International Economic Law and Policy Blog

Separate Opinion in Today's Appellate Body Report

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

5.5.1 Public Body

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

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

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

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

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

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

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

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

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

5.5.4 Overall summary

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

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

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

Joe Biden on Trade Policy

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

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

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

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

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

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

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

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

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

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

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

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

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

We do need to get tough with China. 

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

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

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

We must negotiate from the strongest possible position. 

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

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

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

Not China’s. Not Russia’s. 

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Update:

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

New paper on "Judicial Overreaching" at the WTO

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

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

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

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

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

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

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

Inside US Trade reports:

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

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(footnotes omitted)

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

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

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

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

Scenarios for WTO Dispute Settlement Post 2019

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

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

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

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

(iii) Article 25 appeal arbitration,

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

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

 

Joe Biden on Trump's Trade Policy

From a CNN interview with Chris Cuomo:

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

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

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

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

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

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

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

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

CUOMO: Yes.

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

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

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

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

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

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

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

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

Measure at issue

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

Article 35 violation and applicability of exceptions

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

Article 35

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

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

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

Article 36

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

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

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

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

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

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

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

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

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

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

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

[paragraphs 7.1 – 7.17].

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

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

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

[paragraphs 7.42 – 7.50].

 

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

Call for Submissions: Indian Journal of International Economic Law

This is from editors of the Indian Journal of International Economic Law (IJIEL) from the National Law School of India University in Bangalore:

The Indian Journal of International Economic Law (IJIEL) is now accepting submissions for its twelfth volume (Volume 12). IJIEL is a student edited, peer reviewed annual journal, published by the National Law School of India University.

The previous volume of the journal featured contributions by Prof. Raj Bhala (Rice Distinguished Professor, Associate Dean for International and Comparative Law, Kansas School of Law) and Rodrigo Polanco (Researcher, Lecturer and SNIS/SECO Project Coordinator at World Trade Institute) among several others. We have also published articles by luminaries in the field such as Faizel Ismail, Enrico Baffi, Michelle Sanson, Jason R. Bonin Dr. Rafael Arcas& Colin Picker; and forewords by Prof. JagdishBhagwati and Prof. Stephen Hobe in the past.

We will be accepting submissions on a rolling basis until February 28, 2020. Full details are outlined in the official call for submissions here. 

Todd Tucker on the DS510 Panel Ruling

Todd Tucker of the Roosevelt Institute is not happy with yesterday's WTO panel ruling against various U.S. states' local content requirements in the renewable energy sector. I responded on the Cato blog here, but I want to add a bit more in response to some of his tweets today. And just to warn everyone, I'm going to be a bit flippant about it. (Todd is a friend, and I hope he doesn't take this too personally. Guess I'll find out!)

Here's what he said on twitter:

Yesterday's WTO decision against 7 US states' renewable energy programs offers both challenges and opportunities to the Green New Deal. My latest in @washingtonpost @monkeycageblog washingtonpost.com/politics/2019/…

One way I've floated to get around this impasse: 1. Fill the WTO's judicial vacancies with environmental lawyers. 2. Suspend current WTO rules for 10 years. 3. Create a different set of rules for nations that enact a Green New Deal... papers.ssrn.com/sol3/papers.cf…

4. Eliminate tariffs between those countries. 6. Embargo countries that don't. 7. Have a repurposed Green WTO enforce the new rules, granting standing to citizens to flag noncompliance. 8. Eventually, noncompliance leads to trade penalties.

Let me go through his suggestions one by one.

Fill the WTO's judicial vacancies with environmental lawyers.

Sounds great! I would love to get some environmental lawyers over there to strike down local content requirements that violate WTO rules and undermine environmental protection.

Suspend current WTO rules for 10 years.

No thank you.

Create a different set of rules for nations that enact a Green New Deal

Let's come back to this when Todd figures out a plan for the Democrats to win the U.S. Senate and the Green New Deal has a chance (although probably a pretty small one even then).

Eliminate tariffs between those countries.

I like this one. Can't we just make this the centerpiece and put the rest of it aside?

Embargo countries that don't. 

Oh, man, we were doing so well. Why did Todd have to go and ruin things?

Have a repurposed Green WTO enforce the new rules, granting standing to citizens to flag noncompliance.

Todd's long-standing critique of ISDS morphed into ISDS-envy, and now he wants to use the concept for non-economic issues.

Eventually, noncompliance leads to trade penalties

I'll abandon the flippancy here, and just note that if some countries want other countries to do more to protect the environment, there are probably positive measures (e.g. financial aid) that would help more than trade penalties.

The Democratic Candidates Debate Trade (A Tiny Bit)

In the debate on Wednesday involving 10 of the 20 Democratic candidates, trade barely came up. Given how much activity, shall we say, there has been on trade under the Trump administration, that was a bit of a surprise. Last night, though, in the debate involving the other 10 candidates, there was a question on trade:

HOLT: We're going to turn -- we're going to turn to the issue of trade now, if we can. Last night, we asked the candidates on this stage to name the greatest geopolitical threat facing the U.S. Four of them mentioned China. U.S. businesses say China steals our intellectual property and party leaders on both sides accuse China of manipulating their currency to keep the cost of goods artificially low.

I want to ask this to Senator Bennet, to start off with. How would you stand up to China?

That's not a terrible question, but it's not a great one, in the sense that it's easy to come up with an answer that sounds substantive without saying much of anything. Here's what the candidates who got a chance to answer said:

BENNET: Well, I think that, first of all, the biggest -- the biggest threat to our national security right now is Russia, not China. And, second, on China, we've got -- because of what they've done with our election.

In China, I think the president has been right to push back on China, but has done it in completely the wrong way. We should mobilize the entire rest of the world, who all have a shared interest in pushing back on China's mercantilist trade policies, and I think we can do that.

...

HOLT: Mr. Yang, let me bring you in on this, on the issue of China. You have expressed a lot of concerns about technology and taking jobs. Are you worried about China? And if so, how would you stand up against it?

YANG: Well, I just want to agree that I think Russia is our greatest geopolitical threat, because they have been hacking our democracy successfully and they've been laughing their asses off about it for the last couple of years. So we should focus on that before we start worrying about other threats.

Now, China, they do pirate our intellectual property. It's a massive problem. But the tariffs and the trade war are just punishing businesses and producers and workers on both sides.

I met with a farmer in Iowa who said he spent six years building up a buying relationship in China that’s now disappeared and gone forever. And the beneficiaries have not been American workers or people in China. It’s been Southeast Asia and other producers that have then stepped into the void. So we need to crack down on Chinese malfeasance in the trade relationship, but the tariffs and the trade war are the wrong way to go.

HOLT: All right, Mayor Buttigieg...

HOLT: How would you -- how would you stand up against China?

BUTTIGIEG: I mean, first of all, we've got to recognize that the China challenge really is a serious one. This is not something to dismiss or wave away. And if you look at what China is doing, they're using technology for the perfection of dictatorship.

But their fundamental economic model isn't going to change because of some tariffs. I live in the industrial Midwest. Folks who aren't in the shadow of a factory are somewhere near a soy field where I live. And manufacturers, and especially soy farmers, are hurting.

Tariffs are taxes. And Americans are going to pay on average $800 more a year because of these tariffs. Meanwhile, China is investing so that they could soon be able to run circles around us in artificial intelligence. And this president is fixated on the China relationship as if all that mattered was the export balance on dishwashers. We've got a much bigger issue on our hands.

But at a moment when their authoritarian model is being held up as an alternative to ours because ours looks so chaotic compared to theirs right now because of our internal divisions, the biggest thing we've got to do is invest in our own domestic competitiveness. If we disinvest...

HOLT: All right, Mayor, thank you.

BUTTIGIEG: ... in our own infrastructure, education, we are never going to be able to compete. And if we really want to be an alternative, a democratic alternative, we actually have to demonstrate that we care about democratic values at home and around the world.

Those answers are fine, but fairly superficial. It was easy to answer this question with generalities. I'm glad the candidates don't like tariffs, but I'm not sure exactly what they would do instead with regard to China.

I wish we could get more specific questions on trade, such as: Would you maintain the tariffs that the Trump administration has imposed on steel and aluminum imports under Section 232? With which countries, if any, would you negotiate new trade agreements first? Should there be any provisions on biologic drugs in the USMCA? Should Congress take back some of the power it has delegated to the executive branch on trade?

Guest Post: The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?

This is a guest post from Markus Wagner of the University of Wollongong:

It is very unlikely that the ongoing G-20 summit will resolve the political dispute between China and the US over their bilateral trade relationship and the dispute over the future direction of the international trading system. But it at least appears that - while almost everyone pays lip service to WTO reform - there is a growing consensus that the WTO's "rules-based system" (such as it is) is worth preserving (even if the G20 Ministerial Statement on Trade and Digital Economy was non-committal on the issue of dispute settlement reform, apparently due to US opposition). 

The uncertainty surrounding the future of the WTO Appellate Body has given rise to wide-ranging discussions about reforms among the WTO membership, as well as in academia and civil society. These range from modifying the operation / text of the DSU rules or the Working Procedures for the Appellate Body (see e.g. here and here), to a whole-sale outsourcing of appeals to an extra-WTO mechanism.  

 

Some of these suggestions from academia are reflected in more recent reform proposals put forth by  various WTO groupings (see e.g. here and here). These suggestions were in direct response to US criticism of the operation of the Appellate Body, which had raised complaints over (1) individuals who are no longer formally members of the AB continuing to adjudicate disputes; (2) non-adherence to the 90-day deadline for issuing AB reports; (3) the use of obiter dicta in AB reports; (4) the AB’s misapplication of the standard of review; and (5) the AB taking the view that its reports have precedential effect. The reform proposals were subsequently rebuked by the US, stating on the record that “[w]ith respect to the proposal advanced by the EU, China, and India, it is hard to see how it in any way responds to the concerns raised by the US, as some have alleged”. 

 

Given the far greater concerns over the future of international trade governance - pitting the market-oriented existing system against a more state-centric system championed by China - the potential disappearance of the AB could well be nothing more than collateral damage in larger fight playing out between the US and China. 

 

This leaves in grave doubt not only the Appellate Body (whose jurisprudence may well live on, at least for some time, through reference in future WTO panel and PTA tribunal decisions), but with it - at least potentially - the WTO's dispute settlement function. In a forthcoming article (titled "The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?"), I show the developments that have led to the current state of affairs. While the current discussions about reforming WTO dispute settlement are welcome (and reforms are necessary), WTO members willing to preserve a modified version of the current system face two obstacles: (1) the clock is ticking towards 10 December 2019 when two further AB members are stepping down, reducing the number of AB members to less than the number required for an AB division; and (2) a US administration that has sown doubts about its calls for reform having been made in good faith. If they were, there would be more constructive engagement. All indications point in the opposite direction, namely a desire to return to a power-based system à la GATT. 

The Origins of the "Cogent Reasons" Approach to the Precedential Value of Appellate Body Reports

The United States has made it clear that it objects to the Appellate Body's view that a panel must follow a prior Appellate Body interpretation unless the panel has “cogent reasons” for departing from that interpretation. One of the longer U.S. explanations of its position is here. This is a key passage:

59. More fundamentally, however, the Appellate Body’s statement concerning “cogent reasons” in US – Stainless Steel (Mexico) is profoundly flawed in several respects. These include:

(1) a failure to properly appreciate the functions of panels and the Appellate Body within the WTO dispute settlement system;

(2) an erroneous interpretation of Article 3.2 of the DSU that does not reflect the text of that provision;

(3) a reliance on reports that do not support a “cogent reasons” approach;

(4) a misunderstanding (or misstatement) of why parties cite prior reports;

(5) inappropriate and incomplete analogies to other international adjudicative fora; and

(6) incorrect assumptions concerning the existence of a hierarchical structure that does not reflect the limited task assigned to the Appellate Body in the DSU.

I was curious about the origins of the "cogent reasons" approach in the US – Stainless Steel (Mexico) case, so with the help of current Cato intern Francisco Campos, I put together this timeline (some original footnotes are included, some are not). Let me know if we have missed anything important.

The issue of the precedential value of Appellate Body reports was a crucial one before the panel, so let's start with the discussion there. In the executive summary of its first written submission (Annex A-1, p. A-3), Mexico stated:

7. Mexico argues that there is an expectation that panels will respect prior Appellate Body rulings on the same issues, which is derived from Article 3.2 of the DSU which expressly requires panels to promote the systemic values of "security and predictability" in "the multilateral trading system". Mexico points to the Panel decision in US – Zeroing (EC), recognizing this expectation, in which it is stated that "although previous Appellate Body decisions are not strictly speaking binding on panels, there clearly is a legitimate expectation that panels will follow such decisions in subsequent cases raising issues that the Appellate Body has expressly addressed". Mexico notes that the Appellate Body has further supported this principle in, among other cases, US – Oil Country Tubular Goods Sunset Reviews, wherein the Appellate Body stated that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".

In its first written submission, the United States argued the following on this point in response:

5. …the Appellate Body has adopted an interpretation of the AD Agreement that includes a general prohibition of zeroing. … Mexico’s claims in this dispute rely entirely on that conclusion in these Appellate Body reports. The United States respectfully disagrees with the reasoning in these Appellate Body reports… Accordingly, the United States requests that this Panel refrain from adopting Mexico’s interpretation.

…

23. Article 11 of the DSU requires panels to make an objective assessment of the matter before it, including an objective assessment of the facts and the applicability of and conformity with the relevant covered agreements. The Appellate Body has explained that the matter includes both the facts of the case (and the specific measures at issue in particular) and the legal claims raised.²⁷ [footnote omitted] Articles 3.2 and 19.2 of the DSU contain the fundamental principle that the findings and recommendations of a panel or the Appellate Body, and the recommendations and rulings of the DSB, cannot add to or diminish the rights and obligations provided in the covered agreements.

24. …While prior adopted panel and Appellate Body reports create legitimate expectations among WTO Members²⁹ [citing Japan – Alcohol Taxes (AB), par. 14], the Panel in this dispute is not bound to follow the reasoning set forth in any Appellate Body report. …

25. …The appellate Body itself has stated that its reports are not binding on panels³⁰ [citing US – Softwood Lumber Dumping (AB), para. 111]….

…

28. Additionally, Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization confers the authority to adopt interpretations of the covered agreements exclusively upon the Ministerial Conference and the General Council.³⁵ [citing Japan – Alcohol Taxes (AB), p. 13]. Therefore, while the dispute settlement system serves to resolve a particular dispute, and to clarify agreement provisions in the context of doing so, neither panels nor the Appellate Body can adopt authoritative interpretations that are binding with respect to another dispute.

In its third party submission, the European Communities then offered the following thoughts, including the first reference I see to "cogent reasons":

IV. PRECEDENTIAL VALUE OF THESE APPELLATE BODY FINDINGS

A. Introduction

99. The European Communities notes that in their submissions before WTO panels and the Appellate Body parties often cite Appellate Body reports in support of their arguments. In its first written submission in this case Mexico makes abundant reference to previous panel and Appellate Body reports regarding zeroing. In addition, it must be noted that the Appellate Body itself regularly cites its own previous decisions in support of its findings and conclusions. The reports discussed under heading III are no exception: in its findings on the issues raised, the Appellate Body frequently invokes earlier decisions.

100. This may seem slightly perplexing as the conventional wisdom is that there is no stare decisis in the WTO dispute settlement system, and that panel and Appellate Body reports are considered binding only on the parties to the dispute in question.

...

104. … all legal systems have in common a serious interest in the continuity of their jurisprudence. Whether as a matter of doctrine or practice, a high value is placed on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Secondly, decisions rendered by the hierarchical superior court or tribunal are, in all legal systems, followed by subsidiary courts or tribunals. …

…

122.Formal rejection of the doctrine of stare decisis should not be confused with the interest that all legal systems have in maintaining continuity in jurisprudence.

123. Whether as a matter of doctrine or practice, all legal systems place a high value on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Departures from previous decisions are carefully considered and require the identification of cogent reasons for doing so.

124. In cases where courts, in particular those dealing with international law, are not formally bound by their previous decisions, they will nevertheless consider themselves bound by the (international) law as authoritatively expressed in a decision.

…

142. It must be remembered too that in most two-tier dispute settlement systems, lower courts and higher courts have different tasks. At a risk of oversimplification: the tasks of a lower court or tribunal is usually centred around fact-finding and dealing with the merits of the cases, whereas higher bodies have often much narrower tasks, centred around settling issues of law.

143. Further, a statement that a decision of a hierarchically higher body is binding on a lower body, will normally be confined to the legal principles involved, the ratio decidendi. Still, the ratio decidendi cannot be distinguished merely because the facts to which it is applied are different.

144. This is not to say that in dealing with the merits of a particular dispute or case, there would be no scope whatsoever for lower bodies to develop the jurisprudence. However, in keeping with the universally recognised principles set out above, departures from decisions taken by higher courts on issues of law must be carefully considered. There must be cogent reasons for a lower court or tribunal to depart from the legal positions taken by hierarchically superior courts. If the lower court or tribunal deviates from what the higher court has considered as the correct legal position its decision runs the risk of being struck down. This will be especially the case when the higher court has, through a series of decisions, endeavoured to create a consistent body of jurisprudence on a particular issue. A lower body may express a reasoned disagreement on legal principles with the higher body, but this will ultimately be for the consideration of the higher body.

…

163. The Appellate Body's rulings must, in the view of the European Communities, be regarded as commanding particular authority for panels. This is despite the fact that there is no formal doctrine of stare decisis in the WTO dispute settlement system, and notwithstanding the fact that, according to the Article 17.14 DSU, (adopted) Appellate Body reports only bind parties to the dispute at issue.

…

169. In line with what has been set out above, the European Communities acknowledges that there can be no absolute bar for panels to depart from Appellate Body decisions. However, such departures must be carefully thought through and must be based on cogent reasons. Nonetheless, the need for security and predictability does mean, in the European Communities' submission, that should a panel wish to depart from previous rulings this should be carefully considered and based on (cogent) reasons. This is especially the case when the rulings and recommendations are contained in reports which have been adopted by the DSB.

...

173. In the interest of ensuring security and predictability to the multilateral trading system, this Panel should follow the reasoning and findings contained in these Appellate Body reports.

174. Should this Panel wish to depart from previous Appellate Body findings, the European Communities submits that this should be carefully considered. The Panel would have to identify cogent reasons for why it proposes to take a different direction.

Thus, it looks like it was the European Communities (now the European Union) who introduced the notion of "cogent reasons" into the discussion of the role of past cases as precedent.

In its opening statement at the first panel meeting, the United States offered the following thoughts, and in doing so used the term "cogent reasons," noting that it had "provided cogent reasons why the findings and reasoning" in the cited cases were "seriously flawed":

4. …the Appellate Body itself has stated that its reports are not binding on panels. Prior panel and Appellate Body reports should be taken into account only to the extent that the reasoning contained in them is persuasive. In our first written submissions, we have provided cogent reasons why the findings and reasoning of the Appellate Body in US – Zeroing (Japan) and US – Zeroing (EC) are seriously flawed...

5. The security and predictability referred to in Article 3.2 is provided by a dispute settlement system that does not add to or diminish the rights and obligations of WTO Members. … In other words, a panel is not permitted to follow a prior panel or Appellate Body report in the name of “security and predictability” where that prior report has “added to or diminished rights and obligations.”

With all this in mind, the Panel then decided not to follow the Appellate Body's reasoning on the point in question:

7.102 We recall that we are not, strictly speaking, bound by previous Appellate Body or panel decisions that have addressed the same issue, i.e. simple zeroing in periodic reviews, which is before us in these proceedings. There is no provision in the DSU that requires WTO panels to follow the findings of previous panels or the Appellate Body on the same issues brought before them. In principle, a panel or Appellate Body decision only binds the parties to the relevant dispute. Certain provisions of the DSU, in our view, support this proposition. According to Article 19.2 of the DSU, for example, "[i]n accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements". In the same vein, Article 3.2 of the DSU provides that "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements".

7.103 We also note, however, the Appellate Body's pronouncement, in Japan – Alcoholic Beverages II , regarding the impact of adopted panel reports for future panels dealing with similar issues. The Appellate Body opined:

"Adopted panel reports are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute. In short, their character and their legal status have not been changed by the coming into force of the WTO Agreement."[footnote omitted, emphasis in original]

7.104 The above excerpt indicates that, although adopted panel reports only bind the parties to the dispute that they concern, the Appellate Body expects future panels to take them into account to the extent that the issues before them are similar to those addressed by previous panels. In US – Shrimp (Article 21.5 – Malaysia), the Appellate Body reiterated its findings in Japan – Alcoholic Beverages II and held that the same analysis applies to adopted Appellate Body reports.⁷⁸ [footnote omitted] The Appellate Body clearly stated that the panel in the implementation proceedings under Article 21.5 of the DSU in US – Shrimp (Article 21.5 – Malaysia) did not err in following the interpretative guidance provided by the Appellate Body in the original proceedings. To the contrary, the Appellate Body expected the panel to do so. More recently in US – Oil Country Tubular Goods Sunset Reviews, the Appellate Body opined that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".⁸⁰ [footnote omitted]

7.105 This indicates that even though the DSU does not require WTO panels to follow adopted panel or Appellate Body reports, the Appellate Body de facto expects them to do so to the extent that the legal issues addressed are similar. …

7.106 After a careful consideration of the matters discussed above, we have decided that we have no option but to respectfully disagree with the line of reasoning developed by the Appellate Body regarding the WTO-consistency of simple zeroing in periodic reviews. …

On appeal, Mexico argued that the Panel erred by the not following the Appellate Body's reasoning:

19. Finally, Mexico argues that the Panel acted inconsistently with Article 11 of the DSU by refusing to follow Appellate Body reports adopted by the DSB that address identical issues with respect to the same party—the United States. More specifically, Mexico asserts that, by making findings and reaching conclusions that are "identical" to those that have already been rejected or reversed by previous Appellate Body reports adopted by the DSB, the Panel has failed to comply with its duty under Article 11 of the DSU to assist the DSB in discharging its responsibilities under the DSU

In response, the United States argued the following in its appellee's submission:

10. If the new “zeroing” prohibition identified by the Appellate Body has no basis in the text of Article VI or the AD Agreement, and if it was never agreed to by the WTO Members in the Uruguay Round, it raises fundamental and deeply troubling questions about the Appellate Body’s role within the WTO system and the source of its authority to impose new non-textual obligations on WTO Members. Equally disturbing is the Appellate Body’s apparent refusal to address in any meaningful way the questions that have been raised regarding the various rationales it has put forward as a justification for its prohibition on zeroing. If these concerns cannot be satisfactorily resolved, they put the credibility of the WTO dispute settlement system at risk.

11. The United States fully recognizes that the reversal by any judicial body of an earlier ruling is a serious matter, and that it is not something to be done lightly. However, even in common law systems, where the doctrine of stare decisis applies, rulings can be overturned in exceptional circumstances.⁹ The United States firmly believes that this dispute presents such a circumstance.”

[Note 9: Stare decisis, of course, does not apply in WTO dispute settlement proceedings. Japan – Alcohol (AB), p. 14 (rejecting the application of “aim and effect” test adopted by earlier GATT 1947 panel to Article III of GATT 1994). Accordingly, there is even more flexibility to depart from an earlier finding if the Appellate Body concludes that a mistake was made. In contrast, Mexico’s proposed approach, which would treat DSB rulings as fully binding and definitive, even in a situation where experts have openly and cogently disagreed, would only undermine the legitimacy of the system and this Body’s credibility.]

…

132. Mexico accepts that Appellate Body reports are not binding, but then converts an “expectation” into a requirement for panels such that a failure to meet this expectation becomes a breach by the panel of its duties Article 11 of the DSU. Furthermore, Mexico’s approach is that a panel is required to follow findings in different disputes even where the panel considers that those findings would not be in conformity with the agreed text of a covered agreement. Accordingly, Mexico would have this non-textual “expectation” override the explicit requirement in the DSU that panel and Appellate Body reports can neither add to nor diminish Members’ rights and obligations under the covered agreements.

And in its third participant written submission, the European Communities argued as follows:

30. The single most important issue in relation to the subject-matter of precedent that arises from the Panel’s report is the question of the extent to which panels are obliged to follow rulings of the Appellate Body on questions of law and legal interpretations.

…

37. The central questions that now lie before the Appellate Body are: whether it can be said that there is in the DSU a hierarchy between the Appellate Body and panels and whether panels are obliged to follow Appellate Body rulings on questions of law.

…

43. The EC has no doubt that if this Panel’s views would be accepted, the WTO dispute settlement system would be seriously impaired, and perhaps even eventually more or less grind to a halt for all practical purposes. The Panel's position amounts to an open invitation to parties to re-litigate every single legal issue arising in a particular dispute. The US appears to believe that Panels would be forced to examine the Appellate Body’s jurisprudence on every possible legal question afresh and would, moreover, be obliged to justify their decision (i.e., whether to follow or not) in each case in relation to each legal issue.

…

50. A further question that arises in relation to this particular Panel proceeding is on what grounds a panel may express its disagreement with a particular ruling of the Appellate Body on a legal question. As explained by the EC in its submissions before the Panel, a rule whereby panels follow the Appellate Body on legal questions does not prevent an adjudicatory system from developing its case law and departing from earlier decisions in cases where there are cogent reasons for doing so³⁷ [citing EC third party written submission, paras 141 to 144].

51. However, the need for such departures must be thoroughly justified. Departures cannot be founded on a mere doubt about the correctness of a previous decision. Nor could they be justified on the sole basis of a disagreement by the hierarchically lower body with the reasoning of the hierarchically higher body.

52. In the present case the Panel has not demonstrated any cogent reasons for departing from the Appellate Body’s settled jurisprudence in relation to the legal issues and legal interpretations relating to the practice of zeroing. On the contrary, all the Panel has done is re-iterated the reasoning which the Appellate Body has examined and rejected, in many cases.

53. The Panel has not even engaged in an exercise of trying to 'distinguish' this case from earlier rulings of the Appellate Body. The EC acknowledges though that this would have been a futile exercise because there is no doubt that the legal questions that this Panel had to deal with are the same as those before the Appellate Body in other zeroing cases.

54. In addition, if the Panel’s views were to be accepted, the Appellate Body itself would have to reverse its earlier rulings on the legal issues and legal interpretations relating to the zeroing practice at issue in this case. The personal opinions held by particular panelists do not amount to cogent reasons for the Appellate Body to reverse the existing jurisprudence.

Here, the European Communities emphasizes again the role of "cogent reasons" in determining whether the Appellate Body's reasoning in past cases should be followed.

And finally, of course, the Appellate Body went with the "cogent reasons" standard in its conclusions on this issue:

160. Dispute settlement practice demonstrates that WTO Members attach significance to reasoning provided in previous panel and Appellate Body reports. Adopted panel and Appellate Body reports are often cited by parties in support of legal arguments in dispute settlement proceedings, and are relied upon by panels and the Appellate Body in subsequent disputes. In addition, when enacting or modifying laws and national regulations pertaining to international trade matters, WTO Members take into account the legal interpretation of the covered agreements developed in adopted panel and Appellate Body reports. Thus, the legal interpretation embodied in adopted panel and Appellate Body reports becomes part and parcel of the acquis of the WTO dispute settlement system. Ensuring "security and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.³¹³ [footnote omitted]

Where does all this leave us? In one sense, it leaves us in a messy situation, with the United States objecting to the "cogent reasons" standard but leaving it unclear what exactly it wants instead (unclear to me, anyway -- would it accept the proposed language set out here?). But in another sense, it leaves us with an opportunity now for governments to clarify what they think the role of precedent should be. Now that everyone has had many years of experience with the "cogent reasons" standard, what do they think of it? Does it need some adjustments, or does it work pretty well as is?

NAFTA vs. USMCA vs. Something Else

Here is a comment from Ambassador Lighthizer in response to a question from Congressman Panetta at last week's House Ways and Means Committee hearing (starts at 3:23:09), on the choice between NAFTA or USMCA:

I think we have clearly made an enormous, probably enormous, improvement in this bill, and I just, every time I talk to I know you and others, I always think to myself at some point you’re gonna have to decide whether there’s this horrible agreement that you think is so bad that you’ve campaigned against it since you were in high school, although I wasn’t in high school, you were in high school, and/or this improvement. I keep saying to myself, you know, you can at some point, you gotta say okay fine we’re just gonna get rid of the uncertainty we’re gonna just vote for the improvement and not say, “ah, but we could even make it better and better and better,” so that’s a little bit of venting and frustration on your time.

Lighthizer's answer here suggests that members of Congress face a choice between the original NAFTA and the USMCA. But it seems to me that Congressional Democrats might see a third option: A revised NAFTA negotiated by a future Democratic president. I would imagine that once the Democrats get settled on a presidential nominee, they will be pretty fired up and expecting to win the 2020 election. With that in mind, would they prefer to vote for a trade deal negotiated by Trump, a vote they will have to defend for the rest of their careers? Or would they rather put all of this on hold until after the election, after which the Democratic president can negotiate a deal that is more to their liking?

China NME case suspended

Since no one else has raised it yet on this blog, I'll note that the WTO Panel hearing China's case against the EU regarding the use of a non-market economy methodology in anti-dumping cases suspended its work on 14 June (DS516/13). Such suspensions come at the request of the complainant, and the proceeding must be reactivated within a year or the panel's authority will lapse.

Despite confidentiality obligations, press reports cite "trade officials" for the proposition that China decided to seek suspension because the results of the interim report were highly unfavorable to China. 

It would be interesting to know more about China's motivations, and how it will now proceed. Is this suspension temporary, or will China allow the panel's authority to lapse? Will China continue to litigate this issue in the WTO - either with a new case against the EU's replacement legal regime on market distortions, or a challenge to the NME methodology of another Member - or will they treat this matter as one for bilateral resolution?  If they choose to revive this proceeding, will they do so before the (seemingly likely) paralysis of the Appellate Body? 

It would also be interesting to know the EU's position on the suspension. The notice of suspension states that "[t]he [EU] commented on China's request, asking the Panel to take a number of considerations into account when deciding whether to grant China's request."  This is remarkably uninformative, and while the EU's substantive submissions in DS516 are available on the EU Commission website, procedural submissions such as its comments on China's suspension request are not.  

 

Congress Asks Lighthizer About the Sunset Clause

I have been suggesting that Congress should clarify its role in the decision required under the USMCA's sunset clause on whether to extend the agreement, and Congressman Steven Horsford came through for me at yesterday's House Ways and Means Committee hearing (starts at 3:37:50). Here's what he asked:

Rep. Horsford: “… And finally, I’m concerned about the sunset clause and the fact that it has some automatic renewal provisions that could go around Congressional authority and approval.”

I understood this to mean that Congressman Horsford was interested in the role Congress would play in the USMCA extension decision. But Lighthizer's answer seems to take the question in a different direction:

Amb. Lighthizer: “… And then on the issue of sunset, I guess I didn’t quite understand the point. We have a sunset provision in here. Most trade agreements, for reasons that don’t make any sense to me, are eternal and this one is temporal, although it’s complicated how it works. So, if there is any usurpation of Congressional prerogatives in trade agreements, it would be, I would suggest, in all the others and less in this one.”

Horsford tried to clarify by adding this:

Rep. Horsford: “So if I could Mr. Chairman, just to clarify, you will come back for approval with any sunset clause. It doesn’t take the Congressional oversight accountability or approval process."

Lighthizer's further response seems to insist they are on the same page:

Amb. Lighthizer: “There’ll be no coming back – that’s how trade agreements work. It’s kind of a crazy thing, but they kind of become, that they’re just eternal. We just pass these things and then they go on forever and ever and ever. What this one does is it has a process, which as you know, that every six years you’ll have a review and see if whether or not this is something you want to extend, and if it isn’t then it will expire in a certain period of time after. But this is, I would suggest, that this is like an extremely important idea, exactly consistent with where you’re coming from. And it’s an innovative way to do exactly what you want to do. And I want to sit and talk to you about it because I think this is right in your sweet spot."

But I'm really not sure they are talking about the same thing. Lighthizer is focused on the sunset clause's requirement of an affirmative decision to extend the agreement, which he sees as a positive; Horsford is thinking about the role of Congress in this decision.

I'll close by repeating what I've said before: "[W]hich U.S. government branch gets to decide on whether the agreement should be extended as part of this review? What is the role of Congress here? Congress has ceded a lot of power to the President on trade over the years, and if it allows this provision to stay in, it better make sure that it has a full say on whether to confirm that the United States wishes to extend the new NAFTA deal as part of the review." I hope Congressman Horsford and others keep pressing Lighthizer on this behind the scenes, and use the USMCA implementing legislation to give Congress a say in the decision on whether to extend (one approach would be that the decision will be in favor of extension unless both Congress and the President agree not to extend).

USTR Lighthizer Comments on NAFTA/USMCA State-State DS Panel Blocking

This is from an exchange between Senator Carper and U.S. Trade Representative Lighthizer at a Senate Finance Committee hearing today (starts at 2:03:07):

Senator Carper: “My second question revolves around USMCA dispute settlement. The state-to-state dispute settlement system in the new NAFTA continues to allow for panel blocking – as I understand it, the main reason a dispute settlement panel hasn’t been established, since maybe the early 2000s. The Trans-Pacific Partnership made changes, I believe, to fix panel blocking, but these improvements were not included in the new NAFTA. From the Statement of Administrative Action the administration sent to Congress, it appears that the White House plans to use Section 301 tariffs to unilaterally enforce USMCA provisions when a dispute occurs. I would just ask if you could explain to us briefly why using Section 301, which will very likely invite retaliation from Canada and Mexico is preferable to a binding dispute system that does not allow panel blocking?”

Amb. Lighthizer: “Well, thank you Senator. First of all, I would point out the obvious, and that is that panel blocking is permitted under the current NAFTA as well as under USMCA. So anyone objectively looking at distinguishing between the two and deciding to vote against the second because of -- there’s an improvement in the first -- couldn’t find that. So, what we did is we kept the current provision. Now, why did we keep… Let me say first of all you’re right that there hasn’t been any in a while, in this context. The reason for that is that people have tended to go to the WTO to enforce those rights and there’s been a number of WTO cases. So second, why did we not make that change? Our view is that we can enforce our laws in the rare circumstance where there was a blockage by using our unilateral law and the 301. 301 says you should go the international organization or the agreement for enforcement if there is a violation of a trade agreement, or the WTO in this case. If the other side blocks, the position you would take is that thus you’ve exhausted your remedies and therefore you could legally use 301. So that’s, like, the nature of it.

And why did we do that? Number one, we think it will be very rarely used. But in a situation where, for example, someone challenged the trade laws of the United States and made some argument about that, about the viability of the trade laws, you want to be in a position where you can preserve your rights. But this is something I am perfectly happy to work with members on and see where members draw their line. It was clearly a U.S. ask, it wasn’t an ask from the other side. The other side since they had signed up for TPP, presumably they would be happy to go along with it.”

This is the longest statement I've heard from Lighthizer on the issue of NAFTA/USMCA panel blocking. It provides some interesting details that help clarify USTR's position:

- Lighthizer acknowledges that panel blocking is permitted under USMCA. (Previously he said this: "The text of Chapter 31 of the United States – Mexico – Canada Agreement (USMCA) is not meant to allow panel blocking.")

- Lighthizer wants to maintain panel blocking in case U.S. "trade laws" are challenged. What kind of trade laws does he have in mind? Trade remedies? There aren't many USMCA rules that would apply here. (Is he thinking about NAFTA Chapter 19/USMCA Chapter 10 here? No panels have been blocked in that context as far as I know). Section 232 actions? These are obvious violations, but the security exception would apply. I hope someone follows up with him about what particular challenges he is worried about.

- Maintaining the ability to block panels was a "U.S. ask." (We know that already -- see p. 3 here, where Mexico's lead negotiator explains that Mexico made proposals to fix the NAFTA flaws.)

- Lighthizer is willing to talk to Congress about adjusting this.

My suggestion for members of Congress who want to make sure USMCA is enforceable -- for trade, labor, or other obligations -- is to go to Lighthizer and demand that the USMCA dispute settlement provisions be fixed, so that panel blocking is no longer allowed. Inu and I made suggestions in this regard in response to a different Congressional hearing that took place recently: https://object.cato.org/sites/cato.org/files/pubs/pdf/lester-manak-public-letter-june-4-2019.pdf.

ADDED: This issue came up again at a House Ways and Means Committee hearing the next day (starts at 2:46:30):

Rep. Boyle: “So that’s a perfect segue into a conversation on enforcement, because when I was first elected to the state legislature over a decade ago, I thought I had an agreement with someone and a wise, 30-year veteran let me know there's a difference between a promise and an agreement, and that difference is the extent to which it can be enforced. So specifically on enforcement, could you explain why the administration seems to still be skeptical about having a binding dispute settlement mechanism?”

Amb. Lighthizer: “So I would say first of all I want to just say what I said many times, just very briefly: I want to work this out, I want to do it quickly, I think I can do it in an afternoon with the group that the speaker has identified. So, we believe the thing has to be enforceable for sure, so what you’re talking about is panel blocking. All right, so the question is: do you want to have the right in a rare circumstance where someone challenges something of particular importance to you, not on a regular basis, but it’s particularly important to you, do you want to have the right to block that panel if you have another way to still enforce your own rights. That’s where we were trying to find that balance. So the question is: what’s the risk that, for example, you’re going to have a problem with a challenge to the trade laws. We have a challenge of the trade laws under the WTO. The trade laws are fundamental to all these workers that we’re all talking about getting laws against unfair trade and the question is do you… that’s the balance that I’m trying to strike here, but I want to work it out with the members. I want members to be happy. If members say, “no, I don’t care about that balance,” then I’ll consider that."

With regard to "panel blocking," the term means just what it sounds like it does: The party complained against can block a panel from being appointed, and therefore any enforcement action is stopped. Lighthizer keeps making reference to "the trade laws," probably meaning AD/CVD or similar laws, which are sensitive issues for the administration. For Mexico, labor might be a sensitive issue; for Canada, agriculture might be sensitive. For members of Congress looking for the proper balance here, the question is whether they want to make certain that these sensitive areas are enforceable against Canada and Mexico. I don't know for sure whether Canada or Mexico would block a panel. But the United States blocked a NAFTA panel in the past, and with Lighthizer indicating that it might do so again for "the trade laws," it wouldn't be too shocking if Canada and Mexico did so as well. The bottom line is that if members of Congress want certainty that USMCA obligations can be enforced against Canada and Mexico, they should push for changes to the USMCA so that panel blocking does not take place.

Call for Proposals: International Economic Law And Security Interests Conference

From the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law:

Call for Proposals – International Economic Law and Security Interests – ACIL-ESIL Amsterdam Conference

On 14-15 November 2019, the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law will host at the University of Amsterdam a Conference on International Economic Law and Security Interests. Besides a roundtable on adjudicating the security exception, the Conference will deal with the main areas of the topic over three axes: International Law and Security, including the history and interpretation of the security exception; Security Interests and International Economic Law, addressing the relationship between security interests and the legal regimes governing trade and investment; and Emerging Security Issues, to discuss issues such as cybersecurity, food security and energy security.

Proposals addressing issues falling within the scope of the Conference’s theme, including abstracts of no more than 500 words and the speaker’s details, or inquiries regarding the conference, should be sent to acil-fdr@uva.nl. The deadline for the submission of proposals is 31 July 2019. The organizers consider publishing papers presented at the conference either as a special issue in a leading journal or as an edited volume published by a leading academic publisher. In the selection of proposals, preference will be given to speakers interested in producing a paper.

India, safeguards and developing Member status

These days, when issues of justiciability or unilateralism arise, the security exception in Article XXI of GATT 1994 comes immediately to mind. However, these issues can arise in very different contexts, such as safeguards.

The Agreement on Safeguards exempts small suppliers of a product from developing Members from safeguard measures, but as throughout the WTO system it does not define developing Member. Most developing countries consider that developing status is based upon self-selection, and is thus not subject to dispute settlement, but this view certainly is not shared by the United States.  

When the United States imposed safeguard measures on solar cells in January 2018, it exempted India as a small developing supplier. In May of this year, however, President Trump suspended India's status as a GSP beneficiary, on the grounds that India does not provide US exporters with fair access to its markets. In the same proclamation, the United States removed India from the list of developing Members benefiting from the small supplier exemption in respect to the solar cells safeguard (and to another safeguard measure on large residential washers).

It appears from the Proclamation that the United States now conflates GSP beneficiary status with developing Member status, and considers that India is no longer a developing country.  Should India disagree, it could challenge the US decision in dispute settlement, and we would then learn whether the WTO DS system is prepared to rule whether or not a Member is a developing country.  

From the US perspective, India might not be the ideal candidate for a test case.  While the developing country status of Singapore, Korea or China may be debatable, India's GDP per capita is only slightly above $2000. That is by far the lowest among G20 countries, and is one thirtieth that of the United States and one fifth that of China.

 

      

Joe Biden on Tariffs and Trump's Trade Strategy

This is from a speech today by Democratic presidential candidate Joe Biden:

America's farmers have been crushed by his tariff war with China.

 

No one knows that better than Iowa.

 

He thinks he's being tough.

 

Well, it's easy to be tough when someone else is feeling the pain.

 

How many farmers across this state and across this nation have had to face the prospect of losing their business, of losing their farm because of Trump's tariffs?

 

How many have had to stare at the ceiling at night wondering how they're going to make it?

 

How many sleepless nights do you think Trump has had over what he's doing to America's farmers?

 

Here's the answer: Just as many as he had when he stiffed the construction workers and electricians and plumbers who built his hotels and casinos. Zero.

 

And how about manufacturing? Trump's tariffs and trade wars are hitting a lot of American manufacturing -- especially the American automobile industry -- Choking it to within an inch of its life.

 

One of my proudest moments in the White House was when President Obama and I led the rescue of the American auto industry.

 

We knew what it meant to the millions of jobs in the auto companies and the supply chain.

 

We also knew what it meant to the pride of the nation.

 

Now I'm watching Trump destroy the industry President Obama and I helped save.

 

Do you think he just backed off his tariff threat with Mexico because he got some tough new deal? Maybe there's some secret development yet to be revealed — But based on what we know, it seems more like old wine in new bottles.

 

And the truth is he's scared -- his economic folks told him his tough talk was about to cost to him Michigan and Ohio and Iowa.

 

But don't kid yourself -- another bad news story -- and he'll be back with tariffs to change the subject. And the people who will get hurt are just pawns in his game.

 

Trump doesn't get the basics.

 

He thinks his tariffs are being paid by China. Any beginning econ student at Iowa or Iowa State could tell you that the American people are paying his tariffs. The cashiers at Target see what's going on -- they know more about economics than Trump.

 

And let me take one additional moment to talk about this — because it's important, and I don't want anyone to misunderstand what I mean.

 

We are in a competition with China.

 

We need to get tough with China.

 

They are a serious challenge to us, and in some areas a real threat.

 

And every single step that Donald Trump is taking is only exacerbating the challenge.

 

While Trump is tweeting, China is making massive investments in technologies of the future.

 

While Trump is name-calling, China is building roads, bridges, and high-speed rail.

 

While Trump is pursuing a damaging and erratic trade war, without any real strategy, China is positioning itself to lead the world in renewable energy.

 

While Trump is attacking our friends, China is pressing its advantage all over the world.

 

So you bet I'm worried about China — if we keep following Trump's path.

 

...

 

So when it comes to taking on China, First, let's invest in ourselves — that's why I've proposed a historic initiative in scientific research, cutting-edge infrastructure, and a modern workforce that will help American workers and entrepreneurs compete and win.

 

Second, let's build a united front of allies to challenge China's abusive behavior. Trump is attacking the very partners we need with us to deal with China. We need to rally more than half the world's economy to hold China to account for their cheating. And get a chorus of voices speaking out on China's repression.

 

Third, let's tighten up our defenses so that American companies don't have to keep giving away technology to China, or having it stolen. In the Obama-Biden administration, we got China to curb its cyber-theft -- it's gotten worse under Trump.

 

Finally, let's find areas to cooperate where it's in our interest. We got the Chinese to agree for the first time to limit their carbon pollution. There's a lot more we can do on climate change, and nuclear weapons, and other issues where our interests converge.

 

But time and time again, on issue after issue, Trump makes the wrong choices. He is motivated by the wrong thing.

I didn't hear it delivered live, but this seems like a passionate rant. But as I asked with the post about Pete Buttigieg, what exactly would Biden's trade policy look like? Would it be the TPP/TTIP again, or has he learned some lessons from those battles and has some adjustments to make?

Pete Buttigieg on Tariffs and Trump's Trade Strategy

This is from Democratic presidential candidate Pete Buttigieg at a recent town hall event:

The San Joaquin Valley helps feed not just America, but the world. The products that are grown here are world-class and yet what we’re finding is because of a short-sighted, I can’t even call it a strategy, I can’t even call it a policy, it’s a pattern, it’s a pattern of poking people in the eye to see what will happen. But when you don’t have — look — I completely get the idea if China is doing something unfair, I get the idea of standing up to them. If there are trade deals that are not benefitting us enough, I get the idea of adjusting them to make sure that it’s fairer trade, but that’s not what we’re seeing right now. What we’re seeing right now is basically politically motivated gamesmanship and it’s coming down on your back.

It’s hurting farmers. It’s hurting workers. It’s hurting consumers. I wonder how many consumers are aware that that the projection is we all on average will pay 800 bucks more a year starting now because of these tariffs, and by the way, a tariff is a tax, so if you ever believe the Republicans don’t raise taxes, that’s what they’re doing right now.

The Democratic candidates are all lining up against Trump's trade policy, but what trade policy are they for? What exactly does it mean to Buttigieg to adjust trade deals to make sure trade is fairer?

Call for Submissions: Trade, Law and Development

This is from the Board of Editors at Trade, Law and Development:

The Board of Editors of Trade, Law and Development is pleased to invite original, unpublished manuscripts for publication in the Winter ’19 Issue of the Journal (Vol. 11, No. 2) in the form of Articles, Notes, Comments and Book Reviews.

Manuscripts received by September 30, 2019 pertaining to any area within the purview of international economic law will be received for publication in the Winter ’19 issue.

Manuscripts may be submitted via e-mail or ExpressO. For further information about the journal please click here. For submission guidelines, please click here.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com. See the full call for submissions here. 

Abraham Lincoln on the Tariff

Some of you may have come across this purported quote from Abraham Lincoln before:

"I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money."

According to economist and professor Frank Taussig, however, it's all just a myth. See his explanation of the origins of the myth here.

Guest Post: Linking international trade to climate action and sustainability

This is a guest post from Rafael Leal-Arcas of Queen Mary University of London:

London will celebrate in July 2019 the first-ever London climate action week:

https://www.e3g.org/news/media-room/mayor-confirms-london-climate-week-in-2019

Linking climate change to international trade has been a topic of academic debate in recent times. In that vein, I have just finished a new book that uses the international trading system as a possible solution to climate change and, ultimately, sustainability: SOLUTIONS FOR SUSTAINABILITY: HOW THE INTERNATIONAL TRADE, ENERGY, AND CLIMATE CHANGE REGIMES CAN HELP, Springer, 2019; ISBN: 978-3-030-23932-9.

Here is a summary of my latest book:

‘This book explores links and synergies between international trade and two of the most urgent challenges of the 21st century: achieving sustainable energy (i.e., energy that is affordable, secure, and clean) and mitigating climate change. It takes the unique approach of not only examining how international trade can help achieve energy and climate goals, but also the impact of emerging tools and technologies such as smart grids and demand response, and the potential role and impact of citizens and prosumers. The book analyzes energy- and trade-related regulations in a range of jurisdictions to assess how conducive the regulation is towards achieving sustainable energy, and identifies gaps and overlaps in the existing legal framework.’

For further details about my book, please visit: https://www.springer.com/gp/book/9783030239329#aboutBook

Should WTO Dispute Settlement Require The Appellate Body To Discuss All Appealed Issues?

I recently read something about the U.S. Judiciary Act of 1925 (the "Judges' Bill"). Here's an explanation:

The so-called Judges' Bill of 1925 fundamentally redefined the Supreme Court's role within the federal judiciary by repealing much of the mandatory jurisdiction of the Court. The act preserved an automatic right of appeal to the Supreme Court in a few types of cases, but in other areas cases would come to the Court only when the justices granted a writ of certiorari in response to a petition from a party in a case before a lower court. ... 

That made me wonder what everyone -- and by that I mean the United States, other WTO Members, and everyone else -- would think of limiting the right of appeal by giving the Appellate Body more discretion over what issues to hear. DSU Articles 17.12 and 17.13 say this:

12. The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.

13. The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel.

But what if these provisions said something like this instead: "The Appellate Body shall address as appropriate the issues raised in accordance with paragraph 6 during the appellate proceeding. In this regard, the Appellate Body may uphold the panel's legal findings and conclusions without further elaboration, or it may modify or reverse those legal findings and conclusions."

In a sense, this change would give the Appellate Body more power, because it could decide which issues to elaborate. But in another sense, it would be giving the Appellate Body the power to limit its own power, by reducing the number of issues it discusses. Importantly, this could lessen the Appellate Body's workload and make it easier to complete appeals within 90 days.

Industrial Policy as a Tool of U.S. Foreign Policy

This is from Jennifer Harris and Todd Tucker in Politico:

President Donald Trump’s threat to levy tariffs on Mexico has triggered a political war in Washington, and not the usual partisan kind. Some Republicans are girding to fight their own president, rightly finding it absurd that he would take out his frustrations over immigration by increasing the cost of trade. As Sen. James Lankford (R-Okla.) told Politico, the White House "is trying to use tariffs to solve every problem but HIV and climate change." Trump supporters like Sen. Marco Rubio (R-Fla.), meanwhile, don’t see many options. “[W]hat alternative do my GOP colleagues have,” he tweeted, “to get Mexico to secure its southern border… & act on intel we provide on human traffickers?”

Much as it pains their colleagues—and as hard as it is for Washington to process this—Trump and his backers have a real point. Not about his immigration policies, which are part of a harmful cultural war and stand a real chance of inflicting long-term damage on the American economy. But the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

For that, the blame lies with Democratic and Republican administrations alike, including Trump’s predecessor Barack Obama, who collectively have let US economic policy shrink in ambition—a battle fought on a narrower and narrower field, leaving us with so few weapons that tariffs have become the most useful last resort.

A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners. In that universe, Mexico’s own immigration enforcement might be part of a much wider package of goals negotiated between the two nations, one that creates strong incentives for Mexico to comply, without hurting American consumers and companies the way tariffs would.

This fuller agenda, which some experts call economic statecraft, has been the norm for much of the country’s history. But unlike America's competitors, the United States has largely shelved this kind of economic thinking. President Obama, for instance, pitched the Trans-Pacific Partnership (TPP) trade agreement as a way to ensure that America, rather than China, would write the rules of the global economy. But under the hood, it was never a very compelling economic argument for the United States: The rules that China negotiates in its own trade deals overlapped considerably with the American proposal, meaning that the TPP was more a matter of diplomatic gamesmanship than a real plan to advance workers here at home.

There are two aspects to their argument: domestic and international. As they put it: "A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners."

With regard to the domestic aspects, they argue for industrial policy rather than neoliberalism:

For the last few decades, policymakers have embraced neoliberalism, a broadly open-market political philosophy whose effects have been to redirect more power toward the economically powerful and marginalize the economic majority. Things may be changing. Leading academics, public intellectuals on both the right and the left, and even the IMF are calling for a return to a robust domestic industrial policy.

I have two reactions to this. First, I would say that, in fact, industrial policy may be more likely to "redirect more power toward the economically powerful and marginalizes the economic majority." Industrial policy means lots of subsidies for big business. Some of that will trickle down, of course, but just as agricultural producers like farm subsidies, manufacturers and other businesses like industrial policy. And second, from what I can tell, rather than some major shift taking place, arguments for free markets vs. industrial policy are about the same as they have always been. The perception on the left that free markets dominated the 1990s is way off base. Harris and Tucker talk about the "the heyday of the global free-market consensus," but I can assure you that, as someone in the free market camp, there was never a time when I thought, "Wow, we are really winning the policy debate!" It was an uphill struggle, and any victory was outweighed by two defeats. At one point, farm subsidies were supposedly being phased out, but they quickly and quietly came right back. And anyway, there have always been U.S. policies that can be classified as industrial policy (e.g., military spending). It might not be the precise industrial policy that some people want, but that's how things tend to go. The ingenious policy innovation you just came up with is not going to be implemented as you hoped. Interest groups of various sorts will get involved and turn it into something else.

But nobody is ever going to convince anyone to change his/her mind on the value of industrial policy as a domestic matter, and I want to focus here instead on the idea of "economic statecraft," or using "carrots and sticks for foreign partners," or to put it more bluntly "using American economic power to boss other countries around." To me, this seems like a strange thing for progressives to want, but I confess that I'm a little unclear on who the progressives are (and for that matter, who the neoliberals are).

First off, I think we could really use some empirical assessment of whether "economic statecraft" is effective in achieving its goals, in both the short- and long-terms. Maybe it does accomplish some things, like restricting asylum seekers from getting to the United States, in the short-term. On the other hand, in the long-term maybe it pushes the countries we are trying to influence into alliances with other countries. I'd like to see some studies of all this before we assume it is effective, as Harris and Tucker seem to.

Second, advocates of this approach to foreign policy need to take into account that they are not always going to be in power. For those on the left who want to use U.S. economic power to do "good things," keep in mind that the specific government action that triggered the Harris/Tucker article was Trump's use of tariffs to get Mexico to take actions to restrict migration. Harris and Tucker are careful to point out that Trump's immigration policies are part of a "harmful cultural war" and they certainly don't support that sort of thing. On the other hand, they do seem to support the general concept of using U.S. economic power to coerce our trading partners:

the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

The problem is, if you endorse the principle behind this sort of "economic statecraft," you kind of have to take some responsibility for whatever comes out of it. You can't just say, we want economic statecraft but only the good kind. Once the principle has been established, it can be used for anything, and you know that in advance. I recognize that Harris and Tucker want President Warren/Sanders/or somebody to have this power for some progressive thing, but that also means President Trump has the power for some non-progressive thing. Given the way such power will actually be used, it's worth considering whether it would be better if the U.S. government simply didn't exercise this power, or exercised it a lot less.

Finally, it is also worth pointing out that it may be possible to accomplish these things without bullying other countries at all. For example, if we wanted Mexico to be able to handle migrants from Central America better, which Mexico probably wants as well, we could spend some of our own money to help them. That's closer to being a carrot than a stick, although maybe it's not even a carrot, but rather just the right thing to do. By contrast, Harris and Tucker seem like they are just looking for big sticks. They refer to "fixing some of the big policy arguments [the United States] has with its trading partners," but that sounds like a euphemism for what I think they really mean, which is using U.S. power to coerce other countries into doing what we want.

That's not to say that nobody should ever try to influence anything that goes on in other countries. But when you are considering the possibility of doing so, it's worth thinking carefully about what would be effective and appropriate. Sometimes just setting a good example may be the best approach.

The EU's Interim Appeal Arbitration Proposal

Tom Miles provided a link the EU's Interim Appeal Arbitration proposal in the comments, and Steve referred to it in the last post. A searchable PDF version is here. Overall I think it is a good temporary solution and could work pretty well. Some noteworthy elements:

- "under the interim appeal arbitration procedure, appeals will be heard by former members of the Appellate Body, serving as arbitrators pursuant to Article 25 of the DSU. Three persons will serve on any one case. They will be selected by the Director-General from the pool of available former members of the Appellate Body."

- "The parties agree to abide by the arbitration award, which shall be final. Pursuant to Article 25.3 of the DSU, the award shall be notified to, but not adopted by, the DSB and to the Council or Committee of any relevant agreement."

- "The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat after the suspension of the panel proceedings referred to in paragraph 7 takes effect, and no later than 10 days after that date. The Notice of Appeal shall include the final panel report in the official languages of the WTO." 

- "Under the interim appeal arbitration procedure [WTO Member] and the European Union intend to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU including an appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat."

It will be interesting to see how other governments react to the proposal. Perhaps there will be some refinements as others weigh in. We may see a dual approach, where some parties agree not to appeal and other parties agree to use this Interim Appeal Arbitration procedure.