International Economic Law and Policy Blog

The Scope of GATT Article XX

From para. 7.498 of the Colombia - Ports of Entry WTO panel decision, circulated Monday:

In any cases where a measure may violate a particular provision of the WTO Agreements, a number of exceptions – notably those included in Article XX of the GATT 1994 – allow WTO Members to justify a WTO-inconsistent measure.

Is the Panel's view that Article XX offers an exception to agreements other than the GATT?  Or am I reading too much into this?

ADDED:  Perhaps I should clarify this:  I meant WTO agreements other than the GATT, rather than any and all international agreements.

Another Alcohol Case?

WTO dispute settlement is littered with tax discrimination cases related to alcohol products.  This article makes me think another might be on the way:

Taiwan consumers welcome the imminent return of rice wine that carries a much lower price tag but provides much better quality and safety.

They will soon enjoy the highly popular rice wine at only one-third of the present price after the Legislative Yuan completed yesterday the final reading of an amended tax law to slash the duty imposed on the product.

The steep cut in the price was made possible as legislators revised the rules of the Tobacco and Alcohol Act concerning duties on local and imported distilled liquor.

They decided to adopt a new formula under which the tax will be adjusted depending on the alcohol content of the product, setting the tariff at NT$2.5 per degree of alcohol per liter.

The lawmakers also adopted a resolution to set the price of the most popular red-label rice wine at no higher than NT$50 per 0.6-liter bottle, compared with the existing price of NT$180.

Rice wine has long been a staple ingredient in local cuisine and a major alcoholic drink for many low-income people.

Finance Minister Lee Su-der expects the new prices to take effect next month.

Since Taiwan's entry into the World Trade Organization (WTO) 2003, alcoholic products labeled “rice-wine” has been levied with an NT$185-per-liter tax, in line with the WTO's tax regulations on distilled spirits.

Chile - Alcohol also dealt with a tax based on alcohol content.  A violation was found in that case, but I don't think this approach necessarily leads to a violation.  It depends how the tax is structured.

The Future of China's IP Protection

A couple months again, Bryan noted that press reports to the contrary, perhaps the U.S. did not actually do very well in the China - IPRs dispute.  An Economist article from this week suggests that change may come despite the outcome in that case:

Chinese firms are also increasingly seeking patents abroad, a sign that they plan to protect their technology when exporting it to rich countries. They won 90 patents in America in 1999 but last year they received 1,225. That is still relatively few—IBM, an American technology giant, receives around 3,000 a year—but it is increasing quickly. Because it takes three to five years to issue a patent, the number issued to Chinese firms is expected to soar soon. The quality of patents issued in China is also improving. Revisions to the patent law that take effect in October strengthen the requirement for a patent’s novelty, bringing it up to global standards. Stronger patents are easier to enforce, opening the door to more lawsuits.

All these trends are important because countries that create intellectual property eventually enforce it as well, explains Dominique Guellec of the OECD. America, it is worth remembering, was the great copyright and patent infringer when it was a developing country in the 18th century.

Protection from the Sun

No, not sunscreen.  Economist Donald Boudreaux has something else in mind, as he makes the following point to argue against protectionism:

So do you, Mr. Protectionist, also believe that Uncle Sam should force us Americans to pay a high tariff on sunlight before we are allowed to use it? After all, sunlight is an enormously beneficial product that Americans routinely import at no cost at all! (The sun charges us nothing for the valuable heat and light that it exports to us daily.) Don't you worry that this dirt-cheap import that floods our market every day unfairly shrinks the market for American-made goods such as light bulbs, flashlights, central-heating units and down blankets?

If you don't support blocking sunlight with a tariff or with some other government restriction -- why not? Please explain how one low-cost yet valuable import (sunlight) differs from other low-cost yet valuable imports (such as steel from China or textiles from Malaysia).

Kirk Address at Georgetown Law

USTR Ron Kirk was a guest at Georgetown University Law Center yesterday, and his prepared comments are online. He talks about a new approach to trade, but it appears that the only news are that the campaign positions on trade have been buried.

Tuna-Dolphin Update

A WTO panel was established on Monday in the new tuna-dolphin dispute (DS381).  During the meeting, the U.S. had this to say:

• Mr. Chairman, the United States is disappointed that Mexico has chosen to move forward with its request for panel establishment a second time.
  
  
• As we explained at the DSB meeting on March 20, the United States considers its dolphin-safe labeling regime central to the protection of the dolphin population in the Eastern Tropical Pacific ocean.  Furthermore, we are confident that the U.S. dolphin safe labeling measures that Mexico has challenged are consistent with U.S. WTO obligations.
  
  
• In addition, Mr. Chairman, we are very concerned that Mexico is proceeding with this request for another reason.  On March 24, 2009, the United States invoked Article 2005(4) of the North American Free Trade Agreement. 
  
  
• In that provision, the NAFTA parties agreed that certain disputes which pertain to matters arising under the WTO Agreement and the standards-related provisions of the NAFTA, and which concern human, animal or plant life or health or the environment and raise factual issues regarding the environment or conservation, would be heard – at the responding party’s option – solely under the NAFTA’s dispute settlement procedures.  This dispute meets the criteria set out in that NAFTA provision, and the United States has the right to have this dispute considered under the NAFTA. 
  
  
• We understand that a panel will be established today.  The United States deeply regrets Mexico’s decision to seek establishment of a WTO panel despite its prior agreement with the other NAFTA parties on a choice‑of‑forum provision in our free trade agreement, and our invocation of that provision.  We urge Mexico to reconsider its position.  We will also be considering our options moving forward.

[Second intervention:]

• Mr. Chairman, this meeting is perhaps not the best place to debate the meaning of NAFTA’s dispute settlement provisions.  However, in light of Mexico’s comments, it may be helpful to say that, at the time the NAFTA was negotiated, the NAFTA parties understood that disputes concerning standards-related measures for the protection of human, animal or plant life or health or the environment could arise under either the NAFTA or the WTO.  As a consequence, the NAFTA parties specifically included the NAFTA choice of forum provision to give the responding party the right to have such disputes heard before a NAFTA panel.
  
  
• We are very concerned that Mexico’s approach would mean that NAFTA Article 2005(4) would never apply.  That was certainly not the intention of the NAFTA parties, and it is a cause for serious concern.
  
  
• We appreciate Mexico’s acknowledgment that the international community may have an interest in this dispute.  We hope that we can count on Mexico’s cooperation in making sure that the proceedings in this dispute – whether in the WTO or under the NAFTA – are as transparent as possible, including by making submissions publicly available when filed and by opening the panel hearings to public observation.

The NAFTA provision they cite, Article 2005, states:

Article 2005: GATT Dispute Settlement

1. Subject to paragraphs 2, 3 and 4, disputes regarding any matter arising under both this Agreement and the General Agreement on Tariffs and Trade, any agreement negotiated thereunder, or any successor agreement (GATT), may be settled in either forum at the discretion of the complaining Party.

...

4. In any dispute referred to in paragraph 1 that arises under Section B of Chapter Seven (Sanitary and Phytosanitary Measures) or Chapter Nine (Standards-Related Measures):

(a) concerning a measure adopted or maintained by a Party to protect its human, animal or plant life or health, or to protect its environment, and

(b) that raises factual issues concerning the environment, health, safety or conservation, including directly related scientific matters,

where the responding Party requests in writing that the matter be considered under this Agreement, the complaining Party may, in respect of that matter, thereafter have recourse to dispute settlement procedures solely under this Agreement.

I'm going to have to think about this one a bit more before I have anything to say about it.  If anyone else has thoughts, though, USTR has requested comments on the case here.

On a somewhat related topic, although it will probably not come up in the case, blog reader Chad Bown points me to the following and notes, "who said Dolphins weren't for free trade?":

Thousands of dolphins block Somali pirates

Thousands of dolphins blocked the suspected Somali pirate ships when they were trying to attack Chinese merchant ships passing the Gulf of Aden, the China Radio International reported on Monday.

The Chinese merchant ships escorted by a China's fleet sailed on the Gulf of Aden when they met some suspected pirate ships. Thousands of dolphins suddenly leaped out of water between pirates and merchants when the pirate ships headed for the China's.

The suspected pirates ships stopped and then turned away. The pirates could only lament their littleness before the vast number of dolphins. The spectacular scene continued for a while.

 

Bailouts and International Investment Law

From Anne van Aaken and Jürgen Kurtz, a brief paper entitled "THE GLOBAL FINANCIAL CRISIS: WILL STATE EMERGENCY MEASURES TRIGGER INTERNATIONAL INVESTMENT DISPUTES?"  From the conclusion:

We draw two tentative conclusions, implicated in our analysis of potential liability under international investment treaties. First, there is clear evidence of widespread discrimination directed at foreign actors in the laws we have surveyed despite the public commitment of state parties to free market principles, including the rule of law, respect for private property, open trade and investment and competitive markets, expressed at the G20 meetings. This is not confined to any individual state or select grouping; it is a marked characteristic of emergency responses to the financial crisis across a significant proportion of the globe. This then is a timely reminder to revisit the lessons associated with the outbreak of protectionism leading to the Great Depression in the interwar period. Protectionism is the result of a prisoner’s dilemma understood in game theory terms. Cooperation would make every state better off, but it is individually rational for states to pursue their self-interest (and protect domestic industry) at least in the short term. While protectionist instincts are now more nuanced, it is difficult to escape the conclusion that states are failing to cooperate in the current crisis, with possible cascading consequences.

This leads to our second, tentative concern, namely whether international law will fulfill a key function in the contemporary period. The framers of the post-Second World War architecture of international economic law were deeply influenced by the lessons of the interwar period. They had drafted rules hoping to embed a loose form of cooperation and constrain the freedom of states to resort to shortterm protectionist measures. The preparedness and rapidity by which states are now moving in that direction raise serious questions of whether our existing system is a sufficient check against these problematic tendencies.

With regard to their first concern, embedding protectionism within some other policy measure is always frustrating for trade folks.  We often try to explain that trade rules don't prevent the other policy measure.  You just can't adopt these measures in a way that is discriminatory.  But that message is sometimes hard to get across and many people come away thinking that trade (and investment) rules prevent the other policies.

Trade and the Environment and Subsidies

There's a lot going on in this story about subsidies to U.S. pulp producers.  I'm not sure exactly what all the trade implications are, but it's interesting enough that I'm going to talk about it anyway.  As explained in the article, the basic story is as follows:

... it has been common practice in the pulp sector for 30 years to use a 100-per-cent biofuel called black liquor — a by-product of pulping wood chips — for heat and energy. Now American companies are blending in a percentage of diesel fuel in with the black liquor to qualify for the subsidy.

...

The tax credit was originally passed by Congress in 2005. It was dubbed the Highway Act, as it was designed to reduce the use of fossil fuels and promote the use of alternative fuels in the transportation sector.

But a recent interpretation of the U.S. tax code printed in a September 2008 Internal Revenue Service bulletin opened to door to the use of black liquor. It stated alternative fuels only need to contain 0.1 per cent of a taxable fuel to qualify.

By adding a small percentage of diesel to their black liquor, pulp mills were able to demonstrate they had switched to a blend of fossil and alternative fuels. It didn’t matter that they had switched in the wrong direction. The lawmakers hadn’t considered that alternative. They got the tax break.

Basically, U.S. pulp producers had been using a kind of biofuel on their own accord.  Then along came legislation which offered a tax credit to companies who added alternative fuels to their fossil fuels.  The pulp producers didn't qualify for the credit based on their use of the biofuel.  However, by adding some diesel fuel to the mix, they qualified for the credit in reverse -- they added fossil fuels to their alternative fuels!  

Here's the trade part.  Foreign pulp producers are upset about the subsidy their U.S. counterparts are now getting:

The Canadian government is attempting to convince the U.S. administration to change the policy and several European governments are considering taking the issue to the World Trade Organization.

They have a point.  However, it seems to me that it may be tough for them to achieve a good outcome here.  They may be able to convince the U.S. government that the policy of rewarding companies when they use less alternative fuel makes no sense.  On the other hand, if the subsidy is taken away from the pulp producers, you end up with a policy that rewards (with subsidies) companies who were polluting a lot but improved a bit, whereas companies who were polluting very little, on their own accord, get no subsidies.  It's not clear that is a good approach either.  The end result of all this may very well be that the law is changed so that pulp producers still get their subsidies, but they get them without having to add diesel.  If that happens, then we may get to a more traditional trade and the environment question:  Do subsidies to promote a cleaner environment violate trade rules?

Rachel Brewster on Carbon Tariffs

She thinks they are likely to be unfair:

... if the United States decides to apply a carbon tariff, then it must decide how much carbon it gets to produce compared with other countries. The Boxer-Lieberman-Warner bill, for example, determines whether another country's environmental regulation is comparable to the US (and thus exempt from a carbon tariff).

The bill establishes a dividing principle that freezes everyone at their current share of greenhouse-gas emissions and requires that countries reduce emissions from these levels. Under this standard, the US, which represents less than 5 percent of the world's population, is allocated over 18 percent of the world's greenhouse-gas production.

The problem for the planet's atmosphere is that other countries can do the same thing but based on different dividing principles. China could apply carbon tariffs to any country that has a higher per capita level of greenhouse-gas emissions than it does. (This would include the US, Canada, and the European Union.) India could adopt a formula that gives nations that have already contributed significantly to the current stock of greenhouse gases fewer emissions rights in the future.

This series of conflicting national level environmental measures is bad for the environment and bad for the global economy. ...

More here.

I think she is right to identify this as an inherent problem with unilateral cap-and-trade plans.  Both an international cap-and-trade agreement or a unilateral carbon consumption tax seem better in this regard.

US-China Chicken War

Yesterday, China decided to take the chicken case with the US a month after Dr. Zhang Xiangchen, China's DPR to the WTO, made the strong statement on chicken in the WTO. It seems Obama is in for a treat of Chinese-style stir-fried chicken. The question is, does he like Chinese take-outs as Bush did?

US ban on China poultry imports slammed
(Xinhua)
Updated: 2009-04-17 22:53
Comments(0) PrintMail

BEIJING - China said here Friday a recent US law banning poultry imports from China is "obviously discriminatory" and harms the due interests of Chinese poultry industry.

The Section 727 of the Omnibus Appropriations Act of 2009, which was signed into US law in March, disrupts the normal Sino-US poultry trade activities and breaches the World Trade Organization (WTO) rules on tariffs and farm produce, said Ministry of Commerce spokesman Yao Jian.

The Chinese mission to the Geneva-based WTO filed complaints to the organization on Friday about the Section 727. According to WTO procedures, once complaints are filed, the two concerned parties usually have some 60 days to resolve disputes through consultations.

If that fails, China can request the establishment of a WTO expert panel to investigate and rule on the legality of the US measure.

Yao said it was China's legitimate right as a WTO member to file such complaints. He urged the United States to attach importance to the strong concerns of China and properly resolve the dispute by WTO procedures.

China had many rounds of negotiations, both bilateral and multilateral, on the issue and the Chinese poultry industry had also voiced strong opposition, but those dialogues failed to address China's concerns, Yao said.

"The international community should overcome the current hardships together, prevent the financial crisis from spreading and jointly fight trade protectionism," said Yao. "That was also a significant common understanding reached at the London summit by leaders of the Group of 20 countries in early April."

According to the Section 727, none of the funds made available in the Omnibus Appropriations Act can be used to "establish or implement a rule" allowing imports of poultry products from China.

China and the United States banned imports of each other's poultry products in 2004 following outbreaks of bird flu. They agreed to lift the bans at the Sino-US Joint Commission on Commerce and Trade in 2004.

China did lift the ban but has complained that the United States was not following suit.

China imported 580,000 tons of chicken products from the United States last year, accounting for about 75 percent of total chicken imports.

Ron Kirk on Trade and Climate Change

USTR Ron Kirk talks about trade and climate change:

I would like to emphasize the Administration's view that global climate change is a priority and
that our response includes asserting U.S. leadership to establish a domestic cap-and-trade system and put us on a trajectory to gradually reduce our carbon emissions. I share the views of Special Envoy Todd Stem, our lead climate negotiator, that by transforming ourselves to a low-carbon economy, we can stimulate global economic growth and put our workers, farmers and manufacturers at the forefront of the global economy. Having said that, I acknowledge some of the concerns of certain U.S. manufacturers, particularly in those sectors that are energy and trade intensive, that increased costs associated with carbon reductions could lead to competitive disadvantages vis a vis producers in countries that do not take action to reduce their carbon emissions. This phenomenon is directly relevant to concerns with "carbon leakage" because any shifting of production to other countries could lead to the unintended effect of only limited or zero net decreases in global carbon emissions associated with that production. Climate change is a global environmental challenge and we want to ensure that the U.S. response is not weakened by the failure of other countries to take action. I understand that Energy Secretary Chu's comments during his hearing reflected such concerns.

The Administration believes that the best approach to address concerns with carbon leakage is to
negotiate a new international climate change agreement in the United Nations that ensures that
all the major emitters take long term, significant action to reduce their greenhouse gas emissions.
VVe look forward to working with these countries to negotiate a meaningful global climate
agreement and actively avoiding circumstances in which we are simply exporting carbon
emissions abroad.

...

The Administration is seeking to address many of the issues you raised in your letter, particularly
in ensuring that the design and implementation of domestic energy and climate policy are
compatible with our international trade obligations and minimize incentives for our trading
partners to pursue counter measures that could negatively impact U.S. exports. Our
consideration of the necessity of, and options for, addressing carbon leakage will include how
potential measures might be targeted towards the circumstances of energy and trade intensive
industries. The Administration, however, does not support any specific measures, including
border measures, at this time. As we move forward in our engagement with Congress on the
design of domestic climate change policy, we will evaluate the various options to address carbon
leakage under consideration on Capitol Hill.

Adaptive Governance and International Trade

Dapo Akande of EJIL:Talk! writes with the following:

Today and tomorrow we have a debate on the blog about Adaptive Governance and International Trade.  The debate is structured around a response by Monica Garcia-Salmones to an article published in the European Journal of International Law in 2007 by Rosie Cooney and Andrew Lang. In the current issue of EJIL, Monica Garcia-Salmones responds to that article and Lang and Cooney issue a rejoinder.

Check it out here.

NAFTA Non-Discrimination: The Corn Products Decision

Turning back to non-discrimination under NAFTA Chapter 11, which has become a recent obsession of mine, in addition to Grand River Enterprises, there is another NAFTA Chapter 11 case dealing with non-discrimination standards that is worth talking about:  The Corn Products case (discussed on this blog by Luke Peterson just the other day).  The nice thing about this one, in contrast to Grand River, is that there is an actual decision, which was just recently released publicly.  Luke's general summary of the case is here.  I'm going to focus on the non-discrimination parts, although there is a lot more of interest in there.

At the outset, the decision sets out the following legal standard for non-discrimination:

117. First, it must be shown that the Respondent State has accorded to the foreign investor or its investment "treatment ... with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition" of the relevant investments. Secondly, the foreign investor or investments must be "in like circumstances" to an investor or investment of the Respondent State ("the comparator"). Lastly, the treatment must have been less favourable than that accorded to the comparator.

I'm interested in the last part:  "less favourable treatment."  I should note, however, that the reasoning blurs this aspect with the second one, "in like circumstances."  As the arbitrators themselves say in para. 118, "there is a close relationship between whether the State intentionally discriminated on grounds of nationality and the test of like circumstances."  To deal with this, what I'm going to do is just quote the key portions, regardless of which factor they were discussed under, then talk about them all together.  Here's the quote:

132. The present case might be analogous to GAMI if HFCS had been produced in equal (or nearly equal) volume by Mexican-owned and US-owned firms. In that circumstance, a measure designed adversely to affect the market for HFCS in order to protect the position of the sugar industry could not have been held to violate the requirement of national treatment. But the uncontradicted evidence in this case was that production of HFCS in Mexico was wholly concentrated in foreign-owned enterprises (predominantly CPI, which had of the HFCS share of the market for soft drink sweeteners), whereas production of sugar was largely carried out by Mexican nationals (with the Mexican State itself owning a substantial part of sugar production). Thus, the effect of what was, in substance, a special tax on HFCS was the distortion of the market in favour of domestic suppliers and to the disadvantage of the foreign investors protected by Chapter XI of the NAFTA.
...

136. Moreover, in marked contrast to Methanex and GAMI, the present case - concerns a measure the purpose of which was to affect the competition between the products produced by the foreign and domestic investors and to afford a considerable competitive advantage to the latter. The competition between the two products - HFCS and sugar - was at the heart of the measure adopted. By contrast, in Methanex, it was not the competition which concerned those taking the measure but the environmental effect of one of the products. In GAMI the competition between the products was largely irrelevant. In these circumstances, the Tribunal cannot escape the conclusion that the producers of like products which were directly competitive were in like circumstances as regards a measure designed expressly for the purpose of affecting that competition.

137. It is also relevant that, again in contrast to GAMI and Methanex, nationality was a highly pertinent factor in the imposition of the tax. In saying that, the Tribunal does not endorse the submissions made by CPI based upon the remarks of individual members of the Mexican Congress about the purpose of the legislation. We have doubts about the extent to which such comments can legitimately be treated as evidence of the intent of the Legislature as a whole, let alone of the State itself, in imposing a measure of this kind, although we do not need finally to decide that point. Rather, it is the countermeasures justification advanced by Mexico which we consider important. If the HFCS tax was intended as a countermeasure targeted against the United States, it had to have been crafted in such a way that it bore especially heavily upon US interests, otherwise it would have had no chance of being effective or of being a lawful countermeasure. As counsel for Mexico said in the course of the oral hearing, "the model Countermeasure is one that causes pain". But that pain has to be caused to the State against whom the countermeasure is targeted, in this case the United States. While the Tribunal will consider whether the HFCS tax amounted to a lawful countermeasure in the next Part of the Decision, we must at this stage say that the very fact that such a justification has been advanced amounts to a recognition by Mexico that HFCS producers and suppliers were targeted, in part at least, because of the extent of their links to the United States.

138. That factor is also decisive for the third part of the test set out in paragraph 117, above. It demonstrates an intention on the part of Mexico to treat CPI differently because of its nationality. While the existence of an intention to discriminate is not a requirement for a breach of Article 1102 (and both parties seemed to accept that it was not a requirement), where such an intention is shown, that is sufficient to satisfy the third requirement. But the Tribunal would add that, even if an intention to discriminate had not been shown, the fact that the adverse effects of the tax were felt exclusively by the HFCS producers and suppliers, all of them foreign-owned, to the benefit of the sugar producers, the majority of which were Mexican-owned, would be sufficient to establish that the third requirement of "less favourable treatment" was satisfied.

I found the discussions of both intent and effect to be very interesting.  Both are somewhat controversial in the WTO context.  Here, it is interesting to compare the arbitrators' views to those taken in WTO decisions.

With regard to intent, the arbitrators were not afraid to talk about the purpose of the measure.  In this regard, they said that evidence of discriminatory purpose was sufficient to prove "less favourable treatment."  This seems to me to go further than WTO panels/Appellate Body have.  There has been some talk about purpose there, but I can't recall them going as far as saying intent alone was sufficient to show less favorable treatment.  On the other hand, the arbitrators here made clear that they were skeptical of evidence that was based on statements by individual legislators.  This sounds a lot like some of the statements in the Japan and Chile Alcohol cases. 

As to effect, the arbitrators seemed to view the required effect as something based on an overall comparison of all foreign investors with all domestic investors in "like circumstances."  To me, this approach seems to be parallel to what I see as the trend in WTO dispute settlement, and is at odds with the view that the treatment of an individual foreign investor or foreign product is all that needs to be looked at.  As a result of this finding, the similar issues in the Grand River Enterprises case become even more interesting.  Will the Grand River arbitrators follow this approach?  Or will they go a different way?

What Legalized Online Gambling Might Look Like in the U.S.

There has been some talk of legalized online gambling in recent months.  I'm a little skeptical we'll see this happen any time soon, but if it does, this approach seems problematic from a trade perspective:

With every sign pointing to the eventual regulation of Internet gaming in the US, insiders are beginning to wonder what the new geography of the online gambling industry will be. Some observers are predicting that influential land casino operators may use their powerful political lobbies to get a competitive edge in earning licensing for online casinos.

Companies such as MGM Mirage, Harrah's Entertainment, and Las Vegas Sands may cry poverty to Congress, using their largely self-generated economic woes as reason to favor them in any licensing procedure, says gaming expert Anthony Riello. The gaming companies employ thousands of US citizens, and can plea the need to keep them viable as an excuse to provide protectionist cover for them.

On the other hand, Riello notes,"European online gambling sites will not sit still and see the largest market in the world given to competitors while they are blocked out. The current protests of the Remote Gaming Association and the EU would be nothing compared to the outrage felt should the US reopen gaming markets but exclude foreign operators."

A Trade in Services Dormant Commerce Clause Case

Someone is challenging Wisconsin's diploma privilege as a violation of the dormant commerce clause:

Wisconsin’s diploma privilege for graduates of the law schools at Marquette University and the University of Wisconsin may be in danger, at least if the Seventh Circuit reviews the merits of the privilege.

Two of the judges at oral argument on Tuesday called the state’s justification for the privilege “fiction.”

Christopher L. Wiesmueller, a graduate of Oklahoma City University Law School, and an attorney with Kuchler & Cotton Law Offices in Waukesha, is challenging the privilege as a violation of the dormant commerce clause, by treating the in-state law schools and their graduates more favorably than those from out-of-state.

It pretty clearly has a discriminatory effect, and it seems that the judges were not impressed by Wisconsin's justification.

Counter-measures defence raised in NAFTA Chapter 11 claims against Mexico

A guest post from Luke Eric Peterson of the Investment Arbitration Reporter:

In recent weeks, Mexico has slapped retaliatory tariffs on certain US goods – and sought to justify this by pointing to the US failure to provide greater access for Mexican trucks (more specificially, Mexico cites a failure of the US to comply with a NAFTA panel ruling finding it in violation of its NAFTA obligations).

 

As Simon noted in an earlier post, Article 2019 of the NAFTA provides for the suspension of trade benefits in certain circumstances. But, he wondered if it permits cross-sectoral retaliation: can Mexico , for example, retaliate against goods, if cross-border services are at the heart of the underlying trade dispute?

 

Intriguingly, several NAFTA tribunals have recently looked at another aspect of the retaliation issue. However, this has been in the context of NAFTA Chapter 11, which governs investment issues.

 

First a bit of background: three separate investor-state arbitrations have arisen out of a long-running dispute between the US and Mexico over sweeteners.

 

At issue in these investor-state cases is a 20% tax levied on users of High Fructose Corn Syrup (HFCS).  Trade watchers may recall that his very same tax occasioned some litigation at the WTO.  (See WorldTradeLaw.net's Dispute Settlement Commentary for the panel and Appellate Body reports in that case for more details.) 

 

At the WTO, Mexico tried, unsuccessfully, to justify its tax by reference to the US’s alleged failure to fulfill its market access commitments for Mexican sugar under the NAFTA.

 

Mexico has not had better luck in the NAFTA investor-state context.  In two of the three NAFTA Chapter 11 cases to be resolved on their merits thus far, arbitrators have examined whether Mexico can retaliate against U.S.investors.  In other words, if the 20% tax is found to breach certain NAFTA Chapter 11 protections owed to US investors in Mexico, can Mexicofall back on an argument that the tax was a valid counter-measure that precludes liability for breaches of NAFTA Chapter 11?

 

Well, two arbitral rulings have been rendered on this question, and – to put it charitably - the jury is still out.  Indeed, a shortcoming of the one-off arbitration provided under NAFTA Chapter 11 is that it can generate diverging or even contradictory holdings from one case to the next.  And, that’s what we’ve seen so far on the counter-measures question.

 

In a November 2007 ruling issued in the Archer Daniels Midland and Tate & Lyle case, a majority of arbitrators ruled that Mexico could raise a counter-measures defence as a matter of customary international law. (Note that Mexico was not relying on Article 2019 of the NAFTA, which provides for retaliation after an adverse panel ruling). Rather, Mexico was falling back on customary international law - presumably because Chapter 11 arbitral tribunals do not have jurisdiction over Chapter 20 of the NAFTA.

 

On the facts of the case, however, Mexico failed to meet the various tests imposed by customary international law.

 

Meanwhile, in another NAFTA Chapter 11 arbitration ruling issued a few months later – but only becoming public this month – arbitrators took a very different posture when it came to counter-measures.

 

In the Corn Products International (CPI) v. Mexico arbitration, the tribunal took the view that a counter-measures defence cannot be raised in a NAFTA Chapter 11 arbitration. The arbitrators reasoned that the rights accorded in Chapter 11 are granted to third-parties (investors) and that they are not inter-state rights.

 

In lay terms, investors cannot be reduced to casualties in a trade war between the US and Mexico. (A fuller summary of the CIP Award can found in the latest edition of my Investment Arbitration Reporter briefing service).

 

It remains to be seen how a third tribunal will come down on this issue. A ruling in that case, Cargill v.  Mexico, has been expected for some time.

 

However, for the time being, things are rather muddled when it comes to whether NAFTA parties can retaliate against investors of a party with whom there is a trade dispute. In the ADM case, the tribunal was willing to entertain a counter-measures defence, but it failed on the facts of the case. Yet, in the CPI case, arbitrators rejected the very possibility of a state retaliating against investors from another NAFTA party.

 

One thing is clear: Mexico had pushed hard for the NAFTA Chapter 11 claims related to the HFCS dispute to be heard before a single consolidated panel. In particular, the Mexican Government raised concerns that separate tribunals could produce different or conflicting holdings on similar legal issues.

 

However, the claimants objected to Mexico’s consolidation bid.  A trio of arbitrators asked to decide whether the cases should be joined together ultimately deferred to the wishes of the respective investors, who had protested that their intense economic competition with each other precluded their cooperation on a single consolidated legal claim against Mexico.  However, now that two separate tribunals have offered different views as whether a counter-measures defence can be raised in NAFTA Chapter 11 cases, Mexico’s fears appear to have been realized.

 

For now, it remains unclear whether foreign investors are insulated from NAFTA trade wars – or whether they can be punished for the “sins” of their home country.

WTO Analytical Index: Is it Really "Authoritative" and a "Source of WTO Law"?

Almost any person involved in WTO legal issues consults regularly the WTO  analytical index to see what panels and the Appellate Body said about a provision.

The Index presents itself as " the authoritative guide to the interpretation and application of findings and decisions of WTO panels, the WTO Appellate Body and other WTO bodies".

While doing some research on the thorny issue of what is an "income and price support" in the context of Article 1 of the SCM, I was obliged to consult the GATT Analytical Index about this issue. I found there that this Index considers that Interpretative Note 2 added to paragraph 3 of Article XVI of GATT is relevant for interpreting the meaning of the expression "price or income support" which appears in Articlel XVI:1 and not in Article XVI:3 to which the interpretative note is added.

So my point is: Let us suppose thay you find in the WTO analytical index a reference to a provision in a certain context that is not obvious from a legal point of view, at least in your opinion.  What is exactly the "authoritative" value of this reference? I have tried to find an answer to this question in the introduction of the Index. Unfortunately, the  Index is silent on this matter, even if parties refer frequently to the Index in their pleadings.

To make my point clearer, is the following reference to the Analytical Index made by Canada in the dairy case, legitimate?

Canada noted that the GATT ANALYTICAL INDEX, 1995, at p. 445 directed the reader to "Interpretative Note 2 ad Paragraph 3 of Article XVI" for the interpretation of the phrase "including any form of income or price support", as it was used in Paragraph 1 of Article XVI. This clearly reflected an accepted interpretative approach to the provisions of Article XVI.

The Stimulus and Buy America: Not Everyone is Worried

Spain sees it as an opportunity:

AMERICAN companies are not the only ones hoping for a boost from Barack Obama’s economic stimulus plan. Spanish firms are also positioning themselves to benefit from what they call el Plan Obama. Other foreign companies are jostling for some of the $317 billion of intended spending, but Spain is the only country to have built a campaign around it.

The country’s golden couple, crown prince Don Felipe and his wife Letizia, launched a “Made in/Made by Spain” campaign in New York last month to put Spanish firms on the map. The scale of the opportunity is “extraordinary”, says Spain’s industry minister, Miguel Sebastian. He reckons Spanish firms are eligible for at least $71 billion of contracts. That is as much as Spain is spending on its own €50 billion ($67 billion) stimulus package, which has failed to prevent unemployment from topping 15%. The figure is expected to hit 20% as the country suffers a painful comedown from its construction-led boom. Spanish officials hope extra business in America will help make up for a lack of growth at home.

Trade in Everything: Easter Edition

From the Austrian Times:

Egg imports are set to jump this Easter in Austria on the back of falling supply and growing demand, producers have said.

Imports of eggs from Germany and the Netherlands are expected to rise by 25 per cent as Austrians will reportedly buy 50 million Easter eggs this year - 10-to-12 per cent more than last year.

Each Austrian will eat between six and seven Easter eggs on average.

Franz Schrall, an egg producer in Tulln, Lower Austria and head of the poultry-producers association, said today (Mon) lower supply and higher demand meant millions of eggs would have to be imported.

Harry Reid on "Protectionism"

Many of this blog's readers are probably aware that I'm a bit obsessed with the word "protectionism."  Here's another post where I parse the meaning.  This time it's based on some things Harry Reid said in relation to the G-20's statements on protectionism.  He starts out as follows:

"At the same time," Reid added, "officials and commentators should not conflate legitimate governmental actions with 'protectionism.'"

I am on board with this part.  It's very important to distinguish the two.

But he quickly loses me with the rest of what he ways.  First, he talks about things that are not protectionism:

"For example, enforcement of product and safety standards based on sound science and valid safety concerns is not protectionism. Enforcement of trade remedy laws consistent with WTO rules is not protectionism. Providing subsidies through direct government spending for domestic production consistent with WTO rules is not protectionism."

Then he talks about things that are protectionism:

Reid said these actions "consistent with and constrained by detailed multilateral rules, simply cannot be compared to protectionist measures like unilaterally raising tariffs, whether or not from levels below tariff bindings; imposing arbitrary new licensing restrictions; or similar measures." (emphasis added)

I have issues with both of his categories.  On the first one, he lists three kinds of measures that he says are "not protectionism."  But I'm not sure that any of these measures can be definitively characterized this way.  With regard to trade remedy laws and subsidies, enforcing them consistently with WTO rules does not mean they are not protectionist.  WTO rules allow plenty of protectionism.  And there are many who would argue that these measures are prime examples of protectionism.  As for science-based product and safety standards, I agree that such measures are certainly not inherently protectionist.  However, they could be used as a disguised means of protectionism (e.g., where a domestic industry lobbies for restrictions on foreign competitors on the basis of these standards).

As to the things that he says are protectionism, it is true that unilaterally raising tariffs is protectionist in effect, although it could also be for the purpose of raising revenue (particularly in developing countries).  However, as for "arbitrary new licensing restrictions," well, I suppose these could be protectionist.  But they could also just be arbitrary.

And the Nominees Are ...

There are two Appellate Body positions coming open in the next year.  Reuters reports on the nominees:

Hector Torres (Argentina) - former representative at the International Monetary Fund.

Ellen Gracie Northfleet (Brazil) - supreme court judge.

Ronald Saborio Soto (Costa Rica) - long-serving WTO ambassador.

Peter Van den Bossche (EU - Belgium) - professor at Maastricht University.

Pieter-Jan Kuijper (EU - Netherlands) -  professor at the University of Amsterdam.

Ricardo Ramirez (Mexico) - former deputy general counsel for trade negotiations in the economy ministry.

Reuters explains that "One vacancy must be filled in July, replacing a Brazilian lawyer [Luiz Olavo Baptista] who left earlier this year, and one in December to replace the Italian law professor Giorgio Sacerdoti."  It's probably safe to assume that Sacerdoti's slot will be filled by one of the EU candidates and Baptista's slot will be filled by one of the others.

SIEL/CUP Prize for an Essay on International Economic Law

A prize has been established by the Society of International Economic Law and Cambridge University Press for the best essay submitted on any topic in any field of international economic law.

The competition is open to current students and those who have graduated within the last five years.

The prize consists of £200, as well as £300 of Cambridge University Press book vouchers and a three year subscription to the World Trade Review. The winning essay will be submitted to the World Trade Review for publication.

The closing date for submissions is 30 September 2009.

For submission details and terms and conditions, please see www.sielnet.org/essayprize.

The Trucking Dispute: Not Just About Trade Anymore

The Trucking Dispute is now a NAFTA Chapter 11 investment dispute as well:

After nearly two years of resisting the opening of the U.S.-Mexico border to long-haul trucking operations, the Mexican motor carrier association now is taking the U.S. to “NAFTA court.”

Canacar filed a Notice of Arbitration on Thursday, April 2, claiming the shutdown of the cross-border trucking demonstration program is a violation of the North American Free Trade Agreement.

...

In the notice the group claims that shutting down the program could cost Mexico $2 billion a year.

ADDED:  Now that I think about it, this post was a bit misleading. The original NAFTA Chapter 20 dispute involved not just trade in services, but also the NAFTA investment provisions.  So perhaps what I should have said was, "not just a state-to-state dispute settlement case anymore."  But that wouldn't have been a very catchy title.

Perry Bechky on the G20 and Soft Law

A guest post from blog reader Perry Bechky:

Where does the trade language in the two G20 summit declarations fall on the famous soft-to-hard spectrum in international law?  

The November declaration says, “[W]ithin the next twelve 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.”  (para. 13, emphasis added).  The April declaration describes this sentence as a “commitment,” which the G20 leaders “reaffirm” and add to as follows:  

• “we will rectify promptly any such measures,”
• “we extend this pledge to the end of 2010,” and
•  “we will promptly notify the WTO of any such measures….” (para. 22).

This “commitment” seems deliberately “less soft” than other trade-related language in the declarations (which may also evince a range of “softness”), such as:

• “we recognize,”
• “we underscore,”
• “we shall strive,”
• “we instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary,”
• “we also agree … that each [country] must make the positive contributions necessary to achieve such an outcome,”
• “we will not repeat the historic mistakes of protectionism of previous eras,”
• “we will minimize any negative impact on trade and investment of our domestic policy actions,”
• “we will take … whatever steps we can to promote and facilitate trade and investment,”
• “we remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round,” and
• “we will give renewed focus and political attention to this critical issue … and will use our continuing work and all international meetings that are relevant to drive progress.”  (November Declaration, paras. 12-13; April Declaration, paras. 22-24).  

Finally, it seems that the G20 leaders must regard the following language as pretty soft (and/or subject to a narrow definition of “necessary”):  “We have today therefore pledged to do whatever is necessary to … promote global trade and investment and reject protectionism, to underpin prosperity.”  (April Declaration, para. 4).

So, what does this “commitment” amount to?  Apparently, it is already subject to a TPRM-like compliance review by the WTO and the World Bank.  (See Inside US Trade, 3 Apr. 2009).  Should we expect to see efforts by the G20 to bring other WTO Members into it?  Further efforts to expand its scope or duration?  Diplomatic or other pressures to enforce it?  A consultative or other mechanism to interpret it and resolve disputes about it?  Is there any evidence that such pressures have started already in international discourse – perhaps, for example, in the escalation since November of the longstanding U.S.-Mexico trucking dispute – or in domestic political consideration of existing or proposed measures arguably in tension with this “commitment”?  

Cap and Trade: Coming Soon in the U.S.?

Via Ben Muse, I see this Reuters summary of the trade aspects of the U.S. House draft carbon legislation:

INDUSTRY REBATES/TRADE

Authorizes U.S. companies in industries that use a lot of energy to receive "rebates" to compensate for additional costs of cap and trade. If rebates are not sufficient, the president would have the power to establish a "border adjustment" program, possibly tariffs on goods from countries that do not take action on cutting greenhouse gases.

Hopefully there is a large team of trade lawyers somewhere trying to keep all this consistent with WTO rules!

ADDED:  More details at the Huffington Post:

Preserving domestic competiveness. The draft adopts the Inslee-Doyle proposal for transitional rebates to certain energy-intensive manufacturing facilities making basic commodity products that are subject to strong international competition. The goal is to counter pressures to shift production, jobs, and emissions to countries that do not have carbon emission reduction programs. Rebates cover both direct and indirect (e.g., electricity-related) emissions and are based on a formula based on an industry benchmark emission rate and facility-specific output data.

International reserve allowances. A second provision addresses international competition concerns. Not later than 2017, the President is to report to Congress on the impact of the "Inslee-Doyle" program on specified energy-intensive. If negative impacts are found on these industries, then starting in 2019 U.S. importers of competing products must purchase special allowances to cover the emissions associated with their imports. Products from least developed countries and countries responsible for less than a half percent of world GHG emissions are exempted.

 

The Impact of Labor Restrictions on Free Trade in Goods

I have been thinking a bit more about the Don Boudreaux post I quoted from recently.  I take his point to be that free trade within nations (e.g., within the U.S.) is generally accepted as having economic benefits, so critics of free trade between nations (e.g., WTO trade liberalization) have the burden to explain why the same benefits do not exist in that situation.  Generally speaking, I agree with his point.  But here's what I'm wondering.  One big difference between the "within" nations and the "between" nations scenarios is that within nations there is significant labor mobility.  If an Ohio factory closes and moves to Alabama, workers could move to Alabama themselves.  By contrast, if that factory moved to Mexico or China, moving would be much more difficult.  The current situation for the "four freedoms" could be described as follows:

Trade Within Nations:  Movement of goods, services, capital and labor are all very free.

Trade Between Nations:  Movement of goods and capital are fairly free, services are somewhat free, and labor is not very free at all.

Given this difference, is the argument for free trade in goods stronger within nations than it is between nations?  That is, does the absence of labor mobility mean that the benefits of free trade between nations are less than the benefits of free trade within nations?  Or does that not matter at all, and the benefits of free trade will be the same for each?  (Assuming of course you think there is a benefit from free trade, which I recognize that not everyone does).

WHAT LIES BEHIND BRAZIL'S SUCCESS AT THE WTO? RESOURCES OR A SOLID LEGAL CASE?

In a recent article entitled "THE TRIALS OF WINNING AT THE WTO: WHAT LIES BEHIND BRAZIL'S SUCCESS", the authors ( Shaffer, Ratton Sanchez, Rosenberg ) underline as factors explaining this success:

a) Brazil's successful use of the system through hiring talented U.S. litigators

b)Brazil's sophisticated use of WTO litigation through working with outside attorneys and economic consultants. Over the last years, parties increasingly use econometric studies to support a WTO claim, hiring economic consultants to work with outside lawyers.

They conclude with a pessimistic note for developing countries:

The more that parties use them, the more that this expertise will be required. Smaller, poorer countries are thus more likely to find themselves outside of the legal process and in a traditional bargaining relationship with their major trading partners, a situation in which they are relatively disadvantaged. Alternatively, their best hope is to become a member of the Advisory Centre on WTO Law (ACWL), established in 2001, which provides developing countries with lower-cost legal support for WTO dispute settlement and legal analysis. The ACWL alone, however, cannot resolve a country's capacity  challenges in WTO dispute settlement.

I know that the authors of the article are "legal realists" who like to underline this kind of  institutional aspects. But would not it be  simpler to say that Brazil had a solid case from a legal point of view? Antigua won its case without the resources of Brazil.

NB: The exact reference for the article is 41 Cornell Int'l L.J. 383

Trade versus the Environment: Shipping Pollution

The EPA is proposing regulations to control emissions from large ships:

The United States took a critical step towards protecting Americans from harmful ship emissions by becoming the first country to ask the International Maritime Organization to create an emissions control area (ECA) around the nation’s coastline, the EPA announced today at a joint news conference with the Coast Guard and New Jersey elected officials.

According to the EPA’s data, the creation of an ECA would save up to 8,300 American and Canadian lives every year by 2020 by imposing stricter standards on oil tankers and other large ships that spew harmful emissions into the air near coastal communities where tens of millions of Americans live, work, play and learn. The United States is proposing a 230-mile buffer zone around the nation’s coastline in order to provide air quality benefits as far inland as Kansas.

...

Under this program, large ships such as oil tankers and cargo ships that operate in ECAs will face stricter emissions standards designed to reduce the threat they pose to human health and the environment. These standards will cut sulfur in fuel by 98 percent, particulate matter emissions by 85 percent, and nitrogen oxide emissions by 80 percent from the current global requirements.

To achieve these reductions, ships must use fuel with no more than 1,000 parts per million sulfur beginning in 2015, and new ships must used advanced emission control technologies beginning in 2016.

According to one article, the old rules were not working very well, in part because they did not regulate non-U.S. ships:

The announcement comes a week after the EPA's inspector general issued a report concluding emission regulations for large vessels haven't protected human health. The report concludes the EPA has only moved to regulate nitrogen oxides from U.S.-flagged ships, but hasn't taken a position on foreign-flagged vessels, which produce 90% of the emissions in U.S. ports.

I didn't see anything in the news reports on this story regarding how foreign shippers feel about all this, but it certainly has the potential for some trade conflict.

(As a side note, the reference to places where people "live, work, play and learn" is an interesting variation on the Appellate Body's famous statement in Hormones about "the real world where people live and work and die"!)