International Economic Law and Policy Blog

More on NAFTA Chapter 11 Non-Discrimination

I did a recent post discussing NAFTA Chapter 11 non-discrimination standards, in the context of the Grand River Enterprises case.  In response, I got a number of helpful comments, which made clear to me that there was a lot I did not know about NAFTA Chapter 11 non-discrimination standards.  Rather than give up on the issue, though, I'm going to press ahead in the hopes of learning more!

To this end, let me turn now to the U.S. counter-memorial in the Grand River Enterprises case (my earlier post related to the Claimant's memorial).  Before doing so, though, for the sake of providing some background, let me briefly summarize the parties' positions.  The U.S. argues that the national treatment provision of Chapter 11 should focus on whether there is "a disproportionate benefit for nationals over non nationals."  That is, the overall treatment of foreign investors should be compared to the overall treament of domestic investors who are in "like circumstance."  By contrast, the claimants argue that the treatment of a single foreign investor as compared to any other investor is all that is relevant.  If any individual foreign investor is treated less favorably than a competitor, there is a violation.

Getting into the details a bit more, in its counter-memorial the U.S. argues the following in support of its position that, in Grand River Enterprises, there is no violation of national treatment:

... Claimants make no attempt to demonstrate that any alleged less favorable treatment has been accorded to NPMs on the basis of nationality, as required for any national treatment claim under Article 1102. As recognized by the Loewen tribunal, the national treatment obligation under Article 1102 proscribes only “nationality-based discrimination and . . . demonstrable and significant indications of bias and prejudice on the basis of nationality.”294 Similarly, as found by the S.D. Myers v. Canada tribunal, analysis under Article 1102 involves considerations of “whether the practical effect of the measure is to create a disproportionate benefit for nationals over non nationals,” and “whether the measure, on its face, appears to favour its nationals over non-nationals who are protected by the relevant treaty.”295 All three NAFTA Parties agree that the national treatment obligation under Article 1102 is intended to protect against discrimination against an investor or investment on the basis of nationality.

The U.S. cites two cases as support for its view, and also notes that the NAFTA Parties all agree with this view.

I don't know much about how these proceedings go, but it seems to me that so far we have just touched the surface of the issue.  We have the claimants citing cases in support of their view, and the U.S. citing cases in support of its view.  What would be great, at least from my perspective, is to have a good debate on the merits of the issue, including a discussion of the impact of the different approaches.  Perhaps that is coming in the next round of submissions or at the hearing.

Ron Kirk's Answers to Senators' Written Questions

Ron Kirk's answers to the written questions of Senators on the Finance Committee are available here.  It is a 129 page document, with lots of questions and mostly brief answers.  Below the jump, I pulled out the ones that I found most noteworthy (in some instances the question is more noteworthy than the answer).

The New Tuna-Dolphin Case

It appears that Mexico is moving ahead with its complaint against U.S. dolphin-safe tuna labeling measures.  Here is the panel request: http://www.worldtradelaw.net/pr/ds381-4(pr).pdf  The specific claims are as follows:

1. Mexican products are not accorded immediately and unconditionally any advantage, favour, privilege or immunity granted to like products of any other Member, contrary to Article I.1 of the GATT 1994;

2. Mexican products are accorded treatment less favourable than like products of US origin, contrary to Article III.4 of the GATT 1994;

3. Mexican products are accorded treatment less favourable than like products of US origin and like products originating in any other country, contrary to Article 2.1 of the TBT Agreement;

4. The measures have the effect of creating unnecessary obstacles to trade, contrary to Article 2.2 of the TBT Agreement;

5. The measures are maintained although their objectives can be addressed in a less trade-restrictive manner, contrary to Article 2.3 of the TBT Agreement; and

6. The measures do not use as their basis an existing international standard, contrary to Article 2.4 of the TBT Agreement.

And, of course, there is sure to be a GATT Article XX defense.

I'm curious to see how the non-discrimination issues are argued.  If I understand correctly, the law is neutral on its face, in the sense that products from all countries are eligible for the dolphin-safe label.  In practice, though, certain countries have not qualified, leading to a disparate impact on these countries.  There are a number of factors the panel could take into account here, and it will be interesting to see where the focus lies.

The Softwood Lumber Arbitration and Retrospective Trade Remedies

(Cross-posted from the new Kluwer Arbitration Blog).

Two weeks ago, an LCIA tribunal issued its Award on Remedies in a dispute filed by the U.S. against Canada under the 2006 Softwood Lumber Agreement (SLA). This dispute is interesting in many respects. Most obviously, it is a state-to-state dispute adjudicated under the auspices of the LCIA, more commonly used for commercial arbitration. This is in part a result of the SLA’s genesis as a “mutually agreed solution” under Article 3.6 of the WTO Dispute Settlement Understanding (DSU), attempting to settle six disputes in the WTO (and some more under NAFTA). Although the WTO context of the SLA is clear, and the parties’ notification to the WTO Dispute Settlement Body (DSB) of the mutually agreed solution included the full text of the SLA, under conventional wisdom, “mutually agreed solutions” in the WTO cannot be enforced by the WTO’s own dispute settlement system. Hence the need for outside arbitration.   

Here I would like to focus on the implications of this dispute for one of the taboos of international trade law: retrospective remedies.

Expanding NAFTA Chapter 19

Stephen Powell of University of Florida Law School has posted a paper entitled "Expanding the NAFTA Chapter 19 Dispute Settlement System: A Way to Declaw Trade Remedy Laws in a Free Trade Area of the Americas?"  Here's the abstract:

Chapter 19 of the NAFTA transfers judicial review of U.S., Canadian, and Mexican government investigations under the controversial anti-dumping and countervailing duty (AD/CVD) laws from national courts to binational panels of private international law experts. The system stands as a unique surrender of judicial sovereignty to an international body, a hybrid of national courts and international dispute settlement with as yet no parallel in the world of international trade or other international law regimes. Binational panel decisions have been controversial because agencies chafe at their intimate examination of agency findings and supporting evidence. Panels also are viewed as substantially more likely to overturn agency conclusions than national courts. Given the record of chapter 19 NAFTA panels, the paper examines whether the system created to fill a unique need among the NAFTA parties may have broader utility, albeit one perhaps less true to its original purpose.

U.S. recalcitrance on proposed changes to its AD/CVD laws (and its agricultural subsidies) were the principal reasons that Brazil forced Free Trade Area of the Americas (FTAA) talks onto the back burner to await the Doha Round results on these issues. The United States is unlikely to condone major changes to the WTO Anti-Dumping and Subsidies Agreements, which will become the final sticking point for reaching agreement after members resolve the agriculture issues now blocking conclusion of the Doha Round of multilateral trade negotiations. Thus, trade remedies will again surface as major issues once FTAA talks resume. Studies indicate that binational panels reverse agency decisions at a greater rate than national courts and that existence of the system has reduced the rate of filing of industry requests for AD/CVD investigations.

Rather than attempting to finding an elusive middle ground of substantive revisions to these laws, might changing the method of review of agency determinations furnish a missing piece in the puzzle of FTAA negotiations? Although Brazil's (and other FTAA country) officials may at first glance see nothing in a Chapter 19 process that addresses their substantive AD/CVD conflicts with the United States in such cases as orange juice and steel, reflection may reveal that Chapter 19 has demonstrated yet again what good lawyers have always known, that procedure can become substance in the twinkle of an eye. In short, more than one way exists to reduce the trade-restricting effect of U.S. AD/CVD investigations. Improvements would have to be made, including introduction of an automatic and effective right of appeal whose absence arguably undercuts the credibility of the process by awarding enormous power to panels.

Adoption of a system such as NAFTA's chapter 19 on a 34-nation basis not only may ameliorate long-intractable conflicts over trade remedy laws, but implementation of such a system also will have substantial positive effects for civil society in general. Dispute settlement systems promote timeliness, inclusive record keeping, and impartiality in the administrative decisional process. They improve governmental accountability on several levels. By improving participation of all levels of society in their governance, international trade dispute settlement systems strongly promote the rule of law.

No doubt I'm taking this idea further than the author had in mind, but I'm wondering if perhaps there is a solution to the "zeroing" debate here.  How about this:  The U.S. gets to keep zeroing, but trade remedy decisions will be reviewable directly by an international court (a "Trade Remedies Tribunal"?) along the lines of NAFTA Chapter 19 procedures.

I'm sure this is unlikely to happen, for a variety of reasons, but we do need some way out of the zeroing mess!

Ron Kirk Hearing: Today at 5 p.m.

The Senate Finance Committee hearing for Ron Kirk's nomination as USTR will be today at 5.  I'll update this post if anything interesting is said.

UPDATE:

I'm not sure when a transcript of the hearing will be available, but Kirk's statement is.  Here are some passages that I found noteworthy:

we are mindful that the benefits of trade are diffuse while the costs are concentrated.

...

It is true that cheaper foreign products help squeezed American families stretch their dollars, and the sale of our goods and services abroad support American jobs. But it is also true that the overarching benefits of trade are difficult to appreciate when a plant closes in a small community because of increased foreign competition.

...

And I fully appreciate the central role of Congress in that conversation. If confirmed, I will come to you early and often to consult and to listen.

...

But I do not come to this job with what I have called in some of our meetings “deal fever”. I know that you want the referees at the WTO to call a foul when the rules are broken. And I agree. The first order of business for the Administration on trade is to ensure strong enforcement of the rules.

...

Other priorities include working with our trading partners to advance the Doha Round negotiations, working with you and the countries in question on pending agreements, and pursuing new initiatives that will seek to channel trade as a driver of economic progress – if they are done right.

...

And at an appropriate time and with proper Congressional input and concerns addressed, this President will require the authority to negotiate new agreements and bring them to Congress for an up or down vote.

...

I believe in trade and will work to expand it, but I also know that not all Americans are winning from it and that our trading partners are not always playing by the rules.

UPDATE 2:

Todd Tucker live blogged the hearing.

UPDATE 3:

I just listened to the Q & A.  My sense was that Kirk's confirmation was a foregone conclusion and they all just wanted to get things wrapped up quickly and get back to more pressing matters.

Anti-Dumping on the Rise

Conventional wisdom holds that anti-dumping cases increase during economic downturns.  Chad Bown's latest research seems to confirm this:

Newly available data tracking the first of these trade policies - the initiation of new antidumping investigations and new antidumping measures imposed - show a marked increase in 2008 corresponding with the timing of the spread of the global economic crisis. Overall, the number of initiations of new antidumping investigations in 2008 increased by 31 per cent compared to 2007. The number of new antidumping measures applied in 2008 increased by 19 per cent compared to 2007. Developing countries dominated use of antidumping (73% of all new investigations) in 2008, and developing country exporters were the most frequent target (78% of all new investigations).

New Journal: Trade, Law and Development

The National Law University, India has launched Trade, Law and Development, a bi-annual, student-run, academic journal:

Inspired by the best traditions of scholarly journals worldwide, Trade, Law and Development seeks to explore inter-disciplinary perspectives on the international legal order, focusing on issues of relevance to the international trading system, environment and development; as well as policy issues.

The call for submissions is here.

I like the substantive scope of the journal, but in addition to that I am also impressed by their publishing approach.  If I understand correctly, the journal will be freely available on the web, making use of open source publishing software to do this.  In my view, this is the future of journal publishing and it was only a matter of time before someone applied it to the trade law field.  Congrats to the founders on being the first to do so, and best of luck!

The Purpose of SCM Agreement "Countermeasures"

In the ongoing arbitration in the U.S. - Cotton Subsidies case, the parties disagree on the purpose of "countermeasures" imposed under SCM Agreement Articles 4.10 and 7.9.  In its written submission, the United States argues:

340. Articles 4.10 and 7.9 of the SCM agreement – which specify that countermeasures should be “appropriate” and “commensurate,” respectively – are consistent with the DSU’s focus on rebalancing concessions. Like Article 22.4 of the DSU, these standards focus on the effects of the disputed measure, not the level of countermeasures necessary to create sufficient political will to change the measure. Indeed, the footnote accompanying Article 4.10 notes that countermeasures (even in response to prohibited subsidies) shall not be “disproportionate in light of the fact that the subsidies dealt with under these provisions are prohibited.” An action can be prohibited by one of the WTO agreements and yet Article 22.4 of the DSU only authorizes rebalancing. ...

By contrast, Brazil argues in its submission that:

476. Brazil recalls that, as in general public international law, countermeasures in WTO law also serve the goal of encouraging the offending party to comply with its obligations. ...

So, we have two purposes suggested here:  rebalancing concessions and encouraging compliance.  My question is, does it really have to be either/or?  Can't the provisions have a dual purpose?  I should note that it's not clear to me if the United States is arguing that the purpose of countermeasures is only to rebalance concessions and if Brazil is arguing that the purpose is only to encourage compliance.  Perhaps they are both just trying to highlight a particular aspect.

The Future of U.S. Trade Policy

Brandon Wu of Global Trade Watch reports on a public hearing on the proposed United States-Trans-Pacific Partnership Free Trade Agreement, where, he notes, a USTR official made the following point:

Today's hearing was to be a "different exercise than that which we've been doing for the past few years," and one of the things USTR wanted to discuss was whether the current FTA template is "adequate and effective" for moving forward and if it is an appropriate means for meeting U.S. policy goals.

I think we all have the sense that things are changing, but we still don't know exactly where they are going.  Will we get any insights from the Ron Kirk hearing next week?

Wolfe on the Special Safeguard "Fiasco"

Robert Wolfe explains how the Special Safeguard Mechanism brought down the latest attempt to move the Doha round forward :

The July 2008 attempt by a group of ministers to agree on modalities for the WTO's Doha Round broke down in part because they could not agree on a proposed "Special Safeguard Mechanism" (SSM) for developing countries in agriculture. This paper offers a corrective to the conventional story that the breakdown was due to a simple conflict of interests over the SSM between the United States and India. The term SSM was first used in a Doha Round text in 2004, but neither the principles nor the commercial implications had ever been discussed by ministers before July 2008. The conceptual origins of the SSM go back to proposals in the late 1990s for a "Development Box", but by the time of the ministerial, negotiators had been unable to agree on the purpose of the safeguard, or how it would work, including the agricultural products it would cover, how it would be triggered, the remedies (additional tariffs) allowed, or the transparency requirements for its operation. The SSM was therefore one of the least "stabilized" parts of the text placed before ministers in July 2008. Members were far from reaching a shared understanding of the SSM, which resulted in a fiasco that might have been avoided. Ministers should not have been asked to engage in a poorly prepared discussion of a sensitive issue, because inevitably they staked out incompatible positions. Members may subsequently find it difficult to back down.

That's from the abstract.  The full paper is here.

Latest Newsletter from SIEL

A summary of the latest Society of International Economic Law ("SIEL") newsletter is below for those of you not yet members of the SIEL ; )

This edition, as well as the previous newsletters, includes information on SIEL and IEL events around the world (more info at www.sielnet.org).  Please share the information and participate as you see fit.  Thanks, Colin.

SIEL E-Newsletter  - Number 4  (March 3, 2009)

This newsletter includes:

I.          SIEL Membership Extended - Completed

II.        IEL Related Events

            A.        Reminder of Call for Venue Proposals for the SIEL Annual Conference 2010 

            B.        Africa Regional Group

            C.        Asian IEL Network Conference

            D.       Europ. Soc’y Int’l Law’s IEL Interest Group Conference Call for Paper 

            E.        Latin America Regional IEL Group

            F.        Call for Papers: 2009 Conference British Inst. of Int’l & Comp. Law

III.       Recently Received Publisher Discounts and Information

            A.        Edward Elgar

            B.       Oxford University Press

IV.       Other SIEL Services

            A.        IEL Job Postings

            B.        SIEL Services in General

The full text of the newsletter can be found at http://www.sielnet.org/Default.aspx?pageId=67692 

USTR Trade Agenda 2009

While the confirmation hearing of USTR nominee Ron Kirk has been postponed to next Monday, those of us seeking some positive signaling from the Obama administration about its future trade policies will do well to read the 7-page "Overview of the 2009 Agenda" in USTR's 2008 Annual Report, released yesterday. While couched in cautious terms, that are overtly faithful to the stated goals of incorporating labor and environmental clauses in FTAs, the agenda clearly recognizes the need to open foreign markets and that this will mean negotiating trade agreements in multilateral and bilateral settings based on fast-track authority, which will be sought after consultations with Congress. The NAFTA renegotiation spat has been reduced to language about working with Mexico and Canada to identify ways in which NAFTA could be improved without having an adverse effect on trade. 

The bottom line:

Our agenda is to combine the best elements of previous trade policies, especially a rules-based system of global trade, with a determination to make trade policy a powerful contributor to the President’s national economic agenda for revival of the global economy and renewal of growth that benefits all people. If we work together, free and fair trade with a proper regard for social and environmental goals and appropriate political accountability will be a powerful contributor to the national and global well being.

And from the Chapter on the WTO (Italics in the original):

We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.

All this isn't saying much, but it shows potential for a nuanced and pragmatic pro-trade approach, as well as (in other segments) an understanding that US leadership is crucial for progress in the WTO.

T.

   

Non-Discrimination under NAFTA Chapter 11

From the claimants' submission in the Grand River Enterprises NAFTA Chapter 11 case:

There is simply no room in the language of [the NAFTA Chapter 11 National Treatment and MFN] provisions for reading-in the requirement for an investor to either prove that the measures according less favorable treatment were imposed on the basis of his or her nationality; or to demonstrate that the impact of the measures fell disproportionately on investors of his or her nationality as opposed to those of the host state or another. The Investor’s burden under either Article 1102 or 1103 is to prove that more favorable treatment has been granted to another investor in like circumstances, than that which has been accorded to him.

(para. 239)

... determining whether treatment was more or less favorable does not involve a global comparison of treatment received by foreigners and domestic investors. For example, sometimes measures accord more favorable treatment to a ‘national champion’ enterprise, to the disadvantage of all others (domestic or foreign). Sometimes measures accord more favorable treatment to a chosen group of foreigners and/or domestic enterprises, to the disadvantage of all other competitors. When an individual investor claims ‘treatment no less favorable,’ the analysis is specific to the treatment being accorded to that claimant under the measure, vis-à-vis its competitors.

(para. 254)

I think I understand the claimants' argument here, but I just want to be sure, so let me take an extreme situation to illustrate the impact of this approach.  Let's say you have 10 foreign investors and 10 domestic investors (all in "like circumstances").  Country A adopts a measure that is non-discriminatory on its face.  However, as it turns out, certain investors do worse than others under the measure.  In particular, 9 domestic investors and 1 foreign investor receive less favorable treatment than the other 9 foreign investors and the other 1 domestic investor.  Thus, most foreign investors do better under the law than most domestic investors.  But that 1 foreign investor who did badly brings a NAFTA Chapter 11 claim alleging a violation of national treatment.  As I understand it, the argument here would be that this 1 foreign investor should succeed on its national treatment claim because it is worse off than at least one competitor.  Does anyone understand this differently?

I don't usually follow Chapter 11 cases very closely.  However, I read a news article about the case and it appeared there would be a de facto discrimination claim,  which are always of interest to me, so I decided to check out the submission.  This argument immediately jumped out at me.  We've been through this issue in the WTO context, and I am pretty sure that we have moved away from the approach the claimants set out here.  In several GATT cases and early WTO cases, there were findings to the effect that any less favorable treatment for individual foreign products would result in a violation of GATT Article III, regardless of the overall impact on foreign products as compared to "like" domestic products.  However, my sense is that the current WTO approach would focus on the overall impact on foreign goods versus domestic goods.  The Appellate Body's reversal of the panel's findings in the Asbestos case was a pretty clear statement on the matter.  And the panel in the EC - Trademarks/Geographical Indications case later made this even more explicit.  To me, the view expressed in these decisions seems to be that a discriminatory effect on imported products (as a whole) as compared to "like" domestic products (as a whole) is very important, or even required, for a finding of de facto discrimination.  Given the evolution of GATT/WTO jurisprudence, I'll be very interested to see what the Chapter 11 arbitrators have to say on the matter.