International Economic Law and Policy Blog

Welcome to the Club!: China Passed the Anti-Monopoly Law

China passed the landmark “Anti-Monopoly Law” on August 30, 2007 after more than a decade’s deliberation. (Landmark anti-monopoly law passed, China Daily/Xinhua; Investors fear over China monopolies law, Financial Times). The law reads “As well as anti-monopoly checks stipulated by this law, foreign mergers with, or acquisitions of, domestic companies or foreign capital investing in domestic companies' operations in other forms should go through national security checks according to relevant laws and regulations.” However, more details remain to emerge. It will be effective as of August 1, 2008.

Three interesting features stand out. First, the law authorizes the Chinese government to undo any foreign acquisition of domestic companies in the name of “national security reviews.” (Sounds familiar? Yes, the Dubai Port World’s aborted transaction…)  Second, to the Western world’s surprise, the law provides certain disciplines to China’s still prevalent state-owned enterprises in the name of “administrative monopolies.” Third, the law opens a way to restrict foreign enterprises’ IP rights when they abuse them to create monopolistic situations. (Think of the recent Microsoft case in Europe. Not surprisingly, this is the fear factor to foreign investors who suspect this might be a vehicle for protectionism).

Of course, China should do lots of preparation before its official effectuation next August, including enacting more detailed decrees and internal regulations to implement this framework statute. Furthermore, implementation itself will be a big challenge, and experiment, to China as well as to its trading partners and investors. One possibility is that the U.S. might use its recognition of China’s “market economy” status in the antidumping investigations as a leverage to push China’s orderly implementation of this law to the U.S. favor. After all, if China really wants to prove that its economy is run by a market mechanism, it should demonstrate its commitment to the competition disciplines embedded in the law. After all, the law seems to be a double-edged sword to China.

Another WTO "Sin" Dispute?

Why is it that so many of the good discrimination cases are about products like alcohol and cigarettes?  Here's another one that is in its early stages but might lead to a formal complaint at some point:

The [Indonesian] government has warned the United States Trade Representative against violating a WTO agreement if the U.S. decides to adopt a ban on the sale of clove cigarette.

...

"Our formal opinion stands clear. We have no issue with other kinds of flavors. However, there is no ground for exempting menthol from the ban. Such discrimination violates the agreement on sanitary and phytosanitary agreements under the WTO."

The bill, which is currently undergoing the legislation process in the U.S. Senate, would require the U.S. Food and Drug Administration to restrict tobacco advertising, regulate warning labels and remove hazardous ingredients.

It would also adopt a ban on clove-flavored cigarettes and other types of flavor including strawberry, grape, orange, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry or coffee, but exempted menthol from the list.

The measure banning flavored cigarettes is aimed to discourage children from smoking.

...

"I understand that the legislators are concerned about certain kind of flavors that may lure the underage to smoke. But clove is not one of them. Clove has been used for ages as a flavor in cigarettes," Indonesian Clove Cigarette Producers Association chairman Ismanu Soemiran told the Post on Wednesday.

The article mentions the SPS Agreement, but claims under the GATT are likely as well.  The proposed measure could raise all the usual issues that arise in these kinds of cases:

• Are clove-flavored cigarettes "like" menthol or other non-clove-flavored cigarettes?
• Do clove-flavored cigarettes make up a higher percentage of Indonesian cigarette production than they do of U.S. production, so that such a ban would have a disparate impact on Indonesian producers?
• Can such a measure, purportedly intended to discourage kids from smoking, satisfy the various aspects of the Article XX exception?
• And, of course, what exactly is the Article III non-discrimination standard, which seems to have fluctuated quite a bit over the years? 

Flexibility of the Yuan in exchange for the Removal of the NME status? A "win-win" Bargain between the US and China?

In a recent note, Gary Hufbauer envisages a possible bargain between the United States and China where in exchange of concessions by China about "currency practices and other issues, the United States could declare China a market economy." My impression is that this scenario could very well turn out to be realistic. Why? Because it seems to have the potential to be a "win-win" bargain for both the United States and China.

On one hand, since the renunciation by the US Department of Commerce of the 24-year-old Georgetown Steel doctrine relating to the non application of CVDs against imports from a Non Market Economy (NME), China seems now really concerned by the recent concurrent anti-dumping and anti-subsidy investigations launched by the United States against Chinese goods. The principal concern of China is that in the context of domestic subsidies, this could lead to a "double remedy." Since China is considered an NME  in antidumping investigations and now a market economy in CVD investigations, there is a possibility of "double counting." This is due to the fact that, in principle, the "surrogate" "subsidy-free" country method used in antidumping investigations for an NME, has the potential to already offset the effects of subsidization. A countervailing duty applied in this context could lead to "double taxation."

On the other hand, the United States is now in the uncomfortable legal situation where China is a market economy in CVD investigations but an NME in antidumping investigations! Although the United States has for concurrent antidumping and CVD investigations an offset clause for export subsidies, this solves the "double remedy" issue only in the context of export subsidies. In contrast, in the context of domestic subsidies, it is possible that Commerce and the Courts would consider that such an offset is not possible whithout express authorization by Congress. In such a case, it is possible that this situation would lead to a WTO challenge on different possible grounds.

In such a context are we going to see in the future a "win-win" larger bargain where flexibility of th Yuan is counterbalanced by the removal of NME status in antidumping investigations?

The China Currency Issue: One Solution

This seems like a sensible approach to me:

US and EU pressure on China to revalue the renminbi create the mistaken impression that there is an unavoidable conflict of interests. A switch by China to a more flexible exchange rate regime, accompanied by a shift to a new nominal anchor, would serve China’s domestic interests and simultaneously defuse protectionist sentiments abroad. A politically savvy recasting of this issue as one of Chinese monetary-policy independence could help solve many problems.

More details at the link.

TLAs

Many of us in the trade cognoscenti toss about acronyms with abandon.  It can be deeply frustrating to students and others.  But here comes a web-based solution:  http://www.acronymfinder.com/.  Give it a try.  My first try was SPS--not very successful.  TBT did a lot better.  Oh, and a "TLA"?  That's a "three-letter acronym."

Who are the International Judges?

Over at the Conglomerate, David Zaring identifies "which American arbitrators are most likely to handle ICSID disputes":

Charles Brower is our iron man, with 6 concluded and 6  pending arbitrations under his belt. He is an emeritus White & Case partner. Michael Reisman (Yale, 4 pending)), and Andreas Lowenfeld (NYU, 2 pending + 2 concluded), looked like our most commonly used professors, though Ronald Cass (BU), David Gantz (Arizona)  and David Caron (Berkeley) have also received work, as has Thomas Buergenthal (a professor/international judge), Benjamin Civiletti (a former AG), and Fred Fielding (the White House counsel).

Follow the links at his post for the full list, which is not limited to Americans.

For a WTO comparison, I'll note the following U.S. WTO panelists (just WTO, not GATT), taken from our subscription service:

    Davey, William (3)
    Echols, Marsha
    Hudec, Robert (2)
    Hufbauer, Gary
    Jackson, John
    Janow, Merit
    Lavorel, Warren
    Powell, Stephen

And, of course, Jim Bacchus and Merit Janow have served on many appeals as Appellate Body Members.

Unilateral Tariff Reduction

Writing in Foreign Policy (subscription required, I think), Moisés Naím says:

China, India, the former Soviet Union, and many other countries launched major reforms that deepened their integration into the world’s economy. In developing countries alone, import tariffs dropped from an average of around 30 percent in the 1980s to less than 10 percent today. Indeed, one of the surprises of the past 20 or so years is how much governments have lowered obstacles to trade—unilaterally. Between 1983 and 2003, 66 percent of tariff reductions in the world took place because governments decided it was in their own interests to lower their import duties, 25 percent as a result of agreements reached in multilateral trade negotiations, and 10 percent through regional trade agreements with neighboring countries.

Is it really the case that such a large percentage of tariff reduction was unilateral in nature?  66 percent sounds like an awfully high figure.  I wonder what portion of the unilateral part was due to countries like China and Russia changing their laws as part of the WTO accession process.

North American Union or North American Cooperation?

Should those concerned with sovereignty be worried about a powerful, sovereignty-impinging "North American Union," as some groups apparently are, emerging from the Security and Prosperity Partnership (SPP), which provides a framework for cooperation between Canada, Mexico and the U.S.? Over at Opinio Juris, Julian Ku is not too concerned.  After seeing the Regulatory Cooperation Framework that resulted from the latest SPP meeting, it does seem like we are a long way from any kind of supra-national government.  The objectives set out are pretty limited, with goals like:

• To strengthen regulatory cooperation, including at the outset of the regulatory process.
• To streamline regulations and regulatory processes.
• To encourage compatibility of regulations, promote the use or adoption of relevant international standards, as well as domestic voluntary consensus standards, in regulations, and eliminate redundant testing and certification requirements, consistent with our WTO obligations.

The details make it clear it's really about cooperation, with no hint of giving up national power.  Even for the most ardent defenders of sovereignty, it seems hard to get worked up about this kind of thing.

Introducing the Society of International Economic Law

August 17, 2007
Press Release

The Society of International Economic Law: Inaugural Conference, July 15-17, 2008

Members of the international economic law community have created a new organisation called the Society of International Economic Law (SIEL).

The organisation will foster co-ordination, collaboration and debate between International Economic Law (IEL) scholars and academically inclined practitioners/officials and national or regional IEL organisations around the world.  Additionally, it will seek to support and nurture the growth of research and teaching in the field of international economic law in parts of the world presently lacking those resources. The SIEL will be genuinely global in its reach and as inclusive as possible in terms of the expertise and interests of participants – broadly covering the many disciplines encompassed by IEL. Further information about the current SIEL organisational framework, including the composition of the Founding Committee and of the Founding Executive Council, can be found at SIEL’s website - http://www.sielnet.org/

The formal launch of the SIEL will be at an Inaugural Conference to be held July 15-17, 2008, at the Graduate Institute of International Studies in Geneva (l'Institut universitaire de hautes études internationales, HEI). Further details about the conference and call for papers will be available shortly at SIEL’s website.

For further information contact:

Andrew Lang and Colin Picker: Co-Chairs, Founding Committee SIEL
Galina Zukova, Co-Chair, SIEL Inaugural Conference Committee

Dr Andrew Lang
Law Department - London School of Economics
[email protected]

Colin B. Picker
University of Missouri - Kansas City School of Law
[email protected]

Galina Zukova
Riga Graduate School of Law
[email protected]

Chinese Imports and the U.S. Presidential Campaign

As a trade lawyer, it's exciting for me to see GATT Article XX invoked, implicitly anyway, in the U.S. Presidential campaign:

Presidential Candidate Chris Dodd called for suspending all imports of toys and food from China  ...

"This is an issue of safety," said Dodd. "Parents should be confident that the toys and food that they give their children have been inspected and are safe. That's why I am calling on the President to use his authority to immediately suspend all imports of toys and food from China. It's not enough to simply talk about working for fair trade agreements. We need leadership that will act to enforce fair trade. We have the legal right and power under the WTO to keep products out of our country that threaten the health and safety of our families, and I'm going to do all I can to ensure we do so."

Did someone on his campaign staff actually do a memo examining what WTO rules said about this?  Dodd is just a minor candidate, of course, so this may not go anywhere.  (Athough the other candidates have said things along the same lines.)  But with every new children's toy recall, the chances of something like this actually happening seem to grow.

WTO Law in Domestic Law: The Novartis Case

The status of WTO law in domestic law varies a bit from country to country, and is sometimes not very clear.  The recent Indian court decision in the Novartis case was interesting, as the court basically said that any consideration of consistency of Indian law with the TRIPS Agreement should be done in WTO dispute settlement, not in Indian courts. Here's a link to the decision: http://judis.nic.in/chennai/qrydisp.asp?tfnm=11121  The key portion seems to be this part:

the Constitutional validity of section 3(d) alone is in challenge, both on the ground  that it violates  not only Article 14 of the Constitution of India but also on the ground that it is not in compliance  to "TRIPS".

...

(a) Assuming that the amended section is in clear breach of Article 27 of "TRIPS" and thereby  suffers the wise of irrationality and arbitrariness violating Article 14 of the Constitution of India, could the courts in India have jurisdiction to test the validity of the amended section in the back drop of such alleged violation of "TRIPS"? 
     OR
Even if the amended section cannot be struck down by this court for the reasons stated  above, cannot this court grant a declaratory relief  that the  amended  section  is  not  in  compliance  of Article 27 of "TRIPS"?.

    
   (b)  If it is held that courts in India have jurisdiction  to  go into the  above  referred  to issue, then, is the amended section compatible  or non-compatible to Article 27 of "TRIPS"?

...

  8.  Even otherwise, we are of the considered view that in  whichever manner one may name it namely,  International Covenant, International Treaty, International Agreement  and so  on and so forth, yet, such documents are essentially  in the  nature of a contract.  In Head Money cases namely,  the judgment of the Supreme Court of the United States reported in 112 U.S. 580, it is held as follows:

"A  treaty  is primarily a compact  between independent Nations, and depends for   the enforcement  of its provisions on the  honor  and  the interest of the governments which are parties to it."

Therefore there cannot be any difficulty at all in examining such treaties on principles applied in examining  contracts.  Under  these circumstances, when a dispute is brought before a   court  arising  out of an International  Treaty,  courts would  not  be  committing any error in deciding   the  said dispute  on principles applicable to  contracts.   In  other words,  the  court  has  to  analyse   the  terms  of   such International  Treaty; the enforceability of  the  same;  by whom and against whom; and if there is violation, is there a mechanism for solving that dispute under the treaty  itself? Based  on  such  construction of  the  International  Treaty namely,  "TRIPS",  it  is  argued very  strenuously  by  the learned  counsels appearing for the contesting parties  that there is a settlement mechanism under the Treaty itself  and therefore   even   assuming  without  conceding   that   the petitioner  has the right to enforce the terms of  the  said Treaty,  yet, he must go only before the Dispute  Settlement Body  provided  under the "TRIPS" itself.    Article  64  of "TRIPS" is pressed into service to sustain this point.    It is  contended  by Mr.Anand Grover learned counsel  that  the settlement mechanism provided under Article 64 of "TRIPS" is governed  by the procedure as understood by the World  Trade Organisation.   Mr.Anand  Grover  learned  counsel  took  us through the said Dispute Settlement Understanding.   Article 1  of  the  Dispute Settlement Understanding,  defines   the areas covered under that Rule.  Article 1 declares that  the agreements  listed in Appendix 1 to the said Rule  would  be covered  by the procedure.  "TRIPS" is mentioned as  one  of the  agreements in Appendix 1 (B) - Annexure 1C.    We  have been   taken  through  the  above  referred  to  Rules   and Procedures governing the settlement of disputes and we  find that it contains comprehensive provisions for resolving  the disputes  arising  out  of  any  agreements  enumerated   in Appendix  1  to  that Rules.  Under the  Rules  there  is  a Dispute Settlement Body.  The manner of it's constitution is also  provided  therein.  Various  steps  to  sort  out  the problem  arising  out of an agreement are provided  therein. Article  17  of  the  Rules referred to  above  provides  an appellate  review  against the order passed  by  the  panel. Therefore  we have no difficulty at all that Article  64  of "TRIPS"  read  with World Trade Organisation's understanding on Rules and Procedures governing the settlement of disputes provides a comprehensive settlement mechanism of any dispute arising  under  the  agreement.   Article  3  of  the  Rules declares  that the dispute settlement system  of  the  World Trade Organisation is to provide security and predictability to   the   multilateral  trading  system.    When   such   a comprehensive  dispute settlement mechanism is  provided  as indicated  above and when it cannot be disputed that  it  is binding on the member States, we see no reason at all as  to why  the  petitioner, which itself is a part of that  member State,  should not be directed to have the dispute  resolved under  the  dispute settlement mechanism referred to  above.  Several nations in the world are parties to "TRIPS" as  well as  the  "WTO"  agreement.   The agreements  are  discussed, finalised  and  entered  into at the  higher  level  of  the nations  participating  in such meeting.   Therefore  it  is binding  on  them.  When such participating nations,  having regard  to  the  terms  of  the agreement  and  the  complex problems that may arise out of the agreement between  nation to nation, decide that every participating nation shall have a  Common Dispute Settlement Mechanism, we see no reason  at all as to why we must disregard it.  As we began saying that any International Agreement possesses the basic nature of an ordinary  contract  and when courts respect  the  choice  of jurisdiction fixed under such ordinary contract, we  see  no compelling  reasons to deviate from such  judicial  approach when  we  consider  the  choice  of  forum  arrived  at   in International Treaties.  Since we have held that this  court has  no  jurisdiction to decide the validity of the  amended section, being in violation of Article 27 of "TRIPS", we are not  going  into  the  question whether  any  individual  is conferred  with an enforceable right under "TRIPS"  or  not. For  the  same reason, we also hold that we are not deciding issue  No.(b)  namely,   whether  the   amended  section  is compatible  to Article 27 of "TRIPS" or not.

(emphasis added)

"Social and Developmental Safeguards"

The always interesting Dani Rodrik proposes the following:

A broadened safeguard agreement—call it an agreement on social and developmental safeguards—would enable countries to opt out from their international obligations under specified circumstances. The process for obtaining such an exemption would be a domestic one, as in the case of AD and safeguards currently, but it would be subject to multilateral review to ensure procedural requirements are met. Any interested party would be allowed to seek an exemption or opt-out. One requirement would be for the plaintiff to make a compelling case that the international economic transactions in question are in conflict with a widely shared social or developmental norm at home. For example, an NGO may try to make the case that goods imported using child labor violate domestic views about what is an acceptable economic transaction. Or a consumer body may want to ban imports of certain goods from a country because of safety concerns.

...

... the ultimate decision would rest with a semi-autonomous government body that would consider the testimony given to it and determine (a) whether there is sufficiently broad support for the exercise of some kind of opt-out; and (b) what the best remedies are in cases where the answer to (a) is affirmative. The decision would be subject to periodic review to ensure that protection does not become permanent. It would also be open to review in a multilateral setting (say the WTO) to ensure that multilaterally-agreed procedural requirements have been met.

I had two reactions:

1) Wouldn't this proposal make it more difficult to do many of the things he proposes, like ban products made with child labor or ban unsafe imports?  Currently, governments can do these things without a hearing in front of a quasi-judicial body (although clearly they have to be careful to implement in a manner that meets various WTO obligations).

2) I rarely hear economists propose more litigation as a means of solving problems.  Trade lawyers around the world will be very excited if this comes to pass.