International Economic Law and Policy Blog

Zeroing at the Supreme Court?

Following-up on this post, here's the question presented to the U.S. Supreme Court in a cert. petition filed by steel company Nucor last week:

Whether the Tariff Act of 1930—which defines “dumping” as “the sale or likely sale of goods at less than fair value” and “dumping margin” as “the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise”—unambiguously excludes above-fair-value sales (i.e., those sales that do not constitute “dumping”) from the statutory formula for “weighted average dumping margin.

The basic issue:  Under the relevant statute, is the Department of Commerce permitted to calculate dumping margins without using zeroing?  Here's more from the petition.

First, here's how Commerce changed its position on the use of zeroing, from saying that zeroing was required to saying that zeroing was not required:

2. Commerce Previously Construed The Act To Exclude Above-Fair-Value Sales From The Calculation Of “Weighted Average Dumping Margin”

For decades, Commerce excluded above-fair-value sales from its calculation of “weighted average dumping margin” under Section 1677(35). Its change of course and recalculation of “weighted average dumping margin” in this case marks the first time that Commerce has offset dumping with above-fair-value sales in calculating  an antidumping duty margin.

The exclusion of these sales—sales that do not constitute “dumping”—from the calculation of “weighted average dumping margin” is sometimes referred to as “zeroing.”  See Timken Co. v. United States, 354 F.3d 1334, 1338-39 (Fed. Cir. 2004). The Court of International Trade first considered the exclusion of above-fair-value sales in Serampore Industries Pvt. Ltd. v. United States Department of Commerce, 675 F. Supp. 1354 (Ct. Int’l Trade 1987). That court upheld Commerce’s construction of the Act, emphasizing that “[a] plain reading of  the statute discloses no provision for Commerce to offset sales made at [less than fair value] with sales made at [or above] fair value.” Id. at 1360.

Commerce employed this construction of the Act in the initial investigation underlying this case. ... Consistent with its longstanding practice, Commerce excluded Tata Steel’s above-fair-value sales when calculating the weighted average dumping margin, which resulted in a duty margin of 2.59%. See Certain Hot-Rolled Carbon Steel Flat Products from the Netherlands, 66 Fed. Reg. 55,637 (Nov. 2, 2001) (amended final determination of sales at less than fair value).

Notably, Commerce had taken the position that its construction of “weighted average dumping margin” was compelled by the unambiguous terms of the Act. ...  Before the Federal Circuit, the United States argued that “[t]he antidumping statute unambiguously requires Commerce to consider only transactions where the price falls below [normal value] in calculating dumping margins.” Brief for United States, Timken Co. v. United States, No. 03-1098, -1238, 2003 WL 24305310, at *18 (Fed. Cir. filed May 19, 2003) (emphasis added). Expanding on this point, the United States argued that, “[c]onsidering the[] definitions [of “dumping margin” and “weighted-average dumping margin”] together, the statute plainly directs Commerce to aggregate the entries where NV exceeds U.S. price in determining the ‘weighted average dumping margin.’ The statute neither provides nor suggests that this amount may be reduced or offset by other EP or CEP transactions that exceed NV.” Id. at *19 (emphasis in original). The Timkencourt considered this a “close question,” ultimately ruling that Commerce’s construction of the Act was a permissible one. Timken, 354 F.3d at 1341.

Second, here's why Commerce changed its view:

3. The World Trade Organization And Commerce’s Change In Position

...

In 2003, the European Communities instituted an action before the WTO’s Dispute Settlement Body (“DSB”) to challenge Commerce’s exclusion of above-fair-value sales in fifteen antidumping investigations, including the investigation that resulted in the imposition of a 2.59% antidumping duty upon Tata Steel’s sales of hot-rolled carbon steel flat products. ...

In response to the WTO’s ruling that the exclusion of above-fair-value sales did not comply with the WTO Antidumping Agreement, Commerce initiated Section 123 and 129 proceedings. In the Section 123 proceeding, Commerce elected to abandon its practice of zeroing in future less-than-fair-value investigations. ...  In other words, Commerce abandoned its position that exclusion of above-fair-value sales from the calculation of “weighted average dumping margin” was mandated by the unambiguous terms of the Tariff Act. In addition, in the Section 129 proceeding, Commerce recalculated the antidumping margin relating to its order on hot-rolled carbon steel f lat products from the Netherlands. Its recalculation resulted in a reduction of the margin from 2.59% to zero. See Implementation of the Findings of the WTO Panel in U.S.-Zeroing (EC), 72 Fed. Reg. 25,261, 25,262 (May 4, 2007). Accordingly, Commerce revoked the antidumping duty order on hot-rolled carbon steel fl at products from the Netherlands. Id

Third, here's how the U.S. courts upheld Commerce's new position:

4. Proceedings In The Courts Below

Nucor and U.S. Steel, as well as other members of the domestic industry, filed suit in the Court of International Trade (“CIT”) to challenge Commerce’s rulings in both the Section 123 proceeding and the Section 129 proceeding. The CIT upheld Commerce’s rulings, relying on Timken for the proposition “that Congress’s definition of ‘dumping margin’ is unclear as to whether positive and negative value dumping margins fit within the description of that term.”  ...

Nucor appealed to the Federal Circuit. Like the CIT, the Federal Circuit held that the Tariff Act was not “‘so clear as to compel a finding that Congress expressly intended to require zeroing.’” U.S. Steel Corp., 621 F.3d at 1361 (quoting  Timken, 354 F.3d at 1341). The court thus concluded that it was bound by circuit precedent and, in any event, the court agreed with Timken. Id. 

And finally, here's the argument as to why the lower courts are wrong:

But antidumping protections are decimated by the decision below. By upholding Commerce’s determination that the Tariff Act permits offsetting, importers found to have engaged in dumping will be permitted to engage in dumping that far outpaces any duty that might be imposed upon the dumped merchandise. Indeed, as here, they may avoid duties altogether. ...

Worse, offsetting allows dumpers to go undetected by allowing foreign manufacturers to “mask” their dumped sales. ...

...

After having previously advanced the position that the definition of “weighted average dumping margin” “unambiguously requires [it] to consider only transactions where the price falls below [fair value] in calculating dumping margins,” Brief for United States, Timken Co. v. United States, No. 03-1098, at 16 (Fed Cir. fi led May 19, 2003), Commerce adopted the position that the statute permits above-fair-value sales to offset dumped sales in determining the “weighted average dumping margin.” ...

However, Commerce’s construction of the Act is an impossible one. No deference to Commerce is warranted because the Tariff Act is clear on this point. See Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984). ...

The text and purpose of the Tariff Act conclusively demonstrate that the statute unambiguously precludes offsetting. ...

The text of the Tariff Act is clear. Reading the term “weighted average dumping margin”  in pari materia with the statutory definitions of “dumping” and “dumping margin” makes plain that the Act unambiguously requires the exclusion of above-fair-value sales from the calculation of “weighted average dumping margin.” ...

To begin, the entire antidumping statutory scheme is premised upon Congress’s unambiguous decision to limit “dumping”—the conduct that the statute was designed to address—to a defi nedclass of impermissible trade practices; that is, “the sale or likely sale of goods at less than fair value.” 19 U.S.C. § 1677(34). In other words, there is no permissible interpretation of the Tariff Act under which the “dumping margin” can be derived from domestic sales that do not themselves meet the definition of “dumping.” There can only be a “dumping margin”—weighted average or otherwise—when there is “dumping.” And the statute makes clear that domestic sales of imported goods at more than fair value do not constitute dumping. As a consequence, the “weighted average dumping margin” cannot be derived from sales that fall outside of Congress’s chosen defi nition of the statute’s key term. ....

Likewise, the statutory def inition of the term “dumping margin”—which is defined as “the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise,” 19 U.S.C. § 1673—unambiguously precludes offsetting. By using the word “exceeds” in defining “dumping margin,” Congress made clear its intent that there would be  a “dumping margin” (and a “weighted average dumping margin”) only where normal value is “greater than” export price, i.e., only where there is dumping. This is because the plain meaning of “exceed” is “to be or go beyond” or “to be greater than.” ...

...

The Federal Circuit’s fundamental error was confusing the question of  whether dumping is occurring with the question of  how much dumping is occurring. Whether dumping is occurring is determined by answering a straightforward question: is a particular imported good being sold in the United States for less than it is being sold in the importer’s home market? If it is, Commerce is then charged with identifying how much dumping is occurring—i.e., evaluating a broader set of importation data to determine by how much the “normal value exceeds the export price or constructed export price.” 19 U.S.C. § 1677(35)(A). Per the text of the statute, Commerce may not use a formula for calculating the “dumping margin” that negates its determination that imported merchandise has been “dumped” in the United States. Once Commerce has determined that “dumping” is occurring, by definition the answer to how much dumping is occurring cannot be “none” under this statutory scheme.

This all makes me think of the core underlying issue here:  What is dumping?  Here's how a dissenting WTO panelist in the Lumber (DS264) case put it: 

9.19 ...  One school of thought is that "dumping" relates to the average pricing behaviour of an exporter/producer over time. For those who hold this view, the fact that a particular export transaction is made at a price that is below the price of a comparable transaction in the home market of  the exporting country (or is below cost) does not necessarily mean that dumping has occurred, if another export transaction is made at a price which is higher than the home market price. They believe that exporters should be given "credit" for selling above normal value, and consider zeroing to be illogical.  Others consider that any time a particular export transaction occurs at a price that is below the price of a comparable transaction in the home market of the exporting country (or is below cost), dumping has occurred.  From this perspective, overall margins of dumping are calculated simply because it is impractical to calculate and impose anti-dumping duties with respect to each export transaction, and the idea that such a transaction should not be viewed as dumped merely because another export transaction occurs at a higher price makes no sense.

9.20 The difference between these two approaches  can be understood on the basis of a simple example.  Assume there are two home market  sales and two export sales of a product during the period of investigation.  Both home market sales are made at a price of 100.  One of the export sales is made at a price of 50, the other at a price of 150.  Under one school of thought, what is relevant is average pricing behaviour.  Since the average normal value and average export price are both 100, there is no dumping and no duties should be imposed.  Under the second school of thought, one of the two sales was at a dumped price while the other was not.  Duties should therefore be collected on the dumped sale.  However, a dumping margin should be calculated that would reflect that only some sales were dumped.  Using zeroing, the total amount of dumping (50) would be divided by total export sales (200), resulting in a 25 per cent margin.  Imposition of a 25 per cent  duty on the two export transactions would result in the collection of duties in the amount of 50, the same amount of duties as would have been collected had dumping  been determined and duties assessed for each transaction.

9.21 Arguments may be advanced for each of the conceptual approaches identified above. For the "average pricing behaviour" advocates, it is simply not consistent with commercial reality to expect that exporters will be able to fine-tune their pricing on a transaction by transaction basis to avoid dumping.  Advocates of the alternative approach argue that the harm caused to domestic producers by a dumped transaction – e.g., the loss of a sale or sale at a lower price than would have otherwise occurred – is not undone simply because another export transaction is made at greater than normal value, nor is the damage caused by dumping of  a particular type or model undone simply because another model is sold at greater than normal value.  Both approaches have strengths and weaknesses.

Applied here, note that the U.S. statute says:

(34) Dumped; dumping

The terms “dumped” and “dumping” refer to the sale or likely sale of goods at less than fair value.

So what is "dumping" under U.S. law?  Can the existence of dumping be established based on an individual "sale or likely sale" of a particular good at a certain price?  Or must all the sales or likely sales of all the "goods" at issue be taken into account to determine whether there is dumping?

A WTO Moot Court Dynasty?

Melbourne Law School has won again:

Melbourne Law School has won the prestigious 2011 European Law Students’ Association Moot Court Competition on the law of the World Trade Organization (WTO) in Geneva. Melbourne’s team comprised law students Philip Aitken (Juris Doctor), Glyn Ayres (Juris Doctor), Daniel Ari Baker (Bachelor of Laws), and Rebecca Koh (Bachelor of Laws). This is the third time that Melbourne Law School has won the competition, which brings together teams from around the world to compete in a simulated panel hearing within the WTO dispute settlement system.

They also won in 2007 and 2009.  They seem to do well in odd number years, so I'm betting on them for the 2013 competition!

Intent, Export Contingency, and National Treatment

Do the Appellate Body's statements in EC - Aircraft on de facto export contingency tell us anything about the National Treatment standard?  The Panel's findings had seemed to place a lot of emphasis on the reasons for the measure as the basis for determining whether export contingency existed.  The Appellate Body criticized this approach:

1050. The standard for determining whether the granting of a subsidy is "in fact tied to … anticipated exportation" is an objective standard, to be established on the basis of the total configuration of facts constituting and surrounding the granting of the subsidy, including the design, structure, and modalities of operation of the measure granting the subsidy.  Indeed, the conditional relationship between the granting of the subsidy and export performance must be objectively observable on the basis of such evidence in order for the subsidy to be geared to induce the promotion of future export performance by the recipient.  The standard for  de facto  export contingency is therefore not satisfied by the subjective motivation of the granting government to promote the future export performance of the recipient.  In this respect, we note that the Appellate Body and panels have, on several occasions, cautioned against undue reliance on the intent of a government behind a measure to determine the WTO-consistency of that measure.  The Appellate Body has found that "the intent, stated or otherwise, of the legislators  is not conclusive" as to whether a measure is consistent with the covered agreement.  In our view, the same understanding applies in the context of a determination on export contingency, where the requisite conditionality between the subsidy and anticipated exportation under Article 3.1(a) and footnote 4 of the SCM Agreement must be established on the basis of objective evidence, rather than subjective intent.

...

1063. By using the word "because", the Panel equated the standard of export contingency with the reason(s) for granting a subsidy.  The Panel's findings indicate a standard that requires anticipated exportation to be the reason for the granting of a subsidy.  We have explained above that the standard for finding that the granting of a subsidy is in fact tied to anticipated exportation is not met simply by showing that anticipated exportation is the reason for granting the subsidy.  The test is whether the granting of the subsidy is geared to induce the promotion of future export performance by the recipient.  The authority's reasons for the granting of the subsidy may provide some evidence to meet the correct standard, but it is not to be equated with that standard.  The reason for granting the subsidy is not the same thing as whether the granting of the subsidy is geared to induce the promotion of future export performance by the recipient.

However, despite this criticism of looking at "subjective motivations," the Appellate Body also suggested that another form of intent could play a role in the export contingency standard:

1050. ... We note, however, that while the standard for  de facto  export contingency cannot be satisfied by the subjective motivation of the granting government, objectively reviewable expressions of a government's policy objectives for granting a subsidy may, however, constitute relevant evidence in an inquiry into whether a subsidy is geared to induce the promotion of future export performance by the recipient.

1051. Similarly, the standard does not require a panel to ascertain a government's reason(s) for granting a subsidy.  The government's reason for granting a subsidy only explains why the subsidy is granted.  It does not necessarily answer the question as to what the government did, in terms of the design, structure, and modalities of operation of the subsidy, in order to induce the promotion of future export performance by the recipient.  Indeed, whether the granting of a subsidy is conditional on future export performance must be determined by assessing the subsidy itself, in the light of the relevant factual circumstances, rather than by reference to the granting authority's reasons for the measure.  This is not to say, however, that evidence regarding the policy reasons of a subsidy is necessarily excluded from the inquiry into whether a subsidy is geared to induce the promotion of future export performance by the recipient.

So, you can't look exclusively at subjective motivations (although it seems they can be taken into account) as part of the export contingency standard, but it's fine to look at the "objective" intent.

Here's my question:  If intent can be taken into account in this way under a provision such as SCM 3.1(a), can it also play a role in, say, GATT Article I:1, Article III:4 and Article III:2, first sentence?  We know it can be used in Article III:2, second sentence, but that's because of the tie to Article III:1 and its "so as to afford protection" language.  But if there is a broader principle that allows for the use of (objective) intent, and it can be used in a provision such as SCM 3.1(a) which does not have similar terms, can it play a role in these other non-discrimination provisions?  The Appellate Body may soon get a chance to address this issue, if the new Tuna-Dolphin case (DS381) gets appealed.

John Magnus on the Appellate Body's Double Remedies Ruling

He doesn't like it.  Here's one part of why:

The following is a fair summary of the AB decision. 

Domestic subsidies when used to reduce export price will, unless they also produce a lower normal value calculation, increase the recipient’s dumping margin and be offset by higher antidumping duties.  It would be improper to separately offset such domestic subsidies through countervailing duties imposed on top of the (higher) antidumping duties.  In NME cases, where domestic subsidies cannot affect normal value, it is therefore essential to know whether domestic subsidies have been used to reduce export price.  Accordingly,  when conducting simultaneous AD/NME and CVD investigations, administering authorities are obliged to do two things they are not normally accustomed to doing:

•  Ascertain not only whether/to what extent dumping occurred during the POI, but also  why it occurred (what role domestic subsidies played in the pricing of exports); and 

•  Ascertain how domestic subsidies were used, at least to the extent of understanding whether the recipient company reduced its export prices in a way that would not have happened in the absence of domestic subsidization.

Every step of this finding is problematic.

First, there is no logical reason why the principle announced by the AB would be limited to the NME setting.  Insofar as it even makes sense to speak of “using domestic subsidies to reduce export price,” a ME producer is every bit as likely to engage in the tactic.  And the regular (ME) antidumping methodology does not yield a normal value that is lower in the presence of domestic subsidies – certainly not in a systematic or dollar-for-dollar sense.[FN 2]  So, if it is improper in the simultaneous AD/CVD scenario to offset through countervailing duties domestic subsidies which have been used to reduce export price, it is always improper.  And if it is therefore necessary to understand the role of domestic subsidies in generating dumping margins, it is always necessary.

Second, there is a reason why administering authorities do not ask, and why the multilateral rules have never required them to ask, how domestic subsidies were used or why dumping occurred.  These things are – at least for practical purposes, and within the tight timelines imposed on AD/CVD proceedings – unknowable.  If a single person (say a grocery store clerk) got a raise, an extra $50 per paycheck over the course of a full year, would it be possible to say later how she used the extra money?  Most likely every category of her spending (and saving if she is a saver) would have increased in some small proportion.  It is no different when a producer receives domestic subsidies.  Is there new machinery?  It might have been purchased anyway.  Did export prices change?  A million other things (one obvious candidate being market conditions in the importing country) might have prompted that.  The problems of investigation, and of proof, when it comes to connecting subsidies to later corporate behavior, would be insurmountable in any sort of investigation, let alone the time-constrained setting of an AD/CVD investigation.

----------------------------------------------------------------------------------------------------

[FN 2] The AB apparently disagrees (see fn. 519, citing Panel Report at fn. 972), but does not explain why; it simply asserts:  “in the context of domestic subsidies granted within market economies …, both the normal value and the export price will be lowered as a result of the domestic subsidy ….”  The assumptions underlying this statement are not just debatable; they are almost certainly wrong.  That the Panel had indulged the same wrong assumptions is no excuse for the AB doing so in such a momentous decision. 

What implications do the Appellate Body's double remedies findings have for investigations involving market economy (ME) respondents?  Is John right that the reasoning of this case applies to all cases, including those where there is no NME issue?  Are we likely to see future WTO complaints that address this issue?  How would the Appellate Body apply the reasoning of the DS379 case in the ME situation?

Extinguishment of Subsidies: Three Members, Three Opinions

In case there was any doubt that the issue of whether subsidies can be "extinguished" through privatizations or other sales of a company, the three members of the Appellate Body Division in EC - Aircraft set out three separate opinions on the issue: 

726. Although the Members of this Division discussed at length the issue of extinction of subsidies in the context of partial privatizations and private-to-private sales, no common view emerged.  Without prejudice to the further considerations  and findings set out below, each Member of the Division wishes to set out separate views on this issue:

 (a) Noting that the Appellate Body has previously ruled in privatization cases that a full privatization, conducted at arm's length and for fair market value involving a complete or substantial transfer of ownership and control, "extinguishes" prior subsidies, one Member is of the view that this rule does not apply to partial privatizations or to private-to-private sales.

 (b) One Member noted that, as discussed above, the Appellate Body ruled in  US – Countervailing Measures on Certain EC Products that, in the context of Part V of the SCM Agreement, full privatization at arm's length and for fair market value may result in extinguishing the benefit received from the non-recurring financial contribution bestowed upon a state-owned firm.  In response to an argument made by the United States in that case, the Appellate Body observed that privatization at arm's length and for fair market value does not remove the equipment that a state-owned enterprise may have acquired with the financial contribution and that, consequently, the same firm may continue to make the same products with the same equipment.  The Appellate Body agreed with the United States that the utility value of equipment acquired as a result of the financial contribution is not extinguished as a result of a privatization at arm's length and for fair  market value.  However, as the Appellate Body explained, the utility value of such equipment to the newly privatized firm is legally irrelevant for purposes of determining the continued existence of a "benefit" under the  SCM Agreement.  The Appellate Body recalled that it had found in Canada – Aircraft that the value of the benefit under the  SCM Agreement is to be assessed using the marketplace as the basis for comparison.  It follows, therefore, that once a fair market price is paid for the equipment, or more broadly the assets of a company, their market value is redeemed,  regardless of the utility value a firm may derive therefrom.  In response to the argument by the United States that nothing about the company changes as a result of the privatization, the Appellate Body agreed with the panel in  US – Countervailing Measures on Certain EC Products that the new private owners are "profit-maximizers" who will seek to "recoup{} through the privatized company … a market return on the full amount of their investment."  Therefore, the new private owners may no longer benefit from any subsidies received by the company before its privatization.  This Member considers the  rationaleunderlying the Appellate Body's case law on full privatization in the context of Part V of the  SCM Agreement  equally to apply in situations of partial privatization and private-to-private transactions and in the context of Part III of the  SCM Agreement.  However, this Member also notes that, as the Appellate Body emphasized in  US – Countervailing Measures on Certain EC Products, there is "no inflexible rule" that a "benefit" derived from pre-privatization financial contributions expires following privatization at arm's length and for fair-market value.  Rather, as the Appellate Body stated, "{i}t depends on the facts of each case."  An important question in this context is to what extent the partial privatization or private-to-private transactions resulted in a transfer of control to new owners who paid fair market value for shares in the company

(c) One Member of the Division, though affirming the general test that an extinction of benefit is to be determined upon a consideration of all relevant facts, entertains no small measure of doubt that an acquisition of shares, concluded at arm's length and for fair market value, constitutes relevant circumstances warranting the conclusion that an extinction of benefit has taken  place.  A subsidy granted to a recipient company contributes to the net asset value of that company.  The value of that asset permits the recipient to enjoy an enhanced stream of future earnings over the life of the asset.  The asset is the property of the  recipient.  The recipient's shareholders enjoy the right to the dividends that may  be declared by the recipient and to any capital gains that arise from the enhanced earnings attributable to the recipient.  When shares change hands on an arm's-length basis and for fair market value, the buyer pays a price that, in the estimation of the buyer, places a proper value on the future earnings of the recipient.  Those earnings derive from all the assets of the recipient, including the benefit of any subsidy paid to the recipient.  One shareholder may not accurately value or properly manage the assets of the recipient.  Precisely for this reason, sales of shares take place:  the buyer believes that the assets, properly managed, will be worth more over time than the price paid, and the seller believes the opposite.  Time will tell who is correct.  The  central point is that a sale of shares, whether or not it conveys control, transfers rights in the shares to a new owner.  The assets of the company, to which the shares attach, do not change at all.  Nor could it be otherwise, because the buyer would then not acquire the full benefit of the bargain:  the buyer would pay for an asset (the subsidy) that had in the very sales transaction been "extinguished".  Shares in listed companies are traded on stock exchanges with great frequency and without any fear that sales on the market diminish the underlying value of the assets owned by these companies.  The changing price of listed securities reflects the different valuations that  buyers and sellers place upon companies and their underlying assets.  However, nothing about these trades extracts the value of any asset, including the benefit of any subsidy granted.  That subsidy continues to benefit the recipient, even if the ownership of the recipient's shares changes from one day to another.  Given that the Appellate Body in this case does not need to come to any final view on the issue of extinction in the context of a partial privatization or private-to-private sales, these matters do not require more definitive determination.

As I read it, Member 1 wants to keep this whole doctrine narrowed to privatizations; Member 2 buys into the general idea that the benefit of a subsidy can be extinguished through changes of ownership under certain conditions; and Member 3 thinks the benefit continues on regardless of any change in ownership.

Unlike many issues, I don't have strong feelings about this one.  I can see the arguments made by both sides.  Any readers with strong feelings, feel free to offer them in the comments!

The EC - Aircraft Appellate Body Report: The New Export Subsidy Standard

From the report: 

1044. Because anticipated exportation "alone is not proof that the granting of the subsidy is tied tothe anticipation of exportation"2342, the legal standard for  de facto  export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement further requires that there exists a relationship of conditionality between the granting of the subsidy and anticipated exportation.  Where a subsidy is alleged to be "in fact tied to … anticipated exportation", the relationship of conditionality is, unlike in the case of  de jure export contingency, not expressly or by necessary implication provided in the terms of the relevant legal instrument granting the subsidy.  Under such circumstances, we consider that the factual equivalent of such conditionality can be established by recourse to the following test:  is the granting of the subsidy geared to induce the promotion of future export performance by the recipient? 

...

1046. The existence of  de facto export contingency, as set out above, "must be inferred from the total configuration of the facts constituting  and surrounding the granting of the subsidy"2343, which may include the following factors:  (i) the design and structure of the measure granting the subsidy;  (ii) the modalities of operation set out in such a measure;  and (iii) the relevant factual circumstances surrounding the granting of the subsidy that provide the context for understanding the measure's design, structure, and modalities of operation.

1047. Moreover, where relevant evidence exists, the assessment could be based on a comparison between, on the one hand, the ratio of anticipated export and domestic sales of the subsidized product that would come about in consequence of the granting of the subsidy, and, on the other hand, the situation in the absence of the subsidy.  The situation in the absence of the subsidy may be understood on the basis of historical sales of the same product by the recipient in the domestic and export markets before the subsidy was granted.  In the event that there are no historical data untainted by the subsidy, or the subsidized product is a new product for which no historical data exists, the comparison could be made with the performance that a profit-maximizing firm would hypothetically be expected to achieve in the export and domestic markets in the absence of the subsidy.  Where the evidence shows, all other things being equal, that the granting of the subsidy provides an incentive to skew anticipated sales towards exports, in comparison with the historical performance of the recipient or the hypothetical performance of a profit-maximizing firm in the absence of the subsidy, this would be an indication that the granting of the subsidy is in fact tied to anticipated exportation within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement.   

1048. The following numerical examples illustrate when the granting of a subsidy may, or may not, be geared to induce promotion of future export performance by a recipient.  Assume that a subsidy is designed to allow a recipient to increase its future production by five units.  Assume further that the existing ratio of the recipient's export sales to domestic sales, at the time the subsidy is granted, is 2:3.  The granting of the subsidy will not be tied to anticipated exportation if, all other things being equal, the anticipated ratio of export sales to domestic sales is not greater than the existing ratio.  In other words, if, under the measure granting the subsidy, the recipient would not be expected to export more than two of the additional five units to be produced, then this is indicative of the absence of a tie.  By contrast, the granting of the subsidy would be tied to anticipated exportation if, all other things equal, the recipient is expected to export at least three of the five additional units to be produced.  In other words, the subsidy is designed in such a way that it is expected to skew the recipient's future sales in favour of export sales, even though the recipient may also be expected to increase its domestic sales.

So the key to determining whether there is de facto export contingency is: whether "the granting of the subsidy provides an incentive to skew anticipated sales towards exports, in comparison with the historical performance of the recipient or the hypothetical performance of a profit-maximizing firm in the absence of the subsidy,  ..."

I talked about an "incentive to export" standard here.  Let me just say that after a first reading, I'm impressed by the clarity of the Appellate Body's reasoning, but perhaps in part that is because I agree with it!

The EC - Aircraft Appellate Body Report

Here it is on our web site.  The big issues I was looking at are:

-- Is launch aid a program?

-- Can certain launch aid contracts at issue be considered "export subsidies"?

Here's what the Appellate Body said on each: 

Is launch aid a program?

The Appellate Body's answer:  The launch aid "program" is outside the terms of reference, so we we're not going to decide the substance of the issue:

780. On appeal, the United States argues that the Panel erred in finding that the United States had failed to demonstrate the existence of the alleged unwritten LA/MSF Programme.  The United States requests the Appellate Body to reverse the Panel's finding and find that the alleged LA/MSF Programme "constitutes a specific subsidy, provided by France, Germany, Spain and the United Kingdom to Airbus, that causes adverse effects to the interests of the United States."

...

794. ... In the present case, ... we are unable to discern in the United States' panel request a challenge to an alleged LA/MSF Programme as a specific measure "separate from the individual instances of {LA/MSF}", and, as noted, a complainant's subsequent submissions during panel proceedings cannot cure such a defect in a panel request.

795. In the light of the above, we find that the alleged LA/MSF Programme was not within the Panel's terms of reference because it was not identified in the request for the establishment of a panel, as required by Article 6.2 of the DSU.

796. Having found that the alleged unwritten LA/MSF Programme was not within the Panel's terms of reference, we have no basis further to consider the arguments raised by the participants regarding the alleged LA/MSF Programme.  Nor do we have a basis further to examine the Panel's finding that no such scheme or programme exists. ...

Are launch aid contracts export subsidies? 

The Appellate Body's answer:  Having reversed the Panel's legal interpretation, and come up with our own, we don't have enough facts to apply our legal interpretation and reach a conclusion on whether the launch aid contracts are export subsidies:

1414. ...

(j) [The Appellate Body] finds, as regards the alleged export subsidies granted under the German, Spanish, and UK A380 contracts, that the Panel erred in  the interpretation of Article 3.1(a) and footnote 4 of the  SCM Agreement, in paragraph 7.648 of the Panel Report, that, in order to find that the granting of a subsidy is in fact tied to anticipated exportation, a  subsidy must be granted  because of anticipated export performance;  and consequently reverses the Panel's finding, in paragraph 7.689 of the Panel Report, that the United States had demonstrated that the German, Spanish, and UK A380 contracts amounted to prohibited export subsidies within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement;  finds that a subsidy is de facto export contingent within the meaning of  Article 3.1(a) and footnote 4 of the SCM Agreement if the granting of the subsidy is geared to induce the promotion of future export performance by the recipient;  but finds there are insufficient factual findings by the Panel or undisputed facts on the Panel record to complete the legal analysis;

*******

With the caveat that I have spent only a few minutes reading this, and have looked only at the conclusion (not the reasoning) on the export subsidy issues, my reaction is the following.  On both of these key issues, we are left with uncertainty.  We don't know if launch aid is a program, and we don't know if particular launch aid contracts constitute export subsidies.  The U.S. could bring a new complaint on these issues, but given the length of the current complaint, that seems unlikely.  What this situation says to me is:  We really, really need a remand procedure in WTO dispute settlement.  In fact, now that Doha seems to be going nowhere, perhaps the WTO Members can focus on reforming dispute settlement procedures, including thinking about how to use remand. [ADDED: Of course, remand would only help on the export subsidy issue.]

The Appellate Body did note the following:

1417. We realize that, after five years of panel proceedings and almost ten months of appellate review, there are a number of issues that remain unresolved in this dispute.  Some may consider that this is not an entirely satisfactory outcome. ...

I suspect that this is the feeling for many on the U.S. side of the case.

Even More Double Remedies

AFP reports:

China said Monday it would levy anti-subsidy duties of up to 11.19 percent on imports of EU potato starch, in apparent retaliation over Brussels' decision to slap taxes on Chinese fine art paper.

The commerce ministry said in a statement that importers of potato starch will have to pay a deposit from Thursday based on the alleged European Union subsidy rates of 7.7 to 11.19 percent of the import price.

French starch producer Roquette and AVEBE of the Netherlands are among the companies affected by the decision, the statement said.

The taxes are to be imposed on top of anti-dumping duties of 12.6 to 56.7 percent which the ministry started to levy from last month.

I wonder how China dealt with the issue of applying both anti-dumping and countervailing duties to the same products.

There's also the issue of this being "apparent retaliation" for earlier EU actions. Here's a comment from Hosuk Lee-Makiyama of ECIPE:

Experts said the move was likely to start of a series of tit-for-tat retaliations and worsening trade relations between the two sides.

"As the EU subsidises local production in various sectors, China is not short of sectors to retaliate against," Hosuk Lee-Makiyama of the Brussels-based European Centre for International Political Economy (ECIPE) think-tank said in a policy brief.

"It has already imposed a tariff on potato starch from the EU and more cases are forthcoming," he added.

"A trade war with China on subsidies seems now unavoidable."

Turning back to the EU "double remedy" from the previous post, this is from the Council Implementing Regulation:

4.3.2. ALLEGATIONS WITH RESPECT TO DOUBLE REMEDY

(269) The GOC argued that the proposal for countervailing measures amounts to a double remedy. It was submitted that under the EU practice in anti-dumping investigations against China normal value is determined by reference to data obtained from producers in a third market-economy country. Thus, in such cases counter­vailing duties would provide a double remedy to address the same matter since the anti-dumping duties effectively ‘offset’ any subsidy allegedly granted to Chinese companies.

(270) APP claimed that if the normal value is based on domestic sales in the analogue country, the rejection of the MET claim and the use of non-subsidised normal value have the effect of increasing the duty by the amount of subsidisation and the subsidies would be counted twice.

(271) GOC submitted that the same alleged distortions have already been addressed in the parallel anti-dumping proceedings. GOC also submitted that that the practice of the Commission is in violation of EU and WTO law and that the Commission should either terminate the CVD proceedings or grant MET to the co-operating exporting producers in the parallel anti-dumping proceedings. The GOC also submitted that it does not accept the Commission's argument that there is no double counting by virtue of the injury margin that is lower than the dumping margin. Finally the GOC argued that on the basis of the findings of the WTO Appellate Body on the US – PRC dispute DS379 (1) with respect to double remedy the current proceedings should be terminated.

(272) Those claims had to be rejected. In this respect it is noted that double remedy does not play any role in these proceedings. Whether or not the simultaneous imposition of anti-dumping and countervailing duties in the case of a non-market economy can lead to a potential ‘double remedy’, this situation, by definition, could only occur where there is a cumulation of the dumping margin and the amount of subsidy i.e. where the combined level of two types of duty exceeds the higher of the dumping margin or the amount of subsidy. As will be explained below, this is not the case here.

(273) First of all it is recalled that the EU is applying the lesser duty rule when imposing anti-dumping and countervailing duties on the same product. In other words in EU inves­tigations the Commission establishes the level of dumping, subsidization and injury caused to the Union industry. The level of duties can never be higher than the injury margin and the injury margin here is the same for both proceedings. In the parallel anti-dumping proceedings the Commission established a margin of dumping that is much higher than the injury margin. In line with the lesser duty rule the Commission proposed the imposition of measures that are based on the injury margin (see Council Regulation (EU) No 451/2011 of 6 May 2011 imposing a definitive anti- dumping duty and collecting definitively the provisional duty imposed on imports of coated fine paper originating in the People's Republic of China (2)). Thus the subsidy margin found in the current ant-subsidy investigation will not provide any additional protection to the Union industry as compared to the dumping margin because the anti-dumping duty will already be capped by the injury margin. Therefore there is no overlap or cumu­lation of duties in the two parallel proceedings and consequently, even assuming that there is a potential for a double remedy as described in recital (269) above, there can be no requirement by law to ‘offset’ dumping against the subsidy. Indeed, the difference between the dumping and injury margins found in the anti-dumping proceedings was much higher than the amount of subsidization found in the present investi­gation. It should be also highlighted that when it comes to the actual composition of the duties to be paid the Commission has a practice to first impose the duty amount resulting from the CVD investigation. If there is still a gap between the aforementioned duty level and the injury margin, this gap can be filled with the duty resulting from the anti-dumping investigation. However, this does not mean that there is double counting because the combined level of duties could already have been justified as a result of the anti- dumping investigation alone.

(274) Secondly, it should be noted that the remedies proposed by the GOC are not permitted by law since (i) the inves­tigation established the existence of countervailing subsidies that caused material injury to the Union industry and imposition of measures was found to be in the Union interest thus these proceedings cannot be terminated, (ii) not all Chinese parties requested MET in the parallel anti-dumping proceedings, (iii) MET cannot be granted automatically to parties that have not requested and (iv) for those parties where MET was refused this was done because of the serious deficiencies found with respect to Criteria 1, 2 and 3 of Article 2(7)(c) of the basic anti-dumping Regulation.

Does the lesser duty rule get the EU off the hook here?

More Double Remedies

From the WSJ, this time it's the EU imposing both anti-dumping and countervailing duties:

China said Saturday the European Union's move to slap tariffs on imports of Chinese coated fine paper is against the world trade organization principle and it will take measures to protect local companies' interests.

The comments by the Chinese commerce ministry spokesman Yao Jian come after the EU earlier Saturday said it would impose duties, ranging from 4% to 12%, on Chinese coated fine paper, which is used for high-quality printing such as brochures and magazines.

The move "will severely hurt the interests of Chinese enterprises," Mr. Yao said in a statement posted on the ministry's website. "The Chinese side is strongly discontent with the EU's wrong decision and will firmly oppose it."

The duties will last five years, according to the EU. It is the first time the 27-nation bloc has acted against subsidies that European manufacturers claim give China an unfair advantage on global markets.

Mr. Yao said China's coated-fine paper market is a highly competitive industry, as the government neither intervenes in the management of companies nor decides market prices.

He said the EU had taken "discriminatory and unfair" measures during the investigation on Chinese paper makers. "The approach of imposing antidumping and antisubsidy duties on the same product at the same time is against the WTO principle," he added.

If anyone knows how the EU's actions here compare to the U.S. actions at issue in the DS379 case, feel free to mention it in the comments.

Here's the Chinese Ministry of Commerce press release, in Chinese: http://www.mofcom.gov.cn/aarticle/ae/ai/201105/20110507549620.html

The Tuna-Dolphin Interim Panel Report

The interim panel report in the Tuna-Dolphin case (DS381) is out.  Here's Washington Trade Daily: 

A World Trade Organization dispute settlement panel on Friday issued a mixed ruling concurring with Mexico that US “dolphin-safe” labeling rules cause more restrictions than necessary under global trade rules, WTD has learned (WTD, 11/6/09).

In a preliminary ruling issued to the two parties, a three-member dispute settlement panel upheld Mexico’s core charge that the US conservation measures have the effect of imposing more restrictions than necessary to protect dolphins from Mexican tuna fishers, WTD was told.

WTD also has learned that the panel sided with the United States on some other points.

The panel ruling is expected to be made public next month.

Mexico raised the dispute in October, 2008.  It alleged that the US measures had the effect of prohibiting the labeling of Mexican tuna and tuna products as “dolphin-safe” even when the tuna was harvested by means complying with the “dolphin-safe” standard established by the Inter-American Tropical Tuna Commission.  Tuna caught under the same system – including by US harvesters - were accorded the “tuna safe” labels.

It's hard to say too much without seeing the actual reasoning and conclusions.  However, it sounds like the Panel rejected the non-discrimation claims, but found a violation on the TBT Article 2.2 claim.  The Panel request is here:  http://www.worldtradelaw.net/pr/ds381-4(pr).pdf  Some DSC subscriber-only blog posts on the legal issues in the case are here, here, here and here.

Which "Developing" Countries Should Benefit from Tariff Preferences?

The EU is rethinking things:

The European Union intends to increase tariffs on developing countries including China, India and Brazil under a plan to give only the neediest nations preferential access to the world’s biggest market.

The European Commission proposed to deny faster-growing emerging economies tariff reductions granted through the Generalized System of Preferences, under which the EU imported 60 billion euros ($86 billion) of goods in 2009. That figure would fall to about 38 billion euros under the proposal to limit the trade benefits to 80 nations instead of the current 176, according to the commission, the EU’s executive arm.

The EU, battling a Greece-triggered debt crisis after emerging from a recession in 2009, says overhauling decades of trade policy for poorer countries is justified by the economic rise of such nations as China, India and Brazil. Russia and Saudi Arabia are also among the nations that would lose GSP benefits under the proposal, which needs the support of EU governments and the European Parliament.

“Global economic balances have shifted tremendously,” EU Trade Commissioner Karel De Gucht said today in Strasbourg, France. “If we grant tariff preferences in this competitive environment, those countries most in need must reap the most benefits.”

More here: http://trade.ec.europa.eu/doclib/press/index.cfm?id=707

USCIB on Investor-State in the TPP

I've always had doubts about certain aspects of substantive international investment law and the investor-state dispute mechanism.  I know it has strong support in the business community, but in terms of free market/trade liberalization type policies, I'm not sure how it fits in.  Via Luke Peterson, I see this letter from the U.S. Council for International Business in support of including an investor-state mechanism in the TPP.  The letter makes a number of points in support of investor-state, some of which raise specific questions for me, as follows.  The letter is quoted in bold; my questions follow in italics.

"Prior to the adoption of [the investor-state mechanism], investors could seek to address their grievances by going to local courts or seeking a “deal” with the host government."

Why are local courts a problem?  Is the problem with using local courts limited to particular countries, or is it all countries?  Are local courts in the United States sufficient to deal with issues arising from foreign investors?  What about Australian courts?  Or Chilean courts?  What exactly about these countries' courts makes them insufficient?  Is investor-state only needed if the local courts can't handle the issues fairly?

"... enlisting the services of an investor’s home country is no guarantee that the home country will espouse the investor’s claim.  Rather, the home country must take into consideration not only the investor’s interests, but also the interests of the government – both offensively  and defensively.  From the perspective of investors, relying solely on the government to espouse their claims will most often lead to no claim being brought."

Why do home countries sometimes not take the investor's case?  Are there good reasons they might not do so?  If so, is this an argument that investor-state is a mistake, because cases that probably shouldn't be brought are now more likely to be brought?

"For host countries, consent to investor-state dispute settlement serves as a signal of the country’s openness to foreign investment."

Wouldn't a better signal be a commitment to a fair and just domestic judicial system?

"Provides investors overseas with ability to seek justice for bad acts by foreign governments."

How can we define "bad acts" in a useful way?  Are the current substantive investment rules that elaborate on these "bad acts" (e.g., fair and equitable treatment, regulatory expropriation) appropriate?

"Provides investors abroad legal protections similar to those found under advanced legal systems, including due process, fair and non-discriminatory treatment and compensation for expropriation." 

If investor-state is simply trying to match what exists in "advanced legal systems," is investor-state necessary for countries with such legal systems?  How does one define "advanced legal systems"?  Which countries have them and which do not?

More from Todd Tucker on Prudential Regulation

Todd Tucker has more to say on prudential regulation:

Say a policy is non-prudential, like banning Internet gambling. In a WTO challenge of that ban, the first part of the dispute settlement hearing would be dedicated to figuring whether a country violated its GATS Article XVI commitments. (This article sets a ban on bans, even if they're non-discriminatory.)

If the panel decided that the country had indeed violated their GATS commitments, then the respondent country would likely invoke Article XIV as a defense.

...

As the opening paragraph [of XIV] ("chapeau") makes clear, the respondent country could argue that the measure that violated their GATS commitments (a ban on Internet gambling) was also a policy "necessary to protect public morals" and was also "not applied" in a protectionist manner or a "disguised restriction on trade". Assuming these (steep) hurdles could be met, the WTO challenge to the non-prudential Internet gambling ban would survive (even though the record would show that GATS Article XVI was violated).

Contrast this with a ban on a risky financial service under the PMD. Assume that this was deemed an Article XVI violation. Assume also that the measure met the threshold requirement of being deemed prudential (i.e. the hurdle posed by the PMD's first sentence). A respondent country would then have to meet the hurdle posed by the second sentence: "Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement."

How can this hurdle be cleared? Article XVI is not a list of principles that should be followed, it is a list of policies to be avoided. The means by which a country accomplishes its policy is the same means by which it avoids its GATS commitments. But under the Article XIV analysis, that can be allowed, provided its not arbitrary, unjustifiable, applied in a protectionist way, or a "disguised restriction on trade."

But under the PMD analysis, the measure would have to be a "a means of avoiding the Member’s commitments or obligations under the Agreement" for sake of establishing the violation of XVI, while at the same time not be " a means of avoiding the Member’s commitments or obligations under the Agreement" for sake of the 2nd sentence PMD analysis. This is not logically possible. The commitment the country undertook was to avoid bans - now it has bans.

If I understand Todd correctly, he seems to think that a measure -- such as a "ban on a risky financial service" -- which violates Article XVI is necessarily (and by virtue of the violation) being "used as a means of avoiding the Member’s commitments or obligations under the Agreement."  As a result, if the measure violates XVI, it can't possibly be justified under the prudential measures defense (PMD), as it would also be inconsistent with the second sentence of the PMD (which says: "Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement.")

I think he's wrong about this.  In my view, it is possible for a prudential measure to violate XVI but still satisfy the PMD.  First of all, it's important to understand that XVI is a set of obligations Members must comply with.  Todd says that it is "a list of policies to be avoided," which I suppose is true in some general sense, but I don't think that's the best way to characterize it.  Violating XVI doesn't mean you are "avoiding your obligations."  It means you are violating those obligations.  There's a difference there.

Second, XVI is purely about the impact of the measure at issue, and doesn't take into account the policy goals.  So, conceivably, a "ban on a risky financial service" could violate XVI, although I don't think it necessarily would (in fact, I would say that in most cases it should not).  But assuming it did, such a ban would be in violation of XVI regardless of the underlying policy goal of the measure, which doesn't come up there.  The policy goal does come up under the PMD, though.   If the policy goal is legitimately about prudential regulation, and there was no hidden goal of "avoiding" the XVI obligations, the measure is justified. 

More Jobs: Assistant USTR for Trade Policy & Economics

Job Title: ASSISTANT U.S. TRADE REPRESENTATIVE FOR TRADE POLICY AND ECONOMICS

Department: Executive Office of the President

Agency: Office of the U.S. Trade Representative

Job Announcement Number: USTR-11-13-SP-ES

SALARY RANGE:	$119,554.00 - $179,700.00 /year
OPEN PERIOD:	Wednesday, May 04, 2011 to Wednesday, May 18, 2011
SERIES & GRADE:	ES-0301-00
POSITION INFORMATION:	Full Time Senior Executive Service (SES)
DUTY LOCATIONS:	1 vacancy - Washington DC Metro Area, DC
WHO MAY BE CONSIDERED:	All groups of qualified individuals

The incumbent serves as the Assistant U.S. Trade Representative for Trade Policy and Economics. The Office is responsible for managing a staff of professionals engaged in the intra-agency and interagency trade policy coordination.  The Office also provides statistical and economic analytical support for negotiating offices and in support of the trade policy agenda.

Manages and coordinates the flow of information and economic analysis for the USTR, Deputies and USTR units.  Coordinates agency participation with the Government Accountability Office investigations.  Manages the editing and production of major USTR reports such as Trade Policy Agenda and Annual Report of the President on the Trade Agreements Program; and,  National Trade Estimate Report on Foreign Trade Barriers.  Coordinates information and reports from the U.S. International Trade Commission who provides reports and analysis for trade agreements.

Coordinates and manages meetings with agency officials that make up the Trade Policy Review Group (TPRG) and the Trade Policy Staff Committee (TPSC) to review policy papers and negotiating documents.  Advises the USTR on how to resolve policy differences among the agencies.  Chairs the TPSC and serves as Executive Secretary to the TPRG.   Coordinates responses from the public on policy decisions and negotiations through public hearings and Federal Register notices.

Coordinates agency responses on pending Legislative referrals from the Office of Management and Budget. 

See here for more: http://jobview.usajobs.gov/getjob.aspx?JobID=99043933

Barriers to Trade in Legal Services

From today's Federal Register, here is a recent Section 302 petition to USTR:

On March 14, 2011, Mr. Peter M. Haver filed a petition on his own behalf pursuant to Section 302 of the Trade Act addressed to acts, policies, and practices of the Government of Germany regarding requirements for access to the German bar aptitude examination. The petition contends that Mr. Haver (the petitioner) is a U.S. citizen who practices U.S. and French law as a foreign legal consultant in Germany. The petition states that under German law, only nationals of Germany, the European Economic Area, and the Swiss Confederation are eligible to sit for the German bar aptitude examination. The petition alleges that these acts, policies, and practices restrict U.S. citizens from sitting for the German bar aptitude examination and, therefore, from gaining admission to the German bar, and that these restrictions: (1) Violate the national treatment obligations of the FCN Treaty; (2) violate the MFN obligations of the FCN Treaty; and (3) constitute unreasonable and discriminatory treatment of U.S. citizens. The petition requests that the Trade Representative Atake measures” against Germany under Section 301.

USTR decided not to initiate an investigation, and gave the following reasons:

First, the petition fails to allege that Mr. Haver has the significant interest necessary to have standing as an interested person to file a petition under Section 302 of the Trade Act. See 15 CFR 2006.0(b). According to the petition, Mr. Haver need not sit for the examination to practice law in Germany because he has an “automatic right to German bar membership” based on the fact that he has resided and practiced law in Germany for three years. Because Mr. Haver claims he has another, automatic option for obtaining admission to the German bar, the petition fails to allege that Mr. Haver has the significant interest necessary to have standing to file a petition regarding access to the German bar aptitude examination. The petition does not allege, for example, that there is any economic benefit to Mr. Haver through admission by examination that he would not obtain through automatic admission based on his three years of practice.Show citation box

Second, in the framework of the Trade Act, the petition's allegations that Germany breached its national treatment and MFN obligations under the FCN Treaty amount to an allegation of an unjustifiable act, policy, or practice under Section 301(d)(4) (defining an unjustifiable act, policy, or practice as one that “is in violation of, or inconsistent with, the international legal rights of the United States,” including an act, policy, or practice that “denies national or most-favored-nation treatment”), and not an allegation of the violation of a “trade agreement” under Section 301(a)(1)(B)(i). To be actionable under Section 301, an unjustifiable act, policy, or practice must burden or restrict U.S. commerce. See Section 301(a)(1)(B)(ii) of the Trade Act. Here, the petition fails to include sufficient information on burdens or restrictions on U.S. commerce arising from the alleged restrictions under German law on access to the German bar aptitude examination. The petition does not establish the volume of trade in legal services involved or how that volume is impacted by the restrictions in question.See also 15 CFR 2006.1(a)(7) (requiring that a petition contain information on the burden or restriction on U.S. commerce.)Show citation box

Third, the initiation of a Section 301 investigation in response to the petition would not be an effective means to address the matters raised in the petition. See Section 302(c) of the Trade Act. According to the petition, Mr. Haver previously raised his claims under the FCN Treaty in German courts, and the German courts have rejected those claims. Mr. Haver claims that the German courts' interpretation of the FCN Treaty is erroneous.Show citation box

The FCN Treaty does include a dispute settlement mechanism: disputes between the parties regarding the interpretation or application of the FCN Treaty may be submitted to the International Court of Justice (ICJ). An ICJ proceeding, however, would not be an effective tool for purposes of Section 301 of the Trade Act. In particular, under the statutory provisions applicable to the allegations in the petition, the Trade Representative would have to conclude the investigation, and decide what action to take under Section 301, within 12 months. See Section 304(a)(2)(B) of the Trade Act. An ICJ proceeding conducted pursuant to the FCN Treaty would typically take longer than 12 months. For this and other reasons, initiation of an investigation under Section 301 would not be an effective means to address the alleged restrictions on access to the German bar aptitude examination.

 

Appellate Body Legal Officer Job

The Appellate Body is quite busy these days, with the Aircraft cases and various others.  Perhaps that explains why they are looking for some help:

Vacancy Notice No.: EXT/F/11-15    Title: Legal Officer    Grade: 7    Contract Type: Fixed-term    Starting Salary: CHF 94,400 net per annum (approximate) Issued On: 15 April 2011  (9 day(s) until closing date)    Currently accepting applications    Application Deadline: 13 May 2011    Division:   Appellate Body Secretariat (9003) Duration:  Two years, with the possibility of extension

Other Conditions: In accordance with WTO Staff Regulations and Staff Rules and WTO Pension Plan Regulations. The World Trade Organization offers an attractive compensation package including an annual net salary (subject to mandatory deductions for pension contributions and health insurance), dependency benefits, pension plan, health insurance scheme, separation grant and 30 days annual leave. Benefits for internationally recruited staff may include travel and removal expenses on appointment and separation, installation grant, education grant, rental subsidy and home leave.  Additional information on the compensation package is provided on the WTO website:  http://www.wto.org/english/thewto_e/vacan_e/comp_package_e.pdf

The Secretariat of the WTO is seeking to fill a position of Legal Officer in the Appellate Body Secretariat. Serving staff members interested in the position are also invited to apply.

General Functions  Under the supervision of the Director of the Appellate Body Secretariat, the incumbent will assist in providing legal advice and support to the Appellate Body. The tasks include: 1. Assisting Appellate Body Members with the conduct of appeals. 2. Participating as a member of teams organized to carry out tasks associated with the conduct of appeals. 3. Assisting in the preparation of legal background documents and analyses on the WTO agreements and the dispute settlement rules. 4. Researching and drafting memoranda and legal analyses in the fields of international trade law and public international law generally. 5. Assisting arbitrators in the conduct of arbitrations on the reasonable period of time for implementation. 6. Participating in WTO training activities and giving presentations at conferences as appropriate. 7. Performing such other tasks related to the work of the Appellate Body and its Secretariat as may be required.

REQUIRED QUALIFICATIONS

Education:  An advanced university degree in law, including studies in international trade law and public international law is required. Studies in economics would be an asset.

Knowledge:  Excellent research skills and the ability to pay close attention to detail; the ability to work independently as well as cooperate with others in a diverse international setting; and the ability to meet strict deadlines within a dynamic work environment.

Work Experience:  At least three years of relevant practical experience in the area of international trade law. Experience in national or international trade-related litigation and/or within judicial institutions or quasi-judicial agencies would be an asset.

Languages:  Excellent English, including a demonstrated ability to write accurately, concisely, clearly and within tight deadlines. Good knowledge of French and/or Spanish is highly desirable.

Additional Information:  The position may be offered at a lower grade if the selected candidate does not fully meet all the required qualifications. Only applications from nationals of WTO Members will be accepted.

 

Todd Tucker on Prudential Measures

Todd has a long and detailed post on the negotiating history of the GATS prudential measures provision, which is in Article 2(a) of the GATS Annex on Financial Services.  He really dug deep on this one.  I'm not sure there's anything left to uncover.

Here's the provision:

2. Domestic Regulation

(a) Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement.

Todd makes the point that there are four possible interpretations of the this provision:

Interpretation 1:

[The provision] provides no defense under any circumstances and that a WTO panel would have to give it no weight: no prudential policies are allowed.

Interpretation 2:  

[The provision] imposes no constraint under any circumstance: every allegedly prudential policy is allowed.

Interpretation 3:

[The provision] has to mean SOMETHING. Lawyers are not politicians, and they require every clause in an agreement to have legal effect (known as the "effectiveness" principle). WTO tribunalists would look to the ample jurisprudence from GATT Article XX and GATS Article XIV, which lays out a host of ways in which countries can violate GATS under certain conditions, like when a measure is "necessary to protect human, animal or plant life or health."

Interpretation 4.

This interpretation starts from the point of view that financial services firms were the most active proponents of GATS in the first place, and "regulators" in developed countries were often more interested in exporting financial services than in defending domestic regulations. For this reason, we would expect the WTO rules on financial services to be less protective of financial services policy space than, say, retail services policy space. Financial firms pushed hard for the toughest disciplines, and created different tiers of obligations for concentric circles of coalitions of the mostly unwilling, the mostly willing, and the most willing.

...

Under this interpretation, the PMD is "self-cancelling" in certain ways, but not in others. Early in the negotiations, rich countries pushed for dozens of ways to restrict countries' financial regulations, but many countries balked at the more extreme rules.

The "compromise" by the end of 1991 was that countries could choose not to commit financial services, but when they did, they would have to meet a "minimum" set of rules: market access and national treatment. (We discuss the also important free transfers obligation elsewhere.) In essence, these rules state: thou shall not impose size limits or bans; and thou shall not discriminate. They could not utilize any excuse or exception not to comply.

But violations of other GATS rules would be allowed... for prudential reasons. Indeed, if you could prove that a measure was prudential, you wouldn't have to meet the disciplines under Article VI, entitled "Domestic Regulation". That article says that, even if a measure passes muster under Article XVI (market access) and XVII (national treatment), it must still, among other things, not be more trade restrictive than "necessary."

If I understand interpretation 4 correctly, I think what he is saying is that under this interpretation, the prudential measures provision provides a defense to violations of some provisions (such as GATS Article VI), but does not provide a defense to violations of GATS Article XVI and XVI.  He sees support for this view in the negotiating history.  His analysis too long to repeat here, so check it out and judge for yourself.

All very interesting, but upon reading the provision again, I'm sticking with the interpretation I set out here:

The first sentence suggests that Members can take measures for "prudential reasons," even if these measures would otherwise violate other GATS provisions.  So, let's say you have a measure that violates GATS Article XVI (Market Access).  If that measure is taken "for prudential reasons," including the ones listed, it is permitted despite the Article XVI violation.  (Presumably there must be some objective determination as to whether the measure is actually "for prudential reasons," such as a means-ends test applied to the measure and the stated policy goal, rather than just accepting the Member's declaration of the purpose without further scrutiny.)  This part looks like a pretty typical WTO "exception."

The second sentence narrows the scope of this "exception" to some extent.  (In a sense, the debate here is over how much it has been narrowed).  In this regard, the second sentence states that if the measures at issue do violate other GATS provisions, they are not completely off the hook when they are found to be "for prudential reasons" under the carve out, as there is a legal obligation that still applies:  "[the measures] shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement."  This language seems a bit like the GATT Article XX chapeau trying to root out "disguised restrictions."  In particular, the requirement that such measures not be used as a "means of avoiding ... commitments or obligations" has a similar feel.  "Avoiding" is not quite as strong as "disguised," but it's along the same lines.  Basically, both the second sentence here and the Article XX chapeau indicate that the non-protectionist purposes offered to justify the measure must be authentic.

The problem is, the second sentence of the prudential carve out is worded a little more confusingly than the chapeau.  The sentence starts with "[w]here such measures do not conform with the provisions of the Agreement."  This language is somewhat duplicative of the "[n]otwithstanding any other provisions of the Agreement" language from the first sentence.  Implicit in the "notwithstanding" language is that there was a violation of the other provisions.  Restating this point in the second sentence as "[w]here such measures do not conform" makes it seem like this is an additional obligation not to violate the GATS which applies subsequent to the application of the first sentence.  I think that's why Global Trade Watch takes such a broad view of the meaning of the second sentence:  "prudential measures are only allowed under GATS rules if they don’t violate any of the GATS rules."  I see how they get to that conclusion by focusing on the first clause of the second sentence, but I'm not sure that's right.  Rather, as noted above, I think the better interpretation is that the second sentence corresponds to the chapeau, emphasizing that any measures taken for the stated policy reasons not be disguised trade restrictions (or here, measures taken to avoid commitments or obligations).  The "[w]here such measures do not conform with the provisions of the Agreement" language just recalls the violation implicit in the "notwithstanding" language in the first sentence.  To be more clear about it, the first part of the second sentence could have been written as "[w]here prudential measures that do not conform with other provisions of the Agreement have been used," or something along those lines.  That's what the "such measures" refers to, in my view.  It just doesn't do it very clearly.

I suppose my interpretation falls under his intepretation 3 category, although I would characterize it simply as an approach where you take some confusing treaty language and look carefully at the ordinary meaning, not too unlike the consideration of most other WTO terms.