Roger Alford is pushing forward with the debate on whether withdrawal of GSP benefits can be used to enforce investment arbitration awards, with another blog post on the issue. Let me push back a bit.
Roger says:
the Enabling Clause requires GSP benefits to be conferred in a non-discriminatory manner among similarly-situated developing countries. This, according to EC-Tariff Preferences, requires that the relevant preference be made available to all beneficiaries that share that need. (EC-Tariff Preferences, para. 180). That requirement appears to be met. The U.S. obligation on compliance with arbitration awards is applied to all GSP beneficiaries alike. ...
It's certainly true that the U.S. obligation applies to everyone in the abstract. The U.S. will withdraw benefits for any country that does not enforce arbitration awards. As long as it applies this criterion consistently to all countries, one could argue that the measure is thus non-discriminatory.
On the other hand, the reality is that only certain countries will actually suffer the withdrawal of benefits. In other words, in practice the measure will have a disparate impact. And that's no accident; rather, it is by design. The measure is intended to apply to some countries (those that don't enforce arbitration awards) and not others (those that do enforce them).
I suppose the question here is, what do we mean by discrimination? If there is a conditional GSP measure that leads to a disparate impact in practice, is that "discriminatory" in the sense of the Enabling Clause? Not an easy question. My instinct is yes, but that view depends a lot on context that would be too much to get into here.
He also argues:
Second, the GSP conditional benefit must be imposed to meet particular development, financial or trade needs. In other words, if you are granted benefits with strings attached, those strings must be for the benefit of the developing country. Simon Lester questions whether conditional tariff benefits can ever meet that requirement. I disagree. If you look at the various GSP schemes, the list of such needs are legion, addressing issues such as drug-trafficking, communism, terrorism, human rights, environmental protection, expropriation, contractual compliance, intellectual property protections, etc.
At one level one might view many of these concerns as primarily about protecting developed countries’ interests more than promoting the developing country needs. But, of course, these goals are mutually-beneficial. Goals such as promoting the rule of law, creating a safe and stable legal climate, encouraging foreign investment, good governance, reducing crime and corruption, guaranteeing human rights, and encouraging environmental sustainability are all legitimate objectives that developed countries legitimately can ask developing countries to pursue.
In the specific case of honor arbitration awards, developing countries that do not recognize and enforce investment awards are sending a signal to existing and future foreign investors that they are not predictable and reliable trading partners. ...
I want to make two points here. First, it's one thing to give lower tariffs to countries who face specific problems (e.g. drug trafficking), to give them a financial benefit which helps them deal with the issue. But it's another to penalize them with higher tariffs for not taking specific actions to address the problems. I'm not sure that approach can ever be characterized as "responding positively" to "development, financial or trade needs."
Second, I see "development, financial or trade needs" as much narrower than Roger does. Lack of food is definitely a development need; weak IP protection is definitely not. It's worth talking about the appropriate level of IP protection in international fora. But unilateral determinations that one country's IP protection is too weak, and thus GSP benefits should be withdrawn, are unlikely to be in the development interests of that country. Same goes for enforcement of investment arbitration awards. There's an argument that the investement arbitration system has benefits for developing countries. But there are also pretty strong arguments that, on balance, it doesn't. At best, it's a pretty close call. I would say that an international discussion of property rights, due process, etc., is in everyone's interest; however, unilateral determinations and penalties related to specific cases are probably not, and I'm skeptical that they relate to a country's "development, financial or trade needs".
Moving to Article XX(d), Roger says:
in the case of Argentina it appears that a variety of carrots and sticks were critical to encourage Argentina to honor the investment awards addressed in the federal legislation. Simon Lester questions whether the conditional GSP-benefit scheme satisifies the necessity test. I think it could, as part of a comprehensive policy seeking to secure compliance with arbitration awards. In the words of Brazil-Tyres, the GSP conditional benefit is necessary if it can be shown to have made “a material contribution to the achievement of that objective.” (Brazil-Tyres, para. 150). If the United States adopted a comprehensive policy that included a GSP conditional benefit, the total effect of complementary measures may have been enough to secure compliance. (Brazil-Tyres, para. 172). This would satisfy the necessity test.
As I noted in the original post, I would look here at balancing the trade-restrictiveness of the measure (very high) with the degree of contribution of the measure to its goals and the importance of the interests pursued (low, in my view). On that basis, I'm not so sure the measure satisfies the necessity test.
Also, as I said in the original post, I'm not convinced this measure "secures compliance" with the federal law at issue. To me, this is the weakest part of a necessity defense here.
In the unlikely event there is a WTO dispute on these issues some day, someone will have to turn these short blog posts Roger and I have done into dueling 200 page WTO panel submissions. I think I can speak for Roger when I say, I hope it's not us!
