International Economic Law and Policy Blog

Investor State Conference at Cato

As this blog's readers are well aware, I've taken an interest in international investment law in the past few years, and am skeptical of the existing system. My Cato colleague Dan Ikenson has doubts as well.  But beyond our specific criticisms, we would really like to see some good discussion of the issues involved, and to that end we have put together what we think is a balanced conference on the issue at Cato, to be held on May 20.  From the program, I think it is clear that we have not stacked the decks, and have tried to get people from different sides and perspectives:

Panel I: Does ISDS Strengthen or Weaken the Rule of Law?

Panelists will discuss various historical and political aspects of ISDS, debate pertinent questions of international law, discuss the pros and cons of requiring ISDS provisions in bilateral investment treaties and trade agreements, and address other prominent ISDS-related legal and political concerns.

Simon Lester
Trade Policy Analyst, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute

Ted Posner
Litigation Partner, Weil, Gotshal and Manges

Lori Wallach
Director, Public Citizen’s Global Trade Watch

Todd Weiler
Counsel, Expert Consultant and Arbitrator, Investment Treaty Law and Arbitration

Moderator: Edward Alden
Bernard L. Schwartz Senior Fellow, Council on Foreign Relations

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Panel II: Does ISDS Protect or Subsidize Foreign Direct Investment, and What Are its Economic Consequences?

This panel will discuss various economic and developmental aspects of ISDS, debate whether ISDS is a necessary inducement for foreign investors, examine the costs and benefits of ISDS rules to various U.S. entities, and consider whether and how ISDS provisions may be impacting the trade agenda.

Susan Aaronson
Research Professor, Elliott School of International Affairs, George Washington University

Shaun Donnelly
Vice President of Investment and Financial Services, United States Council for International Business

Dan Ikenson
Director, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute

Chris Sands
Senior Fellow, Hudson Institute

Moderator: Kim Elliot
Senior Fellow, Center for Global Development

We really hope to get a good dialogue going, and move past the usual talking points on these issues.

Investor state will be particularly topical at that time, because the next TTIP round is scheduled to take place in the DC area that same week.  No doubt investment issues in the TTIP will come up at our conference, although we hope to go beyond the TTIP and talk about the investment regime more generally.  As an example, in the last post, I liked this point Jurgen Kurtz made in the comments: "In the contemporary setting, states parties are now – sensibly and justifiably – asking themselves: What should we protect foreign investors from and why?"  Just to push this further and give you a preview of some things I might say at the conference, let me suggest that maybe we should "protect" foreign investors from all the subsidies governments keep giving them!

You can register for the conference here: http://www.cato.org/events/investor-state-dispute-settlement-mechanism-examination-benefits-costs Hope to see you there. As usual with these things, there is a free lunch afterwards!

Is Investment Arbitration Going To Swallow WTO Dispute Settlement?

This is from Roger Alford at Opinio Juris:

despite the assumption that international trade disputes must be resolved before the WTO DSB, the existence of broad umbrella clauses in BITs present a promising vehicle for enforcing investment commitments in trade agreements.

...

 umbrella clauses in BITs could create a private right of action for resolving WTO disputes. Investment arbitration circumvents the traditional barriers to initiating a WTO dispute. Diplomatic espousal is no longer a reliable check on the pursuit of unmeritorious claims. Through umbrella clauses foreign investors could seek recourse for violations of investment obligations that form part of WTO disciplines.

Personally, I'm pretty happy with the balance WTO dispute settlement draws in terms of creating binding international economic law while allowing enough flexibility to keep the system from interfering too much with domestic sovereignty.  Throwing off this balance by allowing a private right of action makes me nervous.

I suppose that if the investment arbitration community wants to try to expand its role in this way, they can give it a shot.  There seems to be a combination of pushing forward and pulling back going on right now. It's not clear where things will end up.

Energy, Resources and Environmental Issues in International Law

From the The Canadian Council on International Law:

Combustion: Energy, Resources and Environmental Issues Igniting International Law

November 13-15, 2014 - Ottawa, Ontario

The Canadian Council on International Law is pleased to announce its 43^rd Annual Conference: "Combustion: Energy, Resources, and Environmental Issues Igniting International Law". Practitioners and legal scholars are invited to submit paper and presentation proposals relating to the theme of energy, natural resources, and related environmental issues.

At a time when environmental degradation and the supply of energy are of increasing global concern, international law provides an opportunity for rules-based multilateralism. What is the role of international law in the promotion of sustainable development and corporate social responsibility? Is international law an influential tool to address climate change? What lessons can be gleaned from twenty years of arbitration under the North American Free Trade Agreement and Energy Charter Treaty?

The 2014 Annual Conference will explore the role of international law in global energy transactions, resource extraction and environmental issues. In particular, it will foster discussion of the international economic, humanitarian, and human rights facets of this theme. Topics will include but are not limited to the arbitration of mining and energy disputes, the role of the private sector in sustainable development, civil and criminal liability in the extractive industries, and the illegal wildlife trade. Confirmed speakers include representatives from the International Centre for the Settlement of Investment Disputes, various UN agencies, and leading global law firms.

The Conference invites the active participation of practitioners, academics, and students in the international legal community. Paper proposals or summaries of proposed presentations in English or French should be no longer than a single page in length and should include a biographical statement or curriculum vitae.  Proposals are due June 9, 2014 and should be sent to [email protected] with "Annual Conference Call for Papers" in the subject line.

To Boldly Go Where No “Yarn” Has Gone Before…

My apologies if the title of this post ever disappoints sci-fi fans, but certain cashmere yarns from all over the world have now had an opportunity to trek to South Korea, and eventually to the United States. 

 A number of regional trading agreements (RTAs) contain the “yarn-forwarding” rule.  This rule requires members of an RTA to source raw materials for textiles and apparels (such as yarns and fabrics) exclusively from member countries of that RTA for a final product (such as clothes) made out of such yarns to be eligible for any preferential treatment (duty-free). (See my previous post on this issue.)  In practice, this rule may benefit two interest groups: first, domestic yarn producers of member countries; second, domestic textiles/apparels producers of member countries as well (since limited sourcing channels tend to restrain an influx of imports due to an RTA). Then, what if there are no yarns available in any of those member countries?  In that case, should the yarn-forward rule be still enforceable?

 The answer may be in the negative.  For example, the United State-Korea (KORUS) FTA provides certain exception to the yarn-forward rule when yarns are “not available in commercial quantities in a timely manner from suppliers in the United States.  (``Commercial Availability List'').”  “A textile or apparel good imported into the United States containing fibers, yarns, or fabrics that are included on the Commercial Availability List in Appendix 4- B-1 of the KORUS FTA will be treated as if it is an originating good for purposes of the specific rules of origin in Annex 4-A of the KORUS FTA, regardless of the actual origin of those inputs (…).” (italics added)  Obviously, there are no cashmere yarns produced in the United States, at least not commercially available in a timely manner. 

Now, certain cashmere yarns from different countries will “explore strange new worlds,” “seek out new life and new civilizations,” and “boldly go where no [yarn] has gone before”!

How Far Will Canada Go to Smear Anti-Seal Hunt Activists?

Canada's latest move has been to attack the singer Morrissey, claiming that he compared the seal hunt to Auschwitz.  However, what Mr. Morrissey actually said was different.  He merely used the example of concentration camps to illustrate the moral argument that if something is intrinsically evil the fact that it provides a livelihood for some people does not erase or perhaps even mitigate the intrinsic evil.  Nothing in his illustration suggested he sees these evils as similar or equivalent, or any disrespect to victims of the Holocaust and their families.   Take a look at this news report:  once you read Morrissey's actual statements you will see how misleading the headline is.http://bit.ly/1hsNQoG

Misleading Journalism about the WTO Seals Dispute

An article appearing in Sun New service by Jessica Hume gives a very misleading impression of the Seals case.  http://bit.ly/1rmpx15  The article appears in the guise of an interview with Geneva-based attorney and former Canadian official Brendan McGivern.  Of course, I don't know what Brendan said to the journalist and the extent to which his remarks were taken out of context.

The article first of all gives the impression that the case largely revolved around the public morals exception in the GATT and its application to animal welfare.  But the EU has argued vigorously on appeal that the panel erred in law and failed to make an objective assessment in determining that its non-discriminatory ban with exceptions violates the GATT.  Thus very much at issue is not just the Article XX defense of public morals that the panel accepted but whether in the first place any GATT violation has occured-the premise of the panel's findings under public morals was that the GATT had been violated.  If the EU is right, and I think it is (see the Howse, Langille, Sykes amicus brief) and the panel's findings of violations of Article I and III of the GATT are fundamentally flawed, then a highly plausible outcome is that the Appellate Body would reverse the panel's findings of violation or declare them  of no legal effect. Thus, it is far from clear, as the Sun News piece suggests, that the appellate ruling will be a kind of litmus test or watermark for the interpretation of public morals under Article XX (a).  In suggesting that the whole case is about public morals, the article also ignores that one of the issues with the panel report is that the panel failed to adjudicate properly the EU's alternative claim that its measure was justifiable for the protection of animal life or health.  That the EU ban serves the protection of public morals at the same time as protecting animal life and health is crystal clear from both the written and oral pleadings of the EU.

Also misleading in the Sun News piece is the notion that public morals has never been successfully invoked before in a WTO dispute.  In US-Gambling the US did succeed in justifying its measure under the equivalent GATS provision to GATT Article XX(a) but was found not to have met the conditons of the chapeau, which are in no way, of course, specific to a public morals justification, but apply to all the paragraphs in the GATS equivalent of Article XX.  Further, in China-Publications it was accepted that China's measure was for purposes of protection of public morals:  the issue was its necessity, relative to other reasonably available alternative measures. Indeed, both both Gambling and China-Publications affirm the broad scope of individual WTO Members to determine the scope of public morals for purposes of their socieites.  

A final very dubious suggestion in this article is that, if the Appellate Body were to uphold the finding of the panel concerning the public morals justification under Article XX (a), this provision would be the key to resolving trade disputes in many areas where there are different levels of protection for animal welfare in Canada and the EU.  However, under the GATT WTO members retain their sovereignty to set levels of protection that apply with respect to products sold within their jurisdiction, subject largely to the requirements of non-discrimination.  Laws protecting animal welfare are generally non-discriminatory; they thus do not, normally, require justification under Article XX (a) public morals or indeed under Article XX(b) protection of animal life or health.  In addition Canada and the EU are in the process of concluding a bilateral trade and investment deal, which may well be the context in which disputes concerning animal welfare laws are resolved in the future between these trading partners.        

Extraterritoriality in U.S. Law

Here's an interesting Dormant Commerce Clause case that might come before the U.S. Supreme Court, as described by a Cato colleague of mine: 

One of the several failures of the Articles of Confederation was the incapacity of the central government to deal with trade disputes among the states. The Constitution resolved this problem by empowering the federal government to regulate interstate commerce. It has since become a basic principle of American federalism that a state may not regulate actions in other states or impede the interstate flow of goods based on out-of-state conduct (rather than on the features of the goods themselves).

That principle was axiomatic until the U.S. Court of Appeals for the Ninth Circuit upheld one particular extra-territorial California regulation. California recently established a Low Carbon Fuel Standard (“LCFS”) that attempts to rate the “carbon intensity” of liquid fuels, so that carbon emissions can be reduced in the Golden State. California considers not only the carbon emissions from the fuel itself being burnt, however, but also the entire “lifetime” of the fuel, including its manufacture and transportation.

This has led to complaints from Midwestern ethanol producers, whose product—which is in all other ways identical to California-produced ethanol—being severely disadvantaged in California’s liquid fuel markets, simply because it comes from further away. Groups representing farmers and fuel manufacturers sued, arguing that the LCFS constitutes a clear violation of the Commerce Clause (the Article I federal power to regulate interstate commerce) by discriminating against interstate commerce and allowing California to regulate conduct occurring wholly outside of its borders. The Ninth Circuit recently upheld the LCFS, finding the regulation permissible because its purpose was primarily environmental and not economic protectionism (although judges dissenting from the court’s denial of rehearing pointed out that this is the wrong standard to apply).

The farmers and fuel manufacturer groups have now submitted a petition to have their case heard by the Supreme Court. Cato has joined the Pacific Legal Foundation, National Federation of Independent Business, Reason Foundation, California Manufacturers & Technology Association, and the Energy & Environmental Legal Institute on an amicus briefsupporting the petition.

We argue that the lower court’s ruling provides a template for other states to follow should they want to evade Supreme Court precedents barring obstruction of interstate commerce and extraterritorial regulation. As the Founders fully recognized, ensuring the free flow of commerce among the states is vital to the wellbeing of the nation, and California’s actions—and the Ninth Circuit’s endorsement of them—threaten to clog up that flow. Not only does the appellate ruling allow California to throw national fuel markets into disarray, it invites other states to destabilize interstate markets and incite domestic trade disputes—precisely the type of uncooperative behavior the Constitution was designed to prevent.

The Supreme Court will likely decide whether to take Rocky Mountain Farmers Union v. Corey before it recesses for the summer. For more on the case, see this blogpost by PLF’s Tony Francois.

It would be really interesting to see how the Supreme Court addresses these issues. The parallels with various WTO disputes are fascinating.  

Whatever you think of these issues in the WTO context, are your views the same in the domestic law context?  I'm still pondering that one.

Forget Clove Cigarettes, What about Clove Cigars?

This is from the U.S. answers to questions from the arbitrator in the Clove Cigarettes Article 22.6 proceeding:

88. Company documents from Kretek International (“Kretek”), which occupied 97 percent of the market for clove cigarette imports in the United States, substantiate that the current market for clove cigars is the old market for clove cigarettes. Kretek’s July 2009 National Sales Meeting Presentation makes clear that clove cigars fulfill the exact same market as clove cigarettes. The presentation details how Kretek will effect a “seamless conversion to clove cigars as cigarettes are depleted.”76 Kretek’s presentation explains that the company will offer clove cigars in the “other tobacco product” (“OTP”) category77 – with the intent of putting them in a category currently not subject to Section 907(a)(1)(A). Slides 1330-31 illustrate Kretek’s plan to phase in sales of clove “cigars” in mid-2009, at the same time that sales of clove “cigarettes” are winding down. By December 2009, sales of clove products marketed as cigars would (and did) completely replace sales of clove cigarettes at just over 4500 cases.78 Indeed, this plan is borne out in the import data, which shows that imports of Indonesian cigars replaced the level of imports of clove cigarettes by the end of 2009.

89. Indonesia is not tapping a new or different market in the United States for clove cigars. The fact that there is one U.S. market for “cloves” – i.e., clove cigarettes or clove cigars – is provided by Kretek. As the company details in its July 2009 presentation, the key to a smooth “conversion” to clove cigars is to deliver essentially the same product to the same consumers through the same distributors and marketing.

The argument here is that Indonesia suffered no nullification or impairment from the ban on clove cigarettes, because the company involved converted all of its production to clove cigars, which are permitted under the law.

There's definitely a factual question here.  How many clove cigarettes were sold prior to the law, and how many clove cigars are being sold now?  The precise figures weren't clear to me from the U.S. submission; I'm curious to see Indonesia's response.

Assuming the figures are identical, though, does that mean there is no nullification or impairment?  Does the cost of the conversion process matter?

A Revolving Door at the Appellate Body?

The Appellate Body has issued some "guidelines" for employees (AB judges, secretariat staff, interns) to follow after they have left:

POST-EMPLOYMENT GUIDELINES IN RESPECT OF FORMER APPELLATE BODY MEMBERS, FORMER APPELLATE BODY SECRETARIAT STAFF, AND FORMER INTERNS AT THE APPELLATE BODY SECRETARIAT 

The Appellate Body expects the individuals concerned to abide by, and requests WTO Members to assist in the respect of, the guidelines below.

1. A former Appellate Body Member shall not:

a. be involved as an adviser or panelist in any dispute or matter the same as one that was before the Appellate Body during his or her term of office as an Appellate Body Member. A former Appellate Body Member may, however, accept appointment as an arbitrator in an arbitration under Article 21.3(c) of the DSU in respect of any dispute;

b. for a period of three years following the end of his or her term of office, attend the oral hearing in any appeal before the Appellate Body as a member of a delegation of a participant or third participant;

c. for a period of two years following the end of his or her term of office, accept appointment as a panelist in any WTO dispute.

2. A former member of staff of the Appellate Body Secretariat shall not:

a. be involved as an adviser or panelist in any dispute or matter the same as one in which he or she had a significant degree of involvement as part of his or her responsibilities at the Appellate Body Secretariat;

b. for a period of one year following the cessation of his or her service, attend the oral hearing in any appeal before the Appellate Body as a member of a delegation of a participant or third participant.

3. A former intern in the Appellate Body Secretariat shall not:

a. be involved as an adviser or panelist in any dispute or matter when, during the internship period, he or she carried out substantive tasks or attended meetings in connection with an appeal in the same dispute or matter as part of his or her responsibilities at the Appellate Body Secretariat;

b. for a period of one year following the completion of his or her internship, attend the oral hearing in any appeal before the Appellate Body as a member of a delegation of a participant or third participant unless he or she has obtained prior written authorization from the Director of the Appellate Body Secretariat. Such authorization will be granted unless the specific circumstances of the appeal are such that the Director of the Appellate Body Secretariat reasonably considers that the former intern's attendance at the oral hearing is likely to give rise to an actual or perceived conflict of interest or risk of bias.

...

A few questions and comments come to mind:

1. Are these guidelines going to be enforceable?  Note this statement from the Appellate Body: "The Appellate Body requests the cooperation of WTO Members in facilitating compliance with these guidelines."  How will this all work in practice?

2. Not working on a "matter" you worked on at the Appellate Body seems clear and obvious. But does a rule that precludes the attending of a hearing on any appellate matter, for a period of time, go too far?  Or does it not go far enough?  Note that it only says you can't attend the hearing. You can still work on the briefs, which is where cases are mostly won or lost, in my view.

3. If the other WTO Secretariat divisions (e.g., Legal Affairs, Rules) that provide support to panels do not adopt similar guidelines, will those positions become more appealing (pun intended!) because of the absence of post-employment restrictions?

4. Presumably these guidelines couldn't be applied easily to panelists, some of whom are diplomats working on their own countries' cases. 

Is the “Yarn-Forward” Rule Forwarding Free Trade?

The answer may depend on whom you ask.  Indeed, against the background of the recent TPP negotiation this particular origin rule offers a unique lens through which one can investigate a complex relationship of free trade, political economy and trade regionalism. 

 According to Lien Hoang of the Bloomberg BNA, amid the TPP negotiation a Vietnamese official has urged the United States to drop the yarn-forward rule in the former’s market access to the latter market.  (Lien Hoang, Vietnam Official Pushes U.S. to Drop ‘Yarn-Forward’ Rule from TPP Negotiations, Bloomberg BNA (Apr. 16, 2014)).  Given that Vietnam exports a large amount of apparels to the United States, Vietnam would obviously desire a flexible sourcing option (in particular from non-TPP members, such as India and China) for raw materials (such as yarn), rather than a limited one exclusively among TPP members (which appear to be a more costly option to Vietnam).

 Predictably, domestic views in this issue are divided in the United States.  The U.S. producers (such as the “National Council of Textiles Organizations”) strongly back the rule.  They argue that:

 The Western Hemisphere is by far the largest export market for U.S. yarns and fabrics. This is not by accident but is the result of U.S. government policy that has encouraged the exportation of U.S. yarns and fabric to the region in exchange for duty free entry of the final finished product—a piece of apparel.

 In contrast, importers (such as the “U.S. Association of Importers of Textiles and Apparel”) want to loosen, if not eliminate, the rule.  They view that:

 [A] regional negotiation that includes at least seven nations will be extremely complex, especially in light of the existing U.S. FTAs with Chile, Singapore, Australia and Peru.  (…)  [I]t is essential to provide “cumulation” among the TPP participants and encourages the U.S. negotiators to consider expanding cumulation to allow integration of resources among all regional yarn and fabric suppliers who have preferential access to the U.S. market. Specifically, the United States should link the TPP to all of the FTAs the United States has in the Western Hemisphere, not just to Peru and Chile. 

 What do YOU think?  Is the “yarn-forward” rule forwarding free trade?

The U.S. “Preemptive” Appeal in China-Rare Earths

Following up on Simon’s last post, I want to raise a few questions on the US appeal. In "U.S. Files 'Preemptive' Appeal Against WTO Ruling on Chinese Rare Earths", BNA WTO Reporter, April 10, 2014, Daniel Pruzin reports: 

The U.S. has filed a “preemptive strike” appeal against a World Trade Organization panel ruling that found in favor of a joint complaint filed by the U.S., the European Union and Japan against China's restrictions on rare earths.

 A U.S. official speaking on condition of anonymity said that the appeal was filed April 8 to accelerate appeals proceedings in the case. The official said that China has yet to file an appeal against the ruling but is expected to do so.

“This is a preemptive strike to bring urgent relief to American businesses and workers,” said Trevor Kincaid, spokesman for the Office of the U.S. Trade Representative (USTR).

Under Rule 23 of the WTO Appellate Body's working procedures, the U.S. appeal will now obligate China to file an “other appellant” appeal within five days challenging any aspects of the panel's findings which it feels are in error. Had the U.S. not filed its preemptive appeal, China and the other parties in the dispute would have had until May 25 to file a challenge to the panel's findings.

So, the victorious U.S. filed an appeal on minor procedural aspects of the Panel decision to accelerate the appeal process. As a result of the US “preemptive strike”, the time period for China to file its appeal has been shortened by more than 40 days - from 60 days (until May 25) to 18 days (until April 13). 

I assume this is the first time such a tactic has been used in WTO litigation history. Here are my questions:

First, is it fair for a winning party to use such a tactic to substantially cut the appeal time of the losing party? All litigators know what a difference 40 days can make for the preparation of a complex case (Rare Earths is such a case as it involves complex systemic issues). It is true that the parties learn the result of the Panel decision long before the Panel report is circulated. But it is the expectation set by the DSU rules that matters. The losing party will plan its appeal according to these rules. If the 60-day period is no longer considered necessary, the rule should be changed through proper procedures.

That brings to my second question: What is the rationale of the 5-day rule for “other appellant” in the AB working procedure (www.wto.org/english/tratop_e/dispu_e/ab_procedures_e.htm)? Is it designed to change the 60-day rule?

Lastly and most curiously, why did the US feel the need to make such a move? The official reason offered by the USTR is to “bring urgent relief to American businesses and workers”. But as I recall - this may surprise many - China’s export quotas on rare earths have never been fully used up in any given year. In 2012, barely over half of the export quotas were used (https://sg.news.yahoo.com/china-sets-rare-earth-export-quota-second-half-044739860.html). And prices for rare earths remain depressed in recent months due to weak demand inside and outside China. (http://www.metal.com/publication/quarterly-report/402_china-rare-earth-quarterly-2013q4). So what is the real reason(s) for the maneuver? Domestic politics? WTO politics? Or simply to undermine China's ability to make an effective appeal?  I hope it is not the latter one, as that would raise a serious issue of "good faith".   

Hope someone can shed light on the above questions.  

The China - Rare Earths Appeal

As everyone has no doubt heard by now, the U.S., Japan and the EU recently won a big victory over China in the Rare Earths case at the WTO. The WTO panel ruled that various Chinese export duties and quotas violated WTO obligations and were not justified by any exceptions. Here is the USTR press release celebrating the victory:

“Time and again, the Obama Administration has made clear that we are willing to go to the mat for American workers and businesses to make sure that the playing field is fair and level,” said Ambassador Froman. “The United States is committed to ensuring that our trading partners are playing by the rules. We will continue to defend American manufacturers and workers, especially when it comes to leveling the playing field and ensuring that American manufacturers can get the materials they need at a fair market price.”

“China’s decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths. WTO rules prohibit this kind of discriminatory export restraint and this win today, along with our win 2 years ago in an earlier case, demonstrates that clearly.”

“We hope this will discourage further breaches of WTO rules that hurt American manufacturers. This victory shows that we stand prepared to take action whenever necessary to protect the high-quality middle class American jobs that trade supports.”

So, I guess all that's left to do is wait for the invevitable appeal by China, probably toward the end of the 60 day deadline to delay the implementation for as long as possible.

But wait -- the U.S. just appealed! Given the big victory, what was there to appeal?  Here is the appeal notice:

1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that it should reject exhibits submitted by the complainants with their comments on China's responses to the Panel's questions after the second meeting pursuant to Article 3.3 of the DSU and paragraph 7 of the Panel's Working Procedures.This finding is in error and is based on erroneous findings on issues of law and legal interpretations, including, for example: the Panel's conclusion that acceptance of such evidence would have presented "due process" concerns for China; the Panel's conclusion that "the submission of new expert reports" would have interfered with the prompt settlement of the dispute; and the Panel's conclusion that to be accepted as rebuttal evidence an exhibit must "rise to the required level of necessity." In reaching these conclusions, the Panel erroneously applied DSU Article 3.3 and failed to provide sufficient time to the United States to prepare its submissions pursuant to DSU Article 12.4.

2. The United States also requests the Appellate Body to find that the Panel acted inconsistently with Article 11 of the DSU by failing to make an objective assessment of the facts by excluding exhibits submitted by the complainants with their comments on China's responses to the Panel's questions after the second meeting; by finding that "the evidence [in question] could and should have been submitted at an earlier date;" and by finding that the evidence in question does not rebut arguments made by China at the second meeting of the Panel.

Basically, the appeal focuses on some pretty minor evidentiary issues that didn't have much impact on the case.

Certainly either party has the right to appeal.  And the defending party has the right to take all the time it wants up to the 60 days to make its appeal, in order to delay the process, so shouldn't the complainant have the right to appeal minor issues to speed up the process?

It might be interesting, if you're into that sort of thing, to look at the details on the timing of appeals, and see if there are any insights about how parties are behaving in this regard.  We have the data at WorldTradeLaw.net, but I've never looked at it closely.

WTO Seals:Canada kept export program for indigenous products under wraps til after AB hearing

One of Canada's key contentions in the WTO Seals dispute is that the indigenous exception in the EU ban is lacking in evenhandedness, favoring Greenland seal products over Canadian products.  The exception is de jure neutral and available to indigenous products regardless of origin.  But Canada has maintained that it is de facto discriminatory because Canadian indigenous seal products are not really suited to take advantage of export markets.  That's not a good argument about discrimination because Canada has done nothing to connect the problem it alleges to the design or structure of the EU's exception; it is also undermined by evidence presented by Canada itself from Nunavut that the reason that indiigenous seal products are not selling in export markets is just plain lack of market demand.  Well, it also turns out that Canada, whle telling the WTO  that Canadian indigenous sealing products aren't  somehow suited for export markets, had been funding a program to promote just such exports . http://bit.ly/1kxUw8v Normally when Canada does something for sealers they waste no time in shouting about it, to get the political credit in that community.  But this time the measures were kept under wraps for several months.  They were announced the Monday immediately after the week of the AB hearings in the case.  That date doesn't seem like a coincidence!  

Are Bank Bailouts “Subsidies” (and Do They Violate the WTO Norms)?

Tons of money flowed from the government (tax payers’ money!) to large banks in the United States and Europe to fight against financial crises.  The IMF has recently issued a report in which it calculated the size of such bailouts as well as proposed some reform agendas.  Interestingly, the IMF characterized such bailouts as “subsidies.”  The question that concerns us is: do these alleged subsidies violate the WTO norms?

 There have been some discussions on the bailouts for auto companies (both in the United States and Europe) and their WTO consistency under the WTO SCM agreement.  If bank bailout subsidies are subsidies within the WTO system, we may not invoke the SCM agreement since they concern trade in (financial) services.  The GATS (Article XV) leaves this issue to future negotiations.  Yet back in 2009 Simon Lester raised this very issue and hinted that these bank bailouts might violate Article XVII (National Treatment) of GATS in case a government exclusively bails out domestic banks.  Note that GATS Article XVII does not have an equivalent of GATT Article III:8 (b) (“The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers…”).  Therefore, Simon’s interpretation might work here. Of course, subsidy-granting governments might argue that such bailouts belong to "prudential regulations" or any other form of acceptable "emergency safeguards." 

No ISDS in the Australia - Japan EPA

This is from economics reporter Peter Martin:

And now Australia has said no to an ISDS in its free trade agreement with Japan. The agreement will be better and simpler because of it.

Some details of the agreement are here, but the full text is not out yet.

Australia is famous for its ISDS skepticism, although they have recently changed course, and included ISDS in the FTA with Korea.  What is the significance of excluding it from the agreement with Japan?  Shawn Donnan of the FT tweeted this to me: "It may be less of a big deal than I first thought. Both are in TPP and ISDS inclusion there would make bilateral ISDS redundant."

But what if there is no TPP?  I know, we are in the "end game," but it doesn't feel like we are really that close to the end.  If the TPP fails, would Australia and Japan revisit the issue, or just leave ISDS out permanently?

A COOL Decision

Today the DC Circuit vacated (per curiam) its previous three-judge panel decision on March 28 (American Meat Institute v. Dep’t of Agriculture, No. 13-5281, Slip Op. at 14, n.1 (D.C. Cir. Mar. 28, 2014), and decided to rehear this case en banc.  (See also Andrew Zajac, Meat Labeling Case to Be Reheard by Full U.S. Appeals Court, BNA (Bloomberg) (Apr. 4, 2014)).

 The March 28 decision gave a quite succinct summary of the COOL history, as follows:

 The COOL statute, 7 U.S.C. § 1638a, adopted in 2008, assigns retailers an obligation to inform consumers of a cut’s country of origin. (…)The statute sets forth four categories of muscle-cut meat and how to determine the country of origin depending on the locale of the production steps: (A) United States country of origin… (B) Multiple countries of origin … (C) Imported for immediate slaughter … (D) Foreign country of origin …

 The 2009 rule did not demand explicit identification of the country for each of the three production steps—born, raised and slaughtered. It called more simply for labeling with a phrase starting “Product of,” followed by mention of one or more countries. 7 C.F.R. § 65.400 (2010). So Category A meat would be labeled, “Product of the United States”; Category B meat would be labeled, “Product of the United States and X”; Category C meat would be labeled, “Product of X and the United States”; and Category D meat would be labeled “Product of X.” (...)

In the year of the 2009 rule’s adoption, Canada and Mexico filed a complaint with the  Settlement Body of the World Trade Organization, which found the rule to be in violation of the WTO Agreement on Technical Barriers to Trade. 2013 rule, 78 Fed. Reg. at 31,367/2. The gravamen of the WTO’s ruling appears to have been an objection to the relative imprecision of the information required by the 2009 rule. See Appellate Body Report, United States—Certain Country of Origin Labelling (COOL) Requirements, ¶ 343, WT/DS384/AB/R (Jun. 29, 2012). (...)

 The 2013 rule increased the required level of precision. Now, except for Category D meat, each country of origin would generally be preceded by the production step that occurred in that country. Id. at 31,385/3. For instance, instead of saying, “Product of the United States,” a label for Category A meat will now read, “Born, Raised, and Slaughtered in the United States.” Id. Similarly, Category B meat might now have to be labeled, “Born in X, Raised and Slaughtered in the United States,” and Category C meat “Born and Raised in X, Slaughtered in the United States.” Id. (…)

The plaintiff, American Meat Institute (AMI), argued that this 2013 rule, which the U.S. government issued in compliance with the Appellate Body decision on June 29, 2012, violated its First Amendment rights because the rule compelled meat producers and meat packers to make onerous disclosures.  Originally, the three-judge panel in the DC Circuit rejected the AMI’s argument (on March 28) by opining that the information that the 2013 rule required to disclose is “non-frivolous” and “purely factual and non-controversial.” 

 Today, the DC Circuit tossed out this ruling and decided to rehear the case on May 19, 2014.

 Incidentally, Canada (the original complainant in the WTO COOL case) refused to accept the U.S. 2013 rule as a compliance measure.  In fact, Canada argued that the 2013 rule is worse than the original measure: more restrictive and causing more harms to its meat exporters!  A compliance panel under DSU Articles 21.5 was composed on Sep. 27, 2013. 

 This is a fascinating case in which a WTO dispute is tangled with a domestic litigation.  An important question here is whether rulings from these two different tribunals (the WTO Appellate Body and the U.S court) would ever cohere.  Or should they cohere?  If so, what can (should) be done to secure such coherence? 

Does TTIP Need ISDS? Part II

The European Parliament's Committee on International Trade held a workshop on ISDS on Tuesday. I had a little trouble viewing the recorded video, but try these links.

I was particularly interested in the response given by Rupert Schlegelmilch of the European Commission to the question, "Where is the weakness in the U.S. legal system?", which he restated as, "Do we need these rules for the U.S."?  See 1:51:00 of the video.  For his response, go to 1:52:25, where he said:  "Even in the U.S., you can have bias against foreign companies."  He then referred to the "Cuba policy," noting that a "trademark was confiscated," and that the EU won a case at the WTO on the issue.  He also talked about "discrimination in public procurement," and noted that there is no non-discrimination principle in U.S. law.

The concerns he raises are certainly legitimate ones.  But there's an issue as to how to deal with them, which leads me to this question: How would the U.S. Congress react to an investor-state lawsuit against either of these policies?

Domestic Regulation and Services Trade in the WTO: What scope is there for enhanced disciplines?

A guest post by Aik Hoe Lim and Bart De Meester [1]:

Recent disputes concerning Article 2.2 of the TBT Agreement – in particular US - Tuna II (Mexico) and US - Clove Cigarettes – have focused attention on measures that, even when not discriminatory, may constitute barriers to trade in goods. The WTO Technical Barriers to Trade agreement, which builds on the Tokyo Round code, has sought to reduce the trade-distortions that may follow from measures that apply without any distinction to domestic and foreign goods through the use of a 'necessity test'.

In contrast, the GATS has in this respect much more limited disciplines. Articles II and XVII – the latter again depending on specific commitments – prohibit WTO members to discriminate among services and service suppliers of a different origin. Article XVI of the GATS prohibits – to the extent WTO members have made specific commitments – six types of market access restrictions, which are mainly quantitative in nature. Outside the scope of these articles, there are no further substantive disciplines of the type found in the TBT Agreement with respect to non-discriminatory 'domestic regulation'.

Yet, domestic regulation of services sectors has a significant impact on services trade and access conditions. As provided in Article VI:4 of the GATS, WTO members have agreed to negotiate a set of disciplines to ensure that such regulations are not unduly burdensome on trade. There are many good reasons why services markets need regulation, amongst others protecting consumers, tackling fraud and tax evasion, or making services available to all citizens on equitable conditions. At the same time, cumbersome licensing and qualification procedures, non-transparent criteria, burdensome and redundant requirements, and administrative "red-tape" can impede trade even if this was not their intention. The sheer diversity of regulatory systems and standards in international markets can also significantly raise the costs of compliance for the service supplier. Procedural complexity might also serve to hide protectionist intentions and give rise to good governance issues.

To what extent can and should domestic regulation be disciplined under a trade agreement and how to distinguish protectionism from the pursuit of legitimate public policy objectives? There are no obvious answers. Yet, services trade agreements in the 21st century will increasingly have to grapple with complex regulatory issues. Since the establishment of the WTO, members in the GATS Working Party on Domestic Regulation have grappled with the question of what additional disciplines are required on licensing, qualification and technical standards to ensure that they are not more burdensome than necessary to achieve legitimate policy objectives. Negotiations on a Trade in Services Agreement (TiSA) and the latest wave of regional trade agreements face similar challenges. Such efforts raise a number of questions:

(i) First, a principal concern hampering negotiations in the WTO seems to be that trade disciplines on domestic regulation might result in a loss of regulatory freedom for Members to pursue non-trade objectives. Such disciplines are often perceived to extend quite far beyond the traditional trade concern of non-discrimination to the fundamental societal question of the balance between regulation and market freedom. Yet, one may wonder whether the intent of the WTO members behind the Article VI:4 mandate was not more modest. With the scope of VI:4 being limited to measures relating to licensing and qualification requirements and procedures, and technical standards, could a parallel be drawn with the recently concluded WTO Trade Facilitation Agreement? Much attention has been given to reducing costs and delays for goods trade through measures that provide predictability, simplicity and uniformity in customs and other border procedures. No such instrument exists in services trade. Could streamlining licensing procedures, single windows for application, indicative time frames for processing applications, simplification of documents and forms, be viewed as "trade facilitation" for services suppliers? Would pursuing domestic regulation disciplines as a package of measures aimed at "services trade facilitation" help improve understanding and reduce concerns of unwarranted intrusion into the domestic regulatory and policy making process?

(ii) Second, the mandate in Article VI:4 also specifies indicative objectives, namely that measures relating to licensing and qualification requirements and procedures, and technical standards should be based on objective and transparent criteria, and not more burdensome than necessary to ensure the quality of the service. Yet, what would be the appropriate benchmark upon which these criteria should be reflected in new disciplines? It is worth recalling that the WTO 1998 Disciplines on Domestic Regulation in the Accountancy Sector already contain a ‘necessity test’, similar to that in the TBT and SPS Agreements, which requires WTO members to ensure that ‘measures are not more trade restrictive than necessary to achieve a legitimate objective’. The negotiations, so far, have found no common view on the question of whether a ‘necessity test’ of the type already found in the TBT or SPS Agreements, or a variation of it, should be used in domestic regulation disciplines in services. Should members take the current opportunity to design such a test themselves, rather than allow WTO jurisprudence to design such a test in the context of a concrete dispute?

(iii) Third, how could any disciplines on domestic regulation be incorporated into the GATS? While this might seem to be an issue that is best left till the end of the negotiations, could clarity on the options available have an impact on the substance of the disciplines? One option is that any eventual disciplines would be integrated into GATS as an Annex. Such an approach would have the advantage of uniform application of the disciplines across the entire WTO membership. However, it also has the disadvantage of being relatively inflexible as the obligations would have to be taken at the same level of ambition without exception. Another option is to use GATS Article XVIII, which allows WTO members to schedule additional commitments on any regulatory matter that concerns measures not covered by market access and national treatment. The procedure depends solely on the acceptance by each individual member to incorporate the disciplines into its schedule. Since members decide individually to undertake additional commitments, there is considerable flexibility both in terms of application across the membership, as well as the obligations undertaken. On the other hand, the flexibility of the additional commitments route could also be viewed as a disadvantage, as it would provide less certainty as to whether the disciplines would be fully applied by all members, as compared to the adoption of an Annex.

Such questions, as well as specific regulatory challenges, are discussed in our book, "WTO Domestic Regulation and Services Trade: Putting Principles into Practice" through essays and case studies. Many issues remain unsettled and much is unknown. If we might borrow from Simon Lester, "the question is, how do we craft these rules so as to define the boundaries of international economic law in an appropriate way?" [2] We would be interested in hearing your views on the issues and to receive your feedback on the book.

We would also like to invite you to our book launch at the WTO Secretariat building on 7 May 2014. The event will start at 12.30 with sandwiches and refreshments followed by a panel discussion. Should you be interested in attending, please do send us an email ([email protected]).

Aik Hoe Lim and Bart De Meester

For more information on the book, please see
http://www.cambridge.org/pt/academic/subjects/law/international-trade-law/wto-domestic-regulation-and-services-trade-putting-principles-practice

[1]  Aik Hoe Lim is Counsellor in the Trade in Services Division of the WTO, where he is Secretary to the Working Party on Domestic Regulation.  Bart De Meester is Member of the Legal Service of the European Commission.  The views expressed in the book and this blog post are of a personal nature and do not necessarily reflect those held by their respective organizations and/or their Members.  

[2]  Simon Lester, "Finding the Boundaries of International Economic Law", Journal of International Economic Law, 2014, 17, 3-9.

Free Trade Is a Two-Way Street, and So Is Protectionism

Daniel Ikenson (Cato Institute) made an insightful observation in a blog post (“WTO Indictment of Chinese Export Restrictions Unearths U.S. Hypocrisy”).  Here are some excerpts from his post.

 “During the last decade (2000-2009), four out of every five antidumping measures (79.4%) were imposed on imported intermediate goods.  Over the past 12 months, all of the 15 U.S. antidumping investigations initiated concerned imported intermediate goods, such as ferrosilicon, chlorinated isocyanurates, calcium hypochlorite, and sugar.  Access to each of these products – just like access to rare earth minerals – is essential to the competitiveness and viability of U.S. companies.  Each of these inputs is the lifeblood of numerous downstream industries.”

 Note that nearly a half of the current U.S. imports are the so-called intermediate goods, such as raw materials and part/components.  The new trade reality is now characterized by global value chains and multi-location trade/production model, not the hoary mercantilist, mono-location trade/production model.  The late Peter Drucker said that “all economics is international.”  Yet the late Tip O’Neil said that “all politics is local.”  The WTO system revolves around this seemingly paradoxical dyad of the multi-location trade and the mono-location politics.