International Economic Law and Policy Blog

Cybersecurity and Trade Conflict

Over at Opinio Juris, Roger Alford talks about some new U.S. cybersecurity legislation that bars federal government purchases of IT equipment “produced, manufactured or assembled” by entities “owned, directed, or subsidized by the People’s Republic of China” unless the head of the purchasing agency consults with the FBI and determines that the purchase is “in the national interest of the United States." Here's the relevant text:

Sec. 516. (a) None of the funds appropriated or otherwise made available under this Act may be used by the Departments of Commerce and Justice, the National Aeronautics and Space Administration, or the National Science Foundation to acquire an information technology system unless the head of the entity involved, in consultation with the Federal Bureau of Investigation or other appropriate Federal entity, has made an assessment of any associated risk of cyber-espionage or sabotage associated with the acquisition of such system, including any risk associated with such system being produced, manufactured or assembled by one or more entities that are owned, directed or subsidized by the People’s Republic of China.

(b) None of the funds appropriated or otherwise made available under this Act may be used to acquire an information technology system described in an assessment required by subsection (a) and produced, manufactured or assembled by one or more entities that are owned, directed or subsidized by the People’s Republic of China unless the head of the assessing entity described in subsection (a) determines, and reports that determination to the Committees on Appropriations of the House of Representatives and the Senate, that the acquisition of such system is in the national interest of the United States.

Roger's post is a response to Stewart Baker at the Volokh Consiracy, who seemed to suggest this provision would violate WTO rules and would not be justified by the security exception.  But as Roger points out:

 the [security exception] provision is self-judging. It doesn’t matter if, objectively speaking, the IT systems are indispensable for security. What matters is whether the United States considers such restrictions to be necessary for its essential security interests.

Roger is correct as far as I can see.  Here's what I wonder, though.  While the law is clear, how will this play out in terms of international relations?  That is, what will China's response be?  Will it adopt a mirror image provision, with heightened scrutiny of certain U.S. products?

Is the Biggest Trade in Cigarettes Battle Still Looming?

There has been a lot of excitement in the area of trade in cigarettes in recent years.  We've had the Clove Cigarettes case.  The Australian Plain Packaging case is starting up, and might spread if others adopt plain packaging.  Trade concerns have been raised about Canadian rules on flavored cigarettes.  And various issues have been raised in relation to a proposed EU tobacco regulation measure.  (That was just off the top of my head -- have I missed anything?)

But an even bigger battle may be ahead of us.  Have you heard of electronic cigarettes?  Until recently, I hadn't.  The Economist explains:

Electronic cigarettes ... work by turning nicotine-infused liquid into vapour, which is then inhaled. A user is therefore said to be “vaping”, not smoking.

Here's more from Wikipedia: "An electronic cigarette, also known as an e-cigarette, personal vaporizer or PV, is an electronic inhaler that vaporizes a liquid solution into an aerosol mist, simulating the act of tobacco smoking."

If you are like me, and find cigarette smoke very irritating, here's one really good part:  "Unlike cigarettes, they do not damage the health of bystanders. They do not even smell that bad, so there is no public nuisance, let alone hazard, ... ."

Oh, and there's this:  e-cigarettes "separate[] the dangerous part of smoking (the tar, carbon monoxide and smoke released by the process of combustion) from the nicotine."  So replacing regular cigarettes with e-cigarettes might be good for public health!

Now for the trade problems: "Several countries (including Austria and New Zealand) restrict the sale of e-cigarettes, for example by classifying them as medical devices; others (Brazil and Singapore) ban them altogether."

Here's what I envision as the worst-case scenario for trade.  For a long time, tobacco production has been tied to places that are suited for production in terms of climate.  Now, though, anyone and everyone can get into the smoking (vaping?) industry.  It's just a high-tech product like any other.  Build a factory, make e-cigarettes.  As the production patterns shift, there will be new competition, and this new competition could lead to trade friction between the traditional and e-cigarette producing countries.

One particular issue will be a lot of fun:  Likeness.  Are e-cigarettes "like" traditional cigarettes?  To what extent do they compete in the marketplace?  As with all things tobacco, I really have no idea, but my sense is that smokers and public health advocates will have strong views!

The Future of the Publishing Industry and International Price Discrimination

Following-up on Perry's excellent post about the Supreme Court decision in Kirtsaeng v. John Wiley & Sons, Inc., I just wanted to offer some brief thoughts.  A couple months ago, I saw this post from economics blogger Tyler Cowen, titled "What does equilibrium look like for the book business", in which he offers the following predictions:

 I expect two or three major publishers, with stacked names (“Penguin Random House”), and they will be owned by Google, Apple, Amazon, and possibly Facebook, or their successors, which perhaps would make it “Apple Penguin Random House.”  Those companies have lots of cash, amazing marketing penetration, potential synergies with marketing content they own, and very strong desires to remain focal in the eyes of their customer base.  They could buy up a major publisher without running solvency risk.  For instance Amazon revenues are about twelve times those of a merged Penguin Random House and arguably that gap will grow.

There is no hurry, as the tech companies are waiting to buy the content companies, including the booksellers, on the cheap.  Furthermore, the acquirers don’t see it as their mission to make the previous business models of those content companies work.  They will wait.

Did I mention that the tech companies will own some on-line education too?  EduTexts embedded in iPads will be a bigger deal than it is today, and other forms of on-line or App-based content will be given away for free, or cheaply, to sell texts and learning materials through electronic delivery.

Much of the book market will be a loss leader to support the focality of massively profitable web portals and EduTexts and related offerings.

Perhaps his take is a bit radical and speculative.  I can't say for sure what the publishing business will look like.  But I suspect that it will look very different than it does today.  Amazon and Apple are currently working on projects for resale of e-books.  That would be a game-changer for the publishing business:

Scott Turow, the best-selling novelist and president of the Authors Guild, sees immediate peril in the prospect of a secondhand digital thrift shop. “The resale of e-books would send the price of new books crashing,” he said. “Who would want to be the sucker who buys the book at full price when a week later everyone else can buy it for a penny?”

He acknowledged it would be good for consumers — “until there were no more authors anymore.”

Libraries, though, welcome the possibility of loosened restrictions on digital material.

“The vast majority of e-books are not available in your public library,” said Brandon Butler, director of public policy initiatives for the Association of Research Libraries. “That’s pathetic.”

 Publishers will try to fight technology for as long as they can, but in the long run, I think, they will lose this battle.  Authors, by contrast, will do OK, I predict.  But the business model will look very different.  As Christian Haeberli noted in the comments to the last post:

Looks like there are authors and authors: Those who try to make a living of royalties, and (tenure-track) professors with secure incomes but having to "publish or perish" rather than selling their research outputs.

I think there will be room for different approaches.  You can write for free or you can write for money (I do both!), depending on your particular goals.

There are likely to be many more court battles about all of this. But the Kirtsaeng v. John Wiley case seems kind of outdated already.

Perry Bechky on IEL at SCOTUS

This is a guest post by Perry S. Bechky, Visiting Scholar at Seattle University School of Law and Senior Attorney at Dorsey & Whitney LLP.

            If you buy a book (or other copyrighted work), where does your right to resell it end?  Does the answer depend on whether the resale crosses national borders?  This, essentially, was the issue in Kirtsaeng v. John Wiley & Sons, Inc., decided yesterday by the U.S. Supreme Court: http://www.supremecourt.gov/opinions/12pdf/11-697_d1o2.pdf

            The case turned on a close reading of the U.S. Copyright Act.  This post doesn’t dwell on the IP issues at the heart of the case, highlighting only a few points relevant to IEL.  More general discussion of the case is available here:  http://www.scotusblog.com/2013/03/opinion-analysis-justices-reject-publishers-claims-in-gray-market-copyright-case/

            First, some background:  The case began when Supap Kirtsaeng, a Thai national, was a student in the United States.  Wiley had differential pricing, selling the same textbooks in Thailand for far less than in the US.  Kirtsaeng arranged for family and friends to buy Wiley’s textbooks in Thailand and ship them to him in the US, where he resold them for a profit.  Each book indicated that it was “Printed in Asia” and had copyright language stating: 

This book is authorized for sale in Europe, Asia, Africa, and the Middle East only and may be not exported out of these territories. Exportation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights. 

Wiley sued Kirtsaeng for copyright infringement and won statutory damages of $600,000.  The Supreme Court reversed, 6-3.

            Although the Copyright Act generally allows the copyright holder to control distribution, Section 109(a) provides that “the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord”  (emphasis added) http://www.law.cornell.edu/uscode/text/17/109.  This provision embodies the traditional “first sale” rule, the key to the market in used books because the sale to a first customer ends a copyright holder’s control over distribution of each book.  The issue before the Court was whether books lawfully printed outside the US benefit from the first sale rule.  Otherwise, with three exceptions, Section 602(a) bars imports of foreign-printed books without the copyright holder’s authorization. http://www.law.cornell.edu/uscode/text/17/602

            The key five-word phrase is ambiguous.  Does “made under this title” mean “made in the US”?  The Court said no, giving the phrase a “nongeographical construction.”

            In an opinion by Justice Breyer, the Court recognized “the ever-growing importance of foreign trade to America.”  It discussed, and seemed to accept at face value, amicus briefs by “[a]ssociations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums” describing the burdens a ruling against Kirtsaeng would place on their activities involving imported works.  It expressed concern that clarifying the ambiguous language to exclude foreign-printed books could prompt “dramatic change” in the marketplace with “intolerable consequences.” 

            The Court did not apply (or even mention) the “presumption against extraterritoriality,” which it sometimes uses (in varying ways) to limit US statutes to domestic concerns.  Might other presumptions have influenced the Court, albeit silently?  Perhaps a presumption in favor of freedom of commerce, transferability of physical property, or even free speech.  Does the Charming Betsy rule – that “an Act of Congress ought never to be construed to violate the law of nations if any other possible construction remains” – do any work here?  Is there a national treatment issue lurking here?  That possibility is suggested by the Court’s comment that a ruling against Kirtsaeng would lead to the “absurd result that the copyright owner can exercise downstream control even when it authorized the import or first sale.”  In other words, the Court gave the statute a construction that avoided placing post-import restrictions that did not apply to domestic like products on sale, distribution, and use of imported works.  (GATT III:4).

          The Court effectively adopted a clear statement rule:  if Congress wants to restrict international trade in used books (or other copyrighted works), it is free to do so, but it must speak clearly because the Court would not construe ambiguous language in that way. 

            The Court can therefore also be seen as kicking the ball over to Congress.  Surely, this is a statute in need of updating.  While the facts of this particular case centered on books, a venerable product, the larger issues affect all copyrighted works.  Amici supporting Kirtsaeng included Google and eBay.  The Court called attention to the fact that modern “automobiles, microwaves, calculators, mobile phones, tablets, and personal computers contain copyrightable software programs or packaging.”  A provision dating to 1976 – a provision old enough to use the word “phonorecord” – can’t be expected to regulate trade in copyrighted works appropriately in the age of Internet downloads and software-heavy automobiles.

            Congress should take the Court’s (implicit) invitation to revisit the Copyright Act.  When it does so, it should consider whether greater restrictions are warranted on resales of foreign-printed books than domestic books.  It may be that some greater restrictions are warranted in some circumstances.  For example, the concern is often raised that allowing the free importation of foreign-printed books will cause publishers to abandon the discounts they currently offer on book sales in developing countries.  Justice Ginsburg’s dissent noted this concern, stating, “Such an outcome would disserve consumers—and especially students—in developing nations and would hardly advance the ‘American foreign policy goals’ of supporting education and economic development in such countries.”  Perhaps Congress can assess this concern and develop a legislative solution well-crafted to address it without unduly burdening other trade in copyrighted works.

            Last, the WTO made a rare appearance at the Supreme Court.  Justice Ginsburg’s dissent cited TRIPS (as well as the WIPO copyright treaty) to show that the US government has not agreed to extend the first sale rule to foreign-made works, supporting her argument that the majority’s construction of the statute is at odds with US policy.  A word search shows this is only the fifth time a Supreme Court opinion has mentioned the WTO, along with Crosby v NFTC (2000), JEM Ag Supply v Pioneer Hi-Bred (2001), United Haulers v Oneida-Herkimer (2007), and Golan v. Holder (2012).   Two more cases mention GATT during the WTO era:  Boeing v US (2003) and J. McIntyre Machinery v Nicastro (2011).  Several of these mentions are fleeting.  The last three mentions have all been by Justice Ginsburg, twice in dissent.  Perhaps Justice Ginsburg is idiosyncratic in her willingness to mention the WTO in her opinions.  Or perhaps, recalling the Court’s observation about “the ever-growing importance of foreign trade to America,” we might see more mentions of the WTO in future opinions.

Malawi's Statement on the EU Tobacco Products Directive

At the latest TBT Committee meeting, Malawi has offered a very interesting communication (G/TBT/W/360) related to the EU's proposed Tobacco Products Directive.  In short, they think it violates various TBT Agreement provisions.  They raise several aspects of the measure in particular:

• the ingredients bans: There is a prohibition on "characterising flavours", including menthol; a prohibtion of certain additives in tobacco products, including those that "create the impression" of health benefits, and additives that are "associated with energy and vitality"; and a prohibition on the use of flavourings in filters, papers, and packages.
• labelling provisions: The TPD would require the use of "combined health warnings" comprising a text warning and a colour photograph, along with "smoking cessation information". The combined health warnings must cover 75 % of the front of the package.
• packaging:  A cigarette package must have a "cuboid shape" and must include at least 20 cigarettes. Moreover, the package cannot contain "an opening that can be re-closed or re-sealed after the opening is first opened, other than the fliptop lid". 
• ban on small diameter cigarettes: Cigarettes with a diameter of less than 7.5 mm are banned.

Here are some things that interest me about Malawi's arguments.

First, they do not refer to Article 2.1 at all.  Instead, Article 2.2 is the focus. Is this strategic?  Do they not want people to get hung up on the discrimination elements?  Do they not want to call attention to the absence of discrimination?  

Second, the issue of "trade-restrictiveness" under Article 2.2 continues to fascinate me.  Malawi says:

The ingredients bans are clearly trade-restrictive, as they will have the effect of banning the importation into the EU market of tobacco products with a "characterising flavour", including menthol, even though it is unclear what a "characterising flavour" actually is, and how this will be applied through the implementing acts.

How do we assess whether an ingredients ban is trade-restrictive?  Can we look at the actual impact of the measure on trade, i.e., whether the quantity of imports falls?  Is it only about the conditions of competition, such that we can analyze the trade impact based on the measure in the abstract?  Does the examination exclusively focus on imports, or does the relative impact on imports and domestic goods matter?

Along the same lines of this measure and these issues, here's a proposed measure from New York's Mayor Bloomberg:  

Mayor Michael R. Bloomberg, fresh off a defeat in his campaign to limit large servings of sugary drinks, is returning to a front where he has enjoyed far more success: making it more difficult to smoke, by proposing legislation on Monday requiring stores to put cigarettes out of sight.

Mr. Bloomberg said his bill would make New York the first city in the nation to force retailers to keep tobacco products hidden. He said they could be kept, for example, in a cabinet or a drawer, behind the counter or a curtain, but not anywhere where customers could see them.

The campaign is intended to shield children from tobacco marketing and to keep people who have quit smoking from buying cigarettes on impulse, he said.

“Such displays suggest that smoking is a normal activity, and they invite young people to experiment with tobacco,” Mr. Bloomberg said at a news conference.

 This measure seems to have a similar objective as "plain packaging":  Don't let attractive packaging entice people to smoke.  So, in terms of "trade-restrictiveness," how does this measure compare to plain packaging?  Is it less trade-restrictive, because it doesn't require cigarette companies to modify the package?  Is it more trade-restrictive, because it prevents cigarette companies from getting their name in front of consumers so as to compete in the market?

Flett on the "Diagonal Vector Test"

James Flett of the European Commission has an interesting article in the latest JIEL issue, entitled "WTO Space for National Regulation: Requiem for a Diagonal Vector Test."  His focus is on de facto violations of the national treatment obligation.

When I first saw the article, I thought about doing a long blog post discussing the whole piece.  But after reading through it, I realized there is too much in there to deal with it all.  Instead, I'm just going to focus on the following passage from the introduction:

The central proposition of this article is that the problem [of balancing a ‘federal’ trade interest with local regulatory autonomy] cannot be solved by mechanistically comparing the different regulatory treatment of one (imported) good and a different (domestic) good, that is, through a diagonal vector of comparison. Rather, the problem can only be solved by enquiring into what the true objective of the measure is (regulatory or protectionism), whether it is legitimate, whether the measure contributes to the objective, and whether there is another equally effective but less trade restrictive measure available. ... In short, the question is whether the measure is necessary or reasonable.

Let me take each of these three sentences individually.

First, he says that trade rules should not compare "the different regulatory treatment of one (imported) good and a different (domestic) good, that is, through a diagonal vector of comparison."  Many readers probably know what this means, so I won't go into detail here, but see this article for more.  On this point, I'll just say that I agree whole-heartedly.  In my view, comparing one imported good to one (like/directly competitive or substitutable) domestic good tells you very little about the measure, its impact on trade, or its consistency with trade rules.

Second, he says that determining the "true objective" of the measure is the right approach to finding de facto violations, and he distinguishes between "regulatory" and "protectionist" measures.  I mostly agree with this, although I'm not sure "regulatory" is the opposite of "protectionist."  But then he goes on to ask whether "there is another equally effective but less trade restrictive measure available."  On this part, I wonder if this is really a helpful inquiry for non-discrimination.  As most people will recognize, this is part of the necessity test already, and adding it to non-discrimination would blur those lines (based on his next point, though, that may be what he is trying to do).  But beyond that, I'm just not sure it is a good proxy for identifying protectionism.  Perhaps it is one minor factor that could be considered, but I'm not sure it tells you all that much about the true objective of a measure.

Finally, he concludes by saying that the question is whether the measure "is necessary or reasonable."  So here we have the important issue of how a "non-discrimination" standard relates to other standards, such as "necessary" or "reasonable."  (Or in the case of investment treaties, mentioned in the last post, "fair and equitable" treatment.)   Depending on the particular interpretation, there could be more or less overlap between the different obligations.  But clearly, in my view, these standards are not the same thing.  Non-discrimination is more specific and bounded, I would say.  "Necessary," "reasonable," and "fair and equitable" are all much more broad and vague.  I don't think it's a big secret that I like the non-discrimination principle, and am wary of these others in the IEL context.  But I'm happy to hear more from people who think these standards can serve the same functions as non-discrimination, or who think the broader standards are preferable.

Non-Discrimination Obligations versus Other Obligations

This is from Canadian International Trade Minister Ed Fast, reacting to criticisms of the Canada - China investment treaty by opposition leader Tom Mulcair:

“If he had actually read this treaty – which was tabled in the House of Commons almost six months ago – he would know that it will give Canadian investors in China the same protection against discrimination that foreign investors have long had under Canada’s current laws.”

It's true that the treaty will protect against discrimination.  But in addition, as I'm sure everyone reading this knows, obligations in investment treaties go beyond simple non-discrimination. 

What interests me about this is that there seems to be a tendency to play up non-discrimination obligations, and ignore others.  Is it people's instinct that non-discrimination is the most defensible and generally supported of trade and investment obligations, and thus they highlight that one?  What's the relationship between non-discrimination obligations and the other obligations that are broader and a bit more vague?

I'll say more on this issue in the next post.

The Seal Products dispute and the chapeau of Art.XX in Brazil-Tyres

In a recent on-line article, http://www.stewartlaw.com/stewartandstewart/TradeFlows/tabid/127/language/en-US/Default.aspx?udt_583_param_detail=1151, Stewart, Drake and Menaker suggest that the reasoning of the AB on the chapeau in Brazil-Tyres could make it difficult to justify the EU seal products ban, given the exceptions in the EU scheme for indigenous sealing and marine management culls.  This is based on the reading that, in Brazil-Tyres, the Appellate Body held that a measure could not be justified under Article XX of the GATT if it contained exceptions for purposes other than the the purpose of the measure under the paragraph of Article XX being invoked. 

Before adopting such a reading of Brazil-Tyres one has to remember that what the AB was interpreting was the language of arbitrary and unjustifiable discrimination in the chapeau.  It is too often forgotten that the AB has underlined (US-Gasoline, US-Shrimp) that the disciplines of the chapeau concern the application of the measure, not the justification of the regulatory scheme as such under Article XX.  In the case of Brazil-Tyres, the scheme at issue was selectively enforced based on considerations not addressed by Brazil's scheme as such, so as to allow products from Mercosur countries.  The indigenous and marine management exceptions in the EU seal products ban are, by contrast.  The way that the exceptions are drafted is unrelated to the national origin of the seal products.  While Canada has insinuated without proving discrimination in the application of the measure, in fact it is presenting its claim, albeit rather inconsistently, as one of as such violation.   In any case, in Brazil-Tyres the discrimination was akin to a de jure MFN violation-the only consideration was the national origin of the products.   Thus, the only possible justification would be under a different framework than that of Article XX, namely that of GATT Article XXIV, which addresses free trade areas and customs unions.

The notion that Brazil-Tyres stands for the proposition that measures cannot be justified under Article XX if there are exceptions for other legitimate purposes than the main purpose of the scheme flies in the face of many statements of panels and the AB that often measures pursue multiple legitimate objectives, and that exceptions for various considerations are normal and not as such suspect.  The problem that Brazil-Tyres addresses is the specific one where a legitimate scheme is enforced in a de jure discriminatory way.     

Chilean Junk Food Regulations

From the latest TBT Committee meeting:

Several delegations ... raised new concerns regarding Chile's proposed amendments to its Food Health Regulations — which would place “STOP” signs on junk food. Pursuant to the amendment, certain categories of food would need to bear labels designated to inform and encourage consumers to avoid excessive intake which may lead to obesity and related non-communicable diseases.  Moreover, products containing a critical amount of certain substances (e.g. fat, sugar, salt) would have to bear labels such as “high in salt”, “high in calories” or equivalent warnings. These warnings would need to be placed in the middle of an octagonal icon (i.e. a STOP sign) occupying no less than 20% of the main surface of the package, be located in the upper right corner, and have a size of at least 4 square centimetres. Delegations were concerned that the amendment was not based on the relevant guidelines of Codex on nutrition labelling, that it would create unnecessary obstacles to international trade, and that it had not been notified to the TBT Committee.  Chile said that the measure responded to an epidemic of obesity, especially among young people, and that the measure was necessary to provide easily understandable warnings on products.

Perhaps the next step is "plain packaging" of junk food?  The word "Twinkies" can only be written in small font, with no colorful images, and no Twinkie guy riding a Twinkie?

Tweeting international economic law

I am now starting to tweet regularly on international economic law (and related issues).  You can follow

@howserob

 

If you are also tweeting, please let me know so I can follow also.

 

best,

 

Rob

GATT BISDs for Sale

This is from GATT/WTO expert and trade lawyer Chris Parlin:

Selling complete set of original GATT BISD's -- 2 initial volumes & all 42 annual supplements (1948-1994).  All GATT decisions – including dispute settlement reports, waivers and interpretations.  WTO reprint edition costs 1850 Swiss Francs.  Will sell for a lot less.  Contact [email protected] for details. 

Amicus Submissions in the Canada - Renewable Energy/FIT Appeal

I'm not sure whether any of the parties' submissions will be available in the Renewable Energy/Feed-In Tariff (DS412,426) appeal prior to the completion of the proceedings, but for those who are interested, here are two amicus submissions:

-- from Professor Luca Rubini: http://www.worldtradelaw.net/amicus/RubiniCanada-RenewableEnergyAmicus.pdf

-- from Mesa Power (advised by Appleton & Associates, Joanna Langille and Professor Rob Howse): http://www.worldtradelaw.net/amicus/MesaPowerCanada-RenewableEnergyAmicus.pdf

The oral hearing started today: http://www.wto.org/english/news_e/news13_e/hear_ds412_426_14mar13_e.htm

"Economic Statecraft" and Trade Rules

Edward Alden of CFR has a blog post telling us that new Secretary of State John Kerry will continue Hillary Clinton’s signature “economic statecraft” initiative, which worked like this:

… Clinton began to use State Department assets to strengthen the U.S. economy. That meant deploying embassy staff to promote exports from U.S. companies and to attract foreign investment to the United States.

Kerry’s first speech as Secretary focused heavily on this issue.  Here is one passage:

[There is] a company up near Dulles called Orbital Sciences Corporation. With the help of the persistent advocates of our Embassy in Bangkok, it beat out French and Russian competitors to build Thailand’s newest broadcast satellite. Virginia’s Orbital is now teaming up with a California company called Space Exploration Technologies that makes satellite equipment. The deal that our Embassy helped secure, valued at $160 million, goes right back into American communities from coast to coast. That’s the difference that our embassies abroad actually can make back here at home.

And these success stories happen in partnership with countries all over the world because of the resources that we’ve deployed to bring business and jobs back to America. These investments, my friends, are paying for themselves. We create more than 5,000 jobs for every billion dollars of goods and services that we export. ...

These practices may have intensified in recent years, but they aren’t exactly new. Governments have been doing these sorts of things for quite a while. But talking about it publicly, and selling it as an important policy, does bring it into the spotlight more.

Obviously, the U.S. government isn't the only one doing this. I would guess it's a pretty widespread practice. (Although I don't know if anyone has ever tried to quantify and measure it -- perhaps there is a good paper in there somewhere).

Just like with other government intervention in support of domestic industry, there is the problem of how these actions distort markets and create trade conflict.  Isn't this just another form of economic nationalism?  And if it is, do we need trade rules in order to keep it in check?

Complying with the COOL Ruling

The compliance deadlines in the three TBT cases (Clove Cigarettes, Tuna, and COOL) are coming up soon.  COOL is up first:  May 23.

USDA has just issued a proposed rule designed to bring the U.S. COOL measure into compliance.  As they explain:

The proposed rule would modify the labeling provisions for muscle cut covered commodities to require the origin designations to include information about where each of the production steps (i.e., born, raised, slaughtered) occurred and would remove the allowance for commingling of muscle cuts.

The full proposed rule is here. (There is also a change to the definition of "retailer"). 

Recall that a key part of the AB's ruling said the following:

347 ... the informational requirements imposed on upstream producers under the COOL measure are disproportionate as compared to the level of information communicated to consumers through the mandatory retail labels. That is, a large amount of information is tracked and transmitted by upstream producers for purposes of providing consumers with information on origin, but only a small amount of this information is actually communicated to consumers in an understandable manner, if it is communicated at all. Yet, nothing in the Panel's findings or on the Panel record explains or supplies a rational basis for this disconnect. Therefore, we consider the manner in which the COOL measure seeks to provide information to consumers on origin, through the regulatory distinctions described above, to be arbitrary, and the disproportionate burden imposed on upstream producers and processors to be unjustifiable.

So, in a nutshell, the AB said there was a "disconnect" between the large amount of information collected, and the small amount communicated to consumers.  In the proposed regulation, the U.S. responds to this by providing additional information to consumers (specifically, where the animal was "born, raised, and slaughtered"), in an attempt to make things proportional.

If this proposed regulation goes into effect pretty much as is, how will this play out in a (possible) compliance proceeding?  On the one hand, the U.S. can argue that it complied with the ruling by addressing the AB's concerns. On the other hand, the complainants in the case can develop additional arguments as to why the regulation is not based on a "legitimate regulatory distinction."  (The proportionality reasoning seemed a bit out of place in that context anyway.)

A possibly relevant question:  What will consumers think of seeing details on where the animal was "born, raised, and slaughtered" on every package of meat?

Canadian Investor-State Issues

Having mentioned some Canada - EU investment text tension the other day, let me follow-up with some additional notes on Canadian happenings in investment law.

First, some Canadian groups are challenging the signed, but not yet ratified, Canada - China investment treaty in domestic court:

 If Canadian legislators do sign a pending 31-year trade agreement with China, it likely won't happen anytime soon – not if First Nations and other Canadians across the country have anything to say about it.

A BC First Nation has formally launched its campaign to prevent Ottawa legislators from signing a trade agreement with Beijing that would enable Chinese businesses to sue Canada for legislation deemed prejudicial to their interests.

The Hupacasath First Nation filed affidavits Friday in its case against the Canada-China Foreign Investment Protection Agreement (FIPA), which the band maintains will infringe on preexisting aboriginal rights to resources.

The government now has one month to compile evidence and file its own affidavits, at which time authorities will set a court date. But the Hupacasath are prepared to file affidavits in response to the Harper administration's, lengthening a judicial process that it hopes will stave off any formal decision by the government. 

And second, Canadian trade lawyer Lawrence Herman is having some doubts about the current state of investment obligations:

The problem is that Canada has proceeded down the FIPA path for years without a critical look at how these agreements really help us, both abroad and at home.

Whatever happens with the EU agreement, it’s still not too late to re-examine Canada’s policy on these investment agreements to satisfy ourselves that they answer Canada’s long-term national interests.

Call for Candidates: DISSETTLE PhD Fellowships in Economics

Call for Candidates: DISSETTLE PhD Fellowships in Economics

Applications are invited for three Researchers at early stages of their career to join the Warsaw node of the DISSETTLE network as PhD candidates in Economics from August/September 2013 or at an earlier
date to be agreed

The recruited people would be enrolled as PhD Candidates at the University of Warsaw and would participate in the DISSETTLE network, led by Joost Pauwelyn (Professor  of Law) with support from Richard Baldwin and Damien Neven. The students' main supervisor would be Professor Jan Michalek of the University of Warsaw. There are three positions available, and quite generous funding is available until May 2015.

Further information on the DISSETTLE research programme is available at: http://www.graduateinstitute.ch/ctei/projects/dissettle and www.dissettle.org or please visit http://coin.wne.uw.edu.pl/dissettle/ for more information on the DISSETTLE activities at Warsaw.

The successful applicant will be a Marie Curie Fellow funded by the Marie Curie Initial Training Networks, under the European Commission’s Seventh Framework Programme. Marie Curie Fellows enjoy benefits including an attractive salary, a travel allowance and the opportunity to participate in a structured training programme (including conferences and workshops throughout Europe) in addition to the PhD.

The salary after-tax starts at over PLN 8,000 per month for a single ESR and PLN 9,300 for an ESR who is married. The total payments over two years for a candidate joining in August 2013 would be a minimum of Euro 60,000 after taxes plus at least Euro 6,000 towards travel and training costs. If I understand correctly, this would enable a PhD student to either live very well or even to save some for the third year.

The successful applicants will be invited to spend a short period in Geneva, Brussels or Milan as well as to undertake an internship with either a law firm or an economics consulting firm. This could be a paid internship during the third year.

Suddenly, Americans Like Trade Again

Here are some Gallup poll numbers on Americans' feelings about trade:

Of course, the question is terribly phrased.  It contrasts "growth through exports" with a "threat from imports."  It has mercantilism embedded in it!

But nevertheless, the most recent polling is kind of surprising.  The support for trade increased substantially -- more than 10 percentage points!

So why the change?

That latest polling was done from Feb 7-10 this year.  My best guess about the change is that the recent talk of a trade agreement with Europe has people thinking more positively about trade.  Trade with Europe is much less scary than trade with China.

Could that be it?  Possibly, although the Europe proposal has been fairly recent, and I didn't think most people had noticed it.

The Difficulty of Negotiating Investment Rules

Canada and the EU are having some trouble, apparently:

A set of leaked documents obtained by The Canadian Press show Canada and the European Union are still far apart in deciding how much power investors should have under their pending free-trade agreement.

A Feb. 7 draft of the investment text shows Canada and the EU are proposing ways to ensure foreign investors don't use the agreement to launch frivolous lawsuits against governments demanding compensation for any old measure that cuts into their profits.

But the EU and Canada can't agree on wording that determines how much leeway governments should have to pass laws that may inadvertently infringe on the activities of investors.

...

The European Commission is under pressure from some of its member states to have the investment part of deal with Canada serve as a blueprint for other free trade negotiations, explained Jan Kleinheisterkamp, a senior lecturer in the law department of the London School of Economics, who follows the investor-protection discussions closely.

Those states want to see the Canada agreement closely reflect other European bilateral investment agreements that have very few strings attached.

Will the U.S. and EU come up against similiar problems, if and when they start negotiating on these issues?

Iceland, Clean Energy, and Trade Policy

This NY Times article about Iceland's geothermal energy is fascinating from a trade and investment perspetive. Basically, Iceland has lots of cheap, clean geothermal energy.  They currently use it to attract investment.  And they may lay a long cable so that they can export it:

the power company has conducted extensive research into the possibility of a massive extension cord — or a “submarine interconnector,” in the jargon of the trade — to plug Iceland into Europe’s electricity grid. Such a cable would probably go first to the northern tip of Scotland, which, about 700 miles away, is relatively close, and then all the way to continental Europe, nearly 1,200 miles away

This leads me to a number of IEL questions:

-- Will Iceland be accused of unfairly competing for investment by offering up cheap energy?  Of course, it's just a natural advantage they have, so it's hard to see how anyone can justifiably be mad at them.

-- Some people in Iceland are concerned about exporting its energy this way.  But is Iceland allowed to restrict its exports?  This makes me think of Scott Lincicome's recent Cato paper on U.S. restrictions on natural gas exports.

-- And finally, if Iceland were to export electricity via a cable, would trading partners complain of competition from Iceland's low-cost energy? Will there be creative arguments that Iceland is "dumping" electricity?