International Economic Law and Policy Blog

The Chinese Currency Issue: "Trade Imbalances" vs. "Protectionism"

The editors at Bloomberg have a short piece in which they criticize unilateral action against alleged Chinese currency manipulation.  They say we need to take multilateral action instead:

... China does manipulate its currency. By deliberately holding down the exchange rate of the renminbi, it has made its exports artificially cheap and done real harm to producers in other countries, including the U.S. Although the renminbi has appreciated by 11 percent since Obama took office, the increase in China’s foreign reserves demonstrates that the currency is still cheap. The country’s rising dollar reserves also show how much China is still helping to finance the U.S. budget deficit -- another complication for Americans who want to get tough.

China, though, isn’t alone in managing its exchange rate to boost exports. It just happens to be the biggest offender. Others include Japan, which is on track to edge out China as the U.S. government’s largest creditor.

Hence, the U.S. needs to take a fairer, more comprehensive approach in its efforts to restore global balance. Rather than singling China out, the U.S. should work toward bringing currency policy under more effective review, either through the International Monetary Fund or the World Trade Organization. Member countries should promise to allow movement of currencies toward levels that would reduce trade imbalances. The WTO could decide when and how to punish those who failed to comply -- an approach that would insulate the process from political vagaries, such as the outcome of the U.S. presidential election.

I've written about this before, so it seems worth trying to clarify some aspects of this.  I agree that unilateral action is a mistake, and I wouldn't mind seeing some multilateral discussions of this issue.  However, their multilateral proposal seems strange to me.  They argue that "countries should promise to allow movement of currencies toward levels that would reduce trade imbalances."  The problem here is that they focus on the wrong thing: "trade imbalances."  A trade imbalance, especially a bilateral one, is not a very good indicator of anything, in my view. It is both over- and under-inclusive.  When a country goes into recession, it may buy fewer imports, leading to a trade imbalance.  But this is no reason to take action against the country.  On the other side, a country with a large trade deficit might use currency manipulation to favor the domestic industry, but still maintain a (smaller) trade deficit.  So, I don't think a focus on trade imbalances makes much sense.  (Of course, that's just part of my more general view that focusing on trade deficit numbers doesn't make much sense!)

What multilateral rules could do, possibly, is try to sort out whether a country is trying to favor domestic producers over foreign competitors through its currency practices.  That's not easy, of course, but some economists have tried to come up with reasonable approaches.  (There was one in particular that I thought was detailed and sensible, but I can't seem to locate it right now.)

Brazil has recently started pushing for more discussion of this issue at the WTO.  Will this lead to anything?

The Original GATT Analytical Index

The WTO web site now has clean PDFs of the original GATT Analytical Index: http://www.wto.org/english/res_e/booksp_e/gatt_ai_e/gatt_ai_e.htm

Thanks to Amy Porges for the tip, and lots of hard work preparing the files!

TLD Symposium: Joost Pauwelyn Comment on "Epistemic Contests and Legitimacy of the World Trade Organization: The Brazil – USA Cotton Dispute and Incremental Balancing of Global Interests"

Article: Epistemic Contests and Legitimacy of the World Trade Organization: The Brazil – USA Cotton Dispute and Incremental Balancing of Global Interests, 4(1) Trade, L. & Dev. 200 (2012) [available here]

Author: Arthur Daemmrich

Comment by Joost Pauwelyn

This paper is ultimately about legitimacy.  The core argument is that the WTO’s legitimacy base has shifted from “political” (expanding membership, success at major trade round negotiations) to “judicial” (WTO dispute settlement) and, more particularly, “expertise” (a “technical turn”).  Prof. Daemmrich uses the US – Cotton dispute and the debates there around econometric models and data as an example on point.

A couple of comments.

First, I do not think that legitimacy is a matter of “either, or” (e.g. judicial legitimacy has replaced political legitimacy).  It is more a matter of degrees, relative balance, dispute settlement possibly compensating for some legitimacy loss elsewhere rather than fully replacing it.  In any event, I do not believe that an international organization like the WTO can survive on “juridical legitimacy” alone.  As I have written elsewhere, the GATT/WTO’s story is not one from politics to law, but a bi-directional interaction between politics and law (more law being enabled by and requiring more politics).

So when the author writes that WTO dispute settlement and its “technical turn” made “claims for democratic legitimacy more difficult to sustain” (p. 219), I have my doubts.  If anything, we have seen an Appellate Body going to great pains to open itself up to outside interests (third parties and amicus curiae), holding public hearings, considering norms developed outside the WTO and embracing new disciplines and inputs (e.g. scientific and economic evidence).  Here in particular, dispute settlement has enhanced, not replaced, democratic legitimacy.  Rather than holding an inward-looking debate between self-minded trade diplomats or WTO insiders, the AB operates on a broader platform of contestation between an increasing variety of interests.  The alternative to what the author calls a “technical turn” is not democratic nirvana.  It is gunboat diplomacy or, at best, one epistemic community in charge (rather than several “fighting it out”).

To give just one concrete, recent example:  To keep a link to business and economic reality, the panel on China – Electronic Payment Services interpreted the words “all payment and money transmission services” not only with reference to the Shorter Oxford English Dictionary but also to “certain glossaries and specialized dictionaries” and considered descriptions of the services sector at issue drawn from private “industry sources” such as company brochures, annual reports or company websites.

The WTO may, in the future, be mainly a clearinghouse, stabilizer and dispute settler (possibly even to enforce FTAs and plurilaterals), but even then its “political” arm can fulfill the role of oversight, monitoring and implementation through committee work, trade policy review and discussion.  This work, in turn, may filter back into dispute settlement and keep the dialogue going outside formal rounds of negotiations (as happened in the Tuna – II report where reference was made to a non-binding decision by the TBT Committee on international standards, and the Clove dispute where the AB referred to a Ministerial Declaration).

Second, when the author writes that “Panel reports extract arguments from both sides, cite individual scientific, technical, and economic experts, define technical terms and common phrases … and then announce precedent-setting rules” (p. 238), he may be over-stating the authority or required precedential value of DSB rulings. 

To keep the debate between law and politics open, the AB, acting as it does in such a contested and contestable environment, would be ill advised to write its rulings in stone.  The AB may have the last word on a particular case, but it is not infallible nor does it have an inherent claim to superior knowledge especially knowing that it has to decide each case in less than 90 days.  A tension may, moreover, arise between legal doctrines of precedent and the inherently evolving nature of science including the social science of economics.  However, if a legal term is flexible enough to host economics input at one point in time, it should be flexible enough to update that input at a later stage.  The question is then not so much one of stare decisis or precedent but one of static versus evolutionary interpretation. 

Third, the author may also be over-stating the subjective nature of science and economics (“consensus on underlying methods for determining scientific or economic truth is proving impossible to achieve”, p. 202).  True, the holy grail of complete objectivity is unattainable, but that does not mean we should not even try.  Like law (and e.g. the VCLT rules of treaty interpretation), also economics has its methodological discipline.  If this discipline is followed, assumptions are disclosed and data limitations acknowledged, economics can be of great value and be a crucial ingredient for more accurate and robust dispute settlement.  This, in turn, should help, not hurt, legitimacy.  I have recently described the use, non-use and abuse of economics in WTO and investor-state dispute settlement, as part of a four-year project entitled DISSETTLE.  Important caveats are that (1) economic (and other) expertise must be run through legal criteria, adding to, not replacing judicial adjudication, (2) methodological discipline must be respected, (3) communication must be kept simple, (4) due process must be respected and (5) experts must avoid or disclose value judgments.

One core issue is who provides the advice.  In the WTO, for example, panels have never appointed independent economic experts but relied instead on in-house staff economists.  Where the latter add evidence or facts to the record, their input should be disclosed (if not rules against ex parte communications may be violated).  So far, in the WTO, party-appointed experts have not been subject to rules of independence or impartiality, nor to cross-examination.  This should change. They should also be obliged to disclose their assumptions and data limits as well as enable the opposing party and panel to verify the data.

Finally, one important problem with the turn to a variety of interests, sources and disciplines, as positive as it may be, is the question of access and resources.  Will this make it more difficult for, for example, poor developing countries to actively and successfully engage in dispute settlement? Econometric and scientific studies as well as raw data can be expensive to collect, make and understand.  So whereas contestation can check power and balance it out, it may also enhance power asymmetries.  Also, countries like the US are transparent.  Finding reliable data in, for example, China or Russia may be different.

The worst thing to do for an adjudicator confronted with contradictory studies is to assume that they cancel each other out (“ask three economists and you will get five answers”; but is this any different from asking three lawyers?).  Their underlying assumptions, limits and merits must instead be examined and the studies can then be weighed, like other factual evidence, in a burden of proof exercise.  Equally bad would be for an adjudicator to blindly accept or slavishly swallow any expert advice simply because it comes from an “expert”.  While judges may not (and should not) be able to construct and run regression models, they can be trained so as to be able to check the parameters, validity and weight of such models.

In sum, this is a stimulating article, questioning the sources of legitimacy, in particular expertise, in the WTO.

TLD Symposium: Introduction to "Epistemic Contests and Legitimacy of the World Trade Organization: The Brazil – USA Cotton Dispute and Incremental Balancing of Global Interests"

Article: Epistemic Contests and Legitimacy of the World Trade Organization: The Brazil – USA Cotton Dispute and Incremental Balancing of Global Interests, 4(1) Trade, L. & Dev. 200 (2012) [available here]

Author: Arthur Daemmrich

Reviewer: Joost Pauwelyn

Introduction to the article, by Simon Lester

There is a long-standing debate involving the “legitimacy” of the WTO.  Critics have pointed to a number of issues -- such as a lack of transparency, intrusion into domestic affairs, and insensitivity regarding non-trade policy issues -- to question the WTO’s role.  Arthur Daemmrich’s article opens another chapter in this discussion, exploring a new source of legitimacy:  Well-reasoned legal decision on matters requiring technical expertise.

While the WTO’s role as the main forum for trade negotiations has diminished in recent years, due to its own failures and the rise of bilateral and regional agreements, its dispute settlement mechanism is still held in high regard.  The ability to resolve trade disputes in a manner that earns respect and praise from WTO Members and outsider observers keeps the WTO relevant.  According to Daemmrich, it also enhances the WTO’s legitimacy.

Daemmrich describes how WTO litigation is increasingly focused on technical issues, such as science or economics.  WTO panelists have a hard time handling these issues on their own.  They are forced to turn to – or the parties point them to – experts.  The panelists must then sort through the (sometimes conflicting) expert opinions they have been given and make a judgment.  It is these judgments that are the focus of Daemmrich’s article.  According to Daemmrich, the legal decisions made in these cases can help to build the WTO’s legitimacy, as the WTO litigation process serves as the arbiter of technical expertise as it relates to particular disputes.  In doing so, the WTO’s “judges” promote the WTO’s good reputation.

To illustrate the point, Daemmrich focuses on the US-Brazil cotton dispute.  He explores the details of the economic arguments made by the parties and their experts in that context, which centered around allegations that U.S. subsidies caused economic harm to Brazilian cotton producers.  The case involved conflicting economic models that the WTO panelists had to sort through and evaluate.  He discusses the back and forth legal arguments over the use of the various expert studies, and explains how the WTO panel resolved these issues. 

Daemmrich sees flaws in the process, and advocates greater openness and more outside perspectives.  It is important, he says, that the WTO adjudication system maintains its legitimacy, and such improvements may help in this regard.  Overall, though, he sees the dispute settlement process as contributing greatly to the WTO’s legitimacy.

Montebourg's Shelves With Purely French Products: Are They WTO Consistent?

After reading the previous post by Simon and the comment by Srikar, I am wondering what WTO provisions could be invoked by a complainant if supermarkets in France set up shelves with purely French products.

First, following the relevant comment by Srikar, it is useful to emphasize that if Montebourg’s words are only a case of political rhetoric or opinion, there is nothing much anyone can do. This is in conformity with the Brazil Aircraft 21.5  panel position that " when the executive branch of a Member is not required to act inconsistently with requirements of WTO law, it should be entitled to a presumption of good faith compliance with those requirements”.   

Let us suppose nevertheless that the French executive branch goes farther and establishes a mandatory regulation for that purpose.  What are then the WTO provisions that could be invoked by a complainant considering that its exportations of like products towards France are adversely affected. 

 1) The most likely scenario is an invocation of Article III of the 1994 General Agreement (“GATT 1994") relating to national treatment. This Article provides that: 

The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. 

In fact, this scenario already happened in 2008 when the WTO  questioned  Barbados’ 100% Bajan buy local campaign which urged Barbadians to buy locally produced products first. As expected concerns were raised by other Members at a WTO meeting over whether this country was  in violation of Article III of GATT 1994. The campaign stopped after a while. 

Following MeMe comment, it is useful to signal that in WTO case law, the most relevant precedent is the Korea Beef case. The contested measure in that case was the  Korean mandatory dual retail system  where  a supermarket  could sell both imported and domestic beef but only as long as the imported beef and domestic beef were sold in separate sales areas. The Appellate Body upheld in that case  the Panel's ultimate conclusion that Korea's dual retail system for beef was inconsistent with Article III:4 of GATT 1994. However, the Appellate Body emphasized that the crucial aspect was not the separation of the areas but the fact that the dual retail system for beef modified the conditions of competition in the Korean beef market to the disadvantage of the imported product. It is probable that Montebourg's separate shelves would modify the conditions of competition to the disadvantage of imported products by, among other things, singling out visually French products. 

2) There is however a second scenario which is  less likely but nevertheless worth considering. It  would consist in invoking  Article 1 of the SCM Agreement on the basis  that France is providing a “form of income or price support, which operates directly or indirectly to... reduce imports... into its territory”. The idea here is that  following the measure, there is a demand shift in favor of french products which translates in a price or income support for french producers. However, this vision seems inconsistent with the intuitive idea of “support” which implies apparently an explicit price or income “target” that must be reached. In our case,  there is no guarantee that any price or income support would materialize, nor any target reached. However, it is worth noting that WTO case law relating to “price or income support” is  somewhat hazy at the moment since the texts speak of “any” form of price or income support without mentioning any explicit target . Therefore, this second scenario is still worth considering.

Government Urging Purchases of Local Products

Is this a measure that can be challenged in WTO dispute settlement:

[French] Industry Minister Arnaud Montebourg donned France's emblematic striped Breton sweater for a magazine cover published last week to urge local consumers to favour French products ...

How about this: 

Montebourg ... wants supermarkets in France to set up shelves with purely French products as they do for organic goods ...

I wish I had more details on exactly what the Minister did and said; that would make the analysis easier.

Trade and the U.S. Presidential Election

I haven't said much about trade and the U.S. Presidential election this year.  To be honest, I had thought President Obama would be re-elected pretty easily, so it didn't seem worth the effort to discuss the differences between an Obama and a Romney presidency.  But with recent polls putting Romney and Obama very close (showing you how much my opinion is worth on these matters!), I thought it would be useful to explore this issue a little bit.

The obvious starting point is China currency issues.  At the second debate (held last week), Romney said:

China has been a currency manipulator for years and years and years. And the president has a regular opportunity to — to label them as a — as a currency manipulator but refuses to do so. On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.

Whether right or wrong, Romney seems to think he can win a few votes somewhere by appearing to be tougher on China than Obama has been.

It seems to me that Romney has dug in pretty deeply on this issue. I can’t see how he can step back from his statements without some embarrassment.  As a result, I think that, if elected, he will do something on day one that can be characterized as “labeling China a currency manipulator”. (He has mentioned an executive order, but it’s more complicated than that, as the Secretary of Treasury needs to be involved, too).  But the dirty little secret here is that labeling China a currency manipulator just triggers consultations on the issue.  Which is why, actually, I think Romney is pushing this — he knows it doesn’t mean much.

But then you’ve got the issue of imposing tariffs on China as a response to the manipulation, presumably by instructing the Department of Commerce to change its method of calculating countervailing duties, so as to provide for extra duties on Chinese goods based on the currency practices.  This would be a more serious action.

But look at the language Romney uses here.  He says he will do this “if necessary”.  Here, then, he leaves himself wiggle room.  He can take some time to negotiate with China, study the issue, and ultimately decide that the tariffs are unnecessary.

For whatever that’s worth, which may not be much, that’s my guess as to how the Romney team is thinking about this issue.

Beyond China, Romney seems to want to present himself as a free trader.  At the second debate, he said this:

I’m also going to dramatically expand trade in Latin America. It’s been growing about 12 percent per year over a long period of time. I want to add more free trade agreements so we have more trade.

This all sounds great. He is saying positive things about free trade.  But what does he mean?

In Latin America, so far we have trade agreements with:  Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Peru (and Panama coming soon).  So who’s left? Venezuela is obviously not a great candidate, and Argentina may be problematic as well. So what major trading partners are we talking about?  Brazil is the most obvious one. But U.S.-Brazil trade frictions are said to have played a big part in killing the proposed Free Trade Area of the Americas in the 1990s, and those frictions are still pretty high today, with, among other things, Brazil complaining about U.S. monetary policy driving down the value of our currency.

I’m all for free trade with Latin America, and I’m happy to hear Romney supporting it.  But in practice, it’s not clear how much can be achieved.

Finally, there's plenty of talk (and campaign ads) about outsourcing.  Obama presents it as very negative, and accuses Romney of engaging in outsourcing while at Bain Capital.  Romney doesn't really defend outsourcing, instead simply criticizing Obama's economic policies in general.  It has not been a very informative discussion.

So, what does all that mean?  I have two thoughts.  First, trade issues are unlikely to decide the election.  And second, despite all the rhetoric, the differences between the two on trade issues will probably not be all that great in practice. 

What is the Role of Subsidy Agreements?

Here's an excerpt from a paper by Daniel Brou and Michele Ruta, entitled "A Commitment Theory of Subsidy Agreements": 

What is the role of subsidy agreements within international trade treaties? Why do governments value such agreements? And what is the appropriate treatment of subsidies in the multilateral trading system? In this paper, we focus on production subsidies to the import-competing sector and develop a political economy theory to address these questions. Political considerations may support excessive protection for a given sector and trade agreements allow the government to commit to welfare improving policies. But in a political environment where special interests compensate the government for deviations from welfare maximizing policies, it is not clear that the government would be willing to limit its discretion. We argue that, since capital is allocated in anticipation of the protection it may receive, the government can benefit from trade agreements because they prevent the misallocation of capital. Subsidy rules play an important role because they prevent the erosion of gains from reduced tari¤s caused by shifting protection from one policy instrument (tariffs) to another (subsidies).

 A while back, I did a post here on this blog (based on a law journal article I wrote) in which I argued that anti-protectionism is (and should be) the purpose of subsidy agreements.  Here's my question:  Is the quote above consistent with my view?  When I read the quote by itself, I sort of feel like it is.  However, when I read the rest of the paper, I get the sense they are saying something different.  But that may be because of different views on the purpose of trade agreements in general, which carries over into the subsidies context.

TLD Symposium: Author's Reply on "The Development of Standards of Appellate Review ... in WTO Dispute Settlement"

Article: The Development of Standards of Appellate Review for Factual, Legal and Law Application Questions in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 125 (2012) [available here]

Reply By Simon Lester

Let me start by saying thanks to the TLD editors who proposed doing this symposium.  It was a great idea, and I’m happy to be able to facilitate it here on this blog.  And now I’m happy to participate, as one of the authors being reviewed.

I confess that I was a bit nervous about writing on this topic.  At first I thought it would be straightforward and easy, but as I dug further I couldn’t help thinking that someone with more background knowledge of standard of review issues -- in either the domestic or international arenas --  would do a better job.  And then, as part of this symposium, I saw that Matthias Oesch would be reviewing my article, and he has written a whole book on the subject, which made me even more nervous!  But apparently I didn’t botch the job too badly, because Matthias and I seem to agree on most points.

Let me offer the following responses to his comment, and some further thoughts.

First, I agree with Matthias that the standard is working pretty well right now, and it is probably not worth trying to negotiate a completely new set of rules in this area.  In the article, I suggested that because the DSU Article 11 language existed prior to the WTO, it couldn’t have been meant for use as an appellate review standard.  But regardless of whether the drafters had this in mind, the result has been a fairly good one, and is probably not much different from a situation where the Appellate Body had to start from scratch.  If we are going to renegotiate some WTO rules, there are many others that are in more dire need of revision! 

On the issue of how the Appellate Body treats questions involving the examination of domestic law, Matthias and I agree that the Appellate Body’s approach is the wrong one.  But they have been very clear on this – it would be a big step to change the approach.  Will Members argue for a change in some future case?  Would the Appellate Body reverse itself?  This remains to be seen.

Next up, I would like to see some clarification from somebody -- ideally the Appellate Body, but from scholarship or blog comments too! -- about the role of DSU Article 12.7 in all of this.  How does Article 12.7 relate to Article 11?  I’m still confused by this one.

Finally, on a more general point, one of my goals in this article was to emphasize the distinction between legal issues, factual issues, and issues of applying the law to the facts.  It’s that last category that is often the problem.  I think it’s always worth spelling out the issues clearly, so that the three categories are distinguishable when considering a specific claim.  I would also say that “application of the law to the facts” is the clearest way of describing it; “legal characterization of the facts” is fine, but not quite as good; and “mixed question of law and fact” is confusing and should be avoided.

As a concrete example, take a look at yesterday’s China – GOES AB report, at paras. 183-184, where I think the AB does a pretty good job with this, in the context of explaining the difference between appeals of law application issues and appeals under DSU Article 11.  (Although I did find the later discussion at para. 230 a little confusing.)

What does the future hold for DSU Article 11 appeals?  The vast majority of them get rejected.  Will that eventually lead to a reduction in their frequency?  Or will they continue at their current pace?  I have no prediction on the matter, but I'll be sure to blog about it if I see any trends emerge!

TLD Symposium: Matthias Oesch Comment on "The Development of Standards of Appellate Review ... in WTO Dispute Settlement"

Article: The Development of Standards of Appellate Review for Factual, Legal and Law Application Questions in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 125 (2012) [available here]

Author: Simon Lester

Comment by Matthias Oesch

The quest for appropriate standards of appellate review has gained a prominent place in the Appellate Body’s jurisprudence. The allegation that a panel misinterpreted and misapplied its duty “to make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements”, has become a standard claim in appeals – according to the experienced courtroom lawyers’ motto: do not forget to include, in your appellant’s submission, the claim that the panel violated Article 11 of the DSU, however strong such a claim might or might not prove.

Simon Lester’s article provides an impressive and concise overview on the Appellate Body’s jurisprudence on standards of appellate review. At the outset, he defines the three elements to a case, namely factual issues, legal issues and law application issues. In his analysis of the case law developed by the Appellate Body, he focuses on appeals of factual and law application issues. He considers how the judiciaries in the US and the EU have addressed these issues. He concludes by raising several matters for future discussion. In addition to his findings and conclusions, I would like to offer the following four remarks.

First, the Appellate Body has developed guiding jurisprudence on the standards of appellate review applicable to legal, factual and law application issues. Although the relevant Articles 11 and 17.6 of the DSU lack clarity, the Appellate Body has done quite a remarkable job in doing so (probably with one exception to which I shall turn in the next paragraph). Its case law follows standard pattern common to most two-tier judicial systems. Against this background, it is doubtful, in my view, whether the WTO membership would be well advised to draft a new provision defining standards for appellate review in abstracto. The responsibility to develop appropriate standards and, in particular, to come to grips with the distinction between legal, factual and law applications issues typically lies with the judiciary, acting on a case-by-case basis. A side look at other judicial systems at the national level (such as the US) and the supranational level (such as the EU) seems to corroborate this view.

Second, I concur with Simon that domestic law is to be characterized, for the purpose of determining appropriate standards of appellate review, as a question of facts. This holds true with respect to both the plain text of a municipal law and the analysis of how it operates in practice, applying (domestically valid!) rules of interpretation. The qualification of domestic law as a factual element is a well-accepted principle in international law, acknowledged, inter alia, already in 1926 by the Permanent Court of International Justice: “From the standpoint of International Law and of the Court which is its organ, municipal laws are merely facts which express the will and constitute the activities of States, in the same manner as do legal decisions sand administrative measures.” Early case law of WTO panels and the Appellate Body clearly supported such a view, treating domestic law as factual evidence and, consequently, applying a deferential standard of review. As Simon demonstrates, however, recent cases seem to indicate that the Appellate Body has taken a slightly different route; China – Auto Parts and EC – Fasteners are examples to the point. This is, indeed, confusing. It is to be hoped that the Appellate Body corrects this line of argument, when called upon to do so, and clearly states that domestic law is to be treated as a factual issue and, consequently, as a matter of evidence.

Third, the distinction between factual elements and legal issues is arguably linked to the notion of burden of proof and the principle of iura novit curia. The notion of burden of proof can be defined as the obligation of each of the parties to a dispute to prove its claims to the satisfaction of, and in accordance with the rules acceptable to, the judiciary. It corresponds to the question of which party is responsible for providing proof of an asserted fact. The burden normally rests upon the party, whether complainant or defendant, which asserts the affirmative of a particular claim or defence, and is limited to issues of facts. According to the principle of iura novit curia (“the judge knows the law”), courts are expected to make their own perception of the law and their own legal evaluation of the factual record before them. They are supposed to know and apply the relevant law as it stands, and evidence of the state of law is not needed to prove it. The practical consequence of applying the principle of iura novit curia is that, contrary to factual claims, none of the parties bears the risk of non-persuasion. Iura novit curia obviously applies when interpreting WTO law (and, arguably, also when interpreting generally valid international law other than WTO law). Having these two notions in mind might help to distinguish factual elements from legal issues in difficult constellations, both for the purpose of defining appropriate standards of review applied by panels vis-à-vis member states and for the purpose of determining appropriate standards of appellate review applied by the Appellate Body vis-à-vis panel reports. To take domestic law as an example: The principle of iura novit curia does not apply in the context of identifying and interpreting domestic law, from the perspective of WTO panels and the Appellate Body, and, therefore, this process is qualified as factual rather than entailing legal questions.

Fourth, it is sometimes almost impossible to clearly distinguish questions of facts, law and law application from each other, irrespective of Appellate Body precedents and academic checklists. As Simon ably demonstrates, this holds in particular true with respect to the distinction between factual elements and law application issues. Often, panel and Appellate Body proceedings mainly turn on facts and their application to the law, whereas the relevant rights and obligations under the covered agreements are less controversial. In “borderline” cases, in which a contested claim might plausibly fall under both categories of facts and law, the Appellate Body might be well advised to accept such a claim generously and review it accordingly – based on the motto: in dubio pro appellate review. The Appellate Body has demonstrated that it is competent, by and large, to deal with delicate issues appropriately and that it does not operate overly intrusive vis-à-vis panels which remain the prime “triers of facts” and “masters” of the process of fact-finding.

TLD Symposium: Introduction to "The Development of Standards of Appellate Review for Factual, Legal and Law Application Questions in WTO Dispute Settlement"

Article: The Development of Standards of Appellate Review for Factual, Legal and Law Application Questions in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 125 (2012) [available here]

Author: Simon Lester

Reviewer: Matthias Oesch

Introduction to the article, by Shashank P. Kumar

Of all the moderators in this online symposium, my task is considerably easier in at least one respect: introducing the participants in the present discussion. After all, if you're reading this, you probably already know of Mr. Simon Lester as the blogger-in-chief of this wonderful blog. In addition, Simon (along with his wife) runs the powerful resource that is WorldTradeLaw.net. Likewise, the reviewer for this discussion, Dr. Matthias Oesch, currently an Assistant Professor at the University of Berne, is an expert in the area of standards of review at the WTO, having had authored a comprehensive monograph titled Standards of Review in the WTO Dispute Resolution (OUP, 2003). I should perhaps also highlight that both Mr. Lester and Dr. Oesch have been closely involved with the practice of WTO dispute settlement, and, as such, despite the usual disclaimers, one can expect this discussion to be informed by both theoretical and practical perspectives.

With the introductions out of the way, we now move on to a slightly more complex issue, that of standards of appellate review at the WTO. Whereas appellate review is a common feature in almost all domestic legal systems, up until the last decade of the twentieth century, an appeals mechanism was largely absent from the international landscape. It was only with the formation of the WTO, the international criminal tribunals and, to a certain extent the ICSID, that the idea of appeals from certain issues began to take shape. In my opinion, this is an innovative development in as much as it allows, in theory at least, an allocation of responsibilities leading to a more rigorous engagement with the facts, while at the same time ensuring greater certainty and coherence in the development of the law. To what extent the appeals facility actually achieves these ends depends largely on the functional relationship between, to take the WTO context, the panels and the AB. This relationship is necessarily defined by the standards of appellate review adopted by the AB. Apart from this systemic concern, standards of appellate review are also of great practical importance for the users of any appellate system. After all, as any good appellate lawyer would tell you, any finding that can be appealed, must be appealed!

Notwithstanding the systemic and practical importance of standards of appellate review at the WTO, like in the domestic context, it is not always easy to precisely define or identify standards of appellate review at the WTO. As Simon rightly highlights, one of the reasons for this is the binary treatment of questions of ‘law’ and ‘facts’, disregarding a third category of ‘law application’ questions. Having identified these three categories, Simon then moves on to look at the historical origins and evolution of standards for appeals from questions of law, facts, and law application. Particularly insightful is his analysis of how the Appellate Body has developed standards of appellate review of ‘internally inconsistent’ factual findings by panels under the ‘objective assessment’ requirement in Article 11 of the DSU – a provision that has become increasingly popular with appellants at the WTO. On ‘law application’ issues, acknowledging the inherent difficulty in appellate review of such mixed questions, Lester cites several examples to cogently argue that the standards of review developed by the AB are ‘overly broad, in the sense of treating a clear factual question as a law application question, … thus expanding the scope of appellate review’. This analysis of WTO law is followed by a useful comparison with appellate review in the US and EU. In conclusion, Lester offers three suggestions for the future development of standards of appellate review at the WTO. First, he suggests that, in addition to Articles 17.6 and 11, a review of the interaction between other provisions of the DSU such as Article 12.7 may help in better delineating the functions of panels. Next, noting the possibility that the use of Article 11 of the DSU by the AB has made factual appeals too expansive, Lester cites the example of EU law to briefly explain how factual issues could well be appealed even without resorting to Article 11. Finally, on law application questions, Lester argues that the AB’s examination of domestic measures in disputes such as China – Auto Parts and EC – Fasteners stretches the boundaries of Article 17.6 by categorizing what are essentially factual questions as law application issues.

In my opinion, the smooth functioning of the appellate process at the WTO requires: (a) an optimal allocation of responsibilities between the panels and the AB in light of their relative strengths and limitations; and, (b) clarity in precisely defining the standards of appellate review. To the extent that there are creases in the present system, it is necessary to conceptually engage with the issues to develop clearer and more precise standards of appellate review and recalibrate the relationship between panels and the AB. With these preliminary thoughts, I now invite Matthias to comment upon Simon’s article and take this discussion forward.

Canada's Latest Diversion Tactic in the Seal Products Dispute

Canada (or perhaps it's just the sealing lobby) is feeding the media spin that the EU seal products ban is hypocritical because the EU accepts the culling of seals for sustainable management of the marine environment.  

Here's my response (an excerpt of a letter to the editor published today in Canada's Globe and Mail newspaper):

"... In fact, there’s no double standard.

The EU’s law allows for an exception to the ban on imports where hunting is conducted for purposes of sustainable resource management, as long as any resulting products are sold on a non-profit basis.

Like most laws in a liberal democracy, the EU measure balances different values – eliminating commercialized animal cruelty on one hand and responsibly managing the marine environment on the other.

There’s no discrimination against Canada because culling, while permitted under strict conditions, can’t be used as an excuse for commercial sealing, regardless of whether we’re dealing with EU or Canadian seal products...."

TLD Symposium: Authors' Reply on "Participation of Developing Countries in WTO Dispute Settlement"

Article: Going Beyond Stereotypes: Participation of Developing Countries in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 45 (2012) [available here]

Authors' Reply (Jan Bohanes & Fernanda Garza)

We sincerely thank Prof. Gao for both his positive and critical comments. As one of the leading Chinese international trade academics, Prof. Gao is uniquely placed to comment on the subject at hand and on our paper. We thank him for taking the time to read our paper and sharing his insights with us.

Before reacting to Prof. Gao’s critical remarks – the chief purpose of this reply – we wish to address one of his positive comments. Referring to our comments on the proposed trust fund (pp. 76 – 79 of our paper), Prof. Gao characterizes our analysis as suggesting that “even if the fund could encourage developing countries to bring more cases, this might not necessarily be a good thing as many such cases might be better left un-litigated due to their low commercial value.”

We wish to clarify that we do not advocate that developing countries abstain from initiating disputes because of low commercial value. Quite the contrary – the key message of our paper is that developing countries should be enabled to bring any dispute that they consider useful. In so doing, they should not be constrained by factors that any legal community would deem inequitable, such as lack of resources (see p. 50 of our paper).

Instead, our argument is that, even for small countries there may be an absolute cut-off point in commercial value below which a government, as an empirical matter, will typically not press ahead with a WTO challenge. This appears to hold even if a strictly monetary cost-benefit analysis of trade value and litigation costs were positive. Given the fact that the average value of ACWL-assisted developing country complaints is appreciably above the ACWL’s (very low) maximum fees, defraying these low fees is quite unlikely to unleash previously bottled-up developing country complaints. As our article emphasizes, reimbursing at least some developing countries’ litigation costs is a most honorable idea, assuming that the numerous and very significant practical challenges can be addressed. However, given the likely marginal (if any) dispute-promoting impact of such a fund, developing countries should not spend precious political capital on this project. Making use of the already existing tremendous resource that is the ACWL is an incomparably better strategy.

But now to Prof. Gao’s critical remarks, all of which address very pertinent topics. First, Prof. Gao is absolutely right that countries like Brazil, India and China differ from the majority of developing countries, their (economic) size being one of the most obvious factors. We acknowledge this point repeatedly throughout our article. It is also true that these countries’ higher level of WTO litigation activity, as well as their greater financial and human resources, provide opportunities for building an “international trade community” that smaller developing countries may not enjoy. In fact, the entire point of our introductory “quantitative” section is that the divide in WTO dispute settlement runs, to a large extent, between large and small countries.

At the same time, we would emphatically disagree that the experience of these countries holds no lessons for other (including smaller) developing countries. Brazil brought 9 complaints during the 46 years of its GATT membership, but has brought 26 in less than 17 years of the WTO. That is a very noteworthy 8-fold increase on a per-year basis. The drivers of this extraordinary increase in litigation capacity and willingness cannot be irrelevant when analyzing the experience of other developing countries - at the very least that of other large developing countries, e.g. Argentina, Mexico, India, Indonesia or Pakistan, or even newly acceded Russia. Similarly, we fail to see why the many institutional changes observable in Brazil and so eloquently described e.g. by Prof. Shaffer in his exhaustive case study (e.g. better intra-governmental coordination and improved inter-agency decision-making procedures) should not be replicable also in much smaller economies, at least to some extent. As yet another example, emulating China’s systematic use of third party participation as, inter alia, a capacity-building tool is also not impeded by smaller economic size.

Prof. Gao next queries why we did not use the Horn, Johannesson and Mavroidis classification of developing countries. We referred to these and other scholars’ work as evidence of the growing recognition that “developing countries” in the WTO are too heterogeneous to be meaningfully aggregated into one single group. Although we then analyze some constraints common to a large proportion of developing countries, we also emphasize that each country will require a highly individually tailored set of measures so as to optimize its WTO participation. It is quite possible that some constraints are more prevalent within some of the country sub-categories defined by Horn, Johannesson and Mavroidis; in fact, we understand that analysis on thisquestion is already being undertaken and will no doubt enrich the debate. We considered it beyond the scope of our article to engage in such analysis. In any event, from the perspective of an individual developing country – as mentioned by Prof. Gao – whose policy makers may wish to develop an action plan for optimizing their country’s WTO participation, even an analysis that uses the disaggregated Horn, Johannesson and Mavroidis framework will not replace the need for an individualized assessment of a country’s particular circumstances.

With respect to Professors Nordstroem’s and Shaffer’s small claims procedure, we remain unpersuaded by Prof. Gao’s argument. His analogy with the distinction between an appealed or unappealed panel ruling strikes as inapposite. That minor distinction nowhere mirrors the contrast that would arise between a well-established, politically accepted standard DSU process, and a newly created alternative “small claims” procedural track that, by its explicit design, would truncate the legal and factual analysis as well as the underlying procedural steps. In the messy and vicious domestic political arena, protectionist interest groups and their clever legal counsel would no doubt seek to characterize this as a “second rate” procedure in which legal arguments were not properly vetted and evidence not properly considered. This would be especially the case if a “small claims” procedure were used against the objection of the defendant. We also do not entirely understand the comment that some countries may not be seeking to enhance their bargaining positions. In fact, every WTO complainant hopes for prompt and complete compliance, and such compliance is intrinsically linked to the political acceptability of an adverse ruling in the defendant Member. Developing countries’ aversion to using special procedures, an aversion driven by the concern not to detract from the political legitimacy and impact of a ruling, has been noted for instance by observers as knowledgeable and experienced as Dr. Frieder Roessler.

Nevertheless, as we hint in the paper, there are also strong practical questions surrounding the proposed small claims procedure. In any event, the fact that the small claims procedure has not been a significant part of the DSU review debate among Members suggests that developing countries are not persuaded that it holds much promise for them. By way of conclusion, we hasten to add that Profs. Nordstroem and Shaffer are undoubtedly among the most influential commentators and idea-generators for optimizing the WTO dispute settlement system for developing countries.  Our work builds on, owes a great deal to, their scholarship, making us the proverbial dwarves sitting on giants’ shoulders. However, with respect to their small claims procedure proposal, we respectfully disagree, for the reasons stated above.

With respect to Prof. Gao’s point on retaliation, our article expressly acknowledges and discusses his very point. We explicitly state that retaliation can impact on the domestic bargaining process that underlies a WTO Member’s ultimate choice between compliance and non-compliance.[1] Our contention – with respect to which we are not certain whether Prof. Gao agrees or disagrees – is that this domestic bargaining process will typically point towards compliance, even without the added “nudge” resulting from retaliation.   

Finally, we turn to Prof. Gao’s comment on our treatment of “culture” as factor. We emphasize that by culture we referred to a set of domestic deeply engrained and persistent domestic socio-normative patterns, as distinct from other factors shaping a government’s international behavior and the government’s related “attitudes” (such as foreign policy strategy, knowledge and experience of the WTO system, etc.) An example of such deeply embedded cultural patterns would be the much-described Confucian emphasis on amicable dispute resolution as opposed to litigation.

We accept that our discussion of this factor could have been more elaborate. The brevity of our analysis simply betrays our skepticism that this factor can explain WTO dispute initiation patterns. We certainly recognize the tremendous cultural differences that exist across WTO Members’ societies. We would welcome a rigorous scholarly discussion of this topic, but we are only aware of occasional brief and somewhat speculative references in the existing literature on WTO dispute settlement.

In our view, asserting a direct link between general societal attitudes to litigation, and a government’s WTO dispute initiation patterns, entails, at the very least, two distinct assumptions. The first assumption is that domestic (individual or corporate) “cultural” attitude towards litigation – attitude that, however, may be also heavily driven by the financial and other incentives or disincentives that a domestic legal system holds for potential plaintiffs -- creates a corresponding “attitude” of an entire governmental machinery and in its decision-making in international economic relations. The second implied assumption is that cultural preferences hold very powerful sway within the complex politico-economic-legal calculus underlying a government’s choices as a participant in the WTO system. E.g. we would have to assume that diffuse cultural preferences for non-litigious dispute settlement can repeatedly prevail over tangible commercial interests of powerful domestic constituencies that would militate in favour of litigation; or that such cultural preferences will repeatedly trump strategic imperatives dictated by factors such as a country’s relative size and power vis-à-vis its geopolitical and economic competitors.

Both assumptions, while not impossible, strike us intuitively as rather questionable and certainly in sore need of a rigorous examination. Moreover, one can easily come up with counter-examples that suggest the absence of a link between domestic “culture” and WTO litigation. Confucian and allegedly litigation-averse China has developed into the sixth largest complainant in the WTO since 2001. The United States, a very litigious society domestically, harbors a deep suspicion of international tribunals outside the WTO system.[2] Moreover, governmental litigation behavior can experience profound and rapid changes that would appear incompatible with the notion of persistent and deeply embedded social norms and values. For instance, Argentina – which Prof. Gao rightly points out is a relatively frequent complainant in the WTO arena – on our count filed only 3 disputes during 28 years of its GATT membership. However, after important changes in internal governance during the 1990s, it rose to become the 7th largest WTO complainant with 18 disputes filed in less than 17 WTO years.[3] (On a yearly basis, this is an increase by a factor of almost 10.) Similarly, Chile filed only 5 disputes during almost 50 years of GATT era, but has brought 10 disputes in the WTO, more than quintupling its per-year count and achieving rank 11 as complainant. We have already mentioned Brazil’s rise to one of the key litigants under the WTO.

So either culture has very limited, if any, influence, or this influence can be eclipsed by other factors with relative ease. And this is exactly what we assert in our paper. But our lengthy response to his critique actually demonstrates that Prof. Gao is very right. We indeed could and should have explained our views on the “culture” factor in more detail.

We thank Prof. Gao again for taking the time to read our article, for his insightful critique and his praise. We also thank the hard-working, enthusiastic and patient editorial team of the Trade, Law and  Development Journal, as well as the WorldTradeLaw.net team for organizing this exciting symposium and for making possible this valuable academic exercise. We hope that our paper will be of use and of interest to those who, undeterred by its length and its many footnotes, will take the time to read it. And we hope that even readers who do not agree with all of our conclusions will find it worthwhile and thought-provoking. The topic certainly deserves a continued dedicated debate and we look forward to it.

---

[1] Page 101.

[2] The US’ (fluctuating) enthusiasm for WTO dispute settlement is most likely due to the uniquely strong influence of corporate commercial interests in US foreign trade policy.

[3] This figure is as of 11 October 2012. In contrast, our paper uses an earlier figure.

SIEL Call for Papers - Postgraduate and Early Professionals/Academics

2^nd Conference of
the Postgraduate and Early Professionals/Academics Network of the Society of
International Economic Law (PEPA/SIEL)

Göttingen (Germany), 25^th & 26^th January
2013

 Organised by SIEL in cooperation with the
Institute of International and European Law of the Georg-August-University
Göttingen

Call for Papers

 This conference offers postgraduate students (students enrolled in Masters/PhD) and early professionals/academics (generally within five years of graduating) studying or working in
the field of IEL an opportunity to present and discuss their research. It also provides a critical platform where participants can test their ideas about broader issues relating to IEL. One or more senior practitioner or academic will comment on each paper, followed by a general discussion.

 We invite submissions on any IEL topic including, but not limited to:

• trade, investment and monetary/financial policies;
• the interaction of, for example, international trade law, investment law and
  competition law with other branches of law governing intellectual property,
  human rights, environment and sustainable development;
• regional economic integration and multilateral trading system;
• comparative economic law, focussing on how international economic law
  interacts with laws, institutions and actors at the domestic level;
• the roles of law and legal practices in international economic governance
  and international organizations and·
• the philosophy, sociology, politics and economics of international economic
  law

How and when to submit

Submissions should include a CV and a research abstract (no more than 400 words). They are to be sent no later than 31^st October 2012 to [email protected]. Papers will be selected based on a double blind review conducted by a senior practitioner or academic and a conference organiser. Successful applicants will be notified by 30^th November 2012; after which they are expected to submit a conference paper (no more than 4000 words) by 31^st December 2012. Papers will be made available online in a special section at the SIEL website (www.sielnet.org).

General practical information about
participating and attending the Conference

 The deadline for registration is 7^th December 2011. Registration has to be done online at the SIEL
website (the registration page will be available shortly). Registration costs 45 GBP for non-SIEL Members, and 35 GBP for SIEL Members.  SIEL Membership details may be found at the SIEL website (student membership is 5 GBP). The Registration fee covers conference materials and coffee breaks on both days.

 Cancellations of participation must be made in writing to [email protected]. The deadline for cancellation is 4^th January 2013. The registration fee minus an administrative fee of 5 GBP will be refunded if the cancellation is done before or on the given date. Later cancellations will not be refunded.

A limited number of conference fee waivers is available for applicants facing financial hardship. Applicants for a conference fee waiver are kindly invited to add a short letter to their conference application, stating the reason for their waiver request no later than 31^st October
2012. Successful applicants will be notified by 30^th November 2012.

 Unfortunately, the organisation cannot cover travel, accommodation or
any other expenses.

 Subject to space availability, registration of participants not presenting a paper will be accepted. The regular fee will be applied.

 If you should have any (further) questions regarding participation, please feel free to contact Alper Taşdelen ([email protected]).

(Not Quite) 50 Shades of Grey: Personal Views of WTO Secretariat Members on GATT Rules and Currency Manipulation

As promised, a further report from the World Trade Forum.

Among the highlights (there were many-congrats to Thomas Cottier and his team for a great meeting) was the debate on the WTO and the issue of currency manipulation to gain an advantage in trade.  Particularly interesting were the diverse perspectives offered by members of the WTO Secretariat, speaking in their personal capacity and not on behalf of the Organization.  As has been discussed here before, Article XV:4 of the GATT provides that WTO Members shall not frustrate the intent of the GATT through exchange action or the intent of the IMF Articles through trade action.  Some have argued that this provision could be used to bring a claim against China for example, based on the notion that the Renminbi is undervalued in order to preserve the competitiveness of China's exports.  Similar accusations have been levelled against Switzerland's current policy of establishing a fixed exchange rate for the Swiss Franc against the Euro. 

One Secretariat official took the personal view that these are issues that should be left exclusively to the IMF, and even that (if I understood that person well) a panel might not  have jurisdiction.  Although the conference was not conducted under Chatham House rules in whole or in part, this individual invoked them on his behalf, and therefore I am not going to name the person-and, in fairness (despite their not invoking Chatham House) I will afford anonymity to others as well.

An additional point was that exchange action within the meaning of XV:4 might not include exchange rate policy but only the narrower classes of measures mentioned elsewhere in Article XV, exchange controls and restrictions.  But a different person, also speaking on their own behalf and not that of the WTO, suggested that the language of XV:4 is quite broad and would not necessasrily be limited to these presumably narrower categories.

Finally, a third person pointed out (again speaking in their personal capacity) that the WTO dispute settlement organs have  under the DSU exclusive competence and indeed, under compulsory jurisdiction, the duty to determine whether there is a violation of a provision of a covered agreement, which obviously includes the GATT.  To my mind this is clearly correct:  determining whether exchange actions frustrate the intent of the GATT is a matter of determining whether there is a violation of the GATT, and involves interpreting the GATT, and here the dispute settlement organs have jurisdiction and the IMF does not.  A bigger issue (which I myself raised) is whether XV:4 is a stand-alone provision, or whether it applies only to measures that resemble Article XI quantitative restrictions but would be exempted through the operation of one or other exception to Article XI (in which case XV:4 would have an Article XX chapeau type function and would not be a stand-alone basis for findng a GATT violation.)

This being said among the participants of the conference (including the ones referred to above) the range of views on whether an action under Article XV against a WTO Member for currency manipulation could succeed on the merits ranged from agnosticism to extreme skepticism.  In part this is because it is not easy to prove the trade effects of a given exchange rate policy.  Showing that a currency is misaligned from a general economic policy point of view is not enough to prove that the intent of the GATT, an accord on trade in goods not macroeconomic policy coordination, has been frustrated (a point brilliantly developed by my colleague Al Sykes in recent work co-authored with Bob Staiger). 

Previous caselaw on Article XV admittedly shows an attitude of abject deference to the IMF.  But, read properly, Article XV only requires deference (understandably) on the issue of whether certain practices of WTO Members violate the IMF Articles (as opposed to WTO norms) and on statistical questions. 

 I have a sense that some in the WTO would simply like the currency manipulation issue to go away, as in the past was wished for about trade and environment, hence the interest in a mythology that it is a matter exclusively for a different international organization and/or inherently excluded from WTO dispute settlement.  But, this is more wishful thinking than savvy judgment: as the India-Balance of Payments and the Turkey-Textiles cases illustrate some day a Member may very well decide to take the plunge and test the waters (perhaps Brazil, one participant conjectured).      .      .        

New scientific study supports EU position in WTO seal products dispute

A study by veterinary scientists in the September 2012 issue of Marine Policy shows that the conditions under which the Canadian seal hunt occurs are such that it is impossible to assure the humane treatment of the seals.  By implication, only a ban can succeed in addressing the EU concern about animal welfare.

Here is the abstract:

The Canadian seal hunt is the world's largest commercial slaughter of marine mammals and, as such, has been the subject of veterinary scrutiny for half a century. In that time, veterinary experts have made multiple recommendations to improve welfare at the seal hunt, some of which have been included in Canadian sealing regulations. Yet analysis of video material and studies on the outcomes of the hunt suggest that the potential for suffering during the hunt continues, and may, in fact, be increasing. In the past decade, numerous countries have taken action to prohibit their trade in products of commercial seal hunts in response to public concerns about the welfare of the seals. With these actions now being examined at the World Trade Organization, it is important to determine if these concerns are warranted. This paper reviews relevant veterinary science, exploring the intrinsic elements of commercial sealing and unique physical adaptations of seals that prevent effective and consistent application of humane slaughter methods at the seal hunt. The review of available data indicates that generally accepted principles of humane slaughter cannot be carried out effectively or consistently in the commercial seal hunt.

This is a link to the study:

http://www.sciencedirect.com/science/article/pii/S0308597X12001662

 

When customary international law is not binding

This year the World Trade Forum at the WTI is exploring the rule of law in monetary affairs.  This morning Markus Krajewski presented an excellent paper on the human rights implications of austerity programmes in the Eurozone.  There ensued an interesting debate, in which a former general counsel of the IMF Francois Gianviti made the rather astonishing statement that not all customary international law was binding.  He wasn't referring to the persistent objector theory or customary rules in conflict with jus cogens.  Instead he seemed to think that the IMF members had somehow contracted out of custom in the IMF Articles of Agreement, such that the customary international law of human rights that might otherwise be applicable to members in their dealings with the Fund and in the Fund would nevertheless not be binding.  According to the chamber of the ICJ in ELSI for a treaty to be read as suspending  or modifiying the application of customary between the parties there has to be clear intent of the parties.  I do not know where that could  be found in the IMF Articles.  I would be interested in the views of other bloggers on the answer to this mystery.     Mr. Gianviti himself couldn't point to an exact provision of the Articles that manifested such a clear intent.  He also noted the difficulty that customary international law of human rights has itself largely arisen since the Articles were concluded.    Ultimately, his remarks seem to reflect more than anything else the traditional hostility of the Fund bureaucrats to considerations of human rights getting in the way of what they consider more serious business.

I will report further on some of the other interesting debates and papers at the Forum, including on trade rules and currency manipulation.

 

A Braking Mechanism for Subsidies

Cato held a panel discussion yesterday on subsidies and subsidy discipline.  A central theme explored was how the United States can exert global leadership in the field of subsidy control and enlightened self-restraint.  I contributed a suggestion raising some potentially complex legal (maybe constitutional) issues that might benefit from commentary by this blog’s loyal readers.

The proposal begins with the observation that the United States has a front-loaded system for ensuring compliance with commitments made in trade agreements.  Usually using TPA, we pass (before entry-into-force) implementing bills that are supposed to make all adjustments needed at the statutory level.  This works fine when what we have committed to do involves cutting a tariff or amending a provision in a trade remedy law.  But it is an awkward approach to ensuring compliance with commitments made in the subsidy field, e.g. the commitment not to cause (through the use of subsidies) adverse effects to trading partners.  For a given subsidy program, there is no way to know ahead of time what level of payments might result in serious prejudice (or some other type of adverse effect) to a trading partner 2, 5, or 10 years down the road.  Even if US spending holds steady, market conditions may change in such a way that spending which was non-problematic in year 2 becomes highly problematic in year 6.  This possibility cannot be addressed up-front.  And in fact, when one looks at US trade agreement implementing bills, one does not see any tinkering with spending programs.  Spending is handled in totally distinct legislative processes – Farm Bills for agriculture spending, mainly appropriation bills and CRs otherwise.  The occasional result is akin to a car on a highway, with the cruise control set at 55mph, moving into a 40mph zone and having no one conveniently situated to touch the brakes.  There is no nimbleness in our system, when it comes to ensuring continuous adherence to our commitments in the subsidy field.

Hence the proposal:  the President could be given braking authority – the ability to scale back spending based on formal findings that a scale-back is necessary to prevent an imminent trade agreement breach.  To ensure accountability without destroying nimbleness, the President would be required to notify – but not seek permission from – the Congress.  This would be a special category of impoundment.  I can see no way to extend the principle to subsidies conferred through the tax code,
but at least where actual spending is concerned (a first test case could be the current Farm Bill) it might work.  If it were legal.

I’m sure there are all kinds of political ramifications, but for now am more interested in readers’ input on the legal ones.  Does the old case law on impoundment leave room for something explicitly connected to ensuring compliance with international obligations?

I am confident that this would be (and be seen as) a bold stroke, in terms of US leadership on subsidy control and respect for the (relatively light) disciplines that have so far been negotiated.  And it would address a deficiency in our otherwise well-designed (TPA-based) system for honoring trade commitments.

TLD Symposium: Henry Gao Comment on "Participation of Developing Countries in WTO Dispute Settlement"

Article: Going Beyond Stereotypes: Participation of Developing Countries in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 45 (2012) [available here]

Authors:  Jan Bohanes & Fernanda Garza

Comment by Henry Gao

The participation of developing countries in WTO dispute settlement system is a topic of great importance in theory as well as in practice. In terms of the practical importance, studying the past experiences of developing countries’ participation can help to understand the patterns of performance, identify the problems in the existing system, and discover possible strategies to improve their participation. At the same time, the topic is also of great theoretical value, as such study can shed light into fundamental issues which are often dismissed as being too academic to be relevant, including, for example, the desirability of a highly legalistic approach to dispute settlement, the ultimate aim of the WTO dispute settlement system, and the exact nature of the remedies provided under the system, etc.

Since the establishment of the WTO, a rich and ever-growing literature on the topic has been developed by lawyers, economists, and international relations scholars. While most of the existing literature tends to agree that the developing countries have been under-represented in the WTO dispute settlement system, they disagree in their diagnoses of the reasons for such deficiency and prescriptions for solving the problem. In this regard, the paper by Bohanes and Garza is a timely piece, because it not only provided one of the most extensive summaries of the existing literature, but also did a great job busting many of the stereotypical theories on the alleged constraints facing developing countries.

Drawing from their rich experience in WTO litigation, Bohanes and Garza argued convincingly that many of the factors actually played a much smaller role than what people commonly believe. To start with, they pointed out that the claim of underrepresentation of developing countries in WTO litigation itself is a myth, because countries with bigger share in the global economy tend to be more frequent participants in WTO disputes, and this is true for both developed and developing countries alike. Of course, they acknowledged that the correlation is far from perfect, but the link is strong enough to shatter the oft-repeated stereotype that developing countries are underrepresented as a group.

Next, the authors considered the commonly-cited constraints facing the developing countries. Some of these are internal, such as the lack of legal capacity, problems in domestic trade governance, insufficient retaliatory power, cultural factor, etc. Others are external problems, such as the complexity of WTO litigation, the interference of preferential arrangements, and the fear of political retaliations. After an extensive and enthralling discussion, the authors concluded that, in general, the impacts of external constraints have been overly exaggerated. Instead, problems in domestic governance are the main barriers preventing developing countries from effectively using the WTO dispute settlement system.

Overall, I find the authors’ analyses in each topic not only comprehensive by discussing every major study on the subject from law, economics and political economy scholars, but also full of insights on even the most nuanced subjects. To start with, I was greatly impressed by the in-depth analysis on the different methodologies for classifying developing countries at the beginning of the paper. This is something lacking in many current studies, which just discuss the participation of developing countries as if they were a homogenous group without noting the many nuanced differences between different country groupings as the authors have done. Also, when evaluating the proposal for a trust fund on dispute settlement, the authors noted that even if the fund could encourage developing countries to bring more cases, this might not necessarily be a good thing as many such cases might be better left un-litigated due to their low commercial value. Reflecting the deep grounding of the authors in trade policy formulation, this word of caution is a sobering call to those who are advocating more WTO litigations as an end in itself rather than as part of the broader trade policy framework. Similarly, when discussing why developing countries should choose the ACWL rather than law firms in their WTO disputes, the authors noted that, as the second-most frequent complainant in the WTO, the ACWL has a vast institutional experience, an advantage unmatched by any private law firm. Again, unless one has sufficient experience in handling real WTO disputes, it would be hard to appreciate the importance of institutional experience. Another example is the discussion on political pressure, where instead of relying on anecdotal evidence like most other studies have done, the authors used the GDP size as a proxy to the political powers of the countries and found that actually more than two-third of the developing country cases were brought against countries with larger GDP and therefore politically more powerful countries. This is a good example of the many innovative approaches adopted in the article and reflects the ingenuity of the authors in combining doctrinal analyses with empirical studies. I also thoroughly enjoyed the refreshing discussions on the impact of preferential arrangements, where the authors shrewdly noted that, while the tariff concessions under such agreements might not be enforceable in WTO proceedings, the non-tariff barriers such as TBT, SPS, or domestic tax measures remain fully subject to WTO law and potential dispute settlement process. I think this is a point that has been missed out in most of the discussions on preferential arrangements so far and should be kept in mind by everyone who’s interested in the topic.    

On a few rare occasions, I find myself in slight disagreement with the authors. For example, I am troubled by the inclusion of giant countries like Brazil, India and China (BIC) in the discussion of developing countries’ participation in general. As big traders and frequent litigants, their experiences are hardly representative of that of typical developing countries and including them in the study only distorts the overall picture. Moreover, as average developing countries lack the enormous economic powers and widespread trade interests of BIC countries, it is doubtful that the successful examples of BIC really offer something useful to the other developing countries. For example, given their limited resources, most developing countries would not be able to emulate the examples of China and Brazil in building up the capacities in academia, law firms and government. Of course, I am not saying that the authors fail to recognize the BIC problem. Quite the contrary, they have correctly pointed out, at the beginning of the article, that “grouping all developing countries into one single category… papers over great differences”. Later, they also noted that the top 5 and 10 developing country complainants accounts for 50% and 75% of all developing country complaints, respectively. Moreover, they are not only aware of the problem, but also well cognizant of the possible solutions. For instance, they cited several ways to “differentiate between subsets of developing countries to make analyses more meaningful”. They also did a case study on South Africa to illustrate the common problems facing average developing countries. Indeed, had the authors followed their own advice and adopted either the categorization proposed by Horn, Johannesson and Mavroidis, or the one used by the ACWL in their membership classification, their analyses would have been more relevant and useful to average developing countries. It is puzzling that the authors mentioned these methods without discussing how they might be useful in the current study. Similarly, I remain unpersuaded by the authors’ dismissal of the proposal by Nordström and Shaffer to establish a “small claims procedure”. According to the authors, “it is doubtful that developing WTO members would see benefit in rulings from a procedure that would run the risk of being branded, by interest groups within the respondent member, a ‘second-class’ process, thereby undermining its political persuasiveness”. In my view, domestic interests groups rarely distinguish between Panel and Appellate Body decisions in criticizing WTO cases. Both are just WTO rulings to them and I doubt the rulings of a WTO small claims tribunal will receive different treatment, for better or for worse. Also, while I agree that some WTO Members might want to use certain WTO rulings to enhance their political bargaining position, I doubt this is true of all cases in the WTO. For some WTO Members, especially smaller ones, they might not be interested in establishing favorable WTO jurisprudence on controversial issues at all, either because the issue is well-settled with clear precedents, or because they just want to solve the problem at hand.  

In addition, there are a few other issues which the authors could have taken a closer look. For example, in discussing the impact of retaliation on compliance, the authors argued that compliance mainly depends on getting sufficient domestic political support, which retaliation provides little help. However, if used well, retaliation or the threat of it could well mobilize domestic interest groups and realign their positions to increase the possibility of compliance. Interestingly, the authors seemed to acknowledge this point by mentioning the US “carousel retaliation” example in the EU - Bananas III dispute. Another well-known example is the proposed EU retaliation list in the US – Steel Safeguards case, which affects several key states in US presidential election by strategically choosing products such as Harley-Davidson motorcycle (Wisconsin), textiles (Carolinas) and citrus products (Florida), which prompted quick compliance by the US. Similarly, I find the authors’ discussion of cultural factors to be too cursory. According to the authors, while cultural traditions might play a role in deciding whether to use the WTO dispute settlement at all, it fades into the background once a country gains experience in the dispute settlement system. However, if this were indeed the case, we wouldn’t see Latin American countries such as Argentina and Chile joining the club of the most active litigants, notwithstanding their low total GDP and shares in global trade. Instead, they would have to switch places with a few Asian countries, especially Indonesia and Malaysia.

Notwithstanding the tiny blemishes mentioned above, I regard the paper as one of those rare pieces which combines deep academic rigor with rich practical insights. In my humble view, this is a must-read for WTO scholars and practitioners alike. In particular, I would highly recommend it for trade officials from developing countries. If they can all follow the highly topical and practical suggestions in the paper, especially those regarding domestic governance issues, it wouldn’t be long before we see the emergence of a new landscape in WTO dispute settlement. 

TLD Symposium: Introduction to "Participation of Developing Countries in WTO Dispute Settlement"

Article: Going Beyond Stereotypes: Participation of Developing Countries in WTO Dispute Settlement, 4(1) Trade, L. & Dev. 45 (2012) [available here]

Authors:  Jan Bohanes & Fernanda Garza

Reviewer: Henry Gao

Introduction to the Article, by Shreya Munoth

Dispute Settlement is, undisputedly, one of the most outstanding features of the World Trade Organization. Not only is it the most frequently used system of dispute settlement as compared to other international fora, it is also one of the few inter-governmental dispute settlement system credited with being successful. With the transition of international trade from GATT into the precincts of the World Trade Organization, an effort has been made to move away from a power-oriented system and toward a rule-oriented system. However, questions and concerns have frequently been raised as to whether the WTO dispute settlement system is well-suited to serve the interests of developing and least-developed countries.

In this comprehensive article, the authors have undertaken to address most of these concerns and allay fears that the dispute settlement system unfairly prejudices developing countries. The authors provide insight into a very interesting aspect of how most studies which talk about the WTO dispute settlement system fail to take into account the wide disparity amongst the countries which fall within the “developing countries” bracket.  This coupled with the difference in the economic size and share of global trade of the developing countries, the authors highlight, needs to be considered while examining how the WTO dispute settlement system has worked for the developing countries. The authors go on to examine the constraints that are most commonly identified as the faults of the dispute settlement system, inter- alia the politicization of disputes, lack of sufficient retaliatory power, duration and complexity of WTO proceedings and conclude that these play a negligible role in influencing developing country participation in WTO litigation. On the other hand, the authors identify numerous internal constraints, such as lack of legal capacity, lack of co-ordination between the trade community and the governments, lack of institutional capacity, among other issues of domestic governance, which preclude the developing countries from actively participating in WTO litigation. The authors also lucidly highlight the role of the ACWL in assisting developing countries participate in WTO litigation. The authors conclude by noting that these constraints need to be addressed internally at the domestic level by developing countries themselves, rather than by the World Trade Organization.

Hailing from a developing country himself, Prof. Gao’s comment raises interesting questions pertaining to the authors’ study. All in all, the article and the comment provide a thorough analysis of developing country participation in the WTO dispute settlement system thus making it a must read for policy makers, legal practitioners and scholars with a deep interest in developing country participation in the WTO dispute settlement mechanism. 

Composing the Seal Products Panel: Just How Long Did It Take?

Rob pointed us to the composition of the Seal Products panel yesterday. Everyone is probably aware that it took a long time to compose the panel.  To be precise, based on the establishment date of April 21, 2011, when Norway's panel was established (Canada's was established the previous month), and the composition date of Oct 4, 2012, it took 532 days.

Many of you were probably wondering whether that's the longest it has ever taken to compose a panel.  OK, well, maybe some of you were wondering anyway.  All right, it was probably just me that was wondering.  But regardless, I was wondering, so I looked it up.  It turns out that Seal Products was the longest.  Here are the runners-up (this is based on completed disputes -- I haven't checked disputes that are still ongoing or were suspended/abandoned):

 

Dispute	Establishment	Days between Establishment and Composition	Composition
U.S. - Aircraft	Feb 17, 2006	278	Nov 22, 2006
U.S. - Tuna	Apr 20, 2009	238	Dec 14, 2009
EC - Chicken Classification (Brazil)	Nov 07, 2003	234	Jun 28, 2004
U.S. - Orange Juice (Brazil)	Sep 25, 2009	227	May 10, 2010
U.S. - "Zeroing" of Dumping Margins (DS294)	Mar 19, 2004	222	Oct 27, 2004
EC - Chicken Classification (Thailand)	Nov 21, 2003	220	Jun 28, 2004

 

Seal Products Panelist Chelliah

Simon our leader just pointed out to me that Chelliah was also on the Tuna/Dolphin III panel (she replaced one of the originally named panelists who passed away during the proceedings). 

The Tuna/Dolphin finding that there was no violation by the US of non-discrimination in TBT (Article 2.1) is consistent with the deferential approach in the US-Rules of Origin panel I mentioned in my earlier post (of course, on that issue the panel was reversed by the AB, which adopted a different analytical framework for understanding non-discrimination in TBT.   Of serious concern, however, is the TBT 2.2 approach of the panel in Tuna/Dolphin, where the panelists invented a less-trade restrictive alternative not proposed by the complainant with no evidence on the record as to its feasibility or effectiveness (see my amicus submission, available on the worldtradelaw.net site; fortunately, the AB reversed on 2.2).   Nevertheless, there are passages in the Tuna/Dolphin panel report that suggest an openness to animal welfare concerns, such as a clear statement of the legitimacy of the US objective of protecting dolphins, even if not an endangered species, "allowing Members to pursue policies that aim at...protecting individual animals or species whose sustainability as a group is not threatened."(para. 7.347)   This is signficant since Canada has gone so far as to claim that protecting seals is not a legitimate objective.        

 

Panelists named in Seal Products dispute

The panelists are:

 

Luzius Wasescha, Elizabeth Chelliah, and Patricia Holmes.

Wasescha, a familiar name to many who follow this blog, is a senior Swiss trade official, who has held numerous important positions and served on several WTO panels.  He has an academic training in law and (some years ago) wrote a book on the European Social Charter.  Chelliah is a Singapore trade official who has also served on panels before, including one on US rules of origin where the concept of non-discrimination was interpreted in a circumscribed manner that is respectful of domestic sovereignty.  Holmes is currently serving as Australia's ambassador to Argentina.  She has a training in law, which apparently includes an advanced degree in international environmental law from ANU.  A preliminary Google search indicates that she has been involved over the years in a number of policy processes and exercises related to trade and environment issues.  

Over the next days and weeks, those interested in this dispute will doubtless be finding out more about the panel rulings, activities and publications of these individuals.  Stay tuned.

 

TLD Symposium: Author's Reply on "Transparency and Public Participation in the WTO"

Article: Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms, 4(1) Trade, L. & Dev. 19 (2012) [available here]

Authors: Gabrielle Marceau & Mikella Hurley

Reply by Gabrielle Marceau

I agree with the comments of Robert Wolfe and there is not much to add. Maybe the title was indeed a bit too ambitious and should be changed to “Efforts of Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms”.

The WTO Secretariat is trying to open up as much as possible, while taking into account the specific sensitivities and resistance of its Members. As noted by Prof. Wolfe, it is not always easy to be open, and neither is it always opportune –  too much sun can kill (a deal). For example, several Members were quite upset when the WTO Dispute Settlement Mechanism accepted amicus curiae briefs.

Prof. Wolfe also noted that NGOs are not involved in WTO political committees and other decision-making processes. This is also due the preferences of the Members and it is difficult to see how to change this situation other than in trying to convince members to change.

Export Restrictions and Food Security

In a recent study, co-authored with Stanford agricultural economist Tim Josling, we discuss the implications for food security of the China-Raw Materials ruling on export restrictions.  We explore how the provisions of the  Agreement on Agriculture can be given new meaning in light of the AB's approach to Article XI and its exceptions.  In the Rare Earths case, the judges will likely be revisiting the interpretation of Article XI and its exceptions relating to export restrictions 

The study can be downloaded here:

http://www.agritrade.org/Publications/ExportRestrictionsandTradeLaw.html

 

 

Australian High Court: Plain Packaging Does Not Involve an "Acquisition"

We learned about the Australia High Court's plain packaging decision a couple months ago, but now we have the reasoning.  I've only just skimmed through it.  There's a lot in there, for those who are interested either in this case or these property rights issues more generally. Here are the basics.

The legal provision at issue is Section 51(xxxi) of Australia's constitution, which states that parliament has the power to make laws with respect to: "the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws."

The key issue was whether plain packaging constitutes an "acquisition"; only then would compensation ("just terms") be due. By a 6-1 margin, the court found that plain packaging is not an acquisition.

This is from the Chief Justice:

In summary, the TPP Act is part of a legislative scheme which places controls on the way in which tobacco products can be marketed.  While the imposition of those controls may be said to constitute a taking in the sense that the plaintiffs' enjoyment of their intellectual property rights and related rights is restricted, the corresponding imposition of controls on the packaging and presentation of tobacco products does not involve the accrual of a benefit of a proprietary character to the Commonwealth which would constitute an acquisition.  That conclusion is fatal to the case of both JTI and BAT. 

There are a number of concurrences to that same effect.

There was a dissent, though, which noted:  "... the acquisition here is not incidental:  it is the fundamental means by which the TPP Act operates and seeks to achieve its goals."  The dissenting justice then said:

After a "great" constitutional case, the tumult and the shouting dies.  The captains and the kings depart.  Or at least the captains do; the Queen in Parliament remains forever.  Solicitors-General go.  New Solicitors-General come.  This world is transitory.  But some things never change.  The flame of the Commonwealth's hatred for that beneficial constitutional guarantee, s 51(xxxi), may flicker, but it will not die.  That is why it is eternally important to ensure that that flame does not start a destructive blaze.

That's some great language!  Here's some more by that same justice: 

... counsel for British American Tobacco said that he did not want to descend into hyperbole.  He did not.  Nor, indeed, did he get into a state of high dudgeon.  But he said:  "every one of those sentences is utterly wrong."  He was right to do so. 

I wish WTO reports were written this way!

There is also some interesting discussion of how the Australian constitutional provision relates to the U.S. Takings Clause.  One excerpt: "it has been apparent for some time that with respect to "taking" and "acquisition" some important distinctions are to be observed between the United States and Australian Constitutions."

Regulatory Coherence or Incoherence?

This is from the leaked Regulatory Coherence chapter of the TPP:

Each Party should ensure that covered regulatory measures are plainly written, clear, concise, well organized and easy to understand, recognizing that some measures address technical issues and that relevant expertise may be needed to understand and apply them.

OK, not to get too snarky here, but can anyone tell me with a straight face that the Regulatory Coherence chapter itself is "plainly written, clear, concise, well organized and easy to understand"?  I suppose they left themselves a way out with that "some measures address technical issues" language, but seriously, it has taken me about 10 read-throughs to have any sense of what is going on in this area.

TLD Symposium: Robert Wolfe Comment on "Transparency and Public Participation in the WTO"

Article: Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms, 4(1) Trade, L. & Dev. 19 (2012) [available here]

Authors: Gabrielle Marceau & Mikella Hurley

Comment by Robert Wolfe

This paper is an outstanding description and analysis of the openness of the WTO dispute settlement system to NGOs and the public. Anyone interested in transparency would benefit from a careful reading of its arguments. But the title is misleading, because the paper has much less to say about the WTO in general than it does about adjudication, and little at all to say about the broader policy purposes of transparency. Since I learned a great deal from what they do say allowing outsiders to observe decision-making and to contribute ideas, I want to focus this comment on what they do not tell us about transparency as a policy tool, not merely a right of citizens.

The authors intend to examine the old myth of the WTO dispute settlement system as an inaccessible and undemocratic “star-chamber”, with comparisons to other adjudicatory fora in the realm of international economic law. They are right to stress the comparative openness of the WTO disputes process, and its accessibility to NGOs, but the comparison looks different if the notion of “international economic law” is extended to multilateral environmental agreements (MEAs). Formal third party adjudication is technically available in MEAs, but never used. Without transparency to ensure compliance with legal obligations, therefore, these regimes would not work. 

Take the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). Parties may take unilateral action under Article XIV by refusing to accept shipments of all CITES specimens from a country found in persistent non-compliance with reporting and other requirements if that country has not demonstrated to the Standing Committee that it has adopted all necessary measures to adequately implement the Convention. Trade sanctions under this provision have been successfully implemented in at least 40 well-documented cases since 1985.  This procedure is open to NGOs, who participate in CITES as accredited observers at plenary sessions and committee meetings. CITES mobilizes a community with a stake in wildlife trade – from safari hunters to animal rights activists. NGOs gather information CITES transparency mechanisms may miss. The best example is TRAFFIC (Trade Records Analysis of Flora and Fauna in Commerce), the joint wildlife trade-monitoring programme of the World Wildlife Fund and the World Conservation Union (IUCN). The WTO has indeed learned to be more engaged with civil society,  but it could make much more effective use of such third party information. In the case of crisis monitoring, for example, the Secretariat made use of data published by the Global Trade Alert, but did not have any kind of formal or systematic engagement with this NGO. 

Transparency is often seen as part of a basic right of access to government information, a principle that has become more important especially in OECD countries over the last 30 years, notably with respect to environmental governance. This trend is exemplified in Europe in the 1998 Aarhus Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters. In the trading system, however, the objective is neither to enhance the capacity of citizens nor to promote domestic objectives that can be achieved without the need for international obligations.

The WTO Glossary defines transparency as the “Degree to which trade policies and practices, and the process by which they are established, are open and predictable.”  Such openness and predictability about both substance and process is needed in Geneva and in capitals alike. This definition refers to a number of inter-related actions, including how: a rule or a policy is developed domestically; the rule is enforced or a policy is implemented; the rule is published; the other Members of the WTO are notified of the new rule or a policy action; a notification is discussed in Geneva; and the results of the Geneva process are published.

The ultimate objective is reducing information asymmetries among governments, and between the State, economic actors, and citizens. Under conditions of “imperfect information”, everybody would be better off if partners reduce their asymmetrical information about each other. One of the questions in any international legal regime is the extent to which differing national laws are functionally similar, or recognizably similar. Good faith implementation of international obligations need not and does not result in identical national law. The purpose of transparency mechanisms in reducing information asymmetry is thus to allow verification by other Members that national law, policy, and implementation achieve the intended objective. Citizens and economic actors need this information as much as governments, so the WTO needs transparency for outsiders as well as among its Members, and not just about decision-making.

Transparency can be categorized for convenience as first, second and third generation policies, a typology developed to think about the evolution of transparency policies in advanced economies.  The first generation is the emergence of open government or “right to know” policies, the second is regulation by disclosure, and the third is e-government. When adapted for analysis of the WTO,  first generation refers to the original GATT policies from 1947 as elaborated over the years, while second generation refers to the monitoring and surveillance  mechanisms introduced with the conclusion of the Tokyo Round negotiations in 1979, and enhanced in the Uruguay Round negotiations that led to the creation of the WTO in 1995. Third generation refers both to managing an enlarged WTO with 157 Members, and to the greater openness to the public, as discussed by Marceau and Hurley.

A trade agreement is first a set of rules that should govern policy in a given domain. If nobody knows what the policy is, however, the agreement cannot work. Simple publication of tariff schedules, though still an essential form of transparency, is no longer sufficient for first generation or right to know transparency. Now trading partners and economic actors need to have information about a wide range of domestic policies that have the capacity to affect the flow of transactions across borders, domestic policies that are increasingly subject to WTO obligations. An ad valorem tariff imposed at the border is transparent in itself, and can readily be compared to the rate bound in a Member’s published Schedules, but trading partners cannot see what is going on “behind the border” without help. Domestic standards and regulations, notably those related to product safety and animal health, are hard to observe, which makes notification essential.

In the WTO Glossary, a “notification” is defined as “a transparency obligation requiring member governments to report trade measures to the relevant WTO body if the measures might have an effect on other Members.” Some WTO notifications are linked to the possibility of review by a relevant WTO body before or after the measure takes effect. Second generation transparency at the WTO refers, therefore, to monitoring and surveillance mechanisms. Monitoring means any activity where Members review each other’s implementation of the Agreements. Surveillance might focus on checking whether governments have created national legislation that incorporates an agreement into law; or on whether those laws are adequately enforced.

The monitoring and surveillance mechanism that might have the greatest potential in WTO is now known as the “specific trade concerns” (STC) procedure. While many agreements encourage a process where Members may engage in ad hoc consultations, the STC process has evolved the most in the SPS and TBT committees. Questions of the sort that later came to be called STCs were raised in their first meetings in 1995. The questions and answers increase the transparency of the system for everyone because the Secretariat provides detailed information on every STC in cumulative summary reports that are revised annually.  These reports are therefore an excellent source of information on standards and regulatory issues. Knowing whether the process leads to a resolution of issues is not straightforward, however, since Members are reluctant to report back to the committee when they have reached a bilateral accommodation.

Third generation transparency is represented at WTO by greater attention to what is done with the information available. Information is aggregated in new ways, and made more readily available. The challenge is to enable better policymaking in capitals, engaging both economic actors and citizens. Encouraged by environmental NGOs, meetings of the Committee on Trade and the Environment were the first to use the web to make the results of the meetings quickly accessible to the public.  Nevertheless, while WTO Members are committed to making information available in Geneva, but that information is largely a by-product of information otherwise generated to serve governments. Only some information is published with NGOs, economic actors, or citizens in mind. For example, the Trade Policy Review reports are written for Members, and in a specialist language, but the summary observations are written for a general audience. The crisis monitoring reports are explicitly aimed at Member governments, but the Secretariat has been working hard to report the results on the web in a way that makes complex data readily accessible to an interested but not necessarily professional audience.  Many of the reports on committee meetings are also increasingly informative. All of this information provides the basis for the relevant discussion, which may be more anodyne, in the WTO Annual Report, which is aimed at the interested public.

Sunshine may well be the best disinfectant, as Brandeis wrote, but too much sunlight can cause cancer. Transparency might hurt if it encourages posturing by negotiators and politicians. If constituents perceive a negotiation as purely distributive, they will be critical of a negotiator who pursues the possibility of an integrative outcome. The transparency that modern governance demands undermines the privacy essential for negotiations. The tough questions are always transparency for who, and to what end? The assumption is that some interested public will respond to information in a way that changes a targeted actor’s behaviour. If the obstacles in a given market are understood, economic actors can make alternative decisions, which might induce the government to change policy to maintain the benefits of investment. Such illumination might also generate domestic political pressure for change. In this way, transparency is the foundation for the trading system as a living thing not just a legal text stored in a Geneva filing cabinet.

TLD Symposium: Introduction to "Transparency and Public Participation in the WTO"

Article: Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms, 4(1) Trade, L. & Dev. 19 (2012) [available here]

Authors: Gabrielle Marceau & Mikella Hurley

Introduction to the Article, by Prateek Bhattacharya

Transparency has become (if it was not always) the grundnorm in the functioning of any public or international office, institution or organisation. As information becomes more accessible to the global public, international organisations have to keep up by constantly removing barriers to access, and making their own systems more transparent. In light of these circumstances, this article could not have come at a more important time. In countries across the world, the people are claiming the right to transparency as part of their basic rights. It is therefore only natural, that all the countries of the world expect the same from the World Trade Organization.

This article is an exhaustive commentary on the level of transparency of the WTO’s dispute settlement system. The authors provide readers with the history of transparency under the GATT vis-à-vis as under the current WTO system. They emphasise on the role of the WTO website in ensuring public access to documents such as legal texts, panel and Appellate Body Reports at every step. They continue onwards to discuss the role of amicus curiae briefs, a subject which has been extensively debated in the past. However, rather than debating on the subject themselves, the authors have remained true to the aim of their article and have provided an interesting read on how the various Panel and AB Members proactively chose to interpret the DSU in favour of amicus briefs. This decision put the WTO far ahead of other international fora in terms of transparency, and today Panels and the AB tend to accept unsolicited amicus briefs as well. Lastly the authors have noted on how the WTO Panels and the AB (along with the parties to the dispute) have tried to make the proceedings open to public access and attendance. They do not fail to humorously note how many of such public attendees find the proceedings boring by the end of the day. At every stage of their analysis, the authors have provided useful comparisons with other fora such as NAFTA, ICSID and UNCITRAL arbitrations (among others), noting that NAFTA is the most transparent of the three.

Without going into too much detail, I will only say that Prof. Wolfe’s comment on this article is different from other comments, in that he has chosen to discuss issues of transparency which have not been discussed in this article. As a result, when placed together, the article and the reviewer’s comment on it provide a wealth of information for any person interested in the subject of transparency at the WTO dispute settlement system, and I would urge one and all to read both the article as well as the comment.

Trade, Law & Development Symposium on WTO Dispute Settlement

The journal Trade, Law and Development recently published its Special Issue on Dispute Settlement at the WTO (available here). I'm going to work with them to conduct an online symposium here on this blog.

Here's how it's going to work.  The symposium will comprise sets of 1 Moderator, 1 Reviewer, and the Author(s) themselves, for each of the articles. Each Moderator will introduce the assigned article, provide a short summary (approx. 500 words) and introduce the Author(s) and the Reviewer.

Following the introduction by the Moderator, the Reviewer who is assigned to review that article will hand in their comments (approx. 1000 words). After a period of one week, the Author(s) can give their reply to the comments of the Reviewer (approx. 1000 words).

For the sake of administrative simplicity, I'll be doing all of the actual posting myself.  However, I will indicate in the post who is the writer of the post (moderator, reviewer, or author).  Hopefully this will all go smoothly and be clear to everyone!

There are five articles, and this will all take place over the next five weeks.

As always, feel free to comment on the posts.

Below is the list of articles, authors, reviewers, and moderators:

 

 

Sr. No.	Title of Article	Author(s)	Reviewer	Moderator
1.	Transparency and Public Participation: A Report Card on WTO Transparency Mechanisms	Gabrielle Marceau & Mikella Hurley	Robert Wolfe	Prateek Bhattacharya
2.	Going Beyond Stereotypes: Participation of Developing Countries in WTO Dispute Settlement	Jan Bohanes & Fernanda Garza	Henry Gao	Shreya Munoth
3.	The Development of Standards of Appellate Review for Factual, Legal and Law Application Questions in WTO Dispute Settlement	Simon Lester	Matthias Oesch	Shashank P. Kumar
4.	Considering Development in the   Implementation of Panel and Appellate Body Reports	Sonia E. Rolland	Asif Qureshi	Yogesh Pai
5.	Epistemic Contests and the Legitimacy of the World Trade Organization: The Brazil–USA Cotton Dispute and the Incremental Balancing of Interests	Arthur Daemmrich	Joost Pauwelyn	Simon Lester