International Economic Law and Policy Blog

What are the Main Criticisms of the Investor-State System?

This is from Judge Stephen Schwebel:

Opponents of investor-state arbitration claim that it faces a “legitimacy crisis.” There are three essential contentions advanced by such critics: (1) tribunals are biased toward multinational enterprises; (2) arbitration is asymmetrical because of investors’ freedom to bring claims against states, while states cannot bring claims against investors; and (3) arbitral awards are often conflicting. These criticisms are more colorful than they are cogent.

People say a lot of things about the investor-state system, and I'm not really sure, empirically speaking, what the top three criticisms of investor-state litigation are.  But I do hear these three a fair amount.  For me, though, they are not particularly strong points.  

Are the tribunals biased towards the corporate complainants?  I'm not even sure what that means.  I doubt most of the tribunal members themselves are biased.  In terms of the outcomes, investors win some cases and lose some cases.  Nothing unexpected there.

Should states be able to bring claims against investors?  I'm not sure what purpose that would serve.  Presumably they can already do so under domestic law.

And are arbitral awards conflicting?  Courts are often unclear and contradictory.  That's true everywhere.

So, while people do say these things, and there may be something to some of these criticisms, I think there are better arguments out there.  Here are three of my favorites:

1. The main problem ISDS was designed to address has largely disappeared. Back in the 1950s, 1960s and 1970s, there was a big problem with expropriation.  That problem has diminished considerably (and now a larger issue is treatment of foreign investors that is too good, in the form of subsidies).  So what exactly is ISDS supposed to address?  Bad behavior by governments of some sort, but nobody seems to be able to define it clearly.  What kinds of government actions?  And in what countries are these bad acts taking place?  Until we have some clearer answers here, based on empirical evidence rather than anecdotes, it's not at all clear to me what the problem is that ISDS is supposedly dealing with.

2. In today's globalized world, "foreign" has lost much of its meaning. If Burger King becomes a Canadian company, can it then bring ISDS cases against the U.S. government in relation to its U.S. operations?  It may depend on the precise structure of the corporate entity that is created, but it's quite possible that the answer is yes.  That would be odd, to say the least.  Similarly, could Fiat bring cases against the U.S. government on behalf of Chrysler if ISDS is included in TTIP?  And could Chrysler bring cases against the EU on behalf of Fiat? Or both? The system hasn't kept up with the rise of global companies.  It seems as though with the right corporate structure you could make yourself "foreign" in all countries where you invest!

3. International law gives rights to rich people, but not poor people.  ISDS should not be looked at in isolation from the rest of international law. It's part of a larger system.  And that system doesn't do much to protect the rights of the poor and oppressed.  Generally speaking, there is very limited effective recourse to international tribunals for these people, and it's hard to believe there will be any time soon.  By contrast, through ISDS, foreign investors -- i.e., rich people and corporations -- have a fairly effective way to assert their rights.  That contrast between the rights of the rich and the poor under international law doesn't look "fair and equitable", in my view.

Trade-Restrictiveness vs. Discrimination

This is from a new paper by Tania Voon:

... Discrimination and trade-restrictiveness are two distinct concepts that, while overlapping, should not be conflated. A non-discriminatory internal measure is unlikely to restrict trade, because it is unlikely to reduce the competitive opportunities of imported products vis à vis
domestic products. A discriminatory internal measure may act as a barrier to trade and therefore be trade-restrictive. However, discrimination is not necessary to establish trade-restrictiveness, because trade-restrictiveness can exist without discrimination, for example in the case of an import ban that operates in conjunction with corresponding restrictions on domestic production or sales.

I haven't read the whole paper (just gave it a quick skim), so maybe Tania addresses this, but my question has always been whether there is a qualitative difference between discriminatory measures, on the one hand, and non-discriminatory measures that restrict trade, on the other.  Thus, when measuring the degree of trade-restrictiveness, you might want to consider discriminatory measures as more of a problem because of the way in which they restrict trade.  A product ban might prohibit trade completely, and thus quantitatively it is worse, but there is something particularly nefarious about discriminatory measures.

Anti-Dumping as Global Governance

This is from a paper by Tomer:

considering anti-dumping as an expression of global governance may seem to promise a breath of fresh air. Might governments actually be pursuing some deeper - or loftier - regulatory agendas that could somehow be understood as a form of benign global administration, albeit in a ‘grey zone’? Does anti-dumping possess redeeming qualities in public policy that have not yet been fully explored and understood? Moreover, have the international financial shocks of the last few years, and/or shifts in the realities of global political economy – primarily the ascendance of the ‘BRICS’ (Brazil, Russia, India, China and South Africa), now followed by the ‘MINT’ (Mexico, Indonesia, Nigeria and Turkey)(O’Neill, 2013) – and/or the rise of important
‘new’ issue areas such as sustainable energy and food security – auspiciously aligned to
provide anti-dumping with new justifications? Is anti-dumping really about responsible
global governance, not the regulation of trade protectionism, after all?

His short answer:

I think not, ...

There's more, obviously, all of which I agree with.

Why the India-US WTO Breakthrough-and the Trade Facilitation Agreement-Really Do Matter

Many of you will have seen Alan Beattie's piece on one of the FT blogs suggesting that what happened last week isn't a victory but disguises a defeat, and that the TFA is really trivial.http://on.ft.com/1BQqAB1  I'm guest blogging this week at Opinio Juris, and so I posted this response to Beattie there. http://bit.ly/11jVGAh

A WTO Claim under the VCLT

This is from the panel request in DS429:

Because the United States has acted in the manner just described, Viet Nam considers the proceedings to be inconsistent, as such and as applied on a continued and ongoing basis, with certain WTO obligations. Viet Nam considers these actions to be inconsistent with the following provisions of the Anti-Dumping Agreement and the Vienna Convention on the Law of Treaties:

...

6. Article 31 of the Vienna Convention on the Law of Treaties because the USDOC's practice does not comport with the overall purpose and intent of the Anti-Dumping Agreement, namely, the fair and effective imposition of anti-dumping duties so as to prevent the sale of goods for less than fair value.

A WTO claim based on the VCLT?? Wow, this could really push the boundaries of the role of international law in WTO law.

Alas, it was not to be.  This is how the issue was dealt with in the panel report (p. A-16):

4 US PRELIMINARY OBJECTION WITH RESPECT TO VIET NAM'S CLAIM UNDER ARTICLE 31 OF THE VIENNA CONVENTION

4.1. Viet Nam's panel request sets forth a claim with respect to the USDOC's limitation of the number of respondents selected for full investigation or review under, inter alia, Article 31 of the Vienna Convention on the Law of Treaties because the USDOC's practice does not comport with the overall purpose and intent of the Anti-Dumping Agreement, namely, the fair and effective imposition of anti-dumping duties so as to prevent the sale of goods for less than fair value.

4.2. The United States requests that the Panel find that this claim does not fall within its terms of reference. The United States argues that the Vienna Convention is not a "covered agreement" as defined in the DSU. Viet Nam indicates that it did not and does not intend to assert a claim under the Vienna Convention.

4.3. In light of this clarification, we do not consider it necessary to rule on this aspect of the United States' request for preliminary rulings.

Calling for “Unilateral Multilateralization” of Trade Preferences

The recent “Asian Economic Integration Monitor” (November 2014) published by the Asian Development Bank (ADB) calls for “unilateral multilateralization” of various trade preferences from preexisting FTAs.  Obviously, this will be a nirvana to most global businesses traversing global value chains, if it ever transpires.  Then, they could avoid enormous transaction costs borne by the spaghetti bowl of multiple, diverse rules of origin.  Although the proposal might sound too idealistic, the ADB report offers quite plausible reasons for it, as follows:

Among TPP members, for instance, two-thirds of their imports—80% if the US is excluded—are already covered or about to be covered by FTAs.  Within RCEP, more than one-third of imports are already covered with another one-third about to be through ongoing negotiations. Therefore, expanding preferences to remaining economies would not encounter much resistance from FTA partners—not just because trade volumes are small, but also because existing preferences have already been significantly eroded.

Here is a question.  Might the WTO have a role to play in this process of “unilateral multilateralization” of trade preferences?  Could the recent APEC-WTO collaboration model, as seen in the liberalization of environmental goods, apply to this proposal?

Tweaking CETA ISDS

The European Commission and the Germans have met on ISDS, and see a way forward for CETA:

Only small changes can be made to an investment protection clause in a trade pact between Canada and the European Union, European Trade Commissioner Cecilia Malmström said on Monday (10 November).

"There can be minor clarifications and adjustments," she told a news conference in Berlin with German Economic Affairs Minister Sigmar Gabriel.

Gabriel added that the investor protection clause in the EU-Canada Comprehensive Economic and Trade Agreement (CETA) could not be changed totally.

“It will not be possible to take the dispute settlement procedure out of CETA. We are acting in a European context and must listen to the views of other countries,” Gabriel said after the meeting with Malmström. He said “improvements” and “changes” are expected to take place in the next few months.

I'm not sure what kind of minor changes they have in mind, but I have a couple suggestions in this regard.  The current version of the CETA general exceptions provision says in relevant part:

Article X.02: General Exceptions

...

2. For the purposes of Chapters X, Y, and Z (Cross-Border Trade in Services, Telecommunications, and Temporary Entry and Stay of Natural Persons for Business Purposes,Investment Section 2 (Establishment of Investments) and Investment Section 3 (Non-Discriminatory Treatment), a Party may adopt or enforce a measure necessary:

• (a) to protect public security or public morals or to maintain public order ( x );
• (b) to protect human, animal or plant life or health;
• (c) to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to:
  • (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts;
  • (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts;
  • (iii) safety;
  • (x) The public security and public order exceptions may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.

What if this exceptions clause were expanded to cover aditional investment provisions?  Right now it covers Section 2 and Section 3, but not Section 4, which deals with issues such as fair and equitable treatment and expropriation.  An exception for non-discrimination (Section 3) may not even be needed, if you give those provisions the right interpretation.  The key is the more expansive provisions of Section 4.  So why not apply these exceptions to Section 4?  If they are "general" exceptions, let's apply them "generally"!

So that's pretty minor, right?  Just add the words "Investment Section 4 (Investment Protection)" in there.  No big deal.  Just a small improvement.

To add one more small improvement, you could change "may adopt or enforce a measure necessary:" to something like "may adopt or enforce measures to fulfil a legitimate objective, including, inter alia, measures:"

I don't know exactly what the Germans have in mind, and what their specific concerns are, but this might help make them feel more comfortable.

(Of course, as I've said before, I'm not convinced these obligations are useful and necessary in the first place, but I'm just trying be constructive here!)

Call for Papers on CETA

From TDM:

Call for papers:
TDM Special Issue on the Comprehensive Economic and Trade Agreement between the
European Union and Canada (CETA)

http://www.transnational-dispute-management.com/news.asp?key=550

Herfried Wöss, Fabien Gélinas, Andrea Bjorklund, and John Gaffney will be editing a TDM Special Issue on the Comprehensive Economic and Trade Agreement between the European Union and Canada (CETA).

CETA is one of the three landmark agreements – the others are the Trans-Pacific Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) – that will shape world trade and investment in the XXI century. Negotiations were launched in 2009 and a political agreement between the EU and Canada was reached on the key elements of CETA on October 18, 2013. The signing of the agreement took place in Ottawa at end of September 2014.

CETA is characterized by the further codification of international standards of investment protection by the Contracting Parties, and the introduction of new topics in international trade in goods and services, such as the efforts to remove regulatory divergence, which has been considered as the most prominent obstacle to trade and which should considerably increase economic growth for the citizens of both parties. This objective is to be achieved through Regulatory Cooperation and the establishment of a Regulatory Co-operation Forum.

CETA contains chapters on:

• Bilateral Co-operation on Biotechnology
• Bilateral Dialogue on Raw Materials Co-operation
• Cross-Border Trade in Services
• Dispute Settlement
• Domestic Regulation
• E-Commerce – Competition – State Enterprises
• Financial Services
• Government Procurement
• Investment
• Mutual Acceptance of the Results of Conformity Assessment
• Mutual Recognition of Professionals and Temporary Entry
• Regulatory Co-operation
• Enhanced Co-operation on Science, Technology, Research & Innovation (STRI)
• Sanitary and Phytosanitary Measures
• Sustainable Development (Trade and Sustainable Development and Trade and Labour)
• Taxation
• Technical Barriers to Trade
• Telecommunications

The four co-editors invite you to contribute to the special edition on CETA with unpublished or previously published articles, conference papers, research papers and case studies dealing with the Agreement and the issues raised by any of its chapters. Of particular interest in the investment chapter are:

• clarifications brought to key substantive provisions such as fair and equitable treatment;  
• the definition of investment, which refers to “income generating assets” in the sense used by economists;
• the fair and equitable standard, including manifest arbitrariness, targeted discrimination on manifestly wrongful grounds and abusive treatment of investors, and its interpretation by the Contracting Parties;
• the definition of acts de jure imperii, and CETA’s detailed language on what constitutes indirect expropriation.

Also of interest are CETA reaffirmation of the right of the EU and Canada to regulate to pursue legitimate public policy objectives such as the protection of health, safety, or the environment and a number of procedural changes designed notably to respond to criticisms levelled at investment treaties over the past decade.

Proposals or papers should be submitted directly to the co-editors by January 15, 2015 [email protected], [email protected], [email protected] and [email protected] – please CC [email protected] when submitting your materials – you can find the call for papers on the TDM website as well at http://www.transnational-dispute-management.com/news.asp?key=550.

The US India WTO Deal:The Need for Clarity on Next Steps

It seems the full text of the WTO deal between India and the US is not yet publicly available. In these circumstances, it is difficult to clear up confusion about what the next steps are toward getting Bali back on track. As I mentioned in my previous post, some news reports are suggesting that what Is involved is re-writing the Bali peace clause; I still think that's implausible, but it is hard to avoid misunderstanding and the kind of rumors that created the peace clause crisis in the first place while the text of the agreement is secret. A particular area where there is lack of clarity is on the notion that the US India agreement would have to be put before the WTO Membership for some kind of approval. If what is meant is that it would be a good idea if the interpretive understanding of the US were joined by all Members, that would be great. But it is not necessary in order for the US to bind itself to exercise restraint based upon its understanding of what the peace clause requires, as stated in the India US Agreement. If India remains worried about other Members attacking its policies in dispute settlement besides the US, then it may want to get those Members to make unilateral declarations that they endorse the interpretation in the India US agreement. But is it really worthwhile to hold up the negotiations further in order to fully multilateralize the understanding of Bali in the India US deal? If Brussels were to step up to the plate and declare that the EU accepts that understanding, it would further build India's confidence that the Appellate Body would not adopt a twisted interpretation of the Bali peace clause urged by a Member not litigating in good faith-perhaps to the point that the process of full multilateralization of the interpretive understanding wouldn't be needed.

A New Ban on Flavored Cigarettes (But Still Not Menthol)

From CBC news:

The Alberta government is banning the sale of some flavoured tobacco products in a bid to curb youth smoking -- but is still allowing the sale of menthol cigarettes. 

Health Minister Stephen Mandel defended the exclusion, saying that Alberta needs to "deal with the realities of the world." 

“It is a legal product," he said.  "People who smoke menthol who are older people need to be consulted and we’ll make sure we do that in the next little while and then we’ll bring it back to see how we can deal with these issues.”

A ban on all flavored cigarettes except menthol: Haven't we had this case before?

But this case is a little different, in an interesting way.  It's the province of Alberta, rather than the Canadian federal government, taking action here, which brings us into the realm of TBT Agreement Article 3:

Article 3: Preparation, Adoption and Application of  Technical Regulations by Local Government Bodies and Non-Governmental Bodies

 With respect to their local government and non-governmental bodies within their territories:

3.1 Members shall take such reasonable measures as may be available to them to ensure compliance by such bodies with the provisions of Article 2, with the exception of the obligation to notify as referred to in paragraphs 9.2 and 10.1 of Article 2.

..

3.5 Members are fully responsible under this Agreement for the observance of all provisions of Article 2.  Members shall formulate and implement positive measures and mechanisms in support of the observance of the provisions of Article 2 by other than central government bodies. 

The issue of local government measures under the TBT Agreement came up in the comments the other day.  There's still some uncertainty as to how exactly a claim against a non-central government would go.  If Indonesia decides the issue is worth pursuing in another WTO dispute, we may find out a bit more.

How India & the US Broke the WTO impasse-Without Either Making Any Concessions

India's blockage of the WTO Trade Facilitation Agreement, even after having won a hard-fought battle for a peace clause on food security at Bali, has not only threatened further progress toward renewing the World Trade Organization; it is also a story replete with political posturing on many sides, tendentious readings of legal documents, false rumors, and mutual distrust and suspicion between India and some of its trading partners.  With the agreement between the US and India concluded a few days ago, this sorry saga may well have been brought to an end.  And this is a happy ending.  As I shall explain, neither India nor the US had to concede anything to agree to this deal, and both Obama and Modi can take real credit for international economic statecraft of a high order.    But the media reporting of this impasse-breaking accord has replicated, unfortunately, some of the misunderstanding and confusion that led to the fuss in the first place.  And I hasten to add, this is not only the Indian media-it also includes the New York Times.

To understand the developments in recent days, we have to go back to the Bali Ministerial.  India had made a peace clause blocking WTO litigation related to subsidies programs for food security an essential condition of its acceptance of the Bali package; until the last hours of the negotiations, some of India's trading partners, above all the US, were prepared only to offer a four-year peace clause, with no guarantee that there would be a permanent agreement on food security responding to India's concerns at the end of that period.    Finally, at the end, the US and others conceded to India a peace clause the validity of which would last until a permanent settlement was found.  So here's what the final peace clause agreed at Bali says, in relevant part:  "until a permanent solution is found, and provided that the conditions set out
below are met, Members shall refrain from challenging through the WTO Dispute Settlement
Mechanism, compliance of a developing Member with its obligations under Articles 6.3 and 7.2 (b)
of the Agreement on Agriculture (AoA) in relation to support provided for traditional staple food
crops [footnote omitted] in pursuance of public stockholding programmes for food security purposes". You will note that the period of validity of the peace clause is stated with complete clarity-"until a permanent solution is found."  You will also note the use of the word "shall" which indicates a legally binding obligation, not a political or "gentleman's" agreement.   Even if this undertaking could not be viewed as an amendment to the DSU, and thus not alter the jurisdiction of the dispute settlement organs under the DSU or the Agreement on Agriculture, it was without ambiguity a binding determination by which WTO Members agreed that certain claims are inadmissable before the dispute settlement organs (while the distinction between jurisdiction and admissability may not be so familiar to WTO lawyers, it is one that is well established in general public international law, including international investment law).

So it doubtless came as an unpleasant surprise to those of India's trading partners who had bent over backwards to provide this legal security regarding food stockpiling programs that, when WTO Members moved to finalize within the understood time frame the Trade Facilitation Agreement, India pronounced itself dissatisfied with progress on the food security issue.  Was India really playing up the ante, or some base political game, holding the WTO hostage for the sake of domestic politics?  True, India had a point that WTO Members were dragging their feet on setting up a structure and timetable for serious negotiations toward a permanent solution on food security.  But wasn't it precisely because that could take some time that India had asked for, and eventually got, a peace clause that extended until the permanent solution was found?

After posting on this blog to explain why the text of the peace clause and its relation to the WTO legal framework were such that India had indeed received the legal security it was seeking, I eventually had the opportunity to speak directly with someone close to the Indian government about what was going on.  I was particularly concerned about stories in the Indian press that in fact the Bali peace clause lasted only 4 years, which was a straightforward inaccuracy, it seemed to me.

Finally, I learned where this conceit was coming from.  It was based on a highly twisted reading of the first paragraph of the Bali food security deal, in relation to the second.  The first paragraph states:  "1. Members agree to put in place an interim mechanism as set out below, and to negotiate on an
agreement for a permanent solution [footnote omitted], for the issue of public stockholding for food security
purposes for adoption by the 11th Ministerial Conference."  Basically paragraph 1 sets a target or aspirational deadline of the 11th Ministerial Conference for negotating a permanent solution on food security.  The twisted reading is that, due to this target, if no permanent solution were found by then, the peace clause set out in paragraph 2 would expire!     But of course paragraph 2 doesn't say that the peace clause will only be valid until the 11th Ministerial Conference, it says it will be valid until a permanent solution is found.  And this makes total sense, because India wanted the eventuality covered that there would be no such solution by the hoped-for time of the 11th Ministerial Conference.  But there is further reason why it would make no sense to read paragraphs 1 and 2 together as implying that the peace clause only lasts until the 11th Ministerial Conference.  Even if a permanent agreement on food security were adopted at the 11th Minsiterial Conference its entry into force would doubtless be later in time, once the requisite signitures and ratificatins of WTO Members to the agreement had been procured.  On the twisted interpretation, India would have lost the legal security of the peace clause at the 11th Ministerial Conference without being protected by a permanent agreement until some later date.  This makes no sense and is contrary to the object and purpose of the peace clause.  

The second concern, it seemed, related to the notion put about most notoriously by Christian Haeberli that an agreement of this kind could not have the legal effect of restraining the WTO dispute settlement organs from adjudicating a claim under the Agreement on Agriculture.  If one bought this argument it would have the collossal consequence that it would never be possible to come to agreed solutions of WTO disputes, because an out of court settlement would not be worth the paper it was printed on; if one of the parties violated its agreement and commenced proceedings, there would be no choice but for the dispute settelment organs to adjudicate the claim.  Such a view seems directly at odds with numerous provisions of the DSU, such as 3.7, which indicates the preference for mutually agreed solutions, and 3.10, which requires "good faith" in the use of the dispute settlement proceedures.  Where a party brought a claim in clear violation of its commitment not to do so under the peace clause, this would be an obvious violation of the obligation of good faith in 3.10, and the solution would be to find the claim inadmissable. There is no indication that the jurisdictional or comprommisory clauses of the DSU represent a contracting out of the general international law noton of abuse of rights (abus de droit).  To the contrary, the explicit reference to good faith in 3.10 makes absence of abus de droit a condition of the invocation of the jurisdiction of the WTO dispute settlement organs.  

Now let's fast forward to a few days ago.  Many of the reports of the US-India deal suggest that the US has agreed to a rewrite of the peace clause to make it last til a permanent solution is found (including in the New York Times).  These reports simply duplicate the original misunderstanding that the Bali food security text was somehow limited to four years.  The most detailed account so far of the deal reached this week between Washington and New Delhi is a USTR fact sheet. http://1.usa.gov/1xk2onM   Far from refering to rewriting of the Bali decision on food security, the fact sheet refers to what has been agreed on as "an understanding on implementation" of the decision.  Assuming the fact sheet has been prepared accurately, and I have a good impression of the competence of the attornies at USTR, this makes pretty clear that the nature of the US India deal is that of an interpretative understanding of what is required for the peace clause to be implemented, not a pact to reopen the one negotiated in Bali.

On its own, the bilateral deal has the following impact: India is assured that the US will not attempt to operate on the twisted reading of the peace clause discussed above.  While that interpretation is so implausible that I doubt that India really needs such an assurance, the fact is that the US statement that the peace clause will last until a permanent settlement is found would be binding even if it were a unilateral declaration of the United States (such a unilateral declaration was the basis of the panel's disposition of a claim of the EU against the United States in the S. 337 dispute).  But what of other WTO Members?  If they want to reinforce the breakthrough that occured this week, they might well join the US and make unilateral declarations that the understanding between the US and India corresponds to their own view of the commitment of restraint they have undertaken by virtue of the Bali food security decision.  A number of such declarations should build even further India's confidence that the peace clause means what it says-without a single comma having to be rewritten, or a single concession being made by anybody. Besides, with the US-India agreement that the plain language of the peace clause must be honored, it becomes even more implausble-even wildly so-that the Appellate Body would want to take the rap for destabilizing the WTO through adopting a perverse reading of the peace clause at odds with the plain language of paragraph 2.   

But by presenting the accord this week as proposing an actual renegotiation of the Bali food security deal, there is a danger of creating false expectations, and a backlash (again I am assuming here that the USTR fact sheet conveys a correct impression).  Of course, putting out that the peace clause will be rewritten might be good politically in India, because it suggests that  Modi won a major concession from Obama.  But, as I suggest, that could backfire.  Based on the best public information so far, the US and India have simply agreed that the Bali peace clause means what it says, on any reasonable reading of the text. With luck this may be one of those rare moments in diplomacy where a breakthrough is achieved with no side having to concede or lose anything.  We will see soon enough.    

 

SCM and GATT Article XX--a quick question

I know that Simon and others have discussed the question of the applicability of GATT Article XX to provide an exception to prohibitions in the SCM Agreement, for example here.  Why is this issue not resolved by SCM 32.1, which states "No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement." (footnote omitted)  The plain meaning of this language seems to be that  no action may be taken against a subsidy if the action is not in accordance with GATT.  Therefore, if an Article XX exception is available, there can be no action under the SCM Agreement.  It's not that the SCM is necessarily lex specialis--it is that it is, in the language of Art. 32.1, an interpretation of GATT. 

Do We Need a TPP Secretariat?

Assuming we get a TPP at some point, do we need to create a Secretariat to administer it?  This is from Politico:

A final TPP agreement may be months from conclusion and could take longer to go into force. But supporters are already fretting about how the monstrous trade deal will be administered and talking about the creation of a WTO-style TPP secretariat, ...

...

Deborah Elms, executive director of the Singapore-based Asian Trade Centre, said she finds comments coming from the TPP trade ministers alarming because they suggest the participating countries could continue using a model of committees to address issues in the trade deal. She and others suggest the creation of an administrative office similar to the one used to manage the World Trade Organization.

“You need at a minimum to have a TPP secretariat to handle issues and revisions to the agreement,” said Elms, who discussed the issue in a presentation last week to members of the APEC Business Advisory Council, which was gathered in Beijing. ...

You probably would need a Secretariat for the TPP, but I have an alternative suggestion: Let the WTO Secretariat play this role.  The staffers there are pretty good at administering trade agreements.  That includes dispute settlement, of course, but I'm thinking more generally about the role they play.

The proliferation of trade agreements is bad enough.  Do we really want to see a proliferation of competing trade agreement secretariats?

FURTHER THOUGHTS: The more I think about this idea, the more I like it.  An obvious objection might be the location: Geneva, Switzerland is not exactly in the Pacific.  That's true, but note that the Pacific is a pretty big region.  It's not as though there is a particularly convenient place for all the TPP countries to meet even in the Pacific. (Hawaii may be the best bet -- keep your fingers crossed, trade lawyers!)

So, why not just meet in Geneva?  There is so much trade expertise there already.  Why not take advantage of that?  Setting up dueling centers of trade experts -- government missions and secretariat staff -- seems inefficient.

But I do see the point about location, and I'm sure there are places in the Pacific that would like to host a trade secretariat, so how about this:  Establish a TPP branch office of the WTO Secretariat somewhere in the Pacific.  That way, you can take advantange of the institutional and technical knowledge of the WTO Secretariat, and keep the administration of trade agreements somewhat integrated.

Of course, the real challenge here is getting a TPP done.  There's still a fair amount of work left on that before we can really get into the Secretariat debate!

The Transatlantic Trade and Investment Partnership: implications for multilateral economic integration

Those readers who find themselves in or near London on Monday November 24 may find this event at the LSE of interest:

The Transatlantic Trade and Investment Partnership: implications for multilateral economic integration

The EU's Chief Negotiator for the Transatlantic Trade and Investment Partnership and a prominent former Director-General of the World Trade Organisation debate the implications of 'mega-regionals' for the future of multilateral economic governance.

Speakers: Ignacio Garcia Bercero, Director in DG Trade of the European Commission  and Chief EU Negotiator for TTIP; Pascal Lamy, Former Director-General of the World Trade Organization

Chair: Ambassador Pekka Huhtaniemi, Finnish Ambassador to the United Kingdom.

Details: Monday 24 November 2014, 6.30-8pm in the Sheikh Zayed Theatre, New Academic Building, London School of Economics.

This event is free and open to all with no ticket or pre-registration required. Entry is on a first come, first served basis. For further information please see: http://www.lse.ac.uk/publicEvents/events/2014/11/20141124t1830vSZT.aspx

 

Banning Tobacco

This was probably inevitable:

WESTMINSTER, Mass. (AP) — The cartons of Marlboros, cans of Skoal and packs of Swisher Sweets are hard to miss stacked near the entrance of Vincent's Country Store, but maybe not for much longer: All tobacco products could become contraband if local health officials get their way.

This sleepy central Massachusetts town of 7,700 has become an improbable battleground in America's tobacco wars. On Wednesday, the Board of Health will hear public comment on a proposed regulation that could make Westminster the first municipality in the United States to ban sales of all tobacco products within town lines.

 

"To my knowledge, it would be the first in the nation to enact a total ban," said Thomas Carr, director of national policy at the American Lung Association. "We commend the town for doing it."

Taxes have been raised; health warnings added; appealing camels have been taken off cigarette packaging in Australia.  Banning the sale of tobacco products was the next logical step.  It will be interesting to see if this measure is enacted.

No doubt there will be challenges to this sort of action under domestic law, especially if it spreads to larger jurisdictions.  And yes, the industry is monitoring this:

David Sutton, a spokesman for Richmond, Virginia-based Altria Group Inc., owner of the nation's biggest cigarette maker, Philip Morris USA, called the proposal a "bad policy" that will harm local employers.

"We believe businesses should be able to choose which products they carry," Sutton said. "If the ban were to be implemented, adult tobacco and e-vapor consumers could shift their purchases to neighboring stores. The proposed regulations, if enacted, would fundamentally alter these businesses and would likely cost Westminster jobs."

But for this blog, the question is, what are the trade and investment law implications?

At the WTO, I'm not sure how you make out a credible discrimination claim, but it certainly is trade-restrictive, so is this the kind of measure that might violate TBT Article 2.2?

And then in the investment law context, is this regulatory expropriation?  And is the treatment of foreign investors under such a measure "fair and equitable"? 

Of course, maybe none of this matters if in 10 years everyone is smoking e-cigarettes anyway.

ASIL/IEcLIG Conference in Denver

From the ASIL-IEcLIG:

ASIL-IEcLIG Co-Chairs, Elizabeth Trujillo (Suffolk University Law School) and Jason Yackee (University of Wisconsin Law School), are happy to announce the upcoming ASIL--International Economic Law Interest Group's Biennial Research conference, on “Reassessing International Economic Law and Development: New Challenges for Law and Policy,” taking place on November 13-15, 2014.  It is hosted by ASIL Academic Partner University of Denver Sturm College of Law, in collaboration with the Sutton Colloquium.   The keynote speaker is Petros Mavroidis of ASIL Academic Partner Columbia University School of Law and the European University Institute.

More than 60 leading scholars from five regions of the world will gather to present their academic work on the conference theme and other important topics in international economic law.  Panels will address the role of law in devising domestic strategies for development; regulating climate change and fostering clean energy programs; addressing food security and technology transfer; and promoting international financial stability.  

Among the 21 panels, topics include: 

                • International economic law and health

                • Trade and Food Security

                • Corruption, International Economic Law, and Development

                • Natural Resources, Raw Materials, and Commodities

                • South to South Aid in Development

                • Latin America

                • Africa

                • Empirical & Social Scientific Approaches to IEL

                • Intellectual Property

                • Investment

                • Trade

                • Finance

 In addition to lunch speaker, Mark Safty, (Partner Holland & Hart and the Wirth Chair in Sustainable Development from the U. Colorado-Denver), there will be a Roundtable Discussion on Community Challenges for Sustainable Natural Resources Development, which include: David Atkins (Royal Dutch Shell); Cecilia Dalupan (Consultant and Sustainable Development Strategies Group), Cullen Hendrix (U. Denver Korbel School of Int’l Studies); Matt Lepore (Director, Colorado Oil and Gas Conservation Commission); Ambika Chawla (Consultant); and Annecoos Wiersema (Associate Professor, University of Denver Sturm College of Law) as moderator.

Please find the program, registration information, and additional details about the conference here: http://www.law.du.edu/index.php/sutton-colloquium.

What Do National High Court Judges think of ISDS?

This is from Chief Justice French of the Australian high court:

So far as I am aware the judiciary, as the third branch of government in Australia, has not had any significant collective input into the formulation of ISDS clauses in relation to their possible effects upon the authority and finality of decisions of Australian domestic courts. This is an issue which presently is of small compass. It has the potential to become larger and it is desirable that it be addressed earlier rather than later. One approach would be to examine the possibility of including requirements in ISDS provisions in appropriate cases for:

• prior exhaustion of remedies in domestic courts of the Contracting State;
• preclusion of any challenge to the decision of a domestic court as constituting a breach of the relevant BIT or FTA provisions; and
• preclusion of any arbitral decision based upon a rejection of a decision on a question of law of a domestic appellate court binding on lower courts.

Those suggestions are offered merely to stimulate thought on the topic. It may be
useful for the general question to be given consideration by all of us and perhaps specifically
by the Council of Chief Justices. We are, I suspect, a little behind the wave-front of these
developments. It is time to start catching up.

What do judges in other national courts think of ISDS, specifically in relation to the possibility of their decisions being challenged?  Given the Eli Lilly case, you would think Canadian judges have given some thought to this.  But judges from the ECJ and U.S. Supreme Court, among others, might want to weigh in as well.

Thanks to Luke Peterson for the pointer. 

Director of the Trade Agreement Secretariat

With cases like the CAFTA labor complaint against Guatemala going on, this might be an interesting job:

The Trade Agreement Secretariat, is looking for an energetic, innovative Director who will enjoy working in a dynamic and mission-driven organization. The ideal candidate will be responsible for overseeing the impartial administration of the dispute settlement provisions of the North American Free Trade Agreement (NAFTA) and eleven other free trade agreements to which the United States is party, and will apply forward-thinking leadership in promoting and implementing a vision that fosters organizational excellence. The incumbent will lead in the development and implementation of strategies that anticipate customer needs, and the execution of vital change initiatives. 

This position in located in the Trade Agreement Secretariat Office, Industry and Analysis, International Trade Administration (ITA).

...

The incumbent will serve as the National Secretary and Director of the Trade Agreement Secretariat and will lead a team responsible for the impartial administration of the dispute settlement provisions of each free trade agreement to which the United States is party.

The Trade Agreement Secretariat is responsible for overseeing the impartial administration of the dispute settlement provisions of the NAFTA and eleven other free trade agreements to which the United States is party (Australia, Bahrain, Dominican Republic-Central America (DR-CAFTA), Chile, Colombia, Korea, Morocco, Oman, Panama, Peru, and Singapore).

The Secretariat is accountable to the Free Trade Commission, which comprises the ministers responsible for international trade in the three NAFTA partner countries. The Secretary and Director of the Trade Agreement Secretariat shall be an expert in international trade policy and serve on both inter-agency and inter-government work groups to enhance and streamline the process; will be responsible for briefing senior officials on the trade agreements; and will also be responsible for managing the office, personnel, and overseeing the budget and disbursement of funds.

Thanks to Amy Porges for the tip.

The CAFTA Labor Complaint Against Guatemala

The U.S. complaint against Guatemala for failure to enforce labor laws -- mentioned here -- seems to be going forward.  The first U.S. written submission is now online here.  Here's an excerpt:

2. This submission demonstrates that Guatemala has breached its obligation under Article 16.2.1(a) of the CAFTA-DR by failing to effectively enforce its labor laws, through a sustained and recurring course of inaction, in a manner affecting trade between the Parties. 

3. Guatemala’s failures involve workers at over a dozen companies, each in one of four of Guatemala’s major exporting sectors: shipping, apparel, steel and agriculture. At each company, Guatemalan products are either exported to the United States or other CAFTA-DR Parties, or compete in Guatemala with imports from the United States or other CAFTA-DR Parties. 

4. The instances that demonstrate Guatemala’s failures recounted and carefully documented in this submission occurred over the course of many years. They involve longstanding complaints of violations of the Guatemalan Labor Code – the foundation of Guatemalan labor law. These instances involve Guatemalan labor laws directly related to the right of association, to the right to organize and bargain collectively, and to acceptable conditions of work. 

5. The evidence shows at least 189 instances in which Guatemala has failed to effectively enforce its statutes and regulations directly related to workers’ right of association and right to organize and bargain collectively by not securing compliance with court orders requiring employers to reinstate and compensate workers they wrongfully dismissed for union activities, and to pay a fine for their retaliatory action. 

6. The evidence shows at least 197 instances in which Guatemala has failed to effectively enforce its statutes and regulations directly related to acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health, by not conducting investigations in accordance with the Labor Code and by not imposing the requisite penalties when it has identified employer violations. 

7. The evidence shows at least 16 instances in which Guatemala has failed to effectively enforce its statutes and regulations directly related to the right to organize and to acceptable conditions of work by not registering unions or instituting conciliation processes in a timely fashion. 

8. That is, in at least 402 separate instances, Guatemala has failed to effectively enforce its labor laws. With respect to each of the U.S. claims, the instances cited represent a “sustained or recurring” course of inaction “affecting trade between the Parties.” Therefore, the United States respectfully requests that the Panel find that Guatemala has acted inconsistently with its obligation under Article 16.2.1(a) of the CAFTA-DR.

I have a few thoughts on this.

First, are there implications for U.S. trade politics?  The Republicans are not known for supporting stronger labor protections.  What will the new GOP Congress make of this case?  It was one thing when labor chapters in trade agreements were just empty promises.  But now they look like enforceable international law obligations (which could be applied in both directions -- imagine Europeans using TTIP labor provisons against the U.S.).  Will the circulation of a panel report in this case have an impact on how the Republicans approach TPA in the coming months?

Second, there are a bunch of cites in the U.S. submission to WTO jurisprudence.  In a number of places, the U.S. calls WTO findings "useful guidance."  Do we need a more formal explanation of how WTO jurisprudence can guide FTA panels?  Or are we OK just muddling through?

Third, and most interesting to me, the CAFTA labor obligations apply only when trade is affected.  As the U.S. puts it:

97. CAFTA-DR Article 16.2.1(a) requires that “a Party shall not fail to effectively enforce its labor laws . . . in a manner affecting trade between the Parties.”

The U.S. then explains its view of the standard, and why Guatemala's inaction here affects trade.  In this regard, it says:

103.  ... the ordinary meaning of the phrase “in a manner affecting trade” in Article 16.2.1(a) encompasses any course of action or inaction by a Party that has a bearing on, influences or changes – i.e., affects – cross-border economic activity, including by influencing conditions of competition within and among the CAFTA-DR Parties.

and:

104. The United States will demonstrate below that, through Guatemala’s failure to effectively enforce its labor laws, Guatemalan companies face different conditions of competition than they would face were the laws effectively enforced. As a result, the competitive conditions between Guatemalan companies and companies in other CAFTA-DR Parties have been altered from the agreed terms of the CAFTA-DR. In this respect, Guatemala’s failures have occurred “in a manner affecting trade between the Parties” within the meaning of Article 16.2.1(a). For example, Guatemala’s failures to effectively enforce its labor laws bears upon the conditions of competition in trade between the CAFTA-DR Parties because it both directly and indirectly changes the relationship between Guatemalan companies and one of their important industrial inputs – i.e., labor.

The U.S. then lays out the trading relationship between Guatemala and the U.S., noting several industries where there is competition and trade.

Here's what I wonder, though.  If the agreement specifies that the failure to enforce labor laws must affect trade, doesn't that imply there are some situations where such inaction will affect trade, and other situations where it will not affect trade?  If that's the idea, if we apply a conditions of competition standard, I'm not sure I see any situations where a failure to enforce labor laws does not affect trade.  In practice, there will always be at least some trade between Guatemala and the U.S., and that trade will be affected by labor policies.  And regardless, there is always theoretical, potential trade between Guatemala and the U.S., so trade could still be affected even if there were no actual trade.  As a result, if we adopt a conditions of competition approach, are we reducing this langague -- "in a manner affecting trade between the Parties" -- into redundancy or inutility?

On the other hand, is it possible that there are some non-tradable areas that still exist, so that failure to enforce labor laws would not affect trade in some situations?  Perhaps there are some services that can't be traded?  Given that trade in services can take place, inter alia, via movement of natural persons, the internet, and commercial presence, there can't be many.

COULD WTO "AUTHENTIC" TEXTS IN THE THREE OFFICIAL LANGUAGES CONTAIN A TRANSLATION ERROR ?

According to Article XVI:6 of WTO Agreement, the texts of the WTO Agreements are authentic in each of the three WTO official languages.

What happens then when an Appellate Body’s interpretation made on the basis of the English text of an Agreement is unsustainable on the basis on the same text in another official language?

In the Boeing case, the Appellate Body interpreted the word "legislation" appearing in Article 2 of the SCM (specificity) in the sense of a collective set of rules that extends beyond statutory law voted by Parliament. Therefore, according to the AB, it may include laws, regulations, or other official documents. The Appellate Body justified its interpretation as follows:

We find support for this reading of "legislation" in Article 2.1(b), which provides that, "{w}here the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy", these criteria or conditions "must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification".

Let us note that the English text uses two different words, namely “legislation” and “law”. This aspect is what allows the Appellate Body to read “legislation” as including “law” among other things such as regulation and official documents.

Unfortunately, the French text of Article 2/SCM uses only one word, i.e., “legislation”. It reads:

Dans les cas où l'autorité qui accorde la subvention, ou la législation en vertu de laquelle ladite autorité agit, subordonne à des critères ou conditions objectifs le droit de bénéficier de la subvention et le montant de celle-ci, il n'y aura pas spécificité à condition que le droit de bénéficier de la subvention soit automatique et que lesdits critères ou conditions soient observés strictement. Les critères ou conditions doivent être clairement énoncés dans la législation, la réglementation ou autre document officiel, de manière à pouvoir être vérifiés.

To put it another way, the French text seems to consider the word “legislation” as a synonym of statutory law. Otherwise, it would not make sense to oppose legislation and reglementation in the phrase “dans la législation, la réglementation ou autre document officiel”. Although it is probable that the French version contains a translation error (the word "loi" is available in French but was not used), the fact remains that this “authentic” version does not support the Appellate Body’s reading. It is no coincidence that the AB does not quote from it as it usually does to justify an intepretation.

I have checked the Spanish version and found that it contains two different words, exactly as the English version, namely, legislación and ley.

At the end of the Uruguay Round, was there an entity responsible for the coherence between the texts of the WTO agreements in the three WTO official languages? More importantly,what are the legal consequences and the remedies for a translation error? Is there an irrebutable presumption that such an error does not exist?

Add:

Now,the funny thing is that the French translation of the AB's Boeing Report incorporates, as expected, the French text of the SCM in the justification given by the AB for its interpretation of the word "legislation". The result is tantamount to a contradiction because unfortunately this French text does not support at all the AB's justification!

 

What Will Republicans Do on Trade with Control of Congress?

The big, and not unexpected, news of yesterday is that Republicans now control both houses of Congress, for the first time since 2006.  One thing this will do is help the GOP to set the agenda on trade policy and trade negotiations. So what will they do with their newfound power?

Gary Hufbauer is fairly confident that they will use their power constructively to push for the completion and approval of trade deals.  His argument makes some sense.  Many Republicans actually believe trade is good, and they have business supporters who agree, so it's kind of a win-win -- do the right thing and get rewarded for it.

At the same time, other Republicans really don't like President Obama, and may be focusing on making his life miserable in various ways, and more generally thinking about how best to play politics.  One question in the minds of this group may be, how can they make Democrats the most uncomfortable on trade policy?

Maybe it would be enough to concede to most of what Obama wants out of a trade deal, so that he is forced to move ahead with it and thereby alienate some anti-globalization, protectionist liberals in the Democratic base. On the other hand, they might try to push things further, and demand TPA legislation that makes him really squirm (e.g., tearing up parts of the May 10 agreement).  Or, they might have specific issues that they feel strongly about (e.g., soon-to-be Senate Majority leader McConnell is from tobacco-producing state Kentucky, and may not like the idea of a tobacco carve-out).

Will their focus be on getting trade deals done, or on getting the most they can out of trade politics?  One thing about power is, you don't really know how you will use it until you get it.  The Republicans have important choices going forward, in general and on trade.  Let's see what they decide to do. But if they want TPA to pass, they should be able to make that happen.

Of course, that's probably the easiest part of all this.  Finishing negotiations on the TPP, and getting it through Congress, will be a lot harder.

(As I was writing this, I saw this piece by Shawn Donnan of the FT, who seems positive about the situation, although with a few of the same caveats I put out there.)