International Economic Law and Policy Blog

IEL research symposium - Sydney 2 March 2012

The International Economic Law Interest Group of the Australian and New Zealand Society of International Law is holding a research symposium together with the Sydney Centre for International Law at Sydney Law School on Friday 2 March 2012. The goal of the symposium is to promote discussion of work in progress relating to international economic law. The keynote speaker (by skype) will be Professor Alan Sykes, speaking on 'Economic Structure of Renegotiation and Dispute Settlement in the WTO'. The call for papers has now closed. The draft program is available here and registration and further details are available here.

The Plain Packaging BIT Claim: Jurisdictional Issues

The Australian government has posted a response to the Philip Morris notice of arbitration in the Plain Packaging BIT claim.  In addition to a brief discussion of substantive issues, Australia has offered some jurisdictional arguments:

29. The Australian Government objects to the jurisdiction of the arbitral tribunal (by way of a preliminary objection). This objection follows inevitably from PM Asia's acquisition of shares in PM Australia subsequent to the announcement of the decision to introduce plain packaging legislation and PM Asia's artificial invocation of a dispute by reference to the BIT.

30. PM Asia had no interest in PM Australia prior to 23 February 2011. It follows that PM Asia did not have an "investment" in PM Australia (and, it would inevitably follow, PML or assets held by PML) at the time that the introduction of the plain packaging measures was announced on 29 April 2010, and nor did it have an"investmenf' in the ensuing months when a dispute developed over plain packaging. PM Asia only acquired its interest in PM Australia on 23 February 2011, some 10 months after the governmental announcement in relation to plain packaging and after a dispute had already arisen in relation to plain packaging.

31. In such circumstances, there could be no "investmenf' for the purposes of Article 10 of the BIT and any reliance on Article 10 of the BIT would constitute an abuse of right. It follows that the arbitral tribunal lacks jurisdiction or that the claims that PM Asia now seeks to bring under the BIT are inadmissible.

32. As a separate matter, the Australian Government notes that, under Article 1(e) ofthe BIT, "investments" are only protected inter alia to the extent that they are"admitted" by the relevant Contracting Party "subject to its law and investment policies applicable from time to time". It will be for PM Asia to seek to establish that each of the investments on which it relies (i) is "owned or controlled" by PM Asia within the meaning of Article 1(e) of the BIT, and (ii) has been admitted inaccordance with Article 1(e) of the BIT.

33. A further separate matter is that PM Asia's claim is heavily dependent on, and seeks to invoke breaches of, a series of treaties over which an arbitral tribunal established under Article 10 of the BIT could have no jurisdiction. Thus, PM Asia asserts that the plain packaging legislation is in breach of Australia's obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (''TRIPS Agreement"), the WTO Agreement on Technical Barriers to Trade (''TBT Agreement"), and the Paris Convention for the Protection of Industrial Property ("Paris Convention"). It is said that breach of such obligations in turn amounts to a breach of Article 2(2) of the BIT.

34. Such claims are plainly outside the scope of protection of the BIT, whether as a matter of the fair and equitable treatment standard established under Article 2(2) or the "umbrella clause" in Article 2(2), which provides that each Contracting Party to the BIT has an obligation to "observe any obligation it may have entered into with regard to investments of investors of the other Contracting Party".

35. Even if it were correct (which it is not) that Article 2(2) could somehow be understood as extending an arbitral tribunal's jurisdiction to obligations owed by Australia to other States under various multilateral treaties, the treaties that PM Asia seeks to invoke all contain their own dispute settlement mechanisms. It is not the function of a dispute settlement provision such as that contained at Article 1a of the BIT to establish a roving jurisdiction that would enable a BIT tribunal to make a broad series of determinations that would potentially conflict with the determinations of the agreed dispute settlement bodies under the nominated multilateral treaties. This is all the more so in circumstances where such bodies enjoy exclusive jurisdiction.

36. The Australian Government will request that jurisdictional objections be heard in a preliminary phase of the proceedings, subsequent to service of a Statement of Claim by PM Asia and in advance of any merits phase. The jurisdictional objections outlined above are not intended to be exhaustive, and the Australian Government reserves its rights to develop and formulate objections as it sees fit once it has seen PM Asia's Statement of Claim.

Legalizing (Some) Online Gambling in the U.S.

From the NY Times:

The Justice Department has reversed its long-held opposition to many forms of Internet gambling, removing a big legal obstacle for states that want to sanction online gambling to help fix their budget deficits.

The legal opinion, issued by the department’s office of legal counsel in September but made public on Friday, came in response to requests by New York and Illinois to clarify whether the Wire Act of 1961, which prohibits wagering over telecommunications systems that cross state or national borders, prevented those states from using the Internet to sell lottery tickets to adults within their own borders.

Although the opinion dealt specifically with lottery tickets, it opened the door for states to allow Internet poker and other forms of online betting that do not involve sports. Many states are interested in online gambling as a way to raise tax revenue.

...

In a reply letter that was also issued Friday, the Justice Department said that while the new policy “differs from the department’s previous interpretation of the Wire Act, it reflects the department’s position in Congressional testimony at the time the Wire Act was passed in 1961.”

The new policy merely reverses the Justice Department’s longstanding position that all forms of online gambling are illegal in the United States. It does not necessarily pave the way for national rules governing online gambling.

But experts in gambling law said Saturday that the new policy does imply that states can band together to allow gambling across state borders. The exception would be online sports betting, which is explicitly prohibited under federal law.

...

Online gambling has been a focus in the Justice Department for years, but it burst into public view in April, when federal prosecutors charged the operators of three of the most popular online poker sites with fraud and money laundering.

The three sites, Full Tilt Poker, PokerStars and Absolute Poker, are based in Antigua and the Isle of Man, where online gambling is legal. That had made it difficult for American authorities to crack down on the operations, which had millions of United States customers.

But the Justice Department charged that the companies had used United States banks to process their transactions, violating the 2006 law that governed payment processing.

Those payment restrictions do not apply to transactions within a single state, however. With the ruling that the Wire Act applies only to sports betting, the way is clear for in-state online poker and other games.

So how will this affect the U.S. - Antigua Gambling dispute?  Will this increase the harm currently being suffered by Antiguan internet gambling operators, who will now be excluded from a bigger market?

Appellate Body: Likeness is about Competitiveness

From today's Philippines - Spirits decision:

119. While in the determination of "likeness" a panel may logically start from the physical characteristics of the products, none of the criteria that a panel considers necessarily has an overarching role in the determination of "likeness" under Article III:2 of the GATT 1994.  A panel examines these criteria in order to make a determination about the nature and extent of a competitive relationship between and among the products.

120. We understand that products that have very similar physical characteristics may not be "like", within the meaning of Article III:2, if their competitiveness or substitutability is low, while products that present certain physical differences may still be considered "like" if such physical differences have a limited impact on the competitive relationship between and among the products.

Nothing too shocking here.  Just a reminder that competitiveness is the key to the "likeness" analysis, even under Article III:2, first sentence.

More on the End of China's NME Status

Christian Tietje and Karsten Nowrot have posted a short policy paper discussing the legal issues surrounding the treatment of China as an NME.  Here's an excerpt: 

In light of these findings, it thus appears – at least from a theoretical legal perspective – in principle very well admissible that some other WTO members qualify China as a NME even after the date provided for in the second sentence of paragraph 15(d) of the accession protocol. However, three legal aspects are worth drawing attention to in this connection.

First, the second sentence of paragraph 15(d) incontrovertibly illustrates that such a qualification as an NME can no longer find its legal basis in China’s accession protocol after 11 December 2016.

Second, in light of the overarching systematic approach adopted by general WTO antidumping law, being from that date onwards the more or less exclusive legal regime applicable to China, it is – in the same way as all other WTO members – presumed to have acquired MES. Consequently, it might very well be argued that, at least for a so-called “logical” or “juridical” second, China has on 11 December 2016 to be regarded as having achieved MES erga omnes. Thus, if only in this limited sense, there is indeed a certain automatism involved in this regard.

Third, a subsequent – renewed – qualification of China as a NME by other WTO members, in order to be legally sustainable, has to find its basis in the general regime on WTO antidumping law as laid down in Art. VI of GATT 1994 and the WTO ADA. In light of the background observations as outlined in the previous section, this essentially requires that the WTO member in question has to argue and prove that the requirements stipulated in the second Ad Note to Art. VI:1 GATT 1994 are fulfilled with regard to economic conditions prevailing in China at the time when respective antidumping proceedings are initiated.

The Russian Seal Fur Ban

From The Globe and Mail:

Russia and two of its neighbours have informed the World Trade Organization that they are banning the import and export of harp seal pelts – a move that animal-rights activists are celebrating as the death knell of Canada’s commercial seal industry.

Russia has been the biggest market for the Canadian seal fur industry. And harp seals are the prime source of that fur.

So animal-rights groups were delighted on Monday to learn that Russian, Belarus and Kazakhstan had informed the WTO they would no longer import or export “raw, tanned and dressed fur skin of harp seals and their pups.” Documents filed with the global trade body suggest the prohibition was backdated to August.

The European Union has a similar ban, which the Canadian government is challenging.

I haven't seen the full details of the measure at issue, but after the Russian accession process is complete, will Canada challenge this measure?

Scott Lincicome on the CAFC GPX Decision

In addition to explaining the history of the case and the issue in general, Scott comments on the impact of yesterday's GPX decision:

So what happens to all of these CVD orders and investigations?  Well, it seems somewhat likely that Commerce and/or the domestic industry will appeal the CAFC's decision to the Supreme Court if only to keep all of the existing orders in place for a while, but the chances of the Supreme Court hearing the case (via a writ of certiorari) seem pretty low.  Chief Justice Roberts' court is notoriously stingy about granting cert, especially on highly technical stuff like this.  It's not impossible, but I definitely wouldn't bet on it.

But say there's no appeal (or the SCOTUS denies cert), then what?  Sure, Congress can - and almost certainly will - amend US law to expressly allow for the imposition of CVDs on NME imports, and any such legislation would pass by big bi-partisan margins because both trade remedies measures and anti-China measures have broad congressional support (hooray bi-partisanship... sigh).  But can the existing orders remain in force or the pending investigations stay pending?  The CAFC's decision is much broader and more fundamental than the lower CIT's decision which only applied to DOC's methodology.  If the CIT ruling had merely been affirmed, then DOC could have theoretically kept the orders in place and merely recalculated the duties.  The CAFC, however, ruled that existing US law prohibits any and all imposition of CVDs on NME imports.  So if/when Congress amends US CVD law, can it be applied retroactively to previously-decided (or initiated) cases that were, according to the CAFC, fundamentally contrary to US law? 

I know that there are some pretty significant loopholes regarding the Constitution's express ban on ex post facto laws, but even if the Congressional amendment of US CVD law were not found to be an unconstitutional ex post facto law, it would seem that it could still run up against a pretty reasonable challenge by US importers.  For example, would they deserve to reimbursed for all of the duties illegally collected on affected Chinese goods since 2007?  I (clearly) have no idea, but I'll bet that we're going to find out soon enough.

And what will the CAFC's decision do to the United States' ongoing implementation of the WTO Appellate Body's ruling in DS379 that Commerce's simultaneous application of anti-dumping duties and countervailing duties in four US investigations of Chinese goods violated WTO rules?  That implementation is ongoing, and Commerce's "Section 129" decision there is due in late February 2012.  The CAFC's decision could make that process - and China's scrutiny of it - even more complicated, wouldn't you think?

...

What a mess.  Clean-up is not going to be easy, unless, of course, the United States did the rational thing and simply designated China a "market economy" and began applying a standard, perfectly legal AD/CVD methodology in current and future investigations of Chinese imports. 

Countervailing Duties and NMEs under U.S. Law

From the GPX opinion by the U.S. Court of Appeals for the Federal Circuit, released today:

In this consolidated countervailing duty case, the U.S. Court of International Trade (“Trade Court”) ordered the U.S. Department of Commerce (“Commerce”) not to impose countervailing duties on goods from China, a nonmarket economy (“NME”) country.   See GPX Int’l Tire Corp. v. United States (“GPX III”), No. 08-00285, 2010 WL 3835022 (Ct. Int’l Trade Oct. 1, 2010).  The Trade Court held that Commerce’s 2007 interpretation of countervailing duty law as permitting the imposition of such duties was “unreasonable” because of the high likelihood of “double counting” when both countervailing duties and antidumping duties are assessed against goods from NME countries.  GPX Int’l Tire Corp. v. United States (“GPX I”), 645 F. Supp. 2d 1231, 1240 (Ct. Int’l Trade 2009).  We affirm, but on a different ground: we find that when amending and reenacting countervailing duty law in 1988 and 1994, Congress legislatively ratified earlier consistent administrative and judicial interpretations that government payments cannot be characterized as “subsidies” in a non-market economy context, and thus that countervailing duty law does not apply to NME countries. 

...

We thus find that in amending and reenacting the trade laws in 1988 and 1994, Congress adopted the position that countervailing duty law does not apply to NME countries.  Although Commerce has wide discretion in administering countervailing duty and antidumping law, it cannot exercise this discretion contrary to congressional intent.  We affirm the holding of the Trade Court that countervailing duties cannot be applied to goods from NME countries.  As we concluded in Georgetown Steel, if Commerce believes that the law should be changed, the appropriate approach is to  seek legislative change.   See Georgetown Steel, 801 F.2d at 1318 (“If [the existing] remedy is inadequate to protect American industry from such foreign competition—a question we could not possibly answer—it is up to Congress to provide any additional remedies it deems appropriate.”)

Gambling Dispute Update

From a statement (Word doc) by Antigua at the Ministerial Conference plenary session: 

The question of dispute settlement brings me to an issue that, along with the case of cotton, highlights inappropriate dispute settlement results at the WTO that have the potential to undermine the credibility of the organization.

Antigua and Barbuda and the OECS look to the WTO for innovative solutions in the dispute settlement procedures in order to achieve equitable and implementable outcomes.

It is no secret that, although as one of the smallest states in the world we brought the largest economy in the world to the WTO DSB and won, that famous case between Antigua and Barbuda and the United States on internet gaming services is still without resolution today, more than eight years after our action was first brought.

Although the Panel and Appellate Bodies have ruled in the favour of Antigua and Barbuda in the cross border supply of gambling and betting services with the United States, we were handed the ultimate Pyrrhic victory and told to impose trade sanctions on the world’s largest economy.

That remedy, which might have been appropriate had the case been between the European Union and the United States, calls into question whether the dispute settlement mechanism of the WTO can find innovative solutions that fit the peculiar circumstances of individual cases.

If innovative solutions are not found, cases like these can only serve to undermine the credibility of the WTO itself, an outcome that we should all do everything to avoid.

Mr President, we have had many frustrating and unproductive rounds of negotiations with the United States in a genuine effort to bring this matter to a equitable conclusion, and to redress the enormous economic damage done to the economy of Antigua and Barbuda by the unlawful actions of the United States.

We are left to wonder whether the WTO has washed its hands in the manner of Pontius Pilate, and whether we have been abandoned to our fate.

It is also not a secret that we are not pleased with the outcome of this case, and we intend to continue to pursue our rights.

It is our intention early in 2012 to approach the United States with new and innovative proposals designed to bring a just and final resolution of this unfortunate matter.

Even at this stage, we believe that there is a role for the WTO to assist in shepherding our negotiations with the United States to safe harbour, and we call on the Director General Mr. Pascal Lamy to use his good offices to sit with us and to examine what role it would be appropriate for the WTO to assume.  

A “panel of multi-stakeholders of the WTO”

From WTO DG Pascal Lamy's opening statement at the Ministerial Conference:

... We also need to look at the real drivers of today’s and tomorrow’s world trade, at today’s and tomorrow’s obstacles to trade, at today’s and tomorrow’s trade patterns, at how to keep transforming trade into development, growth, jobs and poverty alleviation. In sum, we must equip the WTO with XXI century software.

In order to facilitate this discussion, in 2012 I will be convening a “panel of multi-stakeholders of the WTO” to analyse all these elements and report to the entire Membership by the end of next year. I believe this can provide a useful contribution to your own reflections in what is, and should remain, a Member-driven Organization.

Not that they are taking requests, and the panel has not even been convened yet, but I'm curious what this panel might come up with on the following question:  What is the purpose of international trade agreements?  To bring that question into focus a bit, let me get specific about one of the terms used in the opening statement:  What's the definition of an "obstacle" to trade?

 

WTO Rules and the Role of the State in the Economy

From a statement (Word doc) by Bolivia, Cuba, Ecuador, Nicaragua and Venezuela at the WTO Ministerial:

5.    Trade is a tool and not an end in itself.  The Preamble to the Marrakesh Agreement Establishing the World Trade Organization, which lays down the general objectives of the multilateral trading system, confirms its strictly instrumental nature.  Approaching it in any other way would irrevocably lead to a scenario of extreme trade liberalization among economies with large differences in productivity and competitiveness and thus to the destruction of the productive base of developing countries.

6.    States have a positive role to play in stimulating economic development, which goes beyond creating the conditions for the market to function properly.  All along the path to development, developed Members of this Organization have been pursuing and continue to pursue policies aimed at promoting economic restructuring and productivity growth, that is to say, explicit public interventions in the economy.

7.    Therefore, in seeking to achieve prosperous, more egalitarian and stable societies, our countries, as developing countries, should have sufficient space for the application of such policies, and that space should be guaranteed in the multilateral trading system.  More specifically, any regular or negotiating activity in the WTO and any interpretation of its Agreements should be carried out in the context of the wider economic and development-related needs, policies and objectives of developing Members, as well as their external environment.

Is this a radical critique of the trade regime as it stands now, or simply a description of how things generally function in most economies?  What kind of public intervention do they want to undertake that is constrained by existing WTO rules?

The EC - Aircraft Article 21.5 Complaint

is here: http://www.worldtradelaw.net/cr/ds316-19(cr).pdf

Here's the key part:

On 1 December 2011, the EU transmitted a document ("EU Notification") to the United States purporting to explain how the EU has complied with the recommendations and rulings of the DSB.  The United States has carefully reviewed the notification and considers that the actions and instances of inaction set out therein failed to  withdraw the subsidies or remove their adverse effects.  In addition, US review of the EU Notification indicates that the EU and certain member States are providing subsidies with respect to the  production and development of large civil aircraft that are inconsistent with the SCM Agreement.  In particular, the following subsidies are being accorded by the EU and certain member States:

• forgiveness of outstanding obligations to the Governments of France, Germany, Spain, and the United Kingdom under LA/MSF agreements for the A300B, A300B2/B4, A300-600, A310, A310-300, A320, A330/A340 Basic, A330-200, and A340-500/600;

• termination of French, German, Spanish, and UK LA/MSF agreements for the A300B, A300B2/B4, A300-600, A310, A310-300, A320, A330/A340 Basic, A330-200, and A340-500/600 on non-commercial terms or in a manner that did not withdraw the subsidy;

• French, German, Spanish, and UK LA/MSF agreements for the A380;

• French, German, Spanish, and UK LA/MSF for double-aisle large civil aircraft, including the A350XWB;

• the 1987, 1988, 1992, and 1994 French capital contributions into Aérospatiale;

• KfW’s 1989 capital contribution into Deutsche Airbus GmbH and the 1992 transfer by KfW of its 100 percent equity interest in Deutsche Airbus to MBB;

• Spanish regional development grants to the EADS/CASA facilities at La Rinconada/San Pablo, Tablada, and Puerto de Santa Maria, Spain, and the Airbus España, S.L. facilities in Illescas and Puerto Real;

• German regional development grant for an A380-related facility of Airbus Deutschland GmbH in Nordenham, Germany;

• use of the runway extensions at Bremen Airport under the amended taking off and landing fee schedule;

• use by Airbus of the Mühlenberger Loch industrial site subject to the amended lease agreement between Airbus Deutschland GmbH and Projektierungsgesellschaft Finkenwerder mbH & Co. KG;

• subsequent share transactions and cash transactions and cash extractions involving subsidy recipients;

• subsequent investments in Airbus A320 and A330 large civil aircraft programs;  and

• any amendments, revisions, implementing or related measures to the subsidies described above.

The United States considers that the actions and events listed in the EU Notification do not withdraw the subsidies or remove their adverse effects for purposes of Article 7.8 of the SCM Agreement and that the EU has therefore failed to implement the DSB’s recommendations and rulings.  The United States further considers that the EU subsidies listed above are inconsistent with Articles 3.1(a), 3.1(b), 5(c), 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement.

More Chinese AD Duties that Might be Challenged at the WTO

From Bloomberg:

China announced plans to impose anti-dumping duties on some vehicles imported from the U.S. after failing to block a U.S. tariff on Chinese tires.

Punitive duties will be as high as 12.9 percent for autos from General Motors Co. and 8.8 percent for Chrysler Group LLC, China’s commerce ministry said today on its website. The U.S. units of Bayerische Motoren Werke AG and Daimler AG will face duties of 2 percent and 2.7 percent respectively, it said.

BMW led declines among European automakers on concern higher duties may deter sales in the world’s largest car market. ...

...

BMW and Daimler’s Mercedes-Benz both build sport-utility vehicles at U.S. factories for global export. BMW is expanding its factory in South Carolina to produce as many as 300,000 X5, X6, and X3 SUVs next year from 270,000 in 2011.

The Daimler unit plans to invest $2.4 billion between 2010 and 2014 at its plant in Alabama to add equipment for the assembly of the C-Class sedan. The company currently makes the M-Class and GL SUVs as well as the R-Class wagon at the site. The plant produced 125,400 vehicles in 2010.

BMW doesn’t expect the new import duties to have a significant impact on its sales in China, spokesman Mathias Schmidt said by phone, calling the tariffs “regrettable”. Daimler’s Mercedes is reviewing the potential impact from the duties, spokeswoman Bettina Singhartinger said.

WTO Complaints against Chinese AD/CVD Measures

Two WTO complaints against Chinese AD/CVD measures seem to be going forward, as both the U.S. and EU have filed panel requests:

(DS425) China - Definitive Anti-Dumping Duties on X-Ray Security Inspection Equipment from the European Union

(DS427) China - Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States

Along with the (DS414) China - Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States case already underway, is this a new trend in WTO dispute settlement?  Will other countries start bringing complaints as well?

Investor State Claims and Libertarian Utopias

The Economist reports that two libertarian groups are looking to develop libertarian cities in Honduras:

... In addition to a big special development region, the Honduran government intends to approve two smaller zones. And two libertarian-leaning start-ups have already signed a preliminary memorandum of understanding with the Honduran government to develop them.

One firm goes by the name of Future Cities Development Corporation. It was co-founded by Patri Friedman, a grandson of Milton Friedman, a Nobel laureate in economics, and until recently executive director of the Seasteading Institute, a group producing research on how to build ocean-based communes. The other is called Grupo Ciudades Libres (Free Cities Group) and is the brainchild of Michael Strong and Kevin Lyons, two entrepreneurs and libertarian activists.

Both share a purpose: to build “free cities”. Last April all three spoke at a conference organised by Universidad Francisco Marroquín, a libertarian outfit in Guatemala. In September they and Giancarlo Ibárgüen, the university’s president, launched the Free Cities Institute, a think-tank, to foster the cause.

...

Yet the biggest hurdle for the libertarian start-ups may be that the transparency commission, which will oversee the development regions, is unlikely to give them free rein. The “constitutional statute” for the development zones, which the Honduran national congress passed in August, does not leave much wiggle room in key areas, not least when it comes to democracy: ultimately their citizens will vote. 

If relations between the libertarian "free cities" and Honduras don't go well, could we see a CAFTA investor-state complaint?

International Balanced Budget Amendments

From Reuters:

 Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday ...

Twenty-six of the 27 EU leaders agreed to pursue a tougher budget discipline regime with automatic sanctions for deficit sinners in the single currency area ...

"This is a breakthrough to a union of stability," German Chancellor Angela Merkel said. "We will use the crisis as a chance for a new beginning."

...

[European Council President Herman] Van Rompuy said the summit's key achievement was to tighten fiscal limits, including the need for countries to bring budgets close to balance.

"It means reinforcing our rules on excessive deficit procedures by making them more automatic. It also means that member states would have to submit their draft budgetary plans to the (European) Commission," Van Rompuy said.

Assuming that (some) EU states can reach agreement on this, I wonder, could such an agreement ever take place on a global scale?

The Proposed Airbus WTO Sanctions: $7-10 Billion

From USTR:

Today, U.S. Trade Representative Ron Kirk announced that the United States is requesting that the European Union (EU) enter into consultations regarding the notification it made on December 1, 2011, claiming to have fully complied with the World Trade Organization (WTO) ruling that subsidization of Airbus aircraft is contrary to WTO rules. The United States has reviewed carefully the limited information in that notification. It appears to show that the EU has not withdrawn the subsidies in question and has, in fact, granted new subsidies to Airbus’ development and production of large civil aircraft.

The United States is also requesting authorization from the WTO Dispute Settlement Body (DSB) in Geneva to impose countermeasures annually in response to the EU’s claim that it fully complied with the ruling in this case. The amount of the countermeasures would vary annually, but in a recent period would have been in the range of $7-10 billion. This step will preserve U.S. rights, but any actual imposition of countermeasures would not occur until after further WTO proceedings.

 

RDC v. Guatemala ICSID Hearing in CAFTA Claim

The RDC v. Guatemala ICSID hearing can be viewed online here for the next couple days.

Luke Peterson explains the facts:

In 1997 RDC won a tender to operate Guatemala’s newly-privatized national railway. A concession agreement concluded with RDC’s local affiliate, Ferrovias Guatemala (FVG),  required FVG to rehabilitate and operate various sections of the seriously dilapidated railway system.

In its pleading, FVG contends that it was required to rehabilitate the various sections of the railway system in tranches – with the first tranch to be repaired promptly, and subsequent sections repaired as, and when, it was commercially viable. Under the terms of its deal with Guatemala, FVG was required to pay the state a portion of the revenues earned as railway traffic increased.

For its part, Guatemala – through its State-owned enterprise Ferrocariles de Guatemala (FEGUA) – was required to keep the railways clear of squatters. FEGUA was also required to make payments into a trust fund to finance further rehabilitation of the railways. RDC claims that FEGUA failed to abide by these obligations.

In 2005, FVG initiated local arbitrations against FEGUA. (Indeed, the ongoing nature of these local arbitrations led Guatemala to object that RDC had not waived its local claims when pursuing CAFTA arbitration. For full details on those objections and their disposition by the tribunal, see our previous reporting.)**

RDC claims that over the course of the concession agreement it was subjected to persistent attempts by a powerful Guatemalan oligarch to coerce it into divesting its interests in the concession agreement to him. RDC consistently refused to do so and claims that this incited the oligarch to leverage his political influence with the Guatemalan government to take care of his interests for him.

In August 2006, the President of Guatemala effectively nullified the concession agreement with FVG under Guatemalan law by declaring a separate equipment contract to be “injurious to the interests of the State”.

RDC claims that this Lesivo declaration provided a strong signal to FEGUA and the market that FVG was in dire straits, thereby placing an enormous strain on its business.  RDC claims that as a result FVG was forced to cease its operations in September 2007.

The Purpose of WTO Subsidies Rules

What is the goal of the subsidies rules in the WTO's SCM Agreement?  In an article in the Melbourne Journal of International Law, I argue that the rules can be characterized as fighting "protectionism."  Furthermore, I contend, the Appellate Body's interpretations of particular SCM Agreement rules in the EC - Aircraft case support this view.  Here's my argument, in bullet point form:

• Since at the least the 1920s, government trade negotiators have recognized the problem of subsidies as a means of indirect protectionism.  In this regard, subsidies can be used to favor domestic industries in a way that undermines the benefits of tariff reductions.
• At the same time, they also recognized the difficulty of distinguishing "good" and "bad" subsidies.  Subsidies might be used for protectionism, but they may also be used for various other policy purposes.
• GATT rules on subsidies were not very extensive.  The SCM Agreement, by contrast, has much more detailed rules.
• The SCM Agreement rules on "prohibited" subsidies -- export contingent subsidies and local content subsidies -- are designed to limit two kinds of "protectionist" subsidies (i.e., subsidies that give an advantage to domestic goods over their foreign competition).
• The SCM Agreement rules on "actionable" subsidies can also be thought of as targeting "protectionist" subsidies, in the sense that the "specificity" element looks at the intent to favor certain domestic industries and the "adverse effects" element looks at the effect on foreign competitors.
• Three of the finding in EC - Aircraft reinforce this view: (1) the Appellate Body's interpretation of the export subsidy standard focuses on the relative impact of the measure on domestic products and exports, which is a discrimination-type analysis; (2) the panel's findings that particular subsidies were "specific" illustrates how specificity is an indication that the measure is intended to favor a domestic company; (3) the Appellate Body's findings on "displacement" focus on the competitive relationship between domestic and imported products in the market, which is a lot like the "competitive opportunities" that have been the focus of non-discrimination cases.

The basic point is that one way to think about the purpose of international subsidies regulation is that these rules are intended to constrain the use of protectionist subsidies.  A couple ideas follow from that.

First, if that is the purpose, perhaps GATT Article XX should be available as a defense, so as to ensure that non-protectionist subsidies are permitted.

Also, it may be that a good way to accomplish non-protectionist policy goals using subsidies in a manner that is consistent with WTO rules is by subsidizing consumers, rather than producers.

That's a basic overview of the article, but of course it loses many of the nuances from the full version.  The SSRN version of the paper is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966786  You can also download it from the MJIL web site here: http://mjil.law.unimelb.edu.au/go/issues/current-issue

Any thoughts?  Is the purpose of subsidies regulation something other than fighting "protectionism"?  How would you distinguish "good" from "bad" subsidies?

One final thought that I didn't get into in the article.  Does it make sense to treat "subsidies" different from other "measures"?

"Why We Should Thank the Chinese Currency Manipulators"

Here's an excerpt from an article by economist Mark Perry, arguing that Chinese currency manipulation is good for Americans:

1. China's currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially low-income groups, and to the direct advantage of thousands of American companies buying inputs from China.

2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, which would reduce our overall standard of living.

3. Like other forms of mercantilism and protectionism, forcing or pressuring China to appreciate its currency would favor certain domestic producers over millions of consumers and import-buying companies, but would make the United States worse off, not better off.

4. Finally, instead of complaining, we should be thankful for China's foreign aid to Americans through an undervalued yuan, overvalued dollar, and undervalued goods that collectively save American consumers and companies billions of dollars every year.

If any of this blog's readers agree with Perry's view, I'm curious to hear responses to the following questions:

-- Can a government's action to keep its currency undervalued be characterized as "protectionism"? That is, assuming such an action is designed to give domestic producers an advantage over their foreign competitors, can we call it protectionist?

-- If so, is it the case that certain kinds of protectionism can be good for other countries, e.g., Chinese protectionism can be good for Americans?