International Economic Law and Policy Blog

Investment Treaty Arbitration and Censorship

From Luke Peterson:

There are growing signs that investment treaty protections – while rarely discussed in media or human rights law circles - may be surprisingly useful in some cases of repression or censorship of foreign-owned media. While there is growing debate as to the uses of World Trade Organization agreements to combat certain forms of state repression of media actors, less attention has been paid to the potential of international investment law to combat certain forms of state censorship and repression. With the US Department of State now signaling that internet freedom should be advanced through US foreign policy, it remains to be seen whether the US negotiating position on international investment treaties will shift so as to embrace this foreign policy objective. Ongoing investment treaty talks between the US and China could provide the obvious forum for this issue to be raised and debated.

I agree with Luke (if I am reading him correctly) that investment protections may be more effective than trade rules on the issue of censorship (internet and otherwise).  There are two reasons for this:  (1) there is no government filter to bringing complaints and (2) some of the substantive investment rules seem particularly useful.  Presumably, China is aware of all this, though, which makes me wonder whether China would ever sign on to investor-state protections with countries that have significant foreign investments in China.

ADDED:

Michael Snarr of the China - U.S Trade Law blog thinks China and the U.S. will sign a BIT sooner rather than later:

Negotiation of a China-U.S. BIT will not be quick and easy, but it remains likely. China is an expanding market attracting foreign investment from around the globe. American enterprises want to invest there and would like more security for their investments. Such incentives historically have driven the United States to negotiate BITs.

This time, however, there is an added and critical dimension. China has amassed capital and is beginning to invest abroad. The United States not only is an attractive market; the United States also needs a substantial share of that investment for the growth of its own economy. Chinese businessmen, like Americans, want investment security. This time, therefore, the BIT partners share a common vision of an agreement that will attract investment to their own countries while protecting their citizens investing abroad. Such unusual balance may make the negotiations more difficult, but they also make a positive result more likely. 

Chinese Sanctions on U.S. Companies

From CNN:

China has threatened to slap sanctions on American companies that sell arms to its rival Taiwan as part of a range of punitive actions Beijing is taking to protest the deal.

I'm not sure what sanctions they have in mind, but it's hard to imagine this resulting in a WTO complaint even if there were a possible violation.  The U.S. is usually on the other side of such concerns, and they are unlikely to want this kind of issue adjudicated at the WTO. 

Obama "will be talking more about trade this year"

From a Q & A session between Obama and some Republicans:

REP. ROSKAM: -

... And on the job-creation piece in particular, you mentioned Colombia, you mentioned Panama, you mentioned South Korea. Are you willing to work with us, for example, to make sure those FTAs get called? That's no- cost job creation. And ultimately, as you're interacting with world leaders, that's got to put more arrows in your quiver, and that's a very, very powerful tool for us. But the obstacle is, frankly, the politics within the Democratic Caucus.

PRESIDENT OBAMA:

...

On the specific issue of trade, you're right, there are conflicts within -- and fissures within the Democratic Party. I suspect there are probably going to be some fissures within the Republican Party, as well. I mean, you know, if you went to some of your constituencies, they'd be pretty suspicious about it, new trade agreements, because the suspicion is somehow they're all one way.

So part of what we've been trying to do is to make sure that we're getting the enforcement side of this tight, make sure that if we got a trade agreement -- with China or other countries -- that they are abiding with it, they're not stealing our intellectual property, or making sure that their non-tariff barriers are lowered even as ours are opened up.

And my hope is, is that we can move forward with some of these trade agreements, having built some confidence, not just among particular constituency groups but among the American people, that trade is going to be reciprocal, that it's not just going to be a one- way street.

You are absolutely right, though, Peter, when you say, for example, South Korea is a great ally of ours.  I mean, when I visited there, there's no country that is more committed to friendship on a whole range of fronts than South Korea. What is also true is that the European Union is about to sign a trade agreement with South Korea; which means right at the moment when they start opening up their markets, the Europeans might get in there before we do.

So we've got to make sure that we seize these opportunities. I will be talking more about trade this year. It's going to have to be trade that combines opening their markets with an enforcement mechanism, as well as just opening up our markets.

I think that's something that all of us would agree on. Let's see if we can execute it over the next several years.

High Speed Rail: A Stimulus for Foreign Companies?

From the AP:

President Barack Obama is pitching his $8 billion high-speed rail program to Americans as a jobs generator that will revitalize the domestic rail industry. But the full picture is more complicated.

Building ultra-fast trains won't create the kind of high-tech, high-paying jobs Americans covet any time soon. Indeed, many of the projects receiving high-speed dollars through Obama's program aren't what most of the rest of the world calls "high speed." And those projects that are truly high speed will have to rely on overseas companies with the experience building, supplying and operating the sleek, modern trains of Europe and Asia — an expertise that the U.S. lacks, say rail experts.

That wasn't the picture Obama painted in his State of the Union speech Wednesday night, when he touted $8 billion in new railroad grants funded by the federal economic stimulus law. He said they would "create jobs and help our nation move goods, services, and information," and in the next breath lambasted companies who "ship our jobs overseas" and called for slashing their tax breaks.

...

But the jobs to design and make the rail cars and engines, signaling and track for the fastest trains will mainly go abroad to the European and Asian companies because it will take time for the U.S. to develop its own domestic high-speed rail industry, rail experts said. There will be U.S. manufacturing and engineering jobs for slower trains often described as "higher speed" or "midspeed." Much of the domestic high-speed work, however, will be the kind of construction and earth-moving work typical of highway projects, they said.

European and Asian high-speed trains average over 110 mph and some reach top speeds of around 220 mph. There is nothing equivalent in the United States. Indeed, most of the grants announced by the White House Thursday will go to rail projects that aren't in the same league as the fast trains being built elsewhere.

For the U.S. to decide to build high-speed train systems using primarily U.S. companies, "would be like Bangladesh deciding they want to have a space program and only use technology they have developed and manufactured themselves," said Anthony Perl, chairman of the National Research Council's intercity rail panel.

The technology gap between true high-speed trains and the slower trains in use in the United States is equivalent to the gap between the planes flown by World War I flying aces and today's jets, said Perl, an American who teaches transportation policy at Simon Fraser University in Vancouver, Canada.

Some of the equipment purchased for high-speed rail like train cars might be manufactured abroad and the parts bolted together in assembly facilities in the U.S., he said.

"There will be some jobs that come out of it, but unless people are prepared to double the cost and take at least twice as much time to ramp up the capacity to supply this high-speed technology in the U.S., it's not there," Perl said.

...

University of Denver professor Andrew Goetz agreed that high-speed rail isn't a panacea for immediate and large-scale U.S. job creation.

"If you are concerned about dropping the unemployment rate from 10 percent to 5 percent, then this isn't going to do it. It will help, but it's not going to solve the problem," said Goetz, an expert on transportation policy and economic geography.

Transportation Secretary Ray LaHood and members of Congress have acknowledged that foreign companies will play an important role in the high-speed rail program, but they hope they will partner with U.S. companies.

At a conference he hosted last month for rail manufacturers, LaHood said more than 30 foreign and domestic companies have promised to establish or expand operations in the United States if they are chosen to build high-speed lines. Last week, House Transportation Committee Chairman James Oberstar, D-Minn., appealed to a conference in Washington for Japanese rail companies to show Americans how to duplicate their success.

"This isn't a competition," he told them, "it's a partnership."

Maybe this will make up for some of the bad feelings caused by the Buy America programs?

The China - Publications AB Report and the Role of Third Participants

In the China - Publications AB report, the EU, a third participant in the appeal, was very influential on one particular issue.  In fact, I'm not sure I've ever seen a third participant have this much impact on the AB's reasoning.  Here's what happened.

In addressing China's GATT Article XX(a) defense, the Panel had said it would assume arguendo that Article XX(a) applies in the context of China's "trading rights commitments," and it would return to this issue of applicability if it were to find that the substantive terms of Article XX(a) were satisfied.  After rejecting the Article XX defense on the basis that the terms of Article XX(a) had not been met, the Panel never addressed the issue of whether Article XX could apply here.  (See paras. 7.735-745, 7.914)

On appeal, according to the AB's summary of the arguments, China was willing to let the issue of applicability go if its substantive arguments on Article XX(a) failed on appeal:

35. In response to questioning at the oral hearing in this appeal, China clarified that, if the Appellate Body were to uphold the Panel's findings that the measures at issue are not "necessary" within the meaning of Article XX(a) of the GATT 1994, then China does not seek a ruling by the Appellate Body on the issue of whether Article XX(a) is available as a defence to a violation of China's trading rights commitments under its Accession Protocol.

For its part, the U.S. thought what the Panel did was fine, and it asked the AB to take the same approach:

64. ... At the oral hearing in this appeal, the United States urged the Appellate Body to review the Panel's findings under Article XX(a) using the same arguendo approach, and likewise to refrain from deciding whether Article XX(a) is available as a defence to a violation of China's obligation to grant the right to trade.

By contrast, the EU had some serious concerns with the arguendo approach and wanted the AB to decide the issue of Article XX(a)'s availability as a defense:

111 ... The Panel in effect found that none of the measures at issue correspond to "core" measures regulating trade, but left open the question of whether the measures are consequential, incidental, and/or necessary to measures regulating trade in the relevant goods, that is, to measures prohibiting certain content or requiring content review prior to importation. Because the availability of Article XX(a) depends on the answer to this question, the European Communities considers that the Panel erred in law by examining China's Article XX(a) defence on an arguendo basis. A detailed substantive analysis under Article XX(a) should follow, and depend upon, a positive finding that Article XX(a) applies—yet the Panel made no such finding. Before undertaking its Article XX(a) analysis, therefore, the Panel should first have shown that "the measures found to be inconsistent with [China's] trading rights commitments are incidental (in the sense of 'necessary') to the regulation of the relevant goods".   Moreover, the Panel's arguendo approach was not helpful for effectively resolving the dispute between the parties because China does not know whether it can adopt "less GATT-inconsistent (less restrictive) alternative measures, such as those pointed out by the United States" without running the risk of a renewed and successful WTO challenge of such measures.  (emphasis added)

So what did the AB do in response to all this?  Well, pretty much what the EU asked for, and for similar reasons.  Here's what the AB said:

213. We observe that reliance upon an assumption arguendo is a legal technique that an adjudicator may use in order to enhance simplicity and efficiency in decision-making. Although panels and the Appellate Body may choose to employ this technique in particular circumstances, it may not always provide a solid foundation upon which to rest legal conclusions. Use of the technique may detract from a clear enunciation of the relevant WTO law and create difficulties for implementation. Recourse to this technique may also be problematic for certain types of legal issues, for example, issues that go to the jurisdiction of a panel or preliminary questions on which the substance of a subsequent analysis depends. The purpose of WTO dispute settlement is to resolve disputes in a manner that preserves the rights and obligations of WTO Members and clarifies existing provisions of the covered agreements in accordance with the customary rules of interpretation of public international law. In doing so, panels and the Appellate Body are not bound to favour the most expedient approach or that suggested by one or more of the parties to the dispute. Rather, panels and the Appellate Body must adopt an analytical methodology or structure appropriate for resolution of the matters before them, and which enables them to make an objective assessment of the relevant matters and make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements.

214. In this case, China asserted that the introductory clause of paragraph 5.1 of its Accession Protocol allowed it to justify the provisions of its measures found to be inconsistent with its trading rights commitments as necessary to protect public morals in China within the meaning of Article XX(a) of the GATT 1994. The Panel did not decide whether paragraph 5.1 gave China access to this defence. Instead, the Panel proceeded on the assumption that such a defence was available. Yet, if China cannot rely on Article XX(a) to defend its measures as ones that protect public morals in China, the findings of inconsistency with China's trading rights commitments would be the end of the matter, and any analysis of the measures under Article XX(a) would be unnecessary. Moreover, certain elements of the Panel's reasoning under Article XX(a), notably its analysis of the appropriate restrictive effect to be taken into account, depended, at least to some extent, on the availability of Article XX(a) as a defence to a violation of China's trading rights commitments. Thus, these parts of the Panel's analysis rest upon an uncertain foundation as a result of the absence of a ruling on the applicability of Article XX(a) in this case. In addition, the absence of clarity on the issue of whether China may rely on Article XX(a) as a defence to a violation of paragraph 5.1 of its Accession Protocol may leave the participants uncertain as to the regulatory scope that China enjoys in implementation and as to whether any implementing measure is, in fact, consistent with China's WTO obligations or susceptible to further challenge in proceedings under Article 21.5 of the DSU.

215. In our view, assuming arguendo that China can invoke Article XX(a) could be at odds with the objective of promoting security and predictability through dispute settlement, and may not assist in the resolution of this dispute, in particular because such an approach risks creating uncertainty with respect to China's implementation obligations. We note that the question of whether the introductory clause of paragraph 5.1 allows China to assert a defence under Article XX(a) is an issue of legal interpretation falling within the scope of Article 17.6 of the DSU. For these reasons, we have decided to examine this issue ourselves.

Summing up, both participants were fine with the Panel's arguendo assumption, but the AB took a different approach, putting strict limits on the use of such techniques.  This alone was not all that surprising.  The AB has certainly gone a different way than the participants before.  But it is striking how the AB seems to have been convinced by the EU's third participant reasoning, and relied heavily on it (in particular the part about effectively resolving the dispute and establishing clearly what China's implementation options might be). 

I'm not sure what to take from all of this, except perhaps that third participants should not feel that their submissions are just a formality and that their views will likely be ignored.  Clearly, the AB is listening!

Obama on Trade: Imports Bad, Exports Good

From a Q & A session after some recent remarks by Obama:

Q    Yes, okay, it has to do with international patent rights.  With all this free trade and trade barriers falling, it's really hard for an individual like me with a global-scope patent to file all over the world and get patent protection everywhere, and having to go overseas to fight infringement.  So if you're going to drop trade barriers, maybe you can extend my patent rights to the foreign countries.

THE PRESIDENT:  ...

Can I just say, we just went through a decade where we were told that it didn't matter, we'll just -- you just keep on importing, buying stuff from other countries, you just take out a home equity loan and max out your credit card, and everything is going to be okay.  And it looked, for a lot of people, like, well, the economy seems to be growing -- but it was all built on a house of cards.  That's what we now know.  And that's why if we're going to have a successful manufacturing sector, we've got to have successful exports. 

So buying imports is like excessive borrowing?  Hmm.

Trade in Everything: Offshoring Prisons

From AFP:

 Governor Arnold Schwarzenegger suggested California could ease its crowded prison system by sending thousands of undocumented inmates to specially built jails in Mexico.

Speaking to reporters at the Sacramento Press Club, Schwarzenegger said California could ease its strained finances by a billion dollars if 20,000 illegal immigrants currently held in the state were housed across the border.

"I think that we can do so much better in the prison system alone if we can go and take, inmates for instance, the 20,000 inmates that are illegal immigrants that are here and get them to Mexico," Schwarzenegger said.

"Think about it -- if California gives Mexico the money. Not 'Hey, you take care of them, these are your citizens'. No. Not at all.

"We pay them to build the prison down in Mexico. And then we have those undocumented immigrants down there in prison. It would half the costs to build the prison and run the prison. We could save a billion dollars right there that could go into higher education."

When I first saw the headline, I thought he was going to propose something broader than just sending "undocumented inmates" to Mexican jails; I thought all inmates would be eligible.  (One thing that wasn't clear to me was whether it's just Mexican "undocumented inmates," or whether other nationalities would be going, too).  Still, even with the "undocumented inmates" limitation, it's quite a bold proposal, with all kinds of complications and concerns.  Among other things, there will be job losses for American prison guards, difficulties in ensuring good treatment of the prisoners, and questions of which companies (Mexican or American) would build these new prisons.

While I have a hard time imagining this going forward, let's say it does.  Would it ever be expanded to cover American citizens as well?  And would we start seeing GATS negotiations and commitments on this issue?  (If we haven't already -- I have not checked).  Will there become a competitive international market for housing prisoners?

"Why is Censorship a Trade Issue?"

From the Comptuer & Communications Industry Association:

WHY IS CENSORSHIP A TRADE ISSUE?

The United States is an information economy, and U.S. companies are leading vendors of information products and services. In this context, information discrimination fundamentally undermines market access for electronic commerce, and combating it should top our trade agenda.

• Information discrimination represents a classic “non-tariff trade barrier” (NTB) that we seek to eliminate when opening up foreign markets to U.S. goods. By co-opting U.S. businesses into content filtering, offenders create barriers to market entry that would not otherwise exist.

• Information discrimination constitutes an unfair “rule of origin” by filtering out (through a nontransparent process) U.S.-originating content, for example, certain U.S. domains that protectionist regimes deem to be “subversive.”

• Information discrimination also violates the fundamental free trade principle of “national treatment” – it treats U.S. vendors differently by requiring U.S. companies to restrict access to information. Allowing U.S. companies to be perceived as being coerced into lowering their corporate moral standards leads to negative public reaction and even penalties at home.

The first point they make is, in essence, that censorship is a burden on U.S. information companies.  But of course, domestic companies are burdened by this as well.

The second point is a little unclear, but they may be saying that there is a de facto discriminatory effect on U.S. companies from these meaures.

The final point is more clearly about discrimination against U.S. companies.

To me, these statements are a great example of how "discrimination" and "non-discriminatory trade barriers" get blurred togethered.  Notice how all three bullet points use the word "discrimination" (as part of "information discrimination").  But not all of the points involve discrimination against foreign products.

If I had to guess why these different issues are all framed in terms of "discrimination," it's because it makes the case seem more compelling.  However, I think there are important differences between "information discrimination" and "discrimination against foreign products," and blurring them like this may not always be an effective strategy.

Do Free Traders Support Dumping?

From an Australian union leader:

"The bottom line is that even free-trade zealots do not support dumping because it is an uncompetitive practice and not a true reflection of market forces."

Hmm, I'm not so sure about that one.  I don't think economist Greg Mankiw would mind being called a "free trade zealot," so I'm going to quote a blog post of his in which he was criticizing something Larry Summers said on trade:

Larry is famous for being forthright about his views. He knows enough about our trade laws to know that they make little sense. So instead of feigning ignorance, why doesn't he call for repeal of the antidumping laws?

Trade in Everything: Haggis

From the Daily Telegraph:

US authorities are considering relaxing an import ban on the Scottish delicacy, brought about by the BSE crisis in 1989, it was reported.

The meat dish contains offal, including sheep lung, which was covered by the American restriction on some imported animal products.

...

A spokeswoman for the United States Department of Agriculture told theSunday Times newspaper it was reviewing its regulations in line with a ruling from the the World Organisation for Animal Health (OIE) that sheep lung is safe.

The spokeswoman said: ''At this time, there are regulations being drafted.

''By closely aligning our import rules with the OIE, we will allow the importation of certain ruminant products that do not contain tissues associated with BSE infectivity or ruminants raised under conditions where they were not fed prohibited materials associated with spreading BSE.''

This may be a good example of how the SPS Agreement works outside the context of disputes.  Sometimes governments actually just comply with the rules.

Pleading "No Contest" in the Zeroing Disputes

It's hard to know what to make of a WTO panel decision like today's U.S. - AD Measures on Carrier Bags report.  In a nutshell, Thailand alleged that the U.S. used "zeroing" in the anti-dumping proceeding at issue, in violation of the AD Agreement.  In response, the U.S. did not contest the facts or the applicable law (see my post on the U.S. written submission in the case).  In fact, the parties had a whole procedural agreement where they laid all of this out, including the period of time for implementation:

3. The United States will not contest Thailand's claim that the measures identified in the attached request for the establishment of a panel are inconsistent with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement on the grounds stated in United States - Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R (adopted 31 August 2004).

...

5. Provided that the panel's finding is limited to a finding that the measures identified in the attached request for the establishment of a panel are inconsistent with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement, the parties agree that, pursuant to Article 21.3(b) of the DSU, the reasonable period of time for bringing each such measure into conformity with the Anti-Dumping Agreement will be six months, beginning on the date on which the DSB adopts the report of the panel.

(See http://docsonline.wto.org/DDFDocuments/t/WT/DS/383-4.doc)   Thus, the U.S. would not contest the claim, the panel would find a violation, the U.S. would not appeal (presumably), and the implementation period would be six months.

So how to characterize such an approach by the parties and the panel?  Is this akin to pleading "no contest"?  I feel like someone out there could provide a nice theoretical framework to describe this situation, but it's beyond my capability.

Note that this is not the first time this has occurred.  It was also the way the U.S. - Shrimp AD Measure (Ecuador) case was handled.  (And that case had two of the same panelists as the Carrier Bags case!)

Some Questions About "High Standards" in Trade Agreements

I see a lot of talk these days by the Obama administration about "high standard" trade agreements (e.g., here).  They also refer to "21st century" trade agreements, presumably to convey a similar idea.

So what do they mean by a "high standard" agreement?  The use of this phrase strikes me as akin to requirements of "fairness" and "reasonableness."  Is anyone really against any of this?  Is anyone for "unfairness" or "unreasonableness"?  Is anyone for "low standards"?

With regard to the particular standards to be included in trade agreements, though, whether someone wants them to be high or low depends on what subject area we are talking about.  For labor and the environment, unions and environmental NGOs want them high, whereas many businesses prefer them to be low (or, even better, non-existent).  Conversely, for IP and investment, it is business groups that want them high, with unions and NGOs preferring them low (or non-existent).

What I want to know is, what balance does the Obama administration hope to achieve here?  I'm pretty sure they would prefer labor and environment standards that are at least as high as in the most recent U.S. FTAs.  By contrast, I'm less clear about what they have in mind for IP and investment.  Will they push for strong IP protection and investor rights?  Or will they pull back?  And what about subjects such as food safety and health?

All of this brings me to a letter from a number of members of the House Trade Working Group (a group of Representatives who are critical of existing trade agreements) to USTR Kirk, in reaction to the Obama Administration announcing that it would participate in the Trans-Pacific Partership (TPP) trade talks.  (I don't have a link for this letter yet, but will try to find one).  [UPDATE:  Here's the letter.]  As set out in the letter, here are some changes they would like to see in future trade agreements:

Foreign investor rights: We believe the new American trade agreement model must no longer provide extraordinary foreign-investor privileges and private enforcement systems that promote offshoring and allow foreign investors to challenge our environmental, zoning, health and other public-interest policies in foreign tribunals. Many in Congress have expressed serious concern about past trade pact provisions that allow foreign investors to skirt our court system to sue the United States in World Bank and UN tribunals over regulatory polices that apply to domestic and foreign firms alike. In order to ensure that foreign investors do not have greater rights than U.S. investors and firms, the TPP's investment chapter should build off of the progress made in the Australia-U.S. FTA in addressing this congressional concern by similarly not providing for extrajudicial investor-state private enforcement rights for foreign investors.

...

.. we oppose trade agreements' establishment of rights for foreign investors to obtain compensation from the U.S government for "regulatory takings" - takings compensation for the costs of regulatory compliance that would not be allowed under U.S. law. We also believe it is critical that any new Obama trade agreement repair provisions in previous FTAs that guarantee a "minimum standard of treatment" for foreign investors by making clear that this standard is limited to guarantees of procedural due process rather than creating new substantive propeliy rights for foreign firms. In addition, the TPP FTA must not include limits on capital controls and other policies countries may need to employ to counter financial and currency crises that have been included in past FTAs.

Access to medicines. The patent provisions of the U.S. FTA with Peru provide a base on which further health-related protections can be built. We strongly believe trade agreements must work to ensure affordable access to medicines, and the Peru agreement addressed several of our long-standing concerns about the way that medicine patent related issues are dealt with in FTAs. Additional improvements, however, are still required. It is imperative that TPP patent rules do not undermine the flexibilities and rights included in the access to medicine polices that were agreed in the 2001 WTO Doha Declaration on the Trade Related Intellectual Property Agreement (TRIPS) and Public Health, a standard which the 2002 U.S. Trade Promotion Authority bill formally identified as a policy goal.

Labor and environmental standards. The TPP FTA should build on the advancements made to the Bush FTAs' labor and environmental terms in 2007 which were included in the FTA with prospective TPP partner PelU.

...

In addition, TPP labor standards must require signatories to enforce the core International Labor Organisation's (lLO) standards as set forth in the ILO Conventions.

...

Procurement rules. We do not believe it is appropriate for intemational trade agreements to impose limits on the ability of Congress and state legislatures to design stimulus, infrastructure and other government procurement activities that promote the public interest. The old FTA model subjects many common U.S. federal and state procurement policies to challenges in trade tribunals. Included among these policies are: a ban on anti-offshoring, many Buy America policies, and U.S. renewable-energy, recycled content, and other environmental safety requirements.

...

Services deregulation. It is our understanding that the Bush Administration's initial attraction to the TPP forum was based on these talks' focus on service sector liberalization and deregulation and establishment of new foreign investor rights, including in financial services. Given the worldwide effort to reregulate banking, securities, derivatives and other financial services, including the recent legislation passed in the House of Representatives, no trade agreement with the United States should contain any constraints on the ability of Congress to regulate either foreign financial service firms operating here or the cross-border provisions of financial services.

Democracy clause. We believe that FTAs should be entered into only with trading partners that have democratic governments, and, should democratic governance be interrupted, the terms of an FTA be suspended until democratic rule is reestablished. ...

Food safety and agricultural terms. In addition, it will be critical to improve the safety and inspection standards for imported food and products in the pact relative to the past U.S. FTA model. We must also use the TPP opportunity to update FTA agriculture terms that have simultaneously undermined U.S. producers' ability to earn a fair price for their crops at home and in the global marketplace, while also displacing peasant farmers in trade partner nations.

Let me just list what jumped out at me as the most significant proposed changes to existing trade rules:

-- no more investor-state

-- scaled back substantive investor protections

-- expanded labor rights enforcement

-- ensuring that Buy America is not restricted further

-- suspension of the agreement if democracy is being undermined

This last one is particularly interesting given my recent post discussing the difference between FTAs and unilateral trade preferences.  It seems that perhaps some elements of EU trade agreements, as pointed to by Lorand Bartels, could now be incorporated into U.S. agreements.

So, getting back to the initial part of this post, here's my question:  Which, if any, of these proposed new rules will be part of the "high standards" sought by the Obama Administration?

Chander on International Trade and Internet Freedom

Anupam Chander has posted International Trade and Internet Freedom on SSRN.  From the abstract:

Can trade liberalization serve the cause of political liberalization in authoritarian states? In this short essay, I suggest that trade law might bolster political freedoms by liberalizing Internet trade. Trade law puts pressure on state repression of information through two principal mechanisms.

First, GATS transparency obligations require what is often absent in authoritarian states – a set of public rules that governs both citizens and governmental authorities. WTO member states must publish regulations governing services and establish inquiry points where foreign service providers can obtain information about such regulations. A publication requirement written for the benefit of foreigners may prove even more useful for local citizens, who will be given the opportunity to understand the rules that bind them – and the opportunity therefore to challenge those rules or their interpretation.

Second, the market access and national treatment commitments provide opportunities for foreign information service providers to disseminate information that local information service providers might eschew. While censorship by itself may not necessarily constitute either a market access or a national treatment violation, it might do so if it is operationalized in ways that effectively discriminate against foreign service providers.

And from the paper:

Censorship by itself may not necessarily constitute either a market access or a national treatment violation. But consider three scenarios: what if a country (1) declared foreign blogging sites off-limits, or (2) required foreign information service providers to route their offerings through special traffic cops, or (3) required local Internet service providers to deny access to certain foreign services in toto? In cases like these, the censorship measures would likely run afoul of a country’s market access and national treatment obligations.

Phil Levy on Defining Protectionism

Phil Levy of AEI tries to define modern protectionism:

To better recognize protectionism in its modern guises, we offer three broad categories of protectionist measures: Intentional protectionism encompasses measures that are explicitly intended to favor domestic industry over imports. Incidental protectionism occurs when measures can be readily justified on other grounds but also have the effect of obstructing import competition. Instrumental protectionism describes a burgeoning set of policies in which trade actions are used as a lever to change another country's policies.

He then explains each category in detail.

I think this is a great article.  I may not agree with all of the specific points, but in my view the definition of protectionism is an important issue that is often overlooked.  The term gets thrown around a lot, and I'm not sure people are always using it the same way.  Most people would probably agree that fighting protectionism is a core purpose of trade agreements.  But what exactly is the protectionism that we are fighting?

And then there's the question of what the full scope of trade agreements should be.  In addition to protectionism, what else should be included?  I'll leave that one for another day.

Market Economy Status and Arms Trade in Exchange for Chinese Currency Revaluation?

From China Daily:

Spain will propose that the European Union (EU) consider lifting an arms embargo on China and grant full market economy status to the country, Madrid's top envoy to Beijing has said.

Elaborating on Spain's tasks during the six months it holds the EU rotating presidency, Carlos Blasco Villa told China Daily that Madrid will also promote the signing of a comprehensive cooperative partnership between China and the EU.

...

Spain, which holds the rotating presidency from Jan 1 to June 30, will ask the EU to consider lifting the ban on arms exports to China, he said.

"We hope to deepen discussions on lifting the ban," he said.

Imposed two decades ago, the ban is cited by a number of analysts as an obstacle to China-EU ties.

Madrid is also keen to put on the EU's agenda the granting of full market economy status to the world's largest exporter, Blasco said.

As a compromise to join the World Trade Organization (WTO) in 2001, China allows WTO members not to recognize it as a full market economy until 2016.

But the lack of such a status has made China the victim of a growing number of dumping charges.

...

More than 80 countries and regions, including Australia and New Zealand have granted the status to China.

But China needs to further open up its service sector and make the yuan fully convertible to convince all EU members, Blasco said, adding that he understood the country's gradual and steady approach in opening up.

I'm assuming that making the yuan "fully convertible" means an exchange rate set by the market, but I could be wrong about that.

The First WTO Dispute of the Year: Another Alcohol Tax Discrimination Case

Sometimes I think that being involved in an alcohol tax discrimination dispute is kind of like a rite of passage for WTO Members.  The latest one is the first complaint of 2010:

United States Trade Representative Ron Kirk announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the Philippines regarding the Philippine excise taxes on imported distilled spirits such as whiskey and gin. The Philippines taxes imported distilled spirits at significantly higher rates than domestic distilled spirits.

From the U.S. consultations request:

The Philippines taxes distilled spirits at rates that differ depending on the product from which the spirit is distilled. Distilled spirits produced from certain materials that are typically produced in the Philippines are taxed at a low rate. Other distilled spirits are taxed at significantly higher rates. The Philippines' taxes on distilled spirits appear not to tax similarly imported distilled spirits compared to directly competitive or substitutable domestic distilled spirits. The taxes appear to be applied in a way that affords protection to the domestic products. In addition, the taxes appear to subject imported distilled spirits to internal taxes in excess of those applied to like domestic products.

A classic de facto discrimination case.  The measures do not explicitly single out foreign products for higher taxes, but they tax certain products higher than others, and the higher taxed products tend to be of foreign origin (allegedly, that is).

The EU is pursuing a related case, for which the panel was established at today's DSB meeting.

Barbie Protectionism

From AFP:

Chavez, in his weekly radio-TV show "Alo Presidente," called on Venezuelan manufacturers to make "educational" toys and dolls with indigenous peoples' features to replace capitalistic counterparts like the Barbie doll that "have nothing to do with our culture."

...

Venezuela, Chavez said, should be making "educational games," and suggested designing "little indigenous dolls" to sell in place of dolls "like Barbie, that have nothing to do with our culture."

Using Trade Measures to Promote Democracy, Human Rights, Etc.

A couple days ago, I posted about Pascal Lamy's speech on human rights, where he said, among other things, that "trade measures are the most commonly used instrument in developed countries to put pressure on states violating human rights."  Presumably, one type of measure he had in mind was the use of conditions in tariff preference measures, such as the Generalized System of Preferences.  Basically, the grant of the preference is conditional on meeting designated human rights standards.

In addition to human rights, these measures are also used to promote other goals, including democracy.  Here's a Reuters article from a little while ago regarding preferences under the African Growth and Opportunity Act (AGOA), a U.S. preference program for Africa:

President Barack Obama said on Wednesday he has terminated trade benefits for Guinea, Madagascar and Niger, three African countries where democratic progress is threatened by political turmoil.

In a statement, Obama said the three countries had failed to make "continual progress" in meeting U.S. requirements for the African Growth and Opportunity Act.

"Each of these countries has experienced an undemocratic transfer of power, which is incompatible with making progress toward establishing the rule of law or political pluralism," said a White House official.

"These circumstances also make it extremely difficult to achieve the progress necessary to satisfy the other AGOA eligibility criteria," the official added.

The Eyes on Trade folks at Public Citizen's Global Trade Watch are happy that the Obama administration has suspended these preferences on the basis that the recipient countries are not being democratic enough.  But they are annoyed that agreements like CAFTA prevent similar actions against countries with whom the U.S. has negotiated trade agreements:

The Obama administration suspended the trade preferences of Niger, Guinea, and Madagascar because they have all experienced undemocratic transfers of power recently.

It’s too bad the standard trade agreement model doesn’t contain these types of democracy-preserving provisions, as Hondurans found out when their democratically elected President was ousted in a coup this June. 

...

Our trade policy should be promoting democratic governance instead of handcuffing our ability to discourage coups and dictatorships.  Signing CAFTA-style trade agreements is a surefire way to diminish our capacity to conduct effective foreign policy.

Lawrence Friedman of the Customs Law blog comments:

The reason is that AGOA, GSP, and other unilateral preference programs belong to the United States. The US made the rules and can kick out a country that fails to satisfy the rules. CAFTA, like NAFTA and the other bilateral or multilateral trade agreements, are different. The rules were negotiated between and among the parties. Since no one will agree to negotiate and implement a trade agreement from which they might be ejected, the agreements contain no such provisions.

Public Citizen may not like it, but the practical reality is that the trade agreements just don't work that way.

There are several points I'd like to make here.

First, I've heard it suggested that smaller, poorer countries get taken advantage of when they negotiate with a powerful country like the U.S., and that as a result the terms of such FTAs are unfair to the smaller countries.  However, one benefit to these countries is that under an FTA, they no longer have to worry about these kinds of trade measures being used to coerce them to adopt particular policies or do certain things.

Second, as for the legality of revoking unilateral trade preferences in situations like this, I'm not sure it would be consistent with the non-disrimination requirement of the Enabling Clause, based on the Appellate Body's Tariff Preferences ruling (from what I could gather, a WTO waiver has been requested for the AGOA, but not yet granted).  There's a lot the Appellate Body didn't say in that case, so there are plenty of arguments left on both sides.  But if I had to guess, I think the Appellate Body would reluctantly find that what the U.S. did here is not consistent with the rules.  Of couse, it is unlikely that such actions would ever be challenged, as there would probably be political repercussions from doing so.  But technically speaking, it is very possible the U.S. actions would violate the rules.

Finally, I can understand the desire to promote democracy abroad.  You won't get much argument from me that democracy is a good thing.  But it has always made me a bit uncomfortable using U.S. economic power to tell other countries how they should run things, and to punish them when they don't do what we want.  I don't mean to dismiss the argument that if we have the power to make things better and to help those in need, we should use it.  But I wonder if perhaps such actions would be more effective, and less susceptible to inconsistent application and abuse, if they were more multilateral in nature.

ADDED:  In the comments, Isabel Feichtner clarifies that a waiver has been granted for the AGOA (and two other preference programs).

Google's Troubles in Foreign Markets: First China, Now France?

From the Economist:

FRENCH internet executives, bloggers and web users cringed in early January when an independent report for the ministry of culture proposed a tax on online advertising revenues, aimed at American firms such as Google, Microsoft, AOL, Yahoo! and Facebook, to pay for new subsidies for the music, film and publishing industries. ...

To cover the cost the authors of the report recommended a tax aimed at the handful of American firms which dominate France’s internet-advertising market, notably Google, even though these bear no responsibility for the music industry’s woes. ...

...

But many French internet firms fear a new tax. It may be impossible to set a minimum threshold for taxable revenue that penalises foreign firms but exempts domestic ones, especially as the latter grow. If the limit is set low enough to ensnare Facebook, for instance, which earns comparatively little in France, some French firms could also be hit. ...

I'm not sure what GATS commitments the EU made for the relevant services, but if there were National Treatment commitments, this would make a great de facto discrimination case.  If the article is describing the situation accurately, the law would involve a tax that is set at a level which catches "the handful of American firms which dominate France’s internet-advertising market."  So, the measure itself does not identify American firms, but it sounds like there would be some good evidence, from both the effect and intent of the measure, indicating that this was what was going on.

The China - Publications Decision: Is The Appellate Body Becoming "Activist"?

Activist is a loaded term, I know, and that's not really what I mean.  What I have in mind is the Appellate Body's apparent willingness in China - Publications to address issues that it could have avoided, and its establishment of standards that make issue avoidance more difficult.

First, there was the issue of the use of arguendo assumptions to avoid difficult issues, in this case the question of whether GATT Article XX applies outside the context of claims under the GATT.  The Panel had assumed arguendo that the Article XX defense was available in relation to claims under China's "trading rights commitments" in its Accession Protocol.  Then, after finding that the substantive aspects of Article XX were not satisfied, it said there was no need to resolve the question of Article XX's availability.  The Appellate Body itself had used this technique in a recent case (the Customs Bond case -- see paras. 308-310, 319), on a similar issue even, so it seemed likely that it would approve of the Panel's use of an arguendo assumption.  Instead, the Appellate Body criticized the use of this technique here and put strict limits on the use of the technique generally. (See paras. 213-215)  As a result, it seems to have made issue avoidance in this way more difficult (and setting an example for that here by addressing the issue in question).

Second, related to the first point, the Appellate Body then took on the issue of whether GATT Article XX applies to a claim outside the GATT context.  This issue could be a very controversial one in some upcoming cases under the TBT Agreement if the defending party decides to invoke Article XX (for example, the EC - Seal Products case and the U.S. - Tuna case), so it would not have been surprising if the Appellate Body had decided to avoid the issue for now.  Instead, it jumped right in.  Well, maybe just dipped its toe in, but still, it addressed an issue it might have been expected to avoid.

Third, with regard to the Panel's "analytical approach" to "necessity" under GATT Article XX(a), the United States expressed "some concerns" regarding the Panel's approach.  In response to questioning, the United States "clarified that it is not raising a claim of error with respect to the way in which the Panel applied the 'necessity' test" (and the Appellate Body noted that the United States "did not specifically identify this concern in its Notice of Other Appeal"), but rather "it would welcome clarification from the Appellate Body that an Article XX analysis should be approached in an integrated fashion," rather than the two-step approach used by the Panel.  So did the Appellate Body tell the United States that it could only address allegations of error, and could not simply "clarify" any "concerns" participants might have?  No, it went ahead and clarified the issue.  (See paras. 237-249)

Finally, with regard to its interpretation of "Sound recording distribution services" in China's GATS Schedule, the Appellate Body said:

400. Having reached a conclusion on the interpretation of China's commitment on "Sound
recording distribution services" under Article 31 of the Vienna Convention, we observe that we would not need to proceed to an examination of supplementary means of interpretation pursuant to Article 32 of the Vienna Convention to decide this appeal. The Panel, however, considered that recourse to supplementary means of interpretation was useful to confirm its preliminary conclusion based on the application of Article 31 and proceeded to examine the preparatory work of the treaty and the circumstances of the conclusion of the GATS pursuant to Article 32 of the Vienna Convention. China has appealed the Panel's application of Article 32. We therefore address the issues raised by China in respect of the Panel's analysis of supplementary means of interpretation pursuant to Article 32 of the Vienna Convention.

So, even though it would not need to address Article 32 in order to decide the appeal, the Appellate Body did so anyway.

I'm not sure what all this means, if anything, for how the Appellate Body approaches cases in the future, but it certainly makes these reports more interesting!

Fred Abbott on the Seizure of Generic Drugs in Transit

Fred Abbott has posted "Seizure of Generic Pharmaceuticals in Transit Based on Allegations of Patent Infringement: A Threat to International Trade, Development and Public Welfare" on SSRN:

This essay addresses the legitimacy of seizures by the customs authorities of some European Union member states of pharmaceutical products moving in transit through European ports and airports based on patents in force in the transit countries. Seizures have been directed to products off-patent in the countries of manufacture and destination. EU member state customs authorities have justified such seizures on the basis of a 2003 EU intellectual property border enforcement regulation. The seizures have generated intense controversy at the WTO and more widely among stakeholders interested in assuring affordable access to medicines. This essay argues that seizure of generic pharmaceutical products in transit contravenes GATT article 5 that obligates WTO Members to assure freedom of transit for goods passing through ports and airports, and obligates Members to refrain from imposing unreasonable regulations on such transit goods. It further argues that the seizures are fundamentally inconsistent with the Paris Convention principle of independence of patents that recognizes the sovereign right of states to adopt and implement patent protection as they consider appropriate, within the framework of a general set of rules. Rules permitting enforcement of transit country patents effectively deprives exporting and importing Paris Union and WTO Members of their right to make determinations regarding patents, and represents an overextension of patent jurisdiction by countries without a substantial interest in enforcement. Dutch court adoption of a "manufacturing fiction" to justify transit seizures – pretending that subject pharmaceuticals are manufactured in the Netherlands, when they clearly are not – represents a significant potential threat to the conduct of international trade. Each WTO Member might pretend that all manner of its domestic regulation – labor, environmental, social welfare – was violated in an exporting country when goods were manufactured, allowing the goods of that country to be seized in transit for a violation of transit country law. The international trading system could not function reasonably in such a fiction-laden environment. The seizure of generic pharmaceutical products in transit is inconsistent with the object and purpose of the Doha Declaration on the TRIPS Agreement and Public Health that promotes access to medicines for all.

Google and China: Protectionism or Censorship?

In Foreign Policy, journalist Jordan Calinoff asks, "Is web censorship just an excuse to drive out foreign competition and give a boost to Chinese brands?"  He then writes:

... Google, like Yahoo before it, has been systematically forced out of the market by a Chinese government determined to purge all foreign competition from its Internet industry, which is expected to bring in $8 billion in advertising revenue in the next three years, according to Internet research firm eMarketer.com. ...

...

Although this week's news has been perhaps the most visible and largest example of China's "firewall protectionism," Google's exit is just the latest in a long line of foreign Internet firms forced to leave the country on the shaky rationale of national security and censorship.

...

In the face of an obvious and systematic form of protectionism in perhaps the most important industry for the future, the cheering from many leading American figures for Google's "brave" decision seems strange. If China were attempting to block the import of American tires, instead of American Internet media, would Americans applaud Goodyear and Congress for not putting up a fight against blatant WTO violations?

Firewall protectionism is part of a greater and dangerous trend. China has recently shown that it is willing to protect its own industries at any cost, even to the point of all-out trade war. ...

So when media reports that Google's decision is a reaction against China's desperate need to censor the Internet and spy on activists, and not about protectionism, it rings false. In a country where dissidents are routinely jailed for years without fair trials under the dubious charge of "inciting subversion of state power," and poor petitioners from the countryside are routinely thrown into Beijing's horrendous black jails for simply airing grievances, it seems strange that China truly needed to hack into human rights activists' email accounts. A more likely explanation is that it was simply trying to find a way to block the world's biggest Internet giant out of the Chinese market and was searching for the right button to push. As for Google's "threat" to pull out of the country, China will certainly not be begging them to stay.

I still need more facts before I express any views on this one.  It's not very clear to me what specific actions the Chinese government has taken in this area.

Pascal Lamy on Trade and Human Rights

WTO DG Pascal Lamy makes some interesting points (as he often does) in his recent speech on trade and human rights.  Here are the ones that jumped out at me (quoted portion indented), with some quick comments. 

1. Good governance and transparency are essential for trade.

What role do human rights play in trade? First, civil and political rights are a key ingredient of good governance, which in turn is essential to the proper conduct of trade relations. Freedom of expression, for example, brings transparency, one of the core principles of the world trading system. 

My sense is that "transparency" is almost universally accepted, and not particularly controversial.  On the other hand, "good governance" is one of those vague terms that sounds great in theory, but in practice can lead to some disagreement about the burdens imposed on domestic regulation.

2. Trade measures are used to promote human rights.

How can trade help promote human rights? I would start by noting that trade measures are the most commonly used instrument in developed countries to put pressure on states violating human rights.

That is probably true, with selective purchasing laws and conditions on trade preferences being two examples. It is not clear whether all such measures are permitted under WTO rules, though. 

3. The WTO's purpose is to "regulate" trade

The primary vocation of the WTO is to regulate, not to deregulate trade as is often thought. By putting in place rules to regulate trade flows and remove trade distortions, the WTO aims to create a global level playing field, where fairness is the rule and where the rights of individual members are safeguarded.

I'm not sure either of these terms, "regulate" or "deregulate," is particularly helpful in describing the WTO's purpose.  Actually, I think this recent statement by the Appellate Body in China - Publications was pretty good in this regard:

222. We read the phrase "in a manner consistent with the WTO Agreement" as referring to the WTO Agreement as a whole, including its Annexes. We note, in this respect, that we see the "right to regulate", in the abstract, as an inherent power enjoyed by a Member's government, rather than a right bestowed by international treaties such as the WTO Agreement. With respect to trade, the WTO Agreement and its Annexes instead operate to, among other things, discipline the exercise of each Member's inherent power to regulate by requiring WTO Members to comply with the obligations that they have assumed thereunder. When what is being regulated is trade, then the reference in the introductory clause to "consistent with the WTO Agreement" constrains the exercise of that regulatory power such that China's regulatory measures must be shown to conform to WTO disciplines.  (emhphasis add)

So it's not that the WTO "regulates" or "deregulates" trade, but rather it "disciplines the exercise of each Member's inherent power to regulate."  As the Appellate Body's statement indicates, it is governments that regulate trade.  As for the WTO, rather than regulating trade, it regulates governments' regulation of trade. 

Of course, in restricting domestic regulation in this way, it is, to some extent, deregulating trade.  Thus, you could argue that the WTO's impact is closer to "deregulating" than "regulating."

(Did any of that make sense?  I'll try again on that one some other time.)

4. Trade requires redistribution of wealth and "safeguards."

While trade can promote development and contribute to the reinforcement of human rights, it is not a panacea. Trade liberalization can entail social costs. To be successful, the opening of markets requires solid social policies to redistribute wealth or provide safeguards to the men and women whose living conditions have been disrupted by evolving trade rules and trade patterns.

This is what I have called the “Geneva consensus”, under which the opening of markets is necessary to our collective well-being, but does not suffice in itself.

It does not suffice unless strong safety nets help correct the imbalances between winners and losers at the national level. ...

I'm not sure how much "consensus" there is about the "Geneva consensus."  Many countries probably agree with this as a general principle, but the implementation will likely vary to a great degree and cause a good deal of conflict.  For example, company bailouts are a form of social safety net, but they also cause concern among trading partners.

***

Putting all those minor criticisms aside, let me just note that I enjoy Pascal Lamy's speeches quite a bit.  He is not afraid to take on complex and controversial issues, which is not always the case for someone in his position.

Proposed Amendments to the AB Working Procedures

The Appellate Body is proposing some amendments to its Working Procedures (Word Doc):

We propose the following three amendments to the Working Procedures: 

 

· First, we suggest that an appellant's written submission be filed when an appeal is commenced, namely, on the same day as the filing of a Notice of Appeal, and that all other deadlines for written submissions, the Notice of Other Appeal and third-party notifications be advanced accordingly. 

 

· Secondly, we propose to explicitly authorize, subject to certain conditions, the electronic filing and service of documents.  

 

· Thirdly, we propose to introduce a procedure for consolidating appellate proceedings where two or more disputes share a high degree of commonality and are closely related in time. 

They explain the reasons in detail in the document.  I don't see anything too controversial in there, although I suppose some Members might object to having to file appellants' submissions earlier.

Anti-Dumping Laws as a Reason for Foreign Investment

From the FT:

Huawei Technologies, the Chinese telecoms equipment company, is to make a $500m investment in its research and development operations in the southern Indian city of Bangalore as part of an effort to avoid falling foul of tension between New Delhi and Beijing.

Max Yang, Huawei's India chief executive, said his company was making efforts to have its local operations seen more as an Indian operation in an attempt to dispel a "mystique" impeding its business.

...

It would also open a manufacturing unit in India that would help it avoid steep anti-dumping duties on Chinese goods.

Google, China and the WTO

Google's possible exit from China is all over the news.  Are there any trade issues in there?  Possibly:

Lawyers said that Google and the US might have a legal basis for suing China at the World Trade Organisation, a move that would further complicate relations between Washington and Beijing.

...

According to lawyers, the US could argue that Beijing’s censorship in effect discriminated against foreign services such as Google, contrary to its commitments under the General Agreement on Trade in Services (Gats).

“If China imposes harsher web filtering restrictions on Google than on local search engines, such as Baidu, Google may have a WTO discrimination claim,” said David Spooner, a former assistant secretary of commerce, now at the law firm Squire Sanders & Dempsey.

The outcome of a case would depend on how a WTO dispute resolution panel classified search engines. Much of the WTO law addressing internet services and online products is unclear. The last global trade agreement was negotiated in the early 1990s when the technology was in its infancy. But trade experts said a succession of rulings had narrowed governments’ room for manoeuvre, and particularly their ability to use national security or the protection of public morals as defence for censoring words and images on the web.

Gary Horlick, a leading international trade lawyer, said: “We will have to know a lot more about the facts, especially what the [Chinese] government is doing, but the Gats has a lot of unexplored obligations which might protect Google."

The WTO Seal Products Dispute: A Preview of the Legal Issues

Here is an ASIL Insight I did on the Seal Products dispute, previewing the legal issues.  (Keep in mind that I only had 2,000 words, so it's a fairly brief preview!)  An excerpt:

One might expect that core WTO principles, such as non-discrimination and necessity, would have clear legal standards. However, trade adjudicators have gone back and forth over the years on the issue of non-discrimination, while the “necessity” standard has evolved and has yet to be examined in the TBT Agreement context. There is a great deal of uncertainty as to how a WTO panel would address these issues in the context of the seal products ban in dispute. Thus, the outcome of a panel dispute would be far from sure.

In related news:

Canadian Inuit have filed a lawsuit in the European General Court to overturn EU legislation which would ban the import of seal products into EU countries. The lawsuit seeks annulment of Regulation (EC) No 1007/2009 of the European Parliament and Council of September 16, 2009 on trade in seal products.

 

Clove Cigarette Update

I'm not sure I'm reading this correctly, but there may be a peaceful resolution to the clove cigarette ban controversy (see here and here for background):

 Kretek International Inc., importer and marketer of Djarum clove cigars, withdrew its lawsuit against the U.S. Food and Drug Administration (FDA) regarding the distribution and sale of clove cigar products, following statements by the agency indicating it will only take enforcement action against products that meet the legal definition of a cigarette.

Kretek in September 2009 filed the lawsuit in the U.S. District Court for the District of Columbia, seeking a declaration that a ban on flavored tobacco products applied to cigarettes rather than to cigars. Then, on Dec. 23, 2009, the FDA placed a question and answer document on its Web site regarding the regulation of flavored tobacco products, which Kretek said makes it clear that the FDA will only be taking enforcement actions against tobacco products that meet the legal definition of a cigarette. 

The U.S. Department of Treasury already determined that Djarum clove cigars meet the legal definition of a cigar, and as such, the FDA's document provided Kretek with the assurances it was seeking through its lawsuit, the company stated. Because of this, Kretek decided to drop its legal action, while reserving its option to re-file at some future date.

"FDA's Q&A will benefit the entire industry," Kretek CEO Mark Cassar said in a statement. "We did not want to see three years of cigar product development negated by a hasty interpretation of the ban on flavored tobacco products and I am pleased that the agency has not only taken the time to get this issue right, but has also decided to share its views with the entire industry." 

So is that it?  Clove cigarette producers/importers can just repackage them as cigars in order to import them, and the dispute is resolved?  I don't know, that all seems too easy.

 

Attracting Investment: Subsidies versus Weak Labor Laws

There's some disagreement as to whether weak labor laws are used by certain countries to attract foreign investment (or at least, they have that effect, even if it is not their goal).  Some critics of trade agreements say that weak labor laws in some countries leads to unfair trade, as it is difficult for companies in industrialized countries to compete with companies in the developing world whose labor costs are much lower.  By contrast, others contend that the evidence does not show this is a significant factor companies take into account when choosing a location.

I tend to think it is a factor, but just one of many.  Here's some anecdotal evidence from the domestic context that it can have an impact.  From the Economist:

In 1983 Nissan became the first foreign carmaker in America’s South when it opened an assembly plant in Smyrna, Tennessee. Other Asian and European automakers soon arrived, bypassing Detroit for Dixie and building factories in Kentucky (Toyota), Alabama (Honda, Mercedes-Benz, Toyota, and Hyundai), Mississippi (Nissan), Texas (Toyota again) and South Carolina (BMW). A common attraction in each of the states was the anti-trade-union climate.

Now the aircraft industry is following suit. Late last autumn Boeing announced it would build a second assembly line (the first is in the Seattle suburb of Everett, Washington) for its 787 Dreamliner jet in North Charleston, outside the lovely old city of Charleston. The company chose to put its $750m factory in South Carolina because it was determined to distance itself from a fractious labour union in Everett. Machinists there went on a 57-day walkout in 2008 that cost the company more than $2 billion and led some airlines to switch their orders to Europe’s Airbus.

...

South Carolina has one of the lowest rates of unionisation in the country. Amazingly, according to the US Bureau of Labour Statistics, not a single work day was lost to strikes in the state in 2008. And workers who currently make 787 parts at another Boeing factory in North Charleston voted in September to cut their links to the International Association of Machinists.

...

Mr Woodward reckons that South Carolina and other southern states, which have laws against union closed shops and relatively low labour costs, are a template that could help America retain at least some of its shrinking manufacturing base.

So this article demonstrates that weak labor laws attract investment, right?  Well, maybe.  There's also this:

Details of the estimated $450 million incentive package that South Carolina has promised Boeing Co. could draw international attention as fodder in a long-running trade dispute between the aviation giant and its European rival, Airbus.

...

Airbus Americas chairman Allan McArtor views the South Carolina incentive deal differently.

"Of course it's a subsidy!" McArtor said in an written statement about the offer. He said that it will be up to the European Union to pursue further action.

Boeing was not identified by name in the special legislation that lawmakers passed in October to win the assembly plant, but the bill made certain incentives available to companies that generate more than 3,800 jobs and invest more than $750 million during a seven-year span.

Boeing has said it plans to meet those thresholds.

So which is it?  Weak labor laws?  A $450 million subsidy?   A little of both?

As the second article notes, subsidies are covered by international trade rules.  Should weak labor laws be covered, too?  They are covered in some recent FTAs, but as discussed just the other day, it's not clear whether existing WTO rules can do much here.

As a final point, there's an interesting "specificity" issue:  "Boeing was not identified by name in the special legislation that lawmakers passed in October to win the assembly plant, but the bill made certain incentives available to companies that generate more than 3,800 jobs and invest more than $750 million during a seven-year span."

The "Human Right" of Free Trade

From Jeff Jacoby of the Boston Globe:

Free trade isn’t a battle that countries (or states) win or lose. It is a human right - the liberty to engage in voluntary transactions that leave both participants better off. If John wants to sell something that Mary wants to buy, it should make no difference to the lawfulness of their exchange whether they are residents of different neighborhoods, different states, or different nations.

Compare this with the Appellate Body's recent statements in China - Publications on the "right to regulate trade":

221. Thus, our analysis so far suggests that the phrase "China's right to regulate trade" is a reference to China's power to subject international commerce to regulation. As explained above, this power may not be impaired by China's obligation to grant the right to trade, provided that China regulates trade "in a manner consistent with the WTO Agreement".

222. We read the phrase "in a manner consistent with the WTO Agreement" as referring to the WTO Agreement as a whole, including its Annexes. We note, in this respect, that we see the "right to regulate", in the abstract, as an inherent power enjoyed by a Member's government, rather than a right bestowed by international treaties such as the WTO Agreement. With respect to trade, the WTO Agreement and its Annexes instead operate to, among other things, discipline the exercise of each Member's inherent power to regulate by requiring WTO Members to comply with the obligations that they have assumed thereunder. When what is being regulated is trade, then the reference in the introductory clause to "consistent with the WTO Agreement" constrains the exercise of that regulatory power such that China's regulatory measures must be shown to conform to WTO disciplines.