International Economic Law and Policy Blog

The Attack on the Appellate Body- Events of 4 December 2019

Steve Charnovitz

At today's DSB meeting, press reports state that the US representative "charged that China and the EU, in calling for the continued use of Rule 15, were supporting what the U.S. sees as the Appellate Body’s blatant rule breaking."  In addition, the US representative was reported to have complained that "we have heard today statements actively encouraging the Appellate Body to continue to break the rules set out in the DSU."  Such USTR arguments, if they were actually made, demonstrate clearly the tendency of the Trump Administration to project its own addiction to rule breaking onto others and to improperly accuse judges and courts of breaking rules. 

As the representative from China carefully and thoughtfully explained at the DSB today: Rule 15 "is in conformity" with the DSU and "has been applied on a number of occasions for over twenty years. These precedents have established a routine and customary practice agreed on by all WTO Members which, prior to the end of August 2017, the United States had never objected to."

The Trump Administration, of course, is free to change the US government's position regarding the validity or appropriateness of Rule 15.  But as with any action by the Trump Administration, one has to ask what the motive would be in changing the US position so many years after the working procedure was established.  Plainly, the motive of the USTR in raising this sham objection regarding the Appellate Body was to justify the false accusation that the Appellate Body has acted ultra vires. 

The more the Trump Administration takes outlandish positions at the DSB, the more the United States will marginalize itself in the vital work of the WTO. 

 

The Attack on the Appellate Body- Events of 3 December 2019

Steve Charnovitz

3 December 2019

I was delighted to see the open letter from two current and one former member of the Appellate Body disputing yesterday's news item that various Appellate Body members are seeking the ouster of the Director of the Appellate Body Secretariat.

When I wrote my post yesterday "Comments on the Appellator Graham Affair" I directed my remarks only to Graham and not to any of the other Appellate Body members who were mentioned in the news item.  I am not surprised to hear that the news item contained misrepresentations and misinformation.  To repeat what I said in my post yesterday, I hope that the allegations about Graham are also untrue.

The rapid denials by three appellators (not including Graham) should be another reminder to the WTO community of how successful the Appellate Body experiment has been.  Looking back to 1995, the individuals elected by the WTO to be appellate judges have served with distinction and honor.  I can't think of any international court where the quality of judging overall has been as good as it has been on the Appellate Body.

Therefore, I am constantly amazed at the public relations success of the Trump Administration in getting its anti-Appellate Body narrative accepted, in the absence of any evidentiary basis.  It is now a commonplace that Appellate Body members go to work every morning thinking about how they can exceed their mandate, engage in judicial overreach, deny rights, and add obligations. The Trump Administration has accused the Appellate Body of becoming a rogue organization that routinely breaks the rules and people who should know better assume that the Administration is telling the truth.  If the Trump Administration's story is to be believed, the WTO appellators perform so badly in their role that they operate beyond the pale of how national or international judges perform.  And the most remarkable charge in the US indictment of the runaway Appellate Body is that for 24 years WTO members persist in selecting by consensus new WTO judges who immediately begin to commit the identical judicial errors (such as following precedent) that were made by the previous judges on the Appellate Body. 

For the Trump Administration, the WTO Appellate Body was an ideal target to bully and denigrate because WTO appellators would behave as international judges and not fight back.  But why have the supporters of the rule of law not fought back?

 

 

 

 

 

Letter from Mr Ujal Singh Bhatia, Mr Shree B.C. Servansing, and Ms Hong Zhao

In the context of the ongoing Appellate Body crisis, here is a letter to the WTO DG sent by Mr Ujal Singh Bhatia, Mr Shree B.C. Servansing, and Ms Hong Zhao:

Dear Director-General,

Regarding recent media articles, we have deep concerns about the breach of confidentiality and the misrepresentations disseminated about meetings between Appellate Body Members and the Director-General.

We reject any insinuations about the competence and neutrality of the Director of the Appellate Body Secretariat and we have full confidence in his professional qualities.

We disagree completely with these media reports and hope that measures will be taken to refute this misinformation.

We are copying this letter to the Chair of the Dispute Settlement Body with the hope that he will transmit this information to WTO Members.

Yours sincerely,
______________     _________________         _________________
Ujal Singh Bhatia     Shree B. C. Servansing     Hong Zhao

 

With No Appellate Body, Fear Over (Not Under) Enforcement of WTO Rules

Nicolas’ post on how unilateral retaliation may limit “appeals into the void” reminds me of a misleading statement I keep reading in the press these days.

Many seem to believe that with the demise of the Appellate Body (AB), the WTO will lose its “bite”, i.e., that pre-Dec. 11 dispute rulings were “binding” and enforced by “sanctions”; post-Dec. 11, as under GATT, so the thinking goes, rules and rulings will be “voluntary” and violations will no longer be enforced or sanctioned.

See, for example, here: “The difference between the GATT and the WTO formulations of dispute settlement is gigantic. Under the GATT, compliance by the defendant with dispute settlement findings was, in practice, voluntary; under the WTO, lack of compliance with dispute settlement findings may lead to the application of countermeasures on the defendant by the complainant”.

On my reading, however, the DSU was not, in the first place, created to strengthen the enforcement of WTO commitments. On the contrary, the main function of the DSU was to cap retaliation and avoid escalating “trade wars”.

Reciprocal agreements like the WTO treaty are, by nature (and even without third party adjudication), self-enforcing: If one party detects a violation by another party, the first party can suspend its own commitments toward the second party.  It is this reciprocity (not the DSU or AB) that makes the enforcement of trade agreements easier (at least for parties that have the power to retaliate) than, say, human rights or environmental treaties (where torture in response to torture or carbon emissions in response to carbon emissions do not work). 

The big problem is this: A party’s unilateral determination of treaty violation by another party may be wrong, and claimants may over-react in their reciprocal suspension or retaliation which, in turn, may trigger further retaliation in response. Hence, escalating trade wars …

The DSU addresses this problem by forcing parties to get allegations of breach determined multilaterally, allowing for retaliation only after such multilateral finding of breach and capping eventual retaliation to a level equivalent to the original breach (see DSU Articles 22.4 and 23). In other words, the DSU (mainly) addresses the risk of over-enforcement, not a problem of under-enforcement.

Hence, with the DSU potentially dysfunctional post-Dec. 11, the bigger risk is, once again, over-enforcement (unilateral determinations and sanctions, escalating trade wars), not the loss of “bite” …

If this view is correct, it also highlights the capital importance of timely dispute settlement: if the main goal of the DSU is, indeed, multilateral determination of breach, followed by capped retaliation (in case breach continues), quick (rather than 100% correct or predictable) results are of the essence: To ensure the stability of the system, a claimant may be willing to wait, say, 1 or 2 years before it retaliates; if it has to wait 4 or more years, frustration of under (not over) enforcement will build. This is what started to happen recently: think of the US losing patience with China on subsidies (or the EU on Airbus), but also of the EU not awaiting a WTO ruling on the US steel tariffs before retaliating (albeit under the safeguards agreement). Majorly delayed WTO rulings (only partly due to a lack of AB members) and the increasing need for 21.5 compliance proceedings (sometimes two rounds) have blunted the normal self-enforcing features of the WTO treaty. Massive delays (and WTO rules that have not been updated) have put pressure again on countries to unilaterally retaliate, in turn, leading to escalating trade wars, the very thing the DSU was meant to avoid …

In sum, what is worrying about the demise of the AB is not loss of “bite”, under-enforcement of WTO rules, or trade agreements falling into a protracted slumber. On the contrary, the bigger risk is over-enforcement of the rules, leading to escalating retaliation and general instability. No country will benefit from this. It is this realization (linked to the eventual ineffectiveness of purely unilateral enforcement) that will, in my view, bring also the US back to some form of third party adjudication of trade disputes (and capped retaliation). But to make this happen, substantive WTO rules need updating and WTO adjudicators, in turn, will need to carefully limit themselves to a decision of breach/no breach and decide quickly, consistent with the current, strict DSU timelines.

Making WTO Dispute Settlement Work without the Appellate Body: How the Threat of Unilateral Retaliation Could Be Used to Incentivize the Adoption of Panel Reports

There is a justified fear that, once the WTO Appellate Body goes out of business in a few days, the entire edifice of WTO dispute settlement will collapse like a house of cards. The key concern from a structural perspective is not the demise of the Appellate Body per se, but rather the loss of the right to the quasi-automatic adoption (via negative consensus) of dispute settlement reports that will come with it. The right to have panel (and AB) reports adopted by negative consensus was arguably a key part of the bargain underlying the DSU: it guaranteed WTO Members a remedy for a violation of WTO law. The other side of that bargain is embodied in DSU Art. 23: with the guarantee of a remedy in hand, WTO Members were willing to give up their right to implement unilateral retaliation. To the extent that WTO Members stand to lose their right to a remedy, there is a good chance that the flipside of that bargain will unravel as well: it would be unrealistic to expect complainants to refrain from unilateral retaliation if they are unable to vindicate their rights through WTO dispute settlement. Some WTO Members are already working on legislation that would give their governments powers akin to those of the US President under Section 301 of the US Trade Act of 1974 (see Politico’s reporting on the European Commission’s forthcoming “trade bazooka”).

The question is: how should WTO Members implement unilateral retaliation? I argue that WTO Members could use unilateral retaliation in a way that, far from further unraveling the system, would reinforce the bargain underlying the WTO dispute settlement system. If the key to keeping the WTO dispute settlement system alive after the demise of the Appellate Body is the routine adoption of panel reports by the Dispute Settlement Body, and if the threat of unilateral retaliation is employed by a critical mass of WTO Members with the sole purpose of achieving the objective of the routine adoption of panel reports, then unilateral retaliation can play a crucial role in ensuring the survival of the WTO dispute settlement system and with it the rules-based multilateral trade regime.

What would this require in practice? WTO Members would need to provide in their domestic legislation that they will implement unilateral retaliation only if and when a respondent “vetoes” the adoption of a panel report by appealing the report while the Appellate Body remains defunct. Respondents that are faced with the choice of immediate and unilateral retaliation vs., at worst, the eventual possibility of legally constrained and supervised retaliation, will have a strong incentive not to prevent the adoption of panel reports and to allow the dispute to work its way through the WTO dispute settlement system.

This proposal would leverage two of the great advantages that the WTO DSU has over the GATT to ensure that we do not return to the 1980s. These advantages are (1) the quasi-automaticity of the establishment of panels under the DSU and (2) the procedures for the surveillance of implementation and the authorization of retaliation in DSU Arts. 21 and 22. Under the GATT, it would not have been practicable to use the respondent’s veto of the adoption of a panel report as a trigger for unilateral retaliation, since the respondent could veto even the establishment of the panel (or distort the panel’s terms of reference). And under the GATT, the lack of compliance panel proceedings and arbitrations of the type we now have under DSU Art. 21.3(c) and Art. 22.6 meant that retaliation implemented within the system was not significantly more constrained than retaliation implemented outside the system. There was thus little to motivate the respondent to keep the dispute within the system. By contrast, a respondent who confronts a credible threat of unilateral retaliation if it vetoes the adoption of a panel report, coupled with a commitment by the complainant only to retaliate in accordance with DSU procedures if the panel report is adopted, will find the later course of action considerably more attractive.  

The proposal to use the threat of unilateral retaliation in this way strikes me as superior to “no appeal” agreements in two ways. First, the proposal does not depend on the good will of the respondent, but rather confronts the respondent with concrete economic incentives not to appeal the panel report. Second, the proposal does not prevent the complainant from “vetoing” the report, which is the functional equivalent of suspending the panel proceedings (something that the complainant can request at any time pursuant to DSU Art. 12.12) and does not present a concern from a systemic perspective.

Retaliation implemented under the proposal would remain illegal under WTO law. However, since such retaliation would withhold the protection of DSU Art. 23 only from respondents who have decided to deprive the WTO Member implementing the retaliation of its right to a remedy under the DSU, such illegality could arguably be justified as the lesser of two evils, as it simply seeks to uphold the basic bargain underlying the DSU.

Comments on the Appellator Graham Affair

Comments on the Appellator Graham Affair

Steve Charnovitz

2 December 2019

A report on World Trade Online this afternoon states that Appellate Body Chair Thomas Graham is threatening to resign from the Appellate Body when his term ends on December 10 unless the WTO ousts the Mr. Werner Zdouc, the accomplished and respected Director of the Appellate Body Secretariat.

I hope that this report is not true.

Back in September, this Blog featured a report that Mr. Graham was threatening to resign unless the WTO moved to adopt changes in DSU rules that addressed criticisms by the US.

In response, on 26 September 2019, I posted the following comment on the Blog:

"I have no problem with Graham quitting on December 10. He signed on for 8 years and the 8 years are almost over. It's not his fault that the US government has blocked a replacement for him. The replacement should have been agreed to months ago so that the new member could have been available on December 10. I would object to Graham's reported statement that whether he stays or not depends on whether the WTO adopts reforms. It is clearly inappropriate for Appelators to insert themselves into WTO negotiations. I have also taken note of Appellate Body Rule 2(3) which states 'A Member shall exercise his/her office without accepting or seeking instructions from any international, governmental, or non-governmental organization or any private source.' In my view, an Appellate Body member who cannot abide by that requirement should not continue to serve on the Appellate Body."

In response to my comment, on 28 September, Mr. Graham posted on the Blog:

"The remark about Rule 2(3) requires a reply. When I joined the AB eight years ago, I said I would never take a position because it was a position of my government, but equally, I would not be intimidated out of taking a position that coincided with that of my government, if I believed the position was correct. I have lived by that principle and continue to do so in the present circumstances. It would be more constructive to address my positions on their merits, instead of by insinuation."

At that time, in late September, out of respect for the court, I decided to give Mr. Graham the last word.

But with the latest news, the time has come to address Mr. Graham's statements on the merits.

As I said back in September, I have no problem with a decision by Mr. Graham to step down on December 10. He has no obligation to stay on if he doesn't want to see his ongoing cases to conclusion.  As I said, it's not his fault that a new appellator is not on deck to take over his seat on December 10 under Rule 13.

But I do have a problem with Appellate Body members seeking to insinuate themselves into the international legislative process by unilaterally lobbying for particular changes in WTO rules or for a particular timetable to make legislative changes.  The role of the WTO appellate judge is to remain impartial in deciding cases and to avoid taking any political positions within the WTO. On the merits, WTO judges should stay out of WTO negotiations unless their technical advice is specifically requested by negotiators. 

As to the directorship of the Appellate Body secretariat, while I am not familiar with the customary practices for the selection of Appellate Body staff, I presume that the Appellate Body should have some say in the Director's post.  With only three appellators in place, however, the Appellate Body lacks a quorum to act on personnel matters.  (Indeed, in the present circumstances, I question the assumption that an Appellate Body member whose term has expired can complete any appeal under Rule 15 because gaining the authorization of the Appellate Body is a prerequisite for such an extension of service.)  Therefore, I see no reason for the WTO Director-General to take any guidance regarding Mr. Zdouc from Mr. Graham.  Indeed, if the report is true that the Director-General has resisted pressure from Mr. Graham to oust Mr. Zdouc, then I commend the Director-General for providing yet another example of his continuing strong and enlightened leadership. 

Werner Zdouc is a distinguished international civil servant and he deserves better than to be held hostage to the continuing assaults by the Trump Administration on world trade and international law.

 

 

 

 

 

A WTO If You Can Keep It

"A WTO If You Can Keep It"

Steve Charnovitz

30 November 2019

This is a brief announcement of my new essay "A WTO if you can keep it" published in Questions of International Law, November 2019.

The essay provides a historical account of the World Trade Organization (WTO) and examines the numerous challenges facing the WTO today.  In particular, the essay looks at:

--the step-by-step development of the world trading system beginning in the 19th century,

--the growing disaffection by the US government from a law-based international order,

--the failure of the WTO to honor its commitments to China,

--how the WTO Appellate Body passed up an opportunity to save WTO dispute settlement, and

--the Paris versus Geneva standards for international rulemaking on climate and trade.

The essay is available at http://www.qil-qdi.org/a-wto-if-you-can-keep-it/.

 

Third Party Adjudication vs. Unilateralism

Here's one more post based on the Trade Talks podcast with Stephen Vaughn:

Chad P. Bown 16:43

Can I ask a bit more of the details on the enforcement piece? Is what we're thinking about if there is a deal that has some kind of enforcement with China, are we ever going to get back to a system of impartial third party adjudication of this? Or is it always going to be something that's tied to American leverage and tied to a unilateral decision by the United States of whether or not China is living up to these commitments?

Stephen Vaughn 17:11

To me that's a different question. In other words, I think if you're really just talking about getting other countries to do what you want the other country to do, I think most of the time, the best way to do that is going to be to use the direct leverage of the United States in terms of its market. I do recognize that there may be situations where for diplomatic reasons, maybe it's easier for another country to do what you want them to do, if they can point to arbitrators, who made a ruling against them. And I think that is something that really needs to be decided more on a case-by-case basis, in terms of whether you think an arbitration process is going to help. I think in terms of China, some people think they are more likely to respond to arbitration. I'm more skeptical in that regard. I think that what they've tended to do is to make very, very small changes, and pretty much go on with the way they were doing things before. So I think they're going to ultimately decide what's in their own best interest. And we have to decide how we want to deal with that.

My sense is that Vaughn is wrong about the effectiveness of economic leverage, but I admit it's a difficult issue to measure empirically. Krzysztof Pelc did it here in relation to a comparison between Section 301 and GATT/WTO dispute settlement, but the broader issue goes beyond what he tried to measure. I think the difficulty relates in part to the famous "seen" and "unseen" problem. People are enamored with unilateralism because they can see a few "wins" clearly, and so they reach the conclusion that using economic leverage works. But along with those wins, there are many things going on that are harder to detect. Yes, the United States can use its economic power to extract something from Mexico in the USMCA talks, and particular U.S. interest groups are happy with the outcome. But that "victory" has repercussions. Mexico becomes less happy with the relationship, and is less likely to work with the United States on various other issues.

We have seen a lot of unilateral trade actions by the Trump administration over the past couple years. At the end of this term, we'll have a sense of how effective they were. So far, the verdict does not look good for unilateralism in terms of the relative U.S. position in trade relations (and international relations more generally), but we'll see where we are next year.

Interpretation and Judging at the WTO

Here's more from the Trade Talks podcast with Stephen Vaughn:

Chad P. Bown 33:26

But can I ask you, then, where is our constructive proposal to have this conversation? So we haven't gotten it from the Europeans or the Chinese or anything yet, but where is the American proposal for how to fix the WTO?

Stephen Vaughn 33:38

Well, one of the problems that we have is, I mean, when I look at the text of the DSU as it reads now,

Soumaya Keynes 33:44

that's the Dispute Settlement Understanding

Stephen Vaughn 33:47

I think that the Americans who negotiated that text did a pretty good job. I mean, when I read it, and I think when most American lawyers read it, it looks as though you have created a process whereby there will be a panel, and then there will be an Appellate Body but that Appellate Body is really constrained. It says that they have to make a decision within 90 days, it says that they can't change the rules and obligations of the parties you have provisions like Article 17.6 that are supposed to give deference to members in sensitive areas like the anti-dumping laws. So on paper, it appears to look
like a reasonable set of rules. In reality, none of those paper protections did the United States very much good at all. That's why I think you see the Americans keep coming back to this question. Until we understand why we are so far apart in terms of how to read the text, simply trying to come up with new text is really a waste of time. 

Chad P. Bown 34:47

So there is no paperable solution to this problem.

Stephen Vaughn 34:52

I don't want to say there's no paperable solution to it. I mean, but I think there has, to me, I would think you would have to see some sort of a willingness for other countries to take more seriously the concerns that the Americans have expressed. And I think if people are thinking, well, this is just about the trade bar or well, it's just because the Americans want to win all the time. Well, that's not going to be very conducive and those conversations aren't going to be very productive.

Chad P. Bown 35:18

But we could have just written down what exactly it is that we wanted to see changed and see what the reaction would have been from an approach like that.

Stephen Vaughn 35:29

So for example, let's say that we said that we wanted to make sure that that they weren't going to add to the rights and obligations of the members. Well, it already says that. So I don't really, you know, it's not that simple to kind of just come in and say we're going to have these different pieces of text. I mean, when I read Article 17.6, for example, it's really, really clear. But when they read it, it has a completely different outcome. So there's an old school of law that goes back to the 20s at Yale called Legal Realism, and the Legal Realists were people who believed that what matters is not what's on the piece of paper, what matters is who the decision makers are, and the law is whatever they tell you it is. And to some extent, this is part of what we're wrestling with here. It's not just a question of what gets written down, it's a question of what's going to actually happen at the other end of that process. And so I think what the Americans have been trying to do is to have a more profound conversation here. And let's see, are we really capable of having a shared judicial process? Or are our understandings about law and policy so far apart, that we're just going to have to find other ways to work together?

I want to talk briefly about three points here: (1) What does it mean to add to or diminish the right and obligations under the WTO agreements? (2) How do you apply the special legal standard of review under AD Agreement Article 17.6(ii)? And (3) who should the decision-makers be in all of this?

On the point about adding to or diminishing the rights and obligations, I've never been sure how to apply that principle. DSU Article 3.2 says, "Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements." But it also says the system "serves ... to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." If panels and the Appellate Body perform that clarification in a good faith manner, how could they add to or diminish the right and obligations? With every clarification, there is the risk that one side or the other feels like the rights and obligations were added to or diminished somehow. All you can do as the adjudicator is make your best effort to reach a reasonable interpretation.

As to AD Agreement Article 17.6(ii), this provision states in relevant part: "Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations." My sense is that there is genuine confusion among some people on how this provision can work. If the Vienna Convention is applied properly, they say, there will be just one interpretation, rather than multiple permissible ones. In my view, however, there has to be a way to get to multiple interpretations, or else Article 17.6(ii) will have no meaning. So how do we get to multiple meanings? I suggested some possibilities here, which included this: "As an illustration of a situation where more than one permissible interpretation exists, if the panel concludes that the interpretive approach set out in Article 31 of the Vienna Convention on the Law of Treaties leaves the meaning of a provision ambiguous or obscure, there shall be a presumption that the provision admits of more than one permissible interpretation, and the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations." But regardless of how you do it, you have to get there. Nonetheless, I don't think the answer to this problem is clear right now, and some additional textual guidance would be helpful to alleviate the confusion.

And finally, with regard to the statement that "the Legal Realists were people who believed that what matters is not what's on the piece of paper, what matters is who the decision makers are, and the law is whatever they tell you it is," I think this is a pretty important point. As things stand now, all of these interpretive decisions are made by some combination of Appellate Body Members and the Appellate Body Secretariat, or panelists and the Legal Affairs division (with assistance from other divisions in some cases), or panelists and the Rules division (perhaps with help from other divisions; I'm not sure how the Rules division cases work in this regard). The choice of decision-makers matters, and after the current crisis is over, we may end up with a different configuration of these decision-makers.

The Role of Voters and Policymakers in U.S. Trade Policy, Then and Now

The recent Trade Talks podcast with former USTR General Counsel Stephen Vaughn was very informative. Soumaya and Chad have been kind enough to put together a transcript of the episode. There's a lot to talk about in there. I'm going to kick things off with one part that interested me:

Chad P. Bown 44:04

I want to try to see if I can put my finger on how we disagree. As economists, we think of trade as being win-win. And yes, I can impose tariffs on you; and I can make myself slightly better off because of those tariffs. But the problem is, you can do the same thing to me; and we're both then worse off by doing this to each other; and we can both be made better off if we cooperate with each other, and we're more open. But it's going to involve both of us restraining what it is that we do; both of us giving up a little bit of sovereignty. And we can do that; and we will both be made better off. But that is a view of the world that I think economists have that maybe not everybody does share.

Stephen Vaughn 44:44

So I think I think again, I think you're conflating what policy outcomes you want with the process to get those outcomes. I would argue that from 1946 to 1994, the United States had very robust debates over trade. And the United States had uncertainty in its trade policy; and United States made adjustments to its trade policy; and there were elections fought over trade policy; and there were candidates who took responsibility for trade policy. And the result was a GATT system that flourished and grew; and that ultimately led to a booming economy in the United States and in Europe, and in East Asia; and that led to exactly the type of policy outcomes that you want. After 1994, we decided to take this out of the hands of the voters and out of the hands of elected officials. And we chose to sort of seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord. And the result is the rise of China, slowing economies in the West, dislike of globalization, the rise of populism, Brexit, and lots of other things that are actually tearing against the type of policy outcomes that you want. I believe that to get to have market efficient outcomes, you have to let the political process work and give it a chance. Otherwise, I just don't think you're ever going to get there. And so I think that your process is undercutting your policy outcomes. And I would urge you to kind of give the system more of a chance. And, you know, we're all taught in America, that you have your policy outcomes, but all that has to play out in our constitutional process. And I think that's correct. I mean, whatever you want to have happen, you're going to be more likely to get it and make it stick if it's something that the voters really believe in and really support.

Let's dig into this. To start with, Vaughn said that he "would argue that from 1946 to 1994, the United States had very robust debates over trade." Depending on what he means exactly, I'm pretty skeptical of that claim. As I recall it from the history books, trade policy and trade negotiations during this time were mostly done by technocrats, with far less public debate than we see today. The issues were pretty narrow, and for a couple decades were not that controversial. By the 1980s they had become a bigger deal, as trade with Japan, Taiwan and others picked up, but they still didn't get the attention from civil society that would come later. Elections were not, in fact, "fought over trade policy" at this time, or at least not to the degree they are now.

By the 1990s, of course, trade was getting more attention. Ross Perot and Pat Buchanan got a bit of traction with this issue; there was the Battle in Seattle; and more recently, Congressional passage of trade agreements has become a political slog. In contrast to the post-WWII period, then, voters today have more awareness of trade policy and weigh in on it more actively.

Vaughn then says this: "After 1994, we decided to take this out of the hands of the voters and out of the hands of elected officials. And we chose to sort of seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord." (Earlier, he said something similar: "in terms of who makes the trade policy, it has to be made by US elected officials, because they're the only ones who are really responsible to the voters and it really is their job to sort out like what kind of a country we want to be and how trade policy is going to fit into that.") But going back to my previous point, I would say that the opposite is true: With emerging awareness about the implications of the broader trade agreements that were being developed, after 1994 trade was put in the hands of voters like never before. There was an increasing role for U.S. policymakers, as we saw frequent battles over exactly what policies should be promoted by trade agreements. Trade policy was no longer just about technocrats negotiating tariffs. Now it was about policy experts in a wide range of fields weighing in on what they thought trade agreements should do (e.g. extensive copyright protections vs. fair use), with civil society and business groups participating actively.

When he says "seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord," I think maybe he is referring to automatic adoption of dispute settlement reports and the creation of the Appellate Body. But the Appellate Body is not the European Court of Justice of the U.S. Supreme Court, and there is a great deal of flexibility in implementation of WTO dispute settlement rulings. Policymakers have a lot of discretion about how they respond to dispute settlement rulings, and they have certainly felt free to exercise that discretion in a number of cases.

He then says, "the result is the rise of China, slowing economies in the West, dislike of globalization, the rise of populism, Brexit." Here are some quick responses: I would say that China was going to rise regardless of any of this; Western economies were going to slow regardless of any of this; globalization is actually fairly popular; there's a rise in talk about populism, but what we call populism is mostly just charismatic elites trying to dress up the policies they supported anyway as something for "the people"; and Brexit is a crazy, unique thing that can't be replicated. I can elaborate on each of those points, but will wait for another blog post.

And finally, he says this: "I believe that to get to have market efficient outcomes, you have to let the political process work and give it a chance. Otherwise, I just don't think you're ever going to get there. And so I think that your process is undercutting your policy outcomes. And I would urge you to kind of give the system more of a chance. And, you know, we're all taught in America, that you have your policy outcomes, but all that has to play out in our constitutional process." On this issue, I'm going to expand a bit on a point I made above. I think people often exaggerate the impact of trade agreements on domestic policymaking. In response to a dispute settlement ruling against you, you can change your measure, accept retaliation, or reach some other settlement to achieve rebalancing. Thus, they interfere with our constitutional process and policy choices only to a very limited degree. We can still do whatever we want, including amend or withdraw from trade agreements. Now, sometimes we constrain ourselves mildly so that others will similarly constrain themselves mildly. But ultimately, we can adopt the policies we want. (If you need a demonstration of that point, just take a look at the various trade measures the Trump administration has taken.) There is plenty of policy space/sovereignty under trade agreements, and U.S. voters and policymakers have control over trade policy. Along these lines, there was an earlier exchange that is worth mentioning:

Soumaya Keynes 5:14

If you accept that Americans should have flexibility, do you accept that other governments should have flexibility too? Here I'm thinking of the Chinese state.

Stephen Vaughn 5:22

Yes, I do accept that other countries are going to have flexibility. In fact, I think the reality of the situation is that other countries have flexibility, and they do act. And I think we have been too constrained in how we respond to that. So, we have been trying for a very long time to get Europe to accept our beef hormones, which they promised to do when they joined the WTO. It's clear they're not going to do that. We have been trying to get China to make a lot of changes to their trade policy. They may or may not do that. So, I think other countries are setting out their own trade policies and I think the Americans have to do the same.

But when you look at various defensive cases the United States has lost, it is clear that we have invoked that flexibility too. Some people seem worried that the current system is too intrusive on domestic policymaking and politics, but in my view the current balance is just about right.

Call for Submissions: Trade, Law and Development

This is from the Managing Editor of Trade, Law and Development, a student-run journal at the National Law University, Jodhpur, India:

The Journal is now inviting unpublished manuscripts for publication its 12th Anniversary Special Issue (Vol. 12 No.1, Summer ’20 Issue) on the theme "Trade in Services: A Holistic Solution to New-Found Issues in Trade Law?’" Submissions are welcome in the form of Articles, Notes, Comments and Book Reviews.

The last date for submissions is March 15, 2020.

For complete details, please see the call for submissions here. 

India-Export-Related Measures

The Panel Report in India-Export-Related Measures (DS541) is a good example of WTO dispute settlement doing what it should, which is delivering the outcomes agreed by the Members, as reflected in the text of the WTO Agreement.

When the Subsidies Agreement refers to eight years "from the entry into force of the WTO Agreement", the Panel understands this to mean 2003, not some later date. And when the Subsidies Agreement says that inputs consumed in the production process are "inputs physically incorporated", the Panel excludes capital goods. The Report demonstrates a proper focus on the agreed text as reflective of the Members' intent.

This is a big win for the United States. It tells us that transitional S&D is just that, time-limited, and not a permanent carve-out. And it makes clear that a Member may not justify export-contingent grants by pretending they are duty and/or tax remissions.

Unfortunately for the United States, India has appealed the decision, and the appeal will certainly not be decided by 31 December of this year.  Thus, with the Appellate Body potentially ceasing to function as of the end of the year, and unless all existing Appellate Body Members remain in place under Rule 15 to decide pending disputes, the Report may never be adopted.  And even if an appeal is finally heard, with three functional AB Members, the process will presumably take years. 

WTO Dispute Settlement and the Appellate Body Crisis: Insider perceptions and Members’ revealed preferences

Bernard Hoekman sends along this summary of a newly released paper:

The Appellate Body crisis usually is presented as the U.S. against the world. Many WTO Members have made clear that they regard a dysfunctional AB as a serious problem for the trading system. One reason is that, depending on how WTO Members interpret the text of the Dispute Settlement Understanding, panel reports may no longer be adopted automatically if disputing parties appeal panel findings to an AB that is in limbo, thereby leaving the matter unresolved. The main fear is that without the AB, the WTO dispute settlement system will lose much of its predictability, and may eventually collapse.

Possible responses to the crisis have been the subject of much discussion. Most proposals presume the goal should be to maintain as much of system as possible. This is the case for the proposal to move forward expeditiously with new appointments to the AB that is supported by 88 WTO Members (counting the 28 EU member states as one). While this clearly illustrates that the majority wants to keep the AB in place, it leaves open the question how Members view the performance of the AB and the US argument that the AB has exceeded its mandate.

What do WTO Members think about the AB and the role it plays (should play) in resolving trade disputes? A recent paper, Fiorini et al. 2019, part of a Bertelsmann Stiftung-supported project on WTO reform, reports on the results of a recent survey of WTO Members’ perceptions of the AB. Responses reveal strong support for the basic design of the dispute settlement system but also that the United States is not alone in perceiving that the AB has gone beyond its mandate.  

Data on use of WTO dispute settlement resolution and engagement in WTO deliberations regarding the AB crisis suggest dispute settlement is primarily of significant interest to the major trade powers, more open (“globalized”) economies and richer countries. Notwithstanding the high profile nature of the AB dispute, a majority of WTO delegations (75%) did not respond to the survey, consistent with observed participation rates in WTO dispute settlement and deliberations on the AB.

Among those that did respond, there is strong support for the basic features and design of the WTO dispute settlement system. There is broad agreement that the two-stage process negotiated in the Uruguay Round is appropriate and desirable. At the same time, the survey responses show significant polarization in perceptions regarding the performance of the AB between government officials based in Geneva and those in capitals, and between respondents representing (or based in) developing countries and others. Overall, there are significant differences in views regarding the manner in which the adjudicating bodies have exercised discretion. Although no other WTO Member supports the approach of the United States in blocking new appointments to the AB, the survey suggests that the US is not alone in perceiving that the AB has gone beyond its mandate.

Fiorini, M, B. Hoekman, P C Mavroidis, M Saluste and R Wolfe (2019) “WTO Dispute Settlement and the Appellate Body Crisis: Insider perceptions and Members’ revealed preferences,” Bertelsmann Stiftung working paper at https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/MT_WTO_Dispute_Settlement_and_the_Appellate_Body_Crisis_Survey.pdf

Investment Arbitration Reporter Seeks New Contributors/Analysts

This is a great opportunity for young folks in the field of international investment law:

Investment Arbitration Reporter is looking for one or more persons to join our team of freelance contributors

IAReporter offers specialized reporting on developments in the field of international investment law. We read and digest legal pleadings and decisions, and we also engage in more traditional investigative reporting work to identify and uncover developments that are otherwise confidential.

We are currently seeking contributors with international law backgrounds who can review and write about legal and policy materials at a high level of technical accuracy, and in the existing style of IAReporter. (Prior familiarity with our publication and its reports is a necessity.)

Your work with IAReporter would be on a remote consultant basis (i.e. you would work from wherever you are legally resident and authorized to work.) You will be paid an hourly rate for your work as a contributor.

We value those contributors with flexible work-life schedules, as assignments may arise at any time. Ideally, you will be able to take on multiple assignments per month, and spend an average of 20-25 hours per month on IAReporter work.

Ideal candidates include persons who are engaged in long-term academic research (junior academics or doctoral students) or those who are taking leave from legal practice.

For conflict-of-interest purposes, we ask our contributors to not practice in the field of investor-state arbitration while they work with us. Thus, if you aim to be working with a law firm or clerking for an arbitrator within the next 2-3 years, we politely discourage you from applying.

(If you are currently working with a firm or arbitrator or in some full-time employment, please explain in your application letter whether and when you are leaving this employment.)

Desired qualities include:

• Fluency in English and preferably at least one other language.
• International work or study experience
• An academic background in international law, or a related field
• Demonstrated writing skills in English, preferably journalistic in nature.

Interested candidates must complete a trial assignment: a summary of the Siemens v. Argentina arbitral award in the style of IAReporter. Your draft should offer a brief account of the essential facts, a description of key legal holdings and tribunal reasoning, and a small amount of analysis that puts the award in light of other developments in the field of investment treaty arbitration and Argentine cases at ICSID. (You do not need to read and summarize  the separate 2004 jurisdiction decision.)

The draft contribution should be less than 2500 words and take less than 10 hours to complete. The assignment, along with the your cv and short cover letter (less than 500 words please) can be submitted to Vivian@iareporter.com.

The deadline for applications is December 20, 2019.

We will contact you in mid-January 2020 if your application has been shortlisted.

Trade in Last Night's Democratic Debate

Trade didn't come up too much in last night's Democratic debate, but here are a couple items:

MADDOW: ... American farmers are struggling under the effects of President Trump's trade war with China. The Trump administration's payments to farmers to offset those losses already have a price tag that is more than double what was spent on the Obama administration's auto bailout.

Mayor Buttigieg, would you continue those farm subsidies?

BUTTIGIEG: We shouldn't have to pay farmers to take the edge off of a trade war that shouldn't have been started in the first place. I will support farmers, but not long ago, I was in Boone, Iowa, a guy came up to me, he said I got my Trump bailout check, but I would have rather spent that money on conservation.

By the way, this isn't even making farmers whole. If you're in soybeans, for example, you're getting killed. And it's not just what this president has done with the trade war. In a lot of parts of the country, the worst thing is these so-called small refinery waivers, which are killing those who are involved in ethanol.

Look, I don't think this president cares one bit about farmers. He keeps asking them to take one for the team, but more and more I'm talking to people in rural America who see that they're not going to benefit from business as usual under this president.

I believe that so many of the solutions lie with American farmers, but we have to stand up for them, not just with direct subsidies and support, but with making sure we do something about the consolidation, the monopolies that leave farmers with fewer places to purchase supplies from and fewer places to sell their product to.

And American farming should be one of the key pillars of how we combat climate change. I believe that the quest for the carbon negative farm could be as big a symbol of dealing with climate change as the electric car in this country. And it's an important part of how we make sure that we get a message out around dealing with climate change that recruits everybody to be part of the solution, including conservative communities where a lot of people have been made to feel that admitting climate science would mean acknowledging they're part of the problem.

MADDOW: Mr. Mayor, I'm sorry to interrupt, but I need you to answer the question. Would you continue those subsidies or not?

BUTTIGIEG: Yes, but we won't need them because we're going to fix the trade war.

...

MADDOW: On the issue of China, Senator Booker, China is now using force against demonstrators in Hong Kong where millions have taken to the streets advocating for democratic reforms. Many of the demonstrators are asking the United States for help. If you were president, would the U.S. help their movement, and how?

BOOKER: Well, first of all, this is president who seems to want to go up against China in a trade war by pulling away from our allies and, in fact, attacking them, as well. We used a national security waiver to put tariffs on Canada. And so at the very time that China is breaking international rules, is practicing unfair practices, stealing technology, forcing technology transfer, and violating human rights, this nation is pulling away from critical allies we would need to show strength against China.

More on Economic Statecraft from the Left

A few months ago, I complained about some calls on the left for "economic statecraft." Now I see an argument from two Georgetown political science professors to the effect that progressives should leverage U.S. economic power to force other countries to adopt specific policies:

... A progressive administration could get started right away, using executive action, as well as reentering the Paris climate agreement and reinstating President Barack Obama-era tailpipe standards, which shape not only U.S. auto- manufacturers but also their global competitors, which want access to the U.S. market. The U.S. Treasury Department’s Office of Foreign Assets Control could bolster these efforts through what are known as green sanctions, targeting carbon-intensive sectors. Such sanctions would raise the cost of financing carbon-intensive sectors in the United States and, because of the central position of U.S. banks in the global economy, would raise these costs worldwide.

On the fiscal side, market power could be turned to end global tax evasion. Warren, for example, has proposed a country-by-country minimum tax, which would prevent firms from hiding their cash in countries with zero corporate tax. Instead, firms with U.S. sales would have to pay the difference between the foreign tax rate and that in the United States, guaranteeing that corporations pay their fair share. To avoid future regulatory whiplash, Congress could legislate stronger parameters for using standards to combat climate change, money laundering, offshoring, and other major challenges.

I'm having some trouble with all the ideological labels being thrown around these days. Who exactly are the neoliberals? Why are American politicians calling themselves socialists? And what does it mean to be a progressive on foreign policy issues? I would have thought progressives believed in cooperation with other countries and were skeptical of using economic power to boss other countries around. But these progressives seem to want to do exactly that. It's sort of like progressive imperialism. (To be clear, it looks like their plans do involve some cooperation. However, they are pretty quick to bring up sanctions as a possible tool.) 

This approach goes against all my instincts, but foreign policy isn't my field, so it's hard to come up with a sophisticated critique. I'm sure there is an extensive literature on "economic statecraft," and as soon as trade policy calms down, maybe I'll try to give it a read. But in the meantime, I would hope that people considering this policy ask themselves a few questions:

1. Will it be effective, in both the short- and the long-term? Countries don't always like being bossed around and may react badly. Keep in mind that the policies any particular economic power will be demanding from other countries will vary over time. One day it may be longer copyright terms; the next day it may be a carbon tax; then on to property rights; and then something about religious or reproductive freedom. After a while, people might get sick of the ever changing demands.

2. How sure are you that you know what is good? The basic idea here seems to be that we should use our economic power for good rather than bad. That distinction is fine for domestic policy, where we have to pick a policy of some sort. Whoever comes to power believes they know which policies are good, and believes they will support good policies instead of bad ones. But in terms of bossing other countries around, there is a third option: We don't actually have to make a policy choice at all. We could simply decide to let others choose for themselves, rather than deciding what we are going to tell them to do. For instance, rather than deciding whether to push for long copyright terms or more fair use rules, we could simply let others follow their own path. Of course, our market is big enough that our choices are always likely to have to some incidental impact on others, but that's different from a conscious effort to induce them to take specific actions.

3. Are there alternatives? I would have thought a more progressive approach would be to set a good example, try to make persuasive arguments, and sign international agreements when it seems like that would help. It could be called progressive internationalism. As I said, I don't know what any of these labels mean anymore, but that seems like it could be a useful one.

Does China Comply with Its WTO Obligations?

Over on twitter and elsewhere, I often hear vague allegations along the lines of "China cheats on its WTO obligations." There are two aspects to the issue of China's compliance with its WTO obligations: (1) How does China respond to WTO complaints brought against it, and does China comply with WTO rulings against it? And (2) does China comply with its WTO obligations more generally?

Along with my Cato colleagues Jim Bacchus and Huan Zhu, I tried to answer the first question in this policy paper. Now law professor Weihuan Zhou has written an entire book on the subject. Our conclusions are similar I think: China may not be perfect, but it does a reasonably good job of responding positively to WTO complaints and complying with rulings against it (especially when you compare it to other Members).

The more difficult question is whether China complies with it WTO obligations generally. That's a hard question to answer without the development of facts and the  discussion of law that comes about as part of WTO litigation on a particular case.

If these issues interest you, I encourage you to come to our Cato book forum for Weihuan's book at noon on December 4, where I will be moderating and Jim will be offering comments. You can register here: https://www.cato.org/events/chinas-implementation-rulings-world-trade-organization As always, there is a free lunch.

IS THE UNITED STATES ACCUSING THE APPELLATE BODY OF "JUDICIAL ACTIVISM" WITHOUT ACTUALLY USING NOR DEFINING THIS EXPRESSION?

As underlined by Simon Lester in a previous post, the United States keeps raising the following question:

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.

The economist Joan Robinson once said that it is difficult to define an elephant but when you see one you recognize it!  In my view, there is no doubt that the United States is implicitly accusing the Appellate Body Judges of "behaving badly" or in other words of "judicial activism". 

The problem is that according to Professor Randy Barnett, the expression "judicial activism",  "while  clearly  pejorative, is  generally empty." In the same vein, during oral arguments for Republican Party of Minnesota v. Kelly, Judge Scalia claimed that calling oneself a strict constructionist while criticizing others for being judicial activists  "doesn't  mean anything. It  doesn't say  whether  you 're going  to adopt  the  incorporation  doctrine, whether you  believe in substantive due process. It's totally imprecise. It's just nothing but fluff."

So, those waiting for the United States to clarify it accusation are likely to be left hungry.

In this context, I notice that no scholarly article has attempted to clarify the expression "judicial activism" in the WTO context (In the US, one can find such a work in The Origin and Current Meanings of "Judicial Activism",  92 Calif. L. Rev. 1441 (2004) ) and to distinguish clearly  "bad" judicial activism from "useful" judicial activism.

I am however convinced that this distinction is relevant and is the key to unlock the present crisis. Is it too late for such a discussion?

Finally, I note that some commentators would like to evacuate completely the notion that there is such a thing as "bad" judicial activism and that Appellate Body Judges are simply doing their job of interpreting "unclear" WTO texts. Such a position is unhelpful because it evacuates the notion that sometimes there is a legitimate malaise when reading certain interpretations or indeterminate definitions out of the blue (e.g. definition of a "public body " in Article 1 of the SCM). Add to that the fact that the Appellate Body has decided implicitly that it never makes mistakes and therefore never reverses its jurisprudence. 

 

Questions (and Perhaps Some Answers) on the US-Japan Trade Agreement and GATT Article XXIV

I've heard it said informally that the U.S. - Japan trade agreement is an "interim agreement" under GATT Article XXIV:5. But I haven't seen either party make an official statement to that effect. It looks like members of Congress may be pressing USTR on this issue soon, which might give us some answers. Inside US Trade reports:

But lawmakers are questioning the legal authority the administration has claimed “and is planning to use to negotiate and enter into the aforementioned agreements, as well as the consultations the Administration has undertaken and plans to undertake with respect to those agreements,” according to a letter obtained by Inside U.S. Trade. The letter is being circulated among House Ways & Means Committee members by Reps. Bill Pascrell (D-NJ) and Dan Kildee (D-MI), who plan to send it to Lighthizer this month.

...

Analysts have questioned whether the limited agreement with Japan is consistent with World Trade Organization obligations, pointing to WTO rules that prevent the U.S. from giving Japan preferable tariff rates if an agreement does not cover substantially all trade -- a point the lawmakers also address in their letter.

“Please explain how the Administration will ensure that the U.S. Japan Free Trade Agreement is consistent with World Trade Organization (WTO) rules that prohibit narrow sectoral agreements and require that regional trade agreements eliminate duties and other restrictive regulations of commerce on ‘substantially all the trade’,” the letter states. “Has the Administration submitted a plan and schedule for a comprehensive free trade agreement to the WTO? If so, please share the plan and schedule in your response. If not, please explain?”

The House Ways & Means trade subcommittee will also hold a hearing on the agreement next week. The questions set out in the letter are pretty good ones, and I'm curious to see how the discussion of the Article XXIV issue goes.

Guest Post: The risks of the use of Artificial Intelligence in International Arbitration

This is a guest post from Gabriela Sánchez of the Universidad de los Andes, Bogotá

The International Arbitration system has been experiencing a growing and novel phenomenon that attempts to change the way we conceive it today: the use of Artificial Intelligence (AI). The use and impact of AI on the legal profession is slowly becoming a hot topic in legal, technology, and academic circles.[1] The benefits of AI are undeniable: it can enhance legal representation, boost human cognitive abilities and automate time-consuming labor. AI tools are already playing a significant role throughout the arbitration process and are being used by both the parties to the disputes and by arbitral tribunals. Indeed, AI-infused products and services are being used to draft legal documents, automate management and research tasks, quantify damages, assist in discovery activities, appoint arbitrators and even draft arbitral awards.[2] Definitely, AI has the potential to change the international arbitration system as we know it.

However, not all that glitters is gold, the implementation of AI also involves risks. Specifically, regarding its use by arbitral tribunals, I would like to highlight two features of AI that should be handled carefully. On the one and, the lack of explainability of some systems, known as black box systems. And on the other, the problem of the lack of neutrality or biases in AI. These two risks are especially important in International Arbitration since they have the potential of weakening the reasonableness, coherence and legitimacy of the system.

Lack of explainability

Firstly, the problem of lack of explainability in AI tools appears when the developers and implementers of these systems cannot explain how the program reaches a conclusion or a prediction. This is known as black box systems and occurs especially within Deep Learning programs. This is problematic since as AI-enabled systems are becoming critical to life, death, and personal wellness, thee need to trust these AI-based systems is paramount. In response to these concerns, regulations such as the Data Protection Directive and the General Regulation for Data Protection (GDPR) of the European Union establish a “right to explanation” to demand explanation and access to the logic behind the decisions made using AI.[3] Therefore, explainable AI pretends that developers and operators can answer hot questions like: Why did the AI system make a specific prediction or decision? Why didn’t the AI system do something else? When did the AI system succeed and when did it fail? When do AI systems give enough confidence in the decision that you can trust it, and how can the AI system correct errors that arise?[4]

Not being able to answer these questions can be especially problematic in judicial activity, where providing reasons and justifications is precisely one of its fundamental features. Indeed, in the International Arbitration, parties expect the arbitrators to reach duly explained and consistent decisions, which help legitimate the entire system. For this reason, the fact that AI programs might not able to provide explanations for their decisions in the same way humans do, supports the theory that AI will not be able to replace arbitrators in decision making in the near future.

Lack of neutrality

Secondly, AI may not be as "objective" and "neutral" as it is believed[5]. AI systems are trained, fed and operated with data sets. The problem arises when the data used for training are themselves biased, which may result in AI systems becoming a vehicle to reproduce human biases and prejudices.[6] Similarly, AI systems used to assist the decision-making of arbitral tribunals could reproduce the trends that inhabit the cases entered as training data. Critical questions would be: Which cases will be used for this purpose? Who will choose them? How will diversity be guaranteed taking into account that many cases are kept confidential[7]. In other words, a worldview or set of values that inadvertently inhabit previous cases and that are used to train the programs can influence how these systems behave and the decisions they make. For these reasons, the use of AI has the potential to affect the neutrality and equality between the parties, which are essential elements for maintaining the legitimacy of the International Arbitration regime.

In conclusion, the rapid technological development we are contemplating nowadays is a reality that cannot be ignored. AI has virtues that must be recognized and exploited in all fields: from science and healthcare to finance and law. However, its application in the International Arbitration should be handled with caution. Especially, the promises of efficiency and neutrality of these systems should be taken with kid gloves if one wants to maintain the legitimacy of the International Arbitration. It should not be forgotten that with the use of AI by arbitral tribunals, the lack of explainability and biases involved in some AI-infused tools can threaten the neutrality, reasonableness legitimacy of the entire International Arbitration system. Undoubtedly, AI must be handled with caution.

 

[1] Bento, L. (2018). International Arbitration and Artificial Intelligence: Time to Tango? Kluwer Arbitration Blog. Recovered from: http://arbitrationblog.kluwerarbitration.com/2018/02/23/international-arbitration-artificial-intelligence-time-tango/.

[2] Ibid.

[3] Watcher, S., Mittlestadt, B., Floridil, L. (2017). Transparent, Explainable, and Accountable AI for Robotics. Science Robotics, 2 (6). Recovered from: http://robotics.sciencemag.org/content/2/6/eaan6080.

[4]Schmelzer, R. (2019). Understanding Explainable AI. Forbes Magazine July 23, 2019. Recovered from:  https://www.forbes.com/sites/cognitiveworld/2019/07/23/understanding-explainable-ai/

[5] See, for example, the reference to AI as “neutral and bias-free” in Scherer, M. (2019). The Vienna Innovation Propositions, International Arbitration 3.0 – How Artificial Intelligence Will Change Dispute Resolution, Austrian Yearbook on International Arbitration, Volume 2019.

[6] See, for example, the controversy regarding Hewlett Packard computers with “racist” facial recognition systems at: https://www.wired.com/2009/12/hp-notebooks-racist/.

[7] Bento, L. (2018). International Arbitration and Artificial Intelligence: Time to Tango? Kluwer Arbitration Blog. Recovered from: http://arbitrationblog.kluwerarbitration.com/2018/02/23/international-arbitration-artificial-intelligence-time-tango/.

9th Conference of the Postgraduate and Early Professionals/Academics Network of the Society of International Economic Law (PEPA/SIEL) 2020 Jerusalem, 17-19 May 2020

The conference is organised by the Postgraduate and Early Professionals/Academics Network of the Society of International Economic Law (PEPA/SIEL) in collaboration with the International Law Forum and other sponsors at the Hebrew University of Jerusalem. 

SIEL’s Postgraduate and Early Professionals/Academics Network (PEPA/SIEL) is, among other things, interested in fostering collaboration and mentoring opportunities for emerging academics and professionals in International Economic Law (IEL). PEPA/SIEL fulfils these goals through various activities such as organising conferences at which emerging IEL academics and professionals can present and discuss their research in a supportive and welcoming environment. 

We are pleased to announce that the 9th PEPA/SIEL conference will take place on 17-19 May 2020 at the Hebrew University of Jerusalem Faculty of Law, in Jerusalem. 

Call for Papers 

The scope of the conference is broad, and we invite submissions on any IEL topic including, but not limited to: 

• Law and practice in international economic governance and international organisations and tribunals such as the World Trade Organization, regional trade agreements and investor-state dispute settlement;
• International trade, investment, development, competition, intellectual property, monetary and financial law, including dispute resolution; 
• The interaction of IEL branches with other branches of public policy and law relating to public health, gender, inequality, human rights, environment, sustainable development and food safety;
• Bilateral and regional economic integration and the multilateral trading system; 
• Comparative economic law, focusing on how international economic law interacts with laws, institutions and actors at the domestic level; 
• Interdisciplinary research incorporating economics, international political economy, history, philosophy, psychology or sociology, as well as empirical methods, both qualitative and quantitative; 
• International developments and economic law, which may inter alia, refer to current disputes, ongoing negotiations, ‘trade wars’, the Appellate Body crisis, ongoing reform of the international investment system, Brexit and the EU, and the Belt Road Initiative. 
• Digital trade, international financial regulation, cryptocurrencies, and monetary affairs. 
• IEL issues relevant especially to corporations including, but not limited, to supply chains, trade compliance programs, export controls and corruption 
• Educating and teaching IEL in turbulent times. 

Submission Guidelines

Submissions should include (1) a CV (no more than 2 pages); (2) an anonymized research abstract (no more than 400 words), to be sent no later than 31 January, 2020 as attachments to pepasiel2020@gmail.com, in a single email, including the submitter’s surname in the message title. Papers will be selected based on a double-blind review conducted by members of the Conference Committee. Successful applicants will be notified by 1 March 2020, after which they are expected to submit a conference paper (no more than 4000 words) and an updated abstract, by 15 April 2020, to the same e-mail. Abstracts will be made available online, and papers will be made available to conference speakers and discussants. 

Should you have any questions regarding application or participation, please feel free to contact pepasiel2020@gmail.com. 

More information: 9th PEPA/SIEL Call for Papers.

Guest Post: Chinese Financial Contributions to Producers Abroad: A Subsidy? Looks, Quacks, But Probably Isn't

This is a guest post by Victor Crochet, an Associate at Van Bael & Bellis, Brussels, and Vineet Hegde, a PhD researcher in WTO Law at the Leuven Centre for Global Governance Studies

Professors Jennifer Hillman and Chad Bown are working on finding solutions to resolve the problem of Chinese subsidies. Among other things, they highlight the problem of identifying who the “giver” of the subsidy is. In this post, we intend to highlight another issue that might become increasingly common when looking at subsidies, that is where the “taker” of the subsidy is located.

In April 2019, the European Commission [Commission] received a complaint to initiate anti-subsidy investigation against import of glass fibre fabrics from China and Egypt. The interesting aspect of this investigation is that the summary of the complaint mentions subsidization to Egyptian producers from “financial contributions granted indirectly via Chinese government-owned or controlled banks or other Chinese state-owned or state-controlled entities [SoEs] (directly or via Egyptian entities) to foster foreign investment in the special economic zones by virtue of the agreements between the Chinese and the Egyptian governments”. In short, the complainants allege that Egyptian producers are being subsidized by the Chinese government.

Similarly, in October 2019, the Commission initiated another anti-subsidy investigation against hot rolled stainless steel sheets and coils from China and Indonesia. From the Notice of Initiation of this case, it seems that the complainant puts forth similar arguments as “the complainant alleges that some of the subsidies are directly granted by the Government of Indonesia, and some by the Government of China. According to the complaint, an Indonesian exporting producer, which is situated in an industrial park, is Chinese-owned. The complaint alleges the existence of loans transferred from Chinese State-owned or State-controlled entities to this Indonesian exporting producer.”

As China increasingly speaks of accelerating its “going global” objective through initiatives such as the Belt and Road Initiation, many Chinese companies are expanding and opening subsidiaries in foreign countries.

As Chinese industries expand abroad, complaints such as those described above are likely to become increasingly more common. However, such complaints lie on extremely shaky legal grounds and the fact that the Commission is even investigating them is worrying when considering that adherence to WTO rules has significantly decreased over the last few years.

Indeed, Article 1(a)(1) of the SCM Agreement states that a subsidy exists if “there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government")”. This seems to point that a transfer of funds by a government of a country which is not the exporting country is not a subsidy as demonstrated by the ordinary meaning of Article 1. EU law is even clearer than the SCM Agreement as Article 3 of the EU anti-subsidy regulation indicates that for there to be a subsidy there needs to be a financial contribution by “a government in the country of origin”.

A quick look at the context of Article 1 of the SCM Agreement also points towards the conclusion that the financial contribution must be granted by the government of the country of export:

• Article 2 states that for a subsidy to be specific, it needs to be granted to an enterprise/industry or a group of enterprises/industries “within the jurisdiction of the granting authority”;
• Also, Article 18 solely envisages the possibility that the “government of the exporting Member agrees to eliminate or limit the subsidy or take other measures concerning its effects”. By not giving such possibility to governments other than that of the exporting Member, the SCM Agreement acknowledges that a financial contribution only qualifies as a subsidy if it is granted by the government of the exporting Member;
• Finally, Article 25 of the SCM Agreement is clear that Members only have to notify to the WTO subsidies “within their territories”. By not requiring that governments notify subsidies granted to entities outside their territories, the SCM Agreement acknowledges that a financial contribution only qualifies as a subsidy if it is granted by a government to an entity within its territory.

The negotiating history of the SCM Agreement also seems to point in the same direction. The SCM Agreement’s predecessor – the GATT Tokyo Round Subsidies Code, did not contain any definition of “subsidy”. However, as recalled by Prof. Gary Horlick, the first draft of the SCM Agreement was negotiated by Canada, Japan, the European Communities and the US. At the time, 90% of all anti-subsidy cases had been initiated by the US and their practice served as the basis to draft Articles 1 and 2 of the SCM Agreement. He states that the phrase “within the territory” first came into US law because of cases filed in 1982 claiming that World Bank loans, Japanese war reparations to Korea, Marshall Plan aid to European Countries, or West German subsidies to West Berlin, should be treated as subsidies and, therefore, countervailable. These claims were all rejected. Based on this practice, Gary Horlick highlights that the countries at the negotiating table decided “not to treat as countervailable those subsidies given by a government outside of its territory”. Therefore, an analysis of the text, context, and the negotiating history, all indicate that the WTO members did not intend to include financial contributions by a government to a foreign producer outside its territory.

While it would appear from the start of our analysis, that countervailing financial contributions granted by a government to a producer in a different country would violate WTO law, the fact that such requests have been brought to the Commission twice in less than a year shows that this issue will become increasingly relevant.

The authors of this blog post will further inquire into solutions and reform proposals regarding where the “taker” of a subsidy is located and will keep you updated. 

Guest Post: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified?

This is a guest post from law professor Jens Lehne:

As readers of this blog are well aware, since 2017 the US has blocked all appointments to the WTO Appellate Body, which will lead to the incapacitation of the Appellate Body in December of this year, when the terms of two of the remaining three Appellate Body members end. The US justifies its blockage with accusations of judicial overreach, claiming that "the Appellate Body had been acting contrary to the unambiguous text of the [Dispute Settlement Understanding (DSU)]",[1] or, put differently, that the Appellate Body "had breached and continued to breach the clear rules of the DSU".[2]

The focus of the US has been on six distinct issues of procedure and interpretive approach, namely (1) the continued service of Appellate Body members after the expiration of their term (the Rule 15 issue), (2) the 90-day deadline for circulating Appellate Body reports, (3) appellate review of facts, (4) appellate review of municipal law, (5) advisory opinions, and (6) precedential effect of Appellate Body reports. To back up its allegations, the US has presented extensive legal arguments before the Dispute Settlement Body (DSB) between February and December 2018, running to more than 40 pages in the minutes of the DSB meetings.

In a new book published at the end of last month under the title "Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified?", an open access publication freely available for download at http://www.carlgrossmann.com/?p=11930 and https://oapen.org/search?identifier=1005793, I analyze in detail the allegations and arguments of the US with regard to these six issues of procedure and interpretative approach.

When answering the question posed in the book's title, one has to bear in mind that under Art. 17.2 of the DSU member states have a legal obligation to fill vacancies on the Appellate Body as they arise, an obligation the US violates by blocking the appointment process. In view of the obviousness of the breach of Art. 17.2 of the DSU by the US and the severity of its consequences, only clear and serious breaches on the part of the Appellate Body, and not just debatable interpretations, could possible justify the obstruction by the US.

The book finds that only with regard to one of the six issues, the 90-day deadline, the Appellate Body has undisputedly disregarded the wording of the DSU (namely Art. 17.5 of the DSU), but that it was forced to do so for reasons mainly beyond its control, a fact repeatedly acknowledged by the membership, including, at least until the start of the current appointment crisis, the US. As far as the other five issues are concerned, the text of the DSU is simply not as unambiguous as the US asserts. Regarding four of these (Rule 15, advisory opinions, appellate review of facts, precedential effect), the book concludes that no case can be made for a clear breach of the DSU or other WTO agreements, and, indeed, that the legal arguments of the Appellate Body on all of these issues are more convincing than those of the US. Only with regard to one of these issues (appellate review of municipal law), the Appellate Body has arguably gone beyond what is permissible under the DSU (more precisely, under Art. 17.6 of the DSU), but that misinterpretation of the DSU does not reach the level of a clear breach. In sum, from a legal point of view these six issues, whether viewed individually or as a whole, do not even come close to justifying the US blockage of all appointments to the Appellate Body.

In addition to the analysis of the allegations and arguments of the US, forming the central part of the book (Chapter IV), the publication provides, as a basis for the analysis, a brief overview of previous appointment crises (Chapter II) and a detailed chronological account of the current crisis, from the beginning of 2017 until the summer of 2019 (Chapter III). The final part of the book (Chapter V) goes beyond narrow legal arguments and asks about possible motives of the US for the blockage. It argues that the US actions can be explained to a large part by the fact that the WTO dispute settlement system and the Appellate Body have developed differently than expected by the US at the close of the Uruguay Round in 1995. More specifically, first, the Appellate Body has played a more important role than expected both in terms of quantity (number of appeals) and quality (acting more like a court than a mere dispute settler), second, the US has been sued more often and lost more often than anticipated, and, third, the legislative branch of the WTO (treaty-making by the member states) has failed to produce significant results, leaving the WTO's judicial branch (the dispute settlement system) unchecked.

Furthermore, the book contends that, on the one hand, the Trump administration's criticism of the Appellate Body is a continuation of the policies of past US administrations, but, on the other, its blocking of all appointments is still a sign of a major policy shift. Most notably, the Trump administration prefers power-based over rule-based international trade relations, and, consequently, is not interested in legally binding dispute settlement. In light of these preferences, it seems unlikely that the Trump administration will unblock the appointment process in any foreseeable future, and it would be very surprising if it would give up the politically convenient argument that the Appellate Body has "broken [the rules] with impunity",[3] regardless of the legal merits of this claim, because the incapacitation of the Appellate Body furthers its presumed objective of undermining legally binding dispute settlement.

[1] Minutes of the General Council meeting of 7 May 2019 (WT/GC/M/177), para. 4.154.

[2] Minutes of the General Council meeting of 23-24 July 2019 (WT/GC/M/179), para. 5.137.

[3] Minutes of the General Council meeting of 7 May 2019 (WT/GC/M/177), statement of the US, para. 4.154.

12th GNLU International Moot Court Competition, 2020

This is from the Gujarat National Law University, Gandhinagar (GNLU):

The 12th edition of GIMC is scheduled to be held from February 12-16, 2020 in Gandhinagar, Gujarat, India.

The GNLU International Moot Court Competition (GIMC) has, over the past decade, served as a unique platform for law students from around the world to explore nuances of international trade law and hone their research and advocacy skills.

The competition boasts of successful past collaborations with the World Trade Institute (WTI), University of Bern; IELPO LL.M. Programme, University of Barcelona; Lakshmikumaran & Sridharan Attorneys; Centre for Trade and Investment Law and Centre for WTO Studies, Indian Institute of Foreign Trade; Borden Ladner Gervais LLP; Food and Agriculture Organization of the United Nations; EBC-SCCOnline; Westlaw; Thomson Reuters India, and TradeLawGuide and aims to further build on these relations. Previous editions of the competition saw the WTI provide the winners an opportunity to attend their Summer Academy on Trade Regulation and Global Governance. L&S has also offered internship opportunities to the winners of previous editions of the competition.

In continuation of our legacy and with an aim to set higher standards to test the legal acumen, research and oratory skills of the participating teams, Gujarat National Law University, Gandhinagar cordially invites you to the 12th edition GIMC, scheduled to be held from February 12 – 16, 2020. This edition’s moot problem highlights contemporary legal challenges and focuses on procedural aspects of WTO litigation, primarily focusing on the General Agreement on Tariffs and Trade and General Agreement on Trade in Services.

Eligibility

The Competition is open to all students, enrolled bona-fide on a regular basis in an undergraduate/postgraduate law course or its equivalent conducted by any recognized College/ Institution/ University.

Team Composition

Each Team shall comprise of a minimum of two members and a maximum of three members.

Venue

Gujarat National Law University, Gandhinagar, Gujarat, India.

Registration Procedure and Fees

• The registration fee is INR 5,000 per Team.
• Indian teams may make payment by Demand Draft or Online Transfer using the link here.
• Foreign teams may make payment by Bank Transfer according to the procedure provided in the Rules of the Competition.

Prizes

• Winning Team: Trophy + INR 50,000 (cash prize)
• Runner-Up Team: Trophy + INR 25,000 (cash prize)
• Best Written Submissions: Trophy + INR 10,000 (cash prize)
• 2nd Best Written Submissions: Trophy
• Best Orator in the Preliminary Rounds: Trophy + INR 5,000 (cash prize)
• 2nd Best Orator in the Preliminary Rounds: Trophy
• Best Orator in the Final Round: Trophy + INR 5,000 (cash prize)
• Best Researcher: Trophy + INR 5,000 (cash prize)
• 2nd Best Researcher: Trophy

Important Dates

• Last day for provisional registration: November 25, 2019
• Last day for registration and completion of all formalities: January 10, 2020
• Last day to apply for clarifications regarding the Moot Problem: November 15, 2019
• Clarifications, if any, to be published: December 2, 2019
• Last day for submitting the soft copy of the Written Submission: January 19, 2020
• Last day for submitting the hard copy of the Written Submission: January 23, 2020

Contact

• Girish R., Faculty Convenor at rgirish@gnlu.ac.in, +91-81286 50806.
• Rohan Merchant, Student Convenor at rohanmerchant108@gmail.com, +91-98241 51770;
• M​ Yashi Saraswat, Student Convenor at yashilata@gmail.com, +91-98982 38740;
• Anushka Sinha, Student Co-Convenor at anushka297@gmail.com, +91-81412 07125;
• Devarsh Kotak, Student Coordinator (Logistics) at devarsh.kotak@gmail.com, +91-97392 20275
• Shubhangi Singh, Student Coordinator (Communications) at shubhangi2314@gmail.com, +91-99048 98812.

Links

The Official Schedule of the Competition is available here.

The Registration Form for the moot is available here.

The Moot Problem is available here.

The Rules of the Competition are available here.

For more information, please visit our official website.

Call for Entries: RMLNLU-CTIL Conference on International Trade Law

This is from the Dr. Ram Manohar Lohiya National Law University, Lucknow:

The Journal Committee at Dr. Ram Manohar Lohiya National University, Lucknow, in collaboration with Centre for Trade and Investment Law, Indian Institute of Foreign Trade is organising RMLNLU- CTIL Conference on International Trade Law (7th RMLNLU International Legal Essay Writing Competition)on February 2, 2020.

ELIGIBILITY

Authors must be pursuing their 5-year integrated LL.B. (Hons.) course / 3-year LL.B. course / LL.M. from any recognised university in India and equivalent undergraduate law degree, abroad for the academic year of 2019-2020, to be eligible to participate in the Competition.

STRUCTURE

All entries will be judged and ranked by the Centre for Trade and Investment Law and Journal Committee. A maximum of five entrieswill be selected after an intense review procedure for presenting their essays in the conference. The participants may adopt any suitable means for presenting the papers including audio-visual aids, such as PowerPoint presentation.

The selected entries shall be published in the RMLNLU Law Review Blog. The top three essays will be conferred with rewards.

 

Write us at rmlnlu@gmail.comorprakhar.ctil@iift.edu in case of queries.

View the call for submissions here, the conference poster here, and the brochure here.

 

Guest Post: Dani Rodrik and the Hawks: A field guide to the China-US Trade War

This is a guest post from law professor David Trubek:

The media are full of announcements of a “truce” in the China-US trade war. The deal that is being finalized may halt further escalation for a time, but it does nothing to resolve the deeper issues that lie behind the struggle.

As Simon Lester noted in a recent post, some people are trying to do just that. In  US China Trade Relations-A Way Forward , the ad hoc US-China Trade Policy Working Group calls for a new approach. The group is led by Dani Rodrik of Harvard, Jeff Lehman of NYU Shanghai, and Yang Yao of Peking University and includes many distinguished lawyers and economists. Others including several Nobel laurates and leading trade law scholars have joined their call.

The group fears that the debate has become polarized around two stark options: either China abandons state led growth or the two economies must be decoupled. They seek instead for a way to maintain an economic coexistence in which China can retain an economic model that has served it well and the two economies are not rent asunder to everyone’s loss.

These experts believe that the current US approach, which deals with trade friction by pressuring China to change its fundamental approach to development, is wrong. They propose a framework:

“… intended to respect each country’s ability to design and implement its own domestic policies, to promote productive negotiations about how to share the benefits and minimize the harms that attend bilateral trade, and to facilitate fair competition in the multilateral sphere of international trade.”

The key to the approach is to base trade relations on negotiations about the relative costs and benefits of policies that affect trading partners. The Statement sets out a system for identifying costs and benefits of specific policies and resolving them through a combination of negotiation and countervailing measures. The proposals are complex and it will require detailed analyses to fully understand their significance and assess whether the Statement could serve as a starting point for a new approach to the tensions underlying the current trade war.

That is --as Simon suggested-- just what the IEL community should be doing. But the question is: will this effort be heard in the US above the screeching of the trade hawks? In "Despite Trade Truce, U.S.-China Cold War Edges Closer" WSJ 10/16/19  journalist Greg Ip lays out the “ornithology”  of the trade war debate:

"From China’s 2001 entry into the World Trade Organization until 2017, the U.S. and China moved toward greater integration and engagement. Skeptics of that process fell into three camps: economic hawks unhappy with China’s treatment of foreign firms, national-security hawks suspicious of its geopolitical designs, and human-rights hawks exercised by its intolerance of democracy and dissent. Historically, these three camps have been separate and only intermittently influential . . .Events in the last year have changed that. Business disenchantment with the China market and Mr. Trump’s trade war empowered economic hawks. They joined forces with national-security hawks who see China’s economic and military rivalry as inseparable. Separately, China’s treatment of its Muslim minority in Xinjiang and wayward western businesses like the National Basketball Association, and the Hong Kong protests gave human-rights hawks a voice."

​Actually, there is another species of hawk: the jobs hawks, who tell US workers “the Chinese stole your jobs" and seek in vain to bring all lost manufacturing back to the US. All these hawks are noisy and they are shaping the debate.  Hostility to China brings together the right (business and national security) with the left (unions and human rights advocates).  

Of course, the Hawks do not agree on everything -- except their condemnation of China. But they do line up along the very convergence vs. decoupling dichotomy that the ad hoc Group is trying to dismantle. The national security and jobs hawks favor decoupling; the economic hawks want access to China’s markets and press for convergence. The human rights hawks probably don’t care which route is taken as long as pushing for either would affect China’s treatment of Uighurs, dissident lawyers, or Hong Kong. All these screeching voices make it hard to find a win-win solution to the trade war.

 US China Trade Relations A Way Forward looks like a progressive effort to bring reason into the debate. But it is a complex argument while the Hawks are all telling simpler stories. Can this welcome intervention be rescued from the avian cacophony so we can have a sane discussion and outline some kind of economic coexistence with China? I hope so.

Is One Panel Meeting Enough?

This is from last week's India - Export Related Measures panel report:

1.3.2 Single substantive meeting of the Panel with the parties

1.9. On 3 August 2018, the Chairperson of the Panel, on behalf of the Panel, held a meeting with the parties to obtain their views in preparation of the Panel's draft Working Procedures and timetable. He stressed the need to reconcile different considerations, namely, the provision for accelerated procedures in Article 4 of the SCM Agreement, the obligation to provide special and differential treatment to developing country Members, and resource constraints in the Secretariat. At that meeting, the United States proposed that the Panel hold a single meeting with the parties in this case, a proposal which India opposed.

1.10. As a means to balance the competing obligations and constraints in the particular circumstances of this case, in its draft Working Procedures and timetable sent to the parties on 8 August 2018, the Panel proposed holding a single meeting with the parties, after the filing of both parties' first and second written submissions, and reserved the right to schedule further meetings with the parties as required. On 22 August 2018, the Panel adopted its draft Working Procedures and timetable. In response to communications from India to the Chairperson, on 9 and 19 October 2018 the Panel confirmed that it would proceed with the adopted Working Procedures and timetable, while reserving the right to schedule additional meetings as necessary. On 19 October 2018, the Panel indicated that it would communicate the reasons supporting its decision in due course.

1.11. India objected to the Panel's approach in its comments on the draft Working Procedures and timetable, comments on the United States' comments, first written submission, and in communications dated 5 October and 16 October 2018, and sought a preliminary ruling from the Panel that an additional substantive meeting with the parties should be held before the filing of the second written submissions.

1.12. In its own communications, the United States took the view that the Panel could hold a single substantive meeting with the parties, or even decide the case entirely on the basis of the parties' written submissions, without holding any substantive meeting with the parties. The United States set out its arguments on the matter in its comments on the draft Working Procedures and timetable, comments on India's comments, and second written submission.

1.13. Brazil commented on this matter in its third-party submission. In Brazil's view, a panel's decision to deviate from the working procedures set out in Appendix 3 to the DSU and hold a single substantive meeting with the parties should only happen with the agreement of both parties to the dispute.

1.14. On 22 January 2019, the Panel, as it had anticipated, communicated the reasons for its earlier decision to proceed with the adopted Working Procedures and timetable, while reserving the right to schedule additional meetings, as necessary (see Annex D-1).

1.15. During the substantive meeting with the parties and subsequently in writing, the Panel asked the parties whether they considered a second substantive meeting necessary. On both occasions, it also asked India whether and how concretely the fact of holding a single substantive meeting affected India's ability to defend itself. The parties responded to these questions on 4 March 2019 and commented on each other's responses on 18 March 2019. Having studied the parties' responses and comments, and in light of the proceedings thus far, the Panel did not consider that there was a need to depart from the structure of the proceedings as originally envisaged in this dispute by adding a second substantive meeting with the parties; the Panel communicated its decision to the parties on 16 April 2019.

(footnotes omitted)

I was excited to read this because it happens that I just wrote something along these lines in a forthcoming Cato paper with Jim Bacchus, in which we offer suggestions for speeding up WTO disputes. Here is what we said on the issue of single panel meetings:

Turning to the litigation stage in dispute settlement proceedings, there is only so much shortening that can occur. Litigation requires the presentation of arguments and evidence, which means written submissions and hearings. But there are some areas where change is possible. For example, instead of always having two panel meetings, one panel meeting could be the norm, and the second meeting could be held on an exceptional basis (as is the case in Article 21.5 compliance proceedings); panel meetings could be held over secure video call rather than in person in Geneva; and there could be page limits for parties' written submissions.

...

One panel meeting may be enough: The DSU provides for two meetings of the panel with the parties. In a world where communication was difficult, these meetings had a particular value. In the 1970s, if a GATT panel had follow-up questions for the parties after the first meeting, organizing the effort to compile written questions and convey them to the parties was a major task. Today, by contrast, coordinating such questions and getting answers from the parties is fairly easy. For that reason, we think the second panel meeting could be eliminated.

In a particular case, it may be difficult to convince the responding party to agree to a single panel meeting, because responding parties always have an incentive to delay. But as a general principle that applies to future disputes, I think the case for a single panel meeting as the default rule is strong, and it's possible WTO Members could agree to this change.

Non-Violation Claims Against National Security Measures

This is from the U.S. third party oral statement in the United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade Related Aspects of Intellectual Property Rights (DS526) dispute:

III. Negotiating History Of GATT 1994 Article XXI(b)

12. The negotiating history of these essential security provisions confirms that (1) essential security matters are within the judgment of the acting government, and (2) a non-violation, nullification or impairment claim – as opposed to a claimed breach of underlying obligations – is the appropriate redress for a Member affected by an essential security action. The United States also described these points in its written submission.¹⁴

14 See Third Party Submission of the United States in United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade-Related Aspects of Intellectual Property Rights (DS526), paras. 14 to 27; U.S. First Written Submission, United States – Certain Measures on Steel and Aluminum Products (India) (DS547), Section III.A.3 (Exhibit USA-1)

I didn't see the cited third party written submission on the USTR website, but the U.S. point is clear from the oral statement: The non-violation nullification or impairment remedy is the correct avenue for challenging measures for which "essential security" has been invoked.

But how effective would it be to bring such claims? Nicolas Lamp has been arguing that non-violation claims are the right strategy in these situations. However, in a blog comment on one of his posts, I questioned how enforceable non-violation claims are. If enforcement of such claims is weak, this option would be less appealing.

In a new paper, Nicolas has now laid out in detail his argument for the strong enforceability of successful non-violation claims, as follows (footnotes omitted):

1. Non-Violation Complaints Would Be Faster to Adjudicate

The major advantage of non-violation complaints over violation complaints is that they should be much faster to adjudicate. This advantage is particularly significant in the context of the trade wars, where WTO Members attach great importance to their ability to react to other Member’s measures without delay. Non-violation complaints have three time-saving features. First, while the panel has to examine the legality of the measure, that examination is bound to be less involved than would be the case if the issue was contested between the parties. Second, the non-confrontational nature of a non-violation complaint means that appeals might be avoided altogether – an advantage whose significance will be magnified once appeals become the functional equivalent of vetoes in December 2019. And third, a non-violation claim would allow the complainant to skip several procedural steps in order to receive an authorization to rebalance. Specifically, a successful non-violation claim would proceed as follows:

Panel Proceedings

A panel would determine that the case concerns a measure that does not violate the GATT 1994 (because it is saved by the security exception), but that nevertheless nullifies or impairs benefits accruing to other WTO Members under the GATT 1994. As a result, the panel would recommend that the responding Member make a “mutually satisfactory adjustment”.

Art. 21.3(c) Arbitration on Reasonable Period of Time and Level of Nullification or Impairment

Once the panel report is adopted by the DSB, the parties can agree on a “reasonable period of time” for the responding Member to implement that recommendation. If the parties disagree about the time required to make the adjustment, any party can resort to arbitration under DSU Art. 21.3(c). For non-violation complaints, the Art. 21.3(c) arbitrator can also be asked by either party to make a “determination of the level of benefits which have been nullified or impaired”.  In violation cases, such a determination is usually only made in an Art. 22.6 arbitration after the conclusion of compliance proceedings under Art. 21.5. Once the parties know the amount of nullification or impairment of benefits – either because they have reached agreement or as a result of the Art. 21.3(c) arbitration – three scenarios are possible:

“Mutually Satisfactory Adjustment”

 The responding Member implements the DSB’s recommendation by offering compensation that the respondent accepts as a “mutually satisfactory adjustment”. Presumably, the complainant will only be satisfied by compensatory market access opportunities that are equivalent to the amount of nullification or impairment.

Art. 21.5 Proceedings on Existence of “Mutually Satisfactory Adjustment”

If the respondent offers compensation, but the parties disagree on whether this compensation is “mutually satisfactory”, they could resort to Art. 21.5 proceedings and ask a panel to rule on the “existence” of a “mutually satisfactory adjustment” (which would be a measure “taken to comply” with the DSB’s rulings and recommendations within the meaning of Art. 21.5). Presumably, the panel would simply compare the amount of compensation offered by the respondent to the amount of nullification or impairment to determine whether the compensation is “mutually satisfactory”, which would make these proceedings much quicker than compliance proceedings in a violation dispute.

Rebalancing under Art. 22

 If the respondent has offered no compensation or the compliance panel has found that the compensation on offer does not constitute a “mutually satisfactory adjustment”, the complainant can request authorization to suspend concessions in the amount of the nullification or impairment under DSU Art. 22, on the ground that the respondent has failed to “otherwise comply with the recommendations and rulings” of the DSB.  In a violation proceeding, the respondent could object both to the level and form of the proposed retaliation and resort to arbitration under Art. 22.6 regarding these matters; in a non-violation case, the level of nullification or impairment, which is “equivalent” to the level of retaliation, has already been authoritatively determined by the Art. 21.3(c) arbitrator. As a result, a potential Art. 22.6 arbitration would be much more limited in scope and only concern the form of retaliation.

The rules governing the form of retaliation are the same in violation and non-violation proceedings. The language of these rules – the complainant first has to seek to suspend concessions in sectors in which panels or the Appellate Body have found “a violation or other nullification or impairment”  – demonstrates conclusively that the drafters of the DSU intended the rebalancing procedures in Art. 22 to apply to both violation and non-violation complaints.

The application of Art. 22 to non-violation claims is further confirmed by the rules governing the termination of retaliation in Art. 22.8. These rules stipulate that concessions shall only be suspended until WTO-inconsistent measures have been removed, “or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached”. This language further suggests that a respondent in a non-violation proceeding is not dependent on the whims of the complainant in proposing a “mutually satisfactory” solution: if the respondent offers compensation at the level of nullification or impairment, such compensation would presumably constitute “a solution to the nullification or impairment of benefits” within the meaning of Art. 22.8 and hence oblige the complainant to terminate the retaliation, even if it does not regard the solution as “mutually satisfactory”.

I confess that this is a stronger argument than I was anticipating, and perhaps my long-held conception of the non-violation remedy as a weak one may not be as well established as I thought. Nevertheless, I think I see a couple flaws in Nicolas' argument. I'll explain them here, and I'm curious what others think of all this, because I don't recall much public discussion of this point. The key issue is, if you win a non-violation claim, can you suspend concessions under Article 22 if the nullification or impairment is not remedied?

First off, let me set out the relevant DSU provisions. Here are Article 19.1, Article 21.5 and Articles 22.1, 22.2, and 22.8, which together show how enforcement works for violation complaints:

Article 19.1:

Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement.  In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations.

Article 21.5:

Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it. When the panel considers that it cannot provide its report within this time frame, 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.

Article 22: Compensation and the Suspension of Concessions

1. Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within a reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements.

2. If the Member concerned fails to bring the measure found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter into negotiations with any party having invoked the dispute settlement procedures, with a view to developing mutually acceptable compensation. If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.

...

8. The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. In accordance with paragraph 6 of Article 21, the DSB shall continue to keep under surveillance the implementation of adopted recommendations or rulings, including those cases where compensation has been provided or concessions or other obligations have been suspended but the recommendations to bring a measure into conformity with the covered agreements have not been implemented.

Under these provisions, when there is a violation complaint, the panel/Appellate Body will recommend that the Member "bring the measure into conformity" pursuant to Article 19.1. Subsequently, Article 21.5 can be used to review whether this has occurred, and Article 22 can be used for compensation or suspension if conformity has not been achieved.

For non-violation complaints, there is a special provision, DSU Article 26.1, governing implementation. This provision states that the procedures of the DSU apply "subject to the following" in four sub-paragraphs of DSU Article 26.1:

1.Non-Violation Complaints of the Type Described in Paragraph 1(b) of Article XXIII of GATT 1994

Where the provisions of paragraph 1(b) of Article XXIII of GATT 1994 are applicable to a covered agreement, a panel or the Appellate Body may only make rulings and recommendations where a party to the dispute considers that any benefit accruing to it directly or indirectly under the relevant covered agreement is being nullified or impaired or the attainment of any objective of that Agreement is being impeded as a result of the application by a Member of any measure, whether or not it conflicts with the provisions of that Agreement. Where and to the extent that such party considers and a panel or the Appellate Body determines that a case concerns a measure that does not conflict with the provisions of a covered agreement to which the provisions of paragraph 1(b) of Article XXIII of GATT 1994 are applicable, the procedures in this Understanding shall apply, subject to the following:

(a) the complaining party shall present a detailed justification in support of any complaint relating to a measure which does not conflict with the relevant covered agreement;

(b) where a measure has been found to nullify or impair benefits under, or impede the attainment of objectives, of the relevant covered agreement without violation thereof, there is no obligation to withdraw the measure. However, in such cases, the panel or the Appellate Body shall recommend that the Member concerned make a mutually satisfactory adjustment;

(c) notwithstanding the provisions of Article 21, the arbitration provided for in paragraph 3 of Article 21, upon request of either party, may include a determination of the level of benefits which have been nullified or impaired, and may also suggest ways and means of reaching a mutually satisfactory adjustment; such suggestions shall not be binding upon the parties to the dispute;

(d) notwithstanding the provisions of paragraph 1 of Article 22, compensation may be part of a mutually satisfactory adjustment as final settlement of the dispute.

It's clear that Article 26.1 establishes a different process for how successful non-violation claims are to be enforced, as compared to how successful violation claims are enforced. My view has always been that Article 26.1(b) is the exclusive process governing enforcement of non-violation claims, with no Article 22 suspension available, and thus the remedy for non-violation claims is weak. What I hadn't anticipated was Nicolas' idea of tying the recommendation under DSU Article 26.1(b) to the ability to request an Article 21.5 panel and to then go to Article 22.2. (Maybe others have suggested this as well, but I don't recall it.) That makes his case stronger than I thought. However, I'm still not sure you can get an effective remedy with a non-violation claim. Here's how I see things.

In a violation complaint, by invoking Articles 21 and 22, a complaining party can get to a negotiation over "mutually acceptable compensation." If that compensation cannot be agreed, however, retaliation is permitted.

But for non-violation complaints, DSU Article 26.1 has a special set of rules on these issues, which are designed to take precedence over Articles 21 and 22. For a non-violation claim, then, it's not as simple as just going to Article 21 and then Article 22. When you to take into account fully Article 26.1, Article 21 and Article 22 are not available for non-violation claims.

The most important provision in this regard is Article 26.1(b), which says that "the panel or the Appellate Body shall recommend that the Member concerned make a mutually satisfactory adjustment." Thus, instead of the mutually acceptable compensation set out in Article 22.2, Article 26.1 has its own version of this same idea. Specifically, it gives the responding party the responsibility to work towards a "mutually satisfactory adjustment." This term sounds similar to mutually acceptable compensation, but is broader, and under Article 26.1(b) includes compensation as one possibility.  

In essence, you do not go to Articles 21 and 22 for non-violation matters, because Article 26.1 sets out its own process for adjustment, including compensation. Article 26.1 incorporates and modifies elements of Articles 21 and 22, and the result is a separate process for implementation of successful non-violation complaints. Thus, rather than the DSU referring non-violation cases to Articles 21 and 22 for implementation, the special rules of Article 26.1 themselves govern any parts of the implementation process that they address.

For example, with a violation complaint, after proposing suspension under DSU Article 22.2, the level of nullification or impairment is determined by an arbitrator under Article 22.6 as part of the process of examining whether the level of suspension is equivalent to the level of nullification or impairment. By contrast, with a non-violation complaint, the level of benefits that have been nullified or impaired may be determined as part of the Article 21.3(c) arbitration process. Providing this option in Article 21.3(c) is consistent with the idea that Article 22 is not available for non-violation complaints.

Taking all of this into account, in my view, an Article 26.1(b) recommendation in a non-violation complaint cannot be enforced through the same process by which a violation complaint is enforced. The drafters established the Article 26.1(b) recommendation as an alternative to the Article 19.1/21.5/22 sequential process. Each process has its own logic and structure. For violation complaints, a recommendation to bring a measure into conformity is followed by review of any compliance measure under Article 21.5, and compensation/suspension if the measure is not brought into conformity. By contrast, for non-violation complaints, there is a recommendation to negotiate, and some non-binding suggestions for how to do so. But there is no possibility of utilizing the violation complaint procedures, which, as Article 22.1 makes clear, address "a recommendation to bring a measure into conformity with the covered agreements."

Let me make two additional points. First, Article 22.8 talks about a "solution to the nullification or impairment of benefits," which could be seen as referring to a non-violation claim. However, note that nullification or impairment generally exists in the case of violation claims (by presumption under Article 3.8), and given the other context, the reference in Article 22.8 appears to be about addressing the nullification or impairment without removing the measure. For comparison, Article 26.1(b) refers to nullification or impairment of benefits "without violation thereof."

And finally, it seems to me that the approach set out by Nicolas is unworkable because of the nature of the recommendation demanded by Article 26.1(b).  A requirement that the responding party put forward a "mutually satisfactory adjustment," rather than just a good faith offer, in response to the panel/Appellate Body recommendation is fundamentally impossible due to the nature of the obligation. For something to be "mutually satisfactory," there must be a negotiation between more than one party, and thus the responding party cannot satisfy the requirement on its own. It does not have control over the outcome, and thus cannot be held responsible for failure. The complaining party would effectively have a veto on the compensation being offered, as it can turn down any offer. It is not appropriate to give the complaining party such a degree of power over this process, through which it could use the threat of retaliation to extract a particular kind of compensation while rejecting suitable alternative compensation.

Guest Post: US Narrative on Trade Unilateralism: Insights from DS543

This is a guest post from Akhil Raina* & Mattijs Kempynck**

Introduction

Readers of this blog are all too aware of the many ways in which the United States (US) is rocking the multilateral trade boat: the Appellate Body (AB) is in crisis;  there’s an ongoing “trade war” with China; and the US supports[1] a dangerously broad interpretation of the ‘national security’ exception under GATT Art. XXI. In this post, we cull out an underlying theme in these actions – that of unilateralism. As the word itself should make it clear, unilateralism is the antithesis of the multilateral system established under the WTO.

Here, we analyse the US narrative as found in its first written submission (FWS) in the case of DS543, officially titled United States — Tariff Measures on Certain Goods from China. “Narrative” seems to have become a bit of a trade catch-phrase, especially after Nicolas Lamp’s work that explained three broad narratives when it came to understanding, or viewing, international trade.[2] In a somewhat similar fashion, we aim to observe the US’s stand on trade (disputes, negotiations etc.) as it can be discerned from its submissions. This is particularly relevant today, given that the US is giving off mixed signals regarding its engagement with the WTO dispute settlement system (DSS): while it continues to chokehold the AB, it also institutes (and defends itself in) new WTO cases.

DS543 was brought by China against recent tariff escalations initiated by the US, and is particularly interesting given the (for lack of a better word) innovative arguments put forward by the US in its defence. We will focus on two questions: what is the “matter” in a WTO dispute, and, following from this, what is (or can be) a “solution” to said dispute? The consequences, as we will explain, of the US narrative are significant – for China, for the rest of the Membership, and for the WTO DSS.

For background: in July and September 2018, without first approaching the WTO, the US levied additional duties on certain Chinese products, after conducting a Section 301 investigation and determining that Chinese intellectual property (IP) policies were harming US interests. In response, China requested for a WTO panel in December 2018 [3], and also retaliated to the tariff increase in kind. And aside from Prof. Julia Qin (who called the US FWS an “eye opening read”)[4] and Prof. Marc Bush (who called it a “really, really, really problematic case” that “needs to go away”)[5], not a lot of attention has been paid to the dispute.

Why is the dispute or the US FWS so special? Well, for one, the US’s key argument is as follows:

“By taking actions in their own sovereign interests, both parties have recognized that this matter does not involve the WTO and have settled the matter themselves. Accordingly, there is in fact no live dispute involving WTO rights and obligations. Therefore, in light of each party’s action settling the matter, the report of the Panel should “be confined” to a brief description reporting that the parties have reached their own resolution, as provided for in Article 12.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).”[6]

For clarity, DSU Art. 12.7 – in its last sentence – states: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.'' We will come to the meaning of “settlement/solution” in just a bit, but to be sure, what the US views as these “actions taken in sovereign interests” is clear from para 9 of its FWS:

“Fundamentally, both the United States and China have recognized that this matter is not a WTO issue: China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the United States has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies; and China has chosen to respond – not by addressing the legitimate concerns of the United States – but by adopting its own tariff measures in an attempt to pressure the United States to abandon its concerns, and thus in an effort to maintain its unfair policies indefinitely.”[7]

The US further provides that the two parties are “attempting to resolve these matters in inter-governmental, bilateral discussions at the highest levels.”[8] Fair enough: the US is entitled, as every other Member, to forward a particular legal point of view. And in order to see if this view is WTO-compatible – or even logical – we must break down the US’s understanding of “matter” and “solution”.

What’s the “matter”?

The subject-matter of a dispute determines many things. Primary out of these is the forum for adjudication. In the WTO system, a Member can approach the DSS if it seeks “the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements…”[9] Further (and importantly), the Members are required not to make a unilateral determination to the effect that such “violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding…”[10] (emphasis added). In other words, Members are required to submit their WTO disputes to the WTO DSS.

But the US, as clear from the excerpts above, does not consider DS543 to be a WTO dispute. Why? Because it claims that the “matter” of the dispute is not covered by WTO disciplines. In its words, DS543 is “a bilateral dispute between the United States and China concerning key economic issues not covered by existing WTO rules. In short, this dispute is fundamentally not about WTO rights and obligations.”[11] (emphasis original) In the US’s view: 

“A broader sense of the term “matter” would encompass the full situation: China’s aggressive industrial policies; China’s adoption of a range of unfair policies and practices aimed at stealing, coercing or otherwise unfairly acquiring key technologies of its trading partners; China’s unwillingness to address these legitimate concerns; and China’s unilateral retaliation on U.S. exports as a means to attempt to maintain its unfair policies in the face of U.S. efforts to address these longstanding problems...”[12]

Now, there are two main problems with this view-point.

First, according to WTO jurisprudence, the “matter” of a dispute comprises of the ‘measure at issue’, plus, the claims made by the complainant in support of a finding of violation/nullification of benefits. This specific view of “matter” runs contrary to the US's understanding of what the matter should be, and this view has been consistently upheld by the AB, from the 1998 ruling in Guatemala Cement – I (paras 70 – 73), to the very recent 2019 ruling in Ukraine – Ammonium Nitrate (para 7.15).[13] And this makes sense, since it is the complainant’s request for panel establishment that determines the ‘scope’ of the dispute.[14] So, it is actually China’s request for consultations – and more specifically, its claims of violations of GATT Arts. I and III (both wings of the non-discrimination principle) in its request for a panel – that determine whether the dispute is capable of resolution by the WTO or not. And on this point it bears note that nowhere in its FWS does the US contend that it did not act contrary to these provisions.

Second, as pointed out by the EU in its third party submission (TPS, para 17) - what the US is doing amounts to linking complaints and counter-complaints: something that is specifically prohibited by DSU Art. 3.10. What does this mean? Take the Mexico – Softdrinks case as an illustrative example. There, the jurisdiction of the WTO panel was sought to be avoided by invocation of the fact that a similar dispute was ongoing before a NAFTA panel. While the AB in that case stated that there may be instances where a panel’s jurisdiction could be voided on grounds of the existence of a “legal impediment” (the meaning of which it decided not to comment on),[15] the NAFTA dispute was in fact “distinct” (claims were not identical), and thus the WTO panel’s jurisdiction could not be avoided. In much the same way, simply because the US has reservations about Chinese actions, it cannot use that as a basis to prevent WTO adjudication of a distinct case brought by China. It is, of course, entitled to bring its own case against China for these improper actions (which it did with regards to technology licensing measures, in DS542). In this sense, the WTO panel’s jurisdiction is “compulsory and quasi-automatic”.[16] And as a last remark, keeping in mind that Art. 3.10 is also the cornerstone of good-faith in dispute settlement, the US’s behaviour might be at odds with the panel rulings stating that the provision disallows “inappropriate legal manoeuvers to avoid dispute settlement”.[17]

What’s the “solution”?

The other interesting issue that this situation produces is: what can be considered a “solution” under the DSU? It is well known (and well paraded by some) that even the DSU gives primacy to negotiated settlements to litigation. This is, to some extent, true: most WTO law aficionados are aware of the “clearly preferred” wording in DSU Art. 3.7. But what does the DSU actually say? Does it say what the US is implicitly arguing it does? Once again, to revisit the US positions – it claims that the dispute has been settled between the US and China,[18] and that “what is settled between the parties is that both parties have determined to act in accordance with their own sovereign interests, and that this matter does not involve any live issues regarding the interpretation and application of the WTO Agreement”.[19] 

First, these negotiated solutions have to be “mutually acceptable to the parties”.[20] Hence the phrase “mutually acceptable solutions” (MAS). There is no evidence that China subscribes to the US’s understanding of what a solution is, or that, in fact, the two parties have found such a “solution”.

Second, what can such a “solution” be, anyway? In order to avoid confusion it is useful to point out that the terms “solution”, “mutually agreed (or satisfactory) solution”, “settlement” or “resolution”^[21] are used fairly synonymously in the DSU:  for example Art. 12.7 says: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached”. (emphasis added)^[22] That being said, if one would want to categorize, the word “solution” should be used when the underlying trade barrier itself is resolved in a multilateral, erga omnes fashion, whereas the word settlement points more towards a bilateral, inter partes resolution of the dispute.^[23] Alternatively, one could understand “solution” to be the permanent state of legal peace, whereas a “settlement” would be a temporary ceasefire en route to final resolution. In any case, for the dispute at hand, it seems hardly reasonable to state that an ongoing tariff war (slated to, come holiday season in December, be elevated to non-tariff retaliation) can be understood as either a “settlement” or a “solution”.

Finally, and more systemically speaking, any such MAS has to be “consistent with [WTO] agreements and [shall] not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements”.[24] It need not be stated that a trade/tariff war is incompatible with this requirement. As such, the propensity of such MAS resulting in a WTO-minus result is well known: the aforementioned US – Upland Cotton is a glaring example. But this goes mostly unaddressed. Could more law be the solution? Could the Membership challenge such a WTO-minus solution in the WTO DSS to ensure compliance with WTO law? One of the main obstacles for such a challenge would be the definition of a measure at issue (“MAI”) under WTO law. The AB’s take in US-Corrosion Resistant Steel Sunset Review, namely that “in principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings” [25], gives us food for thought: could a MAS, as such, be attributable to a WTO Member, or does the mentioning of “a” WTO Member in the AB definition of an MAI precisely imply that bilateral acts as a MAS fall outside its scope? If the latter is true, would the domestic (US/Chinese) acts implementing the MAS fit within the definition of a MAI? Could the US and China be impleaded as “joint respondents” in the DSS? Would such a tactic allow a challenge of the MAS as such, or would tackling the domestic implementing acts still be only the way to go? [26] These are all relevant and important questions for the WTO Membership, as well as academia, to consider. Given space constraints, we will explore these further in a follow-up post soon. 

Consequences and conclusion

In conclusion, we would like to draw attention to geopolitics, and the other big player in this dispute – the EU – a player that is no stranger to unilateralism. The outcome of DS543, as pointed by Prof. Busch, is particularly relevant at a time when the incoming EU trade commissioner, Phil Hogan, is told by president-elect Ursula von der Leyen to “upgrad[e] the EU’s Enforcement Regulation to allow [them] to use sanctions when others adopt illegal measures and simultaneously block the WTO dispute settlement process” and to “gear up” for retaliation against the US (especially after the recent Boeing/Airbus retaliation rulings by the WTO).[27] Now while the EU is currently making more sense than the US, its own position on unilateralism was visible in the EC – Commercial Vessels case where it creatively argued in favour of working around the WTO DSS in certain cases. Thus the EU’s stand against the US has a bit of a “glass houses” problem. Further, this dispute will be closely watched by other countries, who may use the precedent as a ‘DIY-unilateralism’ guidebook. This is particularly problematic when the DSS is anyway reeling from an onslaught of ‘national security’ cases. Thus, an unwise decision by the WTO judiciary (or a failure to settle this dispute by the US) can lead to an arm’s race to the bottom, eventually leading to a 1930s kind of situation where retaliation and counter-retaliation become the new normal and the global economy plunges down the sink. In the words of Prof. Busch: “DSU Art. 23 is precious, and the global economy is fragile”.

Overall, the message emanating from the US FWS is that some issues are only going to be resolved through bilateral negotiation rather than multilateral adjudication. This is not a question of degree of effectiveness for the US: it seems that in its view certain issues cannot be resolved through adjudication. And while innovative unilateralism is being countered, to some extent, by innovative multilateral solutions (EU-Canada and EU –Norway interim AB solutions), the US FWS in DS 543 – as contrary to law and logic as it may be – is in line with what seems to be the US’s general position on trade dispute resolution: a desire to move backwards in time, to the GATT-era, where power politics, and not the law, determined who won, who lost, and to whom belonged the spoils of (trade) war.

***

* Marie S. Curie Fellow and PhD Candidate at the Leuven Centre for Global Governance Studies (GGS), KU Leuven. The author is a part of the Horizon 2020 ETN project, ‘Global India’.

** Blue Book Trainee, DG Trade, European Commission; LL.B. LL.M (KU Leuven). The views expressed are those of the author and do not reflect an official position of the European Commission.

[1] See, for example, US submissions in DS564: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS564%29.fin.%28public%29.pdf; DS556: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS556%29.fin.%28public%29.pdf etc.

[2] Nicolas Lamp, How Should We Think about the Winners and Losers from Globalization? Three Narratives and Their Implications for the Redesign of International Economic Agreements, Queen’s University Legal Research Paper No. 2018-102: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3290590.

[3] Request for the Establishment of a Panel by China, United States - Tariff Measures on Certain Goods from China, WT/DS543/7, 7 December 2018.

[4] https://ielp.worldtradelaw.net/2019/09/us-china-tariff-war-a-lesson-about-wto-law.html

[5] https://soundcloud.com/user-885686084/ep-29-unilateralism

[6] US FWS, para 10.

[7] US FWS, para 9.

[8] US FWS para 60.

[9] DSU Art. 23.1.

[10] DSU Art. 23.2 (a).

[11] US FWS, para 3.

[12] USFWS para 45; in the preceding para the US specifically rejects a more “narrow” view.

[13] See also panel report in Korea – Pneumatic Valves, para 7.19.

[14] See AB reports in Argentina – Import Measures, para 5.11, US – Carbon Steel, para 124, and US – Countervailing Measures (China), para 4.6.

[15] AB report, Mexico – Softdrinks, para 54. See also, panel report, Mexico – Softdrinks, paras 7.15 and 8.232.

[16] Gabrielle Marceau, The Primacy of the WTO Dispute Settlement System, Questions of International Law (2015).

[17] See panel reports in US – Upland Cotton (para 7.67) and EC – Fastners (China) (footnote 205).

[18] US FWS para 6.

[19] US FWS para 61.

[20] DSU Art. 3.7.

^[21] Ibid., §10.

^[22] See e.g. the text of Art. 12.7 DSU: Where a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.

^[23] This matter is rooted in the broader question surrounding the underlying purpose of WTO dispute settlement, in the words of John H. Jackson: ‘“what should be the fundamental objective of the [multilateral trading] system – to solve the instant dispute (by conciliation, obfuscation, power-threats, or otherwise), or to promote certain longer term systemic goals such as predictability and stability of interpretations of treaty text?” (John H. Jackson “Dispute Settlement and the WTO: Emerging Problems”, JIEL 1998, 331).

[24] DSU Art. 3.5.

[25] Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, §81.

[26] For further inspiration on how the US or China might defend themselves against a challenge of the MAS as such, see Turkey’s (in those circumstances unsuccessful) arguments in the Turkey-Textiles case, where it claimed Turkey and EC they could not be held individually accountable for acts collectively taken (Panel Report, Turkey-Textiles, §9.33).

[27] Mission letter from Ms. Van Der Leyen to Mr. Hogan, page 5, https://ec.europa.eu/commission/sites/beta-political/files/mission-letter-phil-hogan-2019_en.pdf

 

What Kinds of Measures Should Trade Agreements Target?

A group of scholars (including Rob Howse of this blog) has a new proposal for how to manage U.S.-China trade relations better. I may comment on the broader proposal at some point (and Rob may blog about it himself), but in the meantime, as I sometimes like to do, I'm going to pick out an obscure issue from the proposal and talk about it a bit. 

The proposal divides up the domestic policies governments might address through trade agreements into four "buckets." The first two buckets are most relevant to my point, so I'll just quote those:

In today's interdependent global economy, a broad assortment of divergent domestic policies (including policies that have not historically been regulated through WTO rules) can trigger calls to "rebalance" the structure of cross-border market access and trade barriers between countries. One approach to "rebalancing" is to escalate pressures for convergence. Our alternative to this approach is to assume that divergence will not necessarily disappear in the near future. We propose a framework that builds on that assumption and promotes, to the greatest extent possible, the benefits of international trade.

To operationalize our approach, we distinguish four categories ("Buckets") of policies.

Bucket 1 (The "Prohibited" Bucket): In this Bucket, Country A's actions or policies are likely to create significant distortions in global markets and can be presumed to entail global economic losses. It is appropriate that international norms prohibit actions or policies in this Bucket. "Beggar thy neighbor" policies¹ are canonical examples that fall under this Bucket. For example, country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness. Or country A may engage in discriminatory data policies that promote predatory pricing or rent extraction by national digital companies on foreign markets.

¹ Beggar-thy-neighbor policies are defined as ''policies that seek to increase domestic economic welfare at the expense of other countries' welfare" (Princeton Encyclopedia of the World Economy, emphasis added). Unlike other domestic policies that may entail negative repercussions across the border, they create domestic gains only to the extent that other nations lose. Further, they are globally negative-sum, because they create market inefficiencies (e.g., non-competitive conduct). Our proposed Bucket 1 would contain policies that are adopted with this express beggar-thy-neighbor purpose in mind. Our proposed Bucket 2 would contain policies that may have beggar-thy-neighbor effects but where those effects are not the first-order motivation for the policy

Bucket 2 (The "Bilateral Discussions and Adjustments" Bucket): In this Bucket, Country A's policies cause harm to country B without necessarily taking on a beggar-thy-neighbor character or entailing global economic losses. We put in this Bucket those policies for which a mutually beneficial bargain can be worked out between the two nations that entails the removal of the policies in question. This will typically occur when Country B's perceived losses from the policy exceed the perceived gains to Country A from sticking with the policies. For example, Country A may engage in industrial policies that Country B's producers consider unfair and harmful; Country B may prevail on Country A to remove or scale back these policies by offering an alternative economic benefit (e.g., a reduction of Country B's countervailing tariffs).

I'm particularly interested in one of the explanations they give of a "Beggar-thy-neighbor" policy: "country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness." If I understand correctly what they are saying, this explanation reflects the "protectionism" vs. "terms of trade manipulation" debate that I've blogged about before.

What I'm trying to sort out is what exactly they have in mind with this explanation, in particular what kinds of measures would be covered. For instance, the United States famously has a truck tariff of 25%. My question is, in the view of the authors, was that tariff imposed "with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness"? I wouldn't have thought so. Instead, I would have thought the purpose was to give U.S. producers an advantage over foreign competitors in the U.S. market, and therefore achieve oligopoly profits in that market, with little thought given to any impact on world markets. But do the authors think the "express purpose" was to "reap[] monopoly pricing gains on world markets undermining other countries' competitiveness"? If so, what is the basis for that conclusion? And if the truck tariff is not an example of a measure imposed with this purpose, what is a real world example of such a measure?