International Economic Law and Policy Blog

Argentina Debt Issues and WTO Obligations

I'm a little late to the party on the most recent Argentine debt crisis.  I hadn't been paying much attention, but someone asked me to speak about it at a conference in October, so I thought I better try to figure it out!  There are a lot of aspects of the issue to sort through.  Here's one that I hadn't thought of:  Todd Tucker argues that Argentina might have a pretty good WTO claim against the U.S. court decision which prevents Argentina from make certain of its debt payments.

My understanding of all this is a little fuzzy, so feel free to correct me or clarify in the comments, but here's what I gather.  A U.S. judge ruled that Argentina can't pay off bondholders who have agreed to a restructuring of their debt without first paying off some "vulture fund" bondholders who would not agree to a restructring (i.e., they want the full amount).  If Argentina is enjoined by the court from making these payments on the restructured debt, they are technically in default, which sounds bad (although it's not clear to me exactly what the implications of this are). 

Todd argues that Argentina might have a WTO claim against these court-ordered restrictions on making financial transfers, on the following basis.  The U.S. made broad GATS commitments in the area of financial services, requiring "free transfer flows" and "non-discrimination."  The U.S. court ruling -- which is a "measure" that can be challenged at the WTO -- restricts financial transfers, and also discriminates against some European bondholders (although I couldn't follow exactly how).

Therefore, Todd sees the possibility of a GATS violation, with no good defense under prudential measures or balance of payments exceptions.

With the caveat that I haven't looked at any of these provisions closely, he may be on to something here.  However, it seemed to me that GATS Article XIV(c) could offer a defense.  This provision allows measures that are:

necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement ...

Again, I'm new to this topic, but isn't the U.S. court simply enforcing a contract between the bondholders and Argentina?  In other words, this is just a measure necessary to secure compliance with basic contract law.  Unless the court's interpretation of the contract in question is completely off the wall, I would think the court's decision would satisfy the Article XIV chapeau, and thus be justified under Article XIV.

Arvind Subramanian on India, TFA, and Food Security

Arvind Subramanian has always been one of my favorite trade commentators.  Whatever topic he takes on, he has great insights.  This short piece he wrote on the current WTO trade facilitation/food security issue with India is no exception. He explains how policy changes in recent years have led to a situation where India can no longer protect its agricultural producers in the way it used to.  In a nutshell, it shifted away from tariffs, for which it had lots of leeway under its Uruguay Round commitments, and moved towards price support-based subsidies, where it was subject to tight constraints.  By contrast, rich countries had been using subsidies all along, and had made commitments that allowed them to continue doing so.

So how should India remedy this imbalance?  Should it use everyone's desire for a trade facilitation deal as leverage to get a change in the rules?  Here's what Subramanian has to say:

Is holding up the TFA the best way for India to secure its objectives on agriculture?

The July 31 deadline for adoption of the Bali agreement does provide India some leverage to advance its broader objectives on agriculture.

Despite the criticism, India’s threat to block the TFA is not standing in the way of great global trade advancement. Gains from the TFA have been grossly overstated. Reforming customs administration, a key ingredient of trade facilitation, is an important objective, but the TFA neither adequately incentivizes nor forces such reforms that will be politically difficult within member countries.

Nevertheless, India looks obstructionist by opposing the TFA, especially for the new government, led by Prime Minister Narendra Modi, which is trying to project an image of being investor- and market-friendly and constructive in its international engagement. The reputational costs of blocking the TFA could be high.

India should worry as well about appearing isolated in its current position, with China, Brazil, and Russia—the band of BRIC brothers as it were—and many other emerging market countries clearly distancing themselves from New Delhi. A policy that has limited support among the WTO membership looks weak, lacks legitimacy, and seems unlikely to succeed.

Indeed, if India succeeds in its opposition, and the Bali deal collapses, the blow to an already weak WTO would be significant and India would bear much of the blame. And the costs of a weak and delegitimized multilateral trade system are greater for countries such as India, which is excluded from the emerging Asian trade architecture underpinned by the US-led Trans-Pacific Partnership (TPP).

India should thus withdraw its opposition to the TFA and reformulate its position on agriculture along with a number of countries that likely face a similar predicament. India should also proceed to persuade its partners of the merits and fairness of its new position over the next few months, and revisit this issue at the WTO in the near future.

WTO Law Mooting

From Gujarat National Law University:

Gujarat National Law University, one of India's premiere law schools, is proud to announce the 7th Edition of its flagship event, The GNLU INTERNATIONAL MOOT COURT COMPETITION. (GIMC 2015)

GIMC is one of the very few moot court competitions in the world where the subject matter is International Trade Law. Since 2011, participants at GIMC have to argue in a simulated hearing of a panel established under WTO's Dispute Settlement Understanding.

Past editions of GIMC have seen participation from the best teams not only from India but from around the world. With more than 40 teams competing for the honour every year, it is one of the most challenging but enriching moot court competitions. The participants are hosted at Gujarat National Law University's sprawling 50 acre campus close to Ahmedabad and are judged by some of the most renowned experts in trade law. 

Judges who have graced previous editions include Prof. Mitsuo Matsushita, a Professor Emeritus at Tokyo University and one of the founding members of the Appellate Body of the WTO; Shotaro Oshima, Member, Appellate Body, WTO; Mr. Shishir Priyadarshi, Director World Trade Organization (WTO); Mr. Ujal Singh Bhatia, Member, Appellate Body, WTO; Susan Karamanian, Associate Dean, George Washington University Law School;  Mr. Greg Tereposky, Founder of TradeLawGuide® and Partner at Borden Ladner Gervais LLP; Ms. Victoria Donaldson, Chief Legal Officer, WTO Appellate Body; and Mr. Christian Haberli, Senior Consultant at the World Trade Institute, who has also been a panelist at the WTO; and various reputed judges and lawyers from India with tremendous adjudicatory experience.

Gujarat National Law University along with its many partners, most notably World Trade Institute, Bern; Lakshmi Kumaran & Sridharan and Borden Ladner Gervais LLP, ensures that the participants have a host of prizes to aim for. Along with cash prizes for the Winners and Runners-Up, there are also awards for Top 3 Memorials and Top 3 Speakers which include internships and book hampers.

The 7th Edition shall be held from February 4 to 8, 2015. The 7th edition shall see participants argue on trade law issues related to the TBT and GATT Agreements embedded in a problem of very contemporary significance including elements of dispute regarding packaging requirements.

GIMC 2015 Moot Problem has been released and registrations are now open for law students from around the world! 

GIMC 2015 problem can be accessed here - http://bit.ly/GIMC2015Problem

Registration forms are available here - http://bit.ly/GIMC2015Registration

Make sure you register before the Registration Deadline of September 15, 2014!

Further details are available on our website www.gnlu.ac.in/GIMC/index.php and any queries can also be addressed to [email protected] or to our twitter handle www.twitter.com/GNLU_GIMC

Investor-State as Judicial Review: Is that Controversial?

This is from Robert Basedow, a PhD candidate at LSE: 

... It is helpful to distinguish between the substantive and procedural provisions under typical international investment agreements. The substantive provisions enumerate the rights of investors and states under these agreements, whereas the procedural provisions regulate how substantive provisions can be enforced. The substantive provisions are hardly controversial. They reflect core principles of the rule of law. The agreements stipulate, for instance, that states can only expropriate for public policy purposes, on the basis of non-discrimination, due process and against payment of an adequate compensation for losses.

The only grievance occasionally voiced regarding the standard substantive provisions of such agreements is that they are often spelled out in too little detail, which leaves arbitration tribunals significant room for interpretation. The term ‘indirect expropriation’ illustrates this concern. ...

When you put it like this, substantive international investment rules do sound fairly normal. The principles themselves are common in domestic law.  In that sense, it may be true that they are "hardly controversial."

But I don't think that's the right way to put it.  The fact that these principles are a routine part of domestic law does not mean it is uncontroversial to make them part of enforceable international law.  In my view, a better way to explain what is going on here, in terms of its substance, is the following statement from Stephan Schill: 

In reaction to a summary of five different paths for investment law reform made by the United Nations Conference on Trade and Development in June 2013, which focused on institutional reforms of investor-State dispute settlement, the present paper sketches out a sixth path for investment law reform that is based on a system-internal reconceptualization of investor-State arbitration as a form of public law-based judicial review.

To me, this is the key part of what is going on with investor-state: International judicial review of certain national government actions.  The relevant substance isn't just the principles involved; it's also the allocation of power between national and international.

So is it controversial to have international courts reviewing domestic government actions?  Maybe it depends who you ask.  If you asked international lawyers, it might be close to 50-50, for and against.  That's my impression anyway, based on a random sampling of conversations I've had over the years.

What kind of response would you get if you asked the general public whether there should be international judicial review of governments' treatment of foreign investors?  I'm guessing you would have lots of "no opinions," many answers of no, and almost nobody saying yes. 

But I'd love to see some real polling.  Perhaps here's an example of a question that could be asked: "Should the ECJ's 'right to be forgotten' decision be reviewed by an international court?"  That's from an opinion piece of mine.  Here's an excerpt:

The important point to take from all this is the following. ISDS provides "constitutional" review of government actions, at all levels and for all branches of governments. Lower courts, appeals courts and high courts are all subject to review. Local governments, sub-federal governments, and national governments of all types (even the EU!) are also subject to review.

The question is thus not one of "corporate profits" or "promoting foreign investment". It is about the role of international courts in global governance. Are we comfortable with international tribunals acting as a global high court on matters traditionally within the domestic sphere? That is a big step, one that needs to be acknowledged and debated. To be clear, such a court would not have the same power as national high courts – it could not order governments to take particular actions or enjoin domestic laws. But it could impose liability for monetary damages where government actions violate international obligations. In this way, it could have a significant impact on national laws, regulations and courts.

Seals vs. Tuna and Non-Discrimination

In the U.S. first written submission in the Article 21.5 WTO panel proceeding in U.S. - Tuna II, the U.S. distinguishes Tuna from Seals in regard to non-discrimination.  Here's the GATT MFN section:

287. The facts here are in contrast to the ones in EC – Seal Products where the Appellate Body recently found a breach of Article I:1. There, the market access advantage was subject to eligibility conditions related to immutable characteristics (such as the racial/cultural identity of the seal hunters) such that while virtually all of the products of Greenland were likely to qualify for access under the measure at issue, the vast majority of the products of Canada and Norway were not.

288. But here, the conditions of eligibility relate to fishing methods. And there is no one way to fish for tuna. Fishermen have a choice about how they fish. By no means is setting on dolphins required inside (or outside) the ETP to catch tuna. Indeed, even in the ETP, only 40 percent of the sets by large purse seine vessels are sets on dolphins. The eligibility conditions – and therefore the opportunity for the label – are the same for everyone.

And here's the GATT National Treatment section:

310. The Appellate Body’s analysis in EC – Seal Products does not suggest a different conclusion. In that dispute, Canada and Norway challenged an EU import ban on seal products that provided for two notable exceptions: seal products produced by qualifying indigenous communities (IC) and products from managed resource management (MRM) hunts were allowed to be sold in the EU. The panel found, and the Appellate Body did not disagree, that these two exceptions were drawn in a way that benefited only EU member States, while the seal products of the two complainants were almost completely excluded from the EU market. Furthermore, in light of the fact that eligibility for the IC exemption depended on immutable characteristics (such as the racial/cultural identity of the seal hunters), the vast majority of complainants’ products could never qualify for this exception.

311. In sum, there were sufficient facts on the record for the panel and Appellate Body to determine that the challenged measure was de facto inconsistent with Article III:4.

312. But those type of facts are not present here. The amended measure has no exceptions – the eligibility requirements apply to all tuna products. And those eligibility requirements relate to fishing methods, which is not an immutable condition. Any Member may produce non-eligible tuna products one year and eligible products the next year, depending on the different choices that its fleet makes year to year. Indeed, at the time of the enactment of the DPCIA, a substantial amount of tuna product produced by the U.S. fleet was not, in fact, eligible for the label, and that portion of production only became eligible after a few years had passed.  Finally, there is simply no evidence on the record that the amended measure singles out Mexico and its producers. Setting on dolphins really is dangerous for dolphins. That was (and is) the focus of the concern. Who produces the tuna product is entirely irrelevant to the United States.

 Is Tuna different enough from Seals that there will no violation found here? 

Struggles at the WTO

In the negotiations:

India blocked an agreement on new global customs rules on Thursday, angering fellow members of the World Trade Organization who say Delhi's veto could be costly, economically and politically.

At a meeting in Geneva, diplomats from the 160 WTO member countries were supposed to rubber stamp a deal on "trade facilitation" that was agreed at talks in Bali last December. Some estimates say it could add $1 trillion to the world economy and create 21 million jobs.

But India said it would veto the agreement until it gets what it wants in a separate area linked to its system of subsidising and stockpiling crops.

I have trouble figuring this one out.  Isn't there some agreement that could be reached on agriculture subsidies?  Apparently it is harder than it looks.

And in dispute settlement:

The latest U.S. sanctions against Russia violate World Trade Organization rules and may force Moscow into a destabilising trade dispute, Russia's ambassador told the Geneva-based trade body on Thursday.

"It looks like we are being forced to seek the protection of our legitimate rights and interests through the WTO mechanisms," said Russian Ambassador Gennady Ovechko, adding that Russiawas also concerned by sanctions imposed by other WTO members.

In response to the conflict in Ukraine, the United States has for several months been leveled sanctions on Russian individuals and smaller companies. But on July 16, Washington also hit Russia's largest oil producer, Rosneft ; its second largest gas producer, Novatek ; and its third largest bank, Gazprombank. All three companies are run by Putin allies who have become wealthy during his tenure.

...

But some diplomats fear that wide-ranging sanctions against Russia could only be explained by national security concerns. That would be a legitimate argument, but one that has never been invoked in a WTO dispute and could unravel mutual trust.

"Thus, the U.S. actions might cause the unfortunate chain of events that would ultimately undermine the credibility of the multilateral trading system," Ovechko said.

Ovechko's comments at a meeting of the WTO's General Council were supported by Cuba, Nicaragua, Venezuela, Argentina, Bolivia, Zimbabwe and Ecuador.

In many instances when controversial issues come up, I really want the dispute to be litigated, just to see how it all plays out.  But not this one.  Testing the limits of the national security exception would not be good for the system, in my view.

Larry Summers on TPP

From an interview in the New Republic:

DV: Another thing you talked about in the FT op-ed was the Trans Pacific Partnership, the trade deal. One component of the deal is to bring down tariffs between all countries involved, but tariffs are already very low between these countries, particularly with the United States. The other pieces of the deal are things like stronger protection for intellectual property. How do you balance the importance of lowering economic barriers versus coordinating things like intellectual property laws?

LS: You’ll have to talk to others about the detailed provisions of the TPP. Obviously, any ultimate judgment on the TPP has to rest on the particular agreement that is negotiated. I’d make these points. First, relatively unrecognized in debates over trade policy is what you acknowledged in your question. The United States already has very low tariff barriers, much lower tariff barriers than its trading partners. So our increased U.S. exports from any trade agreement is likely to exceed an increase in U.S. imports.

Second, it is true as you recognized that the trade agenda is an agenda that is moving beyond the traditional areas of tariffs and quotas to cover all kinds of business practices and rules regarding business practices. That needs to be approached with great care. There is certainly a tendency for all business advocates of more favorable rules to put their agendas under the auspices of free trade. Probably the greatest trade policy mistake that the United States has made in the past 20 years was what is now universally seen as the excessive emphasis on intellectual property rights that resulted in pharmaceutical companies being permitted to charge what now are seen as outrageous prices for Aids medicine in some of the poorest countries in the world.

I think we have to be very careful in the intellectual property area. I think we have to be very careful not to undermine the capacity to regulate health and safety. I’ve been peripherally involved in discussions over tobacco and believe it’s very important that the TPP not act in a way that makes it more difficult to regulate to protect consumers against the dangers of cigarettes.

As a general principle though, the idea of national treatment seems to be a powerful one—that countries should be permitted to make whatever judgment they want up to and including banning cigarettes or banning any particular commercial practice. But it is problematic when they make rules that treat domestic and foreign firms in substantially different ways. The agenda for trade negotiations should not be agenda of what type of economic or health and safety or environmental regulations are appropriate, but instead should be an agenda of non-discrimination that seeks to enable whatever rules countries desire, but asks only that they applied in fair-minded ways with respect to domestic and foreign firms.

DV: There are situations then where the Trans Pacific Partnership would include certain provisions that would make you oppose the deal?

LS: You can never reach a definite judgment on any contract or agreement until you have read the fine print so of course it is possible. At the same time, I think reaching an overall agreement has a variety of compelling benefits, not just economically but also broadly geopolitically in terms of the American presence in Asia. It would not be the case that just because I saw, in an ultimate agreement, some imperfection or some provision that would not be the one that I would prefer, that that would not necessarily become a reason for opposing the overall agreement. As always in life, one has to balance.

I agree with pretty much all of what he says, especially the focus on national treatment.

I had some further thoughts on the TPP here.  This is an excerpt from the IP-skepticism section:

Intellectual-property protection is an important policy area and its scope needs to be examined in a robust, public debate. The earliest time periods for copyright—twenty-eight years total or fifty-six years total, taking into account renewal—seem reasonable. Even life of the author may be appropriate. But the continued extensions are pushing the bounds of rationality.

Religious Freedom and the TTIP

From a draft letter ($) being circulated by a U.S. Congressman:

Dear Secretary Kerry and Ambassador Froman,

We are writing to express our serious concern regarding the growing assault on religious freedom in the European Union and many of its member states.

Eight out of twenty-eight EU member states prohibit homeschooling. This prohibition infringes upon the traditional interests of parents regarding the religious upbringing of their children. Recently a Christian family from Germany had to seek asylum in the United States to avoid persecution for homeschooling their children.

Other EU member states are engaging in other assaults on religious freedom as well. France has banned the wearing of religious clothing in public schools, Sweden and Denmark have banned religious methods of meat production, and bills have been introduced in several other EU member states proposing to ban circumcision and religious methods of meat production.

Protecting religious liberty throughout the world is fundamental to US interests. The EU is currently seeking a trade agreement with the US known as the Transatlantic Trade and Investment Partnership (TTIP). If the EU wants to proceed further in pursuing a trade agreement with the US, they must address these serious issues. In light of the EU’s coercive attempts to impose European social trends onto less powerful states, this action is all the more necessary.

Menthol Cigarette Discrimination in the EU

Poland is going to to challenge the EU ban on menthol cigarettes under EU law: 

Poland will appeal to Europe's top court over a European Union ban on flavoured tobacco products, saying it will be unfairly affected as one of the region's biggest consumers and producers of menthol cigarettes.

The ban is a part of EU-wide anti-smoking legislation, due to be implemented in 2016, which also includes tougher rules on packaging and marketing.

Polish Deputy Prime Minister and Minister of the Economy Janusz Piechocinski has said that menthol-flavoured cigarettes should be considered a traditional product - not unlike the Swedish "snus", powdered tobacco placed under the lip - and therefore exempt from the directive.

According to the World Lung Foundation, Poland remains one of the EU's heavy-smoking nations, with annual consumption of 1,586 cigarettes per capita - twice as large as Britain's.

But while the country's tobacco consumption rates are by no means extraordinary, its affection for menthol certainly is: nearly one in every five cigarettes sold here is menthol-flavoured, compared to one in ten in Sweden and below one in a hundred in Spain, Austria or Slovakia.

"Menthol cigarettes were introduced to Poland in 1953 and Polish smokers have developed a unique taste for them," said Magdalena Wlodarczyk, representing British American Tobacco, Imperial Tobacco, Philip Morris and Japan Tobacco International, which together have 99% of the Polish market.

"There is no reason why they should get hit so hard over this."

As well as being a consumer, the country is also the second-largest producer of tobacco in the EU, with Polish tobacco farms employing over 60,000 people.

If any of you EU law experts out there are able to elaborate on the specific legal arguments Poland will be making, I'd love to hear about it.

State Owned Enterprises at Home and Abroad

One aspect of the TPP negotiations that I have not followed closely is rules for state owned enterprises.  I'll take a look at it all eventually, but I've been waiting for more leaks and commentary, to explain the different views.

In the meantime, though, I wonder if such rules could apply a little differently than people expect.  Viet Nam is probably the main target of these rules in the TPP, with China also on everyone's mind.  But will these rules also apply here in the U.S.?  Here's one example of how they might:

Kentucky town opens retail filling station, is criticized as promoting socialism

City hall ventured into the retail gas business Saturday, opening a municipal-run filling station that supporters call a benefit for motorists and critics denounce as a taxpayer-supported swipe at the free market.

The Somerset Fuel Center opened to the public selling regular unleaded gas for $3.36 a gallon, a bit lower than some nearby competitors. In the first three hours, about 75 customers fueled up at the no-frills station, where there are no snacks, no repairs and only regular unleaded gas.

The mayor says the station was created in response to years of grumbling by townspeople about stubbornly high gas prices in Somerset, a city of about 11,000 near Lake Cumberland, a popular fishing and boating haven.

...

The venture unnerved local filling station and convenience store operators suddenly competing with the city in this Republican stronghold. Critics said the government has no business injecting itself into the private sector, and one store owner branded it as socialism.

Mayor Eddie Girdler, however, is standing firm behind the idea of the city-run station. The canopied station on the outskirts of this southern Kentucky town was converted from use by government vehicles into one that can also cater to anyone looking to fill up with regular unleaded.

As trade negotiators consider rules on SOEs, they should think about situations like this one.

I also wonder if there is a possible investment claim here.  If you are a foreign investor in the gas station market, and suddenly the government starts competing with you (possibly on non-commercial terms), is that "fair and equitable" treatment?

Too Close Yet Too Far…

Well, I am not talking about two lovers, but the currently pending negotiation on the “Transatlantic Trade and Investment Partnership (TTIP).”  The United States and the European Union, representing the world’s most advanced (and perhaps most open) economies, still cannot get a trade deal done between themselves.  As we may recall, their initial ambition was to dismantle some of the hardest nuts to crack, i.e. non-tariff barriers (NTBs) between them.  The problem is that one party’s legitimate regulation is a horrible trade barrier to the other party.  One media outlet reported today that these difficulties would stall the negotiation.

 For example, many European policymakers and consumers fear the invasion of the so-called “Frankenfood” (foods containing genetically modified organisms), hormone-treated beef and chlorine-drenched chicken.  They believe that the EU should ban those products for the health and safety reasons.  In stark contrast, one of the leading trade experts in the Unites States (Gary Hufbauer) was quoted to have said that “if our chickens are going to be excluded from their market because of this false prejudice, that's a big issue.”  Of course, there are other hot-button issues between two parties, such as the investor-state dispute settlement mechanism.

 Those controversial regulatory issues, which are often lumped together under the simplistic label of NTBs, may go beyond the “reciprocal bargain” dimension of typical trade talks.  (If you are ever interested in this new dimension, check this out.)  How could we bargain at all when we share so little?  Are those issues subject to a give-and-take?  What would you give and what would you receive in return?  Perhaps both the U.S. and EU regulatory bodies should try harder to understand each other before they venture to strike a deal.  Of course, as they say, it is easier said than done.

 

The Scope of the Prudential Exception

We talked about the "prudential exception" here, here, and here.  I have a short law journal article coming out on this soon, where I basically argue that the exception is badly worded, nevertheless probably works as an exception, but could and should be redrafted in future trade agreements (such as the TTIP).

In the meantime, though, the GATS prudential exception has been invoked in the Argentina - Financial Services (DS453) dispute, and thus we may have a panel/Appellate Body intepretation eventually (thanks to Tim Keeler of Mayer Brown for the tip).

As far as I know, the submissions of Argentina and Panama (the complainant) are not online, but the U.S. and EU third party submissions are.  Here's what they had to say:

U.S.

22. The last sentence of the prudential exception is designed to prevent abuse and requires only that any such measure is taken for prudential reasons. By its terms, and unlike other provisions in GATS and GATT, the exception establishes no other standard or qualification on a Member’s ability to take measures for prudential reasons, such as requiring a “rational” relationship between the measure and the prudential reason, or a showing that the measure is “reasonable” or “necessary” to achieve a purpose.

EU

130. While not taking position on the facts of this case, the European Union considers that an assessment of a measure under the prudential exception in Paragraph 2(a) of the Annex on Financial Services involves a two-step analysis.

131. First, the party that invokes the provision has to demonstrate, in accordance with the general principle of actori incumbit probatio, that the measure adopted is taken for prudential reasons. Paragraph 2(a) provides an indicative list of such prudential reasons (protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier) and includes the objective of ensuring the integrity and stability of the financial system. Yet, given that this list is not exhaustive (as is evidenced by the word "including" in the first sentence of Paragraph 2(a)), there can also be other prudential reasons in addition to the ones explicitly mentioned in Paragraph 2(a).

132. Unlike many of the paragraphs in Article XX of the GATT 1994 and XIV of the GATS, which specify that the measure must be "necessary" for achieving the legitimate objective, Paragraph 2(a) does not require that the measure should be the least trade restrictive means to achieve the stated objective. The use of the word "for" in the phrase "measures for prudential reasons" signifies a means-ends relation between the measure and the prudential objective. Hence, the Member taking the measure at issue must demonstrate a rational relationship of ends and means between the objective and the measure at issue.

133. Second, the second sentence of Paragraph 2(a) specifies that where the measures at issue "do not conform with" the GATS, "they shall not be used as a means of avoiding the Member's commitments or obligations under the [GATS]". Hence, even if a measure violating the GATS pursues a prudential objective, it must be determined whether, through the use of this measure, the Member is trying to avoid its commitments and obligations under the GATS.

...

136. The rationale of the second sentence of Paragraph 2(a) is also comparable to that of the chapeau of the general exception clauses in Article XX of the GATT 1994 and Article XIV of the GATS. With regard to the function of the chapeau, the Appellate Body has stated that "the chapeau serves to ensure that Members' rights to avail themselves of exceptions are exercised reasonably, so as not to frustrate the rights accorded to other Members by the substantive rules of the GATS". The Appellate Body has also noted that the chapeau is in fact:

…but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states. One application of this general principle, the application widely known as the doctrine of abus de droit, prohibits the abusive exercise of a state's rights.

137. The chapeau thus prevents the abuse or misuse of a Member's right to invoke the exceptions in Article XX of the GATT 1994 or Article XIV of the GATS. The WTO Member invoking an exception bears the burden of demonstrating that the use of the exceptions does not constitute such abuse.

138. The European Union again recalls that the Appellate Body found that the conditions in the chapeau address the manner in which a measure is applied. The manner in which a measure is applied can, according to the Appellate Body, "most often be discerned from the design, architecture, and revealing structure of a measure".

139. Hence, under the general exceptions under the GATT 1994 or the GATS, even if a Member is able to demonstrate that a measure that was found to be discriminatory pursues a legitimate objective, it must still be assessed whether, in the application of the measure (as may be discerned from its design, architecture and revealing structure), the Member is not abusing its rights under the exception to avoid its obligations.

140. Similarly, under the second sentence of Paragraph 2(a) of the GATS Annex on Financial Services, it must be assessed whether the measure at issue, as it is applied in practice (e.g. through the exceptions that are provided to it), is genuinely pursuing the prudential objective or is rather used to avoid Argentina's obligations and commitments. In this regard, the European Union notes that the discretion that Argentina appears to maintain in designating a country as "cooperating" or not is of particular relevance to the Panel's analysis.

Investor-State Arbitration Tribunal v. Domestic Court

This is related to Simon’s earlier post.

 Matthew Dalton from Wall Street Journal raised an interesting hypothesis regarding the controversial investor-state dispute settlement mechanism under the Transatlantic Trade and Investment Partnership (TTIP).  What if decisions of an investment tribunal and a domestic court on the same subject-matter diverge or conflict from each other?

 “For example, suppose the German government orders a European chemical company and a U.S. company to pay for the clean-up of toxic waste at a factory site they jointly own — but orders the U.S. company to pay the majority of the costs. The U.S. company says the costs should be evenly divided and appeals to an ISDS tribunal, which sides with the U.S. company. Then a German court upholds the German government’s decision.”

 On the face of it, this hypothesis appears to concern a national treatment issue.  I know it lacks a number of pieces of information necessary to reach any informed conclusion.  But for the purpose of a thought experiment, let us still hazard a guess here.  Here goes a multiple choice.

1. The investment tribunal decision should always (both domestically and internationally) prevail.

2. The German court decision should always (both domestically and internationally) prevail.

3. The investment court decision should prevail internationally and the German court decision should prevail in Germany.

4. None of the above

What do you think?

 

Is There a Middle Ground on ISDS?

From the European Commission: 

EU trade officials will today start analysing responses to a public consultation on investment protection and ISDS in TTIP, a new EU-US trade deal currently being negotiated. The survey closed yesterday, almost four months after its launch in March.

European citizens and interest groups replied in large numbers. The Commission will soon confirm:

• the precise number of responses received
• their origin by EU country
• the types of respondent who submitted them.

We will also look at the responses carefully over the next few months, before publishing a report on the results towards the end of 2014 and drawing up policy recommendations based on them.

Is there a middle ground here for ISDS?  Some (many NGOs) want to want to get rid of ISDS completely; some (European industry) want the strongest possible protections; and the U.S. wants the U.S. model.  Is there a sweet spot right in the middle that will be acceptable to everyone?

And speaking of ISDS, this is from incoming European Commission President Jean-Claude Juncker:

Nor will I accept that the jurisdiction of courts in the EU Member States is limited by special regimes for investor disputes. The rule of law and the principle of equality before the law must also apply in this context.

This has the feel of ISDS skepticism, but what exactly does it mean?  He won't accept that "the jurisdiction of [EU and member state] courts" is limited.  But does that mean he thinks that EU and member state courts are the exclusive route for judicial challenges to EU and member state laws and regulations?  Or does it mean that EU and member state laws and regulations can be challenged in ISDS, in parallel with the EU and member state court challenges, which maintain their "jurisdiction"?  It sounds critical of ISDS, but perhaps he is leaving himself leeway to accept it in some form.

Non-Discrimination on German Roads

I'm always on the lookout for good controversies on discrimination outside the WTO context, just to see how others do it.  From the Economist, here's a potential case:

BAVARIANS have long been cranky about having to pay road tolls every time they drive through Austria, say, whereas foreigners pay nothing to drive on German roads. Last year the Christian Social Union (CSU), a party that exists only in Bavaria but is the partner of Angela Merkel’s Christian Democratic Union (CDU), campaigned on “plugging this justice gap.” Mrs Merkel found the proposal silly, and against European Union rules. But the CSU made it a condition of joining a coalition government.

On July 7th Alexander Dobrindt, the transport minister and a rising talent in the CSU, unveiled a plan to square a tricky circle. The new law must charge foreign drivers on German roads; but, second, impose no extra costs on German drivers; and, third, comply with EU law, which forbids discrimination against other EU citizens.

Mr Dobrindt proposes to charge everybody, foreign or German, for driving on any German road from January 2016. Drivers will have three options: a ten-day pass for €10 ($13.60), a two-month one for €20, or an annual one. The third of these, which all German drivers need by default but foreigners may also buy through the internet, would cost €88 on average, but vary with the size and emissions of the car.

To ensure that Germans will not pay any more overall, Mr Dobrindt simultaneously wants to reform Germany’s vehicle tax. Drivers of cars registered in Germany would be given a new tax exemption worth the exact amount of their new annual road-user charge. 

The Netherlands (which has no tolls) and Austria threaten to take Germany to court if the law passes. Siim Kallas, the EU’s transport commissioner, has so far given “no green or red light.” German opposition parties ridicule the idea as bureaucratic overkill. Even members of the ruling coalition are rolling their eyes. But as so often before, the Bavarians must be accommodated to keep the peace.

If I understand what's going on here, it seems to me that the old system discriminated against German drivers, in favor of foreign drivers, because only Germans had to pay for the roads.  Under the new system, the government has tried to make the fees equal for Germans and foreigners, and as far as I can tell they have come close, although perhaps the limited number of payment options makes the system a bit arbitrary.

On the other hand, is there a difference between the situation of Austria and the Netherlands?  In the Netherlands, according to the article, the roads are entirely paid for by Dutch citizens, who would now be forced to pay their own way in Germany, while giving Germans free access to their roads.  By contrast, with Austria, foreigners contribute to the local roads, so perhaps it's OK to charge Austrians on German roads.

Five Volumes on the WTO

Edited by Debra Steger, former Director of the Appellate Body Secretariat and now a law professor:

With a membership of 160 countries, the World Trade Organization (WTO) is the international organization with responsibility for the global rules of trade between nations. Its stated principal function is to ensure that trade flows as smoothly, predictably, and freely as possible. Established almost twenty years ago, the agreements negotiated under its auspices and, indeed, its very existence have been the source of tremendous controversy and debate.

Edited by a leading scholar in the field, and former Director of the Appellate Body Secretariat of the WTO, this new Routledge collection brings together in five volumes the very best scholarship on the WTO from economists, academics, lawyers, and other thinkers to examine its history (including its origins in the General Agreement on Tariffs and Trade). The set also makes available cutting-edge research about the fundamental principles on which the organization is based and explores the implications of the WTO’s policy and practice for domestic regulation and the sovereignty of individual states. The final two volumes examine the role of the WTO in dispute settlement and discuss the challenges for the future, including relating to the role of developing countries, preferential trade agreements as well as the legitimacy and governance of the organization.

With an introduction, newly written by the editor, providing her own unique perspective, World Trade Organization is an essential collection destined to be valued by scholars, students, government officials, and practitioners as a vital research resource.

More details here: http://www.routledge.com/books/details/9780415364225/

Can Patent Invalidation Constitute Expropriation?

That's one of the issues in an ongoing NAFTA Chapter 11 case.  Pharmaceutical maker Eli Lilly is making an Article 1110 expropration claim related to the invalidation of certain of its patents in Canadian courts (it also makes an Article 1105 minimum standard of treatment claim).  More background on the case here and here.

With regard to the expropriation issue, here's an excerpt from Canada's Statement of Defence on the expropriation issue:

106. Article 1110 does not apply to the procedurally fair invalidation of a patent by a domestic court. Patent grants are invalidated each year by courts in all major jurisdictions. That this does not amount to either a direct or indirect expropriation flows both from general international law and, in this case, from the application of NAFTA Article 1110(7).

a) The procedurally fair invalidation of a patent by a court cannot amount to an expropriation

107. In all but rare circumstances, a determination by a domestic court concerning the existence of a property right, including an intellectual property right, cannot amount to an “expropriation” at international law.

108. Where a court of competent jurisdiction, applying full due process and reaching a decision pursuant to its mandate, determines that a presumed property right is legally invalid (i.e. that it does not exist), this does not amount to a “taking”, but rather, constitutes juridical determination of the existence and scope of rights at law.

109. This rule applies in all but extraordinary circumstances, where the powers of the court have been abusively applied (abus de droit) or in cases of gross procedural injustice amounting to denial of justice, i.e. only where the court is in effect not acting in a true judicial capacity.

110. The rule was considered and applied in the very first NAFTA Chapter Eleven decision, where the tribunal considered a claim that a domestic contract had been “expropriated”, after a domestic court found that contract invalid. The tribunal held as follows:

The possibility of holding a State internationally liable for judicial decisions does not, however, entitle a claimant to seek international review of the national court decisions as though the international jurisdiction seised (sic) has plenary appellate jurisdiction. This is not true generally, and it is not true for NAFTA. What must be shown is that the court decision itself constitutes a violation of the treaty. Even if the Claimants were to convince this Arbitral Tribunal that the Mexican courts were wrong with respect to the invalidity of the Concession Contract, this would not per se be conclusive as to a violation of NAFTA. More is required; the Claimants must show either a denial of justice, or a pretence of form to achieve an internationally unlawful end. […] For if there is no complaint against a determination by a competent court that a contract governed by Mexican law was invalid under Mexican law, there is by definition no contract to be expropriated.

[…]

A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way. There is no evidence, or even argument, that any such defects can be ascribed to the Mexican proceedings in this case.

There is a fourth type of denial of justice, namely the clear and malicious misapplication of the law. This type of wrong doubtless overlaps with the notion of “pretence of form” to mask a violation of international law. In the present case, not only has no such wrong-doing been pleaded, but the Arbitral Tribunal wishes to record that it views the evidence as sufficient to dispel any shadow over the bona fides of the Mexican judgments. Their findings cannot possibly be said to have been arbitrary, let alone malicious.

111. The same reasoning applies here. A patent is a domestic statutory creation, granting a national limited-term monopoly subject to the fulfilment of certain conditions. However, the right is granted in Canada on the basis that the initial administrative grant is only presumptive and may ultimately be revoked further to court review. As patents are a statutory creation in Canada, the grounds both for the initial grant and for ultimate invalidation of that grant are identical: the patent application must, upon initial administrative and ultimate judicial review, fulfil all of the statutory conditions for the grant of a patent. In Canada, statutory responsibility to conduct judicial review lies primarily with the Federal Court. Where that court determines, in the exercise of its statutory mandate, applying full due process, that the patent in question fails to fulfil such criteria, the property right in effect never existed. In the circumstances, Article 1110 is not even engaged vis-à-vis the invalidation of a patent by a court decision. 

112. In the present case, Claimant has not even alleged abusive application of the reviewing power of the court, nor any gross procedural misconduct. Nor could such allegations be articulated in good faith. The Federal Court in the two decisions at issue invalidated Claimant’s patents further to careful review of an enormous factual and expert record, in light of the policy considerations underlying the Patent Act, and further to careful review of the relevant statutory provisions and related jurisprudence. Its decisions were principled and rational. For purposes of expropriation, the analysis effectively stops there: as investment tribunals repeatedly have held, they do not sit as courts of appeal of domestic legal determinations, either on their appreciation of the facts or on their application of the law. Just as this is true in the Article 1105 context, it is equally true in the Article 1110 context.

What I wonder is, have domestic courts ever dealt with claims that patent invalidation results in regulatory expropriation?  It seems like it must have come up somewhere.  If so, can that jurisprudence help inform this NAFTA tribunal's consideration of the issue?

Outsourcing Investment Treaty Interpretation from the WTO Jurisprudence

Our co-blogger Bryan Mercurio published an excellent policy brief at the World Health Organization (WHO) Bulletin. (“International investment agreements and public health: neutralizing a threat through treaty drafting”)

 This is his conclusion:

“International investment agreements need not pose a threat to legitimate health measures. The addition of limitation clauses such as those being negotiated into the most recent IIAs provide an additional hurdle for the claimant and more comfort for countries taking measures to protect and promote public health. With appropriate drafting, provisions can be negotiated into future IIAs to effectively neutralize the threat to public health.”

 He also views that:

“[A]rbitration tribunals can draw upon the rich jurisprudence of the WTO in interpreting the equivalent exception clauses in its agreements. The bar can be high, but at least this clause is recognition that life and health can trump substantive IIA obligations.”

 However, what if investment arbitrators (most of whom are commercial arbitrators) ever misinterpret or misapply the WTO case law?  In this regard, Bryan makes this observation:

“[A]rbitration tribunals that may or may not have expertise in WTO law and jurisprudence will now be called upon to interpret whether a host state’s measure is consistent with TRIPS.”

 So, would investment arbitrators be now motivated to learn the relevant WTO case law related to the National Treatment principle as well as the General Exception clause, among others? 

What about FET and Indirect Expropriation?

Last week, Andrew posted about the possibility of an exception to investment obligations, as part of the TTIP.  I'm interested to see where exceptions of this sort can take us in terms of preserving policy space, but I think we should also consider the obligations themselves as part of this debate.  Too often, it seems to me, the scope of these obligations is overlooked.  In this regard, here's former USTR Charlene Barshefsky and China's former chief WTO negotiator Long Yongtu, writing in the WSJ in support of a US-China BIT:

A bilateral investment treaty would unleash far more investment in both directions. It would ensure that the U.S. and China provide each other's investors with the ability to buy, sell and maintain ownership and control of investments without discrimination on the basis of national origin. It would also establish clear investment criteria by, for example, narrowing national security reviews to those sectors of essential security relevance. A treaty would limit barriers to investment related to intellectual property, technology transfer, technical standards and the treatment of state-owned enterprises. And it would establish credible legal mechanisms for resolving disputes.

The problem I have is that supporters of BITs often play up the non-discrimination obligation, and ignore broader obligations such as "fair and equitable treatment" and "indirect expropriation."  (Another example is here.)  I understand that it's difficult to get these concepts across in an op-ed.  But it's not impossible, and this really is the main stumbling block for international investment law.  If the rules were all just about non-discrimination, there wouldn't be many objections, in my view.

The broad scope of investment law went unnoticed for a long time, but now it's having a real impact and people are reacting, often negatively.  As a result, I'm not sure we can go much further with new agreements until there is a debate about the implications of existing rules.  Maybe exceptions are a way to provide a check, or maybe the obligations themselves should be reconsidered.  But somehow, the effect of the system on domestic policy-making has to be taken up in the public debate.  They are trying in the EU, but I'm not sure to what extent the key points are getting across.

If someone can figure out a way to get these ideas into a published op-ed I would be very grateful, because all of my submissions on these issues get rejected!

The Realm of Transparency under GATT Article X:2

GATT Article X:2 provides that:

 2. No measure of general application taken by any contracting party effecting an advance in a rate of duty or other charge on imports under an established and uniform practice, or imposing a new or more burdensome requirement, restriction or prohibition on imports, or on the transfer of payments therefor, shall be enforced before such measure has been officially published.

 This Article represents the general principle of administrative law, i.e., transparency or due process.  Here, an important interpretive issue is whether there was a “new” measure.  Obviously, a government need not re-publish an old, pre-existing measure for the purpose of this Article.  However, determining whether there was truly a new measure and thus whether the measure falls under the Article might not be an easy question in a real dispute, in particular when the life-cycle of that measure has been turbulent.  If a domestic policy or regulation has changed from its previous position within the context of its domestic governance (agency-court-legislature), should this be considered a “new” measure under Article X:2 and therefore should be officially published before being enforced?  Or, could the agency argue that this technically new measure is nonetheless a mere clarification of the old practice, albeit unsettled (non-final), within its broad discretion?

 In a new decision released today (United States – Countervailing and Anti-Dumping Measures on Certain Products from China (DS449)), the Appellate Body did not render a definite answer to this puzzle.  Here goes some background of the dispute.  Originally, the U.S. Department of Commerce (DOC) had not imposed countervailing duties on products from non-market economies (NMEs).  The over-simplified version of the rationale behind this position is that if there is no market, there is no subsidy (to be more precise, one cannot calculate market effects of such subsidy), or that the government in an NME subsidies every aspect of the economy any way in the absence of a market.  In 1986, the U.S. Court of Appeals (Georgetown Steel) endorsed the DOC’s position in the shadow of congressional silence.  

 Then, the DOC suddenly changed its position and attempted to impose countervailing duties on Chinese imports starting from 2006.  Its rationale was that there have recently been enough market aspects in China that would justify the calculation of subsidies even though China still remains an NME.  Domestic litigation ensued (GPX I – VI).  In a 2011 court ruling (GPX V), the U.S. Court of Appeals held that “it was not in accordance with United States law for USDOC to apply United States CVD law to imports from NME countries, including China.”  But, the Congress quickly overturned this decision by hastily enacting PL 112-99 in March 2012.  While China viewed this new statute (PL 112-99) as an “amendment,” and thus a new measure (para. 4.137), the United States considered it as a “clarification and confirmation” of an old (albeit unsettled) practice (para. 4.138).

 After a long discussion involving many details, the Appellate Body ruled that:

 4.183. For these reasons, we are unable to complete the analysis and arrive at a conclusion as to whether Section 1 changed the US countervailing duty law and therefore determine whether Section 1 of PL 112-99 effected an "advance" in a rate of duty or imposed a "new or more burdensome" requirement or restriction on imports within the meaning of Article X:2 of the GATT 1994.

 Yet, the Appellate Body sided with China in certain legal issues as it reversed some findings of the panel. (See para. 4.119).  In particular, the Appellate Body faulted the panel in that the latter failed to conduct the “holistic assessment” of the measure in question as it neglected to consider relevant U.S. court decisions. (para. 4.110).  I think this might be one of the most important findings in this Appellate Body decision.  This finding tends to open an indirect way in which a WTO panel is required to reference a relevant domestic court decision.  In a sense, the WTO tribunal is now mandated to engage with a domestic court, even indirectly, under relevant circumstances (discursive engagement).

 Finally, a question.  If the Appellate Body had ruled that the United States indeed violated Article X:2, what would have been a remedy?  Would the United States have been required to repeal the statute (PL 112-99)?

 

Launching the WTO Plurilateral Green Goods Negotiations Next Week

Early next week, plurilateral negotiations on liberalization of trade in green goods will be launched at the WTO.  The negotiations are based on an agreement between a sub-set of WTO Members that was announced at Davos, and represent a new beginning for the treatment of environmental goods and services at the WTO, after the many impasses in the multilateral talks based on the Doha Declaration.  The Obama Administration deserves real credit; Obama made the achievement of a deal on green goods liberalization an element of his overall environmental policy.  As I discuss in this oped, the core idea was to begin with the APEC list of environmental goods and build from that to a more ambitious outcome. bit.ly/1d0Czd5   There are some difficult issues lurking.   First of all, addressing non-tariff barriers such as standards is probably as important if not more so, as removing tariffs, and yet it is not clear how these matters will be brought in-so far green goods trade liberalization has been conceptualized largely in terms of tariff reductions.  Second, to make significant gains, given the way global value chains in these goods work, it would be highly desirable to include components of goods that ultimately have as finished products desirable green properties as among the products trade in which is liberalized.  But this raises the whole "dual use" issue-one that has probably been greatly exaggerated.  As long as the alternative use is not environmentally negative, why should one care so much if there is some surplus liberalization, as it were?  On the other hand one could imagine versions of duty-drawback as an alternative to deal with dual use, enabled by today's information technology.  Indeed, enabling a deal on green goods that entails tracking the use that an imported product is put to could be added to the trade facilitation agenda at the WTO.  Another question is the inclusion of services and the relationship between the plurliateral green goods negotiations and the plurilateral services negotiations, also happening now in the WTO. 

Supporters of the green goods plurliateral negotiations rightly point out that the participants represent 86% of world trade in the list of products that represents the starting point for the talks; thus, this is a deal can be MFN-friendly, given the small size of the free rider problem.  It is particularly encouraging that China is participating.  

A very important challenge has been raised by trade analyst Aaron Cosbey, who questions whether the selection of goods really will reflect the life-cycle environmental impacts of the goods, rather than commercial or mercantilist considerations. bit.ly/1qxVbeV  To gain legitimacy, the negotiations will need to address Aaron's challenge.  Yet I am hopeful that the negotiations will create a positive dynamic and that the attitude will shift from a mercantilist one to that of a global environmental negotiation in a trade context.There is a real opportunity for civil society to affect this dynamic; the first step is to push for transparency, which so far has been sorely lacking (indeed the timing of the launch of negotiations has not been widely known). 

It is important symbolically that these negotiations are taking place at the WTO, showing that it can move beyond yesterday's agenda to tackle, at least to some modest extent, the issues of today and tomorrow; and perhaps more than symbolically, because this seems to be the one issue where the US Administration has seen a WTO forum as meaningful to any of its key policy priorities.

For those based in Geneva, ICTSD is doing a major conference this coming week on the occasion of the launch of the negotiations.  bit.ly/1qI8tqG.  I'm sorry to miss it (but for good cause; as the international group designing a sovereign debt restructuring mechanism-of which I'm part-is meeting in New York.  Urgent business after the SCOTUS Argentina rulings.)

 

 

 

 

Soaring Prices and Access to Vaccines: A New Mission for WTO TRIPS flexibilities?

A must-read article that appeared in the New York Times a couple of days ago nyti.ms/1t8ugtz details the soaring cost of vaccines and the potentially disastrous public health consequences (some of which are already being felt).   This seems an ideal case for compulsory licensing.  I would note that under Article 31 (b) of TRIPs the normal condition of compulsory licensing, that "the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time" may be waived in the case of "public non-commercial use".  Vaccination programs of public health authorities would clearly count as "public non-commercial use."

The NYT article is US-focused but one can imagine the global consequences are even more severe. The article does allude to some initiatives whereby pharamaceutical companies sell vaccines to least-developed-countries at low prices (the GAVI public private/partnership is one of those the article may be referring to).  But the public health implications for countries not eligible for such initiatives are huge.  Unfortunately, since they also do some real good, Initiatives such as GAVI tend to obscure one basic root of the problem, which is the incentives and rents confered by patent protection.

Concerted resort to compulsory licensing, or threat thereof, by large countries-BRICs and perhaps others as well -is likely to bring down the price of vaccines considerably (perhaps more than bargains between individual countries and big pharma, though that's just an intuition based on some game-theoretical instincts, and information asymmetries; at a minimum governments should be discouraged from entering into confidentiality undertakings with respect to the deals they receive, and it would be great to have an information exchange about such deals).  Concerted action is also likely to be more effective in countering political pressures originating with the pharma lobbies.  Of course, as is well-presented in this 2009 WHO/UNICEF study bit.ly/1ol7F6o, there are factors that affect the costs of vaccines that are not attributable to the monopoly rents big pharma earns due to patent protection.   Nevertheless the NYT article notes the extraordinary profitability of vaccines to big pharma relative to other drugs.  The Times observes with respect to just one vaccine, "Pfizer, the sole manufacturer ahd revenues of nearly $4 billion from its Prevnar vaccinelast year, about double what it made from high-profile drugs like Lipitor and Viagra, which now face generic competitors." So clearly the monopoly rents from patent protection are a significant contributor to the problem.

I offer these observations not as an expert on the issue of vaccines and communicable diseases-I'm not by any means that,obviously-but because it seems to me that the TRIPs flexibilities offer one avenue to help address the challenge, and we ought to be starting a discussion about how to bring that in.  Mainly, I'd just like to encourage everyone to read the Times piece and think about how international economic law can be part of the solution not the problem.

 

             

TTIP and Article XX

Simon has noted on the blog before the increasing interest in including an Article XX-type exception in investment agreements, as a way of helping to resolve some of the regulatory issues raised by, eg, the FET and expropriation obligations. Indeed, many of you will have seen that Article XX is incorporated by reference in the draft text of the Canada-EU Trade Agreement (CETA), and is proposed to be incorporated into the TTIP in some form: http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf

 

The proposed text reads (in part – there is more to it): "For the purposes of Chapters X through Y and Chapter Z (National Treatment and Market Access for Goods, Rules of Origin, Origin Procedures, Customs and Trade Facilitation), Section 2 (Establishment of Investments) and Section 3 (Non-discrimination of Investment), GATT 1994 Article XX is incorporated into and made part of this Agreement." 

There is a similar text in relation to GATS XIV (a), (b), and (c). Overall, this seems to me to be a step in the right direction as regards investment obligations. But I have some concerns about the precise way in which Article XX is being incorporated – and more generally about the decision to incorporate Article XX by reference rather than introducing an improved version of it, given the chance to do so. On a first reading of this clause, and knowing what we know about the how the clause has been interpreted in the WTO context, there seem to me to be at least the following issues to be thought about:

(1) One of the most common criticisms of Article XX is that it contains a closed list of exceptions. Although it is not easy to think of a regulatory objectives which is unequivocally not covered by this list, the possibility remains open. The solution adopted in TBT Art 2.2 was simply to reference ‘legitimate objectives’, and to provide a non-exhaustive list of such objectives. Why not adopt the same approach here? (An alternative would be to include consumer protection in the list of objectives, as that is the one which is often advanced as an example of what is incompletely included.) The incorporation of only some paragraphs of GATS XIV also is unexplained in the consultation document, and is prima facie problematic: the TBT solution would solve this as well.  As my colleague Jan Kleinheisterkamp reminds me, this would in fact bring the situation into closer alignment with EU law in any case.

(2) The paragraph above simply incorporates Article XX by reference, including the chapeau. But there is wording in the chapeau which just doesn’t translate well to the investment context, or which creates other ambiguities, eg:

(a) ‘disguised restriction on international trade’: how is this to be read in the investment context? Why would we incorporate it? The reference to international trade is confusing

(b) ‘discrimination between countries where the same conditions prevail’: again, how is this to be read? Is discrimination between investors from different countries the same as discrimination between countries? And why do the conditions in the home countries matter for the purposes of discrimination in the investment context?

(c) ‘Nothing in this Agreement’: there is an obvious ambiguity in this, though easily solved through interpretation. But the more subtle issue is to make sure that the same issue does not arise in the TTIP context as has arisen in the WTO context: namely ambiguity about the applicability of this exception to obligations found in documents/declarations/agreements which are part of a broader set of TTIP outcomes, but not the TTIP itself. Eg, if third countries later accede to the TTIP (as some have suggested), would this exception cover additional obligations contained in their protocols of accession? Many of us will know this as a live and ongoing issue in the WTO context, and there seems to be an opportunity right now to clarify the issue with respect to TTIP, rather than making the same mistake (?) again

(d) ‘nothing in this agreement shall prevent the adoption or enforcement of measures …’: a crucial issue is whether a monetary award, given by an investment tribunal, does in fact prevent the adoption of enforcement of regulatory measures. This is not at all clear, and if interpreted narrowly, the exception would have very little practical effect.

(3) As to its scope of application, perhaps I am misreading the consultation document, but it seems strangely narrow in terms of its scope of application. The incorporated Article XX seems only to be an exception to Establishment and Non-discrimination obligations in relation to investment. Does it cover FET and expropriation? If not, this would seem to be a problem.

(4) Another criticism of Article XX which will be familiar to all WTO students is that it has a degree of internal inconsistency. Most obviously, paragraphs (a), (b), (d) use the language of ‘necessary to’, while other paragraphs (eg, (g)), use the language ‘relating to’. It has been clear in the WTO context that this difference in language has proved important, but it has never been entirely clear why one standard would apply to one set of regulatory measures, and a stricter standard apply to others? Why not remove this inconsistency here?

(5) If we are incorporating Article XX, is there a case for incorporating Article XXI (national security) as well? If not, why not?

(6) Two other general issues are worth thinking about – which are less to do with drafting, and more to do with strategy. First, as others have pointed out, no-one should be under the impression that we have any certainty that investment tribunals will interpret the incorporated Article XX in the same way as the WTO AB has interpreted GATT Art XX. There is the possibility – high likelihood, even – of divergent interpretations over time. Second, the drafters should be careful about setting up an adverse inference in the context of interpreting other investment agreements which do not have this exception. What I mean is that arbitrators might interpret investment treaties without such clauses in a way which reduces regulatory space, precisely on the basis that they do not include an exception of this kind, and that this must have been a deliberate decision of the drafters. This could have the unintended effect of reversing some of the jurisprudential developments of the last decade or so, which have relaxed somewhat the interpretation of a number of investment obligations. To guard against this, one possibility may be to include a sentence in the TTIP making clear the belief and intention that the inclusion of this exception in the TTIP simply makes clearer and more explicit the regulatory balance which is implicit in other, older-style investment agreements.