International Economic Law and Policy Blog

The Cotton 22.6 Decision(s): A Chance to Test TRIPS Retaliation?

The Article 22.6 Arbitration decision in the U.S. - Cotton case was issued today.  Or rather, the decisions, plural.  There is one decision related to actionable subsidies and one decision related to prohibited subsidies.

So what do they say?  Well, I'm still trying to finish up the impossibly long China - Publications panel report from a couple weeks ago, so I can only take a quick glance right now.  One key issue is "cross-retaliation" under the TRIPS Agreement.  This has been authorized in two previous cases (EC - Bananas (Ecuador) and U.S. - Gambling), but the complaining parties in those cases did not -- well, have not yet anyway -- actually impose such retaliation.  The way Brazil is talking about the case to the media, it seems like this might be the case where it happens.  If it does, it will be very interesting to see how such retaliation works in practice.  The decisions appear to complicate the issue a bit, though, by allowing TRIPS retaliation only under certain conditions.  From para. 6.5(b) of the prohibited subsidies decision:

In the event that the total level of countermeasures that Brazil would be entitled to in a given year should increase to a level that would exceed the threshold described in paragraph 5.201, updated to account for the change in Brazil's total imports from the United States, then, Brazil would also be entitled to seek to suspend certain obligations under the TRIPS Agreement and/or the GATS, as identified in footnote 468, with respect to any amount of permissible countermeasures applied in excess of that figure.

It may take a little while to sort out all the nuances of the decisions.

In terms of the amounts involved, the prohibited subsidies decision says:

Brazil may request authorization from the DSB to suspend concessions or other obligations under the Agreements on trade in goods in Annex 1A, at a level not to exceed the value of US$147.4 million for FY 2006, or, for subsequent years, an annual amount to be determined by applying the methodology described in Annex 4.

The actionable subsidies decisions says:

Brazil may request authorization from the DSB to suspend concessions or other obligations under the Agreements on trade in goods in Annex 1A, at a level not to exceed the value of US$147.3 million annually.

That's from para. 6.5(a) of both decisions.  So, around $295 million in trade sanctions (with some variation in subsequent years).  Not an insignificant amount, but is it enough to be effective?

ADDED:  According to Reuters, Brazil seems to suggest that the figure is actually quite a bit higher:

Brazil said the ruling would entitle it to about $800 million in sanctions against the United States this year, including $340 million of "cross-retaliation" against intellectual property or services.

MORE:  I'm assuming Brazil's higher number comes from the calculation for the most recent year under the methodology established by the arbitrators for future years (after 2006), in relation to the prohibited subsidies decision.  However, I have not come across anything yet to confirm this.

Alan Sykes on Comparative Subsidies Regulation

With the EC - Aircraft Subsidies interim panel report almost upon us, this seems like a good time to talk about disciplines on subsidies.  Alan Sykes' new paper "The Questionable Case for Subsidies Regulation: A Comparative Perspective," available on SSRN, is a good starting point.  Here's the abstract:

"Subsidization” by member governments occurs in the U.S. Federal system, the WTO, and the European Union. These three legal systems have responded very differently to the issues raised by subsidies, from the largely laissez-faire approach of the United States to the elaborate “state aid” rules of the EU to the intricate but weakly enforced rules of the WTO. This paper examines the three approaches asking which, if any, makes the most sense. It argues that the detailed rules of the WTO and EU are largely indefensible from an economic perspective. They fail to identify subsidization in any meaningful sense, and lack the capacity to distinguish socially constructive subsidies from those that are “protectionist” or are otherwise objectionable. The problems are likely irremediable, hinting that a laissez-faire attitude toward subsidies may be the best option.

And from the conclusion:

This paper raises serious questions about the utility of general subsidies disciplines in the WTO that go beyond the nonviolation doctrine and the opportunity for market-by-market commitments, as well as questions about the basic approach to state aid regulation in the EU. For the reasons given, the ability of rules of general applicability to identify and measure subsidization in any meaningful sense, let alone to determine whether it is socially desirable or undesirable, is much in doubt. The laissez-faire approach to subsidies in the U.S. Federal system, therefore, may have much to commend it given the weaknesses of the available alternatives.

In the WTO context, he argues that even the prohibited categories, export subsidies and import substitution subsidies, are too difficult to regulate:

Thus, export subsidies are assuredly a mixed bag from a welfare standpoint. An across the broad prohibition on them seems difficult to defend, however, unless one is prepared to assume (a) that export subsidies are on average welfare-reducing; and (b) tailored rules to sort the good from the bad are too difficult to devise. Although assumption (b) is plausible, the empirical basis for (a) is not evident.

...

The blanket prohibition on import substitution subsidies seems odd. Imagine a subsidy to a domestic purchaser of an Italian tractor equal to 500 Euros, a subsidy that is clearly illegal. Now imagine instead a subsidy to the Italian tractor manufacturer of 500 Euros per tractor sold. If the manufacturer does not export (or if the subsidy to the manufacturer is limited to units sold domestically), the economic effects of the two subsidies are identical. The producer subsidy shifts the supply curve inward, while the purchaser subsidy shifts the demand curve outward by a comparable amount. The effect on the equilibrium number of sales by the manufacturer, and thus the effect on foreign manufacturers seeking to sell tractors in Italy, will be the same. It thus seems peculiar for the law to condemn the purchaser subsidy but potentially to allow the producer subsidy.

I've actually been wondering recently if WTO subsidies disciplines, and U.S. disciplines as well, need to be strengthened in response to the recent, widespread government bailouts, not to mention tax incentives like these.  But the paper certainly makes some good points as to why it is difficult to come up with a coherent and effective subsidy regulation regime. 

This issue probably requires a lot more detail than I have time to put into it right now, and hopefully some day I'll come back to this.  But very briefly, my view on this is similar to my view of non-discrimination requirements:  Subsidies should be prohibited (in the general sense of that word, not the SCM Agreement Article 3 sense) where their "intent" and "effect" is to favor domestic over foreign goods/services/companies/industries.  If the degree of the combined protectionist intent and effect reaches a certain level, a violation will be found.  Relevant considerations for both intent and effect could be defined in advance to help with this analysis.  For example, where the subsidy measure explicitly favors domestic over foreign companies, this could be evidence of both intent and effect.

(As a side note, an obvious caveat here is that many, perhaps most, people are wary of looking at intent.   Nevertheless, it seems to me that even where intent is not formally part of the analysis, people are often looking at it anyway.  Thus, it's better to make it a formal element, so the analysis can be more transparent.)

One final note:  If I try really hard, I can just about convince myself that the current SCM Agreement rules reflect my view! ;) 

Yet More on Solar Panel Dumping

As a follow up on these two posts, The Australian reports the following:

THE Coalition has called for an urgent investigation into the potential dumping of cut-price Chinese solar panels into Australia, which threatens to undermine a fledgling domestic solar power industry.

Federal opposition environment spokesman Greg Hunt wrote to counterpart Peter Garrett after it emerged China's leading solar cell producer, Suntech, had admitted selling in the US at below cost to establish market share. "Australia may be or become subject to the dumping of solar panels at below the normal cost of production in our marketplace," Mr Hunt said in a letter to the Environment Minister.

Is There a Tires - Auto Parts Link?

As I mentioned earlier today, China has said it will implement the China - Auto Parts WTO decision by removing the offending measure (we don't have the full details yet as to what exactly they will do).  A Reuters article on this issue makes an interesting point:

China's move to comply with the WTO ruling in the auto parts case came weeks before President Barack Obama is required to decide by Sept. 17 whether to restrict imports of Chinese-made tires in a trade case brought by union workers.

So, is there some kind of link here?  Did China decide to implement fully in the hopes of getting better treatment from the Obama administration on the Tires issues?  I'm not very in tune with all the behind the scenes maneuvering in these cases, but it seems possible.  On the other hand, the reasonable period of time for China to implement Auto Parts expires September 1, so perhaps this was just something they were planning to do anyway, and it happens to coincide with the Tires decision.

Is There Something Other Than a Good or a Service?

There has been plenty of discussion, in various places, about whether a particular item is a good, a service, or has aspects of both.  But is there a category outside of goods and services?  This is from fn. 394 of the China - Publications case:

China considers that a motion picture is an intangible artistic work (content) and constitutes neither a good nor a service.

China's Implementation in WTO Dispute Settlement

A lot of people have been wondering how China will implement adverse WTO rulings.  Well, here's an indication from the China - Auto Parts (DS339,340,342) dispute:

China is expected to next week scrap higher tariffs on imported auto parts after World Trade Organization last year ruled that they were unfair, state media said Friday.

The move would put an end to the four-year-old regulations that increase the levy on the imports if they make up too large a share of the finished home-made automobiles.

The commerce ministry and other government agencies will issue a joint statement Tuesday abolishing the rule, the Shanghai Securities News reported, citing unnamed sources with the China Association of Automobile Manufactures

Sometimes it is not immediately clear whether proposed implementation actually complies with a ruling, but "scrapping" the tariffs and "abolishing the rule" sure sounds like it would constitute compliance.

The point of the tariffs/charges (allegedly) on imported parts was to encourage Chinese car-makers to use more local content.  The WSJ notes that this has been happening anyway, which perhaps explains why China was so willing to implement:

"There's only a very small percentage of car makers who have not reached the 40% local content," said Gerwin Ho, an analyst at Citi. "That's why Beijing is not so hung up on this."

Local content in China-produced Daimler AG's Mercedes-Benz C-Class sedans will reach 40% next month, while local content for the extended E-Class will also reach 40% when the vehicle is launched in mid-2010, Northeast Asia Chairman and Chief Executive Ulrich Walker said recently.

Will China be the "OPEC of Rare Earth Metals"?

From the Times Online:

Global supply of the rare-earth metals [the “green” lanthanide metals used in hundreds of environmental and military technologies], which are vital to the mechanisms of hybrid cars, wind turbines, iPods, lasers, super-efficient light bulbs and radar systems, is 95 per cent controlled by China.

The country’s dominance of the market is the result of a deliberate, 20-year bid by Beijing to cast itself as the “Opec of rare earth metals”

And what are the trade implications:

The Chinese threat of an export ban on minerals critical to the modern world may end a phase of polite negotiation between Tokyo and Beijing on the issue. A senior Japanese official told The Times that if China does ban some rare earth metal exports by 2015, Japan may use the WTO to block such an action.

More on Trade in Solar Panels: The Dumping Issue

The other day, I quoted a NY Times article about Chinese production of solar panels as saying:

Even with Suntech acknowledging that it sells below the marginal cost of producing each additional solar panel — that is, the cost after administrative and development costs are subtracted — any antidumping case, in the United States, for example, would have to show that American companies were losing money as a result.

Then in a comment on the post (in response to a related point), I said:

What interested me about the anti-dumping point was the statement that "Suntech acknowledg[es] that it sells below the marginal cost of producing each additional solar panel." I'm not sure what this means exactly, but I couldn't help thinking, why would Suntech admit this given the possibility of an anti-dumping action?

Apparently I was not the only one who noticed this.  The Times has another article today with a correction of sorts:

Shi Zhengrong, the chief executive and founder of Suntech Power Holdings, said in a telephone call Wednesday that he had misunderstood the question when he said twice in a recent interview that his company was selling panels in the United States below the marginal cost of producing each additional unit.

...

He said the price that Suntech charged for each solar panel more than covered the production costs and therefore was above the marginal cost. But the administrative costs of running the subsidiary are fairly high on a per-module basis because the company is still building sales. The marginal cost of selling manufactured goods is the cost of producing one additional unit — typically the incremental cost of materials, assembly and shipping — excluding virtually all administrative costs.

...

His revised remarks underlined the attentiveness of Chinese solar panel makers to complaints from Western manufacturers about China’s lower prices and rising market share.

Clearly, this is a sensitive issue!

 

The Clove Cigarette Case: Indonesia Goes to the WTO

Not a DSU complaint yet, though. Just a communication to the TBT Committee.  Here's a link:  http://docsonline.wto.org:80/DDFDocuments/t/G/TBT/W323.doc  (Note that it's a Word document).  In the communication, Indonesia briefly sets out the legal issues, and then has the following questions for the U.S.:

(a) Section 907 prohibits a cigarette or any of its components from containing a natural or artificial flavour (other than tobacco or menthol) or an herb or spice. Why was menthol singled out as the only flavour, herb, or spice excluded from this provision.

(b) We know that clove cigarettes are an important industry in Indonesia. Are clove cigarettes also produced domestically in the United States?

(c) Section 907 further indicates that the prohibition on a natural or artificial flavour, herb or spices applies if it is “a characterizing flavour” of the tobacco product or the tobacco smoke. However, the bill does not define what elements of a cigarette constitute a “characterizing flavour”.  How does FDA plan to interpret the concept of a “characterizing flavour”?

(d) Cigarettes contain many ingredients other than tobacco. Under Section 907, how will it be possible to distinguish certain “ingredients” from “characterizing flavours”?

(e) Menthol is an artificial flavour derived from mint, which is clearly an herb or spice.  Does the United States believe that menthol cigarettes would fall under the provisions of Section 907 and would be prohibited absent the exception granted in the bill?

(f) Physically, both clove and menthol cigarettes contain tobacco with an herbal flavour additive with soothing properties.  The end use of both clove and menthol cigarettes is the same, i.e., both are used to smoke tobacco.  Does the United States believe that clove cigarettes and menthol cigarettes are like products?

(g) A primary purpose of the bill, as stated in the bill’s finding, is to reduce the incidence of youth smoking.  The findings further indicate that additional regulation of tobacco products and tobacco marketing is necessary to prevent under-age youth from obtaining cigarettes.  However, the evidence available to us indicates that many more youth smoke menthol cigarettes than clove cigarettes.  Are you aware of any data to the contrary that indicate clove cigarettes are used by youth in greater quantities than menthol cigarettes?

(h) The WTO does allow members to take measures to protect human health, but these measures must be based on sound science. Are you aware of any scientific studies that show that clove cigarettes pose a greater health risk than menthol cigarettes?

(i) Several of the other flavoured cigarettes that would be prohibited by Section 907 (e.g., cherry, strawberry, chocolate) were created and marketed to appeal to youth. Clove cigarettes have been sold for decades and are not marketed to youth. Clove cigarettes are sold primarily through speciality tobacco shops.  Are you aware of any specific advertising of clove cigarettes that has been viewed as targeting or appealing to youth?

(j) Flavoured cigarettes other than menthol are banned under Section 907. Menthol cigarettes will be subject to study and regulation by the FDA.  Why is it necessary to ban other flavours but only necessary to study and regulate menthol cigarettes?

For background, see these posts:

http://worldtradelaw.typepad.com/ielpblog/2009/06/the-clove-cigarette-issue-and-the-impact-of-wto-rules-on-government-regulation.html

http://worldtradelaw.typepad.com/ielpblog/2009/06/more-on-kreteks.html

http://worldtradelaw.typepad.com/ielpblog/2009/06/canadian-tobacco-ban.html

http://worldtradelaw.typepad.com/ielpblog/2008/08/kreteks.html

http://worldtradelaw.typepad.com/ielpblog/2007/08/another-wto-sin.html

 

Filmmaking Subsidies

Speaking of subsidies to service industries, as we were recently, the Economist recently had a good piece on U.S. state subsidies to support filmmaking:

All but seven of America’s 50 states now offer incentives to lure filmmakers. Some states refund a portion of in-state production costs, which may include actors’ salaries. Others issue rebates against state taxes that can be sold to local residents. The club is growing quickly. California, which resisted subsidies for years, recently approved its first clutch of recipients. Kentucky is considering its first application.

So, is this a good strategy for the states?

The continuing bidding war is likely to result in diminished returns for the states. Michigan’s subsidies, once considered improbably lavish, may soon be matched by Washington, DC. Alaska has approved a 44% rebate, although production companies must film in rural areas during the state’s gruelling winter to qualify for the full sum. Whatever the benefit to the states, however, the subsidies are becoming ever more important to Hollywood.

It seems to me that if everyone is subsidizing, the main beneficiary will be the film companies, whose costs are now much lower.  The states will end up in the same position, only with less revenue.  Perhaps, then, they would be better off if they just agreed not to subsidize anymore.

Of course, the problem is, the first movers in this kind of subsidy battle may get an advantage:

Some of the first places to offer rebates, such as New Mexico and Louisiana, now have impressive sound stages and a deep pool of production workers.

As a result, it is very difficult to come up with effective disciplines here.  That's not to say it isn't worth trying, though.

Trade and Solar Power

From a NY Times article about Chinese production of solar panels, here are several trade issues that arise:

Subsidies

Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.

Buy America and Foreign Investment

The American economic stimulus plan requires any project receiving money to use steel and other construction materials, including solar panels, from countries that have signed the World Trade Organization’s agreement on free trade in government procurement. China has not.

In response to this, and to reduce shipping costs, Suntech plans to announce in the next month or two that it will build a solar panel assembly plant in the United States, said Steven Chan, its president for global sales and marketing.

“It’ll be to facilitate sales — ‘buy American’ and things like that,” Mr. Chan said, adding that the factory would have 75 to 150 workers and be located in Phoenix, or somewhere in Texas.

Anti-Dumping

Even with Suntech acknowledging that it sells below the marginal cost of producing each additional solar panel — that is, the cost after administrative and development costs are subtracted — any antidumping case, in the United States, for example, would have to show that American companies were losing money as a result.

How Not To Avoid Anti-Dumping Duties

From the AP:

 A Chinese executive has pleaded guilty in a plot to smuggle adulterated honey into the United States, one of two criminal cases on the subject filed this year.

Boa Zhong Zhang, vice president of Changge Jixiang Bee Products Ltd. in Henan Province, China, pleaded guilty Wednesday in U.S. District Court in Seattle to conspiracy to smuggle goods into the country by using false statements and to introducing adulterated foods into interstate commerce.

Zhang, who worked at the company for 30 years, faces up to five years in prison and a $250,000 fine when he is sentenced Nov. 30.

Still facing charges in the case is Chung Po Liu, 68, of Bellevue, owner of Rainier Cascade and Evergreen Produce.

Both were charged with arranging to ship $1.6 million worth of honey to Thailand and the Philippines and relabel it as originating in those countries to avoid paying $3.3 million in U.S. punitive antidumping tariffs on honey from China.

I think I can say with almost complete certainty that these folks were not following the advice of their trade lawyers.

The Problem of Waste Disposal in International Trade

A city tries to make sure its electronics waste does not get sent overseas:

Seven months after one company bid on a $40,000 contract to recycle the electronics Jacksonville residents put out with their trash, City Hall plans to start over from scratch.

The reason: fear that those old televisions and computers might be dumped half a world away and end up poisoning people.

The city has no evidence the lone bidder, Recycling E-Scrap, is doing anything improper.

“He may be doing everything aboveboard,” said Chris Pearson, chief of the city’s Solid Waste Division.

But months of questions and follow-ups about how e-waste would be disposed of ended with the sides divided over what assurances are reasonable. The city is warehousing scrap electronics until a recycler is hired.

“They were wanting me to guarantee where it was going after I sell it to a customer, and I can’t do that,” said Jack Jones, the company’s owner. Some of Jones’ customers do business in China and Vietnam, countries known for electronics dumping, and he said what they do there is their responsibility, not his.

Pearson said he and the city’s lawyers want to be sure Jacksonville’s waste isn’t part of a global trade that ships electronics overseas to be stripped of valuable materials in unsafe, environmentally harmful conditions.

The exchange reflects the murkiness surrounding a large part of the electronics recycling industry.

...

Mountains of obsolete personal computers, televisions and videocassette players have been shipped to Third World countries as salvage during the past 20 years. At the same time, generations of new equipment and tighter controls on American landfills have raised pressure on cities and companies to find reliable means of disposal.

The United Nations tried to limit international waste dumping through the Basel Convention, a treaty negotiated in 1989. But the United States never ratified the treaty, meaning it’s not enforceable here.

Panel Report on China – Publications/AV: New Jurisprudence on WTO-Plus Obligations

The Panel Report, released on August 12, has been briefly discussed on this blog (here and here). Among its many interesting aspects, the Panel report is the first to interpret a major “WTO-plus” obligation of China – the trading rights obligation. Almost half of the pages in the Panel’s findings were devoted to the claims on trading rights. (The other half dealt with the claims on the right to distribute imported cultural products under GATS and GATT Article III.)

The trading rights obligation requires China to allow everyone, domestic or foreign, to engage in imports and exports of all goods except for a list of products specified in the Accession Protocol. That list contains dozens of commodities, such as grains, cotton, and fertilizers, the importation of which is reserved for specific state trading enterprises. Cultural products (books, newspapers, AV products, etc.) are not on the exclusion list, but China has not allowed non-SOEs to import these products, for which the U.S. sued. The trading rights obligation is “WTO-plus” because WTO rules do not prohibit state trading or import monopolies, nor do they limit the scope of state trading in any specific products. The main WTO disciplines on state trading are GATT Article XVII (nondiscrimination requirements) and Article II:4 (no price markup by import monopolies).

 

The interpretation of the Accession Protocol presents a special challenge, mainly because the Protocol contains numerous China-only rules that differ from the requirements of WTO multilateral agreements, but does not explain how the China-only rules should fit into the WTO rule structure. Furthermore, the Protocol does not articulate any rationale, or purpose and object, of the China-only rules. The trading rights provisions are a typical example of such a problem. Given the difficulties, the Panel did a very respectable job. It was very careful to keep its analysis on narrow grounds. And its analysis on the relationship between imports and importers was well made in my view. 

One of the Panel’s tasks was to fill the “legislative” gap on the relationship between the trading rights provisions of the Protocol and the GATT. The Protocol does not contain any general policy exception, and China invoked GATT Article XX(a) as a defense for its apparent breach of the trading rights obligation. As Simon has already commented, the Panel avoided dealing with this systemic issue, and instead followed the AB’s method of using the arguendo technique. (See a recent post on this technique. This technique, however, will only work when the judges have predetermined that the defense should fail. There is therefore a limit on how long this technique can be used to avoid addressing an underlying systemic issue.) 

 

Nonetheless, the Panel did develop the “necessity” jurisprudence under Article XX in the context of the trading rights obligation. Specifically, the Panel added a new factor to the weighing and balancing process: the restrictive impact of the measures on the right to import (in addition to the three factors to be considered under exiting jurisprudence, namely, importance of the policy objective, restrictive impact on trade, and contribution of the measures to the objective.) The Panel stated in para. 7.788: 

[W]e think we should weigh not only the restrictive impact the measures at issue have on imports of relevant products, but also the restrictive effect they have on those wishing to engage in importing, in particular on their right to trade.  In our view, if Article XX is assumed to be a direct defence for measures in breach of trading rights commitments, it makes sense to consider how much these measures restrict the right to import.  This would appear to parallel a situation where a Member imposes a WTO-inconsistent ban on imports of products and where an Article XX defence requires examination of how much the ban restricts imports of those same products. Accordingly, we find it appropriate to consider two different types of restrictive impact in this case. (footnote omitted)

The consideration of this new factor appears to be critical, judging from the conclusion in para. 7.863:

Based on the above examination of the relevant factors, we can now come to a conclusion whether, overall, the requirement that publication import entities must be wholly state-owned enterprises is "necessary" within the meaning of Article XX(a).  In weighing and balancing the relevant factors, we note, first of all, that the protection of public morals is a highly important governmental interest and that China has adopted a high level of protection of public morals within its territory.  This said, as explained above, we have not been persuaded that the requirement in question makes a material contribution to the protection of public morals. Also, while it is unclear from the evidence on record to what extent, if any, the requirement in question limits imports of relevant products, it is clear that it completely excludes particular types of enterprise in China from the right to engage in importing.  Weighing these factors, we reach the conclusion that China has not demonstrated that the requirement in question is "necessary" to protect public morals in China. (emphasis added)

Apparently, the U.S. did not submit evidence on the adverse impact on trade, whereas China demonstrated that imports had been increasing significantly. Hence, if the Panel had considered the restrictive impact on imports alone, the balance could have tilted the other way. The lack of evidence may well be attributable to the inherently opaque nature of state trading, but it is also a fact that China does not maintain tariffs or quotas on cultural imports, and there was no accusation that the import monopolies engaged in price markups prohibited by GATT Article II:4. 

The limited impact on trade in this case is understandable if we realize that the restriction on the right to import cultural products was adopted for political, rather than economic/protectionist reasons, although it inevitably has economic consequences. By maintaining state monopoly in dealing foreign cultural products, the Chinese authorities can rely on the personnel of selected SOEs to police the imports. In other words, the Party can trust the personnel of selected SOEs in a way it cannot with private entities to carry out its opaque and capricious censorship policies. (Interesting, this crucial “trust” factor was not explicitly presented in China’s arguments before the Panel.) 

So, was the Panel correct to examine the restrictive impact on the right to trade, using an analogy to Article XI, in determining “necessity” under Article XX? The answer may depend on your understanding of the purpose of the trading rights obligation. (Note that the Panel did not discuss the object and purpose of the Protocol provisions at all.) If you think the right to trade is meant to ensure market access for cultural products, then the Panel’s approach may seem problematic since the market access for cultural imports does not appear to be impeded under the import monopoly (other than as a result of the censorship, but the Panel decision does not require China to reduce censorship, only the way it is conducted). On the other hand, if you see the purpose of the right to trade as not only to ensure market access for the products, but also to compel China to adopt a market-based economic system, then the Panel’s approach would seem correct. However, a further question needs to be considered: What is the purpose for the WTO to compel China to adopt a market-based system? Is it to ensure liberalization of trade, or something beyond trade and economic interests?

In this respect, the trading rights provisions raise a similar question as the SPS/TBT provisions on international standards, that is, whether the novel disciplines are intended to prevent protectionism, or to achieve something beyond that. This is ultimately a question about the mission of the WTO. Unfortunately, the WTO judiciary has a tendency to shun such systemic issues in their analyses. The Panel report in this case is no exception. 

Given the political nature of the trading rights measures (note that they are different from the measures restricting distribution rights under GATS and GATT, for which China did not invoke public morals defense), I would not be surprised should China refuse to comply with an adverse ruling upon appeal. In that event, the result could be similar to U.S.-Gambling, except that it is not clear how China could seek revision of its accession terms. A more feasible solution might be for the US and China to reach some kind of compromise regarding implementation. 

For discussions on these issues and more on the challenge of interpreting WTO-plus provisions, see my article here.

Will “Zeroing” Be (Ever) Zeroed?

As you may have already known by now, the AB has issued yet another anti-zeroing decision. (United States- Measures Relating to Zeroing and Sunset Reviews — Recourse to DSU Article 21.5 by Japan) Even before this report, we all know that the AB has firmly established an anti-zeroing jurisprudence through a series of consistent yet evolving decisions. The next question is whether this jurisprudence will (or can) zero the zeroing practice, once and for all. Technically, zeroing is currently one of many "Doha" agendas, although the Negotiating Group on Rules has made no substantial progress amid diametrically opposite positions between the United States and the Friends of Antidumping. The Chair of the Group once conceded that there simply existed "no hints on possible middle ground approaches nor suggestions for possible compromises or trade-offs." (WTO, Negotiating Group on Rules, Working Document from the Chairman, TN/RL/W/232, May 28, 2008, at 1, A-10, A-11)

One might reasonably speculate that the U.S. would attempt to override the AB’s anti-zeroing case law at the Doha Round negotiation. (See today’s FT coverage) In fact, the U.S. policymakers and politicians have argued that this issue is a matter of negotiation, not of litigation. According to them, the AB’s anti-zeroing case law is a form of unhealthy judicial activism. The U.S. might take the Doha Round hostage for the zeroing issue. So, this zeroing issue might be a phantom menace looming over the Doha Round.

A more interesting (and more fundamental) question is whether this "negotiation" can, or should, trump the AB’s firm jurisprudence. To me, this specific AB jurisprudence, considering its background, format, clarity, intensity, consistency and coherence, is close to the so-called "constitutional common law" which may survive an ordinary legislative overriding and be reversed by a constitutional amendment. Within the context of the WTO, this means that a mere negotiation, even if the U.S. position were to prevail (which I strongly doubt), cannot change the AB’s anti-zeroing jurisprudence. (See my paper addressing these issues.)

Then, how about a formal amendment (Article X of the WTO Agreement) or an authoritative interpretation (Article IX of the WTO Agreement)? Of course, the current zeroing negotiation, although really tedious in its pace, eventually aims for an amendment of relevant provisions (such as Articles 2.4 and 9.3) of the WTO AD Agreement. Perhaps, the U.S. might want to maintain a rather grey legal status of zeroing, that is to say still vulnerable to WTO litigation yet not illegal per se in a legislative sense, as long as the negotiation remains stalled. However, the most interesting question is what if other members, such as Japan, suddenly initiate a formal process of amendment or authoritative interpretation which aims to "codify" the AB’s sweeping anti-zeroing jurisprudence? Under the formal decision-making process in Articles IX and X, a two-thirds or three-quarters majority can make this happen in case there is no consensus. To the best of my knowledge, such majority can be easily obtainable given the low popularity of zeroing among WTO members. After all, it seems hard to find WTO members enthusiastic about zeroing, except for the U.S.

What do you think?

Damages: Investor-State Versus State-to-State

What's the difference in assessing damages as between investor-state dispute settlement and state-to-state trade disputes?  Well, with state-to-state, enforcing a successful complaint often revolves around the fuzzy concept of nullification or impairment, and it's up to the aggrieved state to come up with its own trade retaliation, which then gets challenged by the responding party, and in some cases eventually gets applied, to varying degrees of success.  Kind of a mess.

By contrast, with investor-state, it's a nice, clean, round number.  In the Corn Products International NAFTA Chapter 11 case, that number was $58.386 million:

In an award rendered August 18, 2009, the Tribunal awarded damages to the Company in the amount of $58.386 million, representing lost profits in Mexico as a result of the tax and certain out-of-pocket expenses incurred by CPIngredientes, together with accrued interest.

More on the case, from Luke Peterson, here.

So how about applying this approach at the WTO?  With regard to this question, I'll just recall this recent post on an Alan Sykes paper on this issue.

How To Address Other Countries' Protectionism

Economist Don Boudreaux says:

The whole world would be made better off – but the Chinese people especially – if Beijing took a more hands-off approach to trade (and every other economic) policy.  But Americans would be made worse off if, under the pretext of ‘responding’ to Beijing’s misguided trade policy, Uncle Sam ramped up his own mercantilist policies.

...

It’s true that Americans would be better off if Beijing pursued laissez-faire economic policies.  But, practically, that’s none of our business.  Understand that it’s also true that you’d be better off if your next-door neighbor saved more, for each addition to the capital stock increases worker productivity and total output.  Surely, though, you would not reduce your own savings rate simply because you determine that your neighbor is saving too little.  Would you?

I'm very sympathetic to the argument that the response to other countries' protectionism should not be protectionism of our own.  However, I wonder how far Boudreaux would go with the "none of our business" view.  For those who believe in free trade, is there some other effective response to foreign protectionism?  If we believe that certain policies are better than others, are there appropriate ways to promote them?  At the very least, we could say what we think the best policies are (even if we don't always practice them!).

Mexico and the U.S. discuss the NAFTA/WTO Overlap

Following-up on this post, here are some more details, from the April 20, 2009 DSB meeting, on the NAFTA/WTO overlap in the new tuna-dolphin dispute:

77. The representative of the United States said that his country was disappointed that Mexico had chosen to move forward with its request for panel establishment a second time. .... In addition, the United States was very concerned that Mexico was proceeding with this request for another reason. On 24 March 2009, the United States had invoked Article 2005(4) of the North American Free Trade Agreement (NAFTA). In that provision, the NAFTA parties had agreed that certain disputes which pertained to matters arising under the WTO Agreement and the standards-related provisions of the NAFTA, and which concerned 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 met the criteria set out in that NAFTA provision, and the United States had the right to have this dispute considered under the NAFTA. The United States understood that a panel would be established at the present meeting. The United States deeply regretted 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 their free trade agreement, and their invocation of that provision. The United States urged Mexico to reconsider its position. The United States would also be considering its options moving forward.

...

79. The representative of Mexico said that his delegation wished to comment briefly on the
statement made by the United States, and in this connection, it wished to underline a couple of issues both for the benefit of the other Members and in the interest of transparency, as well as to acknowledge the importance that Mexico attached to NAFTA. After the first request for the establishment of a panel, the United States had requested Mexico's authorities that this matter be resolved under the NAFTA dispute settlement mechanism indicating that certain provisions of NAFTA were applicable in this dispute. Mexico had always acknowledged the importance of NAFTA's dispute settlement mechanism. However, having examined that request carefully, Mexico's authorities had concluded that the provisions cited by the United States did not apply in the present dispute. Mexico had replied promptly to the United States explaining the foregoing. In that reply, it had also pointed out that, besides the legal considerations, this dispute dealt with issues that had important multilateral implications that had to be resolved in the WTO. Many countries had indicated informally that they wished to take part in, or follow up on, the dispute which would not be possible under NAFTA proceedings. Mexico considered that the substantial interest prompted by this case at international level ought also to be taken into account. Accordingly, Mexico reiterated its request for the establishment of a panel in order to settle this dispute in the WTO.

80. The representative of the United States said that the present meeting was perhaps not the best place to debate the meaning of NAFTA's dispute settlement provisions. However, in light of Mexico's comments, it might be helpful to say that, at the time the NAFTA had been 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. The United States was 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 was a cause for serious concern. The United States appreciated Mexico's acknowledgment that the international community may have an interest in this dispute. The United States hoped that it could count on Mexico's cooperation in making sure that the proceedings in this dispute – whether in the WTO or under the NAFTA – were as transparent as possible, including by making submissions publicly available when filed and by opening the panel hearings to public observation.

The new part here, beyond what was in the old post, is Mexico's view of the issue.

NAFTA Article 2005 provides:

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 hope Mexico and the United States can keep this from escalating.  The prospect of Mexico pursuing its WTO complaint and then, in response, the U.S. bringing a NAFTA complaint alleging a violation of Article 2005(4), is not very appealing.  It would certainly be interesting to watch, but might not be very good for the trading system.

 

 

China To Appeal the China - Publications/AV Products Decision

That was quick.  From Reuters:

"We think it was improper for the WTO not to reject the U.S. request," the spokesman, Yao Jian, told a news conference in Beijing. "Based on the WTO schedule, we are preparing the documents necessary to lodge an appeal."

Here's my question:  Why announce this now, rather than waiting until the last minute before the appeal deadline?  I would think there would be some strategic advantage to waiting, so as to give your opponent less time to prepare.  If they know you are going to appeal, they are more likely to start preparing for the appeal right away.

On the other hand, is there some benefit to announcing early that you will appeal?  Could it be used as a bargaining chip for some related matter (i.e., we'll withdraw the appeal if you do X)?

UPDATE:

Jonathan Lynn of Reuters tweets:

rowing back? China MOFCOM transcript changes what said in pressconf on WTO appeal: "does not rule out possibility" from "actively preparing"

It also occurs to me that the original quote does not say they are going to appeal.  Rather, it says they are "preparing the documents" for an appeal.  Hmm.

Quick Thoughts on the China - Publications/AV Products Panel Report

Some first impressions of the panel report, based on what I've read so far:

-- it has some very interesting issues.

-- it's very well-written.

-- it's very, very long.

More later.

ADDED:

When I say it's well-written, I don't mean to imply that it's an easy read.  Rather, I mean that the Panel explained some difficult issues (the GATS claims in particular) as clearly as they can be explained.

MORE:

Here is a good Forbes op-ed from former AB Member Jim Bacchus.  (The article explains that he was, "counsel to the China Copyright Alliance, the coalition of associations representing the American motion picture, sound recording and book publishing industries formed to provide legal support to the United States in its WTO copyright cases against China.")

Pietro Poretti on the GATS and Services Subsidies

Not everyone reads the comments on this blog, so I thought I'd put this very good comment by Pietro Poretti up as a post: 

I would like to add a few thoughts to the captivating discussion on GATS and financial services bailouts and, more generally, on services subsidies.

The GATS does not contain any ad hoc disciplines on subsidies and the ASCM only applies to subsidies to manufacturers (Annex to 1A “Multilateral Agreements on Trade in Goods”). GATS Article XV is a negotiating mandate (one of the “Uruguay Round leftovers, with GATS Articles VI para.4, X, and XIII). In itself it does not establish any discipline either. It merely requires, at para.2, that sympathetic consideration be given to the request for consultations by a Member that considers itself adversely affected by a subsidy of another Member. Negotiations on GATS Article XV started at the end of 1995 under the auspices of the Working Party on GATS Rules (WPGR). It is safe concluding that they have not gone far.

I limit my post to the following relevant issues: (1) the scope of the GATS, (2) the scope of the National Treatment provision, and (3) the prudential carve-out of the Annex on Financial Services.

Subsidies are “measures by Members affecting trade in services” within the meaning of GATS Art. I:1. They are therefore covered by the existing GATS framework, including by provisions such as National Treatment, MFN, Art. VIII on Monopolies and Exclusive Service Suppliers, and Transparency. In particular, the applicability of National Treatment to subsidies is confirmed by para. 9 of GATT Document MTN.GNS/W/164, 3 Sep. 1993 ‘Scheduling of Initial Commitments in Trade in Services: Explanatory Note, stating “Article XVII applies to subsidy-type measures in the same way that it applies to all other measures …”. I don’t think the Explanatory Note adds anything to GATS Art. I:1. In the light of the exclusion of subsidies from the scope of the GATT National Treatment obligation (GATT Art. III:8(b)), this clarification is nevertheless helpful.

The lack of a definition of subsidy is not in itself an obstacle to the application of National Treatment. What matters is whether a given measure (regardless of whether we call it a bailout, a rescue or a restructuring intervention, and regardless of its form) affects trade in services. Bailouts, as described in Todd Tucker’s post, certainly affect trade in services. “As the Wall Street Journal recently noted, banks like Goldman Sachs that benefited from government largesse and thus weathered the storm, certainly have a leg up on the competition. Meanwhile, no foreign bank got TARP money, or had access to many of the other bailout programs. Banks that did not have access to these bailout funds and found themselves eliminated from competition […]”.

National Treatment applies to subsidies affecting every service activity with the two following exceptions: (1) subsidies affecting services supplied in the exercise of governmental authority (GATS Art. I:3 b and c) and (2) subsidies affecting traffic rights and services directly related to the exercise of traffic rights (Annex on Air Transport Services, Art 2.). Bailouts of airlines would therefore remain untouched by existing GATS rules, including National Treatment, unless they affect trade in aircraft repair and maintenance, the selling and marketing of air transport services and computer reservation systems (see Annex on Air Transport Services, para.3).

It remains to be determined what measure of discipline can National Treatment exert on services subsidies. GATS Art. XVII provides for foreign like services and service suppliers be treated no less favourably than domestic ones. GATS Art. XVII does not go any further in specifying who has right to a subsidy. It stops at “like services and service suppliers”. In this respect, the Explanatory Note provides at para. 10 that “There is no obligation in the GATS which requires a Member to take measures outside its territorial jurisdiction. It therefore follows that the national treatment obligation in Article XVII does not require a Member to extend such treatment to a service provider located outside the territory of another Member”. (para. 15 of the Guidelines for the Scheduling of Specific Commitments under the General Agreement on Trade in Services (GATS),WTO Document S/L/92, 28 Mar. 2001, has the same language).

The Explanatory Note clearly reduces the territorial scope of the National Treatment provision for the purpose of subsidies. Accordingly, Members are not requested to extend positive measures to services or service suppliers located outside of their territory. National Treatment nevertheless applies to foreign investment (or Mode 3 of Supply-commercial presence) in the financial services sector, regardless of the form and organization of the investment vehicle. In this respect, GATS Art. XXVIII (d) states “commercial presence means any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a personal juridical person, or (ii) the creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of supplying a service”.

Bailouts should therefore be administered on a National Treatment and not discriminate against “like” financial services suppliers present in the territory of the intervening Member. The GATS National Treatment obligation, however, is a conditional obligation. This is why, I think, commentators tend to assess the efficacy of National Treatment for the purpose of subsidies as quite limited. In fact, its actual efficacy can only be determined on a case-by-case basis, based on the commitments undertaken by the subsidizing Member. Limitations on National Treatment for subsidies can be horizontal (i.e., apply to all sectors inscribed in a Member’s schedule of specific commitments) or sector-specific.

If a Member entered the relevant activity in its schedule and does not maintain any limitation on subsidies, then National Treatment fully applies. Such a Member gave up its freedom to discriminate against foreign like service suppliers located in its territory. Not making bailouts or other forms of intervention accessible to subsidiaries or branches of located in its territory would violate its National Treatment commitments (if, of course, “likeness” can be established). As mentioned above, the form of the governmental intervention is not decisive for the application of National Treatment, as long as the measure in question “affects trade in services”.

A final element that needs to be mentioned is contained in para. 2(a) of the Annex on Financial Services itself, stating “Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement”. This provision, also known as the “prudential carve-out” might provide a safe harbour for those measures that can be justified on systemic and stability grounds. The measures put in place by the Swiss Government go in this direction. Those who can read German might want to visithttp://www.admin.ch/ch/d/ff/2008/8943.pdf (Botschaft zu einem Massnahmenpaket zur Stärkung des schweizerischen Finanzsystems, para. 7.2.3).

Like any other measure affecting trade in services, a subsidy violating the National Treatment obligation can be challenged through the dispute settlement system. The non-violation complaints instrument (impairment and nullification of benefits) might also be considered. In practice, however, and as concluded by Simon, it is unlikely that the boundaries of the rules will be tested (glass house effect).

I stop here with what already looks like a very long post. More can (and probably should) be said and discussed, including on the nature of certain bailouts and on the effective use of the prudential carve-out in the financial services sector. I would like to draw your attention to an interesting study which was posted on this blog not too long ago: Van Aaken / Kurtz (2009) The Global Financial Crisis and International Economic Law, pp. 5-12, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1417957#

For those who can wait another 4-5 weeks, I suggest Pietro Poretti “The Regulation of Subsidies within the General Agreement on Trade in Services- Problems and Perspectives”, Kluwer Law International, forthcoming (Fall 2009).

GATT Article XX as a Defense to Agreements Other Than the GATT

From today's China - Publications and Audiovisual Products report:

7.743 It is clear that the WTO Agreement includes the GATT 1994, and that the GATT 1994
includes Article XX(a). Nevertheless, China's invocation of Article XX(a) presents complex legal issues. We observe in this respect that Article XX contains the phrase "nothing in this Agreement", with the term "Agreement" referring to the GATT 1994, not other agreements like the Accession Protocol. The issue therefore arises whether Article XX can be directly invoked as a defence to a breach of China's trading rights commitments under the Accession Protocol, which appears to be China's position, or whether Article XX could be invoked only as a defence to a breach of a GATT 1994 obligation. (emphasis added)

When I read that, I got a bit excited:  Were we going to get some guidance on whether Article XX could provide a defense to an agreement other than the GATT?  But then I read further:

7.745 We find it appropriate in this case to follow the approach of the Appellate Body in the US – Customs Bond Directive case. Thus, we will proceed on the assumption that Article XX(a) is available to China as a defence for the measures we have found to be inconsistent with its trading rights commitments under the Accession Protocol. Based on that assumption, we will examine whether the relevant measures satisfy the requirements of Article XX(a). Should we find that this is the case, we would revert to the issue of whether Article XX(a) can, in fact, be directly invoked as a defence to a breach of China's trading rights commitments under the Accession Protocol.

So, the question would only be addressed if the terms of Article XX(a) were met.  At this point, I had a sense of where this was going, and was not surprised by the ultimate conclusion:

7.914 In view of our conclusion that China has in any event not established that the measures at issue satisfy the requirements of Article XX(a), we need not, and hence do not, revert to the issue whether Article XX(a) is in fact applicable as a direct defence to breaches of China's trading rights commitments. We thus take no position on this issue.

We will find out the answer some day, but not today.

ADDED:

Here's a round-up of news stories on the decision:

» The Associated Press: WTO win could open China's door to US companies GENEVA — The United States has won a wide-ranging ruling against Chinese trade practices that could provide massive market opportunities for American makers of everything from CDs and DVDs to music downloads and books.

» BBC NEWS | US wins trade case against China The US has won a ruling at the World Trade Organisation (WTO) against China's restrictions on the import of American DVDs and other media products.

» WTO win could open China's door to US companies - Yahoo! News GENEVA – The United States has defeated China in a wide-ranging ruling at the World Trade Organization that could provide massive market opportunities for American makers of everything from CDs and DVDs to music downloads and books.

» U.S. prevails in WTO case against China - Hollywood Reporter The World Trade Organization released a report Wednesday that in key points agreed with a U.S. complaint that China is forcing U.S. companies to sell copyright-protected products, such as films, music and books, through state-run or -approved businesses.

» TheHill.com - Obama, entertainment industry win China WTO case The Obama administration is touting a trade court ruling as a major victory in the battle to increase the distribution of U.S. films, music and books in China.

» WTO dispute panel raps China on audiovisual goods| Reuters GENEVA (Reuters) - China's regime for importing and distributing audiovisual material such as books and films breaks international trade rules and should be revised, a World Trade Organization (WTO) dispute panel said on Wednesday.

» World Trade Organization Report Upholds U.S. Trade Claims Against China | Office of the United States Trade Representative WASHINGTON, D.C. - U.S. Trade Representative Ron Kirk welcomed the results of a World Trade Organization (WTO) dispute settlement panel report made public today. The report found that major Chinese restrictions on the importation and distribution of copyright-intensive products such as theatrical films, DVDs, music, books and journals are inconsistent with China's WTO obligations.

» WTO dispute panel raps China on audiovisual goods| Reuters GENEVA, Aug 12 (Reuters) - China should revise rules that restrict the import and distribution of audiovisual material like books and films, a World Trade Organisation (WTO) dispute panel said on Wednesday.

» WTO Says Chinese Curbs on Sale of U.S. Goods Unfair (Update2) - Bloomberg.com Aug. 12 (Bloomberg) -- Chinese limits on the sale of books, films and music from the U.S. violate global commerce rules, the World Trade Organization ruled, handing President Barack Obama’s administration its first trade victory against China.

» U.S. sees significant win in China trade dispute| U.S.| Reuters WASHINGTON (Reuters) - The United States has chalked up a big win at the World Trade Organization against Chinese market barriers that encourage piracy of U.S. books, music and films, U.S. Trade Representative Ron Kirk said on Wednesday.

Women Trade Commissioners (in 1963)

A gem from the Australian archives, for your holiday amusement ...

http://www.worldtradelaw.net/dfatpg1.pdf

Putting Burdens on Foreign Manufacturers

From the Palm Beach Post:

Bipartisan legislation introduced in the U.S. Senate aims to help victims of tainted Chinese drywall hold foreign manufacturers more accountable for their defective products.

The Foreign Manufacturers Legal Accountability Act of 2009 would cut down on the red tape Americans face when they try to sue foreign companies.

Among its stipulations:

* A manufacturer who imports products into the United States would have to have a business representative in at least one state where it does business who could be served on any claims.

* Foreign manufacturers would agree to be held accountable by U.S. courts if sued.

Two questions:  Are these rules "conditions" imposed on the import of a product?  And, if so, is there a GATT Article I:1 problem?

My instinct is that the answer to the second question is no, but I'm wondering if anyone sees this differently.

Burley: The Other Cigarette Case

I haven't heard anything new about the Indonesian clove cigarette issue, but here is more on the Canadian measure that could ban U.S. burley tobacco:

Continuing his efforts to protect the Commonwealth's tobacco farmers, U.S. Representative Ed Whitfield (KY-01), joined by several members of the Kentucky Congressional Delegation, sent two letters to leaders of the Canadian government this week cautioning against a Canadian proposal, which could have a devastating impact on the crucial Kentucky industry. 

Whitfield, along with Congressman Hal Rogers (KY-05), Congressman Ben Chandler (KY-06), Congressman Geoff Davis (KY-04) and Congressman Brett Guthrie (KY-02), sent a letter to the Honorable Marjory LeBreton, leader of the Canadian Senate, and the Honorable James Cowen, Leader of the Opposition in the Senate, asking the leaders to consider the impact of legislation currently being considered which would effectively ban the export of American grown burley tobacco to Canada and violate trade agreements between the U.S. and Canada. The bill being considered in Canada, C-32, was intended to address the growing concerns over flavored tobacco products attractive to minors, but would result in a ban on American air-cured burley tobacco. 

...

Whitfield also sent a letter this week to Canadian International Trade Minister Stockwell Day. ...

In the letter to Minister Day, Whitfield notes that the World Trade Organization's Agreement on Technical Barriers to Trade is designed in part to ensure that technical regulations are no more trade restrictive than necessary to meet a legitimate objective. The Congressman states that the Canadian Government has pointed to no evidence to support a ban on blended tobacco and proposes to adopt a far more restrictive approach than necessary to deal with the problem of tobacco products flavored to appeal to youth. For these reasons, Whitfield continues to have serious questions about whether Bill C-32 complies with Canada's international trade obligations. 

It's a little hard to imagine the Obama administration filing a complaint on this issue.  I suppose you never know, though.

Obama: It's Not the Time to Reopen NAFTA

From Reuters:

Obama said he still believed side agreements on labor and environmental protections should be incorporated into the core of the agreement.

"But I will be honest with you: at a time when the economy has been shrinking drastically and trade has been shrinking around the world, at a time when Mexico has suffered a double-digit blow because not only of a declining economy but because of the effects of H1N1 on tourism, we probably want to make the economy more stabilized in the coming months before we have a long discussion around further trade negotiations."

...

"In terms of refining some of our agreements, that is not where everyone's focus is right now because we are in the middle of a very difficult economic situation," Obama said, while adding that he was still interested in learning where the treaty can be improved.

More on the Wisconsin Diploma Privilege

Following-up on this post, we may eventually get a decision related to whether Wisconsin's "diploma privilege" violates the dormant commerce clause.  From the National Law Journal:

A federal appeals court has rekindled a challenge to a Wisconsin rule that allows graduates of the state's two law schools to become licensed attorneys without taking the state bar examination.

The U.S. Court of Appeals for the 7th Circuit on July 9 remanded a class action launched by two graduates of out-of-state law schools who allege that Wisconsin's "diploma privilege" rule is unconstitutional.

...

Wisconsin admits graduates from Marquette University and the University of Wisconsin Law School to practice without requiring them to take the Wisconsin bar exam. Only one other state, New Hampshire, admits graduates who haven't taken a bar exam — in that case, attorneys who have completed a special program at New Hampshire's only law school, Franklin Pierce Law Center.

Wisconsin requires graduates from outside the state to take the state bar exam in order to practice. It also permits bar admission without an exam for attorneys who have practiced for at least five years in another state.

...

The[] lawsuit alleges that the diploma-privilege rule unfairly restricts the mobility of out-of-state graduates in violation of the commerce clause in Article 1 of the U.S. Constitution.

...

Without addressing the merits of the arguments, the appeals panel held that the validity of the parties' arguments remained unclear because of the lower court's dismissal. Evidence was necessary to determine whether the diploma privilege creates an arbitrary distinction between in-state graduates and out-of-state graduates, it said. Such a determination, the court concluded, would help the courts weigh the burden on interstate commerce.

Judge Richard A. Posner wrote the opinion. Also on the panel were judges Kenneth F. Ripple and Diane P. Wood.

Here's an extract from the decision:

For suppose—a supposition not only consistent with but actually suggested by the scanty record that the plaintiffs were not allowed to amplify—that Wisconsin law is no greater part of the curriculum of the Marquette and Madison law schools than it is of the law schools of Harvard, Yale, Columbia, Virginia, the University of Texas, Notre Dame, the University of Chicago, the University of Oklahoma, and the University of Northern Illinois (which happens to be within a stone’s throw of Wisconsin, as are the three law schools in Minneapolis). That would suggest that the diploma privilege creates an arbitrary distinction between graduates of the two Wisconsin law schools and graduates of other accredited law schools. And it is
a distinction that burdens interstate commerce. Law school applicants who intend to practice law in Wisconsin have an incentive to attend one of the Wisconsin law schools even if, were it not for the diploma privilege, they would much prefer to attend law school in another state.

Comments on the U.S. Model BIT: The Investor-State Debate

At this link is a list of submissions made in relation to the review of the U.S. model Bilateral Investment Treaty (BIT).  Here's a sampling of the comments submitted on the investor-state arbitration mechanism (in no particular order), with the submitting entity indicated.  (Not that I think it is likely we will see a change in policy in this area, but the discussion is interesting nonetheless).

Third World Network:

Allowing the investor only to sue the host government at an international tribunal significantly shifts the balance in favour of companies and away from public interest and the right to regulate. Given the broad definition of ‘investment’, the loose definition of ‘investor’ that still allows room for treaty shopping and the strong protections of investors, this opens governments, including the US government, to being sued for many ordinary regulations in the public interest. This can already be seen in the number of cases brought by investors against the US government under NAFTA.

Chevron:

We note that the availability of an investor-state arbitration mechanism increases the
likelihood that good faith negotiations can be successfully and equitably concluded. This
is an important point that cannot be overemphasized. The presence of a treaty enables the
investor to pursue more meaningful discussions with a host government and settle most
disputes on an equal basis.

Coalition of Service Industries:

If any changes are contemplated, CSI recommends that the Model BIT incorporate, or continue to incorporate, the following principles: 
  
- The investor-state arbitration mechanism.   This is one of the most crucial elements of a sound investment regime.  The investor-state dispute settlement mechanism can ensure U.S. investors that their investments are protected against arbitrary, discriminatory and unfair government actions.  Any changes to these provisions must strengthen and clarify the rights of investors abroad to encourage investment flows into and out of the United States.

Gus Van Harten:

Reform the dispute settlement regime:
• consider removing the investor-state regime outright from U.S. BITs;
• as a temporary measure to ensure independence, designate a roster of experts – preferably sitting judges – from which presiding arbitrators (or all arbitrators) must be chosen;
• establish a regional adjudicative body to replace or supplement the role of private arbitration, and to ensure independence and enhance coherence in the decision-making process;
• provide for the members of the regional adjudicative body to develop rules to govern the resolution of investor-state disputes;
• provide for standing in the process for persons or entities whose interests are directly affected by an investor-state dispute, and allow states to bring counter-claims against foreign investors for breaches of their own duties or obligations.

Stephen Canner, U.S. Council for International Business:

The importance of making investor-State arbitration available as a key part of a BIT does not depend on the quality of a BIT partner’s legal system. Even if a country’s legal system is highly regarded, the prospect of a foreign investor having to support its claim against the host government in a local court is a daunting prospect. It will require a reliance on local counsel and experts familiar with local procedures and customs. Even if the investor prevails, its judgment may be subject to multiple layers of appeal. And, even if the local judiciary is regarded as fair, the investor may well be trying its case in a hostile environment, which may affect the proceeding in subtle and unpredictable ways. The option of recourse to a neutral forum avoids these problems, giving the investor some assurance that it will have a reasonable chance at being compensated for any harm it has suffered.

Todd Tucker, Global Trade Watch:

One of the most controversial provisions of BITs and the investment chapters is the investor-state dispute resolution mechanism. As we have seen under NAFTA, the investor-state mechanism has been used to challenge legitimate public-interest measures. It should be sufficient that an investor make use the domestic legal systems to bring a claim or, if not satisfied, push his/her respective government for state-state dispute settlement. The state-state approach has precedent in the U.S-Australia FTA. The above amendments limit to U.S. law the standards that would be applied by investor-state tribunals. However, the above fixes do not remedy the core violation of the no-greater-rights standard – which is the very opportunity for a foreign investor operating within the United States to seek remedy before an investor-state tribunal, while U.S. investors and firms are limited to seeking remedy in U.S. courts. To remedy the violation of the no-greater-rights standard, the Model BIT’s Section B (Articles 23-36) and the Panama FTA Investment Chapter’s Section B (Articles 10.15-10.27) must be stricken. Government-government enforcement action, based on the renegotiated terms described above, would provide recourse for actual acts of direct expropriation, while safeguarding legitimate public-interest laws from challenge and ensuring foreign investors are not provided greater rights than domestic investors operating domestically.

Emergency Committee for American Trade:

It is critical, as well, that the investment chapter include a strong investor-state dispute settlement mechanism, as developed in the Model BIT, to ensure objective and full resolution of investors’ individual disputes that are covered by the FTA.

Subsidies Rules and Financial Services Bailouts

Todd Tucker has an interesting post over at Eyes on Trade, in which he makes the following points:

1. Certain trade experts have been saying that WTO rules do not apply to subsidies to the financial services industry (or, at least, do not provide much discipline).  Thus, in their view, bailouts to this industry do not violate the rules.

2. These trade experts are wrong, as the GATS NT and MFN rules do, in fact, apply to subsidies on services.

At least, that's how I understand his argument -- Todd can correct me if I'm mis-stating it.

I'm not sure the disagreement here is as signifcant as it first appears.  What I think the trade folks he quotes are saying is only that the services rules which relate to subsidies are fairly limited.  Under these rules, if a domestic financial company or industry is about to go bankrupt, you can bail them out.  At the same time, the trade experts would acknowledge that there are certain rules that apply to these bailouts, such as the NT and MFN requirements.  So, for example, when bailing out a domestic company, you could not make the bailout money contingent on the use of domestic services of some kind (assuming the sector in question is covered).

Here's the tricky part, though, which Todd refers to in his post:  "no foreign bank got TARP money, or had access to many of the other bailout programs."  Is it a problem under the GATS NT rules if a government program only gives money to domestically-owned entities?  I'm not sure there is a simple "yes" or "no" answer to this question.  I think it may depend on the specific facts at issue.  If it's a straightforward payment to a domestic company, I think the answer would be no.  But for a more complex, rule-based program like the ones at issue here, it is not as clear.

So, I hate to sound wishy-washy here, but both sides are sort of right.  The way I see it, WTO rules do apply to financial services bailouts, but they don't apply to the extent they do for subsidies to goods, and it's not clear exactly how much discipline they provide.  For practical purposes, though, since this is one of those issues where "everyone is doing it," it is probably unlikely that the boundaries of the rules will be tested.

The Impact of Ethanol Tariffs

From a letter sent by Sec. of State Hillary Clinton and USTR Ron Kirk to Senator Chuck Grassley:

The Obama Administration is committed to developing our domestic biofuels industry in order to reduce US dependence on oil imports and increase our use of renewable energy sources.  There has been no change of policy with respect to the U.S. import surcharge of $0.54 a gallon on ethanol.  The Administration has no plans to seek changes to the import surcharge.

Here's my question, though:  If the goal is to reduce oil imports and increase the use of renewable energy sources, wouldn't lower prices for biofuels be a good way to achieve this, and doesn't the tariff raise the price and therefore undermine this goal?  It seems to me that the real goal of the tariff is "developing our domestic biofuels industry," which may help a bit with the other goals, but is not necessarily the best way to achieve them.