International Economic Law and Policy Blog

Will USTR Go To Bat For Big Tobacco?

From the AP:

Tobacco advocates are seething over a new Canadian law they claim will snuff out sales of cigarettes packed with U.S. burley, and they are fighting back to protect their export sales.

They are asking U.S. trade officials to take their complaints to the World Trade Organization, hoping to pressure the Canadians into protecting burley from the tobacco crackdown. They also want to head off the spread of similar laws to other foreign markets that are crucial consumers of American leaf.

...

The Canadian law won final approval this month. It is meant to curtail youth smoking in part by banning the sale of tobacco scented with fruit and candy flavors. U.S. tobacco supporters complain that the law overreached to cover American burley, which is laced with flavors to smooth its harsh taste.

"This act is far broader than necessary to meet its laudable objective," several tobacco groups said in a written statement to the U.S. trade representative's office.

"As a result, it will unjustifiably reduce opportunities for U.S. exports of burley tobacco to Canada, and could significantly restrict global exports of burley tobacco if other countries follow Canada's lead."

So would USTR take up this issue at the WTO?  Here's what I said on this a couple months ago:

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

My view is pretty much the same now.  I'm skeptical that the Obama administration would press this issue, at least through formal channels.

Exchange Rate Accusations

It's not just about China.  From the Washington Post:

This week, a top aide to French President Nicolas Sarkozy called the value of the dollar "a disaster" for Europe, warning of dire consequences to the global economy if it remains at its current levels. In some circles, the dollar's decline is seen as a protectionist move by the United States -- something U.S. officials have strongly denied.

"If the dollar is going down this way, it is because that is what the Americans want," economic commentator Yves de Kerdrel wrote in the French newspaper Le Figaro this week. "In a globalized economy where national egoisms persist but where customs barriers have almost disappeared, the best protection consists in playing on exchange rates."

Yet another reason to have some more detailed international standards on exchange rates, so as to avoid these kinds of suspicions.

Talking Tough on Carbon Tariffs

A difficult question from one of China's representatives to the WTO:

"The United States per capita emission rate is four times as big as China's. Does that mean we can impose 400 percent tax rates on all imported American goods? If so, the result is a global trade war that is good for no one and no use at all in the fight against climate change."

And this, too:

"Frankly, if tariffs are being implemented unilaterally, they cannot be objective and cannot be non-discriminatory."

 

Trade Measures Against the Auto Bailout

They may be coming.  From the FT:

China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government, according to people familiar with the matter.

...

General Motors and Chrysler have received about $60bn in government bail-out funds, though Ford has received nothing.

Washington has also provided substantial aid to US and foreign carmakers, as well as parts suppliers, to encourage investment in “green” technology.

The wildly popular “cash-for-clunkers” sales incentive scheme this summer was also a boon for both US and foreign manufacturers.

There's also an anti-dumping petition: "China has received an anti-dumping petition as well, which asks for investigation into whether US car exports are being sold at unfairly low pries."  Is it possible that actions like these will affect how the U.S. views AD/CVD?

Meanwhile, over in the EU:

European Union regulators said Thursday they would probe plans for Audi to receive a euro49.5 million ($73.19 million) subsidy from the Hungarian government to help the car maker upgrade a factory.

Getting Around The Clove Cigarette Ban

I had been wondering if Indonesia would go forward with a WTO complaint against the U.S. ban on clove cigarettes, but had not heard anything.  Perhaps this is why:

A few weeks ago ... clove cigarettes were banned in the U.S. on the grounds that their fragrance is a come-on to children.

It was the FDA's first act under a law giving it the power to police tobacco. But as soon the clove-cigarette edict went out, a California kretek importer brought in a new line of clove cigars.

Djarum-brand cigars are the shape and size of cigarettes. They have filters. Their wrappers contain tobacco but could pass for brown paper. The puffery on the packs promises "a smoking experience you have come to expect."

OK, that sounds like a clever idea.  Worth a shot.  So is the FDA going to buy it?

Getting wind of this, the FDA reminded the public that its ban applies to anything that fits a cigarette's profile, even if it's labeled as a "cigar." And the House Committee on Energy and Commerce announced an investigation to find out whether the "flavored cigars are no different than flavored cigarettes."

The importer of the cigarettes, I mean, cigars, well, whatever they are, is going to U.S. District Court in Washington "for a declaratory cigar-is-a-cigar judgment."  The article notes:

The company insists it can prove that its cigar is a cigar: The wrapper is homogenized leaf, the tobacco air-cured, and the finished product comes in boxes of 12, not 20. While a judge puts the subject through analysis, America's clove aficionados will be holding their breath.

It will be interesting to see how the FDA approaches this.  Perhaps the clove importers are hoping the FDA will just let this go, given that no one seems to think that clove (as opposed to say, chocolate) is a flavor that was designed to appeal to kids.

Two PPM Issues

For those of you who get excited about PPMs (process and production methods), on one side or the other, I just came across two such issues.

1.  In a policy paper about sustainability standards for biofuel products, economists Harry de Gorter and David R. Just make the following point:

28. Are there any issues regarding international trade law and biofuel sustainability standards?

There are several. A sustainability standard means nonsustainable ethanol is treated less favorably than sustainable ethanol. This is problematic because the WTO prohibits members from discriminating between domestic and imported products based on the processes or production methods used to produce them. Imposing a higher tax on imported nonsustainable ethanol, as compared to a lower tax (because of the tax credit) on domestic sustainable ethanol blended with gasoline—a domestic-like product—would seem to violate General Agreement on Trade and Tariffs Article III(2)’s first sentence. The ethanol products, qua products, are the same, but they are taxed differently.

Privileged treatment for the blender’s tax credit would probably also be discriminatory and violate GATT ’94, Article I, if ethanol imported from at least one other country qualified for the tax credit. The U.S. would then be guilty of discriminating between like ethanol imported into the United States from two different countries, a violation of the most-favored nation principle of Article I.

The biofuel sustainability mandate runs afoul of GATT Article XI, which prohibits all quantitative restrictions on imports. Because the mandate’s sustainability criterion would seem to be an internal regulation that discriminates against unsustainable ethanol, it might seem to violate Article III(4)’s prohibition on discriminatory regulations. Since the regulation (the sustainability criterion attached to the mandate) regulates the process of making the ethanol and not the qualities of the ethanol itself, however, WTO decisions have indicated that the discrimination provisions of Article III(4) do not apply. Instead, because the sustainability criterion would operate to reduce the flow of unsustainable ethanol into the United States, it would constitute a quantitative restriction on unsustainable ethanol imports and, accordingly, violate Article XI.

...

2.  A Vancouver Sun article on possible U.S. restrictions on "dirty" oil from Canada notes :

Attempts by U.S. politicians to curb imports of oilsands and "dirty" energy from Canada could face a challenge under World Trade Organization rules, the author of a survey into U.S. protectionism said Monday.

According to Helmut Mach, director of the Western Centre for Economic Research at the University of Alberta School of Business, American attempts to restrict imports of higher-carbon fuels such as oilsands could be illegal under international trade rules because it would discriminate against how a particular product — in this case oil — is manufactured.

In that sense, climate bills before the U.S. Senate and Congress could be construed as protectionist measures, Mach said in an interview.

"Normally, under international trade rules, how a product is produced is irrelevant," he said. "PPM's (process and production methods) are not supposed to be a determining factor in purchasing decisions. It has the potential to become very controversial and complicated factor in the climate-change debate."

Director of Legal Affairs at the WTO

I did a recent post about a job opening at the Advisory Centre on WTO Law, in which I said that these opportunities don't come along very often, so anyone who might possibly be interested should apply.  Well, here's another job just like that:

The Secretariat of the WTO is seeking to fill the position of Director in the Legal Affairs Division. Serving staff members interested in the position are also invited to apply.

General Functions

The incumbent will head the Legal Affairs Division, which is responsible for providing legal advice and related services to the Office of the Director-General and the WTO Secretariat as a whole; to the Dispute Settlement Body and, upon request, to other WTO bodies; to dispute settlement panels and arbitral bodies; to delegations to the WTO; and, as appropriate, to the general public. Specific responsibilities will include the following duties:

1. Managing the overall operation of the division, including assigning and reviewing the work of the approximately one dozen other permanent lawyers in the division and ensuring that the Division's administrative practices conform with WTO rules and regulations.

2. Providing advice on WTO law and practice to the Director-General and other divisions of the WTO Secretariat; to the Dispute Settlement Body and, as requested, to WTO committees and working groups; to dispute settlement panels and arbitral bodies; to delegations to the WTO; and, as appropriate, to the public. Also responsible for reviewing, as the need arises, the advice given by others in the organization on the law of the international civil service and on privileges and immunities of the WTO Secretariat.

3. Overseeing participation of the division in the organization's extensive teaching and training programmes, with a particular focus on WTO dispute settlement; such oversight also extends to the preparation of teaching and training materials to this end, including for e-training.

4. Overseeing the preparation and updating of reference materials on WTO law and practice, including the WTO Analytical Index - WTO Law and Practice; WTO Status of Legal Instruments; WTO Dispute Settlement: One-Page Case Summaries; as well as the preparation of inputs on WTO legal developments for other WTO publications.

5. Assisting the WTO Membership in giving legal effect to any agreements they may negotiate and conclude within the legal framework of the WTO.

6. Supervising the operation of the Dispute Settlement Registry.

7. Supervising the operation of the WTO Depository.

8. Overseeing the operation of the Division's extensive legal internship programme.

9. Representing the DG and the WTO Secretariat in various public and academic functions in Geneva and abroad that address WTO dispute settlement matters and legal issues of relevance to the WTO.

10. Undertaking any other tasks that may be assigned by the Director General.
 

REQUIRED QUALIFICATIONS
 
Education:

In addition to a basic university degree, proven theoretical knowledge and/or professional expertise equivalent to an advanced university degree in law, with extensive knowledge of international trade law and solid knowledge of public international law. Should be licensed or be eligible to be licensed to practice law in at least one municipal jurisdiction.
 
Knowledge:

Excellent knowledge of economic and legal issues relating to the WTO. Knowledge of and practical experience with other dispute resolution mechanisms, at national or international level, would also be an asset.
 
Work Experience:

At least fifteen years as a legal practitioner in either the public or private sectors, including considerable practical experience in trade law. Extensive management experience with broad supervisory responsibilities over a dozen or more people is highly desirable, and a proven ability to interact and work with other highly qualified legal professionals is a must. Ability to work harmoniously with senior management and to cooperate effectively with one's peers in a diverse international setting is important.
 
Languages:

Fluent knowledge of English (including legal English) is essential, including a demonstrated ability to write accurately, concisely and quickly, and to review and edit effectively the work of other lawyers. A good knowledge of French and/or Spanish would also be an important asset.
 
Additional Information:

This position will be vacant as of 1 September 2010 further to the retirement of the incumbent.
 

Trade Versus the Environment: Local Content Requirements for Solar Energy

From thestar.com:

The new Ontario requirement that grid-connected solar projects include a minimum amount of local content is causing a stir in Germany, where manufacturers say Canada is breaching its obligations to the World Trade Organization.

...

The new rules, which went into effect Oct. 1, require that small rooftop solar systems contain 40 per cent local content as a combination of labour and equipment.

Larger systems must meet a 50 per cent threshold. Starting in two years that target will rise to 60 per cent.

Energy and Infrastructure Minister George Smitherman established the rule to stimulate investment and green-collar job creation in the province, a benefit aimed at making electricity consumers more agreeable to paying a premium for solar and wind power.

The article doesn't explain the measure in much detail, but it seems likely that a local content requirement for equipment would violate GATT Article III:4.  The more difficult issue might be the defense.  The argument set out in the quoted portion of the article seems to be something like this: Due to the higher cost of solar/wind power, the only way the government can enact a policy favoring these power sources is to use protectionism to give some benefits to local companies, so as to generate support for the policy.

I see the point, but it's hard to imagine such a defense being accepted by a WTO panel under GATT Article XX, in part because it would be open to abuse (everyone would argue it and it would be hard to disprove).

Krugman: "Something must be done about China’s currency"

First he explains:

The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market ...

And then he complains:

U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?

To be clear, he doesn't think that all manipulation is bad.  As he notes later in the piece:

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

In fact, some countries, most notably Switzerland, have been trying to support their economies by selling their own currencies on the foreign exchange market. The United States, mainly for diplomatic reasons, can’t do this; but if the Chinese decide to do it on our behalf, we should send them a thank-you note.

And as he pointed out earlier in the piece:

There’s nothing necessarily wrong with such a policy, especially in a still poor country whose financial system might all too easily be destabilized by volatile flows of hot money. In fact, the system served China well during the Asian financial crisis of the late 1990s. The crucial question, however, is whether the target value of the yuan is reasonable.

So when is manipulation bad?  Well, the relevant U.S. statute says the following on this point:

The Secretary of the Treasury shall analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the International Monetary Fund, and consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payments adjustments and to eliminate the unfair advantage.

So the "purpose" is one of the keys.  There are two in particular that are off limits:  (1)  preventing effective balance of payments adjustments; and (2) gaining unfair competitive advantage in international trade.  (In addition, the country must have a trade surplus).

One thing I think is needed here is to define these terms a bit more clearly, perhaps with some illustrations or specific quantitative guidance that would help determine when a government had one of these purposes in mind.

I also wonder if there's a way to multilateralize these rules.  I know there will be reluctance among many countries to create international rules on currency values, but perhaps a multilateral decision on these issues would be better than a unilateral one.

Trade in Everything: Cuban Rum to the United States

Maybe some day soon:

Cuba is ready to ship 1 million cases of rum to America if Washington eases its 47-year-old embargo, but would hold off exporting its flagship Havana Club brand because of U.S. trademark battles, one of the island's top rum executives said Wednesday.

...

Cuban rums can't be sold in the United States, but they are available in more than 120 countries, Gonzalez said, noting that the company sold 4 million cases in 2008. Of that, Havana Club counts for all but about half a million cases.

...

He said that the first wave of Cuban rum to hit the U.S. likely wouldn't include Havana Club due to an fight in U.S. courts with Bermuda-based rum giant Bacardi Ltd., which produces its own Havana Club, made in Puerto Rico and sold in Florida since 2006.

If Cuba could sell its rum in the United States, would that create renewed interest in the U.S. - Section 211 WTO dispute, which has been lingering on, unimplemented, for years?  The basic issue there was a U.S. trademark dispute over the name "Havana Club" -- between a Pernod/Cuban government joint venture, on the one hand, and Bacardi, on the other hand -- and related legislation.   It may not have been worth pursuing the WTO case if there was no possibility of the Pernod/Cuban venture selling Havana Club rum in the U.S. (due to the embargo).  But if there is now a chance the embargo will be lifted, maybe someone will be more active in pushing the case.  (I should point out that my knowledge of the facts of the case is based on what was going in 2002 -- a lot may have happened in the meantime).

Is That It For Section 421?

Reuters reports:

The United States is pressing China to change policies that overfuel its exports and led to President Barack Obama slapping duties on Chinese-made tires last month, a U.S. trade official said on Thursday.

"We have been engaging them in a dialogue in a way to address the underlying causes of surges," Tim Reif, general counsel in the U.S. Trade Representative's office, said in a speech at the National Press Club.

That, rather than U.S. industry groups filing additional anti-import surge petitions, would be "perhaps the most effective way of addressing this ongoing trade policy challenge," Reif said.

The statement was the clearest signal yet that the Obama administration is not eager for new "Section 421" trade petitions, like the one that led Obama last month to slap a 35-percent duty on Chinese-made tires.

The article notes that U.S. textile producers are considering filing a Section 421 complaint.  If that happens, it will be interesting to see the Obama administration's reaction.

The FT on Excluding Sri Lanka from GSP Plus

From an FT editorial on the EU's likely decision to exclude Sri Lanka from its GSP Plus trade preference program:

Using trade as a strategic tool makes the global trading system hostage to endless political posturing and negotiating games. Governments should grant trade preferences on simple, fair criteria, largely based on the poverty and vulnerability of trading partners. Trade deals should be a means for poor countries to haul themselves out of poverty, not a tool of foreign policy manipulation by their richer counterparts. Sri Lanka’s exporters have used their access to the European market well. They should keep it.

Arguably, what the FT advocates is pretty close to what WTO rules require.  (Although, as with most laws, there are counterarguments as well.)

ELSA WTO Moot Court - North America Round

The ELSA Moot Court Competition on WTO Law

 

North American Regional Round

March 18-20, 2010

Faculty of Law, University of Ottawa

 

   

 

The ELSA Moot Court Competition on WTO Law is an international moot court competition on WTO dispute settlement organized by the European Law Students Association which includes teams of students around the world.  Information is available on the ELSA website at:  www.elsamootcourt.org .  Regional Rounds will be held in Asia, Europe, Latin America and North America in March and April, with the Final Round being held in the Dominican Republic.  This competition is supported by the WTO and co-sponsored by the World Trade Institute and IELPO.

 

This year, the University of Ottawa, Faculty of Law is pleased to host the North American Regional Round, which is open to teams from universities in Canada and the United States.  It will be held from March 18-20, 2010 in Ottawa, Canada.  Information about the North American Regional Round is available at: www.commonlaw.uottawa.ca/wtomoot.

People in other regions, feel free to email me with your details as well.

Trade Remedy Trends: Onward and Upward

From Chad Bown, formerly at Brandeis, but now at the World Bank:

• Industry demands for these new import barriers continued to increase in the third quarter 2009 above and beyond the sharp increase that began in 2008 with the global spread of the financial crisis. Compared to the same time period in 2008, the third quarter of 2009 resulted in a 52.6% increase in newly initiated investigations in which domestic industries request the imposition of new import restrictions under trade remedy laws. Overall, 2009 year-to-date industry requests are 30.3% higher than the same benchmark period in 2008, which itself was 36.4% higher than in 2007.
  
• There are two main factors driving the third quarter 2009 data on new initiations. First is a striking increase in new antidumping initiations, even when compared to the data from recent quarters. Second is a continued resort to the global safeguards initiations that, if continued through the fourth quarter, would make 2009 the second most prolific year of safeguard use since the WTO’s 1995 inception.
  
• India, Argentina, the United States, and the European Union combined to initiate 56.8% of the new investigations during the third quarter of 2009. Nevertheless, thirteen other WTO members initiated at least one new investigation. China’s exporters were the dominant target for these new investigations that may result in import restrictions, being named in over 60% of the new country-level investigations.
  
• With respect to imposing new trade barriers, the first three quarters of 2009 resulted in a 21.4% increase in the number of new import-restricting measures imposed upon completion of trade remedy investigations, when compared to the same period in 2008. This upward trend will almost certainly increase into 2010 and perhaps beyond due to the large, recent increase in newly initiated investigations.
  
• Finally, there is some weak evidence that the relatively small increase in the number of newly imposed measures to date during the crisis may be partially explained by national governments granting protection over a smaller share of initiated investigations that have been completed.

These are the highlights of his latest update of global trade remedy measures, available at the World Bank web site.

Bernanke on Trade Imbalances

In a recent speech on "Asia and the Global Financial Crisis," Fed Chairman Ben Bernanke made this point about trade:

Because strong export markets helped Asia recover from that crisis, and because many countries in the region were badly hurt by sharp reversals in capital flows, the crisis strengthened Asia's commitment to export-led growth, backed up with large current account surpluses and mounting foreign exchange reserves.  In many respects, that model has served Asia well, contributing to the rapid growth rates in the region over the past decade.  In fact, it bears repeating that evidence from the world over shows trade openness to be an important source of economic growth.  However, too great a reliance on external demand can also pose problems.  In particular, trade surpluses achieved through policies that artificially enhance incentives for domestic saving and the production of export goods distort the mix of domestic industries and the allocation of resources, resulting in an economy that is less able to meet the needs of its own citizens in the longer term.

He specifically points to Asian policies that "artificially enhance incentives for domestic saving and the production of export goods" as a source of the trade imbalances.  His solution to these imbalances is:

The United States must increase its national saving rate.  Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.  For their part, to achieve balanced and sustainable growth, the authorities in surplus countries, including most Asian economies, must act to narrow the gap between saving and investment and to raise domestic demand.  In large part, such actions should focus on boosting consumption.  Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not necessarily straightforward.  One potentially effective strategy is to reduce households' precautionary motive for saving by strengthening pension systems and increasing government spending on health care and education.  Of course, such measures are likely to improve welfare and productivity as well as to contribute to more balanced, robust, and sustainable economic growth.

Basically, then, he supports two changes to the status quo:  In the U.S., people and the government should save more, whereas in Asia people should spend more (with governments taking action that will encourage them to do so).

I'm skeptical of the conventional wisdom on this one.  Is it realistic to expect people in different countries to have the same views on the consumption/savings mix?  Among other things, cultures and financial situations differ widely.  As a result, people will choose to consume and save in different amounts, and I don't see any inherent problem with that.  Perhaps the U.S. should be saving more, or perhaps Asia should be saving less, or perhaps they are both saving what is appropriate for them.  I'm not sure there is a right answer on this one, and I think it should be up to individual countries (the people and the governments) to make a choice.  Going a step further, I'm not even sure harmonization of these policies is desirable.  It might be useful to let countries take different approaches, to see the results over time and in different situations.

The specific problem Bernanke identifies is "ever-increasing and unsustainable imbalances in trade and capital flows."  Narrowing the gap between savings rates is supposed to address these imbalances.  To me, though, the main (although probably not the only) source of this problem is intervention in currency markets.  If governments take action to influence their currency's value, thereby putting it at something other than the market rate (either higher or lower), there will almost certainly be imbalances.

All of this leads to my final point, which is that it might be more useful for policy-makers to be talking about exchange rates instead of different savings/consumption mixes.  Bernanke did make the following point about Asian currencies:

The reversal in capital flows also caused rapid exchange rate depreciation in some countries, particularly Korea, Indonesia, and Malaysia.  The Korean won depreciated 40 percent against the dollar from the beginning of 2008 through its trough in March of this year, and it has only partially recovered.  Over the same period, the Indonesian rupiah fell 22 percent against the dollar.

However, the point was made in a different context and it was not emphasized much.  As a general matter, there does not seem to be much of an effort to address the policy issues involved, aside from occasional tough talk by one side or the other.

Competitive Trade Liberalization in Action

From the Korea Herald:

The Korea-U.S. free-trade agreement should be ratified before tariffs on goods from the European Union get cut in Asia's fourth-largest economy, president of the American business lobby group here said yesterday.

"I don't want to see tariffs on EU goods reduced before goods on U.S. goods are reduced," Amy Jackson, president of the American Chamber of Commerce in Korea, said at her inaugural press conference in Seoul. The former director of Washington D.C.-based C&M International, an international trade and investment consulting firm, assumed her new post on Aug. 31.

She stressed the importance of the Korea-U.S. FTA for both sides and underscored the urgency for passage of the deal by both legislatures, especially following the initialing of the FTA between Korea and the European Union on Oct. 15. This step paved the way for the official signing of the accord targeted for the first quarter of 2010.

EC Considers Removing GSP+ Tariff Preferences for Sri Lanka

From the European Commission:

The Commission has completed a thorough investigation into the human rights situation in Sri Lanka and in particular whether Sri Lanka is living up to the commitments it made to respect international human rights standards when it became a beneficiary of the European Union's GSP+ trade incentive scheme which provides for additional trade benefits.

The report comes to the conclusion that there are significant shortcomings in this area and that Sri Lanka is in breach of its GSP+ commitments.

We will now consult with Member States on whether to prepare a proposal with a view to
temporarily suspending these additional trade benefits.

The official notice is here.  And here are the Commission final report and Independent experts report.  In terms of the likely outcome, the Times Online reports:

... Baroness Ashton said the result was almost a foregone conclusion. “It’s very difficult to see any other recommendation than to suspend it,” she said. “The report is clear in showing consistent human rights problems and no action from the government to address them.”

For some analysis of whether GSP+ is consistent with WTO rules, see "The WTO Legality of the EU's GSP+ Arrangement" by Lorand Bartels.  From the abstract:

According to the EU, the GSP+ arrangement complies with the Appellate Body's interpretation of the Enabling Clause. This article argues that it does not. This is, on the one hand, because of the substantive criteria chosen by the EU to select GSP+ beneficiaries, which do not meet the Appellate Body's criteria for differential tariff treatment of developing countries; and, on the other, because of the EU's requirement that would-be beneficiaries must have applied by a certain date. This, somewhat oddly, replicates the problem of the 'closed list' of beneficiaries that was fatal to the earlier incarnation of the EU's GSP program.

Related posts are here, here and here.

Symposium and Web Site on International Investment and ADR

New from Washington and Lee / UNCTAD:

Washington and Lee University School of Law and the United Nations Conference on Trade and Development (UNCTAD) cordially invite you to attend the Joint Symposium on International Investment Law and Alternative Dispute Resolution (ADR). The purpose of the Joint Symposium is to explore the prevention and management of investment treaty conflict.

...

The Joint Symposium on International Investment and ADR will occur in two phases, which are designed to develop and build upon each other. The initial phase of the Joint Symposium will occur through this internet site. We hope that the Symposium’s website can begin to act as a central repository for information about the intersection of international investment law and ADR. We invite you to explore this website and contact us with suggestions about ways to enhance its capacity.

The second phase of the Joint Symposium will occur at Washington and Lee University School of Law in Lexington, Virginia on March 29, 2010. We will be welcoming experts from around the globe to discuss fundamental issues about the efficient prevention and management of investment treaty conflict.

This all looks great.  They've got some podcasts, a research library, and much more.  Check it out! 

More Investor-State Debate

Following up on this post, the State Department's Advisory Committee on International Economic Policy (ACIEP) recently held a review of the U.S. Model BIT.  The report issued by the Committee has a discussion of many issues under BITs, including the investor-state dispute mechanism.  It's too long to quote the whole thing here, but here are some key portions of the different views on investor-state:

Some Subcommittee members strongly support investor-state dispute settlement. These
members noted that such provisions are contained in virtually all of the over 2,600 BITs around the world and argued that they provide an objective, fair and non-politicized forum in which investors overseas can seek redress for treaty breaches (and sometimes contract breaches) by foreign countries, including discriminatory treatment, uncompensated expropriation, and denials of fair and equitable treatment.

...

Other Subcommittee members strongly believe that the international dispute resolution
mechanism provided in the Model BIT poses significant risks to the public interest. They were concerned that international arbitrators may lack expertise in and understanding of local laws and societal values and, where these laws and values are at the heart of an investment dispute, the arbitration panels’ decisions risk undermining the domestic laws and values. They believed that where investment disputes raise constitutional questions, such as the allocation of powers among governmental organs or permissible limitations of property rights, the principles of democratic accountability require that domestic courts adjudicate such disputes whenever possible.

...

Some Subcommittee members believed that investors should first be required to exhaust
domestic remedies before taking claims to international arbitration. They asserted that the
exhaustion requirement is a fundamental principle of international law and a policy of the State Department before it will consider espousing the claims of U.S. nationals against foreign governments.

...

Other Subcommittee members argued that the adoption of an exhaustion requirement would run contrary to current international legal practice, undoing a half-century of progress in
international law and would in many cases effectively deny U.S. investors the realistic ability to seek justice for bad acts or omissions by foreign governments.

In addition to this discussion, there is a separate statement by some committee members opposing investor-state dispute settlement: "We recommend that the administration replace investor-state dispute settlement with a state-to-state mechanism. If the administration continues to include an investor-state dispute settlement mechanism, investors should be required to exhaust domestic remedies before filing a claim before an international tribunal. That mechanism should also provide a screen that allows the Parties to prevent frivolous claims or claims which otherwise may cause serious public harm."

For those who don't follow the issue closely, I think Judge Stephen Schwebel's individual statement (towards the bottom of the linked page) helps explain what is going on here:

For more than 150 years, the United States strongly espoused the protection of foreign
investment. That position was constructively developed by the terms of the 1994 U.S. Model
BIT. However the United States sharply modified its traditional position with the advent of
NAFTA, not by the terms of that Treaty but by interpretation of it and by the positions it took in cases brought by Canadian investors against the U.S. Government. The United States made the remarkable discovery that treaty obligations run in more than one direction; foreign investors could take advantage of U.S. obligations just as U.S. investors could invoke the BIT obligations of other States. That led the United States to shift to a “defensive posture” emphasizing restrictions upon the viability of foreign investment rather than its protection, both by the terms of the 2004 Model BIT and in the litigious positions it took in NAFTA cases (such as Glamis Gold)

In a nutshell, the U.S. wanted investor-state dispute settlement (and expansive substantive rules) as long as U.S. companies were filing complaints against developing countries, and companies from those countries were not filing disputes against the U.S. (there wasn't much foreign investment in the U.S. by such companies).  This system was fairly uncontroversial here in the U.S., aside from a few people who advocated for developing country causes.  However, now that Canada (and also Mexico) are filing investor-state cases against the U.S. pursuant to NAFTA, various groups in the U.S. have taken notice.  They fear that complaints against the U.S. could undermine important domestic policies, and thus are trying to limit the scope of these provisions.  As a result, the U.S. position on these issues has changed somewhat, in the sense that when defending its laws in investor-state complaints, it has advocated for narrowing the substantive scope of investment treaty law.

I'm not sure where this is all going.  Some days I think investor-state is now so well-established that it will always be with us and will continue to spread throughout the world, maybe even effectively bringing us an MAI after every country is covered in relation to every other.  Other days, though, I think we are one big judgment against a U.S. environmental law away from seeing the U.S. abandon the whole idea (other countries might react just as strongly).  Is there a middle ground?  Would someone propose applying investor-state only in relation to countries who are unlikely to bring complaints against the U.S.?  From a public relations standpoint, in terms of how the U.S. looks in the eyes of the rest of the world, that might not come across very well.  But in terms of U.S. domestic politics, it might be an acceptable compromise.

Fred Bergsten on Currency Undervaluation

From an article entitled "The Dollar and the Deficits: How Washington Can Prevent the Next Crisis":

A central goal of US foreign economic policy must be to prevent and counter deliberate currency undervaluations by other major countries, which keep the dollar overvalued and harm US competitiveness. China has been the glaring culprit in recent years: it has run current account surpluses exceeding ten percent of its GDP and has intervened massively in the currency markets to keep the value of the renminbi from rising. China's currency has risen a good deal anyway, and its trade surplus is now coming down, but its external imbalance is still very large, and the renminbi remains priced at 20-40 percent below equilibrium. Switzerland, a small country that is an important player in world trade, is another case in point: its aggressive, although admirably transparent, intervention in the currency markets has served to weaken the exchange rate of the Swiss franc despite the country's huge current account surpluses. Over the next few years, as more countries seek to export their way out of the current crisis and build larger war chests of foreign exchange to self-insure against future exigencies, there could be more, and more serious, examples of such neomercantilism. Such a development would greatly complicate US efforts to avoid renewed increases in its own external deficits.

Any serious US effort to curb the United States' international imbalance will thus have to counter the beggar-thy-neighbor policies of other countries. The most desirable route would be multilateral surveillance and "name and shame" efforts by the IMF to identify currency misalignments and induce the perpetrators to make prompt adjustments. However, the IMF has no effective leverage over creditor countries; in fact, it has recently abandoned any serious effort to bring China's and other countries' currency imbalances under control. An alternative would be to enforce the provisions of the World Trade Organization that prohibit competitive currency action and authorize trade sanctions against violators.

The Bretton Woods system was erected at the end of World War II to avoid a repetition of the trade protectionism and competitive currency devaluations of the 1930s, which intensified the Great Depression and sowed the seeds of war. The system is now undergoing its first real stress test, and so far, it has not demonstrated its ability to fulfill its fundamental mission. Without effective multilateral action—or, in fact, to prod such action—the United States might have to take unilateral trade steps against violating countries, much as it did in 1971, when Nixon imposed an import surcharge, and, to a lesser extent, in the mid-1990s, when Bill Clinton applied trade pressure to get Japan to allow the yen to appreciate.

A Contrario Update

For those of you familiar with the "a contrario" argument in relation to the SCM Agreement illustrative list, I thought this passage from the U.S. - Cotton Article 4.11 arbitration would be of interest:

4.161 Thirdly, we do not consider that there is any legitimate basis for us to accept the a contrario interpretation of item (j) proposed by the United States. Item (j) is illustrative of a situation in which the provision by governments of export credit guarantee programmes constitutes an export subsidy.  In particular, item (j) specifies that export credit guarantee programmes constitute export subsidies when premium rates are inadequate to cover the long-term operating costs and losses of the programme. It does not necessarily follow, though, that an export credit guarantee programme may never constitute a (prohibited export) subsidy if the premium rates are adequate to cover long-term operating costs and losses. As a matter of law, it is possible that an item (j)-consistent export credit guarantee programme might still be found to confer a "benefit", on the basis of the standard set forth in Article 14(c) of the SCM Agreement.

If you have not heard of this argument before, you could either (1) consider yourself lucky and pretend I never mentioned it, or (2) go here for some more details.

Lamy on Services Liberalization

From a recent speech by WTO DG Pascal Lamy:

Trade, or more specifically financial services liberalization, was neither a villain nor a cause of this crisis but a casualty. As you all know, in the world of the GATS, “liberalization” is essentially about opening specified sectors to competition on a non-discriminatory basis. It does not mean deregulation.

It may be true that "liberalization" is not the equivalent of "deregulation".  But isn't it the case that deregulation (of some sort, to some extent) is a good way, and sometimes the only way, to open up competition in certain services sectors?

ADDED:  Let me just add that generally speaking, I don't think the GATS requires deregulation (although there may be instances where it encourages it).  However, there are a number of areas, including financial services, where the scope of the restrictions placed by the GATS on domestic services regulation is a bit unclear.  This lack of clarity can be a problem in a number of ways, especially in the current financial crisis.

Climate Change Measures and Lost Oil Exports

I have often wondered how oil producing countries would react to lost oil exports if other countries ever begin to take serious action to shift to renewable energy.  So far, very little has been done in this regard, so it has not been a big issue.  But it does seem possible that we are on the verge of effective measures being taken.  What will the big oil producers do in response?  The NY Times reports on one possibility:

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.

The oil-rich kingdom has pushed this position for years in earlier climate-treaty negotiations. While it has not succeeded, its efforts have sometimes delayed or disrupted discussions. The kingdom is once again gearing up to take a hard line on the issue at international negotiations scheduled for Copenhagen in December.

...

“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message.

This Saudi position has emerged periodically as a source of dispute since the earliest global climate talks, in Rio de Janeiro in 1992. It is surfacing again as Saudi Arabia tries to build a coalition of producers to extract concessions in Copenhagen.

How this will play as a negotiating position is somewhat beyond me, although it seems like a stretch.  More here from Dan Drezner on that.

But I do wonder whether there is some long-shot trade complaint in there somewhere, perhaps some kind of "non-violation" or "situation" complaint under GATT Article XXIII:(1)(b) or (c).  The basic argument would be along the lines of, "we negotiated all of these tariff concessions on oil products, but then everyone took action to stop using these products, thereby undermining the benefits of the concessions."  Definitely a long shot, but someone might try it in desperation.

How Do You Like Your Chicken: With or Without Chemicals?

Roughly speaking, that's the issue in the EC - Measures Affecting Poultry Meat WTO dispute (DS389), for which the U.S. recently announced it will request a panel. The panel request describes the issue as follows:

The EC prohibits the import of poultry treated with any substance other than water unless that substance has been approved by the EC. The EC has not approved any other substance. Consequently, the EC prohibits the import of poultry that has been processed with chemical treatments ("pathogen reduction treatments" or "PRTs") designed to reduce the amount of microbes on the meat, effectively prohibiting the shipment of virtually all US poultry to the EC. The EC has not published or otherwise made available the process for approving a substance. The EC also maintains a measure regarding the marketing standards for poultry meat, which defines "poultrymeat" as only "poultrymeat suitable for human consumption, which has not undergone any treatment other than cold treatment."

In 2002, the United States requested the European Commission ("Commission") to approve
the use of four PRTs in the production of poultry intended for export to the EC: acidified sodium chlorite, trisodium phosphate, peroxyacids, and chlorine dioxide. However, after more than six years, including unexplained delays, the EC has not approved any of these four PRTs and instead has rejected the approval of their use.

The EC's failure to approve is despite the fact that various EC agencies have issued scientific
reports regarding a number of different aspects related to the processing of poultry with these four PRTs. Those reports did not find any scientific basis for banning the use of these PRTs. To the contrary, the conclusion of these reports is that the importation and consumption of poultry processed with these four PRTs does not pose a risk to human health.

In a nutshell, the trade issue is the following: U.S. producers use chemicals to clean their poultry, but the EC does not allow the sale of poultry cleaned this way, so U.S. producers can't sell their poultry in the EC.

For SPS disputes, I'm always interested to see how the substance of the dispute is presented, in particular whether the claim is mainly about "discrimination," "necessity," or "science," or some combination of these three.  Here, the parties seem to want to take different approaches to characterizing the dispute. From the USTR press release:

"The U.S. poultry subject to the EU ban is safe. There is no scientific evidence that the use of pathogen reduction treatments pose any health risk to consumers," said Nefeterius McPherson, a USTR spokeswoman.

By contrast, from the DG Trade press release: "we will defend our food safety legislation, which does not discriminate against imported products."  So, in the battle of the press releases, it's about science for the U.S., whereas for the EC it's about discrimination (or lack thereof).

Of course, it's the panel request that really matters in this regard.  Here are some of the key provisions the U.S. cited in the request and what they are mainly about:

SPS Agreement Article 2.2 - Necessity and Science

SPS Agreement Articles 5.1 and 5.2 - Science 

GATT Article III:4 - Non-Discrimination

GATT Article XI:1 -  Quotas and other Import Restrictions.  (This one could be interesting if it explores the intersection between import restrictions and domestic regulations, given that the measure bans all such poultry, not just imports)

TBT Agreement Article 2.1 - Non-Discrimination

It's interesting that the U.S. press release does not mention discrimination, but the panel request cites some discrimination provisions.  I'm not sure what to make of that.  I would have thought it would be a good idea to sell the case as being about discrimination, at least in part.

It's also worth noting that in the consultations request, the U.S. left out explicit references to the non-discrimination provisions.  There, the U.S. cited SPS Agreement Articles 2.2, 5, 8 and Annex C(1); GATT Articles X:1 and XI:1; Agriculture Agreement Article 4.2; and TBT Agreement Article 2 (without mentioning which sub-provisions).

The substance of the discrimination claims will also be worth following.  From what I can tell, this will be a claim of de facto discrimination, as the measures apply to all products regardless of origin.  It is these kinds of claims that often give the most insights into the scope of the non-discrimination standard.

Dani Rodrik: The Trade Regime Has Passed The Test Of This Recession

Dani Rodrik is skeptical of claims that there has been a big increase in protectionism recently:

The reality is that the international trade regime has passed its greatest test since the Great Depression with flying colours. Trade economists who complain about minor instances of protectionism sound like a child whining about a damaged toy in the wake of an earthquake that killed thousands.

His explanation for the trade regime's success:

The welfare state is the flip side of the open economy. If the world has not fallen off the protectionist precipice during the crisis, as it did during the 1930’s, much of the credit must go the social programmes that conservatives and market fundamentalists would like to see scrapped.

But we are not out of the woods yet:

The battle against trade protection has been won — so far. But, before we relax, let’s remember that we still have not addressed the central challenge the world economy will face as the crisis eases: the inevitable clash between China’s need to produce an ever-growing quantity of manufactured goods and America’s need to maintain a smaller current-account deficit. Unfortunately, there is little to suggest that policymakers are yet ready to confront this genuine threat.

Trade in Everything: Sand

From the Economist:

Malaysia banned sand exports as long ago as 1997. Indonesia followed suit in 2007 on environmental and, some say, political grounds. Ever since, it has become harder for Singapore to secure supplies for its booming construction industry and sea-fill plans.

...

So Singaporean contractors turned to Cambodia, where prices are low and environmental standards almost non-existent. But this May Hun Sen, Cambodia’s prime minister, outlawed exports of sand. Again, environmental pressures were cited, but there may also have been a political motive.

After the Cambodian ban Vietnam’s sand exports surged, achieving volumes seven times as big as last year, with Singapore the main customer. Then last month Vietnam’s construction ministry called for a temporary halt to the trade, to assess its impact on the environment and the local building industry. NGOs in Thailand and Bangladesh have also pressed their governments to reject recent requests to allow sales of sand to Singapore.

Glaeser on Economic Development in Argentina

At the NY Times Economix blog, economist Edward Glaeser asks, "What Happened to Argentina?":

A century ago, there were only seven countries in the world that were more prosperous than Argentina (Belgium, Switzerland, Britain and four former English colonies including the United States), according to Angus Maddison’s historic incomes database. In 1909, per capita income in Argentina was 50 percent higher than in Italy, 180 percent higher than Japan, and almost five times higher than in neighboring Brazil. Over the course of the 20th century, Argentina’s relative standing in world incomes fell sharply. By 2000, Argentina’s income was less than half that of Italy or Japan.

...

Why did that once-wealthy nation do so poorly?

He then compares Argentina to other countries in terms of specific policy choices, beginning as follows:

In its pre-World War I heyday, Argentina thrived as a trading giant shipping beef and grain abroad. After World War II, formerly poor countries including Japan, Korea and Italy followed an export-led model to wealth. A combination of external shocks (two world wars and the Great Depression) and protectionism caused Argentina to turn inward.

I am a little skeptical of this part.  I often hear talk about how certain countries were "protectionist" and "inward," while others used an "export-led model."  But in reality, wasn't every country protectionist, expecially during the development stage?  Japan and Korea certainly were, and that's my impression of the rest of the developed world, too (maybe not England, but that situation is a little different because it was the first to industrialize).  Now, it is possible that Japan and Korea focused on exports of industrial products more than Argentina did, so perhaps this is a relevant factor in some way. But as I understand it, part of the way they "focused on exports" was setting up protected domestic markets to give advantages to domestic companies, and then giving incentives to these companies to export.  As a result, I'm not sure that the difference between Argentina and Japan/Korea -- if there really is a difference -- is exactly as it is presented here.

I'm more sympathetic to the next part:

Peronism was not only protectionist, but it also favored large state enterprises and significant regulation of the economy. Neither strategy has been particularly good for growth. Argentina’s inbred banking system has historically had trouble weathering severe shocks. Decades of political instability have made property rights insecure and investment unattractive.

Perhaps the state enterprises issue is important.  My recollection of Japan and Korea is that while the economy was heavily regulated and they were protectionist, industrial production was mostly by private companies.  So maybe there is something there, although I'm not sure of the actual situation in Argentina in this regard.

He later turns to education:

As the next figure shows, no variable from 1900 better explains success in 2000 than investment in education.

  ... 

Schooling is measured by the share of the relevant populations that was enrolled in primary, secondary or tertiary schooling. Argentina may have been rich, but it was not that well-educated. In 2000, Argentina was doing about as well as would be expected based on its education levels in 1900. Long-run national success is built on human capital, both because of the link between schooling and technology and because of the link between education and well-functioning democracy.

I've always thought education levels were more important than development economics (as I learned it) usually gave them credit for.   It would be interesting to see direct comparisons between Argentina and Japan/Korea over the past 100 years or so.  A chart in the Glaeser post seems to show Japan ahead of Argentina in terms of "school enrollment" in 1900, but more detailed information on this would be useful.

Canada's Flavored Tobacco Ban

Reuters reports that Canada's ban on flavored tobacco is now in effect:

Canada has banned the manufacture, importation and sale of most flavored cigarettes and small cigars, which have been slammed as little more than an enticement to get children to start smoking.

There are two trade issues here.  First, as mentioned before, there's the issue of how American burley tobacco is treated:

... the industry complained the law was too broad and would unfairly restrict importation of U.S.-grown burley tobacco.

Lawmakers in U.S. tobacco-growing states have complained the law will cost U.S. jobs, and a U.S. Senator has been blocking the appointment of a White House trade official in a bid to make the Obama administration put pressure on Canada.

Second, there is the issue of cloves, discussed in detail in relation to the similar U.S. ban.  I was hoping the press reports would explain how the Canadian ban applied to clove cigarettes (and other clove tobacco products), but I didn't see anything about this.  I thought I'd try to figure it out myself, but my lack of expertise on both Canadian law and cigarettes is a bit of an impediment.  Here's what I was able to dig up (anyone who has more details should feel free to post them in the comments).

The law itself is here.  The key language bans tobacco products with "additive[s] set out in column 1 of the schedule".  The schedule is here.  The ninth additive listed is "Spices, seasonings and herbs".  From what I recall about clove cigarettes in relation to the U.S. ban, cloves are considered a spice.  So does this mean cloves are covered by the Canadian ban?  It seems likely.  If so, will Indonesia raise concerns about this ban at the WTO?  Most likely the amounts involved are significantly less than with the U.S. ban, so the concern won't be as great.  Nonetheless, the principle is still important.  Just like with the U.S. ban, the Canadian ban permits menthol cigarettes to be sold (at least according to the Reuters article quoted above).

Technological Change and the Timing of GATS Schedules

One interesting part of the recent China - Publications panel report was the discussion of technological change and the timing of GATS commitments.  The specific interpretive question where this arose was the following:  whether China's GATS commitment on "sound recording distribution services" in Sector 2.D, covering Audiovisual Services, "extends to the supply of such services through the delivery of content to the consumer 'electronically,' and not embedded in a physical medium such as a CD or DVD." The U.S. viewed the inscription "sound recording distribution services" in Sector 2.D. as a commitment on the distribution of recorded sound, "whether as a physical or non-physical product."  By contrast, China contended that its commitment under "sound recording distribution services" "covers the distribution of sound recordings only as a physical product."

In the context of looking at "supplementary means of interpretation" pursuant to Vienna Convention Article 32 in relation to this issue, the Panel considered "the circumstances of the conclusion of China's Protocol of Accession annexing China's Schedule to the GATS, in particular evidence of the existence at that time of distribution of sound recordings in non-physical form."  That is, it looked at whether sound recordings were being distributed in electronic form at the time China's WTO accession was concluded.  The key aspects of its reasoning were as follows:

7.1235 China argues that the electronic distribution of sound recordings as an established business and the legal framework for such business emerged only after the negotiation of its GATS Schedule and its accession to the WTO. According to China, this was part of the circumstances of the conclusion of its GATS Schedule that have to be taken into account when interpreting its commitment on "sound recording distribution services".

...

7.1237 The Panel considers that, in seeking to confirm the "common intention of Members" with respect to a commitment in a GATS Schedule, evidence on the technical feasibility or commercial reality of a service at the time of the service commitment may constitute circumstances relevant to the interpretation of its scope under Article 32 of the Vienna Convention. This is particularly true where, like China's entry on "sound recording distribution services", the commitment is not explicitly linked to a well-defined system of services classification, such as the CPC. At the same time, the significance of any evidence of lack of technical feasibility or absence of commercial reality of the service at the time of the service commitment would need to be carefully evaluated. We consider therefore that any evidence that sound recordings delivered in non-physical form were not, unlike today, technically possible or commercially practiced at the time China's Schedule was negotiated might, in principle, be relevant as a supplementary means of interpretation with respect to the scope of that commitment.

...

7.1239 ... China's Accession Protocol, including its GATS commitments, contains the terms of accession agreed between China and the WTO, and reflects the common intention of China and the WTO. This common intention was formed when the final text of the Protocol was approved by the WTO on 10 November 2001 and was accepted by China on 11 November 2001.

...

7.1242 ... the evidence presented by the parties suggests that the electronic distribution of music had become a technical possibility and commercial reality, albeit limited, by 1998, and in any case before the entry into force of China's GATS Schedule following its accession to the WTO on 11 December 2001.

...

7.1246 In sum, the record indicates that the electronic distribution of sound recordings had become a commercial reality in many markets before China's accession to the WTO. China was aware of this fact. The domestic legal framework for the electronic distribution of sound recordings in China, to the extent that this is relevant for our interpretation, was under consideration in China from as far back as 1998, although put in place only in 2001. China had clearly taken note of, and was altering its domestic law to take into account the commercial reality of electronic distribution of sound recordings before its accession to the WTO in 2001.

7.1247 We find therefore that the electronic distribution of sound recordings was technically feasible and a commercial reality as early as 1998 and, in any case, before China's accession to the WTO in December 2001. We are therefore not persuaded that the meaning of the phrase "sound recording distribution services" cannot extend to the distribution of sound recordings in non-physical form, for the reason that negotiators of China's GATS Schedule and, more broadly, WTO Members, had at the time no conception of the technical or commercial viability of this form of distribution.

In essence, the Panel's finding was that electronic distribution was well-established at the time China made its commitments on "sound recording distribution services," and thus it is covered by those commitments.

One implication of the Panel's finding seems to be that as a result of changes in technology, different Members may have different GATS obligations, even where the terms of their commitments are identical, depending on the date on which the commitments were made. In particular, countries who negotiated their GATS commitments during the Uruguay Round (which most Members did) could have different obligations than China and other recently acceded Members with regard to certain kinds of services, despite having the same language in their commitments.

More on the "Right to Regulate Trade"

Following-up on yesterday's post, here's something from Tania Voon:

The Panel did little to clarify the meaning of regulating trade in a WTO-consistent manner pursuant to the ‘[w]ithout prejudice’ clause. It concluded that this clause permits China to regulate goods imported into China or exported from China, as well as importers or exporters of those goods, for example, by: imposing WTO-consistent import licensing requirements, technical regulations in accordance with the Agreement on Technical Barriers to Trade (TBT Agreement),9 or health measures in accordance with the Agreement on the Application of Sanitary anPhytosanitary Measures (SPS Agreement);10 or limiting, ‘in a WTO-consistent manner, the class of entities or individuals who may engage in importing or exporting the good in question’ (paras.7.258, 7.269, 7.277). However, as these examples themselves refer to WTO-consistency, they are rather circular and do not identify the scope of measures that may be allowed pursuant to China’s right to regulate trade.

That's from the SSRN version of her forthcoming AJIL case note on the China - Publications decision.