International Economic Law and Policy Blog

Lots of WTO Disputes This Year

Here is a table showing WTO complaints (consultations requests) for 2004-2012:

Year	Number of Standard DSU Complaints, by year
2012	14
2011	8
2010	17
2009	14
2008	19
2007	13
2006	20
2005	12
2004	19

Here's a similar table for "matters", which is a subjective judgement we (i.e., WorldTradeLaw.net) made to group certain similar cases together:

Year	Number of Standard DSU Matters, by year
2012	10
2011	7
2010	12
2009	9
2008	13
2007	7
2006	17
2005	10
2004	18

What jumps out at me is that the figures for the first (approximately) 7 months of 2012 are equal to or greater than several prevous full years.  We are on pace for about 24 complaints this year.

What's going on?  Why the increase?   I'm not sure, but let's look at the list of 2012 complaints to see what's in there:

Dispute Name	DS Number	Complainant(s)	Respondent	Request Date	Agreements
Australia - Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging	441	Dominican Republic	Australia	Jul 18, 2012	GATT, TBT, TRIPS
China - Anti-Dumping and Countervailing Duties on Certain Automobiles from the United States	440	United States	China	Jul 05, 2012	AD, GATT, SCM
South Africa - Anti-Dumping Duties on Frozen Meat of Fowls from Brazil	439	Brazil	South Africa	Jun 21, 2012	AD
Argentina - Measures Affecting the Importation of Goods	438	European Union	Argentina	May 25, 2012	Agriculture, GATT, Licensing, Safeguards, TRIMs
United States - Countervailing Duty Measures on Certain Products from China	437	China	United States	May 25, 2012	GATT, Protocol, SCM
United States - Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India	436	India	United States	Apr 12, 2012	GATT, SCM
Australia - Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging	435	Honduras	Australia	Apr 04, 2012	GATT, TBT, TRIPS
Australia - Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging	434	Ukraine	Australia	Mar 13, 2012	GATT, TBT, TRIPS
China - Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum	433	Japan	China	Mar 13, 2012	GATT, Protocol of Accession
China - Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum	432	European Union	China	Mar 13, 2012	GATT, Protocol of Accession
China - Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum	431	United States	China	Mar 13, 2012	GATT, Protocol of Accession
India - Measures Concerning the Importation of Certain Agricultural Products	430	United States	India	Mar 06, 2012	GATT, SPS
United States - Anti-Dumping Measures on Certain Shrimp from Viet Nam	429	Viet Nam	United States	Feb 22, 2012	AD, DSU, GATT, Protocol of Accession, WTO
Turkey - Safeguard Measures on Imports of Cotton Yarn (Other than Sewing Thread)	428	India	Turkey	Feb 13, 2012	GATT, Safeguards

Nothing in particular strikes me as significant here.  Just the usual mix of cases, but more of them.  So is this a trend?  Or just an aberration?

Market Economy Treatment in EU Law

Over at the European Law Blog, Jess Lawrence provides a good summary of a recent ECJ case:

Last week’s Xinanchem judgment, however, is a significant step along the path toward normalized trade relations between China and the EU. In this case, which Advocate General Kokott called “of fundamental importance for future trade relations between the European Union and a number of dynamic emerging countries, such as the People’s Republic of China” (AG para. 1), the Grand Chamber of the ECJ dismissed the Council’s appeal of a General Court judgment in favor of the Chinese company.

Zhejiang Xinan Chemical Industrial Group (Xinanchem) is a Chinese company that produces, among other things, glyphosate: an herbicide used by farmers all over the world, including in Europe (para. 8).

The Council has imposed anti-dumping duties on glyphosate from China since 1998. Under EU anti-dumping law, there is a special rule for determining the ‘normal value’ (the price to which the ‘dumped’ product will be compared) for imports from non-market economies (NMEs). For NMEs, normal value is generally determined by looking at prices in a market economy third country (the ‘analogue country’ method). However, a producer from an NME can apply for market economy treatment (MET) if it can demonstrate that it actually operates under market economy conditions with respect to the manufacture and sale of the product concerned (paras. 2-4).

Xinanchem applied for MET in 2003, but was denied because the Commission found that it was not sufficiently independent from Chinese State control (paras. 11-13). Therefore, Council Regulation EC 1683/2004 set a normal price using the analogue country method (in this case by looking at prices in Brazil), and imposed a definitive anti-dumping duty of 29.9% (para. 14).

Xinanchem brought an action for the annulment of the Regulation. The General Court found in favor of Xinanchem, annulling the action insofar as that company was concerned, in 2009.  In the General Court’s opinion, the Commission and the Council had made their decision to refuse MET status without sufficient investigation into whether the fact that the State was a substantial shareholder in Xinanchem and had influenced the appointment and composition of the board of directors necessarily amounted to State control over decisions regarding production and pricing (para. 19). As the General Court put it:

[T]he concept of ‘significant State interference’ cannot be equated to just any influence on the activities of an undertaking or to just any influence in its decision-making process, but must be understood as meaning action by the State which is such as to render the undertaking’s decisions incompatible with market economy conditions (para. 20).

Accordingly, the General Court held that the Council and Commission had erred in the process of making the decision not to grant MET status to Xinanchem.

The Council appealed the judgment, arguing, first, that “State control such as that described [for Xinanchem] … automatically amounts to ‘significant State interference’ ” (para. 75); and second, that the State interfered in setting Xinanchem’s export prices (paras. 95-96).

The Grand Chamber of the ECJ dismissed the appeal in its entirety. It began by noting that in order for a company to be granted MET status, a producer must show two things regarding its production decisions: first, “that its decisions regarding prices, costs and inputs, including for instance raw materials, cost of technology and labour, output, sales and investment, are taken in response to market signals reflecting supply and demand”; and second, that there is no “significant State interference in that regard” (para. 72). The Court, agreeing essentially with the General Court and the Advocate General, found that the presence of State parties on the board of directors and State ownership of shares did not automatically equate to a violation of these criteria:

In the present case, it must be found that State control, such as that found by the institutions … is not, by its nature, incompatible with market economy conditions. In addition, although the fact that the distribution of the shares enabling the State shareholders – even though minority shareholders – to control de facto the general meeting of Xinanchem’s shareholders, and thereby appoint the board of directors, does give the State a certain influence over that company, it does not, however, follow that the State actually interferes – still less significantly – in the company’s decisions regarding prices, costs and inputs. Nor does such interference automatically follow either from the fact that some of the directors of that company are connected to it by employment contracts or by a contract for the supply of services (para. 83).

The Council and Commission therefore had an obligation ”to take into account the evidence, submitted by the producer concerned, of the real factual, legal and economic context in which it operates” (para. 78).

Moreover, with regard to the second ground of appeal, the ECJ found that the Council and Commission had again failed to perform an adequate assessment of the evidence in the case: “the institutions cannot restrict their assessment to an analysis of the ‘prima facie’ situation if the producer furnishes evidence which is capable of rebutting that analysis” (para. 102). The EU institutions, according to the Court, are “required, under the principle of sound administration, to examine with all due care and impartiality the evidence provided by the producer and to take due account of all relevant evidence when assessing the effects of that mechanism on that producer’s decisions concerning export prices” (para. 104).

Antidumping Measures and Global Supply Chains

Recently, domestic solar cell (module) producers in both sides of the Atlantic have redoubled their efforts to stop the influx of cheaper rival products from China.  Predictably, they rely heavily on trade remedies such as antidumping measures. Of course, protectionism of this sort, in particular amid the recession, is hardly news.  However, what IS really interesting is that the current solar cell saga highlights the nonsensical nature of antidumping measures in the new trade reality characterized by global supply chains.  There is an inherent anachronism at the heart (structure) of antidumping remedies.  They are premised on a hidden assumption that an importing country (that can impose trade remedies on imported goods to protect their domestic producers) can “identify” where those imports originated (“mono-location production”).  However, most of manufactured products these days, not only T-shirts but also cars, airplanes, iPod, etc., are sourced globally (“multi-location production”).  Perhaps, more importantly, in this global supply chain phenomenon the traditional divide between trade in GOODS and SERVICES becomes blurred.  As seen in the solar cell saga, the final destination of the global supply chain ends in the domestic construction sectors that badly need affordable components such as solar cells to cut the cost.  This is why not all European industries rally behind the recent antidumping investigation by the Commission against Chinese imports.  Read this.

http://www.pv-magazine.com/news/details/beitrag/solar-trade-case-will-go-to-europe_100007112/#axzz21YVgaLBv

The Proposed Made in USA Olympic Uniform Legislation

I did a post on this on the Cato blog here.  Here's an IELP version.  (You can see the difference in tone with what I say on this blog!)

We now have the technical details of the Olympic uniform controversy, as the proposed Senate legislation is available.   Some key excerpts:

(a) In General- The [United States Olympic Committee] shall adopt a policy with respect to uniforms to be worn by athletes during ceremonies that are part of the Olympic Games, the Paralympic Games, or the Pan-American Games that requires the [United States Olympic Committee]–

(1) to purchase or otherwise obtain only uniforms that meet the requirements described in subsection (b); or

(2) to make publicly available a detailed justification of the reasons the corporation purchased or otherwise obtained uniforms that do not meet those requirements.

(b) Requirements- A uniform meets the requirements described in this subsection if the uniform, including accessories, such as ties, belts, shoes, and hats, meets the standards of the Federal Trade Commission for labeling as `Made in USA’.

First off, I doubt the commercial quantitities at issue here will lead to a WTO complaint.  But just for fun, let's talk about the legislation as if it might be challenged (assuming it is passed into law).

Is there a "measure" to challenge here?  I have seen the USOC described as a "private" organization. However, it is federally "chartered" under U.S. law. So what exactly is the USOC in terms of its relationship to government?  Are its acts those of a government?  What if those acts are based on legislative orders from the government?

Second, the USOC does not actually have to use domestically made uniforms, as long as it can provide a detailed justification for why it did not.  Presumably, acceptable reasons will relate to the absence of domestic goods.  Should any challenge wait to see how the USOC actually applies this law?  Do they, in effect, have the discretion to act consistently with international trade law?

Another passage from the legislation says:

(d) Compliance With Trade Agreements- The policy adopted under subsection (a) shall be applied in a manner that is consistent with the obligations of the United States under all applicable trade agreements to which the United States is a party.

I can't figure out what they have in mind here.  How could this be implemented consistently with trade obligations (aside from the discretion point above)?  Could the USOC be considered a government entity, and any purchases deemed to be non-covered purchases under the GPA?

ASIL IEcLIG Call for Papers

I'm reposting this because the submission deadline is coming up.  From the ASIL/IEcLIG:

2012 Biennial Interest Group Conference:

Re-Conceptualizing International Economic Law: Bridging the Public/Private Divide

George Washington University Law School

Washington D.C., USA

November 29-December 1, 2012

I.         Conference Theme

The ASIL International Economic Law Interest Group will hold its next biennial conference on November 29- December 1, 2012 at the George Washington University Law School in Washington D.C.  The title of the conference is “Re-Conceptualizing International Economic Law: Bridging the Public/Private Divide.”

International economic law purports to regulate and facilitate various cross-border business activities, such as exports and imports, financial transactions, and foreign direct investment.  Its architecture, which the Bretton Woods consensus established six decades ago, is based largely on a “state-to-state” framework.  However, as both the nature and modalities of the underlying international business transactions transform, the conventional statist model of international economic law needs adjustment, or at least re-examination.  For example, widespread global supply chains increasingly challenge the wisdom of traditional customs regulations that were created against the backdrop of a mono-location production model.  In the area of foreign direct investment, a host government is often viewed as a mere party to a contract, not necessarily as a sovereign regulator.  As was seen in the making of Basel III, private actors (such as bankers) play a critical role in shaping regulations.

These recent trends compel us to break away from long-standing principles that separate public actors from private actors.  It is fruitless to consider the work of public actors without considering the efforts of the private sector.  In this regard, it is high time that scholars, practitioners and policymakers develop new ideas, doctrines, research agendas, and policy proposals to re-conceptualize international economic law to keep abreast of the new regulatory environment.

II.       Possible Topics for Papers and Panels 

With this backdrop, the November conference will organize sessions that address the full range of international and transnational economic law.  We encourage scholars to submit papers or panel proposals related to trade, investment, international financial regulation, transnational private law, and development law, as well as their intersection with social regulation such as over global warming, labor rights, human rights, and consumer safety. This call for papers welcomes submissions that provide new analytical frameworks, reassess legal theory, evaluate developments in legal doctrine, engage in empirical analysis of how international economic law operates, and provide guidance for policymakers, regulators and adjudicators in this time of international economic change.

The range of possible topics is wide—the list below is provided as a thought-starter of possible topics identified by the conference committee. We welcome, however, quality proposals on any international economic law topic.

     * The role of epistemic communities in financial law: closed clubs v. continually evolving centers of change;

     * The legitimacy and accountability of private norm-setters;

* Room for private actors in international organizations: how the Bretton Woods institutions and the G20 can (or should) reach out beyond states;

* Are developing countries’ interests advanced by a shift away from state-centered law making?;

* Is soft law an end in itself? Can soft law be the preferred method of operationalizing international standards?;

* Climate change norm-setting: does it lend itself to a non-statist approach?;

* The new dangers of capture outside the statist model;

* Methodological approaches for studying private actors in international economic law and their implications;

* The role of private actors in a fragmented international economic law system;

* The transnational/transgovernmental link between international economic law and domestic law and politics;

* The changing legal and institutional terrain for the investor-State dispute settlement mechanism;

* Global supply chains and the role of private businesses in food and consumer safety regulations;

* International economic law and the reassessment of development policies;

* The rise of the BRICs and a new international economic order?;

* Regional trade and investment agreements and their role in breaking the public/private divide;

* The implications of the Doha Round’s collapse for international economic law governance;

* The role of domestic administrators and courts in the operationalization of international standards;

* The interaction of public and private international institutions;

* The increasing influence of private actors on the development of international legal norms; and

* The role and maturation of civil society's interaction with international economic law.

The full details are here.

 

EU-Japan FTA

Yesterday the European Commission submitted a proposal to EU member states to commence negotiations for a FTA with Japan.  The announcement said "Priority in the negotiations will be the elimination of non-tariff barriers to trade on the Japanese market, as well as access to Japan's public procurement market."  Most (all--are there any exceptions?) NTBs, if removed pursuant to an FTA, would have to be removed multilaterally under the WTO's MFN rule.  Indeed, Japan and the EU are both parties to the WTO Government Procurement Agreement, which also contains an MFN obligation.  So, why are these negotiations bilateral, when the other trading partners of Japan and the EU will be able to free ride on the liberalization?

Trade Policy Research Assistant Position

We are looking for a full-time research assistant at Cato's trade policy center.  Here are the details:

The Cato Institute seeks a research assistant to support the efforts of its  trade scholars, who focus on educating the public about the benefits of free  trade and the costs of protectionism. The ideal candidate will have an excellent  work ethic, strong writing and communications skills, a real interest in the  details of U.S. trade policy, some understanding of the institutions,  organizations, agencies and other entities that affect trade policy, and some  appreciation for the legislative, administrative, political, and historical  details that animate the U.S. trade policy debate.

Advanced degree in economics or public policy preferred. Compensation will be  commensurate with experience, accomplishment, and ability.

Applicants should send their resume, cover letter, and writing samples  to:

Dan Ikenson
Director, Herbert A. Stiefel Center for Trade Policy  Studies
Cato Institute
1000 Massachusetts Ave. NW
Washington, DC  20001
Fax (202) 842-3490
Email: [email protected]

I'm guessing that many of this blog's readers are beyond research assistant status, but if you know someone who might be interested, please pass this along.

UNCTAD World Investment Report 2012: Proposing Special and Differential Treatment in Investment

See the recently released UNCTAD World Investment Report 2012.  It proposes S&D treatment in investment, including provisions for non-binding national treatment and "fair and equitable treatment" norms for the less developed party.  I wonder whether they have determined that these types of reduced commitments would make up in policy space for development what they must lose by marginally deterring investment.  In fact, I wonder whether they have determined that national treatment and fair and equitable treatment actually constrain policy space for development.  Anyone have a case in which they think there was such constraint?  I don't find the "regulatory chill" arguments to the effect that states don't legislate for development because they fear suits based on these norms appealing--largely because in the absence of a smoking gun case any such effect seems to me to be largely an artifact of NGO exaggeration of the threat.  But I hasten to add that I don't follow the investment cases closely, so perhaps someone would point me to some smoking gun cases.  

Mavroidis on DSU Reform--Compliance

See Petros Mavroidis' briefing paper at CUTS International.  He argues that poor countries have problems identifying violations that hurt them, and have further problems because retaliatory enforcement hurts their own welfare.  He suggests that existing proposals for DSU reform do not address these issues, although the proposals for monetary compensation would address the latter issue.  

Made-in-China Olympic Uniforms for the Team USA

This is why we need more "social marketing" for the cause of free trade. Here goes an insightful posting by Dan Ikenson (Cato Institute).

http://www.cato.org/publications/commentary/why-not-make-olympic-uniforms-china 

"If you are still not convinced of the folly of our policymakers' objections, consider this: As our U.S. athletes march around the track at London's Olympic stadium wearing their Chinese-made uniforms and waving their Chinese-made American flags, there is a good chance that Chinese athletes will have arrived in London byU.S.-made aircraft, been trained on U.S.-designed and -engineered equipment, wearing U.S.-designed and -engineered footwear, many having perfected their skills using U.S.-created technology."

 

Going Beyond Non-Discrimination

From a speech by WTO DG Pascal Lamy:

Growing  interdependence among nations, as well as growing consumer awareness, have  certainly focused greater attention on NTMs [non-tariff measures]. As the use of NTMs increases, the  potential for friction is likely to increase. A number of high-profile disputes  have already arisen around public policy measures. The SPS and TBT agreements  go beyond non-discrimination and include the need to ensure that measures are not  unnecessarily trade restrictive. As has been made clear by recent decisions of  the Appellate Body, this can involve WTO adjudicators being called upon to assess  the legitimacy of the objectives that a member pursues through domestic  regulation, and to scrutinize the regulatory choices and distinctions that it  makes in seeking to achieve those objectives.  Some question the appropriateness of  adjudicators having to do this, and ask, more generally, how the line should be  drawn between an inappropriate inquiry into government motivation and an  appropriate assessment of measures that have trade effects and that are  challenged by other members.

I'm a little puzzled by this last sentence.  Why is an "inquiry into government motivation" called "inappropriate" and an "assessment of measures that have trade effects" called "appropriate"?  Or am I reading this wrong?  There is little doubt that both "motivation" and "effects" can be controversial and sensitive issues, and we need to think carefully about how this analysis should be carried out.  To me, though, the main source of the problem is where the rules prohibit measures due to their "trade effects" in situations where the measures affect both domestic and foreign products/producers equally.

More Likeness as Competitiveness

The trend continues, this time under the GATS.  This is from yesterday's China - Electronic Payment Services panel report:

7.702 In the light of the above, we consider that a likeness determination should be based on arguments and evidence that pertain to the competitive relationship of the services being compared.  As in goods cases where a panel assesses whether a particular product is a "like product", the determination must be made on the basis of the evidence as a whole. If it is determined that the services in question in a particular case are essentially or generally the same in competitive terms, those services would, in our view, be "like" for purposes of Article XVII.

Standards of Appellate Review

The Trade, Law, and Development journal has a special issue on WTO dispute settlement. I have a piece in it on the development of standards of appellate review, focusing a bit on appeals of factual issues and issues related to the application of the law to the facts.

As I was writing it, it occurred to me that it would be useful for someone with expertise in domestic appellate review to take a look at these issues. I felt like I was a bit out of my comfort zone at times.

But the part of it that I did find interesting, and I think made the piece worthwhile, was the realization that the DSU Article 11 language predates the WTO. The same language existed under the GATT, where there was no appellate mechanism.  And in the first couple appeals after the WTO came into being, there was no mention of DSU Article 11.  But soon DSU Article 11 as the basis for appellate arguments caught on, and now it surfaces in most appeals.

Some questions that occurred to me were: Did the DSU negotiators anticipate that DSU Article 11 would be used as the basis for appeals? Assuming they did not, is DSU Article 11 working pretty well in this regard, and even if it was not intended to be used this way, should we just leave it alone?  On this last point, the U.S. said the following at the last DSB meeting in the context of the length of time some appeals are taking:

There are clearly a number of issues that would require further investigation.  Some issues may be more practical or procedural – the Chairperson of the Appellate Body has raised some ideas in her talk at the recent event to welcome a new Appellate Body member.  Some issues may be legal in nature.  For example, in a talk at the Graduate Institute (HEI), the Chairperson of the Appellate Body noted the proliferation of claims under Article 11 of the DSU and the time and resources needed to deal with those claims.  We could consider the impact of these sorts of claims on the overall timeframe for appeals.  ...

Are DSU Article 11 appeals slowing down the process too much?

Banning Trade with the West Bank

Via Kevin Heller, here is the opinion of James Crawford on a possible EU ban on trade with the West Bank settlements as it relates to WTO issues:

133. For the sake of completeness, it might also be mentioned that in extending a ban on settlement trade, the EC would not be in breach of its obligations under the General Agreement on Tariffs and Trade (GATT), now subsumed within the covered agreements of the World Trade Organization (WTO). 243  Although  GATT Article I requires that most favoured nation treatment be extended to Israel as a WTO Member, and GATT Article XI forbids the use of quantitative restrictions such as a ban on imports, both these provisions are phrased in terms of products originating in the ‘territory’ of another WTO Member. As a matter of international law, the West Bank and Gaza cannot be considered to be Israel’s territory; thus the EC is not prevented by its  GATT/WTO obligations from banning settlement trade.

Sovereignty and International Law

A quote from NZ trade minister Tim Groser:

"Of course trade agreements involve concessions over the sovereign rights of countries to do things," he told the Weekend Herald. " That's the point of international law."

New Zealand's problem had been the "excess sovereignty" other countries had exerted over it, such as introducing export subsidies, when it tried to diversify its markets away from Europe.

"Because we have operated in agriculture, in particular, where there were such inadequate legal frameworks internationally, people have just screwed us.

"We needed to control their sovereign right to do whatever suited their fancy. The whole point of international law is to put limits around countries' sovereignty on the basis of negotiated understandings."

It is no doubt true that international law constrains sovereignty to some extent.  I'm just not used to hearing government officals say it so bluntly!  I'm trying to imagine the repercussions if a U.S. official said this ...

Institute for Transnational Arbitration Winter Forum

From law prof Jarrod Wong:

The Institute for Transnational Arbitration (ITA) will be holding its Second Annual Winter Forum at the Biltmore Hotel in Miami, Florida on January 24-25, 2013.

The first half of the Winter Forum will showcase two works-in-progress selected pursuant to a Call-for-Papers, encompassing presentations by authors, commentary by internationally recognized academics and practitioners, and interactive discussion among all participants.  After a conversation over lunch with renowned authority Gary Born, chair of the International Arbitration Practice Group of WilmerHale, the Winter Forum will feature a Tylney-Hall-style discussion forum, before concluding with a select year-in-review of noteworthy events in international arbitration.

We are now inviting submission of proposals on international arbitration for the Call-for-Papers.  All proposals must be submitted via email to [email protected] by Sept 1, 2012.   Any questions should be directed to either of the ITA Winter Forum 2013 Co-Chairs, Joseph Matthews ([email protected]) or Jarrod Wong ([email protected]).  Full details can be found at this link: http://www.cailaw.org/ita/2013winforum_papers.pdf 

Foie Gras Bans and Domestic "Trade Law"

I mentioned the WTO law of foie gras bans here.  A WTO complaint may be unlikely, but apparently a commerce clause challenge (along with due process challenges as well) has begun.  Here is an excerpt from the complaint:

14 THIRD CAUSE OF ACTION

15 Declaratory Relief - Violation of the Commerce Clause - Interstate and Foreign
16 Commerce

17 46. Plaintiffs re-allege and incorporate by reference all of the preceding
18 paragraphs.

19 47. The Commerce Clause restricts states from boycotting lawful goods in
20 interstate and foreign commerce, from directly regulating beyond their borders, from
21 discriminating against out-of-state goods in interstate and foreign commerce, and from
22 placing excessive burdens on interstate and foreign commerce.

23 48. As alleged above, in prohibiting the sale in California of lawful goods from
24 the state of New York and Canada in interstate and foreign commerce - namely,
25 USDA-approved, wholesome and unadulterated duck products - section 25982
26 violates the Commerce Clause.

27 49. As alleged above, in forcing New York and Canadian farmers such as
28 Plaintiffs Hudson Valley and the members of AECOQ to conform their duck feeding
1 practices to the vague and arbitrary limitation in section 25980(b) in order to sell their
2 products in California, section 25982 directly regulates out-of-state and foreign conduct
3 and therefore violates the Commerce Clause.

4 50. As alleged above, because the Bird Feeding Law bans the production of
5 duck products using its prohibited feeding practices, the practical effect of section
6 25982's ban on the sale of such duck products is to discriminate against out-of-state
7 and foreign goods such as those from Plaintiffs AECOQ's members and from Hudson
8 Valley, and section 25982 therefore violates the Commerce Clause.

9 51. As alleged above, section 25982 places excessive burdens on interstate and
10 foreign commerce without advancing any legitimate local interest in the feeding of
11 ducks beyond California's borders.

12 52. As alleged above, an actual controversy has arisen and now exists
13 regarding a matter - the constitutionality of section 25982 - over which this Court
14 has subject matter jurisdiction. A declaratory judgment will terminate and afford relief
15 from the uncertainty, insecurity, and controversy giving rise to this action.

Call for Papers: TDM Special Issue on Tobacco Control

Andrew Mitchell and I are editing a forthcoming special issue on Legal Issues in Tobacco Control in Transnational Dispute Management. It will examine legal issues surrounding international related disputes arising from tobacco regulation and control. This is a particularly urgent topic for examination in view of the ongoing investment arbitration claims launched against Australia and Uruguay, as well as the WTO consultations commenced by Ukraine and Honduras with Australia (not to mention US - Clove Cigarettes and the other recent TBT cases). 300-word proposals are now requested. For further details please see the online Call for Papers.

COOL ... but what is left now for TBT Art. 2.2?

What struck me the most reading the recent AB report on COOL, is how, for the third time in a row, the AB found a violation of discrimination (under TBT Art. 2.1), but shied away from finding the measure “more trade restrictive than necessary” (pursuant to TBT Art. 2.2). 

In Cloves and Tuna, as well, the AB found discrimination -- between clove and menthol cigarettes, and between ETP and non-ETP tuna, respectively -- but no violation of TBT Art. 2.2 (in COOL the AB found that it could not "complete the analysis" under Art. 2.2). 

In Cloves, discrimination was probably the main issue in dispute: If your problem is flavored cigarettes and how they might attract young smokers, what justifies banning (mainly Indonesian) clove cigarettes but not (mainly US) menthol cigarettes?  In Tuna, discrimination was already less central to the case:  Mexico was not so much complaining about differential treatment between ETP and non-ETP tuna, but rather about the US granting a dolphin-safe label to some ETP tuna (caught without “setting on dolphins”) but not other (mainly Mexican) ETP tuna (caught with a monitor on board).  By finding discrimination between ETP and non-ETP tuna, the AB avoided to address the crux of this dispute head-on. 

In COOL, finally, the matter of discrimination between imported and US meat seems even less obvious or central to the dispute.  Of course, requirements on labels of origin will, almost by definition, lead to imported meat being processed and labeled differently and will, in most cases, nudge a good deal of retailers to opt for domestic meat, if only to keep things simple.  Yet, if one assumes that providing consumers information on country of origin is a legitimate goal (as the AB found), then these consequences are somewhat unavoidable and the problem with COOL is not so much one of discrimination (TBT Art. 2.1) but rather whether the labeling requirements are more trade restrictive than necessary (TBT Art. 2.2). 

Ultimately, what the AB faulted COOL on was not so much origin-based discrimination but rather the fact that, irrespective of the origin of the meat, “the informational requirements imposed on upstream producers under the COOL measure are disproportionate as compared to the level of information communicated to consumers through the mandatory retail labels” (para. 347). 

This “disproportionality” was, in turn, labeled as not being “even-handed” which, in turn, was labeled as “arbitrary and unjustifiable discrimination” which, ultimately, led the AB to conclude that COOL’s detrimental impact on imports did not “stem exclusively from a legitimate regulatory distinction” (para. 349).  

Is this “disproportionality” really a matter of discrimination between Canadian and US meat?  Or rather a question of necessity/proportionality of the measure as a whole?  Is the AB thereby putting too much into Art. 2.1, including elements that one would have expected to be analyzed under Art. 2.2?  Why does the AB feel so much more at ease under Art. 2.1 (discrimination) than under Art. 2.2 (necessity)? 

For complainants, is the claim of choice now Art. 2.1 (discrimination):  It suffices to demonstrate a “detrimental impact on imports” and the burden shifts to the regulating country to show that its measure “stems exclusively from a legitimate regulatory distinction”, i.e., is “even-handed”.  If this “even-handedness” is about the measure as a whole (e.g. are the recordkeeping and verification requirements imposed on producers disproportionate to the information ultimately conveyed to consumers) what is it, in effect, that TBT Art. 2.2. (and its rather convoluted “weighing and balancing exercise”) contributes? 

In sum, especially after COOL, what is now the line between Articles 2.1 and 2.2?

As always, written in my personal, academic capacity.

What is Discrimination?

That's the question Rob and Joanna asked here.  Here's how I see it (and by that I mean, here's how I think it should be, not how it currently is in the jurisprudence!).

There are three elements to determining whether a measure is discriminatory.

1.  The Effect of the Measure

There are a number of terms that can be used here: Disparate impact, discriminatory effect, or detrimental impact (the AB's latest term for it, as I read it).  What are we looking for in terms of the effect?  In my view, it is the degree of disparate impact.

When you have a de jure discriminatory measure, this is easy:  100% of imported goods get the worse treatment, and 100% of domestic goods get the better treatment.  The degree of disparate impact is as high as it can be.

With de facto discriminatory treatment, it's more complicated.  I would say that you are looking for an appreciable disparate impact on imported goods.  If 60% of imported goods get the worse treatment, and 60% of domestic goods get the better treatment, that would probably be enough.  The higher the degree of disparate impact, the higher the likelihood of finding discrimination.

Cases like COOL and Korea - Beef are a little tricky to fit into this analysis, but if the measure creates incentives to use imported goods, I think it's safe to say that a fairly high degree of disparate impact exists.

2.  The Objective Intent of the Measure

Under this element, you infer the intent of the measure from the terms of the measure itself.  I've always thought that the "design, architecture, structure" terminology provided a good description of this element.  And I think Chile - Alcohol offers a good example of how this approach can be applied to understand the true purpose of a measure. 

3.  The Subjective Intent of the Measure

This is what legislators, regulators and other government officials were saying in relation to the goals of the measure.  A lot of people are nervous about relying on this.  I think it should be a relevant factor, although certainly not the deciding factor, and probably not as important as the other two.

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To determine whether discrimination exists for a particular measure, you examine each of these elements in relation to the measure, and then weigh and balance them.  One part where it gets tricky is that the effect and objective intent elements seem to overlap some times.

So, how do these elements appear in the recent TBT 2.1 cases?  Well, I think that the "effect" part correlates somewhat with the "detrimental impact" analysis the AB has been doing.  On the other hand, they don't seem to be looking at "subjective intent," although that might in part be due to the way the parties have made their arguments.  They have looked at government officials' statements in the past, and it's not inconceivable they would do so again.

The element that's most difficult to judge is "objective intent," which is, arguably (and somewhat confusingly), what is looked at under the "discrimination" element of 2.1.  What does the AB think of this element?  After Cloves and Tuna, I might have argued that they were applying this along the lines of what I described above.  After COOL, though, I'm a lot less sure.  The whole analysis (see paras. 341-349) felt very different, perhaps more like what Rob and Joanna characterized as looking at whether public policies are "reasonable or understandable."  That's not how I see the "design, architecture, structure" standard, but my sense is that some people do see it that way, with the analysis focused on the means-ends relationship or something similar.  There may also be some people who think "reasonableness" is just a good, general standard to apply to the acceptability of domestic measures in relation to trade law.  My concern is that many measures will fail this standard simply because governments cannot be that precise in crafting measures.  The result will be that measures that are non-protectionist in intent, but badly drafted and ineffective, will be found to be violations of trade rules, and I'm not sure the system can handle that.

The Rise of the TBT Jurisprudence?

Now, we have a trio of TBT-related Appellate Body reports (Clove; Tuna II; COOL), all of which have been issued quite recently.  Is this a harbinger for a more sophisticated set of jurisprudence unique to the TBT Agreement?  The answer depends on what you expect from the TBT jurisprudence.  If you expect something radically different from the traditional GATT jurisprudence, you would be disappointed.  Nonetheless, I believe the recent series of AB decisions at least have made one point clear: a doctrinal shift from a “product”- oriented interpretation to a “measure”- oriented
one.  In other words, at least as far as TBT Article 2.1 (textually very similar to GATT Article III:4) is concerned, the AB’s interpretation will focus more on the (de facto) disparate impacts (“less favorable treatment”) than on the traditional “like product” test.  Here, the new buzzword, “evenhandedness” is worth our attention.  To me, this is a hermeneutical recycling of the long-forgotten, and more importantly, highly under-appreciated, “chapeau” test under GATT Article XX. 

So, why is the chapeau so important?  As witnessed in Gasoline and Turtle, the chapeau can play a very useful role in reconciling between two ostensibly conflicting goals, i.e., free trade and regulatory
protection.  The chapeau test probes HOW a measure is actually applied, rather than WHAT the measure is.  Therefore, the AB can still strike down a measure while it upholds the legitimacy of its regulatory objective.  This is good news to everyone involved.  Both parties (complainant and defendant)
might declare a victory. (In fact, that’s what the U.S. did in the Turtle case.)  In terms of compliance, you might not need to repeal the law itself; you can just change the way in which you execute the law
(guidelines etc.).  Naturally, the executive might not need to deal with the Congress (National Assembly).  In this regard, we can see that the AB was quite lenient to defendants (regulating states) in terms of TBT Article 2.2, which is textually similar to GATT Article XX (minus the chapeau).

From a broader perspective, this course of TBT jurisprudence might be pre-ordained. To me, this is a vindication of the “Common Law of International Trade.”  Go and check out the case law of the ECJ on Free Movement of Goods as well as the U.S. Supreme Court’s Dormant Commerce Clause. You will find a very similar (converging) pattern of hermeneutics.  All these courts tend to focus on the “manner” in which a measure is applied in practice. After all, all these courts, the ECJ, the U.S. Supreme Court and the AB, engage in “constitutional adjudication” in the sense that they attempt to strike a balance between market and state. (In fact, the U.S. Supreme Court actually used the word “evenhanded.”)

Finally, one might anticipate the “less,” not more, TBT case law in the future.  Considering this “process” –oriented jurisprudence as well as many procedural requirements in the TBT that can play a similar
balancing role, potential disputants might want to fully take advantage of the TBT Committee (“specific trade concerns”), rather than having recourse to litigation. Of course, it would depend on what kind of dispute is involved.