International Economic Law and Policy Blog

IS BAN ON FOIE GRAS AN INGREDIENT OR A PROCESS REQUIREMENT?

This blog has previously discussed California’s ban on foie gras.

When teaching WTO law at Stanford in 2012 -- the year the ban entered into force -- I even used the ban as my mid-term exam question!

Turns out that on January 7, a US district court judge passed summary judgment against the ban, which has now been lifted.

The ban was struck down not on “commerce clause” grounds, but based on “preemption”.  Essentially, according to Judge Wilson -- who apparently enjoys his foie gras, calling it “a delicacy made from fattened duck liver” -- the Poultry Products Inspection Act or PPIA (a US federal statute) already covers the field.  Hence, California can no longer regulate the matter.

Trade lawyers may think this is pure US constitutional law.  But there is an intriguing WTO, product v. process, angle to it.  To decide whether the federal statute covers the California ban, the central question was: “whether a sales ban on products containing a constituent that was produced in a particular manner is an ‘ingredient requirement’ under the PPIA”.    

Indeed, the PPIA only preempts California from imposing additional or different “marking, labeling, packaging, or ingredient requirements” with respect to poultry products.   So the PPIA only "preempts" in case "a sales ban on poultry products resulting from force feeding a bird imposes an ingredient requirement”.

California argued that its ban “regulates a process rather than an ‘ingredient’ because it regulates the manner of producing the fattened bird livers rather than the use of a particular ingredient” (California allowed the sale of liver from non-force-fed birds).

Judge Wilson disagreed:  the ban “expressly regulates only the sale of products containing certain types of foie gras products – i.e. foie gras from force-fed birds”; it “does not ban the practice of force-feeding; this practice is the subject of a separate provision … it does not matter whether foie gras obtained from force-fed birds is a different product from non-force-fed bird foie gras … Plaintiffs’ foie gras products may comply with all federal requirements but still violate [the California ban] because their products contain a particular constituent – force-fed bird’s liver … California cannot regulate foie gras products’ ingredients by creatively phrasing its law in terms of the manner in which those ingredients were produced”.

This should remind WTO observes of the question of whether a ban on foie gras, i.e. force-fed bird liver, is sufficiently product related to fall under GATT Article III or whether it lays down “product characteristics or their related processes and production methods” for the ban to be subject to the TBT Agreement.  The AB in Tuna found the (process) requirements under the US dolphin-safe label sufficiently product-related for them to fall under TBT; in Seal, the EU seal ban and its indigenous communities exemption was found to fall under GATT Article III but not to lay down a “product characteristic” and TBT was not applied. 

Interestingly, being product related generally helps for the WTO consistency of a measure (e.g. making it subject to GATT Article III and border adjustable, plus more easily justified under the open list of legitimate objectives under TBT); under the preemption of the PPIA, in contrast, being a "process" and not an “ingredient" requirement would have saved California's ban ...

The other thing this Order shows is that even rulings on technical matters like these can be written in intelligible, concise language (15 pages, only 6 on the preemption issue).  Judge Wilson's first sentence: “This action … touches upon a topic impacting gourmands’ stomachs and animal-rights activists’ hearts: foie gras”.  At another juncture: “Defendant seeks to have her pâté and eat it, too” …

Tell It To the ISDS Judge

This is from UK business secretary Vince Cable, in remarks at a recent cabinet meeting:

Cable acknowledged there have been fears and some myths that US corporates would take the UK to secret tribunals unless all services are privatised under TTIP, but he told colleagues that a reformed investor-state dispute mechanism needed to be kept on the table, as part of a package of substantial reform.

He said Britain was pressing the EU to ensure private companies would be required in any disputes with governments to choose either domestic courts or an investment tribunal, rather than having two bites at the cherry. He would also demand judges that rule in the tribunals to be senior judges from the US/EU.

The last, italicized part is what interests me.  That would be a major shake-up to ISDS.  For most ISDS reforms, the supporters have arguments ready as to why no change is necessary.  But is there any counter-argument to shifting away from the current system of selecting tribunal members, which has been subject to so much criticism?

The Tuna Article 21.5 Dispute

You may have forgotten it was even going on, but lingering out there, waiting to be dissected and analyzed, is the Article 21.5 dispute in U.S. - Tuna II.  This should be a very interesting test of whether an environmental measure that affects imports can be implemented in a non-discriminatory manner.  We'll find out soon, as the WTO panel just announced it would circulate its final report to the parties on January 30.  (Presumably that means the interim report has already been issued, so those of you in the know about what happened should feel free to leak the result in the comments!).

Qualified Local Content Requirements

Senator Al Franken recently sponsored an amendment to proposed legislation approving the Keystone pipeline that would require the pipeline be built with only American steel and other inputs.  Specifically, the amendment stated:

"to the maximum extent consistent with the obligations of the United States under international trade agreements, none of the iron, steel, or manufactured goods used in the construction of the Keystone XL Pipeline and facilities approved by this Act may be produced outside of the United States." 

(There were exceptions for situations where such goods are not produced in the United States, and where use of domestic goods would increase costs by more than 25 percent.)

The amendment was defeated, but nonetheless it has interesting U.S. law implications that I don't quite understand.  It seems pretty clear that a law requiring a private company to use domestic inputs in this way violates GATT Article III:4.  So what does it mean, under U.S. law, to qualify such a local content requirement with "to the maximum extent consistent with the obligations of the United States under international trade agreements"?  If it is not in any way consistent with international obligations to require domestic content, does the domestic content requirement simply have no effect under U.S. law?  How would a U.S. court evaluate whether such a requirement is consistent with international trade agreements?

Call for Papers: International Colloquium "Current Issues of Agricultural Law in a Global Perspective"

Call for Papers: International Colloquium "Current Issues of Agricultural Law in a Global Perspective", Pisa, September 17-18, 2015

Venue: Scuola Superiore Sant'Anna, Pisa, September 17-18, 2015.

Deadline for abstract: April 3, 2015

Deadline for draft paper: July 3, 2015

The Scuola Superiore Sant'Anna and the Institute of Law, Politics and Sustainability are pleased to announce the First Edition of the International Colloquium on Current Issues in Agricultural Law in a Global Perspective. The Colloquium is intended to be an opportunity for Post Docs and Ph.D Candidates to present and discuss their research results and methodological approaches in a supportive environment. The aim is to build a community of early career researchers interested in agricultural law and its intersections with other legal areas.

We welcome both theoretical and empirical papers as well as studies on issues at the local, regional and international levels. The main topics include:

1. Natural Resources and Environmental Protection at the cross-roads with Agricultural Law;
2. Agricultural models and People’s Rights;
3. Agri-Food Production: Tradition and Technologies;
4. International Trade Agreements, Investment Law and Agriculture.

Those interested should submit a short CV and 400 word abstract to [email protected] no later than April 3, 2015. Upon acceptance, the author must submit a paper draft (maximum 12000 words, footnotes included) no later than July 3, 2015. The final paper will be eligible for publication in an edited book.

For full details, please see the Call for Papers or visit: www.cdg-lab.dirpolis.sssup.it/event/colloquiumaglaw/

Call for papers: 2015 ESIL Oslo Conference

2015 ESIL Oslo Conference: Call for papers, agora proposals and posters – Deadline 31 January 2015

The 11^th Annual Conference of the European Society of International Law will take place in Oslo, Norway, from 10 to 12 September 2015.  The conference will be hosted by the PluriCourts Center on the Legitimate Roles on the Judiciary in the Global Order, University of Oslo.

Entitled “The Judicialization of International Law - A Mixed Blessing ?”, the conference will address the international law aspects of the increased judicialization from an interdisciplinary perspective.

The conference will feature plenary sessions with invited speakers, and a number of agorae with speakers selected on the basis of a call for papers and agora proposals. The event will also offer poster sessions for early career scholars following a call for posters.  The deadline for the submission of abstracts and proposals is 31 January 2015.

For more information, please visit www.uio.no/esil2015

CURRENCY MANIPULATION AND THE MISPLACED SPECIFICITY ARGUMENT

In a recent CATO paper entitled “Currency Manipulation and the Trans-Pacific Partnership: What Art Laffer, Fred Bergsten, and Other Hawks Get Wrong”, Daniel J. Ikenson writes about applying countervailing duties to currency manipulation: 

Even though any benefits conferred by suppressing a currency’s value are available broadly to producers in the “offending” country, which is an attribute that disqualifies the “offense” as a countervailable subsidy under U.S. law and according to the WTO Agreement on Subsidies and Countervailing Measures, there is support for this approach in Congress.

This is the nth time that this "specificity" argument  appears periodically in various articles. The fact is that it is simply wrong. Since currency manipulation is most likely to be considered as a de facto export susidy under Article 3/SCM, then one has to note  that  Article 2.3 of the SCM Agreement would then take effect. It stipulates that "Any subsidy falling under the provisions of Article 3 shall be deemed to be specific.

This logic appears clearly for example in the Korea Vessels case where the Panel concluded AFTER finding that the measures at issue were export subsidies:

 Since export contingent subsidies fall under the provisions of Article 3 (paragraph 1(a)), they are “specific”. Pursuant to Article 2.3, therefore, we conclude that those PSLs that we have found to be export subsidies are “specific”.

 

More on a DSB for ISDS

This is from a set of ISDS proposals for the TTIP from Jan Kleinheisterkamp and Lauge Poulsen:

Comprehensive state ‘filter’ of private claims

Our second patch is that home and host states should be allowed to block individual claims, if they both agree the dispute should be settled by domestic judges rather than international arbitrators. A similar option is included in NAFTA for investment disputes regarding tax questions with the justification that it can block particularly controversial investor disputes from proceeding. In CETA, as well, there is a similar filter mechanism for investment disputes in financial services.

Extending such filter mechanisms to all areas covered by the investment provisions addresses fundamental concerns about safeguarding public policies. Taxation and financial stability are important issues, but so are environmental protection, health concerns, consumer protection and other public interest matters. The Hong Kong government would likely have agreed to block Phillip Morris’ recent claim against Australia, for instance, if a filter mechanism had existed in the relevant treaty.

Is this the kind of tweak that would satisfy the French and the Germans?

In a joint declaration, the ministers of the EU’s two largest economies asked the European Commission, which steers trade negotiations on behalf of the 28 EU member states, to examine "all the options for modifying" the ISDS clause in the agreement with Canada.

Call for Papers: 15th BIICL WTO Conference

From BIICL/IIEL:

The Annual WTO Conference was originally established in 2000 through a partnership between the British Institute of International and Comparative Law (BIICL) and the Institute of International Economic Law (IIEL) at the Georgetown University Law Center, and is currently organized jointly by BIICL, IIEL, and the Society of International Economic Law (SIEL). As originally established by University Professor John H. Jackson of Georgetown, and Professor Sir Francis Jacobs, KCMG, QC, a Trustee of BIICL, the Annual WTO Conference has a longstanding affiliation with the Journal of International Economic Law, published by the Oxford University Press. The Annual WTO Conference is one of the most important and prestigious conferences addressing developments in international trade law, pursuing cutting-edge issues of interest to academics and practitioners alike.

The Annual WTO Conference has traditionally selected speakers by invitation only; this year, however, the organizers have decided to conduct a call for papers aimed at opening opportunities for younger scholars to present their research and analysis at the conference. The organizers will consider proposals, in the form of an abstract or a completed short paper, submitted on or before 28 February 2015, for inclusion on the panels being organized on the following six topics: 

• The Revival of Export Controls and Trade Sanctions:
  The Russia-Ukraine Conflict and Beyond

The panel will address the WTO implications (security exceptions in GATT/GATS etc.) of: sanctions imposed on Russia (principally by US, EU) re the invasion of Ukraine; retaliatory measures imposed by Russia; Russian measures allegedly aimed at coercion of former Soviet satellites to join Eurasian Economic Union (mostly in the form of SPS and TBT type measures); and the broader implications of revival of export controls and trade sanctions for practicing lawyers and multinationals.

• WTO Accession Protocols and Other Non-Treaty WTO Instruments or Texts:
  Legal Status and Interpretation in WTO Dispute Settlement

In light of recent cases involving China, especially the recent Rare Earths AB report, the panel will address the relationship between accession protocols and other WTO agreements; the WTO-plus controversy; the status of accession protocols under the Vienna Convention on the Law of Treaties; the process of accession to membership in the WTO and different steps of legal relevance; the impact of WTO committee decisions or Secretariat notes, and ministerial declarations and statements.

• Restoring the Negotiating Function of the WTO:
  Are there Alternatives to the Single-Speed, Single Undertaking Approach?

The panel will address issues such as Trade Facilitation Agreement experience (and treatment of LDCs there); current treatment of environmental goods negotiations within the WTO; the TISA negotiations process and ITA expansion; plurilaterals and new ways to define “consensus” or start negotiations (e.g. on services, agriculture) within or outside the WTO with a sub-group of members only; legal effects of different ways of locking in negotiation results; and resort to the amendment or interpretative powers within the WTO Agreement. 

• Measures Pursuing Multiple Policy Objectives:
  The Scope of Application and Overlapping Disciplines in GATT-TBT-SPS After Seals

The panel will consider issues raised by the AB report in Seals, including: its interpretation of national treatment and MFN in the GATT v. the TBT Agreement; the scope of the application of the TBT Agreement; how to address measures with multiple objectives under GATT/TBT/SPS, how to draw the line between the TBT Agreement and the SPS Agreement; and the analysis of measures with multiple objectives under GATT Article XX and its chapeau. 

• The “Plain Packaging” Public Health Strategy:
  Tobacco Products, Alcohol, Sugary Products: What Role (If Any) For the WTO?

The panel will address the pending WTO case, the broader issue of the “plain packaging” policy approach to “unhealthy products” and the legal issues this raises; the public health concerns it addresses/does not address; and related questions under WTO law, domestic constitutional and intellectual property law, BITs, etc. 

• Recent Developments in WTO Dispute Settlement Procedure & Jurisprudence

The panel will address emerging issues such as: (1) the increasing use of settlement agreements under which possible WTO violations are permitted to continue but are compensated for (e.g., US – Cotton; US – Clove Cigarettes); (2) the use of waivers in FTAs to rights under the WTO Agreements, including the right to invoke WTO dispute settlement (see, e.g., Peru – Agricultural Products); (3) the role of the DSB; (4) the definition of a measure; and other procedural issues that may have arisen in last year. This panel may also discuss substantive law developments in WTO cases of the past year; important new AB reports such as US – Carbon Steel (India), and US – CVD (China) (DS 437); the AB report in US – CVD/AD (China) (DS 449) regarding the US GPX legislation;  the  prospects regarding US treatment of China as an NME after December 2016 and the potential impact on AD/CVD cases; an update on the definition of a “public body”; and the use of out-of-country benchmarks. 

The full document is here.

Let Them Eat Chocolate

My chocolate-loving friends tell me this is outrageous and something needs to be done:

Hershey filed a lawsuit in August against LBB Imports, a New Jersey company that sells specialty products from Britain, South Africa and Australia.

LBB has since stopped importing the U.K. brands that Hershey objected to. However, the move has ended up offending fans of British-made chocolate.

It sparked an angry response from Tea & Sympathy, a New York store that specializes in British goods.

"Due to legal action by the so-called chocolate maker Hersheys, we can no longer import the real Cadbury chocolate from England," the shop wrote on its Facebook page. "They want us to sell their dreadful Cadbury approximation but we can't in good conscience sell you such awful chocolate when we have made our reputation on selling you the yummy real English stuff."

Hershey accused LBB of violating trademark laws by importing U.K. candies such those made by Cadbury that only Hershey has the right to sell in the United States.

In the lawsuit, Hershey said LBB violated its trademarks by importing chocolate bars popular in the United Kingdom, such as Toffee Crisp, Yorkie, Maltesers and Cadbury.

Hershey argued that the black and orange packaging of Toffee Crisp too closely resembles that of its Reese's brand. Hershey says consumers might also confuse the U.K. brands Yorkie and Maltesers with its York and Malteser products.

...

Beckman said LBB recently signed an agreement to stop selling the forbidden confections and the lawsuit has since been dropped. 

As much as I'd like to help, I'm just not sure I see a government measure here that could be attacked with a trade complaint.  All the actions I see are private ones, unless perhaps there is something quirky in U.S. trademark law on these issues that violates the TRIPS Agreement.

It seems like there should be something Cadbury could do about this in U.S. court, but that's beyond my area of expertise.  Anyway, it sounds like Cadbury has some sort of licensing deal with Hershey's, so they may not be willing to push this.

A DSB for ISDS?

I don't read absolutely everything there is to read on ISDS, so maybe this proposal from U.S. Rep. Sander Levin is out there already and has been dicussed to death, but it was new to me:

TPP should include several new provisions to protect the rights of sovereign nations [in relation to ISDS], including: ... (3) ... a mechanism for the TPP countries to agree on an interpretation of an investment obligation, including a decision that a claim submitted to arbitration is not a claim for which an award in favor of the claimant may be granted by the tribunal

What does that last, italicized part mean?  It sounds like the TPP governments could step in and block a claim they did not like. It's not clear how exactly this would work. Would they review and approve all TPP ISDS claims, kind of like a GATT/WTO-style panel establishment process?  Or would they just, on an ad hoc basis, put a stop to claims that had gotten particularly bad publicity?  Would it have to be a unanimous decision, or is a majority enough?

Not that this is likely to go anywhere, of course, but interesting nonetheless.

Is There An International Economic Law "Super-Legislature"?

This is from University of Chicago law prof Brian Leiter:

I propose to defend and explore three claims in this lecture. First, there is very little actual “law” in federal constitutional law in the United States, especially with respect to cases that end up at the U.S. Supreme Court: there, the Court operates as a kind of super-legislature, albeit one with a limited jurisdiction, essentially making decisions based on the moral and political values of the justices, and not on the basis of legally binding standards. ... Second, the absence of law in so many parts of federal constitutional law means that the quality of moral and political judgment exercised by judges is of decisive importance in how they fulfill their role and thus should be the overriding factor in the appointment of federal appellate judges, especially Supreme Court Justices. That brings me to my third claim, namely, that all political actors know that the U.S. Supreme Court often operates as a super-legislature, and thus that the moral and political views of the Justices are decisive criteria for their appointment. ...

No doubt this is a controversial claim in the domestic law context.  How about in the international economic law arena?  Are trade and investment law panelists/arbitrators acting as a "super-legislature"?

Joost has been looking closely at just who these folks are: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549050 He notes:

Litigants devote an inordinate amount of time and resources to researching and selecting WTO panelists and ICSID arbitrators. Even when it comes to WTO  Appellate Body members, where the three division members are randomly selected, parties are known to have timed their appeals strategically so as to attract or avoid specific ABMs. Who decides matters.

So people are already spending a lot of time and effort on this.  If there is a "super-legislature," should they be spending even more?  Or is "super-legislature" just an attention-grabbing term, designed to inflame the debate and garner attention (and blog traffic)?

The CAFTA Labor Panel's Procedural Ruling

The CAFTA panel set up to hear the U.S. complaint regarding Guatemala's enforcement of its labor laws has issued a procedural ruling.  The basic question was, "how the panel should address, as a matter of procedure, a request by Guatemala for a preliminary ruling"?  Guatemala was seeking a separate, expedited procedure to address issues related to the terms of reference.

The panel majority rejected the request, saying that it could handle these issues as part of the normal process (i.e., along with the substantive issues).  A dissenter thought there should have been a special process to handle these procedural matters.

Here was one interesting point, related to the panel's view of the role of WTO jurisprudence:

54. In reaching the foregoing conclusion, we are mindful of the practice of panels in WTO dispute settlement proceedings. Although such practice has evolved under different international agreements, not the CAFTA-DR, both disputing Parties have referred to WTO dispute settlement practice in their written submissions. Since both disputing Parties see such practice as relevant here, it is not inappropriate for us to consider how WTO dispute settlement panels have dealt with preliminary ruling requests and how they have taken account of due process in doing so. ...

Clearly, WTO case law can carry some weight in FTA disputes.

These cases are more difficult to follow than WTO cases. Thanks to Matt Schewel of Inside U.S. Trade for the tip.

Banning GMOs for Cultural (or Moral) Reasons

Yesterday (January 13), the European Parliament passed a legislative resolution regarding the “possibility for the Member States to restrict or prohibit the cultivation of genetically modified organisms (GMOs) in their territory.”  The gist of this legislation is that the EU member states may ban GMOs for non-scientific (such as cultural and moral) reasons, with or without the existence of risk assessment (scientific justification).  Here are some noteworthy provisions (underlining added).

 -       That risk assessment provides scientific advice to inform the decision making process and is followed by a risk management decision that also takes into account other legitimate factors relevant to the matter.

 -       The precautionary principle should always be taken into account in the framework of this Directive and its subsequent implementation.

 -       There should be the possibility for a Member State to act as risk manager and adopt reasoned measures restricting or prohibiting the cultivation of a GMO (…) once authorised in all or part of its territory, on the basis of grounds relating to the public interest, which are in conformity with Union law.

 -       Member States should be allowed to base measures restricting or prohibiting the cultivation of a GMO (… ) also on other grounds that may include land use, town and country planning, or other legitimate factors including those relating to cultural traditions.

 Some legal experts reputedly said that the legislative resolution might not be consistent with the EU law and/or the WTO norms.  (See Joe Kirwin, EU Law Allowing GM Non-Scientific Crop Ban Passes Final Hurdle, Bloomberg (Jan.14, 2015)).  On the other hand, however, the new law might find supporters among trade law scholars.  (See Robert Howse & Joanna Langille, Permitting Pluralism: The Seal Products Dispute and Why the WTO Should Accept Trade Restrictions Justified by Noninstrumental Moral Values, 37 Yale J. Int’l L. 367 (2012)).  

 Also, some of provisions in this law remind me of one of findings by the Appellate Body in Hormones II (“By summarily dismissing the evidence on the misuse or abuse in the administration of the hormones and the consequent conclusions in the SCVPH Opinions in the manner that it did, the Panel incorrectly applied Article 5.1 and the definition of "risk assessment" in Annex A of the SPS Agreement, as interpreted by the Appellate Body” (para. 551), underlining added).

The EU Report on ISDS Public Consultations

The European Commission issued its report today on the public consultations it carried out on ISDS.  (A fact sheet is here; press release is here).

Commissioner Malmström held a press conference, but there didn't seem to be much interest.  (I think you can watch it here).  Only two reporters asked questions.  In response to the questions, Commissioner Malmström noted that a policy recommendation on ISDS would come in "the spring," and also that it was too early to say what the consultation meant for ISDS in the TTIP.

In terms of the content of the report, I glanced at it, but it's a lot to digest, so I don't have any deep thoughts at this point.  My quick impression:  There are a wide and diverse range of views on ISDS, from complete elimination, to expansion in various directions (stronger protections for investors, on the one hand; new regulations imposed on investors, on the other).

If I had to guess, I would say that the Commission's policy recommendations on this are going to look a lot like what they have already done with the CETA.  My sense is they think that, in CETA, they have gotten the ISDS balance pretty much right.

Even if the executive branch has made up its mind, the question will ultimately be decided by the voters -- in both the EU and U.S., but the EU is the battleground right now -- through their elected representatives.  It's hard to imagine a pure investment treaty passing in the EU/member state legislatures right now, but what about a package that includes other, more appealing forms of trade rules?  The EU trade agreements with Canada and Singapore will, presumably, offer the first test of all this.

The Role of DSU Article 11 in WTO Appeals

A few months ago, in its China - Rare Earths report, the Appellate Body said this:

5.227 ... an Article 11 claim must be clearly articulated and substantiated with specific arguments, including an explanation of why the alleged error has a bearing on the objectivity of the panel's assessment. This Article 11 claim raised by China does not meet these requirements and we therefore reject it.

5.228. We emphasize that, in so finding, we do not wish to suggest that participants should simply present more extensive argumentation in support of claims under Article 11 of the DSU. Rather, we wish to encourage appellants to consider carefully when and to what extent to challenge a panel's assessment of a matter pursuant to Article 11, bearing in mind that an allegation of violation of Article 11 is a very serious allegation. This is in keeping with the objective of the prompt settlement of disputes, and the requirement in Article 3.7 of the DSU that Members exercise judgement in deciding whether action under the WTO dispute settlement procedures would be fruitful.

I took this to mean that the Appellate Body was getting a little tired of all these Article 11 appeals, and was sending a message to Members to back off a little bit. I thought I blogged this at the time, but I can't find any record of it, so maybe I didn't.  But I definitely said it to people privately.

Unfortunately for me, the Appellate Body has, in its two latest decisions, gone a different direction than what I was anticipating.  In DS436, there were two findings of violation of DSU Article 11. See para. 4.456 and para. 4.615.  And in DS437, there was one finding of violation. See para. 4.198.  Finding violations based on Article 11 is not exactly a way of telling Members to stop making such arguments.  So, I guess Members should keep those Article 11 appeals coming!

Panel on Reshaping the Investor-State Dispute Settlement System

Here are some details on an upcoming event on ISDS here in DC:

The Wilson Center will host a panel to examine practical suggestions for reform of the current system of resolving international investment treaty disputes. The increase in cases against States and their challenge to public policy measures has generated a strong debate, usually framed by complaints about a perceived lack of legitimacy, consistency and predictability. While some ideas have been proposed for improvement, there has never before been a book systematically focusing on constructive paths forward. The new volume launched with this panel discussion features 38 chapters by almost 50 leading contributors, all offering concrete proposals to improve the ISDS system for the 21st century.

Date & Venue:

Thursday, February 26, 2015
8:30 am-9:00 am               Registration and Coffee Reception
9:00 am-10:30 am             Panel Discussion
6th floor Flom Auditorium
Wilson Center, Washington, DC
http://www.wilsoncenter.org/event/reshaping-the-investor-state-dispute-settlement-system-journeys-for-the-21st-century

It looks like an all-star lineup of panelists!

Call for Submissions: Utrecht Journal of International and European Law

The Utrecht Journal of International and European Law has issued a call for submissions for its 81st edition on "General Issues in International and European Law." The call is here, and says in part:

The Utrecht Journal of International and European Law is issuing a Call for Papers to be published in its 81st edition on ‘General Issues’ within International and European law. The Board of Editors invites submissions addressing any aspect of International and European law; topics may include, but are not limited to, International and European Human Rights Law, International and European Criminal Law, Transnational Justice, Family Law, Health and Medical Law, Children’s Rights, Commercial Law, Media Law, Law of Democracy, Intellectual Property Law, Taxation, Comparative Law, Competition Law, Employment Law, Law of the Sea, Environmental Law, Indigenous Peoples, Land and Resources Law, Alternative Dispute Resolution or any other relevant topic.

Transparency in the TTIP

The EU is pushing transparency in the TTIP, and has now posted online some negotiating documents: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1230 In my view, this is a positive development. There are some things you need to keep secret as part of a negotiation, but there are many other things that should be put out there as part of the public debate.

So now it's up to us, the public, to have that debate. I'll kick things off with a few questions/comments:

• Here's the EU's textual proposal on TBTs in the TTIP: http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153025.pdf Wouldn't it be better to pursue these ideas on a multilateral basis, at the WTO, rather than bilaterally?  Have similar proposals been made there?  What was the response?
• Here's one on subsidies: http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153031.pdf I'm a big fan of this sentence: "subsidies given to support insolvent or ailing companies without a credible restructuring plan belong to some of the most harmful types of subsidies and have the potential to have an adverse effect on trade and investment relations." I don't know how far the EU can get with this effort to crack down on subsidies, but I wish them well.
• Here's one on state-state dispute settlement: http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153032.pdf One interesting provision: "Any arbitration panel shall interpret the provisions referred to in Article 2 in accordance with customary rules of interpretation of public international law, including those codified in the Vienna Convention of 1969 on the Law of Treaties. The panel shall also take into account relevant interpretations in reports of panels and the Appellate Body adopted by the WTO Dispute Settlement Body (hereinafter referred to as the “DSB”). The rulings of the arbitration panel cannot add to or diminish the rights and obligations of the Parties under this Agreement." So WTO DSB rulings must be "taken into account," but what does that mean exactly?  Discussed and then ignored?  Followed very closely?  This may need further elaboration.  Also, why no appellate process in TTIP DS?

What’s in a Name?: Black Forest Ham and Cornish Pastry

Christian Schmidt, the German agriculture minister, reportedly said that "if we want to take advantage of the opportunities of free trade with the huge American market, we can no longer have every type of sausage and cheese each protected as a speciality."  Well, I doubt that most European farmers would agree with him. 

 Obviously, the issue of “geographical indication (GI)” has been one of hot potatoes in the Transatlantic Trade and Investment Partnership (TTIP) negotiations.  Many small European farmers want the current strong GI protection under the EU law to continue under TTIP.  If this position prevails, the U.S. producers would be forced to drop the label “Black Forest Ham” unless it actually originates from the black forest in Germany.  Likewise, the American businesses would no longer be able to use the term “Cornish parsty” unless it is from Cornwall, England.  However, if the U.S. position prevails, as hinted by the German agriculture minister, the American-made black forest ham, Cornish pastries, Parmesan cheese would soon compete with authentic European counterparts in Europe as the former can carry the same labels.   

 In sum, while European farmers may associate any loosening of their GI law with “misrepresentation,” American farmers tend to accuse its current form of “protectionism.”  It remains to be seen how Europe and the United States will bargain (compromise) over this diametrically opposite positions.  Also, any transatlantic deal on this thorny issue might affect the future of the GI law under TRIPS. 

TPA vs. TPP in U.S. Trade Politics

Victoria Guida of Politico reports:

Matthew Goodman, a former White House adviser on Asia-Pacific issues, said Monday that he expects the political fight over the Trans-Pacific Partnership to happen mostly in the context of a vote on legislation to renew trade promotion authority.

“I don’t think a TPA vote is going to be pushed until both parties feel like they know what they’re buying in TPP,” he told POLITICO after an event hosted by the Center for Strategic and International Studies, where he is the political economy chair.

Goodman predicted the situation might unfold like this: Congress will begin to move on TPA, prompting Japan to present its bottom line, which in turn could allow the U.S. and Japan to reach a bilateral market access deal in the first quarter of the year. Then, when TPA legislation comes up for a vote, members of Congress would be able to see a general outline of what TPP is expected to include before making a decision.

“So when TPP finally comes before Congress, [members can ask their staffers], ‘Does this comport with what I voted for when I voted for TPA?’” Goodman said. He added that the politics surrounding TPA and TPP could therefore all be largely settled by June.

I had a different impression of how things might play out. I thought there might be a somewhat muted debate on the vague language of TPA, with Congressional passage difficult, but achievable.  Then later there would be a much more contentious debate about TPP, when everyone saw the full details.  That vote would be a lot harder.

But as with all things politics, I'm not sure I really know much of anything.

Guest Post: More on US-Carbon Steel (India) (DS436), and US-CVD (China) (DS437)

This is a guest post from trade lawyer Adarsh Ramanujan:

In continuation of my earlier blog entry on the Article 12.7 jurisprudence arising from the Appellate Body Reports in US-Carbon Steel (India) (DS436), and US-CVD (China) (DS437), in this blog entry I will consider the discussions on Article 2 in these Reports. I will start with summarizing the findings in DS437 and DS436 and subsequently, share my thoughts (hopefully, not ramblings) when I read both Reports together. I hope the latter aspect of this post may be of interest to at least some readers. (Disclaimer: As part of the law firm I work for, I have been involved as the attorney for one of the parties in DS436 and as the attorney for one of the third participants in DS437. So, my thoughts may have to be taken with a pinch of salt when it comes to objectivity. I have attempted to use the language used by the Appellate Body as much as possible). 

Let me first summarize the findings of the Appellate Body in DS437 on Article 2.1(c):

(1)   Under the first factor in Article 2.1(c) ("use of a subsidy programme…"), the investigating authority must show "adequate evidence of the existence of a systematic series of actions" pursuant to which financial contributions that confer a benefit are provided to certain enterprises, which cannot be satisfied by the "mere fact that financial contributions have been provided to certain enterprises". (paras. 4.141, 4.143)

(2)   Articles 2.1(a)-(c) does not "call[sic] for a strict sequential analysis", though one has to be cautious in directly assessing only under Article 2.1(c) without applying paragraphs (a) and (b) of Article 2 (para. 4.130). The tenor used by the Appellate Body is in-line with earlier findings.

(3)   Apparently, even "unwritten measures" may be analysed under Article 2.1(a)-(c), so long as the granting authority or the legislation pursuant to which the granting authority operates "explicitly" limits access to the subsidy at issue (para. 4.129). It is not entirely clear what implications to draw from finding, which seems a little too theoretical. Subsidies contained in "law, regulation, or other official document" appear to be contained within the scope of "written measures" as per the Appellate Body's finding. This raises the question – which "unwritten measure" can "explicitly" limit the access to the subsidy?

(4)   As per the chapeau to Article 2.1, there is a need for a "proper determination of whether the relevant jurisdiction is that of the central government or whether it is that of a regional or local government, and whether the granting authority therefore operates at a central, regional, or local level" (para. 4.166). But does this imply that the investigating authority must also identify the identity of the granting authority? This is what the Appellate Body observes on this issue:

4.168. …While an analysis of the jurisdiction of the granting authority could start with an identification of the granting authority, we do not see why the order of analysis suggested by China would always be required. Rather, as we see it, the identification of the jurisdiction of the granting authority involves a holistic analysis of the relevant facts and evidence in each case. Indeed, the notion of jurisdiction is linked to, and does not exist in isolation from, the granting authority. Thus, a proper identification of the jurisdiction of the granting authority will require an analysis of both the "granting authority" and its "jurisdiction" in a conjunctive manner. We therefore do not read Article 2.1 in a manner that focuses on the identity of the "granting authority" independently from its "jurisdiction". A holistic analysis of the jurisdiction of the granting authority is what provides the framework within which specificity is to be analysed. In sum, provided that an investigating authority adequately substantiates any finding it makes as to whether the jurisdiction covers the entire territory of the relevant WTO Member or is limited to a designated geographical region within that territory, in conducting this holistic assessment it would normally also identify the granting authority.

4.169. We also consider that the chapeau of Article 2.1 does not require an investigating authority to identify the jurisdiction of the granting authority in an explicit manner or in any specific form, as long as it is discernible from the determination…

(Emphasis supplied in bold and italics)

Let me now summarize the findings of the Appellate Body in DS436 on Article 2.1(c):

(1)   The first factor under Article 2.1(c) does not require an authority to show any sort of discrimination – there is no need to engage in the "comparative assessment of subsidy recipients with some category of 'others' that are similarly situated" (para. 4.384).

(2)   The first factor under Article 2.1(c) seeks only to examine evidence that the "certain enterprises" using a subsidy programme are limited in number, and does not denote that the actual recipients must form a subset of "certain enterprises" (para. 4.379).

(3)   Article 2.1 does not preclude the possibility of finding that the provision of goods is de facto specific solely based on the inherent characteristics of the goods being provided (para. 4.398).

Clearly, some readers may wonder now what I meant by discussing the implications of reading both Reports together since the legal issues presented in both disputes under Article 2 are quite different. For starters, the factual bases leading to the disputes are almost identical – both involved subsidies that were found de facto specific under the first factor of Article 2.1(c) only because the end-users of the subsidy in question were inherently "limited" in number. The almost identical determination was challenged under the same Article 2.1(c) under totally different approaches. I somehow feel that this may be due to the unsettling and controversial nature of Article 2.1(c) itself (others may ascribe other reasons, including without limitation, legal creativity). Second, I believe that some observations of the Appellate Body in both disputes do not appear to sync well with each other. This specifically relates to the first point in the summaries presented earlier of both disputes.

In DS436, India was appealing from the Panel's Report, which contained an observation not challenged by the United States on appeal, that:

7.121. ...In both cases [i.e. Articles 2.1(a) and 2.1(c)], what matters is the existence of a restriction on access to the subsidy, in the sense that the subsidy is available to certain enterprises, industries, or groups of enterprises or industries, but not to others...                                                              

(Emphasis  supplied in italics)

India's argument was essentially that this so-called 'others' that the Panel refers must be 'similarly situated' entities who would otherwise be eligible to the financial contribution in question. The Panel had ruled that the identity of these 'others' was irrelevant to the analysis (Panel Report, paras. 7.122). On appeal, the Appellate Body upheld the Panel's findings and rejected India's argument:

4.384. …We do not see a textual basis in Article 2.1(c), and specifically in the terms "certain" and "limited number", for a requirement to identify which enterprises or industries are "similarly situated" prior to then having to assess whether only a subset of those "similarly situated" have de facto access to, or are otherwise eligible for, the subsidy. As the Appellate Body has explained, eligibility is key to a consideration of de jure specificity under subparagraphs (a) and (b) of Article 2.1 of the SCM Agreement: "Article 2.1(a) describes limitations on eligibility that favour certain enterprises, whereas Article 2.1(b) describes criteria or conditions that guard against selective eligibility."  We do not see that this focus on the eligibility of subsidy recipients, however, conveys a comparative assessment of subsidy recipients with some category of "others" that are similarly situated…

(Emphasis supplied in bold and italics)

 To support its arguments, India had placed reliance on certain observations of the Appellate Body in US – Large Civil Aircraft (2nd complaint), which provided confirmation that specificity analysis required a comparative assessment between the expected and actual allocations of a subsidy, which, in India's view, supported its position (para. 4.387).  While the Appellate Body agreed with India that such observations were indeed made by the Appellate Body in US – Large Civil Aircraft (2nd complaint) (para. 4.388), it nonetheless found these observations to be limited only to the third factor mentioned in Article 2.1(c):

4.389. In our view, the Appellate Body's analysis in US – Large Civil Aircraft (2nd complaint) was particular to the third factor in Article 2.1(c) and the circumstances of that case. The Appellate Body further noted that the language of the third factor necessarily involves a "relational concept" that assesses whether the actual allocation of the subsidy is too large relative to what the allocation would have been if administered in accordance with the conditions for eligibility for that subsidy.  We do not see that an investigating authority or a panel could assess whether "amounts of subsidy" that were granted were "disproportionately large" without having some benchmark, perhaps informed by who was expected to receive that subsidy, against which to compare those granted amounts. This suggests that different considerations inform an assessment under the first and third factors of Article 2.1(c).  We therefore do not consider that the Appellate Body's reasoning in US – Large Civil Aircraft (2nd complaint) concerning the third factor of Article 2.1(c) is apt in assessing whether the first factor entails an assessment of whether there has been discrimination between a limited number of subsidy users representing a subset of "certain enterprises".

(Emphasis supplied in bold and italics)

 

Ten 10 days later in time, in DS437, the Appellate Body observes:

4.140.  As the Appellate Body has previously found, the starting point of an analysis of specificity is the measure that has been determined to constitute a subsidy under Article 1.1.  This is supported by the fact that the chapeau of Article 2.1 establishes that "a subsidy, as defined in paragraph 1 of Article 1", is the measure under scrutiny for purposes of determining whether it is specific…Importantly, however, a specificity analysis under Article 2.1 focuses not only on whether a subsidy has been provided to particular recipients, "but focuses also on all enterprises or industries eligible to receive that same subsidy".  As such, an inquiry into whether a particular subsidy is specific to certain enterprises may require determining "what other enterprises or industries also have access to that same subsidy under that subsidy scheme".  It is relevant therefore to consider not only the actual, but also the past and potential recipients of a particular subsidy.

(Emphasis in italics are in original; emphasis supplied in bold and italics)

The Appellate Body in DS437 is referencing its earlier findings in US – Large Civil Aircraft (2nd complaint) in footnotes (specifically, para. 753 of that Report, among others). Curiously, the reference used in DS437 is to a section where the Appellate Body was analyzing Article 2.1(a). However, the claim under discussion in DS437 is under Article 2.1(c). Is the Appellate Body in DS437 hinting that one needs to examine the "actual…past and potential recipients", even under the first factor to Article 2.1(c)?  Consider also, the following observation in US – Large Civil Aircraft (2nd complaint), which was made directly in the context of Article 2.1(c):

877. We have explained that Article 2.1(c) proceeds where "there are reasons to believe that the subsidy may in fact be specific". This means that, having reached the conclusion that there is an "appearance of non-specificity" following the application of the principles set out in Article 2.1(a) and (b), a panel must consider whether, in the light of the arguments and evidence submitted by the parties, there are "reasons" for it to consider that an assessment under Article 2.1(c) is warranted. The inquiry under Article 2.1(c) thus focuses on whether a subsidy, although not apparently limited to certain enterprises from a review of the relevant legislation or express acts of a granting authority, is nevertheless allocated in a manner that belies the apparent neutrality of the measure. This inquiry requires a panel to examine the reasons as to why the actual allocation of "amounts of subsidy" differs from an allocation that would be expected to result if the subsidy were administered in accordance with the conditions for eligibility for that subsidy.

 (Emphasis supplied in bold and italics)

The penultimate sentence in the above quote appears to be generally worded. The initial sentences of that paragraph also appear to suggest that as a matter of general rule under Article 2.1(c), one has to examine "allocat[ion] in a manner that belies the apparent neutrality" of the measure. Can an investigating authority examine "allocation…that…belies…neutrality" without considering the identity of the entities not receiving the subsidy? After all 'neutrality' can be 'belied' only when the entities / person not receiving the subsidy de facto would normally be 'potential recipients'.

Therefore, now, we have a Panel observation (not reversed on appeal) from DS436 that even under the first factor of Article 2.1(c), the examination involves a subsidy being available to certain enterprises but not to "others", though the identity of the 'others' is considered irrelevant. On the other hand, we seem to have observations in both DS437 and US – Large Civil Aircraft (2nd complaint) that, perhaps, the identity of those not receiving the subsidy is relevant even for a de facto specificity analysis under Article 2.1(c).

ISDS as International Judicial Revew

This is from an article by Eric Posner and Glen Weyl:

Longstanding worries that judicial review interferes with democratic values, blocks publicly beneficial legislation, and can lead to backlash, have never gained a foothold.

The article as a whole is interesting, but I'm not going to talk about its main points.  What struck me is that while the statement in this sentence is no doubt true in the domestic law context (certainly in the U.S., and I think many other places as well), in the international law context things are much less settled.  In fact, when I look at the debate over ISDS, I think the core issue may be this exact issue:  There are concerns that international judicial review through ISDS can interfere with democratic values and block publicly beneficial legislation.  I can't see any way around the fact that it does the former (at least in the sense of being counter-majoritarian); the latter is more uncertain, depending in large part on the particular legal standards.

Not that it's easy to frame "international judicial review" as a subject that the media focuses on, but I'd really like to see the ISDS debate emphasize this issue more that it has.

Trade and CO2 Emissions

This is from Inside U.S. Trade:

U.S. trade officials are pressing South Korea to water down a new Korean car emissions standard or else give U.S. automakers wider leeway in complying with it, in what appears to be a second push by the Obama administration against Korean policies aimed at curbing vehicle pollution.

U.S. officials made that demand at a Dec. 15 meeting in Washington between U.S. Trade Representative Michael Froman and Korean Minister of Trade, Industry and Energy Yoon Sang-jick. The session, which constituted the third meeting of the Joint Committee under the U.S.-Korea free trade agreement, also addressed U.S. worries about how Korea is regulating cross-border transfers of financial data, and the FTA's "built-in agenda."

...

Korea announced its new CO2 emissions standard at the beginning of September 2014. The standard is set to be phased in between 2016 and 2020, and requires automakers to have an average emissions value of no greater than 97 grams of carbon dioxide per kilometer across their entire fleet. The target is less stringent than what Europe is aiming for by 2020, at 91 g/km, but more restrictive than the 113 g/km U.S. standard for that year. The current Korean standard is 140 g/km.

The target is problematic for U.S. automakers in particular because they typically sell larger, higher emissions vehicles in South Korea and have not been competitive in the smaller vehicle segment. Complying with the new standard, however, would require them to market a more diverse fleet in order to meet the average.

This seems like a bit of a minefield of an issue, with the administration forced to balance out industry demands with those of environmental interest groups. Not that environmental groups would be supporting FTAs anyway, but this will surely get them more fired up in opposition.

It also makes me wonder about the relationship of FTAs and the WTO.  Has this issue been raised in the TBT Committee?  It certainly seems like it could be.

In related news, the latest issue of Trade, Law and Development is all about trade and climate change: http://www.tradelawdevelopment.com/index.php/tld/index

Guest Post: US-Carbon Steel (India) (DS436), and US-CVD (China) (DS437)

This is a guest post from trade lawyer Adarsh Ramanujan:

This blog earlier carried a post on the developments in the SCM benchmarking analysis arising from the Appellate Body decisions in US-Carbon Steel (India) (DS436), and US-CVD (China) (DS437). I consider these two reports as a watershed in SCM jurisprudence, given that it elaborates on a number of aspects of the SCM Agreement. Deliberating on all these aspects may require a series of blog entries. Given that there is already one on the Article 14 implications, I thought I will add to the list, this time focusing on the 'facts available' standard (Disclaimer: As part of the law firm I work for, I have been involved as the attorney for one of the parties in DS436 and as the attorney for one of the third participants in DS437. So, my thoughts may have to be taken with a pinch of salt when it comes to objectivity. I have attempted to use the language used by the Appellate Body as much as possible).

The significance of the Appellate Body's findings in these recent reports on Article 12.7 of the SCM Agreement may be better understood with a short background. Before DS436 and DS437, the Appellate Body provided important clarifications on the 'facts available' standard under both the SCM Agreement (Article 12.7) and the AD Agreement (Article 6.8), in its Report in Mexico – Anti-Dumping Measures on Rice (DS295). The Appellate Body in that Report did mention that the standards across the two agreements cannot be "markedly different":

295. ……Indeed, in our view, it would be anomalous if Article 12.7 of the SCM Agreement were to permit the use of "facts available" in countervailing duty investigations in a manner markedly different from that in anti-dumping investigations.

In that vein, the Appellate Body did provide certain common aspects of both provisions – e.g. the need to take into account all substantiated facts even if such facts do not constitute the complete information (paras. 288, 292, 294, 297). Nonetheless, the Appellate Body did not entirely use the exact same language in describing the nature of the right / privilege granted under both provisions, throughout its Report. In respect of Article 6.8 of the AD Agreement, the Appellate Body found:

289.     With respect to the facts that an agency may use when faced with missing information, the agency's discretion is not unlimited.   First, the facts to be employed are expected to be the "best information available". In this respect, we agree with the Panel's explanation:

The use of the term "best  information" means that information has to be not simply correct or useful per se, but the most fitting or "most appropriate" information available in the case at hand.  Determining that something is "best" inevitably requires, in our view, an evaluative, comparative assessment as the term "best" can only be properly applied where an unambiguously superlative status obtains.  It means that, for the conditions of Article 6.8 of the AD Agreement and Annex II to be complied with, there can be no better information available to be used in the particular circumstances.  Clearly, an investigating authority can only be in a position to make that judgement correctly if it has made an inherently comparative evaluation of the "evidence available".  (original emphasis;  footnote omitted)

…

(Emphasis supplied in bold and italics)  

In other words, Article 6.8 of the AD Agreement only permits investigating authorities to use the "best information available", which information is to be selected based on "inherently comparative evaluation of the "evidence available"". On the other hand, in respect of Article 12.7 of the SCM Agreement, the Appellate Body used entirely different wordings:

294.     In view of the above, we understand that recourse to facts available does not permit an investigating authority to use any information in whatever way it chooses.  First, such recourse is not a licence to rely on only part of the evidence provided.  To the extent possible, an investigating authority using the "facts available" in a countervailing duty investigation must take into account all the substantiated facts provided by an interested party, even if those facts may not constitute the complete information requested of that party.  Secondly, the "facts available" to the agency are generally limited to those that may reasonably replace the information that an interested party failed to provide.  In certain circumstances, this may include information from secondary sources.

(Emphasis supplied in bold and italics)

Crucially, one may consider the following points:

-          whereas the Appellate Body used the phrase "best information available" to describe which fact may ultimately be used under the AD Agreement, the Appellate Body found that under the SCM Agreement, facts that "reasonably replace" the missing information can be used;

-          whereas the Appellate Body prescribed an obligation of conduct under the AD Agreement, i.e. engage in an "inherently comparative evaluation of the "evidence available"", this was not specifically postulated in respect of the SCM Agreement.

Although the Report in Mexico – Anti-Dumping Measures on Rice was considered as postulating the identical standards under both agreements (for instance, see Panel Report, China – Autos (US), para. 7.712.), some may wonder (as I did before the Report in DS436), whether these differences in language in the Appellate Body Report result in a "markedly different" approach to the 'facts available' standard under the two agreements.

In my opinion, the Appellate Body Report in DS436 has now effectively ironed out these issues: 

• The Appellate Body has now clarified why the phrase 'reasonably replace the missing information' was used in the earlier report in Mexico – Anti-Dumping Measures on Rice:

4.416. …This suggests that the process of identifying the "facts available" should be limited to identifying replacements for the "necessary information" that is missing from the record… Article 12.7 is not directed at mitigating the absence of "any" or "unnecessary" information, but is rather concerned with overcoming the absence of information required to complete a determination…Accordingly, there has to be a connection between the "necessary information" that is missing and the particular "facts available" on which a determination under Article 12.7 is based. For this reason, the Appellate Body in Mexico – Anti-Dumping Measures on Rice stated that an investigating authority must use those "facts available" that "reasonably replace the information that an interested party failed to provide"[1], with a view to arriving at an accurate determination.

(Emphasis supplied in bold and italics) 

• Second, taking contextual support from the title to Article 12 as well as Article 12.5, the Appellate Body clarified: 

4.418. …In the light of this context, we consider that the task of ascertaining which "facts available" reasonably replace the missing "necessary information" under Article 12.7 calls for a process of reasoning and evaluation. In our view, it would not be possible to identify whether replacements for the missing "necessary information" are "reasonable", and thus constitute the "evidence" on which to ground a determination, without engaging in such a process.

 

4.419. We further consider that, as part of the process of reasoning and evaluating which "facts available" reasonably replace the missing information, all substantiated facts on the record must be taken into account.  It would frustrate the function of Article 12.7, namely, to "replac[e] information that may be missing, in order to arrive at an accurate subsidization or injury determination", if certain substantiated facts were arbitrarily excluded from consideration…

 

4.424. …[title of Annex II, AD Agreement] supports our understanding of Article 12.7, namely, that ascertaining the reasonable replacements for the missing "necessary information" involves a process of reasoning and evaluation. As with Article 6.8 of the Anti Dumping Agreement, this in turn calls for a consideration of all substantiated facts on the record.

 

4.435. …an investigating authority would generally be expected to engage in a process of reasoning and evaluation with regard to the facts on the record as an incident of conforming to the legal standard for Article 12.7, i.e. to ascertain those "facts available" that reasonably replace the missing "necessary information", with a view to arriving at an accurate determination. Where there are several "facts available" from which to choose, it would seem to follow naturally that the process of reasoning and evaluation would involve a degree of comparison.

(Emphasis supplied in bold and italics) 

Effectively now, even Article 12.7 places an obligation of conduct on investigating authorities to provide reasoning and evaluation to justify the selection of a given 'fact' under Article 12.7, on par with the language used in Mexico - Anti-Dumping Measures on Rice. 

• Third, prescribing such an obligation of conduct would be meaningless if this could not be questioned and reviewed. In that respect, in a short reference, the Appellate Body in DS436 clarified that the "explanation and analysis provided in a published report" by the investigating authority must be sufficient to allow a panel to assess whether Article 12.7 of the SCM Agreement was properly complied with. Specifically elaborating on the interplay between Article 11 of the DSU and Article 12.7 of the SCM Agreement, the Appellate Body in DS437 found: 

4.189. Although the precise contours of the standard of review to be applied in a given case are a function of the substantive provisions of the covered agreements at issue, as well as the particular claims made, Article 11 of the DSU requires, inter alia, that panels scrutinize whether the reasoning of an investigating authority is coherent and internally consistent, and carry out an "in depth examination" of the explanations provided by an investigating authority.  In the context of Article 12.7 of the SCM Agreement, such an "in depth examination" by a panel would entail, inter alia, assessing whether an investigating authority's published report provided an explanation that sufficiently disclosed its process of reasoning and evaluation such that the panel could assess how the authority chose from the facts available those that could reasonably replace the missing information…

(Emphasis supplied in bold and italics) 

• Fourth, the Appellate Body has clarified that procedural circumstances are relevant in assessing the application of Article 12.7, though such procedural circumstances resulting in the application of Article 12.7 cannot be the sole ground:

 

4.422.  We also consider that Articles 12.4 and 12.11 shed light on the meaning of Article 12.7…In our view, the context provided by these provisions suggests that the manner or procedural circumstances in which information is missing can be relevant to an investigating authority's use of "facts available" under Article 12.7. In particular, Article 12.11 requires an investigating authority to take "due account of any difficulties experienced by interested parties"… Whether and how such procedural circumstances should be taken into account by an investigating authority, and any appropriate inferences that may be drawn, will necessarily depend on the particularities of a given investigation. We recall, however, that determinations under Article 12.7 must be made on the basis of "facts" that reasonably replace the "necessary information" that is missing, and thus cannot be made on the basis of procedural circumstances alone.

 

4.426. [The final sentence of paragraph 7 of Annex II to the Anti-Dumping Agreement] acknowledges that non-cooperation could lead to an outcome that is less favourable for the non-cooperating party…The juxtaposition between the "result" and the "situation" of non-cooperation in this clause confirms our understanding that the non-cooperation of a party is not itself the "basis" for replacing the "necessary information"…In this regard, we note that paragraph 1 of Annex II makes a connection between the "awareness" of an interested party, and the ability for an investigating authority to have recourse to the "facts available". This suggests that the knowledge of a non cooperating party of the consequences of failing to provide information can be taken into account by an investigating authority, along with other procedural circumstances in which information is missing, in ascertaining those "facts available" on which to base a determination and in explaining the selection of facts. Having said that, where there are several "facts available" from which to choose, an investigating authority must nevertheless evaluate and reason which of the "facts available" reasonably replace the missing "necessary information", with a view to arriving at an accurate determination.

(Emphasis supplied in bold and italics) 

In other words, the fact of non-cooperation itself can be used as a factor to explainwhy a certain 'fact' was chosen under Article 12.7; but it cannot always be the sole reason.

Without a doubt, these standards would have significant implications on how authorities apply the 'facts available' standard in futures investigations. In both disputes, the Appellate Body did not complete the legal analysis to apply these legal standards to the facts. That would have been interesting aspect to analyze, especially where it includes as assessment of whether the published report of the investigating authority "sufficiently disclosed" its process of reasoning and evaluation. Therefore, at some level, one may imagine that there is no 'illustration' to investigating authorities / exporting members on what level of explanation is sufficient and what isn’t. The Panel / Appellate Body may have more opportunities in this respect, since these findings (which only clarify pre-existing obligations) would likely encourage members to look at previously issued CVD determinations with a microscope.  

---

[1] Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 294. (emphasis added)