International Economic Law and Policy Blog

Two Mitchell/Voon Papers

From Andrew Mitchell:

Readers may be interested to read the following draft papers that I have recently co-authored with Tania Voon on the impact of WTO law on two ambitious new Australian schemes. The first paper focuses on the application of the GATS (and related obligations under Australia’s preferential trade agreements) to Australia’s National Broadband Network, raising some potential concerns about its WTO-consistency. The second paper focuses on the application of the TRIPS Agreement, the TBT Agreement, and the GATT 1994 on Australia’s draft legislation for the mandatory plain packaging of tobacco products, critically analysing claims of inconsistency with those agreements. These two schemes are the subject of intense controversy in Australia at the moment, and they have significant broader implications for other countries and international economic law more generally, for example as evidenced by the launching of an investment treaty claim against Australia by Philip Morris in relation to plain packaging, as noted by Simon Lester in an earlier post here.

More from the CAFC on Inconsistent Zeroing

Following up on this post, here is another decision (JTEKT CORP v. US, released yesterday) from the CAFC that talks about whether the Department of Commerce can take an inconsistent approach to zeroing (no zeroing in investigations, but zeroing in administrative reviews):

V. Commerce’s Use of Zeroing

We  have  long  held  that  Commerce’s  practice  of  zeroing is a reasonable statutory interpretation entitled to deference.  See, e.g., Timken Co. v. United States, 354 F.3d 1334, 1342 (Fed. Cir. 2004).  Zeroing is the practice whereby the values of positive dumping margins are used in calculating the overall margin, but negative dumping margins are included in the sum of margins as zeroes.  Dongbu Steel Co. Ltd. v. United States, 635 F.3d 1363, 1366 (Fed. Cir. 2011).  Historically, Commerce used zeroing in both the initial investigation to determine whether dumping occurred, and in the subsequent administrative reviews of its dumping determination.  But this practice has changed.  In response to pressure from the World Trade Organization (WTO), Commerce changed its practice with respect to investigations and no longer zeroes in that phase.  Id. at 1367.

We addressed Commerce’s conflicting treatment of zeroing in investigations and administrative reviews in Dongbu.  Due to the procedural posture in Dongbu, Commerce had provided no justification for using zeroing in administrative reviews and not in investigations.  In that case, we vacated and remanded in order for Commerce to explain its reasoning for such disparate treatment.  Id. at 1373.

NTN argues that Dongbu requires that we vacate and remand this case in order for Commerce to provide reasoning for its current practice.  Appellee Timken argues that NTN failed to properly raise this issue on appeal.  Further, appellees argue that  Dongbu does not require vacatur because Commerce, unlike in  Dongbu, provided reasons for its zeroing practice in this case.

As an initial matter, NTN did not waive this argument.  NTN focuses a significant portion of its brief to challenging Commerce’s use of zeroing.  Although NTN acknowledges that we have consistently upheld the practice, NTN nonetheless raised  the issue and specifically pointed out the contradiction of using zeroing in administrative reviews, but not in investigations.  NTN Appellant’s Br. 34.  NTN did not have the benefit of the Dongbu opinion before filing its briefs and thus could not have argued that the case requires us to vacate, but it nonetheless preserved the issue on appeal by arguing that Commerce’s continuing practice of zeroing in administrative reviews, but not in investigations, is unreasonable.

We agree with NTN that  Dongbu  requires  us  to  vacate and remand.  Appellees argue that, unlike  Dongbu, Commerce explained its reasoning for continuing to zero in administrative reviews, but not in investigations.  Appellees are correct that Commerce attempted to address the exact issue in this case:

Antidumping investigations and administrative reviews are different proceedings with different purposes.  Specifically,  in antidumping investigations, the Act specifies particular types of comparisons . . . . In antidumping investigations, the Department generally uses average-to-average comparisons whereas in administrative reviews the Department generally uses average-totransaction comparisons.

The purpose of the dumping-margin calculation also varies significantly between antidumping investigations and reviews.  In antidumping investigations, the primary function of the dumping margin is to determine whether an antidumping duty order will be imposed on the subject imports.  In administrative reviews, in contrast, the dumping margin is the basis for the assessment of antidumping duties on entries of subject merchandise to the antidumping duty order

J.A. 173-74 (citations omitted).  While Commerce did point to differences between investigations and administrative reviews, it failed to address the relevant question—why is it a reasonable interpretation of the statute to zero in administrative reviews, but not in investigations?  It is not illuminating to the continued practice of zeroing to know that one phase uses average-to-average comparisons while the other uses average-to-transaction comparisons.  In order to satisfy the requirement set out in Dongbu, Commerce must explain why these (or other) differences between the two phases make it reasonable to continue zeroing in one phase, but not the other.  Thus, we vacate and remand in order for Commerce to provide its reasoning.

Book Review of Dani Rodrik's "The Globalization Paradox"

Sometimes I write things longer than a blog post.  I've talked about Dani Rodrik's views on trade a number of times (see, e.g., here, here, here and here).  Now I've gone a little further, and written a book review of his latest book, The Globalization Paradox: Democracy and the Future of the World Economy.  The book review is in the latest issue of the World Trade Review; the SSRN version is here.  Here's an excerpt:

Another way to think about the "policy space" that governments have is to talk about the scope of the trade regime and how trade rules affect domestic policy-making. The scope will affect how much policy space there is. Arguably, Rodrik identifies a fundamental problem with trade rules when he says: "the absence of a clear and bright line between where domestic prerogatives end and external obligations begin creates substantial friction. In fact, the trade regime's growing legitimacy crisis can be traced back to this fundamental ambiguity" (p. 81). But it is not clear that his proposals help the matter. As discussed below, even if the principles he would use to define the scope of the trade regime do establish clear boundaries, and it is not clear that they do, his specific proposals may not achieve his goals as well as some possible alternatives might.

Another Tobacco Investment Treaty Claim

Via a John Boscariol tweet, I see that there is a new tobacco regulation investment treaty claim in the works:

INTERNATIONAL tobacco giant Philip Morris will launch legal action today aimed at forcing the Gillard government to back down on its plain-packaging legislation or face a compensation bill of "billions of dollars".

In a dramatic escalation of the tobacco industry's campaign against the laws, which to date has been confined to lobbying and advertising, Philip Morris wants to prevent the Australian government setting a precedent that could be adopted by governments around the world.

The action by the manufacturer of prominent brands such as Marlboro and Peter Jackson will occur under a bilateral investment treaty between Australia and Hong Kong.

The company will argue that, because the Australian operation is owned by Philip Morris Asia Limited (PMA), which is based in Hong Kong, the plain-packaging legislation will adversely impact upon an investment protected by the treaty.

Federal Health Minister Nicola Roxon has pledged to introduce and pass the legislation this year and have it operational on January 1. It will ban all commercial branding from cigarettes, mandating olive-green packaging with prominent health warnings. Packs will be distinguishable only by printed brand names in a standard font and size on the top, front and bottom of the packets.

Philip Morris says the removal of trademarks devalues its intellectual property, in breach of the investment treaty. It argues the cigarette trade will be reduced to a commodity market where prices will be forced down, reducing its profitability and the value of its assets. Spokeswoman Anne Edwards said: "We don't take legal action lightly, but we have no other option. We believe we have a very strong legal case."

The notice of claim to be served today will trigger a three-month period of negotiation. If there is no resolution the matter will proceed to arbitration. "PMA will be seeking the loss in value of its investments in Australia that will result from plain packaging," Ms Edwards said. "The damages may amount to billions of dollars."

My first thought:  Investor-state was already on shaky ground in Australia, and this action should end any chance of including investor-state in a future Australian trade or investment agreement.  Perhaps Philip Morris was holding back on its claim in the hopes that Australia would take a more supportive position on investor-state, but now that such a hope is out the window, they went ahead with the case.

What Aspect of a Measure Should be Considered under the GATT Article XX Sub-Paragraphs? Some Criticism

In three comments on the last post, the Appellate Body's new approach to what aspect of a measure should be considered under the GATT Article XX sub-paragraphs is getting heavily criticized.  In this post, I'm going to support some of that criticism, but then come to the Appellate Body's defense a bit.

First, the criticisms.  In the comments, Bryan Mercurio and Chris Wold are both very surprised that the Appellate Body reversed itself without engaging with its contrary precedents.  Bryan says:

I cannot understand how ... the AB can make such a decision without directly engaging with US-Gasoline, Korea-Beef, etc.

And Chris says:

How the Appellate Body can completely ignore its previous analysis, especially when Korea-Beef and US-Gasoline are cited in the two footnotes preceding the Section 337 footnote, is striking, to say the least.

While I have no problem with high courts overturning their precedents, it seems to me that when they do so, they should be explicit about it and they should give reasons for the change.  So on this point, I agree with the commenters.

In addition, Bryan and Chris complain about the uncertainty that now exists regarding the Article XX chapeau. Bryan says:

I cannot understand how ... to reconcile this decision with the well understood use of the chapeau - is the chapeau now redundant?

Along the same lines, Chris says:

the first part of the chapeau already carves out a space for discussing discriminatory/ differential treatment by asking whether the measure constitutes arbitrary or unjustifiable discrimination. It is difficult to see why the GATT would first ask whether the discrimination is necessary and then ask whether the discrimination is arbitrary or unjustifiable. It is difficult to imagine discrimination being “necessary” but then being found to be “arbitrary” or “unjustifiable,” unless the Appellate Body restricts arbitrary and unjustifiable discrimination to procedural/due process concerns. This is particularly true considering the way the Appellate Body characterized the necessity test: it stated that what must be shown to be “necessary” is “the treatment giving rise to the finding of less favourable treatment.” (para. 177). Thus, the same discrimination will be assessed for necessity as will be assessed to determine whether it is arbitrary or unjustifiable.

I confess that I'm not sure exactly how the Appellate Body's new approach fits with the chapeau, at least in the context of Article III.  Going back to the first criticism, I wish this significant change had been discussed in more detail, including the issue of how the new approach would affect the application of the chapeau.  

But despite these criticisms, I think the Appellate Body's new approach makes some sense.  I explained my views a bit in the first post I did on this, as well as in a comment to that post, but let me clarify a bit more with a hypothetical.

Let's say Country A adopts Statute X to clean up the environment in some way.  Statute X has lots of different provisions in it, covering a variety of issues.  One of these provisions is Section Y.  Section Y sets up rules for how certain domestic and foreign companies are to comply with a particular part of Statute X.

Country B is concerned that Section Y treats imports less favorably than like domestic products, and challenges Section Y under GATT Article III:4.  A panel finds a violation of GATT Article III:4.  Country A has invoked Article XX(g) as a defense, so now the question is, what aspect of the measure should be considered under Article XX(g)?  If I'm reading all this correctly, the Gasoline view is that Statute X, the underlying measure, must be considered under Article XX(g), whereas the Thailand - Cigarettes (Philippines)/Section 337 view is that it is the regulatory differences under Section Y that must be considered.

Which is the better approach?  My problem with the Gasoline approach is that I'm not sure what the relevance is of considering Statute X under Article XX(g).  Statute X as a whole is not being challenged.  It may very well be that when examined as a whole, Statute X satisfies the terms of Article XX(g).  But that was never in question, as Statute X itself was not challenged.  Rather, it was the regulatory differences in Section Y that are being challenged.  Thus, I'm not sure that looking at Statute X tells us anything relevant about the legal claim.

This takes me to anon's criticism that "Article XX is a general exceptions or a defence provision that applies to 'measures' not 'treatment'."  But what is the "measure" being challenged here?  I would argue that it is Section Y, not Statute X.

So I guess my question for those who support the Gasoline approach is, what is the rationale for considering Statute X (i.e., the underlying measure) under the Article XX sub-paragraphs when only a particular section of the measure was challenged?  Shouldn't we focus on the aspect/part of the measure where the violation was alleged?

What Aspect of a Measure Should be Considered under the GATT Article XX Sub-Paragraphs? (Follow-up)

Back in 2007, I posted the following:

In its first decision, U.S. - Gasoline, the Appellate Body famously (relatively speaking) said:

One problem with the [panel's] reasoning ... is that the Panel asked itself whether the "less favourable treatment" of imported gasoline was "primarily aimed at" the conservation of natural resources, rather than whether the "measure", i.e. the baseline establishment rules, were "primarily aimed at" conservation of clean air. In our view, the Panel here was in error in referring to its legal conclusion on Article III:4 instead of the measure in issue. The result of this analysis is to turn Article XX on its head. Obviously, there had to be a finding that the measure provided "less favourable treatment" under Article III:4 before the Panel examined the "General Exceptions" contained in Article XX. That, however, is a conclusion of law. The chapeau of Article XX makes it clear that it is the "measures" which are to be examined under Article XX(g), and not the legal finding of "less favourable treatment."

Thus, according to the AB, it's the measure as a whole that must be examined for the "relating to" aspect of Article XX(g).  Applying this standard, the AB held:

The baseline establishment rules, taken as a whole (that is, the provisions relating to establishment of baselines for domestic refiners, along with the provisions relating to baselines for blenders and importers of gasoline), need to be related to the "non-degradation" requirements set out elsewhere in the Gasoline Rule. Those provisions can scarcely be understood if scrutinized strictly by themselves, totally divorced from other sections of the Gasoline Rule which certainly constitute part of the context of these provisions. The baseline establishment rules whether individual or statutory, were designed to permit scrutiny and monitoring of the level of compliance of refiners, importers and blenders with the "non-degradation" requirements. Without baselines of some kind, such scrutiny would not be possible and the Gasoline Rule's objective of stabilizing and preventing further deterioration of the level of air pollution prevailing in 1990, would be substantially frustrated. The relationship between the baseline establishment rules and the "non-degradation" requirements of the Gasoline Rule is not negated by the inconsistency, found by the Panel, of the baseline establishment rules with the terms of Article III:4. We consider that, given that substantial relationship, the baseline establishment rules cannot be regarded as merely incidentally or inadvertently aimed at the conservation of clean air in the United States for the purposes of Article XX(g).

But reading the old GATT U.S. - Section 337 case recently, I came across the very different approach taken by the panel there in the context of "necessity" under Article XX(d), along with what I thought was a pretty good rationale:

5.27  Bearing in mind the foregoing and that it is up to the contracting party seeking to justify measures under Article XX(d) to demonstrate that those measures are "necessary" within the meaning of that provision, the Panel considered whether the inconsistencies that it had found with Article III:4 can be justified as "necessary" in terms of Article XX(d). The Panel first examined the argument of the United States that the Panel should consider not whether the individual elements of Section 337 are "necessary" but rather whether Section 337 as a system is "necessary" for the enforcement of United States patent laws (paragraphs 3.57-3.58). The Panel did not accept this contention since it would permit contracting parties to introduce GATT inconsistencies that are not necessary simply by making them part of a scheme which contained elements that are necessary. In the view of the Panel, what has to be justified as "necessary" under Article XX(d) is each of the inconsistencies with another GATT Article found to exist, i.e. in this case, whether the differences between Section 337 and federal district court procedures that result in less favourable treatment of imported products within the meaning of Article III:4, as outlined above (paragraph 5.20), are necessary.

So, the Panel said it would consider whether "the inconsistencies that it had found" could be justified as "necessary."  In doing so, the Panel rejected the U.S. argument for examining "Section 337 as a whole," on the basis that this approach "would permit contracting parties to introduce GATT inconsistencies that are not necessary simply by making them part of a scheme which contained elements that are necessary."  This seems fairly convincing to me.  In essence, if panels look at the measure as a whole, Members can bury any sort of violation they want as part of a broader measure and they will still be able to get past the "necessary" / "relating to" prong.  Of course, they still have to satisfy the chapeau, but nevertheless doesn't this approach make it easier to slip through discrimination and other trade barriers as part of non-trade policies? 

In the comments to that post, Joost and Julia both added some thoughts.

Following-up on this issue, in last week's Thailand - Cigarettes (Philippines) Appellate Body report, I see some statements suggesting that the Appellate Body has, without saying so explicitly, reversed itself.  Here's what they said:

177. ... when Article XX(d) is invoked to justify an inconsistency with Article III:4,  what must be shown to be "necessary" is the  treatment giving rise to the finding of less favourable treatment.  FN. 270  Thus, when less favourable treatment is found based on differences in the regulation of imports and of like domestic products, the analysis of an Article XX(d) defence should focus on whether  those regulatory differences are "necessary" to secure compliance with "laws or regulations" that are not GATT-inconsistent.

178. ...  We see at least four critical flaws in Thailand's presentation of its Article XX(d) defence to the Panel.

179. First, in putting forth its defence, Thailand sought to justify administrative requirements relating to  VAT liability generally, rather than to justify the  differential treatment  afforded to imported versus domestic cigarettes under its measure. ...

FN. 270: See GATT Panel Report, US – Section 337 Tariff Act, para. 5.27.

So, if I'm reading this correctly, they've gone back to the Section 337 approach to the Article XX sub-paragraphs, under which you look at the regulatory differences that led to the violation, rather than the measure as a whole.

Cigarette Package Labelling, in Australia and the U.S.

If you'll be in London on June 29, Andrew Mitchell will be talking about Australia's plain packaging for cigarette legislation at the UCL's WTO Scholars' Forum:

Next month the Australian Government will introduce legislation to require the plain packaging of tobacco products by 1 July 2012. It will remove branding logos and other promotional elements from packaging, which will be standardised with olive brown colouring and the brand name appearing in a plain white font. It will be the world’s first tobacco plain packaging scheme, and given the restrictions on other forms of marketing, will shut down one of the last remaining avenues for the advertising of tobacco in Australia. Predictably, the tobacco industry has taken issue with the initiative. Their objections include a claim that it violates Australia’s WTO obligations, in particular the minimum obligations for the protection of intellectual property rights under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. With governments in the UK and a number of other jurisdictions also considering introducing plain packaging to reduce the use of tobacco products, this presentation will critically examine the claims of the tobacco industry.

In the U.S., things have not gone quite as far, but I can imagine that the following new rules might cause concern with some trading partners:

Dead bodies, diseased lungs and a man on a ventilator were among the graphic images for revamped tobacco labels unveiled on Tuesday by U.S. health officials.

Proposed in November under a law that put the multibillion-dollar tobacco industry under the control of the Food and Drug Administration, the new labels must be on cigarette packages and in advertisements starting in October 2012.

Health and Human Services Secretary Kathleen Sebelius and FDA Commissioner Margaret Hamburg were to announce the nine new warnings at the White House, but the labels were released early Tuesday at http://www.fda.gov/TobaccoProducts/Labeling/CigaretteWarningLabels/default.htm.

They show images that may disturb some, including one titled "WARNING: Cigarettes are addictive," illustrated with a photograph of a man smoking a cigarette through a hole in his throat.

Combating Climate Change through Investment Arbitration

Can investment treaties be used to force governments to follow through on their climate change plans?  From a new paper:

In addition to the general non-commercial risks that may affect any foreign direct investment, low-carbon investments face specific risks related to the mechanisms of public support that states develop to enable the financial viability of such projects. In the absence of the full internalization of the carbon externality, a perception amongst investors that states might renege on promises of support once investments are made seriously affects the credibility and thus effectiveness of climate policies. By limiting this risk, investment arbitration, which has often been accused of constituting a threat to climate change mitigation efforts, could in fact reinforce climate policies.

REVENUE FOREGONE IN THE FUTURE: AN INCOHERENT RULING IN THE BOEING PANEL REPORT?

In the recent Boeing panel report,  the panel  decided  in the context of the fiscal regime of the State of Washington  that  “it  is not necessary for the Panel to resolve the issue of whether revenue to be foregone in the future constitutes a financial contribution for the purposes of the threat of serious prejudice analysis” (at  7.154) . Therefore, it would not rely upon tax abatements to be received post-2006 in assessing the European Communities' present serious prejudice case. 

However, a few pages later, the panel  concluded in the context of a tax reduction introduced in the City of Everett and  without even a word  about the issue of  revenue foregone in the future, that revenue foregone post 2006  by this City  is a financial contribution  since it  “ constitutes the foregoing of revenue otherwise due under Article 1.1(a)(1)(ii) of the SCM Agreement.” (At 7.332) 

My impression is that this ruling is somewhat incoherent. There are not in the SCM Agreement two definitions of a financial contribution, one for serious prejudice analysis and one for determining the existence of a subsidy.  How is it possible for the panel to say that it is not resolving an issue and then immediately after doing the contrary without even saying a word about what it is really doing?

 

 

 

Investment Treaties and International Rights

A few posts ago, I asked:

 Of all the individuals, groups and other entities that are out there in the world, why do only "foreign investors" have access to this special international remedy?

In the comments to my post, Mark Kantor said:

Your question "why do only "foreign investors" have access to this special international remedy?" is well taken. It would, IMHO, be good policy if neutral, impartial and independent forums were available for a far greater range of disputes than just claims brought by foreign investors.

In response to that, I then wondered:

I wonder if investor-state is the pathway taking us to the world where international treaties provide such an avenue, or a stumbling block whose controversial nature prevents this from developing. I also wonder if some investor-state opponents would accept it if it were broader, and if some of its proponents would reject it if that were the case.

Mark then pointed to the Report of the Subcommittee on Investment of the Advisory Committee on International Economic Policy Regarding the Model Bilateral Investment Treaty, which said:

Recognizing that the protection of commercial investment made by radio and television enterprises, Internet service providers, news organizations and other media can have the effect of protecting free expression, we believe that the goals of free expression can be more fully realized when investors in these sectors are aware of the availability of BIT protections for such investments.

The current investment treaty system has the potential to be used to protect fundamental human rights such as freedom of speech, freedom of the press and freedom of association. The tools often used to control such expression are the same types of actions that contravene some of the core obligations under the BIT. In this intersection between free expression rights and BIT obligations lies significant potential for a fuller realization of these freedoms through the already existing international investment framework. We encourage the Administration to take efforts to ensure that relevant sectors -- such as radio and television enterprises, Internet service providers, news organizations and other media -- are aware of the availability of BIT protections for such investments.

So the report says that "[t]he current investment treaty system has the potential to be used to protect fundamental human rights such as freedom of speech, freedom of the press and freedom of association."

Here are some questions that occur to me:

-- Is the protection of rights such as freedom of speech, freedom of the press and freedom of association that relate to commercial investment enough to satisfy the opponents of investment treaties?  If not (and it probably is not), could these rights be protected under investment treaties beyond commercial investment?  If so, would that be enough to satisfy opponents?  In other words, could there be a tradeoff where rights of investors get protected, but rights of others also get protected, with the result that there is a coalition in favor of such treaties?  What coalitions would develop in response? 

-- More generally, should there be an enforceable global treaty/constitution that protects rights such as these?  (We currently have global treaties that are not very enforceable, and regional treaties that are enforceable, but there is no enforceable global treaty.)  If so, are investment treaties the right place for this?

-- And if there was a decision that such rights should be protected on a global scale, what balance would be struck between all the competing and conflicting rights?

Investor-State after the Australian Policy Change

In this paper, Luke Nottage is concerned that Australia's recent policy change with respect to investor-state might lead to a decline in investor-state provisions all around Asia.  Here's the abstract:

Treaty-based investor-state arbitration (ISA) has gradually become a more established part of the legal landscape in the Asian region. But this development is threatened by the “Gillard Government Trade Policy Statement” announced in April 2011. One interpretation is that the Australian government will no longer include ISA protections in future investment treaties or Free Trade Agreements (FTAs) even with developing countries – effectively eschewing treaty-based ISA altogether. Another interpretation is that the government may henceforth include ISA provisions on a case-by-case basis, but not if that would provide greater procedural or substantive rights against the government to foreign investors compared to local investors in Australia. 

Part I of this paper outlines the complex and potentially far-reaching implications of even the latter policy stance. Part II revisits some of the economic theory and evidence underlying the related recommendation of Australia’s Productivity Commission, announced in 2010 as part of its review of FTA and investment treaty policy, including some more recent case studies involving investment both in and out of Australia. Part III outlines some less radical ways for Australia – and other countries in the Asia-Pacific region – to rebalance private and public interests in the ISA system. However, Part IV outlines how Australia’s recent experience suggests more generally that nowadays there may be surprisingly few constituencies prepared to come out strongly in favour of refining the present-based ISA system in those ways. Within many states, there are probably more public and private interest groups now wishing to see it more drastically curtailed – along the lines recently announced by the Australian government or, indeed, even more restrictively. Part V concludes that many other states in Asia already or potentially negotiating treaties with Australia – including Japan and China – are also unlikely to achieve a relaxation of the policy stance. The treaty-based ISA system may well therefore end up declining significantly in the region, especially over the medium- to longer term.

Understanding PPMs at the WTO

In the Peter Fitzgerald paper mentioned in the last post, I saw a reference to this sentence in "Understanding the WTO":

The WTO agreements are interpreted to say ... [that] trade restrictions cannot be imposed on a product purely because of the way it has been produced. 

See p. 66.

I was surprised by the definitiveness of this statement.  I would agree that this is one view of the issue.  However, I think the opposing view -- that measures regulating the production process may or may not violate the rules, depending on various factors -- has support as well.

The Seal Products Dispute and a Public Morals Defense

In a new paper, Peter Fitzgerald is skeptical of a GATT Article XX(a) "public morals" defense being successfully invoked by the EU as a justification for its seal products ban.  Here's a key excerpt:

Moreover, since import prohibitions are among the most trade disruptive measures possible, the scrutiny applied to the necessity of such a ban, as compared any reasonably available alternatives, is quite high. In this case a labeling or certification scheme distinguishing between humane and inhumane methods of culling seals would be much less disruptive to trade than the import ban. ...

While essentially closing the EU market to seal products logically contributes to a reduction in cruel killings, a labeling scheme addressing humane hunting techniques might equally contribute to the aim discouraging cruel killing methods—and would certainly be less disruptive to trade than a ban which makes no distinctions among culling methods. The question is whether the labeling or certification alternative is reasonably available or actually too impracticable or too costly. Given the emphasis the Appellate Body placed upon providing data to support such claims in China-AV Products, the DSB might well scrutinize any claimed inability to use a labeling or certification alternative quite closely, especially since a form of labeling is used for the products which are exceptionally permitted into the EU market under Regulation No. 737/2010.

He raises this issue in the context of Article XX(a), but it could also arise under TBT Agreement Article 2.2.

Appointment for Chang-fa Lo

I am delighted to report that our IEL colleague and my good friend Professor Chang-fa Lo of National Taiwan University has had his nomination to the Constitutional Court of Taiwan approved by the Legislative Yuan.  Chang-fa will start his position as Justice on October 1.  He promises he will remain active in IEL activities.

Dictionaries and Legal Interpretation

Speaking of the Appellate Body, which is known for (among other things) its use of dictionaries, here's an interesting NY Times piece on the U.S. Supreme Court's increasing use of dictionaries:

 In a decision last week in a patent case, Chief Justice John G. Roberts Jr. puzzled out the meaning of a federal law by consulting the usual legal materials — and five dictionaries.

One of the words he looked up was “of.” He learned that it means pretty much what you think it means.

In May alone, the justices cited dictionaries in eight cases to determine what legislators had meant when they used words like “prevent,” “delay” and “report.” Over the years, justices have looked up both perfectly ordinary words (“now,” “also,” “any,” “if”) and ones you might think they would know better than the next guy (“attorney,” “common law”).

All of this is, lexicographers say, sort of strange.

“I think that it’s probably wrong, in almost all situations, to use a dictionary in the courtroom,” said Jesse Sheidlower, the editor at large of the Oxford English Dictionary. “Dictionary definitions are written with a lot of things in mind, but rigorously circumscribing the exact meanings and connotations of terms is not usually one of them.”

...

In the last two decades, the use of dictionaries at the Supreme Court has been booming.

A new study in The Marquette Law Review found that the justices had used dictionaries to define 295 words or phrases in 225 opinions in the 10 years starting in October 2000. That is roughly in line with the previous decade but an explosion by historical standards. In the 1960s, for instance, the court relied on dictionaries to define 23 terms in 16 opinions.

...

The authors of the Marquette study, Jeffrey L. Kirchmeier and Samuel A. Thumma, said the justices had never really said precisely what dictionary definitions were doing in legal opinions. They urged the justices to explain “when and how dictionaries should be used, how a specific dictionary should be chosen and how to use a dictionary for interpretation.”

The justices have cited more than 120 dictionaries, which is suggestive of cherry picking.

“It’s easy to stack the deck by finding a definition that does or does not highlight a nuance that you’re interested in,” said Mr. Sheidlower, the O.E.D. editor.

Perhaps those interviewing the soon to be nominated Appellate Body candidates will raise this issue with them.

Also, if anyone is looking for something to research, a study of the Appellate Body's use of dictionaries over the years could be interesting.

More on Appellate Body Nominations

From Gary Hufbauer:

The office of the US Trade Representative has taken the little noticed but highly unfortunate step of blocking Jennifer Hillman’s second term on the WTO Appellate Body. This is a bad omen, both for the World Trade Organization and the United States.

...

The United States has never before blocked its Appellate Body appointee from serving a second term. Since the USTR has offered no explanation for blocking Hillman, suspicions are bound to arise that the United States is displeased with her decisions on the AB and wants to name a judge who is more attentive to US positions in future cases.

These suspicions are bound to erode confidence in the WTO judicial system, and create a chilly reception for Hillman’s successor appointee. ...

 

The Politicization of the Appellate Body Nomination Process

With two Appellate Body appointments coming soon, this paper -- entitled "Agents, Trustees, and International Courts: The Politics of Judicial Appointment at the World Trade Organization" -- by Manfred Elsig and Mark Pollack is very well-timed.  From the intro:

We present a view of an AB selection process that, far from representing the pure search for expertise, is deeply politicized and offers member-state principals opportunities to influence AB members ex ante. WTO member states can and do influence the endogenous preferences of the members of the AB through a rigorous screening process that pays close attention to the views of candidates on specific issues of interest to those states. We also find some anecdotal evidence that member states may use the prospect of judicial renomination and reappointment as a source of ex post influence over sitting AB members.

We further demonstrate that the AB nomination process has become progressively more politicized during its first decade and a half. During the earliest nominations to the AB, we demonstrate, WTO member states attempted to secure the appointment of members of the AB from their own states, but otherwise opted for extensive legal and policy experience, largely consistent with the trusteeship view. With the passage of time, however, as the AB adopted controversial decisions with profound implications for member states’ sovereignty and economic interests, WTO member governments became far more concerned about judicial activism and more interested in the substantive opinions of AB candidates, systematically championing candidates whose views on key issues most closely approached their own, and opposing candidates perceived to be activist or biased against their substantive preferences.

Read the whole thing, as they say.

Is Chinese Investment in Africa Neo-Colonialism?

From an interview with Hillary Clinton on an African TV show, here was a question asked by the host:

MR. MAROLENG: Madam Secretary, one of the things around the African Growth and Opportunity Act is that it’s also based on the notion that conditionality around good governance will lead to foreign direct investment. But we’ve seen other players in the African continent, particularly within the economic sector, who don’t come in with these sort of conditions that you have attached to aid and trade. What’s your view on this?

The implication seems to be, your help comes with conditions, but others (such as the Chinese, although no one was mentioned by name) do things without trying to boss us around.

Here was the response:

SECRETARY CLINTON: Well, our view is that over the long run, investments in Africa should be sustainable and for the benefit of the African people. It is easy – and we saw that during colonial times – it is easy to come in, take out natural resources, pay off leaders, and leave. And when you leave, you don’t leave much behind for the people who are there. You don’t improve the standard of living. You don’t create a ladder of opportunity.

We don’t want to see a new colonialism in Africa. We want, when people come to Africa and make investments, we want them to do well, but we also want them to do good. We don’t want them to undermine good governance. We don’t want them to basically deal with just the top elites and, frankly, too often pay for their concessions or their opportunities to invest.

Now, I live in the real world and I know that there are many different ways of investing. But my message to government leaders, and certainly this was my message to President Banda and the government here in Zambia, is that the United States is investing in the people of Zambia, not just the elites, and we are investing for the long run. So we just turned over this facility that we’re in, the Paediatric Centre of Excellence. We just turned it over to the Government of Zambia. We’ve spent many tens of millions of dollars working with the people of Zambia to combat HIV/AIDS. Are we doing that to make money? No. But we’re doing it because we want to see a healthy, prospering Zambian people, which we do ultimately think is in American interests. So you see, it’s – we have a slightly more long-term view, if you will.

Her view seems to be that the Chinese investment comes at a cost, and that it may not always be in the interests of the host countries.  By contrast, U.S. efforts in Africa are beyond simple profit-making, and instead are aimed at trying to establish better governance and generally make Africa a better place.

Here's more:

MR. MAROLENG: Pennipher, one of the things that we have seen particularly here in Zambia has been the growing influence of China in terms of foreign direct investment and trade. We’ve heard the Secretary of State saying that what the American Government is looking to is a more sustainable form of investment.

In your view, do you believe that the participation of China in Zambia has been one that can be described as sustainable in other parts of the African continent?

MS. SIKAINDA: Well, Chris, you see Chinese trade with Africa remains a contentious issue and we all continue to ask the question whether it is actually benefiting the continent. But Madam Secretary, I’d like to get it from you. Do you think Africa (inaudible) actually a fair trade, and not just China but even the U.S., on a platform that has its benefits (inaudible)?

SECRETARY CLINTON: Pennipher, I do think so. And I think we are beginning to see more of that. Just in the last day, I have met Zambian business people who have been helped by American technical assistance to do business plans, to learn how to market into the American market. And our trade ambassador, Ambassador Ron Kirk, announced at the AGAO conference that we will be spending $120 million over four years in Sub-Saharan Africa to help more companies get their products ready for the American market.

There are certain standards, to go back to one of Chris’s questions, both for the EU and the U.S.. it’s odd; sometimes certain products get into the EU that don’t get into the U.S., and sometimes they get into the U.S. that don’t get in the EU. So we have to, between the U.S. and the EU, better standardize our requirements so that there’s not these differences. But ultimately, what we want to do is to help African businesses improve their ability to export.

It seems to me that "colonialism" is too strong a term for what's going on here, from either China or the U.S.  But I wonder which has a more colonialist feel:  Investment with no concern for the impact on the host country, or using trade and investment as a tool to influence how a foreign country is governed?

There was also talk about models for African countries to follow:

MR. MAROLENG: Let me follow up on that question, Madam Secretary, because one of the things that you pointed out is that the East offers a model in terms of an efficient form of governance. This raises the question around whether countries like China, in terms of their (inaudible) government, become an example for African states, as opposed to the notion of good governance which is largely seen in Africa as being imposed by the West. Do you believe that China is an important role model in terms of governance?

SECRETARY CLINTON: In the long run, the medium run, even the short run, I don’t. And I will explain why. No one will argue with the economic success that China is having. They have a top-down command economy, and it is certainly lifting tens of millions, hundreds of millions of Chinese people out of poverty. And I am the first to say we want to see China succeed.

But their culture is very different and their approach to how they solve problems is very different. And I believe that we’re beginning to see a lot of problems that you’re going to pay more attention to in the next 10 years.

The internet goes across all borders. They are doing everything they can to stifle the internet. I think the internet is one of Africa’s great opportunities, not just for freedom of expression but for trading information and networking about how to do better.

So are there lessons we can learn from what governments do all over the world? I think I would argue that there are more lessons to learn from the U.S. and from democracies, but I’m open to lessons from anywhere. But at the end of the day, in the 21^st century, as we are seeing in the Arab Spring, young people in particular are not going to accept being told what to do. They want the freedom and the education and the opportunity. (Applause.)

And Africa is a continent of so much vitality, so much energy. When the earthquake struck in Haiti and tens of thousands, hundreds of thousands of people were trapped, it was a young African entrepreneur who came up with the app that enabled the United States Government and the authorities in Haiti to actually locate people who had been lost. We ran a contest recently in Africa out of the State Department asking for apps for economic development. Unbelievably creative responses.

So, see, I think good governance unleashes human potential. Authoritarian regimes try to put everybody into the same mold: you’ve got to do this, that, and only it, because that’s what you’re told to do. I want to see an African renaissance that provides opportunities of all kinds for people, because I am confident you can compete with anybody anywhere.

Is it possible to pick and choose between economic and political governance models?  Can there be economic governance that follows an East Asian-type model, while the politics are democratic and accountable?

TRIPS and Australia's Draft Law on Plain Packaging of Cigarettes

From yesterday's TRIPS Council meeting:

... the Dominican Republic objected to a draft Australian law requiring cigarettes to be sold in plain packaging without logos or trademarks. The brands would be identified simply in a standard typeface with large graphic health warnings.

Australia originally notified the draft and the public consultation on it under the Technical Barriers to Trade (TBT) Agreement, in documentG/TBT/N/AUS/69, which contains details of the requirements. (See alsothis Australian government web page, which includes images of samples of the proposed packaging.)

Support or sympathy for the Dominican Republic came from Honduras, Nicaragua, Ukraine, the Philippines, Zambia, Mexico, Cuba and Ecuador.

The Dominican Republic said it has “serious and grave” concerns that the proposed law would also violate the WTO’s intellectual property agreement and the linked Paris Convention. Among the legal concerns was that it would be a “special requirement” that would “unjustifiably” encumber the use of trademarks “in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings” (TRIPS Article 20).

The proposed law, the Dominican Republic argued, would hurt tobacco producers in small and vulnerable economies. It would fail to reduce smoking because the lower costs of the packaging and the competition on price — the only remaining marketing tool available — would make cigarettes cheaper and encourage higher consumption. It would also make counterfeiting easier, it said. But it added that it does recognize countries’ right to protect public health.

Australia explained why the law has been proposed — as the next available step in the campaign to deal with a major and lethal health hazard. Higher excise duties and the possibility of using anti-counterfeiting labelling would make the cigarettes more expensive and prevent smuggling, it said. Australia will do this in a way that complies with its international obligations, it added.

New Zealand, Uruguay and Norway said Australia’s draft law is justified. India did not comment on the law specifically but said studies show that plain packaging does reduce smoking. India, Brazil and Cuba stressed their view that countries have the right to implement public health policies without intellectual property being an obstacle — referring directly or indirectly to the 2001 Doha Declaration on TRIPS and Public Health.

Brazil, Chile, Ecuador and China described the issue as complex, requiring balance and a closer examination. Switzerland said it understands both sides of the debate and expects Australia to abide by its TRIPS obligations.

The World Health Organization (WHO), an observer in the TRIPS Council provided information on its policies and on the WHO Framework Convention on Tobacco Control.

Interestingly, it appears to be mostly developing countries invoking the TRIPS Agreement against a developed country.

See this old post, including the excellent comments, for more on the issue.

Is Investment Treaty Arbitration Biased Against Developing Countries?

In a short paper, Kevin Gallagher and Elen Shrestha discuss the issue of whether investment treaty arbitration is biased against developing countries.  They first note the argument of those who say there is no bias:

Defenders claim that the system does not unfairly subject developing countries to arbitral panels.  When these arguments are made, they often rely on the relatively recent empirical work by legal scholar Susan Franck (Franck 2009; Franck 2007). Franck’s work suggests that developing countries are not subject to more claims under the system, and that investors do not win the majority of cases.  When foreign investors do win, the awards paid are not necessarily large amounts.

More specifically, Franck empirically analyzes investment treaty arbitration awards publicly available before June 1, 2006 to better understand trends in investment treaty arbitrations including main players (investors and respondent governments), arbitration outcomes (win-loss rates and amounts awarded v. amounts claimed), costs of arbitration and nationality and gender of arbitrators.

...

Franck’s study found that the bulk of the cases (around 90%) did indeed originate from high income countries of which 32 cases were from the U.S. Among the respondent governments, 70% were non-OECD (or developing) countries. However, only few came from low-income countries and high proportion of arbitration (45%) were subjected against upper middle income developing countries. In terms of arbitration outcomes, the ultimate winners did not appear to be significantly different for investors and respondent countries. Investors on average won less than half of the cases and even when they won, they did not win big. U.S. seemed to follow the similar trend and lose more. The study found a statistically significant difference between amounts claimed and awarded.  Thus Franck concluded that although there are rooms for improvement, investment arbitration was functioning in an unbiased manner.

In 2009, using 2007 arbitration award data, Franck conducted econometric analysis to study the relationship among development status of the respondent government, development status of the presiding arbitrator and arbitration outcome (both in terms of win -loss and amounts awarded). Franck found no significant relationship between development status of the respondent country, development status of the presiding arbitrator and outcome of the arbitration. 

Then, they question the view that there is no bias:

This working paper critically analyzes parts of Franck’s work and concludes that such work may be limited in explaining the development impacts of investor-state dispute resolution. In the order they will appear in this working paper, our main concerns are:

•  There is a lack of adequate sample composition and size to conduct rigorous empirical work from which an analyst could draw such bold lessons.
•  Discounting the fact that developing countries are subject to a disproportionate number of claims is not to be overlooked, especially when looking at claims by the United States.
•  Relative to government budgets and in per capita terms developing countries pay significantly more in damages than developed nations do.

They elaborate on on each point.  Here is more on their point number 2:

It is clear from the data that developing countries are subject to more claims than are developed countries. What is more, the argument that the least developing countries are not subject to many claims does not highlight the fact that least developed countries are subject to significantly more claims than their share of global foreign investment or of their share of global BITS.  

...

developing countries are not only subject to the most claims but they are subject to many more claims than their proportion of global investment. 

I haven't followed this debate very closely, but it seems to me that the empirical data on cases is really about the more basic point of whether the system is biased against developing countries by its nature.   For example, people/companies in rich countries invest abroad more and therefore, presumably, they benefit more from the system.  It would be surprising if the data on cases filed do not provide support for the proposition that rich country investors benefit more.

There is also the issue of the threat of cases, which the authors talk about: 

It is commonly held that threats of claims against government occur much more frequently than actual cases.  A truly representative empirical analysis of the impact of investment arbitration on developing countries would include such data.  Of course such data does not exist. 

Of course, even if there is bias, one response might be that in FTAs at least, developing countries are getting something in return for their decision to subject themselves to investment treaty arbitration, such as bound tariff reductions on their exports to rich countries.

One final thought.  Perhaps the biggest bias here is not against developing countries, but rather in favor of "foreign investors," wherever they are from.  Often these are big multinationals from the richest countries, but that's not always the case.  For example, Colombia's largest cement company recently bought several cement plants in Alabama, Georgia and South Carolina, and the company thus stands to benefit if the U.S.-Colombia FTA, with its investor-state provisions, is completed.  This raises the following question:  Of all the individuals, groups and other entities that are out there in the world, why do only "foreign investors" have access to this special international remedy?

Is the TPP a Model for Future Trade Agreements?

Claude Barfield wonders whether the Trans-Pacific Partnership is "a model for twenty-first-century trade agreements."  In this regard, he notes that:

At the first meeting in Melbourne in March 2010, the negotiators established ten negotiating groups, including industrial goods, agriculture, sanitary and phytosanitary standards, telecommunications, financial services, customs rules of origin (ROOs), government procurement, environment, and trade capacity building. By the third session in Brunei in October 2010, areas were added and subdivided, with the addition of textiles, technical barriers to trade, investment, and intellectual property (IP).

In addition, cross-cutting issues emerged as high-priority areas, including supply-chain management, competitiveness, transparency, regulatory coherence, labor and the environment, development, and small and medium businesses. Pushed by the United States, though strongly supported by Australia and New Zealand, these proposed cross-cutting rules, largely aimed at behind-the-border regulatory barriers, became the basis for proclaiming that the TPP would become the new model for a twenty-first-century FTA. All told, the TPP will consist of more than twenty-five individual chapters.

and that:

At the core of a twenty-first-century FTA are several issues that have become a central priority for the US business community--as well as the corporate heads of companies in developed TPP countries such as Australia, New Zealand, and Singapore. These issues vary in concreteness and novelty. Some, such as supply-chain encouragement and management, would entail customs reform, infrastructure, and trade-facilitation measures. Similarly, measures to strengthen small and medium businesses in trade would involve domestic programs such as limiting onerous regulation and fostering export initiatives. There is general agreement that these new rules should be negotiated on a region-wide basis.

The most concrete trade policy proposals arise in the area of regulatory coherence. The overarching goal of regulatory coherence is the harmonization (or at least mutual recognition) of regulatory measures that exert a major influence on international trade. Among the tentative proposals discussed in the negotiating sessions are pro-cedural rules for transparency (public notice and consultation for new regulations); elimination of duplicative and overlapping regulations; rules against anticompetitive practices, particularly for government monopolies and enterprises; greater use of mutual-recognition agreements for services and health and safety regulation; and clear lines of administrative and judicial appeal. At the outer reach, the United States has suggested that TPP members be required to establish an internal regulatory coordinating body that would act to limit duplication and conflicting regulatory actions. Both civil society groups and some TPP members seem wary of such proposals. This has led to some discussion that negotiators should settle for a set of regulatory principles that would act as a nonbinding guide to individual TPP members. Little has been decided regarding the potential text in a TPP regulatory chapter.

Finally, since January, pushed by some corporate groups and labor unions, the United States has raised the issue of more regulatory discipline for state-owned enterprises (SOEs). In a February 2011 private-sector paper, since leaked to the press, a detailed set of proposals was presented, including a number of provisions to ensure "competitive neutrality" by TPP member governments between SOEs and private-sector corporations. The issue has important implications for TPP members Vietnam and Malaysia, where SOEs occupy an important economic position, and, of greater significance, it sets down markers for China, if and when it applies for TPP membership.

The first thing that jumps out at me in his description of what topics might be covered is the absence of coverage for two core trade issues:  trade remedies and subsidies.  Without rules on these issues, can we call this a trade agreement?  Do we want it as a model?  Perhaps the lack of rules in these areas illustrates the continued importance of the WTO, which has very detailed rules on these topics.  The WTO negotiations may be going nowhere, but the existing rules in these areas are crucial, and it does not appear that FTAs are going to intrude into the WTO's domain here.

The flip side is all the rules on things other than trade.  For example, what would it look like to have rules on the following in binding international agremeents:

• procedural rules for transparency (public notice and consultation for new regulations);
• elimination of duplicative and overlapping regulations;
• greater use of mutual-recognition agreements for services and health and safety regulation;
• and a requirement to establish an internal regulatory coordinating body that would act to limit duplication and conflicting regulatory actions.

As Claude suggests, it's not clear how well all of these extra burdens on the domestic regulatory process will play to various audiences.