International Economic Law and Policy Blog

From Russia with Humanity-More on Seals

The recently reported Russian prohibition on seal fur imports adds an important element of context for the EU’s dispute with Canada and Norway over its seal products ban.   The details of the Russian ban are in this WTO document:  http://www.wto.org/english/news_e/news11_e/table1_annual_overview11.xls. 

(Russia outlawed its domestic seal hunt some years ago).  As animal welfare activists have pointed out, the Russian market is of critical importance to the Canadian industry.  While Canada has been trying to break into China with seal products, these efforts are being met with serious resistance. 

In the meantime, the EU has now begun its public diplomacy on this dispute, publishing the circular

http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148951.pdf, where the EU indicates its support for opening up the panel hearings to the public and that is written submissions will be posted to the web; Canada and Norway have apparently not yet responded to requests for public hearings and public submissions by high profile spokespeople for PETA, such as Canadian actor Pam Anderson.  

While the panel(s) in this case were established almost a year ago, the panelists have not yet been chosen; judged against the gap between establishment and composition in other recent cases, this seems inordinately long.   Any theories about what’s going on?

 

China - Raw Materials and OPEC

Buried in the last paragraph of a NY Times article on the China - Raw Materials case, I saw this:

Western governments have periodically considered filing an international trade case against nations in the Organization of Petroleum Exporting Countries for limiting oil exports. But they have refrained from filing, having concluded that even an adverse ruling would be unlikely to prompt heavily oil-dependent countries to change their policies.

Is that correct?  I had never heard that before.  I always assumed it was because OPEC limits production, not exports, which makes the legal case a difficult one.

The China - Raw Materials AB Report: GATT Article XX and Non-GATT Agreements

In the China - Raw Materials appeal (the AB report, circulated today, is here), China argued that "Article XX of the GATT 1994 is available as a defence to China in relation to export duties found to be inconsistent with China's obligations under Paragraph 11.3 of China's Accession Protocol." (para. 270)

In examining this issue, the Appellate Body considered, inter alia, the text, certain context and China's "right to regulate trade."  In the end, it concluded that the Panel did not err in finding that "there is no basis in China's Accession Protocol to allow the application of Article XX of the GATT 1994 to China's obligations in Paragraph 11.3 of the Accession Protocol."  (see paras. 271-307)

The Appellate Body previously held that Article XX was available as a defense to a claim under Paragraph 5.1 of China's Accession Protocol.  But Paragraph 5.1 makes reference to the rest of the WTO Agreement, whereas Paragraph 11.3 does not.  As a result, the Paragraph 5.1 finding could be seen as somewhat narrow; by contrast, a finding that Article XX applied to Paragraph 11.3 would have been a broader one, with possible implications for other WTO agreements.

After a first read of the Appellate Body's reasoning, I think it has not completely closed the door on finding that GATT Article XX could be a defense applied to violations of other non-GATT agreements.  The answer will depend on the specific language of these agreements.

Any thoughts on this from others?

More on Technical Regulations vs. Standards

I'm still thinking about the difference between "technical regulation" and "standard" in the U.S. - Tuna dispute.  Here's my latest thought.  Once again, let me quote the relevant language.  The TBT Agreement defines "technical regulation" and "standard" as follows

1. Technical regulation

 Document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory.  It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

...

2. Standard

Document approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods, with which compliance is not mandatory.  It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

One of the interesting things about these provisions is that they do not refer to "laws" or "statutes" or "regulations."  Instead, they talk about "documents."  Presumably this is because when the first version of this language was originally drafted, the focus was on things done outside the context of governmental measures.  Having carried the language over to an international agreement that binds governments, the language now looks a bit odd.  Nevertheless, it still kind of works.  A statute or regulation involves words on paper, and is thus a "document."  (Here's the obligatory definition of "document": "A written or printed paper that bears the original, official, or legal form of something and can be used to furnish decisive evidence or information.")  So, when there is a statute or regulation that meets the other parts of the "technical regulation" definition, it seems uncontroversial to assume that it qualifies as a "document" as well.

If you look at the TBT Agreement's definition of "standard," though, things may be more complicated.  This definition does not refer just to a "document."  Instead, it refers to a "document approved by a recognized body."  The TBT Agreement mentions a number of "bodies," including "central government bodies," which are defined as "central government, its ministries and departments or any body subject to the control of the central government in respect of the activity in question."  In theory, then, statutes and regulations could also be "documents" that constitute a "standard."

Here's my question, though.  Can statutes and regulations ever be documents that are "approved by" central government bodies?  Perhaps you could say they are.  In enacting a statute or promulgating a regulation, the government has, in a sense, "approved" them.  On the other hand, that seems like a strange way of describing what a government does.  Normally, approval is not given to one's own work, but rather to someone else's.  Thus, it seems more natural to think of the document which is being approved as having come from somewhere else, that is, from a body other than the government entity writing the statute or regulation.

Maybe that's getting too formalistic about all of this, but there is the difference in language between "technical regulation" and "standard."  It must serve some purpose.  What does it mean?

Free Trade (Or Not) With Cuba

From Thursday's Republican Presidential nomination debate:

RODRIGUEZ: Yes, good evening. 

The U.S. has been largely away in its foreign and trade policy with Latin America. In the meantime, Iran and China have been increasing their influence over an involvement in Latin America through the leftist and left-leaning governments. 

What would each of you do as president to more deeply engage in Latin America and, importantly, to support the governments and the political parties that support democracy and free markets? 

BLITZER: Congressman Paul? 

PAUL: Well, I think free trade is the answer. Free trade is an answer to a lot of conflicts around the world, so I'm always promoting free trade. And you might add Cuba, too. I think we would be a lot better off with Cuba, trading with Cuba. 

... So, I think the more you can do to promote this free trade, the better off we'll be. But as far as us having an obligation, a military or a financial obligation to go down and dictate to them what government they should have, I don't like that idea. 

I would work with the people and encourage free trade, and try to set a standard here where countries in Central America or South America or any place in the world would want to emulate us and set the standards that we have. Unfortunately, sometimes we slip up on our standards and we go around the world and we try to force ourselves on others. 

I don't think the nations in South America and Central America necessarily want us to come down there and dictate which government they should have. And yet, I believe with friendship and trade, you can have a lot of influence, and I strongly believe that it's time we have friendship and trade with Cuba. 

...

BLITZER: Senator Santorum, are you with Congressman Paul? 

SANTORUM: No, I'm not with Congressman Paul and I'm not with Barack Obama on this issue. 

Our policy in Central and South America under this administration has been abysmal. The way we have treated, in particular, countries like Honduras, Honduras, which stood up for the rule of law, which threw out a would-be dictator who was using the Chavez playbook from Venezuela in order to try to run for re-election in Honduras, and the United States government, instead of standing behind the -- the people in the parliament, the people in the Supreme Court, who tried to enforce the constitution of Honduras -- instead of siding with them, the Democrats, President Obama sided with two other people in South America -- excuse me -- Central America and South America. Chavez and Castro and Obama sided against the people of Honduras. 

This is a consistent policy of siding with the leftists, siding with the Marxists, siding with those who don't support democracy, not standing up for our friends in Colombia, not standing up for our friends who want to engage and support America, who want to be great trading partners and great allies for our country, to be able to form that kind of bond that is so essential in our own hemisphere. 

The European Union understood how important it was for diverse people to be able to come together in an economic unit. We only -- not only have to come together as an economic unit, but the threat of terrorism, the threat of Iran now in Venezuela and in other places, and Cuba and in Nicaragua, the threat of radical Islam growing in that region -- is it important for -- it's absolutely important for us to have a president who understands that threat and understands the solution is closer ties. I will visit that area of the world, repeatedly, to solidify those ties when I become president. 

...

QUESTION: Hi, my name is George Miatus (ph), I live here in Jacksonville and when I was 3-years-old I was very blessed that my parents brought me here from Cuba. They brought me here so that I could be raised in freedom and in liberty. President Obama has recently announced that he is liberalizing trade and travel policies. What would be your position as president toward the island of Cuba?

BLITZER: Senator Santorum?

SANTORUM: I would oppose it. I've been 100 percent in support of the Cuban people and their right to have a free Cuba and the United States should stand on the side of the Cuban people against these despots who are not just reigning terror, continuing reign of terror in Cuba. But now have their -- their -- their puppet, Chavez in -- in Venezuela and Noriega and Morales and it keeps -- it keeps like a cancer growing. So the idea that a president of the United States would take the heart of the cancer that is in Central and South America, and begin to reward behavior that has spread this cancer because of our dilly-dallying and our inattentiveness to the problems in Central and South America.

Now, we're going to reward the secret police. We're going to (inaudible) president of Venezuela as they are in Cuba. We're going to reward this type of thuggery, this type of Marxism in our region. We're going to reward a country that is now working with these other countries to harbor and bring in Iran and the terrorist -- the Jihadist's who want to set up missile sites and to set up training camps. And so we're going to reward this behavior by opening up and liberalizing. This is the exact wrong message at the exact wrong time.

...

BLITZER: I want both of you to weigh in, Governor Romney first?

... ROMNEY: First of all, I think the president has largely ignored Latin America, Cuba in particular, Venezuela, and other nations. I think we have to change that dramatically. 

I think we have to have economic initiatives to build trade throughout Latin America, particularly with Colombia and Panama, now part of free trade agreements. I want more of that throughout Latin America. But that's the first flaw, ignoring Latin America. 

And number two is reaching out with accommodations to some of the world's worst actors, whether it was Putin in Russia, giving him what he wanted, or Castro, saying we're going to let you have remittances coming from the U.S. to fund your future, or relaxed trade restrictions. Throughout the world, with Ahmadinejad opening an open hand, tyrants look for weakness to take advantage. That's the wrong course. 

The right course for Cuba is to continue to honor Helms-Burton. And if I'm president of the United States, I will use every resource we have, short of invasion and military action, Congressman Paul. I'll use every resource we can to make sure that when Fidel Castro finally leaves this planet, that we are able to help the people of Cuba enjoy freedom. 

They want it. It's a God-given right. And it is our responsibility to help share the gift of freedom with people throughout the world that are seeking it. 

...

BLITZER: Are you open -- Mr. Speaker, are you open to improving relations with Cuba? 

GINGRICH: Well, let me start with where the governor correctly pointed out. I was very proud as Speaker to be able to make sure that the Helms-Burton Act passed, and I'm delighted that Congressman Dan Burton is here tonight and is campaigning with me, because it was a very important step towards isolating the Castro regime. 

I think it's amazing that Barack Obama is worried about an Arab Spring, he's worried about Tunisia, he's worried about Libya, he's worried about Egypt, he's worried about Syria, and he cannot bring himself to look south and imagine a Cuban Spring. And I would argue that we should have, as a stated explicit policy, that we want to facilitate the transition from the dictatorship to freedom. We want to bring together every non-military asset we have, exactly as President Reagan and Prime Minister Thatcher and Pope John Paul II did in Poland and in Eastern Europe. 

They broke up the Soviet empire without a general war by using a wide range of things, one of which is just psychological, saying to the next generation of people in Cuba, the dictatorship is not going to survive. You need to bet to moving to freedom in order to have prosperity in Cuba, and we will help you get to that freedom. 

Subsidies and the State of the Union Speech

Via Sallie James of Cato, I see that blogger Matt Yglesias points out the following in President Obama's State of the Union speech:

... After lambasting companies that “ship jobs overseas,” Obama launched into a feel-good anecdote about how “Siemens opened a gas turbine factory in Charlotte and formed a partnership with Central Piedmont Community College.” Is a politician in Germany giving a speech lambasting Siemens for shipping jobs to the U.S.  and complaining, as Obama did, that it’s “not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized,” perhaps through partnerships with community colleges. 

Here are the two relevant parts of Obama's speech: 

It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.

...

Jackie Bray is a single mom from North Carolina who was laid off from her job as a mechanic.  Then Siemens opened a gas turbine factory in Charlotte, and formed a partnership with Central Piedmont Community College.  The company helped the college design courses in laser and robotics training.  It paid Jackie’s tuition, then hired her to help operate their plant.

This all intrigued me, so I did a couple searches, and found this:

 German industrial conglomerate Siemens AG is consolidating production of gas turbines for electric utilities in North Carolina to position itself for an expected boom in electricity demand in the Southeast and around the world.

A subsidiary of the Munich-based company, Siemens Energy Inc., said Thursday it plans to invest $135 million to build a new manufacturing plant for 60-Hertz gas turbines in Charlotte. The company was promised a package of tax breaks, grants and low-interest loans worth up to $154.75 million to make the move.

Siemens will close a similar plant in Hamilton, Ontario, that employs about 450, though it's not yet clear how many will lose their jobs and how many transfer to North Carolina over the next 18 months, spokeswoman Melanie Forbrick said.

...

"Over the next five years, we expect employment at the Charlotte site to grow to nearly 1,800 people, with more than 1,000 of those positions new to Charlotte. With this move we're pushing ahead with our growth strategy in the U.S., which is our most important single-country market," Siemens AG chief executive officer Peter Loescher said in a statement.

The move is expected to create 825 engineering and manufacturing jobs in Charlotte within five years, paying an average wage of almost $64,000 a year. Production in the expanded plant is scheduled to start in the fall of 2011, the company said.

State and local governments promised up to $35 million in tax breaks and grants. A county development entity is also prepared to lend Siemens up to $120 million in low-interest loans, with funding coming from bonds created by last year's federal stimulus package.

The obvious question here is, what do the people of Hamilton, Ontario think of the various subsidies given to Siemens to relocate to North Carolina?  Would they say something along the lines of "it's not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized"?

More generally, there is clearly still an issue of defining how subsidies should be regulated internationally in a way that minimizes trade conflict, while allowing governments sufficient scope to make domestic policy.  I've suggested constraints on the use of "protectionist" subsidies as the appropriate goal of international trade rules.  Are there other possibilities?

And if "protectionist" subsidies are what should be targeted, do the current rules do this sufficiently?  Would they prevent the Siemens subsidies?  Should they?

The TBT Cases are Coming!

I've been saying this over and over, so I won't say it anymore.  Instead, I'll quote Hunter Nottage and Alejandro Sánchez of the ACWL, from a new Global Trade and Customs Journal article:

The US-Tuna II report tackled a range of novel interpretative questions under the TBT Agreement. The report was issued contemporaneously with that in US-Clove Cigarettes and was followed, two months later, by the panel report in US-COOL. These three reports result in a unique dynamic in WTO dispute settlement as they have, separately, dealt with similar interpretative questions under the TBT Agreement prior to any clarifying Appellate Body jurisprudence. As we have seen, at times, these panels appear to have adopted divergent approaches. This will provide the Appellate Body with a considerable challenge if any or all of these reports were appealed in 2012. Appellate Body clarification will be critical, however, as the recent period of intense litigation under the TBT Agreement suggests that WTO members are using technical regulations and standards more than in the past and that we can expect more litigation under the TBT Agreement in the future.

The Scope of "Technical Regulations" under the TBT Agreement

Recalling the discussion in two previous posts (here and here), I'm still trying to sort out what I think of the issue of whether the labelling measure in U.S. - Tuna II is a "technical regulation."

The TBT Agreement defines "technical regulation" and "standard" as follows

1. Technical regulation

 Document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory.  It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

...

2. Standard

Document approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods, with which compliance is not mandatory.  It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

The key difference is that for a "technical regulation" "compliance is mandatory", whereas for a "standard" "compliance is not mandatory".

I see four possible factual situations in relation to whether a labelling measure constitutes a "techncial regulation" or a "standard":

Situation 1:  The labelling measure is a statute/regulation, and says that in order to sell a product, you must use the label at issue, and the label must meet the conditions set out in the statute/regulation.

Situation 2:  The labelling statute/regulation says that if you want to use the label at issue, you must meet the stated conditions.  However, you do not have to use a label at all in order to sell the product.

Situation 3:   The labelling statute/regulation sets out certain criteria that may be used to label a product.  However, you do not have to use a label at all in order to sell the product; and if you do use a label, you are not required to follow the criteria that have been identified in the statute/regulation.

Situation 4:  Labelling criteria exist outside the context of a statute/regulation, having been developed by some non-governmental body.

Situation 2 is, roughly speaking, the one at issue in Tuna.

Here are some questions I have:

-- I assume that Situation 1 qualifies as a "technical regulation."  Any objections there?

-- I assume that Situation 4 would generally qualify as a "standard."  Any objections there?  

-- In the real world, does Situation 3 actually exist?

-- Are there any other situations that I have missed?

The Economist on State Capitalism

This week's Economist has a lot to say about state capitalism.  It made the cover of the magazine, and they have a big report on it, as well an overview here.

I'm not sure what to make of it all.  On the one hand, they note that the state has played a role in the economy before:

Rising powers have always used the state to kick-start growth: think of Japan and South Korea in the 1950s or Germany in the 1870s or even the United States after the war of independence.

On the other hand, they talk about how this round of state capitalism is different than past versions:

State-directed capitalism is not a new idea: witness the East India Company. But as our special report this week points out, it has undergone a dramatic revival. In the 1990s most state-owned companies were little more than government departments in emerging markets; the assumption was that, as the economy matured, the government would close or privatise them. Yet they show no signs of relinquishing the commanding heights, whether in major industries (the world’s ten biggest oil-and-gas firms, measured by reserves, are all state-owned) or major markets (state-backed companies account for 80% of the value of China’s stockmarket and 62% of Russia’s). And they are on the offensive. Look at almost any new industry and a giant is emerging: China Mobile, for example, has 600m customers. State-backed firms accounted for a third of the emerging world’s foreign direct investment in 2003-10.

What does the future hold for state capitalism?  They point out that, in the past, "countries have, over time, invariably found that the system has limits."

It's not clear to me how to make a useful comparison between the state intervention in the economy going on today with the state intervention that went on in the past.  The role of the state does seem to rise and fall a bit over the years.  But how big are the changes?  And which direction are we going now?

And, of course, for the purposes of this blog, the impact on trade is important:

Another concern is the impact of the model on the global trading system—which, at a time when the likely Republican nominee for president wants to declare China a currency manipulator on his first day of office, is already at risk. Ensuring that trade is fair is harder when some companies enjoy the support, overt or covert, of a national government. Western politicians are beginning to lose patience with state-capitalist powers that rig the system in favour of their own companies.

Do we need new rules in trade agreements to address specific problems related to state capitalism?  This is being discussed in the TPP, but clearly China is the main concern here.  Will these issues be brought into the WTO?

The Past, Present and Future of Disputes over Aircraft Subsidies

From an article on the WTO Aircraft dispute, by law student Ron Kendler, in the Boston College International and Comparative Law Review (article starts on p. 253):

As history shows, this is not the first time that the two parties come to the brink of a trade war over LCA: the 1970s and 1980s saw periods of escalation followed by settlement, first through the Tokyo Round, and later through bilateral talks. In each instance, the GATT enabled both sides to air their grievances before negotiating a solution. This dispute has operated in cycles of interstate conflict followed by cooperation, none of which catalyzed a trade war. The DSM provides further reason to believe that this era is no different.

The entry of new competitors will also exert pressure on the two rivals to resolve their conflict, as delays will put the United States and the EU at greater risk of losing their market position. Granted, settlement will not eliminate new rivals. Rather, both sides will recognize that they are better served when they are not constantly at odds over subsidies, which only distracts them from larger issues.

Nor will a negotiated settlement necessarily provide a lasting resolution. As long as Boeing and Airbus exist, their home governments will find something to contest. As they face new competition, the United States and the EU may even intensify their use of rhetoric and legal mechanisms with regards to LCA; it will just be aimed at other states. They may even ironically find themselves, after thirty years of rivalry, on the same side of this hotly contested issue.

Ever Tougher Trade Talk

From last night's State of the Union speech by President Obama:

I will go anywhere in the world to open new markets for American products.  And I will not stand by when our competitors don’t play by the rules.  We’ve brought trade cases against China at nearly twice the rate as the last administration –- and it’s made a difference.  Over a thousand Americans are working today because we stopped a surge in Chinese tires.  But we need to do more.  It’s not right when another country lets our movies, music, and software be pirated.  It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.

Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trading practices in countries like China.  There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders.  And this Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing financing or new markets like Russia.  Our workers are the most productive on Earth, and if the playing field is level, I promise you -– America will always win. 

Republican candidate Mitt Romney responds with this:

“I took some pleasure in the fact that he’s talking about cracking down on China, even as he has not done so.”

Republicans For Subsidies

Recalling some long ago discussions of prizes here on this blog, here is more from last night's GOP debate:

MODERATOR

Speaker Gingrich, would you put more tax dollars into the space race and commit to putting an American on Mars, instead of relying on the private sector?

NEWT GINGRICH

Well, the two are not incompatible. For example, most of the great breakthroughs in aviation in the '20s and '30s were as a result of prizes. Lindbergh flew to Paris for a $25,000 prize. I would like to see vastly more of the money spent encouraging the private sector into very aggressive experimentation. And I'd like a leaner NASA.

I don't think building a bigger bureaucracy and having a greater number of people sit in rooms and talk gets you there. But if we had a series of goals that we were prepared to offer prizes for, there's every reason to believe you have a lot of folks in this country and around the world who would put up an amazing amount of money and would make the space coast literally hum with activity because they'd be drawn to achieve these prizes.

Republicans Against Subsidies

From last night's Republican debate:

MODERATOR

Speaker Gingrich, in Iowa you were a big supporter of ethanol subsidies. Here in Florida, sugar is a very important industry, and it's subsidized, as well, with import restrictions, quotas. There's a conservative movement to do away with these programs. In the case of sugar, critics say it -- it adds billions of dollars to -- to consumers' grocery bills every year. What would you do about that?

NEWT GINGRICH

Well, I pretty enthusiastically early in my career kept trying to figure out how to get away from the sugar subsidy. And I found out one of -- one of the fascinating things about America, which was that cane sugar hides behind beet sugar. And there are just too many beet sugar districts in the United States. It's an amazing side story about how interest groups operate.

In an ideal world, you would have an open market. And that's -- I think that would be a better future and, frankly, one where cane sugar would still make a lot of money. But it's very hard to imagine how you're going to get there. I spent a lot of time trying to reform agriculture when I was speaker. And I would say it was one of the two or three hardest things to try to do because the -- the capacity of the agricultural groups to defend themselves is pretty amazing.

MODERATOR

Governor Romney, you're going some campaign support from sugar growers. It's a very influential group in this state. What's your view on the sugar subsidies?

MITT ROMNEY

Yeah, my view is, we ought to get rid of subsidies and let markets work properly. ...

Geographical Indications Run Amok

From The Economist:

LIKE champagne, tequila may be called tequila only if it comes from a specific region. Distillers in five of Mexico’s 31 states have the exclusive right to produce the famous firewater. Bottlers elsewhere must use alternative names, though their product is distilled in the same way from the sap of the agave, a spiky desert succulent often wrongly referred to as a cactus.

Demand for tequila is growing fast. Americans now drink more of the stuff than Mexicans—a head-throbbing 120m litres a year. Producers outside the official tequila region are cashing in. The “agave liquor” they sell is cheaper than real tequila and tastes identical, at least to the barbarian gringo palate.

Traditional tequileros hate to see others crashing what they see as their party. So a proposal sponsored by the National Chamber of the Tequila Industry would ban distillers outside the five-state boundary from using the word “agave” to describe their drinks. The proposal has won the support of Mexico’s intellectual-property agency, IMPI.

Agave-lovers think this a bit unreasonable. “Agave” is the name of a plant, not a product. It is as if the Champagne region were to try to ban others from using the word “grape” or the butchers of Parma were to claim the word “ham”. A letter from 343 experts, from biologists to sociologists, expressed “forthright opposition” to the proposal.

The Tuna Appeal

From our Dispute Settlement Commentary (subscribers only) for the Tuna panel report (DS381), recall the panel's key findings:

• Panel majority concluded that "the measures at issue establish labelling requirements, compliance with which is mandatory," and thus constitute "technical regulations" under TBT Agreement Annex 1.1; one panelist dissented from this finding.

• Found that Mexico has not demonstrated that the U.S. dolphin-safe labelling provisions afford less favorable treatment to Mexican tuna products within the meaning of TBT Agreement Article 2.1.

• Found that the U.S. dolphin safe labelling provisions "are more trade-restrictive than necessary to fulfil their legitimate objectives, taking account of the risks non-fulfilment would create," in violation of TBT Agreement Article 2.2.

• Found that Mexico "has failed to demonstrate that the AIDCP dolphin safe standard is an effective and appropriate means to fulfil the US objectives at the United States' chosen level of protection."  Therefore, found that the U.S. dolphin-safe labelling provisions "are not inconsistent with" TBT Agreement Article 2.4. 

The U.S. announced last week that it would appeal.  The U.S. appellant submission is here:  http://www.ustr.gov/webfm_send/3251  Here's a brief excerpt:

A. The Panel Erred in Finding That the U.S. Measure is a Technical Regulation

4. The TBT Agreement applies to three classes of measures.  The two that are at issue in this dispute – technical regulations and standards – are defined in very similar terms.  The primary distinction is that technical regulations are defined as a class of measures “with which compliance is mandatory,” while standards are defined as a class of measures “with which compliance is not mandatory.”  In order to use a standard, an economic operator must meet the conditions for doing so.  But if, in order to place its product on the market, the operator need not meet the conditions set out in the document in question, or indicate that it meets those conditions through use of label, then the measure in question is a standard.  In contrast, if in order to place its product on the market, the operator must meet the conditions set out in the document or must use a label where the conditions set out in the document are met, then the document is a technical regulation.  In this dispute, while there are conditions that must be met if a producer wishes to label a tuna product “dolphin safe,” there is no requirement that tuna products be dolphin safe in order to be sold in the United States, nor is there a requirement that tuna products that meet the conditions for using the label be labeled as “dolphin safe.”  A minority of the Panel correctly understood this distinction and decided the U.S. measure is not a technical regulation.

5. The majority of the Panel, however, erred by finding that a labeling requirement that need not be met to place tuna products on the U.S. market was, nonetheless, a technical regulation.  In reaching this finding, the majority of the Panel committed a series of legal errors including (1) failing to interpret the term “with which compliance is mandatory” in accordance with its ordinary meaning in context and in light of the object and purpose of the TBT Agreement; (2) misapplying prior Appellate Body guidance on the meaning of the phrase “with which compliance is mandatory” and the use of the so-called “positive-negative distinction” as it relates to identifying product characteristics; and (3) creating and misapplying other criteria for distinguishing technical regulations from standards.

B. The Panel Erred in Finding that the U.S. Dolphin Safe Labeling Provisions are Inconsistent with Article 2.2 of the TBT Agreement

6. The United States appeals the Panel’s finding that the U.S. Dolphin safe labeling provisions are inconsistent with Article 2.2 of the TBT Agreement.  First, the Panel failed to make an objective assessment of the matter before it as called for by Article 11 of the DSU in determining the extent to which the U.S. measure fulfills its legitimate objectives.  Second, the Panel erred in its conclusion that the AIDCP labeling scheme is a reasonably available, less trade-restrictive alternative that would fulfill the objectives of the U.S. measure at same level as the U.S. measure.  Finally, the Panel erred in concluding that Mexico had met its burden in establishing that the AIDCP labeling regime’s coexistence with the U.S. measure constitutes a less trade-restrictive alternative.

C. The Panel Erred in Finding that the AIDCP Is an International Standardizing Organization and That the AIDCP Definition of “Dolphin Safe” Is a Relevant International Standards Within the Meaning of Article 2.4

7. Though the Panel found that the United States was not obligated to use the AIDCP “dolphin safe” definition because the definition would be ineffective for achieving the U.S. legitimate objectives, it erred in finding that the AIDCP definition is a relevant international standard.  The finding was in error because the AIDCP is not an international standardizing body capable of preparing and adopting international standards.  The AIDCP does not meet the TBT Agreement and ISO/IEC Guide 2 definitions of international standardizing body because the AIDCP is not (1) “international” since it is not open to at least all Members; (2) is not recognized as engaging in standardizing activity; and (3) is not a body.

We discussed the issue of "technical regulation" in some detail here: http://worldtradelaw.typepad.com/ielpblog/2011/09/technical-regulations-vs-standards-in-the-tuna-panel-report.html  Also here: http://worldtradelaw.typepad.com/ielpblog/2011/10/tokyo-round-thoughts-on-mandatory-labelling.html

And here's a bit about Article 2.2: http://worldtradelaw.typepad.com/ielpblog/2011/09/the-tuna-panels-tbt-22-more-trade-restrictive-than-necessary-finding.html

It appears that Mexico will be appealing as well, presumably covering at least the discrimination finding:

Mexico announced that in the coming days it will present the World Trade Organization with a new defense of its arguments against the restrictions and “discrimination” the United States places on Mexican tuna by means of the “dolphin-safe” label.

...

“In the next five days Mexico will present a written counterappeal before the WTO,” the secretariat said.

The AD/CVD Overlap for NMEs: From the Courts to Congress

Recall that the U.S. Court of Appeals for the Federal Circuit recently decided that the Department of Commerce (DOC) may not apply countervailing duties to non-market economy countries.  The FT reports that the effort to amend U.S. law so as to overrule this decision has begun:

This week, Ron Kirk, US trade representative, and John Bryson, commerce secretary, sent a letter to Congress urging immediate legislation to overrule the court’s decision.

“This matter is of the utmost urgency,” the letter said, a copy of which has been seen by the Financial Times. “We stand ready to work with the Congress to enact specific legislation that would remedy the court’s flawed ruling.”

...

Although overturning the court ruling would be legislatively straightforward, some trade lawyers have warned that, with anti-China sentiment on Capitol Hill running high, there was a risk that Congress would insert more radical measures such as tariffs to punish China for undervaluing its currency.

So what would an amendment to the current statute look like?  The article notes that, "Last year, a judicial panel at the World Trade Organisation said double-counting was not permitted. But the ruling said anti-dumping and countervailing duties might simultaneously be applied without violating this rule, depending on the methodology used."  So, in amending the statute, WTO rules need to be taken into account.  Perhaps Congress will try to keep the amended statute as vague as possible, in the hopes of delaying any WTO complaint until the statute is actually implemented by the DOC?

ADDED: Scott Lincicome has lots more to say on the issue here; and Dan Ikenson weighs in here.

Time to Crack Down on Anti-Dumping Abuses?

In a recent Harvard International Law Journal article, law prof Mark Wu argues that now is the time for the U.S. and EU to start reining in anti-dumping:

For the United States and EU, if the current rules remain unchanged, then one day in the not-too-distant future, the net advantage that they currently enjoy will disappear. Therefore, while India and China still remain supportive of the notion of antidumping reform, the United States and EU should work to reshape the rules governing the imposition of antidumping sanctions. Rather than blocking reform efforts, as they have done, the United States and EU should be actively championing proposals in the Doha Round negotiations that will make it more difficult to enact antidumping duties for protectionist purposes. In other words, the United States and EU should be dismantling the permissive legal standard that they helped put inplace. If they do not, they risk the danger that the standard will soon come to serve other countries’ protectionist interests more than their own.

Florida Grapefruits and the SPS Agreement

My local paper reports that there may be an SPS case originating not too far from me:

Florida's war against canker ended in 2006, but six years later a battle is still being waged on the international front.

Florida, specifically the Indian River region, is the world's largest producer of grapefruit, and the European Union won't accept fruit that comes from a grove where any canker exists. That's despite U.S. scientific research that shows canker, a bacterium which dies once fruit is picked, isn't spread by fruit.

On Wednesday, Ambassador Islam Siddiqui, the U.S. Trade Representative's chief agricultural negotiator toured Riverfront Packing in Vero Beach for a look at how the fruit is washed and packed. The process includes keeping any fruit with lesions from being sold as fresh fruit. It becomes juice.

...

Dan Richey, president of Riverfront, said the EU doesn't allow Florida grapefruit to be shipped unless the grove is certified canker-free and the fruit is inspected by the U.S. Department of Agriculture and no canker is found. It's becoming more and more difficult to find a grove with no canker.

"We did research and got very good results with four experts who found fruit is not a pathway to spread this disease. The rest of the world accepted it. With the EU this is purely a stalling tactic and a non-tariff trade barrier," Richey said.

Spain, an EU member, produces citrus fruit, and the EU's refusal to accept the science is a protectionist measure, Richey said.

If this goes anywhere, I'll see if I can get the inside scoop.

Keystone and NAFTA Chapter 11

Todd Tucker of Global Trade Watch explains how President Obama's decision to stop the Canadian-owned Keystone oil pipeline could lead to a NAFTA Chapter 11 claim:

... TransCanada could point to a long string of overtures by the U.S. government that led it to develop "legitimate expectations" (as that is defined under trade law) that it would be able to build the pipeline, going from the private assurances in favor of the pipeline (recently revealed by FOIA documents to Friends of the Earth) and ending in the December 2011 payroll tax cut(which included Keystone-related provisions).

Those "expectations" could be then measured against what could be characterized under the FET standard as an arbitrary decision-making process, as when the Obama administration delayed the pipeline decision in November 2011 until after the presidential election.

TransCanada could point to some domestic pipeline operators that have not confronted similar hurdles as a basis for a National Treatment claim under NAFTA, while they could point to any lost expected future earnings as a basis for an "indirect expropriation" claim.

Perhaps he is right that there are some decent legal arguments that could be made.  At the same time, this case makes me think of the following quote about the NAFTA Chapter 11 Loewen case:  "[But] if Loewen had won, we might not have a Chapter 11 today, and maybe that's why the tribunal decided the way it did."  Sometimes there are considerations that go beyond the legal merits.

China vs. Brazil at the WTO?

To date, China has brought 8 complaints at the WTO, six against the U.S. and two against the EU.

China also has 23 complaints against it.  Again, the U.S. and EU dominate, with 12 complaints by the U.S. and five by the EU.  There is a little more diversity here, though, as Canada, Guatemala and Mexico have also brought complaints.

The one country that I'm most surprised is not on either list is Brazil.  But that omission may not last long.  Here is the Economist:

OPPOSITE Rio de Janeiro’s best-known shopping mall, just before the tunnel that takes drivers to the beach resorts of Copacabana and Ipanema, stands a gleaming new showroom for JAC Motors, a state-owned Chinese car maker. The prominence of the location is appropriate: imported Chinese cars have suddenly become a visible presence on Brazil’s roads. This has alarmed Brazil’s car industry and President Dilma Rousseff’s government. Last month a 30-percentage-point tax increase on cars with less than 65% local content took effect, taking the tax on some imported models to a punitive 55%—on top of import tariffs.

The tax increase is an unusually blatant act of protectionism. It almost certainly violates the rules of the World Trade Organisation, of which Brazil is normally an enthusiastic supporter. It shows how sensitive the government of President Dilma Rousseff is to claims that the country is suffering “de-industrialisation”.

...

... The tax rise on cars was announced last September, as part of a new industrial policy. The aim was to bully carmakers without plants in Brazil to hurry up and build them. This seems to be working: JAC Motors, BMW, and Jaguar Land Rover, a unit of India’s Tata Motors, have all announced plans to build factories in Brazil since the import tax was unveiled.

Perhaps a dispute can be avoided on this particular issue, but there are definitely signs that there may be disputes to come in the future:

Many Brazilian industrialists distinguish between Chinese and other competitors. “We don’t believe in protection against efficiency,” insists Roberto Giannetti of São Paulo’s Federation of Industries (FIESP). But he adds that “today we can’t accept China as a fair trader”. FIESP says it did not want the tax increase on imported cars. But it complains that China is dumping diverted exports from depressed Europe. Meanwhile, Brazilian manufacturers trying to export to China face steep non-tariff barriers on manufactured goods, such as obstructive state purchasing agents. Rubens Ricúpero, a former finance minister, thinks that rather than acquiesce in the disappearance of its industries, Brazil will move towards managed trade with China, at least in some sectors.

Submissions for the European Yearbook of International Economic Law

From the editors of the European Yearbook of International Economic Law (EYIEL):

The editors of European Yearbook of International Economic Law (EYIEL) invite contributions from prospective authors with unpublished articles or working papers for EYIEL Volume 5 (2014) to be published at the end of 2013. The contributions should discuss subjects which fall into one of the following fields:

1. The Global Monetary and Financial System 70 Years After Bretton Woods

2. The Global Trading Order 20 Years After Marrakesh

Authors are requested to submit an abstract of no more than 500 words to the one of the editors of the EYIEL (see below). The deadline for the submission of abstracts is 28 February 2012. The selection of papers will take place by the end of April 2012; the deadline for submission of the final version of the paper is 28 February 2013. Final submissions should follow the house style (to be distributed with a letter ofacceptance) and should not exceed 15.000 words (footnotes included).The EYIEL especially encourages younger scholars to consider this call for papers and welcomes contributions from outside the EU.

Abstracts and further enquiries should be directed electronically (PDF) to one of the editors of the EYIEL.

Prof. Dr. Christoph Herrmann, [email protected]

Prof. Dr. Jörg-Philipp [email protected]

Prof. Dr. Markus [email protected]

See http://www.rph1.jura.uni-erlangen.de/EYIEL%20Call%20for%20Papers.pdf

And Yet More on the End of China's NME Status

Back in November, I mentioned a blog post by trade lawyer Bernard O'Connor arguing that the end of China's NME status might be further off than many people think.  There was some good discussion of these issues in the comments to that post.  Then in December, I mentioned a paper by Christian Tietje and Karsten Nowrot on this same issue.  Bernard now has a response to that paper.  The full paper is here. Here is an excerpt:

The Myth of China and Market Economy Status in 2016

There have been some comments on an earlier blog which highlighted the myth of automatic Chinese MES in December 2016. In particular, one respected commentator[1] suggests 'the 11 December 2016 is certainly not a myth - it is reality. From that date onwards, it will be almost impossible - at least from the perspective of WTO law - to make a determination of the normal value of products targeting by an anti dumping proceeding on the basis of analogous third party methodology.'[2] 

This Tietje and Nowrot analysis makes good points. And the points deserve substantive comment. However, the comment goes beyond what the 'myth' blog proposed. The myth blog sought to make the point a) that there is nothing in the China Accession Protocol granting MES automatically and b) China will have to show that it is a market economy under the domestic law of the importing WTO Member, even after 2016.  The Tietje and Nowrot Policy Paper agrees with this proposition from a theoretical perspective. They state: Article 15 of the Accession Protocol of China to the WTO 'itself does not explicitly bestow NME-status on China'.[3] And further on: 'Again, the second sentence of paragraph 15(d) of the accession protocol itself does not explicitly grant China MES from the "magic" date onwards.'[4]  

The question now raised by Tietje and Nowrot is: What anti-dumping instruments can a competent authority use after 11 December 2016 when the provisions of Article 15(a)(ii) have expired? The Teitje and Nowrot answer is: 'from 11 December 2016 onwards Chinese imports have to be treated with regard to a determination of normal value in the same way as imports from any other WTO member.'[5] Thus they move from the theoretical possibility of the continuation of non market economy status to the practical conclusion that importing WTO Members will have to rely on normal WTO anti-dumping rules.

---

[1] Policy Papers on Transnational Economic Law no 34: Myth or Reality? China's Market Economy Status under WTO Anti-Dumping Law after 2016 by Tiejte and Nowrot.

[2] Ibid page 11.

[3] Ibid page 6. I am presuming that the authors are referring to ME or market economy status rather than NME or non market economy status.

[4] Ibid page 7.

[5] Ibid page 11.

More on the Reorganization of U.S. Trade Agencies

First up, the White House press briefing, with some more details on the plan, is here: http://www.whitehouse.gov/the-press-office/2012/01/13/press-gaggle-press-secretary-jay-carney-and-omb-deputy-director-manageme

Second, here are some links to what others have been saying:

Dan Drezner: "this [is] one of those "reorganizing government" initiatives that makes a lot of sense in the abstract but probably leads to more transition costs than long-term benefits."

David Rothkopf: "Not only does the move make logical sense -- bringing together all those agencies of the government that support the development of U.S. trade and the job creation associated with it -- but it also would save, according to initial White House estimates, over 1000 jobs and $3 billion over the next ten years."

David Zaring: "American trade lawyers are worried that the proposed combination of USTR and Commerce will not work well.  I would suggest that they needn't spend a lot of time thinking about it.  Combining agencies means dispossessing a congressional sub/committee of oversight responsibilities, and it isn't as if it can never happen - we have a Department of Homeland Security, after all - but it makes such consolidations much more difficult than mere logic would suggest."

Clyde Prestowitz: "Fundamentally the idea is good and should be adopted. Indeed, the Obama proposal does not go far enough . In addition to the agencies named as candidates for the new department, the Department of Energy, NASA, and the economic agencies of the State Department should also be added. That would make the department comparable to and competitive with the industry and trade ministries of most of the countries who are America's major economic partners. It would also make the department a front rank agency and thereby give it the resources and weight to enable it to compete on equal terms in the intra-departmental Washington battles with the likes of the Departments of State, Defense, and Treasury."

Also, a number well-known trade lawyers and other experts are quoted on the issue in the Legal Times BLT blog, the NY Times and Bloomberg.  And here's Reuters:

"White House budget official Jeffrey Zients told reporters the reorganization would fold together the Office of the U.S. Trade Representative and other trade bodies now spread across Washington, giving businesses a single point of contact and ensuring federal spending goes further to boost exports.

Obama was set to deliver remarks at 11:20 a.m. on the new, yet-to-be-named department that would be tasked with achieving his goal of doubling exports in five years, a key part of his economic agenda as the November presidential vote nears.

The Democrat was expected to cast it as an effort to make the government leaner and more efficient, reducing bureaucracy for export-oriented companies."

Finally, putting aside issues of the effectiveness of the proposal and whether it will actually happen, let me take this in a somewhat different direction -- one that is admittedly a bit naive and idealistic -- and note the following about the operation of domestic trade policy.  It concerns me that governments sometimes seem to think of trade policy as having the goal of increasing exports while limiting imports.  They see trade rules and negotiations as, for the most part, a battle for market share.  I'm not singling out the U.S. here; it's a more general phenomenon.  While this may seem rational in terms of short-term domestc politics, I worry that the result is a world trading system that is overly confrontational and inherently unstable.  It is important, I think, for those who make international trade and economic policy to take a broader view, and think about what purposes the system is supposed to serve and how the specific rules can best achieve these goals.  Thus, for me, the main issue with the Obama proposal is not so much whether the proposal will make the U.S. a tougher trade negotiator, but rather the impact it may have on how the U.S. thinks about trade policy.  There is not enough detail on the Obama proposal yet to say much about this issue, and we won't really know unless the changes actually happen, but that's what I'll be most curious about if the proposal goes ahead.

I realize that last paragraph may be a bit vague.  I'll say something more about all this eventually! 

No Appeal under TBT 2.2 in the Clove Cigarettes Case

The Jakarta Post reports:

Indonesia will not lodge an appeal against a WTO ruling on the import ban of flavored tobacco by the US, citing satisfaction despite losing its argument on the efficacy of the ban in reducing the number of young smokers.

Director general for international trade Gusmardi Bustami told reporters on Friday that Indonesia had won the backing of the WTO on its stance regarding the discriminatory nature of the US import ban.

Recall that the Clove Cigarettes panel found a violation of TBT 2.1 (related to national treatment), but rejected Indonesia's claim under TBT 2.2 (more trade-restrictive than necessary).  As noted previously, the U.S. has appealed the TBT 2.1 violation.  It appears that Indonesia will not appeal the TBT 2.2 issues.

For those who are hoping for some clarification of TBT 2.2, not to worry, appeals under this provision in the U.S. - Tuna and U.S. - COOL cases are likely soon.

ADDED:  I didn't mean to imply anything about what will actually happen in Tuna and COOL, as I really don't know.  I should have said those appeals are "possible", not "likely."

Reorganizing U.S. Trade Governance

From the AP:

President Barack Obama will ask Congress on Friday for greater power to shrink the federal government, and his first idea is merging six sprawling trade and commerce agencies whose overlapping programs can be baffling to businesses, a senior administration official told The Associated Press.

Obama will call on Congress to give him a type of reorganizational power last held by a president when Ronald Reagan was in office. The Obama version would be a so-called consolidation authority allowing him to propose mergers that promise to save money and help consumers. The deal would entitle him to an up-or-down vote from Congress in 90 days.

It would be up to lawmakers, therefore, to first grant Obama this fast-track authority and then decide whether to approve any of his specific ideas.

The White House said Obama would address his proposals for government reform Friday morning. The official confirmed the details to the AP on condition of anonymity ahead of the president's event.

...

Should he prevail, Obama's first project would be to combine six major operations of the government that focus on business and trade.

They are: the Commerce Department's core business and trade functions; the Small Business Administration; the Office of the U.S. Trade Representative; the Export-Import Bank; the Overseas Private Investment Corporation; and the Trade and Development Agency. The goal would be one agency designed to help businesses thrive.

The official said 1,000 to 2,000 jobs would be cut, but the administration would do so through attrition; that is, as people routinely leave their jobs over time.

The administration said the merger would save $3 billion over 10 years by getting rid of duplicative overhead costs, human resources divisions and programs.

More details to follow.

ADDED:  I said "more details to follow," but I haven't seen too many details yet.  What will this new agency look like?  How will the existing agencies relate to one another in the new structure?  For example, will the U.S. Trade Represenative report to the head of the newly formed Department?

Without more information, it's hard to know what to make of this.

Tolerating Non-Compliance in WTO Dispute Settlement

In the latest issue of Trade, Law & Development, Claus Zimmerman argues that WTO dispute settlement gets things just right in terms of the level of enforceability:

It emerges from the analysis provided in this article, that although the WTO’s dispute settlement mechanism has not been designed to encourage efficient breach, the existing system accommodates,  de facto, at least temporary noncompliance. The current design of the WTO’s dispute settlement mechanism, by operating temporarily as a system of ‘breach and pay’, fulfils a crucial role as a systemic safety valve for rare scenarios where WTO members find it impossible to comply with the DSB’s recommendations and rulings within the ‘reasonable period of time’ as determined according to Article 21.3 of the DSU. The review of the existing avenues for both intra- and extra-contractual flexibility provided in this article, analysed in the light of the excellent compliance record of the WTO’s dispute settlement mechanism, supports the conclusion that the WTO legal framework provides WTO Members with just enough flexibility, both within the boundaries of the existing bargain and beyond them, to ensure that sovereign states remain willing to surrender large parts of their freedom of action in trade matters by adhering to the WTO in the first place and to participate in future rounds of trade liberalization.

 In light of the above, and for both the legal and economic reasons discussed throughout this article, one can only conclude that several standard suggestions encountered in the existing literature are misguided. Most importantly, any calls for equipping the WTO’s dispute settlement process with tougher sanctions, in order to force WTO Members who are found to be in breach into immediate compliance, may be perfectly consistent with the legal nature of dispute settlement reports as binding international obligations. However, they entirely overlook that the seemingly weak enforcement mechanism of WTO dispute settlement, with its de facto accommodation of temporary ‘breach and pay’, serves as a valuable systemic safety valve. At the same time, reform proposals aimed at overcoming the dual inefficiency of ‘damages’ assessment in WTO dispute settlement in order for the system to encourage only efficient breach suffer from two main shortcomings. On the one hand, they underestimate the importance of a good compliance record for the willingness of WTO members to participate in future rounds of trade liberalization. On the other hand, they disregard the fact that under the existing legal framework, persistent non-compliance with WTO dispute settlement reports cannot seal a permanent shift of entitlements, since under the rules of the DSU, WTO law is best analysed as being protected by a property rule and not by a liability rule.

At least with respect to the features discussed herein, the current design of the DSU appears to accommodate, in a very balanced manner, both a certain amount of extra-contractual flexibility and a high degree of legal certainty for both WTO Members and private persons who are clearly the ones to benefit most from an increasing liberalization of world trade. 

I tend to agree with this assessment.  There's a fine line when establishing rules of this sort, and I think the DSU is pretty much where it should be. 

Baldwin on the Rise of Regionalism

From a recent CEPR paper by Richard Baldwin:

The rise of 21st century regionalism is not yet a disaster for the world trade system. It has kept trade liberalisation and trade booming despite the WTO’s slow progress. But the present course of events seems certain to undermine the WTO’s centricity – RTAs will take over as the main loci of global trade governance. Over the past ten years, WTO members have “voted with their feet” for the RTA option. Without a reform that brings existing RTA disciplines under the WTO’s aegis and makes it easier to develop new disciplines inside the WTO system, the RTA trend will continue, further eroding WTO centricity and possibly taking it beyond the tipping point where nations ignore WTO rules since everyone else does.34

This scenario runs the risk that global trade governance drifts back towards a 19th century Great Powers world. In the best of cases, the WTO would continue to thrive as the institution that underpins 20th century trade flows. The Marrakesh agreements would form a ‘first pillar’of a multi-pillar trade governance system. All the new issues would be addressed outside the WTO in a setting where power asymmetries are far less constrained. This is what has happened with the BITs – they established a parallel system of disciplines without substantially undermining the WTO’s authority on Marrakesh disciplines. But this is not the only scenario. It is also possible that the WTO’s inability to update its rules gradually undermines the authority of the Dispute Settlement Mechanism.

If the RTAs and their power asymmetries take over, there is a risk that the GATT/WTO would go down in future history books as a 70-year experiment where world trade was rules-based instead of power-based. It would, at least for a few more years, be a world where the world’s rich nations write the new rules-of-the-road in settings marked by vast power asymmetries. This trend should worry all world leaders. In the first half of the 19th century, attempts by incumbent Great Powers to impose rules on emerging powers smoothed the path to humanity’s greatest follies – the two world wars.

Trade Conflict with Japan and China

When I first started in the trade law world, Japan was still the big threat everyone was worried about.  Things have definitely changed since then.  From a recent NY Times opinion piece, here's a theory as to why:

Japanese trade negotiators noticed an almost magical sweetening in the mood in foreign capitals after the stock market crashed in 1990. Although previously there had been much envy of Japan abroad (and serious talk of protectionist measures), in the new circumstances American and European trade negotiators switched to feeling sorry for the “fallen giant.” Nothing if not fast learners, Japanese trade negotiators have been appealing for sympathy ever since.

The strategy seems to have been particularly effective in Washington. Believing that you shouldn’t kick a man when he is down, chivalrous American officials have largely given up pressing for the opening of Japan’s markets. Yet the great United States trade complaints of the late 1980s — concerning rice, financial services, cars and car components — were never remedied.

Now, of course, trade conflict is all about China.  Here's the latest, from the WSJ:

President Barack Obama plans to create a U.S. government task force designed to monitor China for possible trade and other commercial violations as part of a larger White House effort to get more assertive with Beijing this election year, people familiar with the matter said.

The group, called the Enforcement Task Force, will aim to enforce U.S. trade rules. Despite the generic name, officials said the group is specifically meant to target China. It will include officials from various government agencies, including the Treasury Department, the Commerce Department, the Energy Department and U.S. Trade Representative's office.

Mr. Obama is expected to announce the initiative during or around his State of the Union address later this month. The committee—and Mr. Obama's broader effort to be tougher on China over currency, market access and intellectual property rights—also are expected to be on the White House's agenda when Vice President Xi Jinping of China visits Washington next month.

Part of Treasury Secretary Tim Geithner's mission during a trip to Beijing on Tuesday and Wednesday is to discuss the administration's plans with China's leaders, officials said.

The formation of the task force has significant political implications for the 2012 election. It is a large plank in Mr. Obama's broader intent to challenge China more, an effort he telegraphed during a trip through Asia last November.

China has emerged as an important issue in the Republican presidential candidates' battle. Former Massachusetts Gov. Mitt Romney has argued the U.S. needs to get tougher on Beijing. Meanwhile, Mr. Obama's former ambassador to China, Jon Huntsman, who also is running for the GOP nomination, has urged more caution in the U.S. approach. The two sparred over the issue in debates this past weekend, with Mr. Romney criticizing Mr. Huntsman's service in the Obama administration.

Confronting China has cross-party appeal. Democrats, particularly organized labor, would like the U.S. to get tougher on Beijing. That stance also resonates among Republicans and business owners, who have expressed concerns about Beijing having an unfair economic advantage.

Should China hope for an economic catastrophe (as some people think is possible), in order to get some sympathy in trade matters?

"Likeness" in Spirits and Cigarettes

As mentioned here, the recent Appellate Body findings on likeness in the Philippines - Spirits decision seem to mean that competitiveness is the key to the "likeness" analysis, even under GATT Article III:2, first sentence.  Here's what we said about this issue in our DSC (subscribers only) for the case:

            The Appellate Body's reasoning on "likeness" in the context of GATT Article III:2, first sentence recalls the divided opinion on this issue in the EC - Asbestos case.  There, two Members of the Appellate Body took the view that, under Article III:4, likeness is about the "competitive relationship" between products:  "a determination of 'likeness' under Article III:4 is, fundamentally, a determination about the nature and extent of a competitive relationship between and among products."  (See para. 99)  By contrast, one Member of the Division was skeptical about what he referred to as a "fundamentally economic interpretation" of "like products," stating:  "the necessity or appropriateness of adopting a 'fundamentally' economic interpretation of the 'likeness' of products under Article III:4 of the GATT 1994 does not appear to me to be free from substantial doubt."  (See para. 154)

            In the Distilled Spirits case, the Appellate Body seems to have built on the reasoning of the Asbestos majority, applying it beyond Article III:4.  Of particular importance is that it did so despite the fact that the legal provision at issue was Article III:2, first sentence.  The Asbestos majority had emphasized the distinction between Article III:4 and Article III:2, with the latter containing separate provisions for "like products" and "directly competitive or substitutable products," while Article III:4 refers only to "like products."  For the Asbestos majority, this distinction indicated a broader scope of coverage for likeness under Article III:4 than for likeness under Article III:2, first sentence.  (See paras. 94-99)  In Distilled Spirits, however, the Appellate Body cited a key passage from the Asbestos reasoning, and then seemed to apply this reasoning to "likeness" under Article III:2, first sentence:

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.²¹¹

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.

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211  In EC – Asbestos the Appellate Body found that "a determination of 'likeness' under Article III:4 is, fundamentally, a determination about the nature and extent of a competitive relationship between and among products." (Appellate Body Report, EC – Asbestos, para. 99)

With these statements, the Appellate Body seems to have issued a clear ruling that, as a general matter and regardless of which provision is at issue, likeness in the context of WTO obligations is about the economic competitiveness of products.

The Clove Cigarettes appeal may put our statement that likeness is always about competitiveness to the test.  In this appeal, the Appellate Body will be considering various U.S. arguments related to the panel's findings on likeness under the TBT Agreement Article 2.1 National Treatment obligation.  On the issue of likeness under Article 2.1 as a general matter, the panel had stated:

7.99 In our view, it is far from clear that it is always appropriate to transpose automatically the competition-oriented approach to likeness under Article III:4 of the GATT 1994 to Article 2.1 of the TBT Agreement because that approach was developed by the Appellate Body in EC – Asbestos on the basis of the general principle in Article III:1 of the GATT 1994, which does not have an equivalent in the  TBT Agreement.  In EC – Asbestos, the Appellate Body stressed the relevance of the "general principle" articulated in Article III:1 as expressed in Article III:4 and how it informs the interpretation of the concept of like products in Article III:4. ...

7.119 From our considerations above, we do not believe that the interpretation of Article 2.1 of the TBT Agreement, in the circumstances of this case where we are dealing with a technical regulation which has a legitimate public health objective, should be approached primarily from a competition perspective.  We rather think that the weighing of the evidence relating to the likeness criteria should be influenced by the fact that Section 907(a)(1)(A) is a technical regulation having the immediate purpose of regulating cigarettes with a characterizing flavour for public health reasons. ...

So for the Clove Cigarettes panel, competitiveness was not the main issue under TBT Article 2.1.  Given the Spirits finding, however, will the Appellate Body take a different approach?  Will it find that competitiveness is the key under 2.1, as it is under Article III:2, first sentence?  And if so, how will that affect the findings on National Treatment in the Clove Cigarettes case?  One caveat is that the U.S. has not specifically appealed the issue of the panel's consideration of competitiveness under the likeness issue, so the Appellate Body could probably avoid this issue if it wanted to.

Let me add one more quote from our Spirits DSC:

 Of course, to the extent that such differences affect the competitiveness of the products, they will still be taken into account.  Thus, for example, if  one product involves a health risk whereas another product does not, this will have an impact on the degree to which they compete in the marketplace. 

The point here is that even if competitiveness is the focus, health risks will be taken into account to the extent they affect competition between the products, which they presumably will.

As a final point in this post, related to the Clove Cigarettes appeal more generally, the U.S. appeal arguments try to pick apart much of the panel's reasoning.  Let's say the Appellate Body agrees with some of the U.S. arguments.  If the Appellate Body finds fault with the panel's reasoning, will it be able to find a violation based on its own reasoning, or will we be left in limbo with a finding that reverses the panel but does not reach a conclusion on the substantive issues?

The Clove Cigarettes Appeal

The U.S. appellant's submission is here:  http://www.ustr.gov/webfm_send/3225  Here's one issue I'll be watching during the appeal:

73. In reaching its conclusion that Section 907(a)(1)(A) accords less favorable treatment to imported clove cigarettes than to like domestic products, the Panel erred in several respects. First, the Panel erred in its interpretation of which products should be compared. The Panel Report compares only the treatment accorded to Indonesian clove cigarettes and to domestic menthol cigarettes, and fails to compare the treatment accorded to like imported products, as a group, with that accorded to like domestic products, as a group.  ...