, what is it? How do they envision having the U.S. and EU work together on this?

And finally, what is the scope of "national security"? If steel and aluminum are included, what else is in there? Lumber? Food? Data? I certainly understand how, say, fighter jets are part of the concept of national security, but for those pushing the envelope, it's worth thinking about how other countries might push it too, so as to cover various products that might be considered sensitive or important to them at a particular moment.

Will the Biden Administration Add the Paris Agreement to the USMCA List of Environmental Agreements?

I've complained before about the lack of transparency in bilateral and regional trade agreements, so I appreciate the public virtual session of the Inaugural Meeting of the Environment Committee of the USMCA/CUSMA/T-MEC. And I appreciate our excellent Cato Trade Policy Center RA Alfredo Carrillo Obregon for putting together a transcript of the event, which you can find here.

In addition to prepared statements by government officials, the session also offered the opportunity for the public to ask questions, and some of them were interesting. Here's one about the possibility of bringing the Paris Agreement into the USMCA:

Q: Will the parties act to include the Paris Climate Agreement within the CUSMA, including prioritizing climate obligations over conflicting trade rules in the agreement? Is that something that is being planned at all?

Kelly Milton (USTR)

I would just note that our administration and our agency leadership in particular has really emphasized the fact that the United States is committed to considering a range of trade tools to contribute to our whole of government approach to combat climate change. With respect to this specific question about the Paris Agreement, we are certainly continuing to analyze whether adding the Paris Agreement to the list of multilateral environmental agreements in USMCA would in fact make a positive contribution to addressing the climate crisis.

Doug Forsyth (CAN)

Taking action to protect the environment and combat climate change are top priorities for the Canadian government. To this end, we recently announced a new commitment to enhance our emissions reduction target under the Paris Agreement by 40 to 45% below our 2005 levels, and to do so by 2030. Although, as rightly noted climate change isn't explicitly referenced in the CUSMA, climate change remains a priority for Canada, we will continue to advance trilateral cooperation with our close partners through the ongoing work of the Commission for Environmental Cooperation as well as throughout this chapter to work under this chapter. We also look forward to working with US and Mexico in other fora, such as the WTO, to advance collaboration on trade related climate action.

In some ways, it may seem like a no-brainer for the Biden administration to push for the inclusion of the Paris Agreement in the USMCA list of multilateral environmental agreements. They want to engage on climate change issues, and they want to show the value of the USMCA, for which U.S. Trade Representative Katherine Tai was a key player in the negotiations.

And it may be worth noting that the question was asked in somewhat of a general manner, but the USTR official brought up the specific issue of adding the Paris Agreement to the USMCA list. (See Article 24.8, paras. 4 and 5 for the relevant provisions. For more background, see this post from Risa Schwartz).

However, I can imagine the USTR folks would see a problem with an approach that only makes the Paris Agreement enforceable among three of its parties. Perhaps they would prefer to start with an effort to make the Paris agreement enforceable for all its signatories.

My own view on these sorts of issues is that the best approach is to include an enforcement mechanism in the non-trade agreement itself, rather than making it enforceable through a trade agreement. If governments want the Paris Agreement to be enforceable, they could do that directly in the Paris Agreement. Having trade agreements acts as general global governance agreements is likely to cause controversy (and has done so in the past), and it would be a mistake to go further with such efforts. There may be short term political "wins" from doing this, but in the long term it makes the trade and global governance regimes more fragile.

The G7 on Trade: Some Hope for US Return to Binding Multilateral Dispute Settlement?

Judged by the recent past, the G7 meeting in the UK (with key US allies) was a resounding success. But then again, the Trump administration created a low bar. In 2019, there was no G7 communiqué for the first time—because of divisions on trade. And in 2020 there was no meeting—the US host “postponed” it until the year ran out.

Yet this year, there was a long communiqué, and it had a full section even entitled “Free and Fair Trade.” Once more, the G7 committed to championing “the rules-based multilateral system” that the previous US President so disparaged.

The G7 statement now calls “for the world’s leading democratic nations to unite behind a shared vision.” That vision is “to ensure the multilateral trading system is reformed, with a modernised rulebook and a reformed World Trade Organization (WTO) at its centre.”

This general commitment is followed by specific ones. The first stresses the need to make “progress” for the WTO’s next Ministerial Conference in November, with the hope of “a meaningful conclusion” of negotiations on fisheries subsidies. Meanwhile, subsidized fleets deplete the oceans of fish. The baseline for progress may be low, but engagement is critical.

The second expresses concern about “forced labour in global supply chains.” The statement does not call out China by name, possibly because of pushback from other G7 members, but it specifically mentions “the agricultural, solar, and garment sectors,” all of which involve production in Xinjiang.

The final paragraph commits to working together and “with the wider WTO membership” to address major issues that implicate China. Once more, China is not mentioned expressly, but the US clearly has China in its scope on “forced technology transfer, intellectual property theft, lowering of labour and environmental standards to gain competitive advantage, market-distorting actions of state owned enterprises, and harmful industrial subsidies,” and “transparency.” As I have argued elsewhere, singling out China by a so-called “alliance of democracies” is not just risky, but a mistake. The issues, however, are real.

Perhaps most interesting is the G7’s commitment to advance the “proper functioning of the WTO’s negotiating function and dispute settlement system” (emphasis added). This could have been worded more elegantly (“functioning” of a “function”?), but it is an advance.

Unstated is that there is tension—if not outright contradiction—between the G7 commitment to a “rules-based multilateral system” and the US neutering of WTO dispute settlement. Here the US remains alone among the G7 and the “broader membership.” The communiqué nonetheless offers hope here, signaling that the G7 aims to see WTO dispute settlement “function properly.”

On this front, the Biden administration’s strategy, it seems, is first to resolve disputes over the Trump tariffs imposed on G7 and other US allies, against which the allies retaliated. Resolving this dispute is politically tricky. The tariffs provide protection to the US steel industry, and that industry is in swing states that are critical for the 2022 election. The control of the US Senate and House are at stake. The Biden administration will thus proceed carefully, biding its time, consulting with labor union constituencies. Still, the two sides are making progress, agreeing to suspend new tariffs while they negotiate.

If the Biden administration can settle tariff disputes with its G7 allies, then maybe, just maybe, the US will be in a cleaner position to make concrete proposals to return to binding multilateral trade dispute settlement. Then the system might be “rule-based” once more.

Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine and author of Emerging Powers in the World Trading System: The Past and Future of International Economic Law, Cambridge University Press, July 2021.

The Airbus-Boeing Truce: What Exactly was Agreed?

Today the U.S. and EU announced a 5 year suspension of the tariffs that were in place after the WTO dispute settlement rulings in the Airbus-Boeing subsidy dispute. Lifting the tariffs is good news (although the U.S. made it clear that if the EU violates any "red lines" in terms of the provision of subsidies, the tariffs can be reimposed), but it's hard to get a sense of the details of the agreement. The EU press release explains that:

Under the Understanding on a cooperative framework for Large Civil Aircraft, the two sides expressed their intention to:

• establish a Working Group on Large Civil Aircraft led by each side's respective Minister responsible for Trade,
• provide financing to large civil aircraft producers on market terms,
• provide R&D funding through an open and transparent process and make the results of fully government funded R&D widely available, to the extent permitted by law,
• not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,
• collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,
• continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.

And the White House fact sheet says the following:

Both sides agreed to the following general principles to guide their future cooperation:

Suspend the tariffs related to this dispute for five years. This signals a mutual determination to embark on a fresh start in the relationship. The agreement also retains flexibility for the United States to reapply tariffs if we’re no longer competing on a level playing field. 

Establish a Working Group to analyze and overcome any disagreements that may arise between the sides. The Working Group will collaborate on and continue discussing and developing these principles and appropriate actions. The Trade Ministers leading the Working Group will consult at least yearly. The Working Group will meet on request or at least every 6months.

Ensure that our workers and industries can compete on a level playing field. The U.S. and EU agreed to clear statements on acceptable support for large civil aircraft producers that affirm the outcomes of the disputes and the intention of the parties to ensure that our workers and industries can compete on a level playing field.

Confront the threat we face from China’s ambitions to build a sector upon non-market practices, including:

• Meaningful cooperation on countering (1) investments in the EU and the United States by non-market actors, which can lead to the appropriation of technology; and (2) outward investments into China that are influenced by non-market forces. 
• Identifying where joint work is needed to take parallel action against non-market practices.
• Sharing information regarding these and other areas to forge a common approach in the large civil aircraft sector.

What I'm still not sure of is whether, practically speaking, the US/EU:

1) have agreed to make changes to their subsidy programs;

2) have agreed not to worry about each other's subsidy programs; or

3) just agreed to keep negotiating.

Here is a question by Jim Brunsden of the Financial Times at a joint press conference, which tries to get some answers:

on the agreement that's been reached on Airbus Boeing, to follow up really on the previous question, how confident are you both that this is really the end in terms of the disputes, given that there's still obviously work to do. And how do you plan to navigate the fact that the US and EU approaches to subsidizing commercial aircraft are so different, with launch aid in the European Union being a bone of contention for a very long time, and with, for example, Defense Department funding and other forms of R&D funding in the US. How do you plan to navigate that? Thank you very much.

European Commission Executive Vice-President Valdis Dombrovskis and U.S. Trade Rep Katherine Tai responded as follows:

Dombrovskis

on the first question, I think today, one can say we are grounding this Airbus Boeing dispute. And I think it's a major step towards really putting this dispute completely to the end. So we agree, a cooperative framework, and within five years of this cooperation, I think we'll be definitely able to put this, these principles to the rest. In a sense, what took so long, exactly, one of the difficulties is that we have very different approaches, how our large civil aircraft manufacturers are functioning, what kind of support is being provided. So, therefore, we were able to agree on a general principles on how this support is going to be provided, not on every possible detail, but then we are establishing Working Group which will continue to work on all sorts of topics, and make sure that what we do, we do in a cooperative spirit.

Tai

Well I'd like to say a couple of words here too. Again, I cannot underscore enough how this process has built my trust, and also my hope, in the partnership with EVP Dombrovskis, his team, and the European Union. In terms of my confidence level, it is very high, as of today. And again, I think I want to address the question of what does this agreement mean. And I noticed a theme in the questions as you're all grappling with it, which is ... my confidence level is high that we have resolved these disputes, because we are putting away our litigation briefcases and we have committed to each other, to sit down at the table, and to discuss pragmatically what is going to be best for competition between us, in the context of a world where our industries, and workers, will be facing competition like we've never seen before. So, again, my confidence level is high with respect to this industry, this dispute, but also the larger issue of US/EU collaboration and what democracies can accomplish when we work together in a spirit of pragmatism and effectiveness.

And here's a question from a separate press briefing by Tai:

Q Good morning. Yes, can you say — will Airbus have to repay the subsidies? Will Airbus have to pay back those subsidies? ...

AMBASSADOR TAI: ... Now there are a number of subsidies, but, again, I’ll interpret your question related to ones that are outstanding. And the answer there is that the agreement provides for continued discussion between the parties on outstanding and current subsidies to Airbus for the existing aircraft, which remain a concern for the United States.

We’ll continue to confer to address these outstanding support measures.

Based on this, I'm not totally sure what has been agreed to, and to what extent any differences of view here have been resolved. It is certainly clear that the U.S. and EU are going to cooperate with each other in relation to addressing China's subsidies in this sector, but what exactly they agreed to with regard to each other's subsidies is difficult to understand at this point. Ending the litigation is good in a number of respects, but if it just takes us back to the original pre-2004 negotiating positions, I'm not sure how much has been gained. On the other hand, now the negotiations will be taking place when there is greater concern about Chinese competition in this sector (and other sectors), so perhaps that will light a fire under the negotiators and both sides will be more willing to make concessions.

ADDED: The full text of the Understanding is here. To illustrate my points above, take a look at this sentence:

Each side intends to provide any financing to its LCA producer for the production or development of large civil aircraft on market terms.  

I can imagine there will be some disagreement on the scope of this sentence, and I'm not sure what the parties' expectations are here.

Katherine Tai on Labor Issues in the USMCA and at the WTO

In a speech today to the AFL-CIO, U.S. Trade Rep. Katherine Tai said the following:

The USMCA agreement is a good example of what can happen when labor is at the table.  It’s not perfect, but because we collaborated closely with President Trumka and many of the union leaders here today, we negotiated a better deal for American workers.  

Because of our partnership, the USMCA now includes:
- The strongest labor and environmental standards in any agreement ever;
- A new rapid response mechanism that allows us to quickly take action at a specific factory where workers are being denied their rights to freedom of association and collective bargaining; and
- Critical changes to the intellectual property provisions designed to increase access to affordable medicine for regular people.

Unlike previous trade agreements, USMCA passed with overwhelming, bipartisan support.  It is proof that consulting – really listening and working with workers, the labor movement, and a broad range of stakeholders – leads to more pro-worker, more meaningful, and more popular policy.  

Less than a year after USMCA went into effect, we’re already using its labor enforcement tools. Last month, we asked Mexico to investigate whether workers at a GM facility in Silao were denied their rights during a contract ratification.   

This was the first time that the new rapid response tool was used by the U.S. government.  It was also the first time in history that the United States proactively initiated labor enforcement in a trade agreement.  

The AFL-CIO recently filed a Rapid Response petition alleging workers’ rights had been violated at an auto parts manufacturer.  Yesterday, we asked Mexico to review the allegations – the second time we’ve taken this step in the last month.

Under previous agreements, labor petitions could – and did – languish for years without a response from the Administration.  But we have acted quickly.  

These enforcement actions matter.  The Rapid Response Mechanism will help to protect the rights of workers, particularly those in low-wage industries who are vulnerable to exploitation.  Because when we fight for workers overseas, we are fighting for workers here at home.

And we’ll do that across the board.  Enforcing all of our trade rules is a priority for the Biden-Harris Administration.  Those who work hard and play by the rules, you deserve to have the government on your side when faced with illegal and unfair trade practices. 

We must apply the same principles at the WTO.  Despite a preamble that says “trade…should be done with a commitment to raising living standards and ensuring full employment,” the WTO’s rules actually don’t include any labor standards, and workers are often an afterthought.  This needs to change.

The United States recently submitted a proposal to ensure that fighting forced labor is included in any agreement the WTO reaches to prohibit harmful fisheries subsidies.  We know that forced labor is a serious problem in the fisheries sector, particularly on distant water fishing vessels.  I hope WTO Members will commit to a high-standards, meaningful agreement that includes our common-sense provision and that will contribute to tackling this problem.  

This is not just an economic issue.  This is a moral imperative, and I ask all of you to help us to build support for our effort.  The WTO must show in these negotiations that it can improve the lives of regular people and that it is capable of responding to crises and tackling difficult matters, particularly when it comes to worker abuse.

If the WTO is to be relevant and a force for good, it must be revitalized and modernized.  We must take bold steps to fix its negotiating function, commit to greater transparency, and reform the dispute settlement process.  

Under the Biden-Harris Administration, we will bring dignity of work – and the empowerment of workers – to the WTO.  

Let me offer a few comments on all this.

First, the USMCA was something that succeeded in the politics of a particular moment. President Trump was leading an extremely economic nationalist administration; the free market-oriented Republicans in Congress were afraid to stand up to him and afraid of losing NAFTA; and many Democrats saw an opportunity to expand the scope of issues such as labor rights in trade agreements. But that moment has passed, and I think it's pretty clear that it would be difficult to replicate this kind of agreement in U.S. politics today. If President Biden proposed something that was substantively along the lines of USMCA, I would expect just about every Republican to oppose it.

As to the WTO, while Tai clearly wants to ratchet up the role of labor rights there a bit, she probably doesn't expect those rules to go as far as USMCA labor rules do. Is even a small ratcheting possible? Will India and other countries who usually object to the inclusion of labor rights be willing to go along with any of this? That may depend in part on how the Biden administration approaches this and other WTO issues. For example, Tai said that "[w]e must take bold steps to ... reform the dispute settlement process." If these bold steps include a reasonable U.S. proposal on resolving the Appellate Body crisis, maybe there is scope for some grand compromise. But I have doubts that anything significant on labor rights is possible at the WTO (forced labor in fisheries is narrow enough that perhaps something could be done there), and it's also not clear to me why the focus is on pushing these issues at the WTO as opposed to the ILO.

And finally, there has been a lot of talk from the Biden administration about workers. But one thing missing from the conversation is how the tariffs they have carried over from the Trump administration harm workers (they may help specific industries and workers in those industries, but they harm workers more generally). Tai said this in her speech: "The WTO must show in these negotiations that it can improve the lives of regular people ... ." I've always seen this as the core mission of the WTO's rules that constrain tariffs and tax/regulatory protectionism: Protectionist domestic policy is something demanded by special interests that harms regular people, and through the WTO governments have agreed to engage in less protectionism. For me, the big question about the Biden administration on trade policy is whether they are willing to stand up to interest groups and, in doing so, to promote the interests of regular people. Arguably they have been doing this in the area of intellectual property (although I know that some people disagree with this assessment), but with certain influential industries it seems like they are reluctant.

Cato Online Event (June 21): Can International Rules Improve Domestic Regulation of Digital Trade?

I was a little late to the party on digital trade agreements, so I'm trying to play catch-up. In order to educate myself, I decided to put together a Cato panel on the issues. Here's the description:

Can International Rules Improve Domestic Regulation of Digital Trade?

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. At the same time, governments are negotiating international agreements that constrain their ability to regulate domestically. What exactly are the problems that have been caused by domestic regulation of the flow of digital information? And can international agreements help solve them? Please join us for a discussion of these timely issues.

The panelists will be three people who know these issues well and can explain both the basics and the nuances: David Weller, Director of Economic and Trade Policy, Google; Neha Mishra, Lecturer, Australia National University College of Law; and Henry Gao, Associate Professor of Law, Singapore Management University.

Because the panelists are scattered around the world, we ended up settling on a time that perhaps only a small number of people will like: June 21, 2021, at 9 - 10 PM EDT. If that time doesn't work for you, you can always watch the event later at your leisure. Of course, it would be great to have people there live and asking probing questions, so please join us if you can! The registration link is here.

The Biden Administration's Possible Use of Section 232

When the Biden administration took office, many of us hoped they would undo the domestic policy and international relations damage caused by the Trump administration's use of Section 232 and Section 301 to impose tariffs. In at least some cases, there were real underlying problems of various sorts that needed to be addressed, but Section 232 and Section 301 did not seem like good ways to deal with those problems.

At the same time, we are all aware of how politics can get in the way of good policy, and the Biden administration's reluctance to withdraw measures taken by the Trump administration under both statutes was at least understandable, although I wouldn't necessarily have made the same political calculations myself.

What is less understandable, however, is the use of these same statutes by the Biden administration in new investigations. And yet a new White House report suggests the Biden administration is considering initiating a Section 232 investigation of its own:

[Recommendation 4:]

4. Strengthen international trade rules, including trade enforcement mechanisms

While the Administration welcomes fair competition from abroad, in too many circumstances unfair foreign subsidies and other trade practices have adversely impacted U.S. manufacturing and more broadly, U.S. competitiveness. The practice of “pumping and dumping,” in which countries heavily subsidize an industry, gain market share and then flood the market with cheaper products to wipe out competition, has been documented in a number of industries including pharmaceuticals and clean energy. The U.S. government must implement a comprehensive strategy to push back on unfair foreign competition that erodes the resilience of U.S. critical supply chains and industries more broadly

...

• Evaluate whether to initiate a Section 232 investigation on imports of neodymium magnets: Neodymium (NdFeB) permanent magnets play a key role in motors and other devices, and are important to both defense and civilian industrial uses. Yet the U.S. is heavily dependent on imports for this critical product. We recommend that the Department of Commerce evaluate whether to initiate an investigation into neodymium permanent magnets under Section 232 of the Trade Expansion Act of 1962.

I'm skeptical that tariffs are needed here, but even if the Biden administration is determined to impose tariffs on neodymium magnets, there are ways to get them that respect the rule of law. For example, a GATT Article XXVIII renegotiation is a perfectly legal way for a government to raise tariffs on particular products. Invoking national security, by contrast, can threaten the entire trading system if the concept is abused. When countries stretch the boundaries of the definition, there is a risk that the system will unravel: If every country does this, the rules start to become meaningless.

With the Trump administration, it was obvious how little some of the key players respected the system, so there wasn't much that could be done. If other countries copied the Trump administration's tactics, it would probably have made some of the Trump folks happy, by hastening the demise of the system. People were just trying to wait things out until Trump left office. As a result, we didn't see a spiral of invocations of security as a basis to impose tariffs because people hoped things would eventually get back to normal and wanted to preserve some degree of trade peace in the meantime.

But if normal U.S. administrations are going to invoke Section 232 like this, then I'm not sure others will continue to hold back. Thus, using Section 232 in this way is a dangerous road for the Biden administration to go down.

One caveat is that if these particular magnets are all or mostly about China, which I think they are, then this action could be seen as just part of the U.S.-China relationship, which is already operating outside of trade norms. That could keep this particular Section 232 action from causing more general damage to the trading system. But there would still be a big risk to doing this.

Note from Tom Prusa on World Bank’s Temporary Trade Barriers Database

This is from econ prof Tom Prusa:

World Bank’s Temporary Trade Barriers Database Updated

After at least 5 years without an update I recently discovered that the World Bank’s Temporary Trade Barriers Database was updated in March 2021.  This database collects information on the use of temporary trade barriers in the form of antidumping, countervailing, and safeguard measures across over 30 countries since the 1980s through 2019.  It is the most reliable and complete accounting of these type of trade barriers. 

The World Bank seems to have taken a low key approach with respect to this update.  Either I missed the announcement of the new release or the perhaps the World Bank did not announce the update.  Additional confusion is created by the fact that the earlier World Bank pages linking to the database still link to the 2015 version of the database and the World Bank pages state that the project was discontinued.  If you google “TTTB world bank” or “GAD world bank”  you are given links to the outdated database.  It was a total fluke that I stumbled upon the updated data.    

I emailed the World Bank team leader on the project (Jose Signoret) and he asked the database be cited as

Jose Signoret, Chad Bown, Milla Cieszkowsky, and Aksel Erbahar (2021) "Temporary Trade Barriers Database, available at https://www.worldbank.org/en/data/interactive/2021/03/02/temporary-trade-barriers-database"

Tom Prusa

--

Thomas J. Prusa                
Professor
Dept of Economics / Rutgers University
http://econweb.rutgers.edu/prusa/

Commentary on the World Ecolonomy

This global forum of ideas has been quiet in recent days, so I can inject a dozen of my recent tweets on the global ecolonomy.  @SteveCharnovitz

"#Globalsecurity" should be the new lens for analyzing global threats such as lab-created viruses and cyberterrorism. A "national security" lens has been ineffective.  9:34 AM · Jun 7, 2021

It's not often that the EU is on the correct side of a politically fraught international economic issue. But here they are, and so I commend them for standing up to the anti-IP foolishness in US trade policy.   9:30 PM · Jun 3, 2021

Tariffs are a lot like carbon emissions. A minimal goal is net zero. But for tariffs, a better goal is gross zero. And for climate, perhaps the goal should be Net Negative rather than Net Zero.  5:09 PM · Jun 1, 2021

The US emerges from Covid-19 with enhanced power relative to other countries, yet with diluted moral authority for its lack of commitment to the global community.  9:01 AM · May 30, 2021

Paying any ransom in the #ecolonomy has negative externalities and therefore international regulation is needed. The optimal approach would be a uniform national law applying to any means of financial payment including Improved US law could be a model.  8:13 AM · May 29, 2021

The draft Trade Act of 2021 (housed in a Senate vehicle?!) features a mix of market opening and market closing measures. The most important element needed — extending fast track — was omitted.  12:37 PM · May 28, 2021·

Although Trump pushed the envelope in deploying US foreign policy to suppress free trade, contemporary US trade policy is dependably protectionist in a bipartisan way.  6:50 PM · May 27, 2021

The WHO has bungled Covid-19 efforts from Dec. 2019 forward. Internal reform seems unlikely. As part of International Pandemic Law (#IPaL), governments should set up a new transnational agency focused on pandemic prevention and mitigation.  7:48 AM · May 27, 2021

A government that is hyper-printing fiat currency (like the US) should be the last to violate world trade rules that do not recognize current depreciation as a subsidy. https://insidetrade.com/daily-news/commerce-finalizes-first-ever-currency-cvds-vietnamese-tire-case…  4:09 PM · May 26, 2021

To improve US competitiveness, Congress should eliminate all sector-specific industrial policy such as steel tariffs. Also Congress should not initiate WTO-illegal subsidies for semiconductors.  5:26 PM · May 25, 2021·

If patents on Covid-19 vaccines are restricting output, then the Biden Administration should buy up the worldwide patent rights for those drugs and then grant a universal vaccine production license. Of course, the government should pay “just compensation” to the innovators.  8:33 AM · May 25, 2021

#Blockchain may be increasingly used to document the provenance of goods and services, that is how and where they are produced. This will improve the tracking of labor and environmental conditions for products in international (or domestic) trade. Perhaps PPM NFTs.  6:20 PM · May 24, 2021·

The EU's Counterproposal on COVID-19 Vaccines and Treatments

After the surprise of the United States coming out in support of a TRIPS waiver for COVID-19 vaccines and related products, everyone has been looking to the EU and other wealthy countries to see if they would come around and support the general idea of a waiver. Negotiating a waiver will be a challenge even if every WTO Member supports it, because agreeing on specific language will be difficult. But support in principle is a necessary step.

From what the EU just announced today, it is clear they do not support a waiver at the moment. Here are some documents that describe the EU position: Questions and answers; EU communication to the WTO General Council; EU communication to the WTO TRIPS Council. The three key components of the EU's proposals are:

1. limit export restrictions and facilitate trade;
2. encourage the expansion of vaccine and treatment production, in collaboration with industry; and
3. address intellectual property issues.

Here are a few quick thoughts on each.

On the issue of export restrictions, the EU says:

All WTO members should be ready to subscribe to the G20 commitment to ensure that any export restrictive measures relating to health products are targeted, transparent, proportionate, and temporary, and consistent with WTO obligations. Such principles have been incorporated into a draft Declaration on the Trade and Health Initiative (‘Covid-19 and Beyond: Trade and Health (JOB/GC/251/Rev.2’) that the EU along with 12 other WTO members put forward back in December 2020. It is encouraging that 50 WTO members (including 27 EU Member States) have signed up to this initiative but the involvement of the whole WTO membership is required for it to have a significant effect. This initiative constitutes a basis that WTO membership should build on not only in a response to the current crisis but also in anticipation of any future emergency.

The draft Declaration develops further the concept of temporariness, and strengthens Members commitments regarding transparency and proportionality.

I have a sense the EU is trying to play up its differences with the U.S. in this area. Back in April, someone in the White House put out a long Twitter thread trying to defend the U.S. position, but in the process seemed to confirm that the U.S. measures were a de facto export restriction. One of the tweets in the thread stated:

To make vaccine here in the US we have used the DPA to ensure we have access to all needed supplies with many US companies. DPA in these cases just means U.S. companies must prioritize their government contracts ahead of other orders, it doesn’t mean an export ban

This seems to refer to vaccine inputs as opposed to vaccines themselves, but the same principle applies in that context. Maybe there's no export "ban," but if the DPA has signed purchase contracts with pharmaceutical companies that require prioritizing sales to the U.S. government, practically speaking this means the U.S. is restricting exports. The Biden administration has tried hard not to acknowledge any of this, but from what I can tell it's a real problem in terms of getting vaccines to the rest of the world. The Biden folks do seem to be looking for workarounds, but it's difficult when this is the starting point. Just today, the Washington Post reported: "Responding to criticism that the United States has hoarded lifesaving coronavirus vaccines, the Biden administration on Thursday announced a plan to share 25 million doses globally in what officials described as a down payment on tens of millions more doses to come." This is good, although it doesn't really deal with the underlying problem.

Next we get to the point about encouraging production. Here the EU says:

Governments should strongly encourage vaccine and therapeutics manufacturers and developers to contribute towards the objective of expanding production and ensuring affordable supply of vaccines and therapeutics to low- and middle-income countries during the pandemic. Such actions could include licensing agreements, providing for the sharing of knowhow, tiered pricing which involves a non-profit sale to the low-income countries, contract manufacturing and new investments in manufacturing facilities in developing countries.

This could mean a number of things. It could mean strongly worded requests by governments for manufacturers to agree to licensing agreements; it could mean government payments to the manufacturers to do so; or it could mean laws or regulations that require the manufacturers to do so. Here, I think it's worth noting that some day it might become clear that the U.S. support for a TRIPS waiver may have been designed as the "strong encouragement" the EU mentions.

Finally, on intellectual property, the EU seems to be pushing for an easier use of compulsory licensing:

In the absence of voluntary licences, compulsory licences are a legitimate tool to ensure that intellectual property rights do not hinder the expansion of production during the pandemic. The EU therefore calls on WTO members to agree that:

1. the pandemic is a circumstance of national emergency, and therefore the requirement to negotiate with the rights holder may be renounced;
2. we need to support manufacturers who are ready to produce vaccines or treatments at affordable prices under a compulsory licence, and that the level of remuneration paid by that manufacturer to the patent holder should reflect such affordable prices;
3. the compulsory licence could cover any exports to countries that lack manufacturing capacity, including via COVAX.

The EU also sets out the following view of intellectual property in this context:

6. The rapid development of several safe and effective COVID-19 vaccines has shown the value of intellectual property, in terms of the necessary incentives and rewards to research and innovation. With the support of public financing, pharmaceutical and biotechnology companies throughout the globe have built on their expertise and invested resources to find solutions against COVID-19. ...

Maybe some day we'll have a debate on the extent to which 20 year patent terms contribution to innovation. Is 20 years the right number? Would prizes work better? It's hard to get governments to think about these things. Anyway, it's great that the pharmaceutical companies came up with the vaccines, but I think the TRIPS waiver is not quite what some people are making it out to be. As I read the various exceptions and flexibilities in the TRIPS Agreement, there are pretty strong arguments that governments can do all the things they want to do (e.g., issue compulsory licenses) under the existing rules. The TRIPS waiver just gives them a little additional certainty that they won't be challenged at the WTO (and possibly in domestic courts as well, although it's hard to get a handle on how that would play out). I'm not sure why the EU is drawing the line where they are, but they seem determined not to budge and support anything called a "waiver."

Job Posting: Research Associate/Research Assistant in the Centre for International Law, National University of Singapore

The Centre for International Law, National University of Singapore invites applications for a Research Associate/Research Assistant.

The job description and information for how to apply can be accessed here. The closing date for applications is 30 June 2021.

Rethinking the (CP)TPP As A Model for Regulation of Chinese State-Owned Enterprises

In a new paper, I critically evaluate whether the CPTPP SOE rules provide an ideal model for regulating Chinese SOEs. I argue that CPTPP does not provide such a model if the goal is to strengthen disciplines over Chinese SOEs. I offer a detailed analysis of the lack of development or deficiencies in the CPTPP SOE chapter when compared to China’s WTO-plus obligations using China’s current SOE reform for illustration. I show the CPTPP SOE chapter does not provide more rigorous or workable rules but rather has a narrower coverage and more carve-outs.

I also review some major post-CPTPP FTAs of the US and the EU (e.g. USMCA, EU – Japan FTA, EU – Vietnam FTA) and show that they are largely based on the CPTPP SOE chapter. While they seek to gradually address the deficiencies and expand the coverage of the subsidy/SOE rules, they have either maintained the extensive exceptions (i.e. USMCA) or created additional ones (i.e. the EU FTAs). Overall, other than the inclusion of services subsidies and the additional types of prohibited subsidies, they do not extend beyond China’s WTO-plus obligations. To the extent that they leave some deficiencies in the CPTPP SOE chapter unaddressed and maintain the extensive exceptions, they are not as rigorous as the existing WTO rules tailored to China.

However, I think the CPTPP and the post-CPTPP US/EU FTAs offer a more incremental and balanced approach that may facilitate multilateral negotiations. Essentially, this is because they allow governments the flexibility to develop preferred exceptions to counterbalance gradually expanded or tightened rules. To adopt this approach, however, WTO Members will need to be prepared to negotiate with China on replacing the potentially very broad and rigid China-specific rules with more balanced new rules that are applicable to all Members. The consequence is that we will have softer rather than stronger disciplines on Chinese SOEs.

This paper is the third in a series of papers that Prof Henry Gao and I explore the ways to apply/develop multilateral disciplines on Chinese SOEs: see here, here and here. I would be grateful for any comments via the blog or to my email weihuan.zhou@unsw.edu.au.

The Lack of Transparency of FTA Commissions and Committees

The first USMCA Free Trade Commission meeting finished up last week. Here is the trilateral statement summarizing what happened:

During the [the first meeting of the U.S.-Mexico-Canada Agreement (USMCA) Free Trade Commission (FTC) on May 18, 2021], the Ministers reviewed the work already underway to advance our cooperation under the Agreement. Despite the challenges and hardships of the COVID-19 pandemic, committees established by the Agreement have convened virtually since entry into force on July 1, 2020, including the Committees on Origin and Origin Procedures, Textiles and Apparel Trade Matters, Trade Facilitation, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Transportation Services, Financial Services, Intellectual Property Rights, State-Owned Enterprises and Designated Monopolies, Small and Medium-Sized Enterprises (SMEs) Issues, Competitiveness, and Good Regulatory Practices. The Ministers took note of these committees’ progress and offered recommendations for future work to maintain progress. This work is critical to the Agreement’s continued implementation. 

So to sum up, the committees have convened, and the Ministers "took note of these committees’ progress and offered recommendations for future work to maintain progress." That doesn't tell us much.

To be fair, the next paragraph of the statement says:

Recognizing the important role that SMEs play in our economies, the Ministers announced that the Committee on SME Issues will convene the first-ever USMCA SME Dialogue on October 13-14, in San Antonio, Texas, where our governments will engage directly with a diverse group of small business stakeholders, including those owned by women, Indigenous peoples, and other underrepresented groups, to help ensure that everyone is included in, and can benefit from, the Agreement.

I don't know what might come out of this particular dialogue; perhaps it will be helpful to some SMEs. But that's not a substitute for informing the public about what is going on in inter-governmental meetings.

Beyond the trilateral statement, Mexico and Canada provided brief summaries of the discussions. And the Mexicans and Canadians both held press conferences. As far as I know, U.S. Trade Rep. Katherine Tai did not hold a press conference.

Taking all of this together, there wasn't a whole lot of information made available to the public about what was discussed at these meetings. The media did their best to report on what they could dig up, but what we really need here is more transparency from the governments.

USTR recently released some agency transparency principles, but the practices relating to FTA commissions/committees fall way short of any reasonable approach to transparency. If the public doesn't know much about what's happening, how are they supposed to contribute meaningfully to the government's implementation of trade agreements? At the least, USTR should circulate any non-confidential documents that were considered at the meetings, publish an official set of meeting minutes, and hold a press conference related to the meetings. 

Inu and I complained about this in a submission to the ITC here.

A Good Fortnight for the TRIPs Waiver: Building Momentum

In the last two weeks, United States Trade Representative Katherine Tai spoke with the trade ministers of India and South Africa, the leading co-sponsors of the original TRIPs Waiver proposal, providing encouragement to move forward on a revised text.  The new draft, released Friday, is a strong signal of momentum, reflecting a determination not to go down the rabbit hole of typically drawn out WTO negotiations and legal haggling (as many TRIPs Waiver skeptics had predicted would happen); I'll elaborate on  some of the key features of the new draft  in a separate post on this blog.

Tai has also used the last fortnight to press the issue in bilaterals with the head of the World Health Organization and with her Japanese and Swiss counterparts. Meanwhile Bolivia  has taken the step of notifying the WTO of its intent to use the existing access to medicines flexibilities in TRIPs for COVID-19 vaccines.      Whether Bolivia's move is to show up the red tape and onerous conditions involved in using the access to medicines amendment (that itself originated with an earlier Waiver), or to point to a potential alternative route to vaccine equity, through challenging WTO Members to bypass the roadblocks in existing law, is difficult to discern.  But The European Commission now seems to have taken up this last possibility; on Friday Commission chief Ursula von der Leyen tweeted that the EU would table at the WTO a proposal including "simplifying use of compulsory licenses in crisis times where needed," a grudging and stingy concession to the need to loosen TRIPs obstacles on vaccines.   This comes fast on the heels of the European Parliament backing a resolution in favor of the TRIPs Waiver.     

But the most important development in the geopolitics of the Waiver,is China's announcement of  support.  This has multiple layers of meaning. The European Commission having embraced China with an investment deal at Berlin's behest, the EU is now entangled in a fight with Beijing over human rights that has placed the investment agreement on ice. China's support for the TRIPs Waiver offers a contrast with Waiver-resistant Brussels putting ruthless capitalism ahead of lives-not a good look while lecturing Beijing about human values. 

More fundamentally, China's backing for the  TRIPs Waiver offers the possibility that, despite the apparent Cold War between Beijing and Washington,the deep cleavages over human rights and democracy as well as trade and security, the two great powers might be able to work together at a multlateral institution like the WTO-at least where human lives are a stake in a global emergency.      

Recommendation of "How the WTO Changed China" by Yeling Tan in March/April, Foreign Affairs

I recommend this terrific article "How the WTO Changed China" by Yeling Tan (Assistant Professor in the Department of Political Science at the University of Oregon) in the March/April 2021 issue of Foreign Affairs. https://www.foreignaffairs.com/articles/china/2021-02-16/how-wto-changed-china 

It reminds us that the WTO obligations have integrated China more into the world economy and have changed China and that to a large extent these changes would not have happened without the external pressure of WTO obligations. As with any other WTO Member, the precise way in which WTO obligations and opportunities affect domestic decision making depends on the politics inside the country and in the case of China it is complicated by the existence of different levels of government, national, provincial, city and country. There are different interests within China, some favouring protectionism some favouring trade liberalisation. Yeling Tan's main point is that it is a gross oversimplification to take the views that membership of the WTO has not changed China because the WTO rules don't work with China and therefore we should engage less with China. In fact, she suggests that is exactly what not to do because restricting trade with China and treating China as an adversary strengthens the political influence in domestic politics inside China in favour of the Chinese proponents of protectionism, isolationism and anti-Western positions. One could add that it also detracts from the political influence within China of those in favour of trade liberalisation, domestic reforms and friendly and constructive engagement with other countries that have differences with China. (Yes public choice theory can be used to analyse politics within China!) Just as the WTO has already changed China so will it be the case that further multilateral trade liberalisation in the WTO, even if slow and incremental, will change China some more. To read Professor Tan's article you might need to key in your email address to be sent the full text. It is worth a read.

When so many voices are complaining that it is too hard to cooperate with China, this scholarship is very important. The current difficult trade issues with China mean that we need more engagement not less. We have to see the objective as learning how to be travellers together not being adversaries. An essential part of that is to have dialogue on trade differences in WTO committees, to utilize WTO processes for transparency, and to engage China in negotiations for incremental, multilateral trade liberalization through the WTO in a non-discriminatory manner. It is a real fact of the modern world that every time nations embark on any multilateral negotiation, one of the critical issues is "What do the Chinese think?" (as I wrote some years ago. See Brett Williams ""Australia and China in the World Trade Organization" in Nicholas Thomas (ed) Re-Orienting Australia-China Relations; Ashgate, 2004, at p104) Other nations cannot pretend it isn't so. And where other countries allege that China is breaking WTO rules, or when China alleges other countries are breaking WTO rules, they should use the WTO dispute settlement system to resolve the disputes. Initiating WTO complaints should not be seen as an unfriendly act. It is the method of dispute settlement that all WTO members have agreed to use. It is designed for the maintenance of peace among nations.

Investment Treaties and a New Legal Imagination

From the Columbia Center on Sustainable Investment:

Investment Treaties and a New Legal Imagination

May 26, 2021

11:00 AM - 12:00 PM

ONLINE

Please register here.

Foreign investors have a privileged position under investment treaties, enjoying strong rights, no obligations, and the ability to rely on a highly efficient enforcement mechanism: investor–state dispute settlement (ISDS). This extraordinary status has made international investment law one of the most controversial areas of the global economic order.

In the recently published book Investment Treaties and the Legal Imagination, Nicolás M. Perrone examines the origins and evolution of the legal thinking underpinning the investment treaty regime and ISDS practice. He shows that our canon of imagination relating to adjustment and potential reform of ISDS, remains closely associated with the world-making project of a coalition of business leaders, financiers and lawyers who promoted international investment protection in the 1950s and 1960s. Common to both is what they protect—such as foreign investors’ legitimate expectations—as well as what they silence or make invisible. In recent years, there is increasing consensus that silenced topics and invisibilized actors should be part of this regime if it is to be recentered as a sustainable development field. We must shift the focus from investments to social relations. How to make this happen, however, remains an open question. A distinguished panel will discuss with Mr. Perrone the implications of these findings for the future of international investment law.

Introduction:

Jorge Contesse, Associate Professor of Law & Director, Center for Transnational Law, Rutgers Law School

Moderator:

Brooke Guven, Senior Legal Researcher, Columbia Center on Sustainable Development

Panelists:

Kathleen Claussen, Associate Professor, University of Miami School of Law

Mélida Hodgson, Partner and Head of International Arbitration in New York, Jenner & Block LLP

Chantal Ononaiwu, Trade Policy & Legal Specialist, Office of Trade Negotiations (OTN), CARICOM Secretariat

Nicolás M. Perrone, Research Associate Professor, Universidad Andres Bello, Chile; (Author, Investment Treaties and the Legal Imagination)

Addressing Trade and Climate Change through a ‘Simple Amendment’ in USMCA

Ambassador Katherine Tai is currently hosting Mexico’s Secretary of Economy Tatiana Clouthier and Canada’s Minister of Small Business, Export Promotion and International Trade, Mary Ng at the inaugural Free Trade Commission of the United States-Mexico-Canada Agreement (USMCA). According to the media advisory issued by Global Affairs Canada, the meeting “will address important trilateral trade issues, including …the importance of strong labour and environmental protections, and mitigating the economic effects of climate change to ensure that North America emerges from the COVID-19 pandemic stronger, through an inclusive, sustainable recovery that works for everyone.”

Since taking office, Ambassador Tai has made it clear that her mandate includes using trade policy to strengthen environmental protection in free trade agreements. Instead of looking at fixing the environmental exceptions at the World Trade Organization, Ambassador Tai’s first step should be to correct the “most glaring omission”  in USMCA by acknowledging the climate crisis through incorporation of the Paris Agreement in the Environment Chapter as well as in Chapter 1.

The lack of any serious consideration of greenhouse gas emissions resulting from North American trade in USMCA takes away from any achievements gained by a more robust environment chapter and a revamped Environmental Co-operation Agreement. USMCA only indirectly considers climate change in relation to the promotion of strategies and actions, such as areas of energy efficiency, alternative and renewable energy, and low-emission technologies.  As the USMCA fails to address our most significant environmental issue, Ambassador Tai’s comments on illegal logging and overfishing are a bit like fiddling while the forest fires rage and ocean temperatures rise.

Fortunately, there is an option to amend USMCA to reflect the importance of the climate crisis. Prior to the signing of USMCA, it was re-tooled by the Protocol of Amendments. This Protocol added a new article (24.8) to USMCA’s Environment Chapter. This Article recognizes the Parties’ existing commitments to implement their obligations under certain multilateral environmental agreements (MEAs) to which they are a party[1].  Article 24.8 is enforceable[2] under dispute settlement, and requires each Party to “adopt, maintain, and implement laws, regulations, and all other measures necessary to fulfill its respective obligations under the listed MEAs”.  Currently, the Paris Agreement is not a listed MEA in Article 24.8. However, Article 34.3 of USMCA providing a simple amendment procedure (at least from a legal perspective) which can be used by the Parties to add more MEAs in the future, including the Paris Agreement.

The same list of MEAs was also incorporated into USMCA by the Protocol of Amendment in a new Article 1.3. Article 1.3 is similar to Article 104 of the original NAFTA, although the rewritten language is an improvement and provides more scope for Parties to adopt measures that may be on their face inconsistent with USMCA, but are needed to comply with the obligations of the MEA.  This article acts as a de facto exception clause, and allows Parties to take actions to protect the environment under the listed MEAs and not worry about the measure being inconsistent with USMCA, with one caveat that the measure cannot be primarily a disguised restriction on international trade. This clause would be especially interesting for the development of trade policy for Border Carbon Adjustment measures. Again, Article 1.3 can be amended in a simple process by the Parties, to add the Paris Agreement or any other future climate agreement ratified by the Parties, to the MEA list.

Ambassador Tai made a second statement on Earth Day 2021 where she again emphasized the need to address climate change through trade policy by embracing “our responsibility to help solve one of the defining challenges of our time by leveraging trade tools to avert an unfolding economic crisis and protect our planet.” Amending USMCA to list the Paris Agreement in Articles 1.3 and 24.8, would be an important signal that the USMCA Parties are ready to make difficult decisions for environmental protection, which may include prioritizing climate obligations over trade rules, and potentially using binding dispute resolution in USMCA to enforce environmental obligations in MEAs.

 

[1] The MEAs currently listed in Article 24.8 are as follows: (a) the Convention on International Trade in Endangered Species of Wild Fauna and Flora, done at Washington, March 3, 1973, as amended;

(b) the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, September 16, 1987, as adjusted and amended;

(c) the Protocol of 1978 Relating to the International Convention for the Prevention of Pollution from Ships, 1973, done at London, February 17, 1978, as amended;

(d) the Convention on Wetlands of International Importance Especially as Waterfowl Habitat, done at Ramsar, February 2, 1971, as amended;

(e) the Convention on the Conservation of Antarctic Marine Living Resources, done at Canberra, May 20, 1980;

(f) the International Convention for the Regulation of Whaling, done at Washington, December 2, 1946; and

(g) the Convention for the Establishment of an Inter-American Tropical Tuna Commission, done at Washington, May 31, 1949.

The Parties commit to implementing the obligations under those MEAs that they have ratified.

[2] Article 24.32: Dispute Resolution encourages Panels convened under Article 24.8 to seek expert technical advice

Biden’s Worker-Centered Trade Policy: Whose Workers?

As Simon mentioned in an earlier post, various labor-related complaints and requests under USMCA are “heating up.” This activity reinforces the Biden Administration’s new “worker-centered trade policy” that, according to USTR Ambassador Katherine Tai, “will foster broad-based, equitable growth, increase innovation, and give workers a seat at the table.” Specifically, she promised that “Our farmers, ranchers, fishers and food processors will benefit from our new approach and they are essential to meeting our climate and sustainability goals.”

On May 17, the USMCA Free Trade Commission is launching its inaugural meeting. It seems all the more appropriate for us to turn our thoughts to the Biden Administration’s new worker-centered trade policy. At the outset, there is cause for caution. The Biden Administration has inherited an agreement negotiated by the economic-centered Trump Administration. The new Administration also seems to believe that a trade policy protecting “farmers” and “ranchers” is the same thing as a policy that would protect the workers on those farms and ranches.

Without delving into the procedural details in depth (for those details, see this recent report), this post looks specifically at the recent activity that has arisen under USMCA’s Labor Chapter and Facility-Specific Rapid Response Mechanism (“Rapid Response Mechanism”). Examining the implications of the text and those activities, I explain how USMCA fails to give American workers a seat at the table.

USMCA Labor Chapter (Chapter 23)

USMCA’s labor provisions are contained in Chapter 23, which commits the Parties to “adopt and maintain in its statutes and regulations, and practices thereunder, the [fundamental labor] rights, as stated in the ILO Declaration on Rights at Work.” Those rights concern:

(a) freedom of association and collective bargaining;

(b) elimination of forced labor;

(c) abolition of child labor and the prohibition of the worst forms of child labor; and

(d) the elimination of discrimination in respect of employment and occupation.

USMCA adds an additional right concerning “acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”

Disputes under the Labor Chapter fall under the general state-to-state dispute mechanism in Chapter 31.

USMCA Rapid Response Mechanism

One of USMCA’s most significant innovations is the “Faculty-Specific Rapid Response Labor Mechanism” (Rapid Response Mechanism), a new form of dispute settlement contained in Chapter 31 (Dispute Settlement) under Annex 31-A, and further described in the USMCA Implementation Act.

Importantly, the Rapid Response Mechanism is not the same thing as the state-to-state dispute settlement mechanism under Chapter 31. Whereas the state-to-state dispute settlement mechanism involves State failures to uphold USMCA obligations, the Rapid Response Mechanism applies to individual facilities within a country that are allegedly infringing upon workers’ freedom of association or collective bargaining rights.

Under the Rapid Response Mechanism, members of the public can file a petition or use a confidential hotline to report information regarding labor issues at those facilities. The Interagency Labor Committee may invoke the Mechanism:

“whenever a Party (the “complainant Party”) has a good faith basis belief that workers at a Covered Facility are being denied the right of free association and collective bargaining under laws necessary to fulfill the obligations of the other Party (the “respondent Party”) under this Agreement (a “Denial of Rights”).”

Finally, the Rapid Response Mechanism may impose financial penalties onto private facilities, such as “suspension of preferential tariff treatment for such goods; the imposition of penalties on such goods or services; or the denial of entry of such goods.”

The Limited Scope of the Rapid Response Mechanism in the United States

The Rapid Response Mechanism does not apply to all facilities in the State Party territories. Indeed, its scope of application, particularly in the United States, is extremely limited.

First, the facilities must satisfy the conditions of the “Covered Facilities,” which are facilities “in the territory of a Party” that involve a “priority sector,” currently defined as “a sector that produces manufactured goods, supplies services, or involves mining”; and that produce goods or supplies services traded between the parties or that compete in the territory of the other party.

Second, under footnote 2 of Annex 31-A, the Trump Administration further limited the Rapid Response Mechanism’s scope of application as follows:

“With respect to the United States, a claim can be brought only with respect to an alleged Denial of Rights owed to workers at a covered facility under an enforced order of the National Labor Relations Board.”

On its face, this footnote makes sense. The Administration wanted to limit the application of the Rapid Response Mechanism to U.S. facilities (cynics might say full stop) only after domestic legal processes had been exhausted. However, by adding the term “enforced order,” which is not defined in national legislation, the Trump Administration effectively shielded U.S. facilities from the scope of the Rapid Response Mechanism.

In the United States, the National Labor Relations Board (NLRB) adjudicates complaints against employers (and unions) for violating the National Labor Relations Act (NLRA). The Board’s decisions are not automatically enforceable. Rather, either the Board or an aggrieved party must appeal the Board’s decision to an appropriate U.S. Court of Appeals.

In practice, footnote 2 shields nearly all U.S. factories from the application of the Rapid Response Mechanism. According to the NLRB, only around 65 cases per year are appealed to Circuit Courts. Of those 65 cases, the Court enforces only 80 percent, or 52 orders. Those statistics do not indicate whether the 52 enforced orders were directed against employers or unions. They also do not mention whether those enforced orders dealt with repeat offenders.

A glance at the Board’s public registry of appellate court briefs and motions shows that these numbers, however dismal, are significantly higher than recent practice. In Fiscal Year 2020, the Board only brought 24 of its cases to the Circuit Courts. Out of those 24 cases, 21 cases were brought against employers (three were brought against unions). Accounting for repeat offenders, only 16 different employers faced a potential enforced order. If the Board’s 80 percent track record holds up, we are looking at about 12-13 facilities facing enforced orders, of which only a minority will satisfy the definition of “Covered Facilities” described above. Consequently, in 2020, less than 12-13 employers in the United States became vulnerable to enforcement action under the Rapid Response Mechanism.

By contrast, the scope of application for Mexico is incredibly broad. It specifies that “a claim can be brought only with respect to an alleged Denial of Rights under legislation that complies with Annex 23-A (Worker Representation in Collective Bargaining in Mexico).” In other words, it applies to all employers and factories subject to applicable labor legislation.

Recent Labor-Related Activity under USMCA Labor Chapter

On March 23, 2021, migrant women from Mexico filed a petition under the USMCA Labor Chapter. They alleged that the United States violated Article 23.3 (elimination of discrimination in respect of employment) and Article 23.8 (ensuring migrant workers are protected under labor laws) by allowing sex-based discrimination in recruitment and hiring practices of migrant workers, and consequently also failing to enforce Title VII and U.S. labor laws.

Their complaint is not new. Mexican women attempting to secure and work under H-2A visas repeatedly submitted similar complaints under the NAFTA labor side agreement. Those attempts were all unsuccessful. According to the most recent complaint, despite years of drawing attention to these labor-rights abuses, migrant women continue to suffer from sex discrimination during the recruitment process and are “excluded from H-2 visa programs as a matter of course.” Those who make it into the program in the United States are assigned to “less favorable and lower-paid positions than their male counterparts, despite having equal qualifications as men.”

Only State Parties to USMCA may bring a dispute under the Labor Chapter. Consequently, the migrant workers’ petition is directed to the Mexican government in hopes that Mexico will “encourage the United States to make [certain recommended] policy and regulatory changes.”

Mexico has not fully taken up the baton. Instead, on May 12, the Mexican Ambassador to the United States, Esteban Moctezuma, sent a letter to Secretary of Labor Marty Walsh, complaining of certain violations under the Labor Chapter. Note that this is a letter, not a formal complaint under the Agreement. Furthermore, while the letter details alleged violations of the rights of Mexican workers in the United States, it fails to reiterate the specific allegations of sex discrimination. It instead details violations of occupational health and safety standards for agricultural workers, interference with the workers’ rights to collectively bargain, and obstacles that prevent undocumented workers from recouping unpaid wages, to name a few.

Migrant women who are working in the United States, meanwhile, continue to wait for an answer or protective action.

Recent Labor-Related Activity under the Rapid Response Mechanism

On May 10, the AFL-CIO and other groups filed a petition with the Biden Administration alleging labor violations at a group of auto parts factories in Mexico across the border from Brownsville, Texas. Specifically, they allege that Tridonex auto parts factories harassed and fired workers for attempting to organize an independent union in violation of their freedom of association rights.

According to the USMCA Implementation Act, after receiving a petition such as this, the Interagency Labor Committee has 30 days to decide whether a petition contains sufficient, credible evidence of a Denial of Rights enabling the good-faith invocation of enforcement mechanisms. If it accepts the petition, USTR will request Mexico to conduct a review. Assuming Mexico agrees to conduct a review, Mexico will have 45 days to remediate.

Although folks are excited about the prospect of seeing the Rapid Response Mechanism put into action, it is unlikely that this petition will mature to a panel. The odds are that the Interagency Labor Committee will either not accept the petition or, if it does, that Mexico will agree to mutually-acceptable remedial action.

Far more interesting, in my opinion, is the activity that took place two days later under Art. 31-A.4(2) of the Rapid Response Mechanism. On May 12, 2021, responding to a tip on the hotline, USTR self-initiated a request that Mexico conduct a review of the General Motors de México facility in Silao, State of Guanajuato (“GM”). In its request, USTR noted its concerns that workers at the facility were denied their right to free association and collective bargaining. In support, USTR points to an April 2021 contract-ratification vote where workers were asked to reaffirm the bargaining authorities of a company-controlled union. The company had allegedly destroyed ballots and threatened workers to control their votes.

Here’s the rub. According to its request, USTR acknowledges the efforts of the Secretaría de Trabajo y Previsión Social (STPS), the Mexican federal department in charge of labor policies, in suspending the election and taking follow up action. In other words, Mexico had initiated its domestic processes to protect the voting conditions and to follow up with the employer. Despite that ongoing process, USTR instigated its own action under the Rapid Response Mechanism.

One potential interpretation of this parallel action is that USTR believes remedial action will be stronger under the Rapid Response Mechanism than it would be under Mexico’s domestic labor laws. As a worker rights advocate, I salute efforts to strengthen protections for workers and sanctions for disobedient employers.

Nevertheless, there are at least two issues here, one specific and one more general. Specifically, USTR is invoking the Rapid Response Mechanism process before Mexico’s domestic processes have been exhausted, leading to potential fragmentation. More generally, the disparate scope of the Rapid Response Mechanism makes it possible for facilities like GM to be held accountable when they are located across from Brownsville, Texas but shields those facilities when they are located in Brownsville, Texas. I explain those concerns below.

Early concerns with the Rapid Response Mechanism

The first issue raised by the May 12 request for review is that, based on its terms, the Rapid Response Mechanism requires respect for U.S. domestic processes (i.e., after an enforced order) but allows the U.S. to interfere with ongoing domestic processes in other countries. Double standards aside (welcome to trade negotiations), the implications could be significant and harmful if the conclusions of the domestic and international bodies differ.

The second issue is the disparate scope of the Rapid Response Mechanism, which imposes greater penalties on Mexican employers than on American employers. If Mexican labor laws fail to enforce international labor standards, Mexican employers face financial penalties under the Rapid Response Mechanism. If U.S. labor laws fail to enforce international labor standards (which they sometimes do), American employers and workers at their facilities will likely fall outside the application of the Rapid Response Mechanism.

Some might be tempted to argue that workers in the U.S. do not need a mechanism like the Rapid Response Mechanism because they are already protected by federal labor laws. Granted, the NLRA prohibits things like company-controlled unions and election interference. However, the NLRA lacks financial penalties for disobedient employers. USTR and Congress had the opportunity to supplement the NLRA’s weak enforcement scheme by exposing U.S. employers to possible financial penalties under the Rapid Response Mechanism. Instead, they limited the scope of the Mechanism’s application. Now, Mexican employers have a greater incentive to respect international labor rights than their American counterparts.

As an aside, it will be interesting to see whether this development impacts the frequency in which the NLRB brings cases to the Courts of Appeals (I could see arguments cutting both ways). I imagine it will deter employers from doing so.

Conclusion

The Biden Administration is advancing a worker-centric trade policy but it has inherited a trade agreement designed for other purposes. To strengthen protections for American workers, Congress will need to make difficult decisions and compromises that it has thus far been unwilling to make. Meanwhile, if Ambassador Tai is sincere in her pledge to give all workers a seat at the trade table, she must work with Congress to broaden the scope of application to provide the same protections for workers in the United States as in the other USMCA countries.

Additional Katherine Tai Exchanges on Vaccine Production/TRIPS Waiver

Following up on my last post, here are two more good exchanges between members of the House Ways and Means committee and U.S. Trade Rep. Katherine Tai on vaccine production/TRIPS waiver:

Congressman Wenstrup:

... So I'm concerned about the intellectual property rights and, but at the same time sharing the goal of getting everyone vaccinated. And I worry that a waiver could do more harm than good. And, you know, Pfizer, for example, recently said that their vaccine utilizes 280 different materials supplied from 19 different countries, and an IP waiver could severely disrupt those supply chains to them, if others could just get it because they're producing basically a generic. And I'm worried about unlicensed producers who may not be able to replicate with the same safety and quality, which really, if they say oh this is the Pfizer vaccine that we're making here now, and the quality is not good and it's not working or there's some kind of contamination or whatever the case may be, it's really going to increase vaccine hesitancy, around the world. And I worry that, you know, waiver could could lead to innovators being less likely to engage in public private partnerships, what we saw with Operation Warp Speed so successfully. And that would leave us less, I think, a little more exposed and unprepared for the next pandemic, which probably will happen.

So I think we have to consider the future safety and health security, not only of Americans, but maintain those protections for good reasons for health reasons, safety reasons, and it's important as we move forward with further vaccines, and especially with this vaccine.

I know many of my colleagues are raising the issue about this, and asking about it, so I'll somewhat leave it there, but I do want to question whether there's any analysis being done by USTR about the potential impact of waiving IP rules, and what effect that may have on the supply of vaccines, and how you can ensure that any agreement to weaken the IP rules will not have a disastrous effect somewhere else where we don't have the same safety margins, we don't have the same oversight, regulatory effects, you know, so how do we assure that it's the same capabilities and we have a product that's capable of quality, safe, and one thing that crosses my mind is, you know, if countries are in need, if they could make it very simple for a company like Pfizer to manufacture in their country, that may be a solution rather than a waiver, and then, we would be, of course, hoping, they would want to make sure that it's the same quality and oversight.

Ambassador Tai:

Congressman, thank you so much for your comments and your engagement here. I appreciate you raising your concerns about unintended consequences and you're very very clear affirmation that, as a doctor, you care, you care about saving lives, and saving lives outside of our borders. It really is going to help us save lives inside of our borders because we are all interconnected and this virus knows no borders, right.

So, I want to say this. I have also heard the concerns of industry and directly from the manufacturers themselves, and I take them very seriously. I think that because a possible waiver of intellectual property protections at the WTO could lead to negative consequences or unintended consequences, is actually a reason for us to engage at the WTO. I think that the dynamic that had developed in Geneva, prior to last week, with us leaning in to say let's all roll up our sleeves and talk about this and figure out a solution, was that you had WTO members like ourselves sitting on the sidelines, saying, well, we're not quite sure that, you know we need to know more about the waiver, are there unintended consequences, and then factors leading to complete paralysis. I don't think that's tenable and I don't think that's the role that the United States should play in the world. I think that we should be part of the solution, always.

And so I want to say there is room to have these conversations and I also want to urge industry, the manufacturers, don't be so nervous and afraid about what this means. This is actually an opportunity for them to lean in and build on the incredible work that they've done in research and development and developing these vaccines, to really also becoming part of the solution. And I've invited them to seize this opportunity for leadership, to join us. There is a lot that they could do voluntarily that would obviate what we would need to do at the WTO, but because we are not there, we have significant portions of the global economy telling us that they are in trouble, that they need access, and that they need to do something through the rules, because otherwise they're not getting any progress and their hopes and dreams and their recovery are really held back because of it. So that's what I'd like to convey is that, we're going to have a process, we will talk through these issues, and that is what I really am going to lean into having the WTO produce.

Congressman Wenstrup's comments about possible manufacturing in factories in developing countries ("if countries are in need, if they could make it very simple for a company like Pfizer to manufacture in their country") could be taken as a subtle nudge in the direction he thinks this all should go. Tai's response was perhaps a little less subtle as a nudge to the pharmaceutical industry to go in that direction ("There is a lot that they could do voluntarily that would obviate what we would need to do at the WTO").

Congressman Smucker:

... I share some of the concerns on the intellectual property, and for me it's sort of a fundamental question, and I'm somewhat new to trade, being new to the committee, but like, I think it's a fundamental property rights question. How is it not, how can we give away the property of a company that has developed it on its own without consideration?

Ambassador Tai:

Well, thank you for your question. ... You know, it will be helpful to unpack a little bit. What this waiver means, and one point that's occurred to me that is important for me to get on the record here is that a temporary suspension of intellectual property protections at the WTO is because of a global pandemic, because of a very critical public health situation, is actually something that we have precedent for in the early 2000s. We did just that. We were able to agree at the WTO to temporarily suspend IP protections for AIDS and HIV drugs because of what was happening on the African continent with respect to populations of patients facing the dire consequences of the disease, but not being able to afford the medicines, and the technology that we had actually already developed and were available here in the United States. We're not, we're not talking about giving away intellectual property what we're saying is that we are allowing for. This is what the, ..

Congressman Smucker:

Why wouldn't that be done ... why wouldn't we do that in conjunction with a company and provide consideration for that, I guess, we're maybe not giving it away but we're giving away future earnings based on investments that they made.

Ambassador Tai:

Well I think that these are parameters for discussion, absolutely. But I think that you know in terms of what's been proposed at the WTO it's been this serious cry for help that's been met with silence for months.

Tai's response here may be an indication that what many of us have been saying about offering Pharma money to do more licensing deals is on the table and is a realistic possibility.

Nunes-Tai Exchange on Vaccine Production/TRIPS Waiver

At yesterday's House Ways and Means committee hearing on the Biden administration's trade policy agenda, Congressman Nunes and U.S. Trade Rep. Katherine Tai had the following exchange on the TRIPS waiver and vaccine production:

Congressman Nunes:

.. I want to turn to this agreement on TRIPS that many people have talked about, the trade related aspects of intellectual property rights. It would force the American developers of COVID-19 vaccines and therapeutics to relinquish their intellectual property rights to these medicines and essentially show foreign nations how to produce these drugs themselves. Now, I understand your point about, we really want these vaccines to get out, but at the same time this is American technology that we spent billions of dollars developing. And one of the concerns I have is, really the only country that could quickly make these types of vaccines, that could implement this, would be China. I know that India and others are saying that, but it really seems like they want to steal this very new technology, especially as it relates to the Moderna and Pfizer vaccines. So did you conduct any analysis on this front, of what would happen, who could actually make these vaccines?

Ambassador Tai:

Thank you, Congressman Nunes. Yes, this decision was made after a lot of deliberation. And we have adopted, what I think is an unusual practice, at least for USTR, starting in mid-April I began consultations with interested parties, labor organizations, civil society, public health advocates, public health experts, both inside and outside of the government, and also the manufacturers themselves.

We take policymaking extremely seriously, and so my short answer to you is, yes, we are thinking through, we have really dug into the policy implications. And let me say this, in terms of our announcement of support for waiving intellectual property rights at the WTO, support for the goals of the proponents at the WTO, what we are committing to is starting a process at the WTO, to find a solution at the WTO that is going to have to, through these negotiations, take into account, concerns from all sides, so that we can have something that is effective and practical in saving lives.

Congressman Nunes:

So, we're obviously, we're very proud that, another one of our staff longtime staff, Ms. Ellard, is going to be going to the WTO, but WTO has really been a beacon of of light and freedom. They've had tremendous issues, as you're well aware, and I know we're always trying to work and fix and make the WTO function better, but you did mention the manufacturers, and that to me is the is the key here, manufacturers who develop this, who developed these vaccines, they're US companies. And just to turn over that intellectual property to these other nations, especially China who we still don't have a full understanding of the origins of this virus at this time and what their involvement was. Do you know, I mean, when you met with the US manufacturers, did they explain to you, express to you, their concern about China being able to utilize this and be the only one that could really make the vaccine?

Ambassador Tai:

Well, I want to be a little bit circumspect about exactly what the manufacturers told me and how they told me, but let me offer you a couple observations and insights from my conversations with the individual manufacturers and also with their trade associations, which is that the manufacturers, there are quite a number of them. They're not a monolithic group. They're, actually, their technologies are different, their leadership personalities are different, and their corporate philosophies are actually quite different as well. And some of these manufacturers do think of themselves, not just as businesses with obligations to shareholders, some of them do see themselves as important actors in the public health ecosystem in the world.

Congressman Nunes:

So let me just get to a specific question, so how long would it take a country to build the facilities that it would take to produce these vaccines, did you look at that?

Ambassador Tai:

Sure, yes.

Congressman Nunes:

So, how long would it take them to build them.

Ambassador Tai:

Well, let me put it this way, in order to for you to have access to the best information, I am probably not the best source for the answers that you're looking for. But let me just assure you, yes, we are looking at the full picture, we are looking at the IP piece in the WTO, but also in the context of how this and other actions will work together to translate into increased manufacturing, more equitable distribution.

Over the last two days of Senate/House hearings on the Biden administration's trade policy agenda, there has been a lot of talk about the TRIPS waiver, with many of the comments from members of Congress essentially being "waiver good" or "waiver bad." The Nunes questions at least got closer to some of the underlying issues. I'm not sure how Ambassador Tai could answer many of them, though. Even if she knew the answer, this wasn't necessarily a forum where she could or should tell everyone what her strategy is. The last question is particularly important, and I assume someone in the Biden administration has a sense of this, and that we will hear some details at some point.

The China issue seems like a red herring to me, if this all goes the way it should. If we end up with a blanket waiver of certain patents under various countries' domestic law, then yes, China and Russia and others would have access to the technology. But if, instead, the pharmaceutical companies agree to license the technology to specific companies/factories, which is the sensible direction to go here, that shouldn't be an issue.

As a final point, her characterization of the differences between the pharmaceutical companies was interesting. Kind of feels like it was sending a message.

Katherine Tai on China's Place in the Global Trading System and the U.S. Response

Here are two questions/answers related to China's place in the global trading system and how the United States should deal with China, from today's House Ways and Means committee hearing on the Biden administration's trade agenda:

Chairman Neal:

Ambassador, when China joined the WTO in 2001, the expectation was that WTO membership would lead China to become more democratic, embrace a greater respect for human rights and develop a market based economy. China clearly has not met that expectation. Do you think the global trading system itself needs to develop new tools to address the challenges posed by China, and how would you envision working with our allies to help confront some of these acute challenges in China, namely forced labor, and human rights abuses?

Ambassador Tai:

Chairman Neal, I agree with you that when China joined the WTO, there was a lot of hope and expectation that membership in the WTO would really lead to China internalizing a lot of the norms, economically and politically, that are represented by the members of the WTO. Over time we have seen that we all make choices, countries make choices, governments make choices, and along the way we see that the choices that China has made has not led it to the results that many of those supportive of its accession to the WTO had hoped for.

So, let me take your question in a couple parts. One is, it is critical to work with others to confront, to work on, to communicate with China in all the ways where its policies are really powerfully impactful on the rest of the world, that are not impactful in a positive way. At the WTO, yes, we need new rules, but I also want to emphasize that some of the foundational rules at the WTO need to be reshored and reformed in order for the WTO to become relevant to address the challenges that we have, given the changes in the global economy, and the changes in the relationships between WTO members that have happened in the past 25 years.

...

Congressman Blumenauer:

... Would you like to comment for a moment on your thoughts about going forward, dealing with China, intellectual property, and the trade disruptions that we've had in the course of the last four years?

Ambassador Tai:

Absolutely, thank you Mr. Blumenauer. In terms of the China challenge, I think this is probably one of the most consequential, if not the most consequential, issue that we have to confront as we are looking at the future of the US economy in the global marketplace. The China challenge is large, China moves fast. China has a very clear vision of where it wants to go. We need to match the competition that we are getting from China by having a clear vision about what kind of economy we want to have, what kind of strengths we have, that we are going to build on, what kind of strengths we have that we still need to build on, and how we are going to relate to China. First, if China can make changes; second, if China cannot make changes. On the question that you've asked regarding forced labor, and the anti- competitive practices from China, whether it's subsidies or other types of practices that really create global market domination that drives out competition in economies like ours.

What I would say is this, that the US-China Trade and Economic Agreement, this Phase One agreement that we have, is the agreement that we have right now, and it does have certain mechanisms that we will need to test out, but in terms of building on, building out where we need to be with respect to China, I am looking forward to working with you, the members of this committee, in the Senate, and across the Administration on how we best position the US economy to be strong, to run fast, and to really come out ahead, after we come out of this pandemic and into the future.

Schweikert-Tai Exchange on WTO Dispute Settlement

At today's House Ways and Means Committee hearing on the Biden administration's trade policy agenda, Congressman Schweikert and U.S. Trade Rep. Katherine Tai had the following exchange on WTO dispute settlement:

Congressman Schweikert:

I owe you a thank you for all your work in helping Mr Kind and those of us who are interested in the WTO, we'll call it resolution. But this becomes one of those moments now that you're behind that dais. If you were redrafting it again today, would you draft it differently?

Ambassador Tai:

Well that's a great question, Mr Schweikert, and I could probably write you an essay about this but I know we've just got a little time. So, let me say this. We can't go back in time, but today where we are in 2021, yes, I think that the fundamentals of the WTO itself needs reform and needs to reflect the realities of today.

Congressman Schweikert:

... for many of us here, and Representive Kind and his staff, we've had this running conversation. It's both the adjudicatory body ... but for many of us in particular, it's speed. I actually, truly believe in the coming decade, the disputes are going to be on things from synthetic biology, to things that are truly cutting edge but very disruptive to the economy. But speed will be crucial, and you can't have a decade of the games going back and forth, and by the time you actually come to a decision, the economics of the dispute are gone.

... What can we as members of Congress do to help the argument that the reforms of the WTO also have to be about the timelines, these timelines can't be a decade anymore.

Ambassador Tai:

Congressman, I think that the number one thing that you can do is what you're doing right now which is to be deeply engaged, it matters so much for US leadership and US participation at the WTO, for the WTO and its members to know that the United States cares, that it's not just USTR, it's not just the executive, but that US participation and leadership is backed up by Congressional interest and Congressional requirements.

With respect to the dispute settlement system, I hear you on speed. The large civil aircraft cases, Boeing - Airbus, that we've had, were first launched in the mid 2000s. That is part of what is motivating me in really putting the nose to the grindstone with the European Union to try to resolve these cases now. It's in part to show that all of this time has led to something, that this hasn't been just a colossal waste of time.

I think that there are other aspects to dispute settlement that we really need to think about and we really need to think holistically about dispute settlement, not just as one part of the WTO, but one key component, that is important for itself, but that also directly impacts the other part, which is the negotiating function. As strong as the dispute settlement system has become, it has taken a long time, it has become very active, we have also seen an atrophying of the negotiating function. These two things are connected.

Congressman Schweikert:

But is there a way, I mean there's some articles out there that talk about everything from a a quick ruling and escrow, then continued dispute, something it forces more pressure, more value for actually the negotiations to come to a close, and do we need to produce some mechanism that creates almost a leverage that you will negotiate in good faith to a final decision, instead of the game that appears to be going on now, where make it take forever, and at that point, if it's an IP type case ... , the value of it has already faded away.

Ambassador Tai:

I like the way you're thinking about it, and I would really like to continue to work with you and others on this committee on some of these ideas. 

I have a couple comments here.

First, I sometimes hear people say that WTO dispute settlement has undermined WTO negotiations. I haven't seen evidence of that, though, and WTO negotiators I have asked about this have been skeptical. It seems to me that the main reason for the failure of WTO negotiations in recent years has been the growing number of assertive Members, and the unwillingness of many key governments to compromise, and the difficulty this creates for reaching agreement.

And second, some suggestions for speeding up WTO dispute settlement from Jim Bacchus and me are here.

Katherine Tai on the USMCA Rapid Response Labor Mechanism Developments

U.S. Trade Rep. Katherine Tai testified in front of the Senate Finance Committee today on the Biden administration's trade agenda. She was asked about the USMCA rapid response labor cases I noted in my previous post:

Senator Brown:

Let me talk about what you would expect me to ask about, the Brown-Wyden rapid response mechanism. During your confirmation hearing, you committed to fully enforcing the USMCA agreement with Brown-Wyden. Today under your leadership, for the first time, self initiated an enforcement case under that mechanism. Thank you for that. We have now two Brown-Wyden cases, as you know. I'd like to ask you two or three questions, I'll ask them together and just get you talking a little more about Brown-Wyden, to explain it to people, how it's working, a sense of how many cases we might expect under this mechanism, some sort of ballpark estimate, talk to me about how the hotline works if you would, how do workers file complaints, do you take tips and come in through the hotline seriously, and tell me what does full use of the Brown-Wyden mechanism look like to you in the months and years ahead.

Ambassador Tai:

... On the Brown-Wyden rapid response labor enforcement mechanism, let me just distinguish a little bit between the two announcements this week.

The first one was a petition that was filed by the AFL CIO in partnership with several other labor organizations. That is the very very beginning of a petition process, and as constructed, there is a 30 day period during which USTR, working with the Department of Labor, will review that petition for whether follow up is needed, and whether USTR should then request Mexico to review whether a denial of rights has happened.

In the second case that has been initiated today, that was self initiated, and as you've noted, that is USTR initiating the request to Mexico today that will start the next timeline under the mechanism that's been created.

In terms of the tips and hotline and taking in information from people with experience of what's happening on the ground at some of these facilities, absolutely we take that information extremely seriously. 

 

USMCA Labor Complaints Are Heating Up

On Monday, the AFL-CIO and some other groups announced the filing of a petition under the USMCA rapid response labor mechanism (for background on this procedure, see Kathleen's post here). Now today, USTR announced that it has initiated a request for review under that mechanism on a different matter:

United States Trade Representative Katherine Tai today announced that the United States has asked Mexico to review whether workers at a General Motors (GM) facility are being denied the right of free association and collective bargaining.  The request is the first time any country has used the novel Rapid Response Labor Mechanism in the United States-Mexico-Canada Agreement (USMCA). USTR and the Department of Labor received information appearing to indicate serious violations of these workers’ rights in Silao, State of Guanajuato in connection with a recent worker vote, organized by the existing union, to approve their collective bargaining agreement. 

We'll be covering these issues on WorldTradeLaw.net. (For DSC subscribers, our list of USMCA labor petitions is here). I don't see the U.S. request for review in the GM case yet, but hopefully the relevant documents will be made public at some point.

UPDATE: The request for review is here.

Call for papers for ESIL-supported colloquium on ‘International Investment Law & New Technologies’

This is from the Tilburg Law and Economics Center (TILEC):

The Tilburg Law and Economics Center (TILEC) at Tilburg University (the Netherlands) is hosting a Colloquium on ‘International Investment Law & New Technologies’ which will take place on 9 and 10 December 2021 in Tilburg, the Netherlands.

The Colloquium on ‘International Investment Law & New Technologies’ is jointly organized by TILEC; Athens Public International Law Center (Athens PIL) of the National and Kapodistrian University of Athens School of Law; and Hamad Bin Khalifa University (HBKU) College of Law (Qatar).

The call for Papers can be found HERE. Deadline for submissions: 28 May 2021 

Call for Papers: 2021 CELIS Forum on Investment Security 1-3 December 2021

This is from Prof. Dr. Steffen Hindelang and Mr. Jens Hillebrand Pohl, inviting contribution from followers of this blog:

 

Call for Papers: 2021 CELIS Forum on Investment Security

1-3 December 2021

 

The 2021 CELIS Forum on Investment Security will be held in Warsaw from Wednesday 1 December until Friday 3 December 2021.

 

The 2021 CELIS Forum will address:

 

“The Emerging Law of Investment Control in Europe: Screening, Sanctions and Subsidies”.

 

“…Overhauling existing, introducing new investment control regimes…”

2020 was a watershed moment in the history of European investment control. The entry into full effect of Regulation 2019/452 not only elevated investment screening to a top priority in the EU’s common commercial policy, but it also set in motion a process of reform at the national level. Some Member States overhauled their existing, in part antiquated, laws on investment screening. Others introduced new investment control legislation. On the eve of its first anniversary, what are the early lessons of Regulation 2019/452 and the new EU investment screening framework it established?

 

“…From the New Industrial Strategy for Europe to Strategic Autonomy…”

Meanwhile, the new self-proclaimed “geopolitical” European Commission of Ursula von der Leyen came to office. It launched the ambitious twin policy agenda of the green and digital transitions, coming together in the “New Industrial Strategy for Europe”.  Rather than throwing this new policy agenda off course, the Covid-19 pandemic led to many of the policy initiatives being fast-tracked. At the same time, the pandemic highlighted the role of public health as a paramount societal interest and critical health infrastructures, critical medical supplies and critical health technology as essential strategic interests. “Strategic autonomy” became the catchphrase that encapsulated Europe’s desire to remain resilient against threats to European security and public order, whether man-made or of natural origin. Can we detect an expanded “soft security” concept as a “new grand narrative” to link climate change and sustainability with public health and perhaps other matters of ordre public, such as public morality, public order and public security? Is the Covid-19 trauma giving rise to a new doctrine of “Europe qui protège”?

 

“…Foreign take-over of EU companies financed with third-country subsidies…”

In a parallel development, in July 2020, the Commission presented the White Paper on Foreign Subsidies, which outlined a comprehensive approach to ensuring that the EU would no longer be on the receiving end of alleged unfair practices in the area of trade and investment. The White Paper envisioned a policy blueprint addressing distortions of competition caused by foreign subsidies facilitating the acquisition of EU companies. The White Paper seeks to ensure that foreign subsidies do not confer an unfair benefit on their recipients when acquiring (stakes in) EU companies, either directly by linking a subsidy to a given acquisition or indirectly by de facto increasing the financial strength of the acquirer. Under this initiative, the Commission would review acquisitions of EU companies by third-country companies benefitting from financial support of a non-EU government, above a given threshold. If the acquisition is facilitated by the foreign subsidy and distorts the EU Internal Market, the Commission could either accept commitments by the notifying party that effectively remedy the distortion or, as a last resort, prohibit the acquisition. Are we moving towards using investment control as a means to address global economic distortions and can this be linked to the concepts of resilience, strategic autonomy and economic security?

 

“…Economic sanctions in geoeconomic conflicts…”

Throughout the past year, the use and importance of EU restrictive measures (sanctions) as a foreign policy tool continued to grow. With geopolitical tensions rising and unresolved geoeconomic conflicts growing ever more infected, particularly as between the United States and China, economic sanctions retained their central role in foreign and security policy. Europe too came under the threat of sanctions by its longstanding and closest partner, the United States, with attention focusing on the EU’s relationships with Iran and Russia. The effect, including the chilling effect, on foreign investments of the ever more widespread use of economic sanctions added yet another dimension to the increasingly complex investment environment. Is the regulatory and legal asymmetry between various forms of investment, payment and capital mobility restrictions necessary and desirable? What parallels and lessons can be drawn from sanctions caselaw in the area of investment screening?

 

*          *          *

 

These broad strands of development raise the prospect of re-cast notion of the law of investment control, spanning not only general and sector-specific FDI screening in a strict sense on grounds of security or public order, but also “subsidies-screening” as proposed in the Commission White Paper on grounds of equality of competitive opportunities in international economic relations and, furthermore, investment control by way of economic sanctions. Can the outlines of such a composite conception of investment control regulation be defined?

 

To address the main theme of the CELIS Warsaw Forum, three sub-themes will be further explored:

 

• New European Security: Health Security, Climate Security, Digital Security. The concept of “security” lies at the heart of investment screening. The Covid-19 pandemic, the European Green Deal, and the EU’s digital strategy parallel notions that have been analysed in the area of security studies. At its core, security denotes the ability to prevent, withstand, and recover from (i.e. resilience against) harmful potential behaviour of others. As such, security goes beyond the traditional notion of military security to other areas of societal vulnerability and threats to the orderly functioning of a state, including economic security, food security, cybersecurity, health security, climate security or environmental security, to name a few. Europe’s current core priorities should focus attention on the particularities applicable to the security dimension of those priorities.

 

• Promoting Investments and Strategic Autonomy: Essential Resources and Critical Capabilities. The developments of 2020, notably the Covid-19 pandemic, has highlighted Europe’s potential and actual supply-side vulnerabilities and the importance of supply-chain resilience and access to critical resources and capabilities, as exemplified by the early experiences of personal protective equipment supply disruptions and the problems associated with vaccine delivery. While reshoring of supply chains may in some cases be warranted for reasons of political risk management and strategic operational resilience, taking such factors into consideration may come at an economic cost. This raises the question of how to facilitate strategic investments and whether some offsetting benefits may be required in that regard.

 

• Defence Against Investments Made in Pursuit of Geoeconomic Statecraft and Organized Crime.  Viewed holistically, the rules restricting third-country investments into the EU and their enforcement are highly uncoordinated and incoherent, both at the EU and national levels. This leaves the EU and its Member States ineffective and vulnerable to regulatory arbitrage. Assuming that this state of affairs is not intentional, how can loopholes and inconsistencies in EU investment control regulation be tackled? How can investment control be made more efficient, transparent, swift and predictable, so that unproblematic investments are not negatively impacted, while effectively addressing problematic investments? How can enforcement of investment control be made more effective and consistent?

 

The Organizing Committee welcomes original contributions in the form of submission of proposals for papers addressing the theme and sub-themes above. In addition, submissions are invited on any of the following topics:

 

1. Multiplying instruments for investment control: screening, sanctions and subsidies
2. Sustainability screening: climate change and investment control
3. Digital sovereignty and investment screening: data, media and freedom of speech
4. Health security: Covid-19 implications for screening mechanisms in the Member States
5. Threat analysis and the concept of security in practice, including the nature of threats to security and public order, subjects and objects of threat and approaches to threat analysis
6. Administrative process in connection with investment screening, anti-subsidies enforcement and sanctions, including the application and limitations of fundamental principles of administrative process and the role of mitigation
7. Investment screening in the context of state-owned enterprises (SOEs) 
8. Interaction between investment screening and financial supervision
9. Investment screening and dispute resolution, including the nature and availability of recourse against screening decisions, and the scope and standard of review
10. Investment screening, investor-state dispute settlement (ISDS), and security exceptions
11. Conformity of screening mechanism with international law / EU law / OECD codes.
12. Are Member State screening mechanism converging, because of Regulation 2019/452 or for any other reasons?

 

Submission Procedure and Instructions

Paper proposals, including abstracts of no more than 500 words and the speaker’s contact details and bio-note or CV (including current main affiliation, relevant experience, and pertinent publications, as well as date of affiliation with the CELIS Institute, if applicable), must be submitted by

 

Monday, 31 May 2021 (midnight CEST) via the dedicated web-form, available at www.celis.institute.

 

Every proposal will be reviewed on a double-blind and confidential basis. In evaluating proposals, please note that priority will be given to unpublished papers and works in progress. The Organizing Committee anticipates announcing the results of this call for paper proposals by Tuesday, 15 June 2021.

 

Applicants whose paper proposals are selected should be prepared to submit draft papers (no more than 5,000, including footnotes) by Friday, 1 October 2021.

 

Conference papers will be made available to conference participants prior to the conference. The conference proceedings and the papers presented at the conference, will be summarized in the conference report, the CELIS Investment Security Report, to be published shortly after the conference. In addition, the organizers consider publishing papers presented at the conference either as a special issue in a leading journal or as an edited volume published by a leading academic publisher. In the selection of proposals, preference will be given to those interested in publication. Willingness to submit a paper should be indicated in the response to this Call for Papers. Speakers whose paper proposals are selected should be prepared to submit draft papers (between 5,000 and 10,000 words, including footnotes) by Monday, 31 January 2022. All proposals and finalized papers must be written in English.

 

Conference Fees

Speakers whose paper proposals are selected are expected to register for the conference. The applicable registration fee is EUR 120 (CELIS Fellows receive a waiver).

 

Hybrid Format

The conference will be held in a hybrid format, with speakers and some participants joining a live on-site meeting and other participants and some speakers joining virtually. The number of on-site conference participants will be restricted in accordance with applicable health regulations in force at the time of the conference. Participants who wish to keep an option to join on-site should indicate this on the registration form. Option requests will be queued on a first-come, first-served basis. The conference organizers will be in touch regularly regarding the availability and relevant number of live seats.

 

Contact

Please submit enquiries to events@celis.institute.

 

The Organizing Committee: Konrad Czech Steffen Hindelang, Marek Jaśkowski, Szymon Pawłowski, Jens Hillebrand Pohl

 

About the CELIS Institute

The CELIS Institute is an independent non-profit, non-partisan research enterprise. It is dedicated to promoting better regulation of foreign investments in the context of security, public order, and competitiveness. We produce expert analysis and foster a continuous trusting dialogue between policymakers, the investment community, and academics. The CELIS Institute is the leading forum for studying and debating investment screening policy.

The CELIS Institute’s activities focus on policy-oriented analysis through its publications and events organised around the flagship CELIS Forum on Investment Security and conference publication CELIS Investment Security Report. The CELIS Knowledge and Research Hub hosted on the CELIS Institute website www.celis.institute is the most comprehensive and up to date online tool available for foreign investment screening. Through its network of Country Reporters, the Institute provides full coverage of EU and global screening regimes, including legislation, guidance, court judgments, summaries, academic articles, policy briefs, and is updated up to several times a day. The Hub provides news updates in this rapidly developing area, a target search tool, an FDI screening map, and other resources including podcasts.

Biden Makes Another Good Trade Appointment in Thea Lee

The Biden Administration has appointed Thea Lee to be the Deputy Under Secretary for International Labor Affairs.  This is a thoughtful appointment to an agency that has had an important trade role for at least six decades.  I wish her good luck in having the labor voice heard in the policy arena. I worked in that Bureau for about nine years in the 1970s and early 1980s and I often found it difficult to get DOL's position heard at USTR, State, and Commerce. I hope that the Biden Administration gives Thea Lee ambassadorial rank in her work with the ILO as the Reagan Administration did with Bob Searby.  

 

https://www.foxbusiness.com/politics/biden-administration-to-name-thea-lee-to-top-labor-department-slot  

I commend the new essay in Barron's by my colleague Susan Aarsonon "How Nations Can Build Online Trust Through Trade". Her scholarly contributions to the development of effective trade policy are always enlightening.

https://www.barrons.com/articles/how-nations-can-build-online-trust-through-trade-51620139281?mod=hp_COMMENTARY_4

My Take on the Vaccine/TRIPS Waiver Issue: Buyout Pharma Now, Rebalance the IP System Later, and Meh on the Waiver

After almost two days of intense discussion on Twitter and elsewhere, here's where I am now on the issue of vaccine production and the TRIPS waiver. The most important point here is whether additional factories around the world could produce vaccines. In order to do so, they would need to have licensing deals with the pharmaceutical companies who have the patents and the know how to make the vaccines (obviously, the situation of the mRNA vaccines and the more traditional ones is a bit different). There seems to be a factual debate on whether, or to what extent, other factories would actually have the capability to do this production. I haven't seen anything definitive about what's possible here, but if it can be done at all, we need to make it happen as soon as possible. 

So how to make it happen? It seems to me the quickest way is to pay Pharma a lot of money to get them to go along with it. People keep throwing out $100 billion as a figure, and that's a nice round number I can get behind, but the precise number doesn't matter too much. Whatever it takes.

I suggested this Pharma buyout plan to a progressive friend of mine, and this person seemed reluctant. I understand that Pharma already has made a lot of money here, and that there may be options that involve something more along the lines of governments taking the technology from Pharma. There are a number of problems with this approach, however, one of which is that it will be slower than a buyout. People are dying and we need to act fast.

I think people are aware that I'm a skeptic on IP protection. In my view, it goes too far in many ways at the moment (e.g. this). However, while rethinking the balance of the IP system is important, we can't do it right now. Again, people are dying and we need to act fast. When the pandemic is over, I'm all for a reconsideration of patent policies in general and how they relate to medicines in particular. (Bryan Mercurio and I tried to raise these issues a year ago, but didn't get much traction.)

What about the TRIPS waiver? I don't object, but I'm not sure it adds much to the existing exceptions and flexibilities. Does a TRIPS waiver give a bit more leeway to governments who want to do something that might not be in accordance with TRIPS? I guess it does. But WTO dispute settlement probably isn't a practical option for preventing governments from acting here anyway (even putting the Appellate Body crisis aside), and I'm not convinced that WTO rules are a real barrier to action. The key issue is the positions of the U.S. and other wealthy governments. If they will push for more licensing, we are in good shape, regardless of what is happening at the WTO.

Now, if the waiver is more of a negotiating tool for the talks governments are having with Pharma, it makes a little more sense to me. If that's what the big shift in the U.S. position on the waiver was designed for, I get it and I hope it helps get us to some more licensing arrangements. But it would be crazy, in my view, to wait for the waiver to be signed before pushing Pharma to do more licensing, as some news articles today seemed to imply would be the case. The talks with Pharma should be the priority. The WTO is a great place to discuss the big picture policies, but what's needed now is for governments, who are the ones with the power, to act.

SIEL Conversation on Indirect Expropriation in International Investment Law

From the SIEL:

SIEL May Conversation

The Society of International Economic Law (SIEL) is pleased to invite you to its May Conversation entitled ‘Book Launch: Sondra Faccio, Indirect Expropriation in International Investment Law. Between State Regulatory Powers and Investor Protection (Editoriale Scientifica, 2020), with Sondra Faccio (University of Trento), Prof. Giuseppe Nesi (University of Trento), Prof. Tarcisio Gazzini (University of East Anglia), Prof. Catharine Titi (University Paris II Panthéon-Assas), moderated by Prof. Eric De Brabandere (Leiden University Law School).

11 May 2021 at 11 am CET time. Zoom registration available here.

More information can be found here.