International Economic Law and Policy Blog

Double Remedies and the New CVD-NME Bill

Scott Lincicome points to the new CVD-NME legislation, as well as a summary, that has been in the news today. In this post, I'm going to talk briefly about how the legislation deals with the "double remedies" issue, in relation to the Appellate Body's findings in DS379.  But don't get too excited -- I'm not sure I have any great insights about how this legislation would fare if (when?) challenged at the WTO.

Recall that the Appellate Body found as follows (from our DSC; the full AB report is here):

... The [SCM Agreement] Article 19.3 obligation, it explained, "encompasses a requirement to conduct a sufficiently diligent 'investigation' into, and solicitation of, relevant facts, and to base its determination on positive evidence in the record."  In this regard, it recalled its finding above that, "among the factors to be taken into account by an investigating authority, in establishing the 'appropriate' amount of countervailing duty to be imposed, is evidence of whether and to what degree the same subsidies are being offset twice when anti-dumping and countervailing duties are simultaneously imposed on the same imported products."  Here, it noted, the DOC "made no attempt to establish whether or to what degree it would offset the same subsidies twice by imposing anti-dumping duties calculated under its NME methodology, concurrently with countervailing duties."  That is, the DOC "did not initiate any examination of whether double remedies would arise in the four investigations at issue and refused outright to afford any consideration to the issue or to the submissions pertaining to the issue that were presented to it."  (Paras. 601-604)

According to the Appellate Body, "by declining to address China's claims concerning double remedies in the four countervailing duty investigations at issue," the DOC "failed to fulfil its obligation to determine the 'appropriate' amount of countervailing duties within the meaning of Article 19.3."  On this basis, the Appellate Body concluded that "in the circumstances of the four sets of anti-dumping and countervailing duty investigations at issue," by virtue of the DOC's imposition of anti-dumping duties calculated on the basis of an NME methodology, concurrently with the imposition of countervailing duties on the same products, without having assessed whether double remedies arose from such concurrent duties, the United States acted inconsistently with Article 19.3.  (Paras. 605-606) 

Basically, the DOC erred by not even addressing the double remedies issue that was before it.

The proposed legislation deals with this issue in a section entitled "Adjustment of Antidumping Duty in Certain Proceedings Relating to Imports from Non-Market Economy Countries":

(1) IN GENERAL.—If the administering authority determines, with respect to a class or kind of merchandise from a nonmarket economy country for which an antidumping duty is determined using normal value pursuant to section 773(c), that—

(A) pursuant to section 701(a)(1), a countervailable subsidy (other than an export subsidy referred to in section 772(c)(1)(C)) has been provided with respect to the class or kind of merchandise,

(B) such countervailable subsidy has been demonstrated to have reduced the average price of imports of the class or kind of merchandise during the relevant period, and 

(C) the administering authority can reasonably estimate the extent to which the countervailable subsidy referred to in subparagraph (B), in combination with the use of normal value determined pursuant to section 773(c), has increased the weighted average dumping margin for the class or kind of merchandise, the administering authority shall, except as provided in paragraph (2), reduce the antidumping duty by the amount of the increase in the weighted average dumping margin estimated by the administering authority under subparagraph (C).

In a nutshell, an adjustment to antidumping duties, so as to avoid the double remedy problem, will be made where the subsidy reduces the price of imports, in a way that increases the dumping margins.  Here's an explanation from the legislation summary: 

Legislation addresses an adverse WTO finding on “double remedies”

Last year, the WTO Appellate Body found that there may be a “double remedy” in situations where countervailing duties are applied to NME exports at the same time that antidumping duties, calculated using the so-called “surrogate value” methodology, are applied to the exports. This legislation provides for Commerce to adjust antidumping duties to address any possible double remedy in these situations. Specifically, if a foreign exporter in a dumping case were able to demonstrate that there was an increase to its export prices due to a countervailed domestic subsidy and the use of the surrogate value methodology, Commerce would determine whether it could make a reasonable estimate of the extent of the increase to the dumping margin, and if so, make a corresponding reduction to the dumping margin.

Let me highlight two important points.  First, it has to be "demonstrated" that prices have been reduced, and it is the respondents who have to demonstrate this.  That could be difficult.  Second, DOC must be able to "reasonably estimate" the extent to which these lower prices have led to higher margins.  It's not clear how they will do this.  What if DOC can't make this estimate?  As Scott puts it on these same issues:

This raises two obvious problems: 

• First, it could be impossible for a foreign exporter to prove that a tax break (for example) it received has affected its US import prices. (Seriously, how on earth does a big manufacturing company with tons of costs and revenues prove that a little tax break affected import prices?)  And if this burden is found to be unreasonable, it might be illegal;
• Second, as noted above, Commerce has repeatedly stated that it has no idea how to "reasonably estimate the extent to which the countervailable subsidy... has increased the weighted average duty margin."  And even if Commerce does figure something out, nobody has any idea whether the WTO or the courts would find Commerce's methodology to be legal.

With so much uncertainty about how this will all work, an "as applied" challenge may be difficult.  We may have to wait for DOC to implement (assuming the bill passes, of course).

But putting that aside, does the legislation address the Appellate Body's concerns?  Well, the Appellate Body didn't tell us all that much in this regard.  Here's what we said in our DSC comment about the AB's ruling:

What is not clear at this point is exactly how detailed an analysis the Appellate Body expects, and what its components should be.  For example, do export prices need to be related to the subsidies at issue, to see how much, if at all, prices were lowered due to the subsidies?  Clearly, some type of examination of the issue is required.  But what exactly is required may only be known after a couple rounds of trying to come up with a test, and then having it challenged in WTO dispute settlement.  

Of course, before the issue goes to the Appellate Body, it will be heard by a panel.  Here's what the DS379 panel had to say about double remedies (from our DSC summary):

 The Panel further stated that "conceptually, the dumping margin calculated under an NME methodology – i.e., the difference between the constructed normal value and the export price – reflects not only price discrimination by the investigated  producer between the domestic and export markets ('dumping'), but also, in addition, the economic distortions that affect the producer's costs of production."  "Specific domestic subsidies granted to the producer of the good in question," it said, "are one of these economic distortions that are 'captured' in the NME dumping margin calculation."  Thus, "the dumping margin calculated under an NME methodology generally is higher than would be the case otherwise because it results from a comparison of the export price to market-determined, and hence unsubsidized, costs of production, rather than to the producer's actual, subsidized (or distorted) costs of production."  According to the Panel, "[t]o the extent that part of the dumping margin found to exist resulted from subsidies provided in respect of the exported good, the anti-dumping duties calculated under an NME methodology will remedy both dumping and subsidization."  In this sense, the Panel said that "if countervailing duties are simultaneously applied to imports of the same good, the subsidy is likely to be 'offset' more than once, i.e., once through the anti-dumping duty, and again at least partially through the countervailing duty."  Therefore, the Panel considered that "the concurrent imposition of anti-dumping duties calculated under an NME methodology and of countervailing duties creates the potential for imposition of a 'double remedy.'"  (Paras. 14.69-70)

Thus, the panel saw "potential" for a "double remedy." However, it's not clear what this panel would say on the question of whether the proposed statute eliminates that "potential."

This all feels like we are still in the early rounds of a long fight.

Investment Provision Lobbying in the TPP

From a group of economists:

We, the undersigned economists, write to you regarding the capital transfers provisions in the proposed Trans-Pacific Partnership Agreement (TPPA). We are concerned that if recent U.S. treaties are used as the model for the TPPA, the agreement will unduly limit the authority of participating parties to prevent and mitigate financial crises.

Nearly all U.S. free trade agreements (FTAs) and bilateral investment treaties (BITs) strictly limit the ability of trading partners to deploy capital controls – with no safeguards for times of crisis. A few recent U.S. trade agreements put some limits on the amount of damages foreign investors may receive as compensation for certain capital control measures.  They also extend the “cooling off” period before investors may file claims in international tribunals.[1] However, these minor reforms do not go far enough to ensure that governments have the authority to use such legitimate policy tools.

Authoritative research published by the National Bureau of Economic Research, the International Monetary Fund, and other institutions has found that limits on short-term capital flows can stem the development of dangerous asset bubbles and currency appreciations, and grant nations more autonomy in monetary policy-making, and protect nations from the dangers of abrupt capital flight.[2]

The U.S. government’s rigid opposition to capital controls does not reflect the global norm. According to an IMF report, “Most BITs and FTAs either provide temporary safeguards on capital inflows and outflows to prevent or mitigate financial crises, or defer that matter to the host country’s legislation. However, BITs and FTAs to which the United States is a party (with the exception of NAFTA) do not permit restrictions on either capital inflows or outflows.”[3]  Indeed, other TPP countries typically allow more flexibility in their trade and investment treaties.[4]

From a group of business leaders:

As the 11th Round of negotiations is set to open in Melbourne, Australia, we want to highlight the importance of securing a strong and enforceable agreement with all the TPP partners. While agreeing to robust enforcement tools – a priority of your Administration and the business community – would seem to be an issue on which all TPP negotiators would have already reached a consensus, that is unfortunately not the case, given Australia’s ongoing refusal to agree to one of the most widely-adopted core enforcement tools in international commerce – investor-state dispute settlement.

Australia, like the United States and the other TPP countries, has already agreed to investor-state dispute settlement mechanisms in numerous other agreements. Indeed, Australia has binding investor-state commitments with every other TPP partner, except the United States and New Zealand (with which it has a special economic and legal relationship). Included in over 2,700 instruments worldwide and supported by Democratic and Republican Administrations alike, these provisions promote the rule of law and serve as an important backstop to ensure that investors who risk their capital, property and talent in foreign countries will be able to enforce due process, non-discrimination, basic property and related protections in a neutral, balanced and objective forum.

The reasons for Australia’s refusal to accept this basic enforcement tool in the TPP are less than clear. It has been suggested that Australia may be concerned about retaining its ability to regulate in the public interest. Yet, the United States, Australia and other governments have worked carefully to address this issue both through substantive provisions and procedural mechanisms. In the United States, its recent trade and investment agreements reflect core legal principles based on our Constitution and laws that protect each government’s basic right to regulate in the public interest, while also providing, as in the U.S. legal system, that such regulation is subject to impartial review to ensure that it meets basic principles (including due process, non-discrimination and disciplines on expropriation). Other provisions provide mechanisms to limit frivolous claims and ensure transparency. Australia’s own recent investment agreements include similar provisions ensuring governments’ right to regulate, while also providing for impartial review to ensure that government action meets basic core principles.

I'm still not convinced there is ever going to be a TPP (and disagreements about investor-state are one reason for my skepticism), but if the agreement does get signed eventually, it may be that whichever way they go on investor-state will be a strong indicator of its future more generally.

The Interagency Trade Enforcement Center

By executive order today, President Obama established the Interagency Trade Enforcement Center.  Its purpose:

Mission and Functions. The Center shall:

(a) serve as the primary forum within the Federal Government for USTR and other agencies to coordinate enforcement of U.S. trade rights under international trade agreements and enforcement of domestic trade laws;

(b) coordinate among USTR, other agencies with trade related responsibilities, and the U.S. Intelligence Community the exchange of information related to potential violations of international trade agreements by our foreign trade partners; and

(c) conduct outreach to U.S. workers, businesses, and other interested persons to foster greater participation in the identification and reduction or elimination of foreign trade barriers and unfair foreign trade practices.

But it's not here yet.  They still need funding.  This is from Congressman Mike Michaud, a trade agreement critic who pushed for this new agency:

... Michaud is currently working to build support on Capitol Hill for fully funding the new office at the requested level of $26 million.

“Signing this order brings us one more important step closer to the level of trade enforcement we need to counter the predatory practices of countries like China,” said Michaud. “Now Congress needs to step up and make this new office a priority by fully funding its operations. Politicians like to talk about the need to create a level playing field for our businesses so that they can compete in the global marketplace. Now it’s time for Congress to back that rhetoric up with action.”

 

Subsidizing WTO Complaints

From a report entitled "Enough is Enough: Confronting Chinese Innovation Mercantilism," by the Information Technology and Innovation Foundation:

Empower U.S. Firms to Defend Their Collective Interests Against Chinese Mercantilism

The federal government also needs to empower U.S. firms to more effectively defend their interest when dealing with China. One way is to make it cheaper to do so. Beyond facing retaliatory threats, there’s another reason why U.S. companies don’t bring more trade enforcement cases. They are expensive and the “free rider” problem means that companies can benefit if they can convince other firms in their industry to bear the burden of helping USTR to bring a trade case. In order to remedy this, Congress should encourage companies to build WTO cases by allowing them to take a 40 percent tax credit for expenditures related to bringing the cases.

The 40% figure is an increase from a previous (2008) proposal:

Toward that end, ITIF would also encourage the Committee to consider an additional tool. Even if Congress gives the USTR more resources, government alone cannot investigate all potential WTO cases.   U.S. companies will have to play a larger role.  But there are two reasons why U.S. companies don’t bring more cases.  First, they are expensive.  Second, the “free rider” problem means that companies can benefit if they can convince other firms in their industry to bear the burden of helping USTR to bring a trade case.  In order to remedy that, ITIF has proposed that Congress should encourage companies to build WTO cases by allowing them to take a 25 percent tax credit for expenditures related to bringing WTO cases.  This tax credit could be piggybacked on top of the R&D tax credit.

Not that I expect this to happen, but if it did, I would be curious about the impact.  Would law firms simply raise their rates for WTO cases, knowing that companies could now afford to pay more?

Korean Investor-State Provisions: Sometimes Controversial, Sometimes Not

As I've mentioned before, investor-state provisions in the KORUS FTA remain controversial.  But it seems that investor-state is not a problem in other contexts:

Five years of negotiations on a bilateral investment treaty among Korea, China and Japan will be concluded at the 13th round of talks in Tokyo Tuesday. The agreement covers protection of intellectual property rights and liberalization of investment. ...   The investor-state dispute system, a highly disputed point in the Korea-U.S. free trade talks, has been included in the new treaty since the parties had no significant differences in positions.

Does anyone know why investor-state might be less of a problem here?  Are the substantive provisions different?  Is it considered more of a problem where U.S. investors are involved?  Or have we just not seen the controversy yet in the context of this agreement, and the protests will soon begin?

USTR Trade Litigator

USTR is looking for someone to head up its trade litigation:

Job Title:Assistant US Trade Representative for Monitoring and Enforcement

Department:Executive Office Of The President

Job Announcement Number:USTR-12-07-ES-KJ

SALARY RANGE:	$119,554.00 to $165,300.00 / Per Year
OPEN PERIOD:	Monday, February 06, 2012 to Tuesday, February 28, 2012
SERIES & GRADE:	ES-0905-00
POSITION INFORMATION:	Full Time - Permanent
DUTY LOCATIONS:	1 vacancy(s) - Washington DC Metro Area, DC United States
WHO MAY BE CONSIDERED:	US Citizens and Status Candidates

DUTIES:

Manages and coordinates USTR legal and interagency legal resources in connection with U.S. representation in international trade disputes at the World Trade Organization (WTO) and under U.S. bilateral and regional free trade agreements (FTAs).  Advises and trains staff attorneys on all aspects of WTO dispute settlement, including substantive legal issues, procedural matters, presentational style and litigation tactics. Develops and refines legal arguments and strategies, ensuring that attorneys properly consider cross-cutting issues.  Reviews and clears legal briefs and other submissions.

Coordinates interagency decision-making on whether and when to pursue international trade litigation and interagency development of U.S. policy relating to international dispute settlement, including U.S. negotiating positions on amending WTO dispute settlement rules and drafting of FTA dispute settlement provisions. Chairs Trade Policy Staff Committee Compliance Task Force, which serves as a forum for interagency information-exchange on current and potential international trade disputes.  Works closely with the staffs of relevant Congressional committees on litigation priorities and legislative implementation of dispute settlement results.

Applying CVDs to NMEs

Here's the text of H.R. 4071, a proposed bill that would overturn the GPX decision and allow the Department of Commerce to apply CVDs to NME countries:

To amend title VII of the Tariff Act of 1930 to provide that the provisions relating to countervailing duties apply to nonmarket economy countries

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, 

SECTION 1. SHORT TITLE. 

This Act may be cited as the `China Hurts Economic Advancement Through Subsidies Act' or `CHEATS Act'. 

SEC. 2. APPLICATION OF COUNTERVAILING DUTIES TO NONMARKET ECONOMIES AND STRENGTHENING APPLICATION OF THE LAW. 

(a) In General- Section 701(a)(1) of the Tariff Act of 1930 (19 U.S.C. 1671(a)(1)) is amended by inserting `(including a nonmarket economy country)' after `country' each place it appears. 

(b) Effective Date- The amendments made by subsection (a) apply to petitions filed under section 702 of the Tariff Act of 1930 (19 U.S.C. 1671a) on or after October 1, 2006.

It really doesn't say much, leaving lots of discretion to Commerce as to how to apply the law.  Will that shield the statute itself from a WTO challenge?  Will any WTO complaint have to wait until Commerce applies the law?

ADDED:  Scott Lincicome tweets:  "Unclear if the bill here is the real CVD-NME bill. My guess is no."

More on Oilsands

Following-up on Rob's last post, on a possible WTO complaint by Canada relating to an EU regulation on "dirty" oil, here is an op-ed on the same issue from Canadian lawyer Lawrence Herman:

There’s a fundamental WTO legal issue at stake [here].

It concerns the WTO prohibition against governments discriminating against “like” goods from different countries. This is the famous most-favoured-nation treatment rule. It requires fully equivalent treatment to imports of “like” goods wherever they come from. And the equally famous “national treatment” rule means that you can’t discriminate against imports in favour of “like” domestic products. It means that all duties, taxes or other border measures – such as carbon offset requirements – that differentiate between these “like” goods are WTO-illegal.

The question comes down to what is “likeness” in WTO terms.

Numerous WTO panel decisions have said that “likeness” is based on the intrinsic nature of the goods, not how they are made. Likeness is determined by physical properties, usage and, importantly, whether the goods compete in the same market. It is the direct “competitiveness” of the goods that is normally critical in determining likeness, according to these decisions.

How the goods are made – production and process methods – is not a differentiating factor when the imported goods are like domestic products and other imports in every other respect. A 2011 WTO Secretariat Working Paper examined the jurisprudence in depth going back many years and concluded that border measures based on production methods that don’t affect the “likeness” of the final product would be in contravention of the WTO Agreement.

Coming back to the Canada-EU dispute, the issue is this: Can the EU apply differential border measures – such as carbon offsets – on fuel from Canada that is produced from bitumen but is “like” conventional fuels in terms of physical and chemical properties, end-usage and, importantly, that competes in the same market?

Canada says definitely not. Admittedly, each case must be looked at on its facts, but WTO jurisprudence leads to the conclusion that Canada is right.

I take a broad view of "likeness," one that is based on the competitiveness of the products, so I agree that the different types of oil at issue are probably "like."

On the other hand, I think that the other elements of any WTO claim will be more complex.  Is there "discrimination" here?  We could be looking at a GATT Article I/Article III claim, with an Article XX defense.  Or, we could be looking at a TBT 2.1/2.2 claim.  Somewhere in these claims there would have to be an analysis of issues of disparate impact, the purpose of the measure, the degree to which it achieves its goals, etc.  Reasonable people can disagree on how that analysis should be carried out, and the proper conclusion in this case.  

We should find out soon what the Appellate Body thinks about the aforementioned TBT provisions in several ongoing cases.  Perhaps that will provide some guidance on how an oilsands case would play out.

Now after Seals, Oilsands

Canada never ceases to think of the WTO as the last resort for defending some of the worst aspects of its public policies. Usually, Europeans are the target.  There was asbestos, then more recently, seals and now they are rattling the WTO sabres about the oilsands.  The EU is considering giving petroleum products from the oilsands a relatively "dirty" rating, based on studies about the life-cycle contributions to emissions from these fuels.  A letter from Canadian EU Ambassador Plunkett to Connie Hedegaard, the European climate czar, was just brought to public view, thanks to Friends of the Earth Europe.  As you can see it contains oh-so-threatening language about the WTO:  http://www.cbc.ca/news/world/story/2012/02/20/oil-sands-crude-eu.html. 

As long as the EU's regulatory process hasn't been somehow highjacked by anti-Canadianism, or other illegitimate interests, and follows due process of law, the WTO dispute settlement organs are not going to be in the business of replacing the EU's scientific judgments with those of Canada's own experts.  In Brazil-Tyres, which doesn'tdirectly address climate issues, the Appellate Body went out of its way to mention climate change as an example of a regulatory challenge where a considerable margin of appreciation would be afforded to a Member as to what would be required to justify its measure under Article XX of the GATT (paragraph 151).   Even under SPS, which has certain requirements of scientific justification that wouldn't apply here since the tar sands is not an SPS matter, in EC-Hormones Suspension the AB made it clear that the role of the WTO dispute settlement organs is not to engage in de novo review of the scientific and regulatory judgments of WTO Members, substituting their own view of scientific methodology and evidence for that of the regulating Member.

Canada's fast and loose use of WTO litigation as a threat raises issues under the DSU.  Consider Article 3.10:  "It is understood that requests for conciliation and the use of the dispute settlement
procedures should not be intended or considered as contentious acts and that, if a dispute arises,
all Members will engage in these procedures in good faith in an effort to resolve the dispute." 

In the case of EU-Seals Canada filed its challenge with great bluster, probably more interested in threatening not the EU itself but Russia or Asian countires where the fate of its seal industry may ultimately be decided-obviously with Russia that hasn't worked.  But at the same time Canada may well now be stalling the composition of the panel in Seals  (either directly or indirectly).   As 3.10 suggests, WTO complaints should not be used as a hanging threat-either Canada should withdraw its complaint or support an expeditious panel process.   

Labor Mobility for Canadian Accountants

Since I found out about it recently, it has seemed to me that there is not enough commentary, blogging, scholarship, etc. about Canada's Agreement on Internal Trade.  Maybe there's lots of it, and I'm just not looking in the right places, but I haven't come across it anyway.  So, to fill that void, I want to make an effort to highlight legal developments in this area.  Unfortunately, I don't know much about the law here.  On the other hand, it looks pretty similar to GATT/WTO law, so I'm hoping I can fake it.

The latest is a panel report relating to an Ontario law that allegedly hindered trade in accounting services from other provinces.  Here is the panel's explanation of the measure: 

On November 6, 2009, Ontario issued a Notice of Measure claiming that material differences exist among the provinces/territories in respect of the competencies and standards established for licensing or authorization to practise public accounting and therefore, to protect consumers, the qualifications of individual applicants would be assessed against Ontario’s public accounting certification requirements.

In other words, if you're an accountant in a province other than Ontario, you cannot automatically practice in Ontario.  Ontario will check your qualifications first.

The main allegation was under Article 706.1 of the Agreement, which states: 

Subject to paragraphs 2, 3, 4 and 6 and Article 708, any worker certified for an occupation by a regulatory authority of a Party shall, upon application, be certified for that occupation by each other Party which regulates that occupation without any requirement for any material additional training, experience, examinations or assessments as part of that certification procedure.

This provision seems to be a mandatory mutual recognition clause of sorts.  Basicaly, if you are certified as an accountant in one province, you are automatically certified in other provinces.  The panel found that Ontario's measure violated this provision, on the following basis:

Ontario’s Notice of Measure of November 6, 2009 requires that the qualifications of CGAs from all other provinces be assessed against Ontario’s public accounting certification requirements.  Article 706.1 is quite clear that certification of a CGA from another province or territory shall occur “without any requirement for any material additional training, experience, examinations or assessments as part of that certification procedure”.

The use of the word “shall” in Article 706.1 does not allow discretion on the part of the regulatory authority.  The applicant “shall” be certified without any requirement for an assessment.

...

The Panel finds that Ontario’s Notice of Measure is inconsistent with Article 706.1 of the AIT.

So, there was a violation of 706.1.  But the real fight in the dispute was about whether the measure was justified by an "exception": 

The Respondent contends its Notice of Measure is consistent with Article 708 and therefore with the AIT. The main provisions of Article 708 as it relates to this dispute read:

1.  Where it is established that a measure falling within the scope and coverage of this Chapter is inconsistent with Article 401, Article 402, Article 403 or Article 705, or paragraphs 1, 2 or 5 of Article 706, that measure is still permissible under this Chapter where it can be demonstrated that:

(a) the purpose of the measure is to achieve a legitimate objective;

(b) the measure is not more restrictive to labour mobility than necessary to achieve that legitimate objective; and

(c) the measure does not create a disguised restriction to labour mobility.

2.  For greater certainty, for purposes of the application of paragraph 1(b) of Article 708 to paragraph 1, 2 or 5 of Article 706, a mere difference between the certification requirements of a Party related to academic credentials, education, training, experience, examination or assessment methods and those of any other Party is not, by itself, sufficient to justify the imposition of additional education, training, experience, examination or assessment requirements as necessary to achieve a legitimate objective. In the case of a difference related to academic credentials, education, training or experience, the Party seeking to impose an additional requirement must be able to demonstrate that any such difference results in an actual material deficiency in skill, area of knowledge or ability. As an example, the imposition of a requirement for additional, education, training or experience may be justified under paragraph (1)(b) where a Party can demonstrate that:

(a) there is a material difference between the scope of practice of the occupation for which the worker is seeking to be certified in its territory and the scope of practice of the occupation for which the worker has been certified by the regulatory authority of another Party; and

(b) as a result of that difference, the worker lacks a critical skill, area of knowledge or ability required to perform the scope of practice of the occupation for which the worker seeks to be certified.

The definition of "legitimate objective" appears in Article 711:

legitimate objective means one or more of the following objectives pursued within the territory of a Party:

(a) public security and safety;

(b) public order; 

(c) protection of human, animal or plant life or health;

(d) protection of the environment;

(e) consumer protection;

(f) protection of the health, safety and well-being of workers;

(g) provision of adequate social and health services to all its geographic regions; and

(h) programs for disadvantaged groups;

Here, consumer protection was at issue.  The Panel said that the central question here is: “Is the inconsistency of the Ontario Notice of Measure under 706.1 saved by Article 708."  It then explained:

The Respondent appears to claim that its market is unique.  It states it has “more high risk consumers than Manitoba because it has over 80% of Canada’s capital markets and international companies” and that “Ontario is the financial markets capital of Canada”.  In its oral presentation, it reiterates these claims referring to the Toronto Stock Exchange, the presence of larger private concerns using substantial amounts of bank credit, private investment funds and institutional investors.  It also refers to substantial layers of government and the size of government entities (e.g. if Toronto were a province it would be the third largest in Canada).

...

The Panel, after reviewing the issue, concludes that there is no meaningful difference in the nature of the Ontario market compared to the rest of Canada and that the nature and scope of practice of public accounting in Ontario is no different from the rest of Canada.

...

The Respondent claims Ontario consumers will be hurt if CGAs from Manitoba and other provinces and territories, certified to practise public accounting in their jurisdictions, are allowed to practise public accounting in Ontario.  Nowhere does it provide any solid facts to support that claim. ...

Its conclusion:  "The Panel finds that the Ontario Notice of Measure concerning Public Accountants cannot be justified under the provisions of Article 708 as necessary to achieve a legitimate objective."

As to the impact on trade: 

The Panel concurs with the Complainant and Intervenors that Ontario’s Notice of Measure has had the effect of restricting the ability of CGAs from Manitoba and the rest of Canada to practise public accounting in Ontario and therefore impairs trade. The Panel has reviewed previous Panel rulingsand concludes that it is now well established that denial of opportunity in and of itself constitutes injury and, further, the Complainant is not required to find a specific amount of injury.

The Panel finds that the Notice of Measure has impaired or would impair internal trade and has caused or would cause injury.

And finally, the recommendations:

PANEL RECOMMENDATIONS

1) The Panel recommends that the Respondent withdraw its Notice of Measure concerning Public Accountants.

2) The Panel recommends that the Respondent ensure that its regulatory authorities comply with Ontario’s AIT obligations and, in particular, allow CGAs certified to practise public accounting in the jurisdictions of all Parties to be certified to practise public accounting in Ontario without any requirement for any material additional training, experience, examinations or assessments. 

It all looks similar to GATT/WTO law, with just a few differences here and there.

Gender Discrimination Through Tariffs

Lawrence Friedman explains the CIT's latest decision in a case involving different tariff rates for men's and women's gloves:

 Once the Court reached the conclusion that the tariff is not facially discriminatory, the burden on the plaintiff is much higher. Simply showing that the discrimination has a disparate impact will not be enough. Instead, the plaintiff needs to assert facts showing a governmental intent to discriminate. And that, as you might guess, is a problem.

The first fact alleged to show discriminatory intent is that the United States government could have selected any other criteria on which to impose this duty difference. Since it chose gender and age, it must have intended to discriminate. I read that to mean that if the government wanted to burden bigger manly gloves more than dainty lady gloves, it could simply have differentiated between gloves based on size or weight. Since it did not do so, the government must have intended to put the burden on men.

The second argument was based on a governmental report from 1960 indicating that gender based tariff rates were of questionable economic justification. The Court of International Trade rejected that argument as well, holding that the report was not evidence of any Congressional intent behind the current tariff schedule.

Based on this analysis, the Court found that the plaintiffs had failed to assert facts that, if true, would plausibly give rise to an entitlement to relief. That is the standard the Supreme Court has said must be met for a case to move on in federal court. All of which seem logical and incredibly lawyerly.

Manufacturing Subsidies

From the fact sheet on President Obama's "blueprint to support American manufacturing jobs, discourage outsourcing, and encourage insourcing":

Targeting the domestic production incentive on manufacturers who create jobs here at home and doubling the deduction for advanced manufacturing (revenue neutral): In conjunction with the President’s broader commitment to corporate tax reform, the Administration is proposing measures to provide incentives for manufacturing in the United States. The Administration is proposing to reform the current deduction for domestic production by more narrowly focusing it on manufacturing activities—for example, it would no longer cover oil production. These savings would be invested in expanding the deduction for manufacturers and doubling for advanced manufacturing technologies from its current level of 9 percent to 18 percent.

Here's my question:  Are these subsidies "specific to an enterprise or industry or group of enterprises or industries" under Article 2 of the SCM Agreement?  Is "manufacturing" a narrow enough category?  In the alternative, will the subsidies in practice go mainly to certain sectors?

Trakman on Investor-State

On SSRN, Professor Leon Trakman looks at Australia's recent policy change on investor-state dispute settlement, and asks, "Investor State Arbitration or Local Courts: Will Australia Set a New Trend?"  From his conclusion:

The most profound risk to the institution of investor-state arbitration is one of perception. That perception is that the track record of ISA reflects a history of servicing developed states and their investors over developing states and their public interests. That concern is accentuated by the perception that ISA proceedings lack transparency. Arbitrators are sometimes found to be in conflict ofinterest or seen as failing to make material disclosures, while arbitral awards on occasion are inconsistent in nature and effect. The added perception is that ISA institutions like the ICSID and UNCITRAL are in a state of paralysis and unable to move beyond the status quo. Given these risks, the result may be multi-lateral inertia that leads to a further hazard: ignoring an early signal of a shift away from investor-state arbitration towards home spun domestic courts. No matter how complex, incongruous and self-contradictory that shift may be, it may also have legs that grow over time.

In addition to investor-state and local courts, I wonder whether state-state investment disputes are another avenue.  I don't feel like I hear that talked about much as a possibility for enforcing investment rules.

Alternatives to Zeroing

From the DOC final rule, issued last week, that addresses zeroing:

Several parties request clarification as to which circumstances would trigger the use of an alternative comparison methodology, and whether zeroing would be used in the alternative calculation methodology. These commentators also encourage the Department to narrowly tailor the circumstances under which an alternative comparison methodology is used. One commentator notes its concern that the reference to an alternative methodology in the Proposed Modification for Reviews is ambiguous, and will lead to parties manipulating the system for a certain preferred comparison methodology.

Some commentators remind the Department that if it is considering the use of the targeted dumping methodology as an alternative methodology, this methodology is to be employed as an exception, in very limited circumstances. One commentator suggests the Department should develop an overall final rule with regard to targeted dumping that is explicitly consistent with Article 2.4.2 ofthe Antidumping Agreement.

Some commentators state that the targeted dumping methodology was not intended to apply to reviews, and request that the Department explicitly state that it will not employ targeted dumping in this context.

Department Position: In its Final Modification for Reviews, the Department provides additional clarification of the circumstances that could trigger the use of an alternative comparison methodology. The Proposed Modification for Reviews indicated that the Department would use monthly A-A comparisons, except where it determines that application of an alternative comparison method is more appropriate. The Department also indicated its intent to apply the methodology in a manner that parallels the WTO-consistent methodology the Department currently applies in investigations. 

In this Final Modification for Reviews, the Department clarifies that because the methodology being applied will parallel the WTO-consistent methodology that the Department currently applies in original investigations, it will necessarily include any exceptional or alternative comparison methods determined appropriate to address case-specific circumstances. The Department’s regulations specifically describe three types of comparison methodologies that might be used to determine margins of dumping and antidumping duty assessment rates. Although the Final Modification for Reviews adopts the A-A method as the default method in reviews, the Department may determine to use any of the alternative comparison methodologies when deemed appropriate in a particular case.

The Department determines that it would be inappropriate to further speculate as to either the case-specific circumstances that would warrant the use of an alternative methodology in future reviews, or what type of alternative methodology might be employed. These determinations would be highly dependent on the facts of the individual proceeding. However, as is the case with all administrative proceedings, interested parties will have the opportunity to comment on whether an alternative comparison method is warranted during the normal course of the review.

Is the zeroing issue basically settled, or will we be hearing complaints about the alternative methodologies?

Transatlantic Free Trade Proposals

Dan Drezner and other "eminent persons" have put together a report on transatlantic trade and investment.  Some of their recommendations:

A new stakeholder driven bottom-up initiative on tariffs and NTBs.

Bilateral work on eliminating tariffs and addressing non-tariff measures should proceed based on decentralized government consultations with business associations, labor unions, consumers and other stakeholders from both sides of the Atlantic. The ambitious agenda should be based on the principle of zero for zero tariff elimination and a sectoral approach to NTBs. The aim should also be to put into place a mechanism to avoid future regulatory divergences

...

A comprehensive transatlantic investment agreement

The EU and the U.S. should lay the groundwork to launch negotiations on a transatlantic investment agreement at an appropriate time in the future. The political decision to launch negotiations should be based on a mandate for policymakers to negotiate a deep and comprehensive investment agreement, which improves market access for foreign investors by removing existing restrictions. It should assure non-discrimination of foreign investors, free transfers and protection in case of expropriation. It should also include provisions on procedures for state-investor dispute settlement. An investment initiative is particularly timely given the centralization of EU investment policy as a result of the entry into force of the Lisbon Treaty. 

The U.S. and EU are always (to some extent) pushing free trade with other countries.  What exactly is holding back EU-U.S. free trade?  If free trade is good, why isn't free trade with big trading partners the focus?  Is it just that there are too many industries and groups who will be adversely affected?  Is there a clash of views on what free trade agreements should like?  Something else?

Alan Argues ...

A couple days ago, Alan pointed out that treaty interpretation is more than just titles of provisions.  And he's right, of course. In addition to the context (which is how I think of these titles), he refers to the text, the negotiating history, the intention of the parties, and the object and purpose of the treaty, among other things.  So, let's talk about National Treatment in investment treaty provisions, using these interpretive tools.  We can't talk about all the investment treaty National Treatment provisions, of course, so let's just focus on one, Article 1102 of NAFTA Chapter 11:

Article 1102: National Treatment

1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

3. The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded, in like circumstances, by that state or province to investors, and to investments of investors, of the Party of which it forms a part.

4. For greater certainty, no Party may:

(a) impose on an investor of another Party a requirement that a minimum level of equity in an enterprise in the territory of the Party be held by its nationals, other than nominal qualifying shares for directors or incorporators of corporations; or

(b) require an investor of another Party, by reason of its nationality, to sell or otherwise dispose of an investment in the territory of the Party.

What jumps out at me in the first two paragraphs is the reference to "of another Party."  To me, this makes the focus of the obligation the treatment of one Party as compared to the treatment of another Party.  Along the same lines, these paragraphs refer to a Party's "own investors."  So, I see the text as providing a strong indication that any non-discrimination obligation is based on nationality.  In essence, it is a comparison of the treatment of two nations, in particular the treatment of investors of one nation compared to the treatment of investors of another nation.

Making "National Treatment" the title supports this view.  I see "National" as a fairly precise term, leaving little doubt that "nations" will play a key role in the analysis.

Moving on to other interpretive factors, I don't know anything about the negotiating history on these issues.  If anyone knows something, feel free to mention it in the comments.

As to the intention of the parties, my impression was that all of the NAFTA Parties, at least now if not originally, take the view that the provision is about nationality-based discrimination.  But correct me if I'm wrong.

On the object and purpose of the NAFTA, I don't know if there's anything there that tells us much about how to interpret the National Treatment provisions.  But I'm open to suggestions.

Finally, there is paragraph 3, which provides some sort of context.  What does it mean exactly?  I have some thoughts, but I'll save them for now, to be brought out in case someone make some arguments under this provision in the comments.

One last point, of a more general nature.  If National Treatment provisions in investment treaties are not based on "nationality," what are they based on?  If not nationality, what is the "class" that is being protected?  Or is there some variation of a "class of one" theory going on here, with the investor arguing, in essence, "you discriminated against me"?

Simon Says ....

It is apparent that Simon, “our fearless leader” is keen to rely on titles to assist in the interpretation of articles and text in treaties.  While titles may be of some assistance in certain circumstances the particular use of textual analysis doesn’t seem nearly as determinative as Simon seems to make out. And while the Appellate Body (AB) has referenced and used titles it does not fully subscribe to this approach; nor does the International Court of Justice (ICJ); nor for that matter do international adjudicators. 

The AB has previously referred to the title of a provision when interpreting the requirements within two cases, the US-Softwood Lumber IV (para 93), and the US-Carbon Steel (para 67) – and more recently as noted by Simon in the China Raw Materials case.  But, while the AB is determined to undertake a thorough textual analysis, it does not adopt a singular approach to treaty interpretation.  Rather, a combination of various criteria is utilized to interpret the treaty text.

In 1969 the Vienna Convention on the Law of Treaties (VCLT) and the International Law Commission (ILC) explained that the starting point for interpreting what the meaning of a treaty article is, is the actual article or terms of the text. In referencing the object and purpose and the context, the ILC explained that in practice, some elements of interpretation rest upon other general principles, such as pacta sunt servanda, and also provide an adjudicator with flexibility to approach the text of the treaty.

International lawyers tend to favour the VCLT approach because it not only deals with the treaty text, but also guides an interpretation built upon assessing the treaty text in the context of the entire agreement.  In interpreting treaty terms it is critically important to understand that the application of the means of interpretation is not a set of general rules, but is, as titled (ironically enough), a ‘General Rule of Interpretation’ – with the word ‘context’ linking all of the elements of interpretation together. 

As we all know, there are many different approaches: subjective, objective, textual, and theoretical.  Those treaty interpreters that focus on the text of the document do not, however, generally ignore the value of negotiating history, the intention of the parties, or the object and purpose of the treaty.  Thus, the more effective approach is identified in the work of interpreters who prioritize the intention of the parties – especially from the negotiating history, joint interpretations, and subsequent practice.  Even this approach reflecting the object and purpose of treaty interpretation - this intent-based approach - is not a perfect answer to the problem. It cannot be taken as a complete guide in deciphering the meaning of treaty language.[1] The approach is unlikely to answer whose intention, what was intended, and at what time that intention matters.

The VCLT rules of treaty interpretation were expressly applied to dispute settlement by the ICJ in the 1994 case of Territorial Dispute (Libyan Arab Jamahiriya v Chad), and then by the AB in the 1996 case of United States – Standards of Reformulated and Conventional Gasoline as: ‘the customary rules of interpretation of public international law.’  In accordance with the ILC, the AB examines the objects and purposes of the treaty to provide context to its textual approach.   Generally, the ICJ begins with the textual approach, but then expands through the VCLT and focuses on the context of the relevant treaty, as well as its object and purpose.

Now, getting back to interpreting a treaty provision based on its title. To provide context to treaty provisions, the title may be the obvious starting point for identifying the scope of the treaty provision in it.  Richard Gardiner, however, points out that “titles are often too general to provide precise guidance.”[2] So while Simon is keen to examine the ‘title’ I say: context, context, context. 

---

[1] Isabelle van Damme, “Treaty Interpretation by the Appellate Body”,  Eur. J Int Law (2010) 21 (3) 605-48, at 618.

[2] Richard Gardiner, Treaty Interpretation,  (OUP, 2008) at p180. 

 

Investor State in the KORUS FTA

I thought this issue was settled, but apparently not.  From the Korea Herald:

The Korea-U.S. free trade pact has resurfaced as a hot-button issue ahead of the April 11 general elections as the liberal opposition parties vow to scrap it should disputed clauses not be renegotiated.

...

The liberal forces, led by the main opposition Democratic United Party, argue that without revisions, the pact could encroach upon Korea’s economic sovereignty, while stressing that the ruling bloc railroaded its ratification through parliament last November.

The opposition parties on Wednesday sent a letter to the U.S. government in Seoul, in which they threatened to repeal the pact should the U.S. reject their demand for renegotiations.

“We regard the pact ― rammed through parliament ― as null and void, and call on (the government) to suspend its effectuation,” DUP chairwoman Han Myeong-sook said during a press conference.

...

The DUP now demands that 10 clauses be renegotiated.

The major bone of contention is the Investor-State Disputes settlement mechanism. The ISD system allows U.S. investors to seek settlements on disputes with Korea in the courts of a third country. The opposition argues this would work mostly in favor of the U.S. with its influence over the international judicial system.

The "Good Kind" of Offshoring

Good for the U.S. anyway; bad for Japan.  From Reuters:

Toyota Motor Corp will shift production of its Highlander hybrid sport-utility vehicle from Japan to Indiana, where the company will invest $400 million and add 400 new jobs.

The Japanese automaker also plans to export some Highlanders to other countries. Production of the hybrid SUV will likely begin in the second half of 2013.

I tried to find some news about how this is being received in Japan, but didn't see anything.

National Treatment Issues in the Bilcon NAFTA Chapter 11 Case

It has been a while since I've had an excuse to talk about National Treatment issues in investment treaties, so I'm happy to see the Bilcon NAFTA Chapter 11 case going forward.  As usual, I turn to Luke Peterson for a basic overview of the facts:

The claim, which is being arbitrated under the UNCITRAL rules, and administered by the Permanent Court of Arbitration, arises out of a thwarted investment in a quarrying project in the Canadian province of Nova Scotia.

A New Jersey-based family, the Claytons, and their Delaware corporate vehicle, Bilcon, allege that a lengthy environmental assessment process was conducted in an arbitrary and unfair manner by Canadian authorities, ultimately stymieing the investors plans to mine basalt – a key ingredient in the production of concrete and asphalt – and then ship it by bulk tanker to their New Jersey manufacturing site.

The proposed investment attracted considerable local opposition and scrutiny in Nova Scotia.

Following the ultimate rejection of the project in 2007 by a joint provincial/federal environmental assessment process, the U.S. investors moved to arbitration under the NAFTA. In a Notice of Arbitration filed in the case, the claimants allege that they were subjected to the most onerous of a series of possible reviews under Canada’s environmental assessment legislation – contrary to the treatment of other similar projects – and that the resulting review misstated or incorrectly applied relevant legal rules and procedures.

There are a lot more issues than just National Treatment, but I'm going to focus on that one.  The investors' memorial is here.  Here's an excerpt from the National Treatment part:

538. Canada has acted inconsistently with its National Treatment obligation in NAFTA Article 1102:

a) There are Canadian investors and investments in like circumstances with Bilcon and its Investors;

b) Canada accorded Bilcon and its Investors treatment that was less favorable than the treatment accorded to Canadian companies in like circumstances;

c) The impugned measures interfered with the conduct, management, operation and expansion of Bilcon.

A. Likeness

539. The Canadian environmental assessment scheme is of general application. Therefore, the universe of investors and investments that are in like circumstances includes in principle the general class of proponents under the scheme.

...

B. Canada Provided Better Treatment

546. Canada provided the worst level of treatment possible to the Investors and their Investment. By comparison, Canada provided more favorable treatment to Canadian investors and their investments in like circumstances. ...

D. Conclusion

598. Canada has failed to meet its obligations under NAFTA Article 1102 as a result of the provision of better treatment to Canadian investments or Canadian investors who are in like circumstances to the Investors or their Investment, Bilcon.

...

600. Canada has acted inconsistently with its national treatment obligation in Article 1102 by not treating the Investors and their Investment as favorably as investors and investments of investors from Canada.

601. Rather than providing the best treatment available, Canada actually provided the worst level of treatment possible to the Investors and their Investment. By comparison, and as described in this Part of the Memorial, Canada provided more favorable treatment to the Canadian investments.

Canada's counter-memorial is here.  Here's an excerpt of the National Treatment arguments:

400. Accordingly, for the Claimants to make out a claim under Article 1102 or 1103, they bear the burden of showing that: (1) a government accorded them “treatment” during the EA of the Whites Point project and that the same government accorded treatment to other domestic or foreign investors or investments; (2) the treatment this government accorded to the Claimants or their investment was “less favourable” than that which it accorded to these other domestic or foreign EA proponents; and (3) the government accorded the allegedly discriminatory treatment in question “in like circumstances”. 

401. This analysis has to be conducted in light of the object and purpose of Articles 1102 and 1103, which is to prevent discriminatory treatment based on the nationality of an investor or its investment. In past NAFTA Chapter Eleven arbitrations, all three NAFTA Parties have agreed that the national treatment obligation is designed to protect against discrimination on the basis of nationality. The statements of the NAFTA Parties on Article 1102 apply equally to the MFN obligation under Article 1103.

402. Likewise, NAFTA Chapter Eleven Awards reflect that the central object of Article 1102 is to prevent nationality-based discrimination. ...

403. As is shown below, the Claimants here make no attempt to demonstrate that Bilcon was “unreasonably” treated “less favourably” than any of the domestic or foreign investors they identify as potential comparators. Nor can they. The treatment accorded to Bilcon was identical to the treatment accorded to many other domestic or foreign proponents. Further, to the extent that any of the treatment was different, the individual circumstances present in each of the cases resulted in their being reasonable scientific and policy reasons for the different treatment.

...

478. The Claimants have failed to meet their burden to prove that the treatment Canada and Nova Scotia accorded to Bilcon during the EA of the Whites Point project discriminated against them on the basis of their nationality. At most the Claimants have established that in comparison with some EA proponents, though not all, Bilcon was accorded different treatment. What they have failed to show, however, is that all of what they challenge is treatment covered by Articles 1102 and 1103. Similarly, they have failed to provide any analysis of how the treatment they received was in any way less favourable. Finally, the evidence presented above concerning the fifteen comparators identified by the Claimants demonstrates that any differences in treatment resulted from the significantly different circumstances of the comparator projects, including (1) the biophysical and socio-economic environments; (2) the nature of the projects (including, among others, size, duration, and activities involved); and (3) the level of public concern. For all of these reasons, the treatment accorded to Bilcon is no basis for a claim under 1102 or 1103. To hold otherwise would negate the right of the NAFTA States to make reasonable distinctions based on valid policy and scientific reasons.

There are a number of issues to talk about in the context of National Treatment, but one of particular interest to me is the meaning of "nationality-based" discrimination, a phrase used by Canada but not the claimaints.  The issue hasn't been developed in great detail yet, but hopefully later submissions and the hearing will give us more. 

Banning Keystone Oil Exports

Some members of Congress are trying to prevent oil that would go through the proposed Keystone pipeline from being exported:

Rep. Ed Markey (D-Mass.) and other House Democrats called the bluff of Keystone XL pipeline supporters by introducing a bill that would ensure that the oil and refined fuel from the Canadian conduit is actually sold in the United States. The bill comes as Republicans on the House Energy and Commerce Committee make a push to force the approval of the pipeline, despite concerns about the pollution, price and the ultimate destination of the Canadian crude.
 
...
 
Rep. Markey’s bill addresses head-on the claims by Keystone supporters, who have asserted that the project is in the national security interests of the United States, and will reduce U.S. dependence on Middle Eastern oil. The reality is that TransCanada, the company behind the pipeline, has entered into long-term contracts with refineries to export the fuel to Latin America, Europe and other markets.

The text of the bill reads as follows:

To ensure that oil transported through the Keystone XL pipeline is used to reduce United States dependence on Middle Eastern oil.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. ENERGY SECURITY.

The Secretary of Energy shall ensure that any crude oil and bitumen transported by the Keystone XL pipeline, and all refined petroleum products whose origin was via importation of crude oil or bitumen by the Keystone XL pipeline, will be entered into domestic commerce for final disposition. The President may provide for waivers of such requirement in the following situations:

(1) Where the President determines that such a waiver is in the national interest because it--

(A) will not lead to an increase in domestic consumption of crude oil or refined petroleum products obtained from countries hostile to United States interests or with political and economic instability that compromises energy supply security;

(B) will not lead to higher costs to refiners who purchase the crude oil than such refiners would have to pay for crude oil in the absence of such a waiver; and

(C) will not lead to higher gasoline costs to consumers than consumers would have to pay in the absence of such a waiver.

(2) Where an exchange of crude oil or refined product provides for no net loss of crude oil or refined product consumed domestically.

(3) Where a waiver is necessary under the Constitution, a law, or an international agreement.

At first glance, I would say that this measure likely constitutes an export restriction under GATT Article XI:1, and may also violate GATT Article V (freedom of transit).  However, let me qualify this by saying I'm not completely sure how the pipeline process works, and there may be some aspects that complicate the analysis. 

Assuming there is a violation, I'm not sure there are really any good defenses.  There are arguments to be made, but they seem like a stretch.

The last part is interesting, though: The President "may provide for waivers ... Where a waiver is necessary under the Constitution, a law, or an international agreement."  So if this bill became law (which it probably will not), perhaps the President could simply waive the export restrictions under the measure on the theory that they violate the GATT?

Chinese Compliance with WTO Rules

There seems to be some controversy over whether China will comply with the Raw Materials decision.  Personally, I'm not sure there is anything to be concerned about at this point.  Governments are often disappointed when they lose WTO disputes, as are the domestic constituencies that have been affected.  Some groups within the government prefer not to comply, or try to find ways to minimize the impact of compliance.  This is all pretty normal, regardless of which government you are talking about.  Usually, despite some misgivings, governments usually comply to a great degree.  So, I wouldn't start worrying about Chinese compliance yet.  That seems especially true on a day where Bloomberg reports this:

China’s decision to allow Citigroup Inc. (C) to issue credit cards in its own name may signal a step toward the government in Beijing opening its banking industry.

New York-based Citigroup is the second foreign bank, and the first Western one, to be permitted to issue credit cards in China.

The announcement yesterday came as the World Trade Organization, acting on a U.S. complaint, probes the legality China’s refusal to let foreign companies issue their own bank cards denominated in its currency or to permit companies such as Visa Inc. (V), American Express Co. (AXP), MasterCard Inc. (MA), Discover Financial Services (DFS) and First Data Corp. (FDC) to process card transactions in China.

“It’s perhaps not a coincidence that this is coming at this point when this case is going on,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “But I think it’s more connected to changes on the ground in China, in its policy on competition in banking in China, where we see a cautiously gradual opening.”

China requires foreign banks to “co-brand” with Chinese operators to issue credit cards and execute payments through China UnionPay Data Co. (CUPDCZ) The U.S. says the rules contravene a pledge the world’s most populous nation made when it joined the Geneva-based WTO in 2001 to open its debit- and credit-card markets to foreign processors by the end of 2006.

Treaty Interpretation and Titles of Provisions

For those of you who are in to treaty interpretation, this is from last week's China - Raw Materials Appellate Body report:

320. In addition, we note that Article XI of the GATT 1994 is entitled "General Elimination of Quantitative Restrictions". The Panel found that this title suggests that Article XI governs the elimination of "quantitative restrictions" generally. We have previously referred to the title of a provision when interpreting the requirements within the provision. In the present case, we consider that the use of the word "quantitative" in the title of the provision informs the interpretation of the words "restriction" and "prohibition" in Article XI:1 and XI:2. It suggests that Article XI of the GATT 1994 covers those prohibitions and restrictions that have a limiting effect on the quantity or amount of a product being imported or exported.

(footnotes omitted) 

The issue of the relevance of the title of a provision is of particular interest to me in relation to "National Treatment" provisions.  There is some debate, especially in investment treaty circles I think, over whether non-discrimination obligations in National Treatment provisions only prohibit "nationality-based" discrimination (see this old post).  To me, the use of "National Treatment" in the title of these provisions makes clear that "nationality-based" discrimination is the focus.  (Of course, the other side, even if they accept the value of titles to the intepretive analysis, probably still reaches a different conclusion even when the title is taken into account.)

Julia Qin on GATT Article XX and China - Raw Materials

Julia was trying to comment on this post, but neither she nor I could make the comment go through, so I'm putting it here as a separate post:

Technically, the accession protocol should be an independent legal instrument that establishes China's accession to the WTO Agreement, which means it should be separate from and outside the WTO Agreement itself. However, the accession protocol declares itself to be "an integral part" of the WTO Agreement, thereby making itself part of a covered agreement under DSU. Note that this integration is also the legal basis for subjecting the protocol to the WTO dispute settlement mechanism, since the protocol does not otherwise say so explicitly.

Accession to international organizations or treaties is normally done through a legal instrument that does not contain substantive obligations. Consequently, there is no issue of coherence between the provisions in the accession instrument and the provisions in the underlying treaty. The WTO accession is unique. When you have an accession instrument that sets out numerous substantive conditions for accession, and at the same time declares all these conditions are "an integral part" of the underlying treaty, you are bound to be thrown into a strange situation for treaty interpretation.

Facing this unfortunate reality, the WTO treaty interpreter has a policy choice to make - treat the protocol provisions and all the relevant WTO provisions on the same subject matter in an organic or holistic way unless the protocol explicitly says otherwise, or treat each protocol provision as independent from the underlying WTO agreements unless the protocol explicitly says otherwise. So far the AB has chosen the latter approach - a strict textualist approach that is. I guess it is politically safer to do so, given the fragile state of affairs at the WTO.

As for the relationship between GATT XX and other WTO agreements, the most critical test would be to the SCM. Subsidy issues are one of the most difficult issues to tackle conceptually, especially after the global financial crisis.

For those who are interested, I have explored the challenge involved in the interpretation of the accession protocol, including one published in JWT Vol. 44:1 (Feb. 2010), and one in Chinese J. Int'l L. Vol. 10:2 (Jun 2011). The pre-publication versions are available at http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=625173