International Economic Law and Policy Blog

Can Industrial Policy Be Kept Out of the Wrong Hands?

Todd Tucker has a new paper in which he argues in favor of "industrial policy and planning." I was planning to follow a policy of industriously ignoring it, because I didn't want to call attention to it. Better just not to talk about it, I thought. But Todd is clever and cited me in his paper, which he knew would induce me to respond. Excellent trolling, Todd!

His cite is to this blog post I did. In particular, he cites one passage, which he describes as follows:

A final objection is more rooted in an observation about the nature of democratic regimes. Simon Lester at the Cato Institute writes that advocates of industrial policy “need to take into account that they are not always going to be in power…You can’t just say, we want economic statecraft but only the good kind. Once the principle has been established, it can be used for anything, and you know that in advance.” Even if one wants the tool for only progressive ends, “that also means President Trump has the power for some non-progressive thing. Given the way such power will actually be used, it’s worth considering whether it would be better if the US government simply didn’t exercise this power, or exercised it a lot less” (Lester 2019).

To clarify, I was talking about "economic statecraft" here, not industrial policy generally. My point was that once you start messing around in other countries' affairs, it inevitably goes in a bad direction at some point. Your intentions might be good (albeit misguided and probably ineffective), but those of your successors might not be good.

Todd offers this reaction:

But to some extent, these critiques could be successfully levied about any activist government policy. Why legislate at all if one’s program could be repealed or co-opted in the future? ...

My response, of course, is: Exactly! This critique CAN be made about any government policy, including industrial policy. Even assuming there is a way to make industrial policy and other activist government policies work in the hands of clever and unbiased administrators, how can you ensure that they won't be ruined later by whomever is in charge next?

Now, I don't mean to suggest that, on the basis of this concern, the government should never do anything. I just mean that people should be a bit circumspect about what governments can do effectively, and "industrial policy" is a great example. How can the government take actions that help specific companies without getting stuck in a cycle of lobbying influence? I'd like to see Todd grapple with that question a bit more. I know he puts "nationalization" out there as a possibility, but it is very unlikely this would play much of a role. In practice, industrial policy is going to involve helping particular industries. Picking the right ones (and cutting them off from aid at some point) and making the whole thing work is really difficult.

To illustrate this point, let me put one of Todd's examples out there for your consideration:

policymakers now are frustrated that China appears to be dominating so many different industrial sectors. The Washington, DC Metro system, for instance, needs new railcars—but there are no American companies left that can supply them. The system also has been stymied by poor rail infrastructure, which has led more and more commuters to switch to driving Chinese-made electric scooters. An inclusive industrial policy might ban scooter imports and fund railcar and bus construction in West Virginia (ground zero of the opioid crisis) and impoverished-majority areas like Black Southeast DC and Prince George’s County, Maryland.

If this is the model, any experiment with some sort of new and expanded industrial policy might not last long. (The flaws seem obvious to me, but we can talk about this proposal if others see things differently).

(I should also note that Todd is not limiting himself to "industrial policy" in the way that most people think of it. He includes "and planning" in the paper's title, which perhaps was a clue that he had something bigger in mind, but when I first read that I took it to mean the planning of industrial policy. In fact, he seems to have in mind economic planning and governance reform more generally. There are many elements of traditional industrial policy in the paper, but he goes much further.)

Can Party Modifications to DSU Rules on Appellate Review Help with the Appellate Body Crisis?

What is the scope of party modifications to the DSU for particular cases, and could it help with the Appellate Body appointment crisis? It may not be an ideal solution, but take a look at the following example and see if it could be applied to the Appellate Body crisis.

Article 17 of the DSU is very clear that the Appellate Body must circulate its report within 90 days:

5. As a general rule, the proceedings shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate Body circulates its report. In fixing its timetable the Appellate Body shall take into account the provisions of paragraph 9 of Article 4, if relevant. When the Appellate Body considers that it cannot provide its report within 60 days, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report. In no case shall the proceedings exceed 90 days.

And yet the participants to an appeal have, in a number of cases, agreed to extend that period. Here's an example, from U.S. - Cotton Subsidies:

8. After consultation with the Appellate Body Secretariat, Brazil and the United States noted, in letters filed on 10 December 2004, that it would not be possible for the Appellate Body to circulate its Report in this appeal within the 90-day time limit referred to in Article 17.5 of the DSU. Brazil and the United States agreed that additional time was needed for several reasons: the issues arising in this appeal were particularly numerous and complex compared to prior appeals, which increased the burden on the Appellate Body and WTO translation services; WTO translation services were unavailable during the WTO holiday period; and the Appellate Body was likely to be considering two or three other appeals during the same period. Brazil and the United States accordingly confirmed that they would deem the Appellate Body Report in this proceeding, issued no later than 3 March 2005, to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.

In recent years, the Appellate Body's decision to take more than 90 days without getting agreement from the participants first has been controversial. But with an agreement between the participants in place, the practice did not appear to be too controversial when it was initially used.

If extending the period for circulation beyond 90 days is acceptable, despite the clear obligations in the DSU, and such reports can be "deemed" to be "an Appellate Body Report circulated pursuant to Article 17.5," are there other DSU provisions that could be modified with the agreement of the participants? With regard to the Appellate Body appointment crisis, I'm wondering if any of the following modifications might help.

First, DSU Article 17.1 says:

A standing Appellate Body shall be established by the DSB. The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case. ...

But perhaps the participants could agree that, in a particular appeal, it would be sufficient for one Appellate Body Member to serve on the case.

Second, DSU Article 17.2 says:

The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once. ...

Perhaps the participants could agree that, in a particular appeal, the four-year term limitation would be suspended, and a recently expired term would be extended.

Taking this even further, perhaps the participants could simply agree to have the case heard by people other than currently appointed Appellate Body Members. Former Appellate Body Members is the logical place to look for candidates, but really it could be anyone the participants want. Putting this into practice, the U.S. - Cotton Subsidies language quoted above could be adapted along the lines of the following:

After consultation with the Appellate Body Secretariat, Member 1 and Member 2 noted, in letters filed on _____, that the failure of WTO Members to agree on nominations to the Appellate Body has resulted in the inability of the standing Appellate Body to hear this appeal. Member 1 and Member 2 have therefore agreed that _______, ______, and _______ will serve as the Appellate Body Division in this appeal. Member 1 and Member 2 confirmed that they would deem the Appellate Body Report in this proceeding to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.

There are a number of other solutions out there already, but I thought I would add these ideas into the mix.

What's the Status of Panel Blocking in the New NAFTA?

This is from Ambassador Lighthizer's responses to the questions for the record from a June 19 House Ways and Means Committee hearing:

From Representative Bill Pascrell to Ambassador Robert E. Lighthizer

1. Using Section 301 could invite retaliation. And Mexico and Canada agreed to fix panel-blocking in the Trans-Pacific Partnership. But this was not changed in the newly negotiated North American Free Trade Agreement. Senators Brown and Wyden have a proposal which sounds worthy of consideration. As we look to improve the enforcement mechanisms in the new newly negotiated North American Free Trade Agreement, can you commit to ensuring there is a binding dispute settlement system that does not allow panel blocking?

Answer: I am committed to ensuring that the agreement is enforceable. My staff and I have been working with the process set up by the Speaker and this is one of the important issues we are discussing.

,,,,,,,,

From Representative Jimmy Panetta to Ambassador Robert E. Lighthizer

.......

4. There remain strong concerns regarding state-to-state dispute settlement, and the ability for one party to block a dispute panel. You have stated to Senate Finance Ranking Member Wyden that the text of USMCA “is not meant to allow panel blocking.”

While that clarification may be helpful, is USTR willing to either update USMCA’s text or negotiate a side agreement that makes that clarification official?

Answer: I am committed to ensuring that the agreement is enforceable. My staff and I have been working with the process set up by the Speaker and this is one of the issues we are discussing.

Those responses were vague and do not inspire a lot of confidence that the panel blocking problem will be fixed. Congress may have to push pretty hard behind the scenes to get this corrected. I hope they are doing so.

Tenure-Track Position in International Economic Law at the University of Ottawa, Faculty of Law, Common Law Section

From the advertisement, hat tip to Debra Steger:  "The Common Law Section of the Faculty of Law at the University of Ottawa invites applications for a tenure-track position as an Assistant, Associate, or Full Professor in International Economic Law commencing July 1, 2020. APPLICATION DEADLINE: September 30, 2019.

International Economic Law at the Faculty of Law at the University of Ottawa: The uOttawa Faculty of Law is one of the strongest international law faculties in the world. It is home to a group of globally recognised scholars in international economic law, has the largest number of international law scholars in Canada and regularly hosts leading scholars from around the world. The Law School provides the opportunity to teach small seminars on a range of international trade and investment law issues to JD students, Master and PhD students, including a trade and investment law clinic, and offers a specialized LLM in International Trade and Investment Law attracting a select and diverse cohort of graduate students every year. The Law School is located at the heart of Canada’s international economic law community and has strong relationships with Global Affairs Canada, international trade institutions, like the Canadian International Trade Tribunal, and the private bar. For more information on international economic law at the Faculty click here."

Collateral Damages of the Trade War

Two researchers from the Kiel Center for Globalization (Haiou Mao and Holger Görg) have just published a working paper entitled “Friends like This: The Impact of the US – China Trade War on Global Value Chains.”  Based on the notion of “cumulative and indirect tariffs” in global value chains (GVCs), the paper demonstrates that higher tariffs on Chinese intermediate products (parts and components) imposed by the United States incur an additional tariff cost to third countries (such as the EU, Canada and Mexico) when they are assembled into final products and re-exported to those third countries.  Any initial tariffs imposed by the United States will continue to hurt multiple trading partners further downstream in GVCs.

This study highlights collateral damages of the U.S. – China trade war.  One might speculate that it calls for a strong “normative” response from the world trade community.  Could, or should, third parties challenge those tariffs imposed by the United States, and retaliatory tariffs imposed by China, before the WTO?

Guest Post: Tariff Authority under the U.S. Constitution and Practice

This is a guest post from Bashar H. Malkawi, Professor of Law, University of Sharjah

Under the Commerce Clause of the U.S. Constitution, the Congress has the power to regulate commerce with foreign nations. In addition, Congress has the exclusive power to regulate commerce among the several states and with the Indian Tribes. U.S. Congress also has the authority to "lay and collect Taxes, Duties, Imposts and Excises" (Article I, section 8, paragraph 1). The U.S. executive must have the authority, delegated by the Congress, in order to negotiate.

Congress later passed the Trading with the Enemy Act of 1917, the Trade Expansion Act of 1962, the Trade Act of 1974, and the International Emergency Economic Powers Act of 1977. These acts gave power to the U.S. president that the Constitution never intended. In effect, the U.S. president who wants to restrict trade enjoys almost wide and unrestricted authority. These days, imposing tariffs on imports from certain countries can implemented on "national security" concerns.

Under the Trading with the Enemy Act of 1917, during time of war, the U.S. President has power over “all forms of international commerce, plus the power to freeze and seize foreign-owned assets of all kinds.” Under the Trade Expansion Act of 1962, the president can “impose tariffs or quotas as needed to offset the adverse impact” on “national security from imports.”

Under the Trade Act of 1974, the president has the authority to “impose tariffs up to 15 percent, or quantitative restrictions, or both for up to 150 days against one or more countries with large balance of payments surpluses” and take “retaliatory actions, at presidential discretion, including tariffs and quotas,” if a “foreign country denies the United States its FTA rights or carries out practices that are unjustifiable, unreasonable, or discriminatory.” Under the International Emergency Economic Powers Act of 1977, during time of national emergency, the president has power over “all forms of international commerce, plus the power to freeze foreign-owned assets of all kinds.”

To limit the executive branch authority in this area of trade, there are several options. For instance, Congress could repeal all these Acts. However, this is not plausible for all sorts of reasons being economic or political. Other alternative would be to align these Acts with their original intent as a powerful trade remedy tool for the president and Congress to respond to "genuine threats" to national security. The alignment could mean an investigation process by the Department of Commerce whether there is increased imports that threat national security. In addition, Congress must be consulted and, in certain circumstances, must have the authority to oppose imposing tariffs.

The U.S., and other countries for that matter, cannot resolve perceived trade imbalances using "national security" rationale for imposing tariffs and other trade restrictions. Real free trade includes no trade agreements, no government subsidies, and no tariffs or quotas. There is a long road ahead before achieving true and real free trade.

New available EBOOK VERSION of my recent book about the WTO law of subsidies

Dear Blog Colleagues, 

Allow me to inform you that a new eBook version of my recent book ( The WTO law of subsidies: A comprehensive approach, Kluwer Law International, June 2019) is now available at Amazon.com. Until now, only a print version was available and a commentator on this blog inquired about this aspect. This new version  can be downloaded and read on several media, including personal computers.

Best regards. Marc

 

"Every line we succeed in publishing..." A response on the state of international law scholarship to EJIL's new co-editor in chief

Around the beginning of World War II, the Jewish-German thinker Walter Benjamin wrote to his friend Gershom Scholem: "“Every line we succeed in publishing today - no matter how uncertain the future to which we entrust it - is a victory wrenched from the powers of darkness.” Benjamin was trying to encourage his friend that, no matter how hopeless or uncertain the times seemed to be, publication was a gesture against that darkness, an implicit statement that it was possible to make a difference, "no matter how uncertain the future."

There are many colleagues who think today we also live in dark times and under radical uncertainty about the future.  But there are some who believe we are publishing too much, at least in international law. This is the view of Cambridge professor Sarah Nouwen,  recently appointed co-editor in chief of the European Journal of International Law, surely among the leading publications in our field. Recently, Joseph Weiler, the other co-editor, interviewed Nouwen, who said: 

There’s more and more and more and I think far too much is published…so much is out there…one cannot even begin to research everything that’s being written on a topic…  we should have slow writing and slow publishing. We buy into a culture of wanting to be seen everywhere…to publish everywhere.

To be precise, Nouwen made this claim about every academic discipline not just international law. Certainly, making a judgment about every academic discipline is way beyond my pay grade.  So I'll stick to international law, where like other followers of this blog, I try to read widely and, where possible, deeply. (I proposed to Nouwen we debate her proposition at some appropriate forum but she declined-understandably-citing the burden of her new responsibilities with EJIL and other heavy commitments).

Let me state several reasons for celebrating the explosion of publications in international law.

1. The expansion is rightly a reflection of the recognition that there are many many regimes/sub-fields that are real international law, not just the use of force, the UN Charter, border disputes and so on that are worthy of sustained scholarly attention.  This is a point that international economic law folks can surely appreciate. Was the world a better place when we had, basically, Bob Hudec,John Jackson with maybe an Eric Stein or Jacques Bourgeois or three?  This is not a judgment about the merits of these brave souls who dared to think that trade was a worthy subject of serious scholarly writing.  In many ways, the vast expansion of scholarship on trade, investment, and finance in international law is a tribute to their original vision. 
2. The expansion of publication has reflected an expansion of voices: developing-world voices, indigenous voices, women's voices, environmentalist and animal welfare voices, and so on.  (Nouwen herself claims to be concerned about women's voices, yet it is hard to say that returning to a more restrictive view of publication would be a positive for gender representation). 
3. By "slow writing" and "slow publishing" we international law scholars cannot reverse the tremendous acceleration of existence in these times, the digital revolution and so on.  We can only succeed in becoming a (perhaps noble) anachronism,  There are reasons to respond to tweets that reframe policy and attitudes on matters like tariffs, China, trade and national security by scholarly analysis not just other tweets. Responding slowly may make a statement for posterity but it ill serves our responsibilities to our students, to the political community, and to the world.  I therefore welcome the fast publishing of recent e books that have addressed the crisis of the WTO dispute system, and trade war with China, for instance.
4. The enemies of international law would like to reinforce their image of us as an effete clique removed from reality, a small self-admiration society fantasizing about a world where international lawyers not power politics determine the outcomes.  The more we publish, the more places we publish, the more we plausibly claim a legitimate place in the public world. 
5. "Scribere est agere," to write is to act, goes the famous Latin maxim. But this is only true where the writing is communicated. We scholars are generally overall reticent to imagine that what we write is really seen out there in the world-or that, if it is, that's it is largely because of the prestige of our institutional affiliation or of the publication venue.  But scholarly writing is a message in a bottle-and the bottle more often than we think gets found by someone in some position to learn from and give real world impact to that missive. And usually, that far away treasure-hunter being indifferent to the artificial hierarchies of the academic world, it is the message that will concern them, not the stamps of elite approval on it. I always enjoy hearing (usually long after the fact) how something I have published in a completely unknown or un-ranked outlet (even a blog!) provoked a debate in the cabinet of some government or among the high officials of an international organization- people typically indifferent to matters such as scholarly pecking-order.
6. This circles back to Benjamin's basic point to Scholem.  Publication is an affirmation that the future is open, and that we, however powerless we may feel in a world where so many forces and constraints seem to be against us, might make a difference, that our message is important.     We might worry that our manuscript is banal, descriptive-but it might just have the specialized information that a policymaker in a poor country needs to advance her country's interests in a complex process of global governance, for example. So always err on the side of publication-you respect yourself, and your belief that others might find value in what matters to you is a respect for the public world of thought and action; or, as the philosopher Immanuel Kant put it  public communication through writing is not just the entitlement but also the duty of a scholar.       

   

UNCITRAL and ISDS Reform: China’s Proposal

By Anthea Roberts and Taylor St John*

On 19 July 2019, China submitted its proposal on investor-state dispute settlement (ISDS) reform to UNCITRAL. A Chinese version is available, though an English translation is yet to be posted. China reaffirms its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it takes note of significant criticisms of ISDS and suggests various pathways for reform including, most notably, supporting the study of a permanent appellate body. In combination with the European Union’s “open architecture” approach, where the EU has signalled that it is open to working with other states that might wish to sign onto an appellate body and/or the multilateral investment court, this means that two of the world’s three biggest economies have now signalled support for significant reform of ISDS, including the possible creation of a permanent appellate body.

China’s UNCITRAL submission

China began in the investment treaty system as an ISDS sceptic but, over the years, has become an ISDS convert. In this submission, China starts from the position that ISDS plays an important role in protecting the rights of foreign investors and promoting cross-border investment, as well as helping to build the rule of law in investment governance and avoiding economic disputes between investors and states escalating into political battles. Given this, China affirms its belief that ISDS is overall a mechanism that is worth maintaining. Given China’s growing interests as a capital exporter, particularly along the Belt and Road route, this endorsement of ISDS should not come as a surprise and is in line with the evolution of China’s treaty practice toward embracing ISDS over a full range of disputes.

Despite this general affirmation, China recognizes that there have been significant criticisms made of ISDS that need to be addressed. These include that: the current system lacks an institutionalized and reasonable error-correcting mechanism; the current system of ad hoc awards lacks stability and predictability; the professionalism and independence of arbitrators has been put into question; third party funding is affecting the balance of parties’ rights; and investment arbitration proceedings are long and costly. Of note, China also states that the phenomenon that the arbitrators and lawyers of investment arbitration are limited to a few experts deserves special attention. China states that ISDS should be more open and inclusive with increased participation of experts from developing countries.

China takes the position that some of the problems with ISDS are difficult to resolve through bilateral investment agreements and instead need to be resolved through improving multilateral rules and mechanisms for the resolution of ISDS. In this way, China affirms its commitment to multilateral international economic law governance. In order to safeguard the legitimate regulatory power of host states, protect the rights of foreign investors, enhance confidence in ISDS, and promote the rule of law in investment dispute resolution, China states that it is open to suggestions for improving ISDS, including but not limited to the following options (described below using wording as close as possible to a translation from the original Chinese):

1. Permanent appellate mechanism

To solve the main problems in ISDS, China states that it supports research into a permanent appellate mechanism as a reform proposal. China believes that a permanent appellate mechanism would mean that there would be fixed procedures, institutions, staff and member states that would play an important role in promoting the rule of law in the settlement of investment disputes. China sees this as important for improving error correction and strengthening the coherence and legitimacy of the system. China points to the WTO example to suggest that an appellate body might be comparatively efficient and cost effective compared to the current situation.

2. The right of the parties to appoint an arbitrator

From the traditional practice of international arbitration, the right of the parties to appoint arbitrators is a fundamental feature of international arbitration and also reflects the will of the parties, China states. China believes that in the first instance of investment arbitration, the right to appoint arbitrators is a widely accepted institutional arrangement that is important to enhance the confidence of the parties to the dispute and should be retained in the reform process. In this way, China signals that it currently seems open to a model based on (improved) ISDS plus potentially an appellate body.

3. The qualifications and independence of the arbitrator

While retaining the appointment of the arbitrator by the disputing parties, China believes that it is necessary to improve rules governing the arbitrators’ qualifications, conflicts of interest, and selection and removal procedures. China notes that Working Group III and ICSID are both studying the possibility of a code of conduct for arbitrators. China believes that considering the public law nature of investment arbitration, arbitrators should have expertise in the field of public international law or international economic law and should avoid potential conflicts of interest and double hatting. China notes that different countries have different understandings of arbitrators’ conflicts of interest so further rules are needed to spell these issues out. There should also be more rational and transparent rules on the selection and removal of arbitrators.

4. Alternative dispute resolution

China reaffirms its commitment to mediation. According to China, alternative dispute resolution mechanisms are conducive to maintaining long-term cooperative relationships between investors and host states and reducing the cost of dispute settlement. Compared with investment arbitration, investment mediation can provide host states and investors with a high degree of flexibility and autonomy, and mediators have more opportunities to adopt creative methods to promote the settlement of investment disputes. For this reason, China endorses the establishment of a more effective mediation mechanism in order to help the parties get to win-win results, thus avoiding a lengthy period of arbitration and high costs.

5. Procedures for pre-arbitration consultation

China supports the inclusion of a mandatory three to six month pre-arbitration consultation procedure to permit notification of and consultation about potential claims before they are brought. This would be used to allow both sides to better understand the position of the other and to see if the dispute could be resolved before it is escalated to arbitration.

6. Transparency for third-party funding

China supports transparency with respect to third-party funding. Relevant parties should continue to disclose relevant funding and avoid direct or indirect conflicts of interest between arbitrators and third-party funders. If the disclosure obligation is not fulfilled, the legal consequences of the relevant party should be clarified.

The EU’s open architecture approach

China has now stepped forward as a proponent of an improved version of ISDS plus potentially an appellate body. In this way, it straddles the divide between being a proponent of “structural” reforms and “other” reforms in the UNCITRAL process. In doing so, it may better represent the current temperature of the negotiating room than any of the other declared powers.

It remains to be seen is whether China strongly stands behind this hybrid approach or whether its own practice evolves over time. It is possible that this mixed approach reflects a compromise position among different positions within the Chinese government that might shift over time. China has also taken a pragmatic approach to its negotiations in the past, accepting a wide variety of terms rather than insisting on a single model.

If China strongly stands behind this hybrid ISDS/AB approach, an important question will be whether it seeks to anchor this approach as the – or one of the – main approaches to reform in an exclusive way, or whether it works flexibly with other major players, like the European Union, to develop an overlapping approach with other proposals like the multilateral investment court and appellate body.

In projecting forward in July 2018, one of us wrote in favour of taking a flexible, open architecture approach to reform options: “Flexibility can also be built into specific reform proposals by, for instance, adopting open architectural approaches that permit differently situated states to sign up for new multilateral approaches or institutional mechanisms.” This could include using a flexible Mauritius Convention-style treaty to permit states to “decide individually whether to opt in to a court and/or an appellate body, or neither.”

As explained in an EJIL: Talk! blog in November 2018, this approach was intended to capture how negotiating dynamics and potential alliances might unfold and develop:

The European Union is unlikely to give up easily on its two-tier solution given its belief in reform and the toxicity of “private justice” in some of its domestic settings. One option would be to try to get agreement on considering an Appellate Body first and a Court second. But if you want an integrated system at the end, this seems far from ideal. Probably a better move would be to consider both at the same time but with a flexible open-architecture structure that allowed states to sign onto either the first level court and/or the appellate mechanism.

One reason for suggesting this was our reading that China’s statements on the floor in UNCITRAL seemed to be signalling that China might be “warming up to a position of supporting ISDS, with possible improvements, but subject to an Appellate Body.”

In its subsequent submission to UNCITRAL, the European Union took up this open architecture approach, citing these articles and blogs. According to its January 2019 submission:

3.16. Open architecture

39. The EU and its Member States consider … that only a two-tier permanent structure can remedy all the identified structural concerns in the current system. A certain level of flexibility would, nevertheless, need to be built into a standing mechanism. This would be necessary, for example, for countries that might want to use the standing mechanism for state-to-state dispute settlement, but which do not use investor-state dispute settlement in their agreements. It may also be the case that some countries may like to retain the flexibility to utilise only an appeal mechanism even if, in the view of the EU and its Member States, such an approach would not effectively resolve a number of the concerns which have been identified. If that is indeed the case, the open architecture of the standing mechanism could be a way of providing for such flexibility for those countries.

Arguably, the EU’s open architecture approach works like an invitation to China and other states to come on board for the creation of an appellate body without having to commit to an underlying multilateral investment court. This approach by the Europeans was smart because there was broader support in the room for the appellate body than for the underlying court and this approach potentially allows them to square the circle. With its submission to UNCITRAL, the question is whether China is embracing a potential appellate body instead of the European’s approach or whether the two could co-exist in an open architecture model.

With two of the world’s largest economies now supporting consideration of a permanent appellate mechanism, other states will need to pay increased attention to this possibility. Like ISDS reform as a whole, any appellate mechanism is likely to emerge through a mixture of multilateral innovations and bilateral actions. If the European Union and China make access to a multilateral appeals mechanism a feature of their own free trade and bilateral investment agreements, they have substantial bargaining power to shift the preferences of third states on this issue. In this way, 1 + 1 has the potential to make much more than 2 … though many discussions remain to be had to figure out what is politically feasible and how the variable geometry of ISDS reform will ultimately play out.

First published on EJIL: Talk!

*Anthea attends UNCITRAL Working Group III as part of the Australian delegation but she acts and writes in her independent academic capacity. Taylor attends UNCITRAL as an observer from PluriCourts.

Trade in the Second Night of the Democratic Primary Debate

Here is the discussion of trade in last night's Democratic primary debate:

HARRIS: First of all, Donald Trump came in making a whole lot of promises to working people that he did not keep. He said he was going to help farmers. He said he was going to help auto workers.

...

Because of this so called trade policy that this president has that has been nothing more than the Trump trade tax that has resulted in American families spending as much as $1.4 billion more on everything from shampoo to washing machines. He betrayed the American people, he betrayed American families, and he will lose this election because folks are clear ...

...

BASH: ...

I want to turn now to a question about trade and for Congresswoman Gabbard. Many saw the Trans-Pacific Partnership issue as something that would be a critical tool to deal with the rise of China. You were against it. How would you ensure that the United States is able to remain competitive against China on the world stage?

GABBARD: By pushing for fair trade, not trade deals that give away the sovereignty of the American people and our country, that give away American jobs, and that threaten our environment. These are the three main issues with that massive trade deal, the Trans-Pacific Partnership.

I think the central one was the fact that it gave away our sovereignty to a panel of international corporations whose rulings would supersede any domestic law that we would pass, either a federal law or a state or a local law. This is extremely dangerous and goes against the very values that we have as a country.

What to speak of the fact that it would have a negative impact on domestic jobs and that it lacked clear protections for our environment. These are the things that we have to keep at the forefront as we look to enact fair trade deals with other countries to make sure that we continue to be a thriving part of our global economy.

(APPLAUSE)

BASH: So to be clear, Congresswoman, would you keep President Trump's tariffs on China in place?

GABBARD: I would not, because the approach that President Trump has taken has been extremely volatile without any clear strategic plan, and it has a ravaging and devastating effect on our domestic manufacturers, on our farmers, who are already struggling and now failing to see the light of day because of the plan that Trump has taken.

BASH: Vice President Biden, would you rejoin the Trans-Pacific Partnership, which, of course, President Trump withdrew from? Please respond.

BIDEN: I'd renegotiate. We make up 25 percent of the world's economy. In order -- either China is going to write the rules of the road for the 21st century on trade or we are. We have to join with the 40 percent of the world that we had with us, and this time make sure that there's no one sitting at that table doing the deal unless environmentalists are there and labor is there.

And to make sure we equip our workers first to compete by investing in them now, in the things that make them more competitive. That's what we have to do. Otherwise, they are going to write the rules of the road. We must have the rest of the world join us to keep them in check from abusing.

BASH: Thank you. Thank you. Vice President Biden, just to be clear, would you or would you not rejoin the TPP, yes or no?

BIDEN: I would not rejoin the TPP as it was initially put forward. I would insist that we renegotiate pieces of that with the Pacific nations that we had in South America and North America, so that we could bring them together to hold China accountable for the rules of us setting the rules of the road as to how trade should be conducted. Otherwise, they're going to do exactly what they're doing, fill the vacuum and run the -- and run the table.

BASH: Thank you, sir. Mayor de Blasio, you also oppose the deal. Please respond.

DE BLASIO: Yeah, and I just want to ask this question of all the candidates, but particularly of Vice President Biden. President Trump is trying to sell NAFTA 2.0. He's got a new name for it. It's just as dangerous as the old NAFTA. It's going to take away American jobs like the old NAFTA, like it did to Michigan. And we cannot have Democrats be party to a new NAFTA.

So, Vice President, I believe you're the only person on the stage who voted for the original NAFTA. Are you ready to say here and now that you will oppose a new NAFTA and that what you will believe in, which is a lot of us hope for, is trade treaties that empower organized labor across the boundaries of the world and give working people power again, not just multinational corporations.

BASH: Mr. Vice President?

BIDEN: Yes.

BASH: Your response? Your response, sir?

(LAUGHTER)

BIDEN: Yes.

BASH: That's it?

BIDEN: No, he said, would I insist that labor be engaged?

(APPLAUSE)

The answer is yes.

Harris seems to be going for the moderate center on trade by being so critical of Trump's tariffs (while going for the progressive left on health care).

Criticizing the TPP as it stands now and saying you'll renegotiate and bring labor to the table, as Biden did, is the safe play. It's unlikely that anyone will ask a follow-up question which demonstrates that you have no idea what you mean by that. The same thing applies to the renegotiated NAFTA. He is against what exists now, and is for some new, undefined improvement.

Gabbard was also against the status quo of trade agreements, but didn't say what she would do instead (although maybe eliminating ISDS would be enough). However, she was pretty bold to say she would get rid of the China tariffs. If she stays in the race long enough, she could get a follow-up about what she would do instead.

Trade In Last Night's Democratic Primary Debate

There was some discussion of trade in last night's Democratic primary debate:

[DON] LEMON: ...

Let's turn now to the economy.

Congressman Ryan, President Trump's tariffs have boosted the U.S. steel industry but hurt auto manufacturers like those here in Michigan, which could drive up the cost of cars. As president, would you continue President Trump's steel tariffs?

RYAN: Look, I think President Trump was onto something when he talked about China. China has been abusing the economic system for a long time. They steal intellectual property. They subsidize goods coming into this country. They've displaced steel workers, auto workers, across the board, eroded our manufacturing. And we basically transferred our wealth of our middle class either up to the top 1 percent or to China for them to build their military.

So I think we need some targeted response against China. But you know how you beat China? You out-compete 'em. And that's why I'd put a chief manufacturing officer in place to make sure that we rebuild the manufacturing base.

We've got to fill these factories that -- in Detroit, in Youngstown, that used to make cars and steel. We've got to fill them with workers who are making electric vehicles, batteries, charging stations, make sure they're making solar panels.

As I said earlier, China dominates 60 percent of the solar panel market. They dominate 50 percent to 60 percent of the electric vehicle market. We're going to make 10 million electric vehicle somewhere in the world in the next 10 years. I want them made in the United States. That's why I have a chief manufacturing officer that will sit in the White House and help drive this agenda.

LEMON: Congressman, thank you. Just as a point of clarification, as president, would you consider President Trump's steel tariffs, yes or no?

RYAN: Well, I would have to re-evaluate. I think some of them are effective. But he's bungled the whole thing, obviously. He has -- see, here's the problem with President Trump. He has a tactical move -- one of many -- he has a tactical move. What's the grand strategy for the United States? China has 100-year plan, a 50-year plan, a 30-year plan, a 20-year plan. We live in a 24-hour news cycle. That spells disaster for our economy and disaster for our global politics.

LEMON: Thank you, Congressman. Congressman Delaney, your response?

(APPLAUSE)

DELANEY: So, listen. This is what I don’t understand. President Trump wants to build physical walls and beats up on immigrants. Most of the folks running for president want to build economic walls to free trade and beat up on President Obama. I’m the only one running for president who actually supports the Trans-Pacific Partnership. President Obama was right about that. We should be getting back in that.

Senator Warren just issued a trade plan...

WARREN: You bet I did.

DELANEY: ... that would prevent the United States from trading with its allies. We can't go and -- we can't isolate ourselves from the world. We have to engage...

LEMON: Thank you.

DELANEY: ... with fair, rules-based trade.

LEMON: Thank you, Congressman Delaney. Senator Warren, please respond.

WARREN: You know, for decades, we have had a trade policy that has been written by giant multi-national corporations to help giant multi-national corporations. They have no loyalty to America. They have no patriotism. If they can save a nickel by moving a job to Mexico, they'll do it in a heartbeat. If they can continue a polluting plant by moving it to Vietnam, they'll do it in a heartbeat.

I have put out a new comprehensive plan that says we're not going to do it that way. We're going to negotiate our deals with unions at the table, with small businesses at the table, with small farmers at the table, with environmentalists at the table, with human rights activists at the table. And then, we're going to use the fact that everybody in the world wants to get to America's markets. They want to sell to you...

DELANEY: That was the TPP.

WARREN: I'll finish.

LEMON: Congressman Delaney...

WARREN: ... is everyone wants to get to America's markets.

LEMON: Thank you, Senator.

WARREN: No. So the question is...

LEMON: Senator, thank you. Please abide by the rules.

WARREN: ... how we need to raise our standards.

LEMON: Congressman Delaney, it's your turn. Thank you, Senator. Congressman Delaney?

DELANEY: So that was the Trans-Pacific Partnership. I think President Obama was right. He did include environmental standards. He did include labor standards. We would be in an entirely different position with China if we had entered the Trans-Pacific Partnership.

We can't isolate ourselves from the world. We can't isolate ourselves from Asia. Senator Warren's plan, basically, that she put out, we would not be able to trade with the United Kingdom.

WARREN: No, what this is about...

DELANEY: We would not be able to trade with the E.U. It is so extreme that it will isolate...

LEMON: Thank you, Congressman Delaney. Thank you, Congressman.

DELANEY: ... the American economy from the world.

LEMON: Senator? Senator Warren. Senator Warren.

SANDERS: I was...

WARREN: I think he said...

(CROSSTALK)

LEMON: Senator Sanders, please let Senator Warren respond.

SANDERS: Oh, I'm sorry.

(LAUGHTER)

WARREN: What the congressman is describing as extreme is having deals that are negotiated by American workers for American workers. American workers want those jobs, and we can build the trade deals that do it.

People want access to our markets all around the world. Then the answer is, let's make them raise their standards. Make them pay workers more. Let their workers unionize. Raise their environmental standards before they come to us and say they want to be able to sell their products.

Right now, the whole game is working for the big multinationals. It's just not working for the people here in the United States, and we can change that.

LEMON: Senator, thank you very much. Congressman O'Rourke, your response?

(APPLAUSE)

O'ROURKE: You know, the question was about tariffs. And they're a huge mistake. They constitute the largest tax increase on the American consumer, hitting the middle class and the working poor especially hard, and farmers in Iowa and across the country are bearing the brunt of the consequences.

When have we ever gone to war, including a trade war, without allies and friends and partners? As president, we will hold China accountable, but we will bring our allies and friends, like the European Union, to bear, and we'll also negotiate trade deals that favor farmers and American workers and protect human rights and the environment and labor, not just here in the United States...

LEMON: Congressman O'Rourke, thank you so much. Senator Sanders, please respond to Congressman O'Rourke.

WARREN: I'd like to respond to this.

SANDERS: Yeah, OK. You're looking, I believe, at the only member of Congress who not only voted against these disastrous trade agreements, NAFTA, PNTR with China, which cost us over 4 million jobs, but also helped lead the effort against these agreements.

Now, Elizabeth is absolutely right. If anybody here thinks that corporate America gives one damn about the average American worker, you're mistaken. If they can save five cents by going to China, Mexico, or Vietnam, or anyplace else, that's exactly what they will do.

As president, let me tell you what I will do. These guys line up at the federal trough. They want military contracts. They want all kinds of contracts. Well, under my administration, you ain't going to get those contracts if you're throwing American workers out on the street.

LEMON: Senator Sanders, thank you very much. Governor Hickenlooper, your response?

WARREN: I'd like a chance to respond.

HICKENLOOPER: So -- so I think -- again, I think Congressman Delaney has got a point here. And there is a way of looking at trade that is therapeutic.

The bottom line is, you talk to any economist, there is not a single example in history where a trade war had a winner. Trade wars are for losers. And the bottom line is we've got to recognize, let's negotiate a better trade deal. But you're not going to win against China in a trade war when they've got 25 percent of our total debt.

And step back and look it. Here's Trump gives a giant tax cut and at the same time -- so we're paying in tariffs about $800 to $1,200 per household and then we give this incredible tax cut to the rich. Essentially what's happening is now he's transferred that tax obligation onto the middle class. That's what's outrageous. But tariffs are not the solution.

LEMON: Governor, thank you. Senator Warren?

WARREN: Anyone who thinks that these trade deals are mostly about tariffs just doesn’t understand what’s going on. Look at the new NAFTA 2.0. What’s the central feature? It’s to help pharmaceutical companies get longer periods of exclusivity so they can charge Canadians, Americans, and Mexicans more money and make more profits.

That's what trade deals have become. They have become a way for giant multinationals to change the regulatory environment so they can suck more profits out for themselves and to leave the American people behind. We have to have the courage to fight back against that corruption.

LEMON: Senator, thank you. Governor Bullock, your response?

BULLOCK: You know, a farmer in Rippy said to me, every time that Trump tweets, we lose hundreds of thousands of dollars. If Montana had to eat all the wheat that we produce, every Montanan would have to eat 40 loaves of bread a day.

But by the same token, what we have is -- I actually agree with Senator Warren on this in part. Corporations can move capital easy. Workers can't move. So going forward, we need to make sure that our trade deals actually are protecting -- thinking about the workers. They can't be the stepchild. But the way to do it, with this blunt instrument of tariffs that the president is doing, that's not how we get a fair deal for farmers anywhere or the manufacturers here in Detroit.

O'Rourke and Delaney made the most sense here. By contrast, Warren says things that are very misleading. For example, whatever you think of 12 year biologic exclusivity (I'm against it), it's not the case that it is the "central feature" of USMCA. And given the scope of labor provisions in modern trade agreements, it is clear that unions already have a big role "at the table" to help draft these agreements. And she didn't have a response to the point that her approach is "so extreme that it will isolate the American economy from the world."

But I don't think voters have strong feelings about trade, and no one got very deep into the issues, so as important as Trump has made trade policy, I'm not sure it will play a big role in deciding this primary. Maybe things will change when we can narrow it down to 4 or 5 candidates, and we can contrast the views of Biden and Harris with those of Sanders and Warren.

Good Questions on the Sunset Clause

This is a good set of questions, as a follow-up to a recent Senate Finance Committee hearing, from Senator Toomey to U.S. Trade Representative Lighthizer on the USMCA sunset clause:

The renegotiated NAFTA agreement contains a new mechanism called “Review and Term Extension,” i.e. a sunset provision, which is codified at Article 34.7 of USMCA. The sunset provision requires that USMCA’s “Free Trade Commission” (as outlined in Chapter 30) meet to conduct a “joint review” of the agreement six years after entry into force. As part of the joint review, “each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of the agreement for another 16-year period.” If a Party does not agree to extend the agreement at the six year review, the Commission must conduct joint reviews every year, until the agreement is extended or terminates.

As you know, USTR’s draft statement of administrative action (SAA), which outlines in part the administration’s view on how the implementing legislation for the agreement will change or effect existing law, was transmitted to Congress on May 30, 2019. While the draft SAA details numerous changes to U.S. law that are “strictly necessary or appropriate” to implement the agreement, it does not include any changes to U.S. law in order to implement the sunset provision.

a. Please explain why the administration feels that no changes to U.S. law are required to implement the agreement’s sunset provision.

b. Assuming that “Party” refers to each USMCA country’s government—e.g. the Government of the United States of America—per the agreement’s preamble, what should the internal process be for the United States to decide whether it wishes to stay in the agreement at the first six year review?

c. Does the administration believe that Congress is included in USMCA’s definition of “Party” as “the Government of the United States of America”? If not, why not? What role should Congress have in determining whether or not the U.S. chooses to extend its participation in the agreement at each joint review?

d. Chapter 30 of USMCA states that the Free Trade Commission tasked with joint reviews shall be composed of “government representatives of each Party at the level of Ministers or their
designees.” In the draft SAA, the administration states that the U.S. Trade Representative (or his or her designee) will represent the U.S. on the Commission. How will USTR ensure that the views of Congress are accurately represented at each joint review?

Unfortunately, Lighthizer's response tells us very little:

The USMCA’s review and term extension mechanism will help ensure that the agreement is working as intended and continues to serve the interests of the United States. I look forward to working with you and other Members to ensure that Congress’s views are appropriately accounted for as part of this review process.

I hope they are having serious discussions behind the scenes about these specific questions and about the the role of Congress here more generally (although it would be better if they were talking about these issues in public). The role of Congress should be decided in advance and defined clearly in the implementing legislation. If it is not, I don't think Congress will have much of a role.

Call for Papers: Research Workshop – Sociological Perspectives on International Economic Law and Human Rights Law

This is from the European University Institute:

International law is rooted in communities, influencing and affected by social groups and their socio-cultural features. Thus, a variety of socio-cultural factors and processes are intertwined in the formation, interpretation and implementation of international law. This fifth workshop on the sociology of international law focuses on various sociological aspects pertaining to international economic law and human rights law, as well as to interrelationships between these two major legal fields. Contributors will explore diverse interactions between sociological concepts (such as identity, socialisation, collective memory, social control or frames) and broad range of legal rules and institutions in these spheres. Contributors are particularly welcome to submit proposals in the following areas:

1. Sociological aspects of international trade law, investment law, intellectual property rights or economic development, including socio-cultural aspects of trade in certain goods and services; cultural exceptions in international trade and investment law; regional economic integration and regional identity; organisational culture of international economic institutions (such as the WTO, ICSID or UNCTAD); the social dimension of recent developments in these fields (such as the crisis in appointments to the WTO Appellate Body, the growing ‘trade war’ between the US and China, or the EU Multilateral Investment Court initiative); and sociological aspects of economic development (including the interactions between rule of law, economic development and cultural features).

2. The sociological dimension of international human rights law and institutions, including interactions between human rights protection and social values, human rights and ideology, social control mechanisms and the enforcement of human rights rules, international actors’ identity and promotion of human rights worldwide, socio-cultural aspects (such as collective memory or organisational culture) of various human rights bodies and tribunals.

3. Sociological issues involved in interactions between international human rights protection and international economic law, including socio-cultural explanation of interrelationships between the WTO law and human rights protection or interactions between investment tribunals’ jurisprudence and human rights protection, human rights conditions in programs relating to trade preferences to developing countries (such as GSP schemes) or in free trade areas agreements, socio-cultural exceptions in international economic treaties (such as the ‘public morals’ exception in the GATT or ‘cultural exception’ in the recent US-Mexico-Canada Agreement (‘NAFTA 2.0’).

To apply 

Please electronically submit an abstract of maximum 300 words and your CV using the link below by 15 October 2019.

Applicants will be informed of the results of the selection process by 30 November 2019. If selected, we will ask you to submit a discussion paper of 3000 words by 10 April 2020. 

Unfortunately, we cannot cover expenses related to travel and accommodation for all participants.  However, the European University Institute will offer a limited number of scholarships to contribute to the travel and accommodation expenses of selected early career researchers who do not have access to sufficient funding.  To apply for a scholarship, please include in your application, in addition to your abstract and CV, a short motivational letter stating why you are not able to cover your travel expenses, how much funding you would need, and how participation in the workshop fits your research plans.

Timeline

15 October 2019 – deadline for submission of abstracts and scholarship applications

30 November 2019 – applicants will be informed of the results of the selection process

10 April 2020 – deadline for submission of short papers

8-9 May 2020 – workshop

Some Quick Thoughts on Warren's Trade Policy Plan

Elizabeth Warren's campaign team has just posted a document entitled "It's Time for a New Approach to Trade." My initial reaction is that it's difficult to see how there would be much, if any, trade liberalization in a Warren administration; however, there would be some experimentation with new forms of protectionism.

Early on she sets out this general principle: "America enters into trade negotiations with enormous leverage because America is the world’s most attractive market. As President, I won’t hand America’s leverage to big corporations to use for their own narrow purposes — I’ll use it to create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices, and raise living standards worldwide."

The reality, of course, is that tariffs and other forms of protectionism are something demanded by big corporations, and unless you support liberalization, you are handing leverage to at least a few "big corporations to use for their own narrow purposes." But that's just the political rhetoric that led off the piece. Let's focus on the substance.

First, she has a new plan for the process of negotiating trade agreements: "In a Warren Administration, we will negotiate and approve trade agreements through a transparent process that offers the public a genuine chance to shape it." Here are some key elements:

• "Trade negotiators will publicly disclose negotiating drafts and provide the public with an opportunity to comment."
• "Trade advisory committees will prioritize the views of workers and consumers."
• "The US International Trade Commission will provide a regional analysis of the economic effects of a trade agreement."
• "The congressional approval process will offer more opportunities for the public and elected representatives to shape trade agreements."

The current trade negotiating process is cumbersome and challenging. Adding these additional elements may make it impossible to get a trade deal done (which is, perhaps, the objective).

Now on to the substance. She says this: "With certain important exceptions, we live in a low-tariff world. Modern trade agreements are less about the mutual reduction of tariffs and more about establishing regulatory standards for everything from worker rights to pollution to patent protections."

Those exceptions are very important, and reading through the WTO's World Tariff Profiles is enlightening.

But she's right about the regulatory standards. So what's her plan here? This:

I am establishing a set of standards countries must meet as a precondition for any trade agreement with America. And I will renegotiate any agreements we have to ensure that our existing trade partners meet those standards as well.

My preconditions are that a country must:

• Recognize and enforce the core labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.
• Uphold internationally recognized human rights, as reported in the Department of State’s Country Reports on Human Rights, including the rights of indigenous people, migrant workers, and other vulnerable groups.
• Recognize and enforce religious freedom as reported in the State Department’s Country Reports.
• Comply with minimum standards of the Trafficking Victims Protection Act.
• Be a party to the Paris Climate agreement and have a national plan that has been independently verified to put the country on track to reduce its emissions consistent with the long-term emissions goals in that agreement.
• Eliminate all domestic fossil fuel subsidies.
• Ratify the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
• Comply with any tax treaty they have with the United States and participate in the OECD’s Base Erosion and Profit Shifting project to combat tax evasion and avoidance.
• Not appear on the Department of Treasury monitoring list of countries that merit attention for their currency practices.

Yikes! That rules out a lot of countries. (Including the United States, of course, although she expects that her administration will meet all these standards).

Beyond that, she also makes clear that she will be keeping a bunch of U.S. trade restrictions:

I will ensure trade agreements protect Buy American and other programs designed to develop local industry, contain strong rule-of-origin standards to promote domestic manufacturing, ... 

And she may be trying to push to allow more protectionism in green energy as well:

I will push to secure a multilateral agreement to protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges. 

If she means subsidies to consumers of green products that's fine, but if she is talking about allowing producer subsidies tied to local content requirements, that is both protectionist and anti-green.

And protectionist COOL measures might make a reappearance:

I will impose Country-of-Origin Labeling rules to protect American producers and provide transparency to consumers.

Country of origin labeling is fine if it is used to provide consumers with information, but in the past it was used for protectionist purposes, and when says she will impose it "to protect American producers" it sounds like we are going in that direction again.

And here's some more protectionism:

Under WTO rules, a country designated as a “non-market economy” can face more serious trade penalties. I will push for a new “non-sustainable economy” designation that would allow us to impose tougher penalties on countries with systematically poor labor and environmental practices.

I'm not sure exactly how this is going to work, but I'm pretty sure it's going to abused for protectionist purposes, because this kind of thing always is.

And one more:

Unlike the current approach that lets our government ignore unfair trade practices, my administration will create automatic triggers to initiate investigations into unfair trade practices.

She also wants to get rid of ISDS and scale back IP protections, which I have no problem with abandoning, but others might. And there is actually one proposal that sounds like it could act as a constraint on trade remedy abuse:

... when we impose duties to support particular domestic industries, I want to ensure that the money we collect actually goes to American workers, instead of being sucked up by executives and shareholders. I will fight to change our trade laws so that we review duties every six months and lift the duties if companies can’t demonstrate the benefits of the duties are going to their workers.

That seems like it could be difficult to demonstrate, so maybe trade remedies will be a little harder to maintain.

Overall, my sense is that this proposal means there would probably not be any trade deals in a Warren administration, while there would be various proposals to add new protectionism to U.S. domestic trade policy.

Much ado about nothing? The President's Memorandum on Reforming Developing-Country Status in the WTO

Trump's Memorandum on Reforming Developing-Country Status in the WTO issued yesterday aims to "make trade more free, fair, and reciprocal by devoting all necessary resources toward changing the WTO approach to developing-country status such that advanced economies can no longer avail themselves of unwarranted benefits despite abundant evidence of economic strength". To achieve this, the Memo has a section on "ending unfair trade benefits", which states:

"If, within 90 days of the date of this memorandum, the USTR determines that substantial progress has not been made toward achieving the changes described in section 2 of this memorandum, the USTR shall, as appropriate and to the extent consistent with law:

(i)   no longer treat as a developing country for the purposes of the WTO any WTO Member that in the USTR’s judgment is improperly declaring itself a developing country and inappropriately seeking the benefit of flexibilities in WTO rules and negotiations; and

(ii)  where relevant, not support any such country’s membership in the OECD."

The memo is clearly targeting China, but I wonder whether it would just end up as much ado about nothing for the following reasons:

1. China is not, and will not in the foreseeable future, seek accession to the OECD;
2. China did not get full developing country treatments in its WTO accession package. For example, on agricultural subsidy, China agreed to an AMS de minimus level of 8.5%, which is below the normal developing country treatment of 10%. 
3. In the new negotiations, China has not been getting much of S&D treatment (see, e.g., its TFA commitments).

The more important question, though, is what would the US get out of this, or what would they do if they don't get what they want? On accession package, are they going to renege on the limited developing country benefits China gets in its accession package? That's a clear violation of WTO rules and China would retaliate. On new negotiations, are they going to deny China developing country treatment? Well they have already been doing so for the past 12 years.

So I see this move as very strange, as the US doesn't gain anything in substance beyond what they already have, but it could provoke China so much to derail the barely-restarted bilateral talk, which was already fraught with difficulties. The logic is beyond me, and I hope someone can please enlighten me.  

What Does the U.S. Want To See Happen With Appellate Body Reform?

This is from a U.S. statement to the DSB yesterday:

• We have listened closely as several Members have criticized the United States. These Members argue that the United States has failed to participate in ongoing discussions on Appellate Body reform.
• These statements are wrong – and appear to represent public posturing by these Members. The facts establish that no Member has been more constructively and consistently engaged on these substantive issues than the United States. Let us set the record straight.
• Over the past year, in the DSB, the United States has outlined its concerns in exhaustive detail. We have not avoided discussion; rather, we have laid out in the clearest possible terms the U.S. position on the issues raised.
• While the DSU text is straightforward and clear, we recognize that the Appellate Body has ignored that text, and many WTO Members had not focused on just how far the Appellate Body’s practice had strayed from that text.
• And so, beyond our detailed DSB statements, we have made clear our willingness to discuss these concerns further with any Member in order to deepen each other’s understanding of these substantive issues. Several Members have participated in these dialogues and in many instances we have found the discussions to be frank and productive.
• In the Informal Process, the United States has been represented at every stage of the process, seeking to gain a better understanding of each Member’s views on the issues raised. As the United States has made clear, it is critical to understand if Members have a common understanding of the concerns raised.
• Unfortunately, one, or perhaps a few, WTO Members have indicated they do not share the concerns of the United States that the Appellate Body has deviated from the DSU text. These Members have not, however, adequately or persuasively explained how they could read the plain DSU text differently. Therefore, where a different understanding has become apparent, we have registered the lack of any DSU textual basis for that different understanding during meetings of the General Council.
• So the United States continues, as it has always done, to be engaged on these important substantive issues, including by meeting regularly with the Facilitator and Members to exchange views on the issues under discussion.
• Indeed, for several months, both within the Informal Process and outside, the United States has actively sought engagement from Members on what we believe to be a fundamental issue. That is, how have we come to this point where the Appellate Body, a body established by Members to serve the Members, is disregarding the clear rules that were set by those same Members. In other words, Members need to engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to.
• Engagement is a two-way street. Without further engagement from WTO Members on the cause of the problem, there is no reason to believe that simply adopting new or additional language, in whatever form, will be effective in addressing the concerns that the United States and other Members have raised.

Here are some questions I have for U.S. officials: What do you want to see happen now? I know the issues the U.S. is upset about. But what specific actions (and by which actors) do you want to see taken? Are you hoping that the Appellate Body will, on its own, change its approach on some or all of the issues you have raised? Do you want amendments to the DSU to force the Appellate Body to change? Related to this possibility, the U.S. seems skeptical that this would be effective, and keeps raising the question of "why the Appellate Body has felt free to depart from what Members agreed to." So what is the U.S. view on this question?

The discussions of these issues by governments are taking place in private and I don't have a good sense of what is being said. Maybe the answers to my questions are being made clear in there, but this post is intended to let U.S. officials know that most of us are having trouble understanding what they are looking for here.

ADDED: Related to all this, and perhaps as a good illustration, the U.S. said the following at the General Council today:

As we have explained, the Appellate Body ignores that to make an objective assessment under DSU Article 11 is a “function” of a panel, not an “obligation”, and the DSU uses the verb “should” make an objective assessment, not “shall” make. Apparently, further discussion is needed to understand these words to which Members agreed, and to understand why, time and again, the Appellate Body has felt free to review the facts, including through de novo review of the meaning of municipal law.

Is the U.S. saying that DSU Article 11 should be not be the basis of an appeal? I don't think such a position is unreasonable. I'm just not sure what their view is.

Transparency in WTO Disputes

This is from a U.S. statement to the DSB at the July 22 meeting:

With respect to the open meetings and hearings that have taken place, the experience has been entirely successful. The United States is not aware of any incidents of improper behavior by observing members of the public, and the presence of public observers does not appear to have affected the professionalism with which parties, third parties, and adjudicators traditionally conducted themselves. While this observation normally occurs via transmission to a viewing room, this has been true even in instances in which the public has been allowed to observe from the same room in which the meeting was taking place. Nor has the passive observation of meetings by members of the public interfered with the intergovernmental nature of the WTO, the government-to-government nature of dispute settlement, or the ability of parties to settle a dispute through the negotiation of a mutually agreed solution.

Attendance at open panel meetings has varied, but one would expect this given that not all disputes will be of equal interest or of interest to the same persons. Moreover, the important point is that the benefits from having open meetings arise regardless of actual attendance. This is because the mere possibility of attending a meeting helps to ensure confidence in the system and that the system has nothing to hide.

In short, any concerns expressed with regard to open meetings have not come to pass. Instead, open meetings have served to promote transparency and confidence in the WTO dispute settlement system, increase familiarity with the objective, professional manner in which hearings are conducted, and consequently provide potential benefits for the implementation of any resulting recommendations by the Dispute Settlement Body.

Open panel meeting and appellate hearings are good, and I don't mean to diminish them. However, in practice "open" seems to mean that you can travel to Geneva and view the meeting/hearing, either live or recorded. The transparency provided by such an approach is pretty limited. What would be really transparent is if they webcast the hearings and/or provided transcripts afterwards.

Benchmarking under SCM 14(d): How should China’s in-country competition be treated?

Aside from the issue of public body blogged by Simon last week, the issue of market benchmarks under SCM 14(d) is at the center of the AB DS437 (21.5) report. In fact, the issue of benchmarking is more critical than that of public body in this case, since it is the benchmark that determines the existence and magnitude of the benefits conferred by financial contribution, whether the entity making such contribution is characterized as a public body. The benchmark issue has also generated a strong dissent in the AB report.

In the underlying CVD investigations over Chinese steel products, the USDOC rejected Chinese domestic prices as benchmarks, and used out-of-country prices instead, in making the benefit determination under SCM 14(d). China challenged the USDOC benefit determination in the original DS437 proceedings and won at the AB stage in December 2014. A highly significant development in the AB report in DS437 was that the AB recognized that government-related prices (including SOE prices) can also be market-determined and must be taken into account in making benchmark determinations. This position was first announced in the AB DS436 report (India v. US) issued a few days earlier. In other words, the AB treated China and India consistently in this regard.

Because the USDOC continued to use the same methodologies after the AB decision, China challenged the US for noncompliance in the 21.5 proceedings. The 21.5 Panel sided with China and the AB majority agreed. The AB majority faulted the USDOC for not having provided sufficient and reasonable explanations as to why China’s domestic prices of the steel products involved were not market-determined. Apparently, China had provided the USDOC with detailed price data for these products (the “Mysteel data”), as well as an expert report in the antitrust context (the “Ordover Report”) that attested to competitive market conditions for the relevant products in China. The USDOC essentially dismissed the price data and the expert report as irrelevant, on the grounds that the entire Chinese market is distorted due to extensive government control over the economy. The AB majority found the US explanation insufficient, whereas the dissenting judge felt otherwise.

Thus, it seems to me the key issue in this case is how China’s in-country competition should be treated under SCM 14(d). But neither the AB majority nor the dissenting judge characterizes the issue this way. In my view, while it is undeniable that the government maintains an extensive control over China’s economy, it is also undeniable that there exists fierce competition in many Chinese industries, including the steel industry,which had more than 1000 producers comprising both SOEs and private firms (this fact was acknowledged by the US and by the AB report in DS379). In fact, introducing and encouraging competition between SOEs and between local governments has been a major ingredient in China’s economic reform.

But how should China’s in-country competition be taken into account under SCM 14(d)? The AB 21.5 Report has triggered two thoughts. 

First, as a technical matter, I think that the USDOC could have recognized the relevance of the Chinese domestic prices while reaching the same conclusion in the benefit determination. The way to do so would be to explain the effect of market competition in an economic structure that is fundamentally distorted in the view of the USDOC. It could be argued that competition in a fundamentally distorted economy can only exacerbate the adverse impact of government subsidies, since competition would drive the export prices even lower.

Second, I suspect this AB report may finally push the US and others to resort to China-specific rules in future CVD investigations. The AB opinions in this case (both the majority and the dissent) have highlighted certain “special difficulties” in dealing with China under the SCM provisions. The benchmark jurisprudence developed under SCM 14(d) concerning government-related entities may make sense for countries such as India, but may not work well in the case of China. The solution then may lie in Section 15(b) of China’s Accession Protocol, which provides:

“In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b) 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply; however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks. In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.”

Section 15(b) essentially allows an importing member to reject Chinese domestic prices as benchmarks under SCM article 14.  It is important to note that Section 15(b) has no built-in expiration date (in contrast to the nonmarket economy provision for antidumping purposes in Section 15(a), which expired in December 2016). Thus far, Section 15(b) has not been invoked, as the importing members have been able to use out-of-country prices as benchmarks for Chinese subsidies under the prior SCM article 14 jurisprudence. In light of this AB report, however, the situation may change.

What Do Critics Think Has Caused Problems With The Appellate Body?

Back in February, the U.S. said the following at a DSB meeting:

Rather than seeking to make revisions to the text of the Dispute Settlement Understanding to permit what is now prohibited, the United States believes it is necessary for Members to engage in a deeper discussion of the concerns raised, to consider why the Appellate Body has felt free to depart from what WTO Members agreed to, and to discuss how best to ensure that the system adheres to WTO rules as written.

Along the same lines, U.S. trade lawyer Terry Stewart recently wrote this:

Requiring the Appellate Body to revisit claims of overreach in cases where one or more parties have raised that claim under clarified rules of the Appellate Body's role could be possible but unlikely without an understanding of why the Appellate Body has felt at liberty to disregard the limitations within the current DSU and ensuring that such disregard doesn't continue.

They are asking "why" the Appellate Body has felt free/at liberty to depart from/disregard the agreed rules. I feel like it is implied that they have a theory about what went wrong with the Appellate Body in this regard, but they don't say what it is.

My own view is that the Appellate Body has been doing its best to interpret the WTO agreements in a way that conforms to the rules, but opinions vary about interpretive approaches and the meaning of substantive rules (and also, people make mistakes), and as a result there have been outcomes that people disagree with. That's inevitable with any adjudicatory process.

But the critics seem to think that there is something out of the ordinary that happened with the Appellate Body. I'd really like to hear more about what they think it is.

Separate Opinion in Today's Appellate Body Report

In today's DS437 Appellate Body report, there was a separate opinion covering several issues. Here is one of the issues (footnotes omitted):

5.5.1 Public Body

5.242. I concur with the majority in: (i) rejecting China's interpretation of the term "public body" under Article 1.1.(a)(1) of the SCM Agreement; (ii) upholding the Panel's conclusion that China failed to demonstrate that the USDOC's public body determinations in the relevant Section 129 proceedings are inconsistent with Article 1.1(a)(1); and (iii) leaving intact the Panel's conclusion that China has not demonstrated that the Public Bodies Memorandum is inconsistent "as such" with Article 1.1(a)(1).

5.243. But I believe the majority has repeated an unclear and inaccurate statement of the criteria for determining whether an entity is a public body, and I disagree with the majority's implication that a clearer articulation of the criteria is neither warranted nor necessary.

5.244. I believe the continuing lack of clarity as to what is a "public body" represents an instance of undue emphasis on "precedent", which has locked in a flawed interpretation that has grown more confusing with each iteration, as litigants and Appellate Body Divisions repeated the original flaw while trying to navigate around it. That is what I believe the majority has done here.

5.245. The original mistake was the attempt, in US – Anti-Dumping and Countervailing Duties (China), to define the term "public body" as an entity that "possesses, exercises or is vested with governmental authority". Certainly that is one way to identify a public body. But it is not the only way to give meaning to a concept that must be flexible because it depends for its meaning on specific circumstances. In each subsequent appeal where the issue has been presented, the Appellate Body has treated the phrase "possesses, exercises or is vested with governmental authority" as a necessary element for determining whether an entity is a public body – albeit while adding criteria that seemed to undermine the role of that element. That has sown confusion as participants and the Appellate Body have struggled to show how situational criteria fit with a rigid and limiting phrase.

5.246. This case is the latest example. The participants and third participants all dutifully claimed that their positions fit the "possesses, exercises or is vested with governmental authority" criterion, while differing – sharply in the case of the two participants – in their understanding of what that criterion means. One participant, the United States, expressly asked us to clarify the meaning of the term "public body". For this reason, and for the other reasons given above, I believe a clarification of the criteria for determining whether an entity is a public body is both necessary and warranted.

5.247. The text of Article 1.1(a)(1) does not elaborate on the meaning of the term "public body". The only textual indication is the collective reference to "a government or any public body" as comprising the entity "government", which is the subject of the disciplines of the SCM Agreement. This text does not call for a single, abstract definition or basic criterion for the term "public body". Instead, Article 1.1(a)(1) calls for an examination of whether a transfer of financial value is "by a … public body" and can therefore be attributed to a government. As I see it, that examination involves an assessment of the relationship between the relevant entity and the government. When that relationship is sufficiently close, the entity in question may be found to be a public body and all of its conduct may be attributed to the relevant Member for purposes of Article 1.1(a)(1). The relationship between an entity and a government may take different forms, depending on the legal and economic environment prevailing in the relevant Member. Certainly, as noted above, an entity may be found to be a public body when it "possesses, exercises or is vested with governmental authority". But that is not, and should not be treated as, the essential criterion in every case. In my view, if a government has the ability to control the entity in question and/or its conduct, then the entity could be found to be a public body within the meaning of Article 1.1(a)(1). I do not believe the Appellate Body should elaborate on the meaning of the term "public body" in greater detail. Rather, it should leave space for domestic authorities to apply the criteria described above, and set forth in the paragraph immediately below, provided their decisions meet the requirements of objectivity, reasoned and adequate explanation, and sufficient evidence.

5.248. In the hope of providing clearer guidance to future litigants and panels, and of encouraging them not to feel unduly constrained by past statements on this subject, I offer the following restatement, which incorporates many of the concepts developed by the Appellate Body, while, I believe, clarifying the criteria properly:

Whether an entity is a public body must be determined on a case-by-case basis with due regard being had for the characteristics of the relevant entity, its relationship with the government, and the legal and economic environment prevailing in the country in which the entity operates. Just as no two governments are exactly alike, the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State, and case to case. An entity may be found to be a public body when the government has the ability to control that entity and/or its conduct to convey financial value. There is no requirement for an investigating authority to determine in each case whether the investigated entity "possesses, exercises or is vested with governmental authority".

After the opinion's discussion of the third issue, the Appellate Body Member who wrote the opinion then stated:

5.5.4 Overall summary

5.281. I respectfully suggest that it would be beneficial for the dispute settlement system if future litigants, and panels in adherence to their mandate under Article 11 of the DSU, would continue to take into account separate opinions such as this along with relevant past Appellate Body reports, without regarding either as necessarily determinative.

Dissents and concurrences seem pretty natural to me, and I have no problem with them in WTO dispute settlement. I also think it makes sense to provide the name of the author of a separate opinion, although in some instance we can figure it out pretty easily without any explicit identification.

The recent U.S. effort to make slight changes to the importance of past Appellate Body reports, and the attempt in the case above to assign a particular role to majority and separate opinions ("without regarding either as necessarily determinative"), has been thought-provoking. I'm not sure there is much hope for providing additional clarity on these issues (it's just something courts have to muddle through), but it's interesting to watch people try.

Joe Biden on Trade Policy

In a recent speech on foreign policy, Joe Biden said the following about trade policy (as prepared):

Our trade policy has to start at home, by strengthening our greatest asset – our middle class. 

We have to take care of everything I’ve talked about on the campaign trail – giving every student the skills or training they need to obtain a good 21st century job; making sure every single American has access to quality, affordable healthcare; investing in rebuilding our bridges and roads, modernizing our airports and trains; making sure Americans have access to broadband networks; reforming our taxes to reward work, not just wealth; leading the clean-economy revolution to create 10 million new jobs right here in the United States. 

I will make investment in research and development a cornerstone of my presidency so that the United States is leading the charge with innovation. 

There’s no reason we should be falling behind China or anyone else when it comes to clean energy, quantum computing, artificial intelligence, 5G, and high-speed rail.

And there’s no reason that we cannot ensure that our people are ready – for the transition that will inevitably accompany this new technology. 

Ladies and Gentlemen – we have the greatest research universities in the world. The most agile system of venture capital. We’re virtually energy independent. We have a strong tradition of the rule of law. 

And most important, we have an extraordinary population of workers and innovators who have never let our country down.

A foreign policy for the middle class will also work to make sure the rules of the international economy are not rigged against us.

Because when American businesses compete on a fair playing field – we win.

President Trump may think he’s being tough on China, but all he has delivered is more pain for American farmers, manufacturers, and consumers.

His economic decision making is as short-sighted as the rest of his foreign policy. China is playing the long-game – extending its global reach and investing in the technologies of the future – while Trump is designating our closest allies – from Canada to the European Union – as National Security Threats in order to impose damaging and pointless tariffs. 

By cutting us off from the economic clout of our partners, he knee-caps our capacity to take on the real economic threat. 

We do need to get tough with China. 

If China has its way, it will keep robbing the U.S. of our technology and intellectual property, or forcing American companies to give it away in order to do business in China.

And the most effective way to meet that challenge is to build a united front of friends and partners to challenge China’s abusive behavior – even as we seek to deepen cooperation on issues where our interests converge, like climate change and preventing nuclear proliferation.

There’s no going back to business as usual on trade.  We need new rules, and a new process that has the voices of all stakeholders at the table – including leaders representing labor and the environment.

We must negotiate from the strongest possible position. 

On our own, we represent about one-quarter of global GDP. When we join together with fellow democracies, that number doubles. 

China can’t afford to ignore half the global economy. 

That gives us substantial leverage to shape the future rules of the road on everything from the environment to labor, trade, technology and transparency so they continue to reflect democratic interests and values – America’s interests and values. 

Not China’s. Not Russia’s. 

The world does not organize itself. If we do not shape the norms and institutions that govern relations among nations, rest assure – that some other nation will step into the vacuum, OR – no one will – and chaos will result. 

There are a lot of reasonable sounding ideas in here. But if I were a reporter staking out Biden events, I would ask him the following question: What exactly would be different about your trade policy than Obama's, and how would you achieve success where he failed (in particular, on the TPP and TTIP)?

Will the WTO Negotiations on Fisheries Subsidies adopt a "Caps-Based Approach" Inspired by the National Schedules in the Agreement on Agriculture?

 

At the 11th Ministerial Conference held in Buenos Aires last December 2017, members agreed to continue to engage constructively in fisheries subsidies negotiations with a view to adopting an agreement by the next 2020 Ministerial Conference . The aim is to agree on  disciplines that prohibit certain forms of fisheries subsidies contributing to overcapacity and overfishing, and eliminate subsidies that contribute to illegal, unreported and unregulated (IUU) fishing.  

Presently, the WTO is under intense pressure to conclude these negotiations before the end of 2019 in order to show that it is still a relevant negotiations forum for producing new rules. Recall that the WTO kicked off these negotiations in 2002 (i.e., 17 years ago!)

While Members appear to broadly agree on the need to prohibit subsidies contributing to illegal, unreported and unregulated (IUU) fishing and overfished stocks, significant differences of view persist in the Negotiating Group on Rules (RNG), chaired by Mexico’s Ambassador  Roberto Zapata Barradas, on addressing subsidies that may contribute to overcapacity and overfishing. This is particularly the case for subsidies for boat building and operating costs, such as for fuel. This is because this is an area where Members of all levels of development see the need for some flexibility in order to operate or maintain programs to support their fishermen, including in small scale and artisanal fisheries.

It is in this context that Australia and the United States submitted recently a communication (TN/RL/GEN/197/Rev.1) to the Negotiating Group on Rules. It is inspired by the Caps Based approach of the Agreement on Agriculture. As we know, the Caps Based give and take concessions made in the context of the Agreement on Agriculture (for both domestic support and agricultural export subsidies) are recorded in national Schedules that form an integral part of the Final Act of the Uruguay Round negotiations.

Dennis C. Shea, U.S. Ambassador to the WTO, summarized the gist of this proposal as follows:

I understand that this group has been focused on the technical details of the new subsidy rules; for example, prohibitions on subsidies for illegal, unreported, and unregulated fishing.  The proposal that I am presenting today, on behalf of the United States and Australia, is intended to complement the prohibitions that the RNG is already working on.  There are three key elements to our proposal that I want to highlight.

First, as a foundation, all WTO Members would provide – before the summer break – a comprehensive and up to date fisheries subsidy notification. This is the notification under the Subsidies Agreement that our ministers already re-committed to provide at MC-11.

On the basis of these subsidy notifications and FAO marine capture production and export data, major players in the fisheries sector would negotiate caps – or maximum limits – to their fisheries subsidies programs, in addition to reductions over time, as part of a WTO request-offer negotiation with other interested Members. This would involve roughly 25 Members that account for over 86% of marine capture production and exports.

Other Members would negotiate similar caps on their subsidy programs, but would not be required to reduce the subsidy level over time. Or alternatively for those Members that do not currently provide subsidies, or have no plans to do so, they could accept a default subsidy cap of $5 million.

Any Member accounting for 0.05% or less of fishing and seafood exports would be completely exempt from this proposal, other than maintaining up to date fisheries subsidies notifications. These Members combined account for less than 1% of total global marine capture production and exports.

With this proposal, we intend to inject an idea that can supplement the prohibitions already being developed, and move us past some of the entrenched positions and difficulties in dealing with subsidies that can lead to overfishing and overcapacity when they are not properly monitored and restrained.

In order for the proposal – and importantly the outcome – to stand the test of time, we are also including a review mechanism to ensure that the commitments keep pace with the production and export data and reflect current realities, not just today’s.  Our goal is to avoid locking in current practice by creating a framework for concrete, measurable subsidy reforms over time.

A request-offer negotiating process would at the same time complement the prohibitions and provide for a flexible, individualized approach.  It allows us to customize commitments that are reflective of each Member’s role in the fisheries sector and the level and types of subsidies that the Member provides.

In sum, our proposal offers a practical approach that can produce a balanced outcome in which major producers and traders contribute commensurate with their role in the trading system.  It would also create much-needed transparency and constraints on fisheries subsidies.

WTO members in the Negotiating Group on Rules considered four new proposals at  meetings held on 10-15 June, 2019, the second to last round of negotiations before the August break. With less than six months left until the December target to agree on disciplines that will limit harmful fisheries subsidies, members aim to prepare simplified texts on key areas of the negotiations by next month to help move talks forward.

Members discussed a draft text, submitted jointly by Argentina, Colombia, Costa Rica, Panama, Peru and Uruguay, Iceland, New Zealand, Canada, and the United States, to prohibit subsidies for illegal, unreported and unregulated (IUU) fishing.  Regarding subsidies that contribute to overfishing and the overcapacity of fleets, members considered a proposal from China ( the world’s biggest fishing country by volume) to set spending limits on government support programs for fishing. This is the third capping proposal on the table. As previously mentioned, the United States and Australia have likewise jointly proposed a capping approach, as has the Philippines. 

Four facilitators, delegates appointed to be neutral parties on different topics, have been tasked to distill members' submissions and positions into clean texts representing a minimum of options. For topics where negotiations are not as advanced, the facilitator will prepare summary papers of issues that need to be resolved. The documents being prepared are intended to help sharpen the focus of the negotiations after the August break. Members intending to submit more proposals were encouraged to do so as soon as possible.

The facilitators will be holding consultations with members ahead of the next cluster of fisheries subsidies meeting on 8-12 July.

Update:

Roberto Zapata Barradas, who became Mexico’s main envoy to the WTO in 2017, will soon step down as its permanent representative in Geneva, due to a conflict with his government's  upcoming domestic legislation that will largely shutter the nation’s economy ministry offices to reallocate government resources for social programs. Zapata’s abrupt departure may delay fisheries subsidies negotiations  during the present critical period since a new negotiating chairman will need to be selected quickly to be able to complete the agreement this year.

New paper on "Judicial Overreaching" at the WTO

Dr. Weihuan Zhou and I have posted on SSRN a new paper on AB crisis. In the paper, we addressed the US allegation that the AB has "overreached" in many cases.

We tackle the issue by first reviewing the core function of the WTO, which in our view is to reign in protectionism without unduly restraining the ability of WTO Members to adopt various measures for legitimate policy objectives. Then we reviewed three major TBT cases, i.e. US – Clove Cigarettes, US – Tuna II (Mexico) and two subsequent compliance proceedings (i.e. US – Tuna II (Mexico)(Article 21.5) and US – Tuna II (Mexico)(Article 21.5 II)), and EC – Seal Products. We chose these cases as TBT cases are, along with trade remedies cases, the main subject of the US complaint of "overreaching", yet there have been little discussions of these cases except Robert Howse's 2016 EJIL paper. Moreover, these cases involve the competition of different policy goals, which provide nice illustrations of the difficult choices the AB has to make in view of the function of the WTO. Upon reviewing these cases, we conclude that these decisions have achieved a good balance between disciplining protectionist measures and allowing deference to domestic regulatory autonomy.  

While the US allegation of judicial overreaching is untenable, we do not think that the US criticism shall, therefore, be dismissed outright. Instead, we think the US concern raises a deeper issue, i.e., the legislative failure in the WTO. Thus, we continue our paper to suggest some practical solutions to the problem, which fall into three groups:

1. Before a dispute: try to reduce the legislative gap by avoiding the practice of “constructive ambiguity”;
2. During a dispute: give Parties more autonomy to carve out certain issues from dispute settlement. 
3. After the decision is made in a dispute: provide an easier way for the political bodies to overrule the decisions of the judiciary. In particular, we suggest a new mechanism of adopting procedural "declaration" that doesn't affect the substantive rights and obligations of Members, but only make certain issues non-justiciable. 
   

Whether or not the AB may survive the US blockage, we believe the issue would still remain unless a solution is found at the root. To decide complicated international trade disputes based on highly abstract and sometimes incomplete rules, one - be it the AB, the panel, or whoever called upon to carry out the important yet thankless task of dispute settlement and treaty interpretation - necessarily has to improvise by putting oneself into the shoes of the treaty drafter. Or, as Robert A. Heinlein more deftly put it in his novel “Double Star”, “If Satan should ever replace God he would find it necessary to assume the attributes of Divinity.”

In this regard, it is our humble hope that our paper could help stir the Gods at Centre William Rappard into making some divine intervention. AMEN.

The Way To Address USMCA Panel Blocking Is To Eliminate USMCA Panel Blocking

Inside US Trade reports:

A leader of the House working group on U.S.-Mexico-Canada Agreement labor issues told Inside U.S. Trade on Wednesday that he will be traveling to Mexico next weekend to discuss “panel blocking” with Mexican officials.

Many congressional Democrats have criticized USMCA for not changing NAFTA language that allowed parties to block the formation of dispute settlement panels. ...

Rep. Jimmy Gomez (D-CA), one of the two Democrats in charge of handling the working group’s labor concerns, said he planned to have “pointed conversations” with Mexican officials next weekend on panel blocking “and a variety of other issues.”

...

Gomez said he did not know whether Mexico would agree to give up its right to block a labor-related dispute settlement panel.

“We’ll find out,” said Rep. Rosa DeLauro (D-CT). DeLauro, a longtime critic of free trade deals, co-chairs the working group’s enforcement section. “We’re talking it all through, all the various issues,” she said.

House Ways & Means Chairman Richard Neal (D-MA) said there will have to be movement on panel blocking if Lighthizer and House Democrats are to reach a deal.

“I think that Lighthizer’s done a terrific job and I think that he’s tried to accommodate all of our interests,” he told Inside U.S. Trade. “But I also think that as we kind of narrow the differences, there’s going to have to be some movement on that issue.”

It will be interesting to see how the conversation between the members of Congress and the Mexican officials goes. As this blog's readers know, the issue of panel blocking under NAFTA arose when the U.S. blocked a panel back in 2000. It is not clear whether Mexico (or Canada) would block a panel, as they have not done so previously. However, one can imagine that they might do so now in response to the U.S. action in 2000 (or in response to the U.S. blocking a USMCA panel in the future). Thus, for these members of Congress, worrying about whether Mexico might block a labor panel may not be the right way to think about the issue. Instead, the members of Congress might want to talk to Mexico about improving the dispute settlement provisions so as to prevent any party from blocking panels. Given that the Mexicans supported this idea during the negotiations ("We put forward proposals to facilitate the way Chapter 20 panels are composed, to make it quicker for the panels to be put into place and to institute procedural changes that make it more expeditious to get panels going. That was not accepted by the U.S."), working with them should not be too difficult.

Guest Post: Contestation of Reforms to the WTO Notification Procedures: Inclusive Approach or More Differential Treatment?

This is a guest post by Vineet Hegde, PhD researcher in International Law, and Professor Dr. Jan Wouters, Professor of International Law and International Organizations, KU Leuven, and Director of the Leuven Centre for Global Governance Studies, Belgium.

1. Elsewhere in this blog, Professor Joost Pauwelyn highlighted a 29 March 2019 proposal by nine WTO Members calling for a compliance mechanism to strengthen the notification procedures and improve transparency.

2. On 27 June 2019, seven WTO Members [Cuba, India, Nigeria, South Africa, Tunisia, Uganda and Zimbabwe] responded to the proposal by stating that “if developing countries are not able to meet current notification obligations, there would be no possibility of meeting even higher notification requirements in future”, highlighting capacity and resource constraints in meeting the obligations and also hinting to a lack of future cooperation from their side to improve the notification procedures. The response states that the 29 March proposal “presupposes the causes and remedies for non-compliance and proposes increased notification obligations rather than addressing developing countries' difficulties in complying with these obligations.”

3. However, the 29 March proposal, among other things, also called for mechanisms for developing countries that are unable to meet the deadlines due to resource constraints to seek assistance and support for capacity building from the WTO Secretariat, either in the form of WTO trade-related technical assistance or as ad hoc-assistance for a particular notification. Professor Pauwelyn also highlighted how the “disclose and assist” method may be an efficient route to compliance rather than “litigate and sanction” method. This is correct: a cooperative model may improve the WTO system, rather than use the threat of litigation and sanctions.

4. While WTO Members who are pushing for the agenda to have a stronger compliance mechanism are working towards formulating a system that can also address the developing countries’ needs by providing a way to seek assistance, developing countries are contesting the proposal to improve transparency in the notification procedures. The response of the seven WTO Members mentioned above states that “[g]iven the challenging issue of resource constraints, developing countries should not be subjected to any transparency obligations which go beyond existing obligations.” The response calls for an “inclusive approach”, but does not seem to take the considerations for resource constraints provided by the developed members into account, such as assistance. These countries seem to be seeking differential treatment in commitments rather than considering the proposals for reforming the system that also seek to address developing country needs.

5. It is important to note that the 27 June response was made by countries in the lower-middle-income category and the low-income category, as per the World Bank data. But in terms of resource constraints, these countries need not be put in the same category: for example, India, which is in the lower-middle-income classification, need not receive the same relaxation as Uganda, which is in the low-income classification, does. Due to this imbalance in the level playing field, the US in January 2019, called for the abolition of the self-declaration of “developing country” status and proposed for objective criteria. In a response to this proposal, ten countries including India and China responded that the self-declaration practice for differential treatment is long-standing, and that the WTO Agreement recognizes the “customary practices followed by the contracting parties to GATT 1947” under Article XVI:1. India has also claimed differential treatment for obligations in the ban of illegal, unreported and unregulated fisheries subsidies.

6. From a broader perspective, it is evident that some developing countries intend to reap the benefits of differential treatment for current as well as new obligations in the future. In a 2013 article, Professor Pauwelyn, predicted that “we may expect more, not less, differentiation”. This is what is happening at the moment. The “North-South” divide is being kept intact by the developing countries. The disregard for assistance being provided for “developing country needs” with respect to WTO notification procedures, only further highlights that differential treatment is here to stay. Some developing countries are flashing “differential treatment” to contest the creation of any new obligations and decelerate reforms.

7. The contestation by developing countries, along with a lack of cooperation for new initiatives, may further divide the WTO’s negotiating arm. It is submitted that developing countries would do better to acknowledge and take into account the assistance being offered to them. They may want to consider a move beyond the threshold of “developing country” status by cooperating in WTO reform negotiations while reaping the benefits of the assistance being provided. This would indicate a move towards a level playing field, where concerns of developing countries are also included in the reforms. In this manner, we can realize an “inclusive approach” towards development, whereby the developed and the developing countries work together for reforms rather than divide WTO negotiations along "North-South” lines. After all, the “inclusive approach” is also what the 27 June response calls for.

Sub-National Measures that Discriminate Against Imports and Against Other State/Provincial Goods

This is from Australia's first written submission in the Canada - Sale of Wine (DS537) WTO dispute:

3. Article III requires treatment no less favourable than the "most favoured" domestic product within the territory of a Member

117. The majority of the Canadian measures that Australia is challenging are provincial government measures. In most cases those measures not only draw a distinction in treatment between the relevant province's domestic products and imported products, but also against products from other Canadian provinces. Previous WTO and GATT panels have considered the application of Article III in this situation. Those panels have confirmed that the national treatment provisions in Article III require a Member to accord to imported products treatment no less favourable than that accorded to the "most-favoured domestic products" within the territory of that Member. As the panel in Canada – Wheat Exports and Grain Imports explained:

…it is clear from GATT/WTO jurisprudence that where an origin-based difference in regulatory treatment is made between products originating in one area, region or administrative unit of a country and all other like products - that is, like products originating in other areas of the same country or originating in foreign countries - Article III:4 requires that the foreign product be granted treatment no less favourable than that accorded to the most-favoured domestic product239.

118. Similarly, the GATT Panel Reports Canada – Provincial Liquor Boards (US) and US – Malt Beverages considered measures of provincial liquor boards which applied both to alcoholic beverages from outside Canada and the US respectively and to alcoholic beverages from other provinces within Canada and the US respectively. In considering whether differential excise taxes levied by US states breached Article III of the GATT 1947, the US – Malt Beverages Panel noted that it:

…did not consider relevant the fact that many of the state provisions at issue in this dispute provide the same treatment to products of other states of the United States as that provided to foreign products. The national treatment provisions require contracting parties to accord to imported products treatment no less favourable than that accorded to any like domestic product, whatever the domestic origin. Article III consequently requires treatment of imported products no less favourable than that accorded to the most-favoured domestic products240. (emphasis added)

119. Accordingly, the fact that many of the provincial measures at issue draw regulatory distinctions between products of that province and products of other Canadian provinces as well as imported products does not preclude a finding of a breach of Article III:4 or III:2. The comparison of treatment for the purposes of these articles will be between the treatment accorded to imported products and the treatment accorded to the "most-favoured" domestic products within the relevant provinces.

(footnotes omitted)

I want to focus on para. 119. The first sentence says: "the fact that many of the provincial measures at issue draw regulatory distinctions between products of that province and products of other Canadian provinces as well as imported products does not preclude a finding of a breach of Article III:4 or III:2." That is undoubtedly true. Discriminating against products of other sub-national regions cannot preclude a finding that a measure discriminates against imported products.

But then the second sentence says: "The comparison of treatment for the purposes of these articles will be between the treatment accorded to imported products and the treatment accorded to the 'most-favoured' domestic products within the relevant provinces." In my view, this sentence does not follow at all from the previous one. In fact, applying this standard could lead to findings of violation where the measures would properly be considered to treat imported and domestic goods equally favorably. Imagine the following scenario. A sub-national measure imposes a variable tax, based on objective criteria, that applies to (1) sub-national products from that state/province, (2) products from other sub-national states/provinces, and (3) imported products. Each of these three product groupings has individual products that fall into various tax categories under the measure. As a result, there are some imported products that are taxed less than some sub-national / other state/province products, and some imported products that are taxed more. Can a violation be found on the basis that an individual imported product is taxed more than an individual sub-national / other state/province product, regardless of how the three groupings of products are taxed overall? If you take the second sentence of para. 119 literally, it could be. To me, though, the better approach is to look at the overall breakdown of imported and national products (sub-national products from the regulating state/province vs. other state/province products is irrelevant here) into the different tax categories, to see if there is an appreciable discriminatory impact on imported products. Under this approach, you have satisfied the concerns of the first sentence of para. 119, but not created an overbroad standard as in the second sentence of para. 119. (And as far as I can tell, there would be no difference in outcome in the Canada - Sale of Wine case under the two standards).

The EU third party submission in the dispute is here. Along the same lines as what I said above, the EU argues the following:

46. The EU considers that certain findings of the panels in US-Malt Beverages and Canada – Wheat Exports and Grain Imports, should be considered in the light of the above clarifications of the Appellate Body and the facts prevailing in those cases. In particular, the panels in those cases essentially rejected the contention that a Member, to shelter a measure from Article III, could invoke the fact that like domestic products from other domestic regions were treated the same way as (all) imported products and that, for this reason, both were accorded less favourable treatment than that accorded to the domestic products from the region whose measure was at stake. In their findings, those panels however overshot the objective by making the most favoured domestic product the commanding benchmark and expressly suggesting that Article III:4 of the GATT 1994 obliges an importing Member that treats some domestic products better than other domestic products to accord the better of these two treatments to the entirety group of the like imported products.53 It is one thing, and correct, to say that a Member breaches Article III:4 if it treats some domestic products more favourably than all imported like products. It is quite another thing, and incorrect, to suggest that this violation, always and as a matter of principle, stops only when all imported like products enjoy the more favourable treatment which only some of the domestic like products receive. A correct assessment under Article III:4 must focus on a comparison of the treatment afforded to the entire group of domestic and entire group of like imported products. So, for instance, if a Member grants better treatment to some domestic products within the group but a similar subset of imported products enjoys the same treatment, that measure might not grant the imported product less favourable treatment. 

Scenarios for WTO Dispute Settlement Post 2019

I have been thinking about what may happen with WTO dispute settlement post 10 Dec. 2019, when the Appellate Body will only have one member ...

In a forthcoming JIEL editorial, draft on ssrn here, I start with two “unlikely scenarios”, at least in the short term: the US lifts its block on AB appointments; the General Council, DSB or AB itself unlock the impasse (e.g. by majority voting). Assuming that appeals pending on 10 Dec. 2019 will be carried over under (contested) Rule 15, I then offer four scenarios that are “likely”:

(i) the default risk of appeals “into the void” blocking the panel report,

(ii) no appeal ex post, or an ex ante no appeal pact (NAP),

(iii) Article 25 appeal arbitration,

(iv) “floating” panel reports (or interim panel reports), neither appealed/blocked nor DSB adopted.

I would expect a combination of all four scenarios, depending on the case and parties involved (pursuing cases under alternative dispute resolution procedures and FTAs is another option, as recently discussed in this blog). Neither of them stands out as an obvious candidate to become the “new normal” across the board. Drastic change, yes. The end of a rules-based WTO? Probably not.

 

Joe Biden on Trump's Trade Policy

From a CNN interview with Chris Cuomo:

BIDEN: With regard to North Korea, with China, I make it clear that we're going to move our defenses up, as we did before, and we're going to make sure we have the capacity to deal with it near term. I'm going to let South Korea and Japan know we're there for them. We are their nuclear umbrella. We're there for them. And China understands, if you don't want us in your throat, if you don't want us in your face, do something. 

CUOMO: Do you stop the trade battle with China? Do you go back to TPP? 

BIDEN: By the way, the idea that this trade battle makes any sense, is benefiting anybody, is absolutely ludicrous. And just ask the farmers here or around the world -- I mean, around the United States, and the manufacturers. It's killing us. 

What we should do is we deal with China -- I had a conversation with Xi before I -- Xi Jinping before we left. And he said, "Well, you know, remember, they set up their no-fly zone. 

I said, "We're not going to pay attention to it." 

He said, "What do you want me to do, just withdraw it?" 

And I said, "No, but just understand we're just going to fly through. We'll fly a B-52 through it. We are a Pacific power. We're not going anywhere. Understand that's the reason why you have security is because we've allowed stability in the region." 

They get it. But what they're doing now is we're not dealing with China's problem, for us. China's problem is they're stealing intellectual secrets. 

CUOMO: Yes.

BIDEN: There's cybersecurity. Deal the same way. You say you've got to invest here in the United States. You want to be able to invest here, and you say, "We want to invest in China, but you've got to have a 51 percent owner." No deal, man. Deal for deal.

CUOMO: This administration is fighting that same fight, isn't it?

BIDEN: But they're not. No, they're fighting in trade. Trump thinks it's about trade deficits and trade surpluses. It's not about that. Look, while he's tweeting, China's going to own the 5-G market. While in fact, he -- they're spending billions in artificial intelligence. 

What are we doing? They're doing a whole lot of things that make no sense for us to stand still. 

Those were some pretty reasonable questions from Cuomo, but Biden's answer is a bit of a ramble. It doesn't seem that difficult to me for the Democratic presidential candidates to articulate a trade policy that is critical of Trump's trade policy, but also critical of past U.S. trade policy, while still supporting a trade policy that is engaged with the world. Some key elements that could work for a Democrat would be: negotiate new FTAs, support the WTO, scale back intellectual property protection and investment protection, push for stronger labor/environment provisions, drop the trade wars (Section 232) with our allies, and work together with those allies on addressing China's trade practices.

Guest Post: Brussels Demands Wood: A Precedent of Resorting to FTA Arbitration under the EU-Ukraine Association Agreement

This is a guest post from Iulianna Romanchyshyna, a Horizon 2020 Marie Curie Fellow and PhD candidate at the University of Passau (Germany) within the European Trade and Investment Partnership (EUTIP) project

On 20th June 2019, the EU requested the establishment of an arbitration panel under the EU-Ukraine Association Agreement (‘AA’) with regard to Ukraine’s export ban of unprocessed timber after the preceding consultations held on 7^th February 2019 did not come close to a successful end. Given that it would be the first dispute in which EU challenges a trading partner’s measure by opting for an FTA-specific dispute settlement mechanism rather than the WTO, it raises a question whether in future this practice would be resorted to more frequently, especially in the light of impending WTO Appellate Body demise. It is relevant to mention that earlier on, EU initiated consultations with South Korea with respect to its non-compliance with labour provisions under the EU-Korea FTA, however, this case is different: The alleged violations by Korea constitute WTO-extra obligations (not provided in WTO agreements) meaning that there was no question on the choice of the appropriate forum. Moreover, the labour provisions violations under the EU-Korea FTA are explicitly excluded from the scope of a traditional dispute settlement, instead, they shall go through a specific non-binding procedure resulting in recommendations by the panel of experts that a party is only compelled to comply with by way of political pressure. The EU-Ukraine case, on the other hand, concerns a ban on export, both prohibited by Article 35 of the AA and Article XI of the GATT and is subject to a normal procedure of arbitration under the FTA. This blog intends to provide some preliminary comments on the substance of the dispute, taking account of WTO jurisprudence that might be used for the interpretative purposes.

Measure at issue

In 2015 Ukraine introduced a law temporarily (for a period of 10 years) banning export of unprocessed timber, which initially applied with exception for wood from pine trees, but later, as of 1 January 2017, spread to all timber species (Art. 2 of the Law of Ukraine No 325-VIII of 9 April 2015 ‘On Amendments to the Law of Ukraine On Elements of the State Regulation of Business Operators’ Activities Related to the Sale and Export of Timber concerning the Temporary Export Ban for Unprocessed Timber’ (Law 325-VIII)). The prime purpose of the law is rather convoluted. Interestingly, its explanatory note directly states that ‘the purpose of the measure is to restore the wood processing and furniture industry’. At the same time, the explanatory note to the Law 2531-VIII amending Law 325-VIII which sets certain restrictions on domestic consumption of unprocessed timber and was adopted in 2016 as a result of international outrage re the protectionist character of initial version of Law 325-VIII, clarifies that the purpose of Law 325-VIII is to protect the natural resources, which would probably be invoked by Ukraine as a justification of the measure further down the line.

Article 35 violation and applicability of exceptions

It is crucial to note that the provision at issue (Article 35 of the AA), as well as a possible justification that Ukraine might invoke (Article 36 of the AA) both incorporate relevant GATT obligations under Article XI and Article XX respectively, which makes a case for a possible reference to GATT interpretative instruments, including the relevant jurisprudence. It is critical that Article 320 of the AA explicitly provides that in case obligations thereunder are identical to the WTO obligations, ‘the arbitration panel shall adopt an interpretation which is consistent with any relevant interpretation established in ruling of the WTO Dispute Settlement Body’. The following analysis is based on the premise that the GATT jurisprudence and practice would be recognized as a relevant reference.

Article 35

Article 35 provides exceptions from its scope for reasons enumerated in Art. XI:2 GATT. Ukraine might, in particular, refer to its para. (a):

“Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party”.

Despite that justification might seem to be fitting Ukraine’s narrative, it hardly could be a lifeline for the measure at issue, as it necessitates the evaluation of two key elements that might be challenging to prove in this particular case: i) product must be ‘essential’ for the party; ii) the measure must be applied ‘to prevent or relieve a critical shortage’ of the product. Whereas it is conceivable that timber might be found ‘essential’ (although Ukraine would have to provide evidence on why it is ‘absolutely indispensable or necessary’ (para. 326 of China-Raw Materials Appellate Body Report (ABR)), the ‘critical shortage’ would be more difficult to establish. The Appellate Body, based on the ordinary dictionary meaning of the terms, clarified that a ‘critical shortage’ refers to  ‘deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point’ (para. 324 of the China-Raw Materials ABR). Importantly, the panel clarified (and the Appellate Body agreed to this opinion) that a mere fact that the product at issue is an exhaustible natural resource would not be sufficient. Its exhaustibility by itself would not amount to a risk of a critical shortage within the meaning of Art. XI:2(a) (see para. 337 of the China-Raw Materials ABR). In this vein, the Appellate Body makes a distinction between articles XI:2(a) and XX (g) of the GATT (justifies measures for the protection of exhaustible natural resources) and states that they are different in reach, have different functions and contain different obligations. It does not mean that Article XI:2(a) cannot be applied to a ‘critical shortage’ of a product which is also an exhaustible natural resource but in this case, there must be a factual basis for characterization of such shortage as ‘critical’. The Appellate Body provides an example when it is triggered by a natural disaster (para. 337). Moreover, understanding of a ‘critical shortage’ as a situation of a crisis is confirmed by the negotiating history and the Members’ practice: Art. XI:2(a) was agreed to cover a critical shortage of merino sheep in Australia as a result of a drought (EPCT/A/PV/40(1)), or acute shortage of product due to price increases in foreign markets (L/332/Rev.1+Adds, para. 73). It is not quite clear how Ukraine is going to substantiate that it was facing conditions of such a critical level.

Article 36

Another option for Ukraine could be to invoke Art. 36 of the AA as an exception, which incorporates Article XX GATT. Here, subparagraph (g) of Art. XX might be of relevance justifying measure ‘relating to the conservation of natural resources’ if ‘made effective in conjunction with restrictions on domestic production and consumption’. Although forests could be identified as an exhaustible natural resource, there are several key points that might be problematic. First, it is required for the restrictions to be applied not just in respect of foreign, but also domestic products (p.20 of the US-Gasoline ABR). Notably, Law 325-VIII (as a result of an amendment by Law 2531-VIII) provides restrictions on the domestic consumption of unprocessed timber, however, it only amounts to a quota of 25 m³/year (Article 4). There could be some doubts as to whether it constitutes essentially similarly onerous burden in comparison with a total export ban.

Secondly, even if the measure satisfies the requirement of subparagraph (g) of Article XX, it still has to pass the ‘chapeau test’ (introductory clause to Art. XX) requiring that the measure must not constitute an ‘arbitrary or unjustifiable discrimination’ or a ‘disguised restriction on trade’. Given that a less burden is provided for the domestic consumption, it might be contended that the measure is applied in a discriminatory fashion and does not ‘bear rational connection to the [legitimate] objective (para. 227 of the Brazil-Retreaded Tyres). Moreover, as the Appellate Body indicates in Brazil-Retreaded Tyres, the analysis might involve evaluation of ‘the cause and the rationale of the discrimination’ (para. 225). Thus, the fact that the proclaimed objective of Law 325-VIII from the very beginning was the restoration of the wood processing and furniture industry in Ukraine might not play in its favour.

The present dispute could become an important development in FTAs adjudication in Europe. Moreover, it could well be an interesting addition to the discussion on environmental protection vs. protectionism. Watch this space.

Guest Post: “Terms of Reference” Analysis in US – Renewable Energy (DS510) Panel Report

This is a guest post by Vineet Hegde, a PhD researcher in International Law at the Leuven Centre for Global Governance Studies at KU Leuven, Belgium.

On 27 June 2019, the WTO panel in US — Certain Measures Relating to the Renewable Energy Sector issued its report and found eleven US state policies were in violation of III:4 of the GATT 1994 because of less favorable treatment accorded to foreign producers. The measures at issues were from the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware, and Minnesota, in the energy sector.

This post analyzes some aspects mentioned in the panel report regarding the “terms of reference” and consideration of amendments to the measures after the establishment of the panel.

    1. Lack of engagement with the law from both parties [India and the US]:

For the establishment of the panel, questions relating to whether amendments could be included in the panel’s terms of references were discussed. The US stated that neither Article 6.2 nor Article 7.1 of the DSU support the view that measures enacted, including amendments, after the date of the establishment of a panel, are within a panel’s terms of reference. It also stated that “[n]or has India identified any other text in the DSU that would otherwise support such view”. The US argued that India relied on “certain reports” [highlighting India’s reliance on EC – IT Products (DS375)] and are “not persuasive”, because India did “not start with or even consider the relevant text of the DSU”.

The panel interestingly noted that neither India nor the US engaged in detail with past cases on the issue of panel’s jurisdiction over measures amended after the panel establishment. The panel went ahead and quoted Appellate Body reports in EC – Chicken Cuts and US – Zeroing (Japan),  to state “Article 6.2 does not set out an express temporal condition or limitation of the measures that can be identified in a panel request”: “measures enacted subsequent to the establishment of the panel may, in certain limited circumstances, fall within a panel’s terms of reference”.

It is surprising that India did not mention any text of the DSU to substantiate its claims as there are some Appellate Body rulings in India’s favor for this issue, and that discuss DSU provisions. It is also an interesting take from the US side, to have narrowed its arguments only to the text of the DSU and not further its contentions through the support of the WTO rulings. The panel disagreed with the reasoning of the US, which stated that past cases are “not persuasive” because India did not start with or even consider the relevant text of the DSU. Reading between the lines, it might be due to the US’s concerns that the rulemaking of the WTO law and policy must not be vested with the WTO dispute settlement system. It could also be that the law was not in favor of the US on this issue, and that the panels could consider amendments after the establishment of the panel, in its terms of references.  

[paragraphs 7.1 – 7.17].

    2. Measure 8: Michigan Equipment Multiplier/Michigan labor Multiplier

Another interesting take by the panel was with respect to Measure 8 - the Michigan Equipment Multiplier and the Michigan Labor Multiplier, that were included in a 2008 legislation [Public Act no. 295]. The measure under the 2008 Act was one of the contested measure at the time of panel establishment. The Act [Public Act No. 342], that amended the 2008 Act was enacted in December 2016. India requested that the 2016 measure be taken into consideration for panel’s assessment. The US did not dispute to the 2016 measure being included in the panel’s terms of reference as it was enacted prior to the establishment of the panel. The panel was established in April 2018. Although, the 2016 Act was enacted prior to the panel establishment, it was entered into force after the date of panel establishment. The panel still went on to analyze this and stopped its line of reasoning midway. In para 7.45, the panel stated “It is therefore, not entirely clear to us whether Measure 8 should properly be understood as having been amended before or after the Panel’s establishment”. It furthered this line of reasoning to pose a different scenario – “[i]t might be thought that, because the amendment only entered into force after the Panel’s establishment, it did not exist on that date. In this view, the measure ‘in existence’ at the time of the Panel’s establishment would be the original version of the measure in Public Act No. 295”. Although, it considered the 2016 measures in its terms of reference, it was for different reasons. It was based on previous WTO rulings and “that a panel has jurisdiction to examine amendments made to measures in existence at the time of panel establishment if (i) the terms of reference are broad enough to include such amendments; (ii) the amendments do not change the essence of the measures identified in the panel request; and (iii) such examination is necessary to secure a positive to that dispute” [citing EC – IT Products, and China – Raw Materials].

The panel left the analysis of measures “in existence” in the hanging.  Its reasoning indicates that the measures “in force” are equivalent to the ones “in existence” and may not include the ones that have been enacted and not in force. Hypothetically assuming that the 2016 amendments never existed, what if the measures in the 2008 Act were merely enacted and never “in force”? Would it still consider the measure to be “in existence”? The panel in EC – IT Products, while discussing the terms of reference stated, “While we do not consider that the mere incantation of the phrase ‘any amendments or extensions and any related or implementing measures’ in a panel request will permit Members to bring in measures that were clearly not contemplated in the Panel request, it may be used to refer to measures not yet in force or concluded on the date of the panel request…. the same essential effect as the measures that were specifically identified.” Based on this reasoning, the panel’s consideration that the 2008 Act would be the original version and not the 2016 one, may be an incorrect assessment of the terms of reference. The measure enacted, and not in force, may have the same essential effect. Therefore, the panel’s question of “..whether Measure 8 should properly be understood as having been amended before or after the Panel’s establishment” may seem misguided.

[paragraphs 7.42 – 7.50].

 

[Also, the WTO has a summary of Article 7 of the DSU published, that could be easily referred to].