International Economic Law and Policy Blog

Trade Polling

Generally speaking, I don't think much of the polling done on trade issues.  The questions are too vaguely worded to tell us much.  So, I'm never sure what to make of news reports like this one:

Most Americans say they support new trade deals, according to a new Reuters/Ipsos poll out this week. The latest results come as President Barack Obama faces an uphill battle to win congressional support for the landmark Trans-Pacific Partnership trade deal with Pacific Rim countries.

The poll, which was conducted during the past week, found that 56 percent of Americans back trade deals to promote the overseas sale of U.S. goods. Just 13 percent would oppose such deals, while 31 percent remain undecided.

It should be noted that the participants were not asked specific questions about the fast-track legislation proposed by the White House, nor about TPP itself.

...

In a separate poll released Wednesday by Pew, 58 percent of those surveyed said international trade agreements have benefited the U.S., while 33 percent said they have not. Fewer American adults — 43 percent — said that those trade deals have helped their personal finances. That poll surveyed 2,002 adults, with an overall margin of error of plus or minus 2.5 percentage points.

Despite my skepticism, I find the issue intriguing enough that I often check out the specific questions asked.  Here's one that I found interesting:

Note that the percentage of people saying free trade agreements are a "good thing" (gotta love the precision of that characterization!) ranged from 34-49% in the "trend for comparison" section, but jumped to 48-59% in the main results section.

Why the jump?  What changed people's views?  Well, one possibility is the different wording of the question.  In the earlier wording, the question gets specific and mentions NAFTA and the WTO.  In the later wording, it mentions free trade agreements generically, but doesn't say which ones.

It's hard to say why certain terms give off a negative feeling, but my sense is that NAFTA is more negative in the public's view, while "free trade" is more positive.  I'm not sure what to do with that, but it is worth pointing out that the current mega-regional trade agreements under negotiation do not have "free trade" in them.

More Plain Packaging

This time from Norway:

Norway’s Ministry of Health and Care Services has proposed the imposition of a requirement for all tobacco products to be sold in standardized packaging, according to a World Trade Organization notification.

It has not been decided when the measure should be adopted or when it should come into force. Comments are being invited.

The TBT notification is here.  It states:

Description of content: The Ministry proposes the introduction of standardised tobacco packaging in Norway. This proposal will apply to all types of tobacco products. Standardised tobacco packaging involves a uniform layout and design on all tobacco packaging, as well as a ban on manufacturers' logos, trademarks, images, colours or other forms of advertising.  

Packaging shall only have one solid colour, and some of the products will be required to have specific packaging materials. Brand names and variant names, as well as manufacturer information, shall have standardised colour, placement, font and size. The Ministry also proposes standardisation of other elements such as barcodes, packing material, etc. The packaging shall retain the mandatory health warnings and other information in accordance with current legislation.  

The Ministry furthermore proposes that the design of tobacco products and smoking accessories should be standardised to a certain extent, including the colour of the cigarette paper and snus portions, as well as the specification of brand names and variant names. A legal basis for standardising the packaging of tobacco surrogates is also proposed, but specific regulations are not proposed at this time. Tobacco surrogates include herbal cigarettes and herbal snus, among others. 

And:

Objective and rationale, including the nature of urgent problems where applicable: The overarching vision of the National tobacco control strategy for the period 2013–2016 is a long-term goal of making Norway a tobacco free society. Despite significant progress in the area of tobacco control in Norway, smoking continues to the single largest preventable cause of premature death and poor health. Snus also has harmful effects on health, and its use has increased over the past few years, especially among young people. A significant decline in the number of tobacco users is therefore the most important measure for improving public health.  

The Ministry finds it unacceptable that such a high number of children and young people begin using tobacco. If we are to achieve our goal of a tobacco-free generation, and in the long term, a tobacco-free society, it is absolutely essential to limit the appeal of tobacco products to children and young people.

The overarching objective of the proposal is to reduce the number of children and youngsters who begin smoking and using snus, in order to protect them from the harmful effects of tobacco use. More specifically the objective is to make tobacco products less appealing by limiting the advertising effect of the packaging, increasing the impact of the mandatory health warnings, as well as minimising the risk that the packaging design gives misleading information about the harmful health effects of tobacco. It is assumed that the measure will also contribute toward a moderate reduction in the use of tobacco among adults by helping people to quit smoking and using snus, and by helping to prevent relapse among those who have quit. It will also have the effect of denormalising tobacco products and tobacco use.

Research has shown that packaging design may give the false impression that tobacco products are less harmful to one's health than is actually the case, especially to young people. In the preamble of the new EU Directive, point 27 states that certain types of tobacco packaging may give the impression that the product purports benefits in terms of weight loss, sex appeal, social status, or qualities such as femininity, masculinity or elegance. The packaging is designed to make the use of tobacco appear more attractive and appealing, especially among young people, and reduces the impact of the health warnings. Furthermore, it is well known that the appearance of various brands may have some importance as identity markers. It is therefore the opinion of the Ministry that standardised appearance and design of tobacco packaging may be a useful and effective preventative measure, especially with regard to young people.

The proposal will contribute toward fulfilling Norway's obligations as a party to the FCTC. 

At the link with the TBT notification, there is also a Norwegian government document entitled "Consultation on the proposal for standardised tobacco packaging and the implementation of  Article 5.3 of the Framework Convention on Tobacco Control."  Among other things, this document considers the consistency of the proposed legislation with various domestic and international law obligations.  In this regard, it states:

3.7.4 The Norwegian Constitution and the ECHR

The Ministry has also assessed the proposal for standardised tobacco packaging in relation to the Norwegian Constitution and the European Convention on Human Rights (ECHR).

Section 97 of the Constitution ensures a certain level of protection against a retroactive effect of new legislation on established rights. It could be asserted that standardised tobacco packaging interferes with the tobacco manufacturers’ established trademark rights. A right holder must however in principle accept interference by the legislative branch. The Supreme Court has declared that it is only in cases where interference with established rights has a “clearly unreasonable or unfair” effect that interference is prohibited under Section 97 of the Constitution, cf. Case 1996 p. 1415 Borthen. Constitutional protection hinges on a balancing of the consideration for those who are affected by the interference and those societal considerations underlying the measure. It must also be considered whether the measure is necessary and justifiable in protecting the relevant interests of society. The proposal for standardised tobacco packaging is grounded in the need to protect particularly strong and legitimate societal interests of protecting public health. These provisions are introduced in an area with already extensive regulations and where further measures must be expected, and where the expectations of right holders and consideration for their needs is therefore somewhat restricted. The Ministry finds that the possible retroactive aspect of the proposed legislation is not “clearly unreasonable or unfair” and therefore not in conflict with Section 97 of the Constitution.

Section 105 of the Constitution states that a person who is forced to surrender his “property” may claim “full compensation” for the financial loss suffered as a consequence of this surrender. It is clear that the imposition of standardised tobacco packaging does not constitute a surrender of property as described in Section 105 of the Constitution, since it only entails governmental limitations on the use of the trademark.

There may be an issue of whether intellectual property rights fall within the concept of “property” in Article 1 Protocol 1 of the ECHR, which provides protection for property rights. The Ministry finds that should the proposed limitations in the use of trademarks be viewed as interference under the provisions, it would still be deemed lawful since it has a legitimate objective and fulfils the requirements of proportionality, as it does not involve a disproportionate intervention.

Section 100 of the Constitution states the right to freedom of expression. The Ministry has assessed whether standardised tobacco packaging would conflict with this provision, since it restricts tobacco manufacturers’ right to freedom of commercial expression.

Commercial expression is considered falling outside the core area of the provision on freedom of expression. In practice, the legislators may limit commercial expression if there are compelling societal interests which make this necessary. This includes the existing prohibitions on tobacco and alcohol advertising. The underlying premise is that commercial expression in the form of advertising for goods and services which have been viewed as harmful to society, does not deserve the same constitutional protection as political, religious, moral and cultural expression.

Section 100 of the Constitution, second and third paragraph, states that an assessment of the various interests is essential. The purpose of the interference must be able to justify the interference. The interests of the tobacco industry in advertising their products cannot be considered as important as the objective of reducing the use of tobacco among young people, thereby preventing adverse health effects from tobacco use. In this assessment, consideration for public health weighs more heavily than consideration for the interests of the industry in increasing its revenue from an exceptionally harmful product. The Ministry therefore finds that standardised tobacco packaging does not conflict with Section 100 of the Constitution. A similar assessment will apply under Article 10, no. 2 of the ECHR.

Those who are interested in comparative law should have a field day over the next few years analyzing the challenges to plain packaging measures under various domestic and international legal instruments.

Financial University Organizes Conference on Russia and the WTO

On 19-20 May 2015, the Financial University of the Russian Federation held its first international conference on the topic of "WTO Law in the Legal System of the Russian Federation: Problems of Application and Teaching."  To my knowledge, this was the first international legal conference held to address the Russian Federation's 2012 accession to the World Trade Organization (WTO) and the current role of the Russian Federation in the WTO.  The Financial University under the Government of the Russian Federation (Finuniversitet) is a leading publicly-funded institution of higher professional education (whose roots go back to the early 20th century).  The conference was supported by a grant from the U.S. Russian Foundation for Economic Advancement and the Rule of Law (USRF).

The conference consisted of over two dozen presentations regarding international trade law and policy and the trade law of the Russian government. 

Among the main lecturers on the first day of the conference were: Jan Bohanes, senior counsel of the Advisory Centre on WTO Law (Geneva), who lectured on constructed normal value in antidumping; Professor Steve Charnovitz of George Washington University Law School (Washington, D.C.) who lectured on the WTO-plus provisions in the Russian WTO accession package; Professor Anatoly Kapustin, Head of the Legal Comparative Research Centre who lectured on Russia and WTO Law; Professor Vasilka Sancin of the University of Ljubljana who lectured on models for an appellate mechanism in investor-state dispute settlement; Anait Smbatyan, Senior Expert at the WTO Expertise Center (Moscow) who lectured on WTO implementation; Eric M. Solovy, partner at Sidley Austin LLP (Washington, DC) who lectured on the obligations of and caselaw under the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) and the WTO Agreement Subsidies and Countervailing Measures (SCM).  Excellent additional presentations were made by Mark G. Pomar, President of USRF and by Professor and Deputy Rector Dmitry Sorokin of Finuniversitet.

On the second day of the conference, two parallel workshops were held featuring scientific presentations by leading academics and practitioners from Moscow and other Russian cities.  Several presentations addressed the challenges and opportunities of teaching international economic law to Russian students.  In addition, Professor Alexey N. Ruzhin of the Russian Foreign Trade Academy gave a lecture on the enforcement of international trade and customs law in the Russian economy.

Organizing a major global conference on WTO law is a difficult task and Financial University Associate Professor Igor Shulyatyev is to be commended for planning and carrying out a landmark conference on key policy and technical challenges facing the Russian government in its WTO membership.  In the future, the Financial University should consider building on its success and holding a second annual conference in 2016. 

TPA is Half Done

The Senate half is done.  From Reuters:

President Barack Obama scored a major victory on Friday when the U.S. Senate voted to give him "fast-track" powers that would help wrap up negotiations on a 12-nation Pacific Rim trade deal central to projecting American influence in Asia.

But the House half is not:

Attention now turns to the House of Representatives, where opposition is deeper to granting the president power to negotiate trade deals that can be approved or rejected by Congress but not amended.

Of course, TPA is just the precursor to TPP.  So how does everyone see the TPP right now?  Is the glass half empty or half full?  Some people say the TPP could be wrapped up two weeks after TPA passes.  That sounds like a stretch, although I really have no idea how much negotiating is left.

But then we get to the real test:  A massive debate over the publicized TPP text when it is released.  I don't have a sense of what the debate will be like in other countries, but I predict that it will be like nothing we have ever seen on trade in the U.S., for three reasons:  The experience we now have with the "non-trade" provisions, the internet, and the size of the countries involved.  

The 1993-1994 debate over the WTO and NAFTA was a pretty big deal, but that debate was mainly just about trade itself, in particular trade with developing countries.  People did not have much to say about ISDS and IP protection at the time; these days, by contrast, they have a lot to say.

And now they have a place to say it:  The internet.  I'm sure there were some forcefully written letters to the editor regarding NAFTA, and some nicely bound policy papers, but how much impact could that really have?  These days, opponents of major government initiatives of all sorts have a real voice, and can get their message heard.

And yes, we have had these debates before on a smaller scale, with CAFTA and some bilateral FTAs.  But the TPP is so much bigger, and involves countries such as Viet Nam, Japan, Brunei and Malaysia, which get particular groups fired up.

The TPP debate -- if we get that far -- will keep everyone occupied for a few months, but it's still not clear to me whether we will be spending the next few years adapting to a world where the TPP (and maybe the TTIP) are shaping the future of trade governance, or whether those years will be spent figuring out why the TPP failed and what to do next.

Plain Packaging Litigation is Everywhere

Now it's in the UK and EU:

Two of the world's biggest tobacco companies have challenged the legality of the UK government's plain packaging regulations.

British American Tobacco and Philip Morris filed legal objections at the High Court in London on Friday.

They claim that the new rules are illegal because they take away their trademark intellectual property.

The Department of Health has responded saying that it refuses to be "held to ransom by the tobacco industry".

If successful, the tobacco companies may secure huge payouts from the British government.

British American Tobacco and Philip Morris say that stopping them from using their trademarks goes against English and EU property law.

...

In their filings, both companies say that it violates EU law for a company to be able to use its trademark in Europe, but not the UK.

They also argue that the plain packaging law prevents the free movement of goods. According to Philip Morris, the UK's law should have been postponed until the European Court of Justice had reached its decision on the matter.

Philip Morris has more details here:

PMI’s filing asserts that:

• The regulations unlawfully deprive PMI of its trademarks. A core doctrine of English and EU law is that there must be fair compensation for deprivations of property, a remedy that the regulations do not provide.
• The regulations violate the EU law that says Community trademarks can be used by identical means throughout the EU, which would be impossible if the UK government bans their use in the UK.
• The regulations obstruct the free movement of goods through means that are neither necessary nor proportionate to achieving the UK government’s public health objectives.
• A case from the English High Court is already before the European Union’s Court of Justice to decide whether standardized packaging is permissible under the EU’s recently enacted tobacco product directive. If not, then the UK regulations would be invalid. It would have been far sounder to hear from the Court of Justice before issuing the regulations.

Trademarks convey a product’s quality and other attributes and help consumers select from competing brands in a crowded marketplace. In this and other ways, trademarks are key to a market economy.

The UK case will presumably raise similar issues as the previously rejected Australia lawsuit, although with slightly different legal standards (BAT notes:  "British American Tobacco did not ultimately prevail in Australia due to a unique requirement in the Australian constitution that meant it would only win the case if it could prove the Australian Government had received a benefit by removing its brands. That requirement does not exist in the UK.")  The EU case, by contrast, will have some additional issues.

My sense is that if plain packaging were adopted in the U.S., the litigation would be mostly about free speech, rather than focusing on property rights, but I'm not sure there are any clear answers on how such an issue would play out in the U.S. context.  

The intersection of trademark law and property rights is at a crucial stage of development.  I'm kind of surprised I haven't seen more people writing about this and taking a position on one side or the other -- it's a real chance to shape the future of law and policy.  But maybe they have and I missed it.

Long Liberalization Periods

This is from "The Puzzle of Agricultural Exceptionalism in International Trade Policy", by Michael Trebilcock and Kristen Pue:

... Hence, in explaining the resilience of the agricultural sector to efforts to liberalize trade in agricultural products we are left with a rather untidy amalgam of some elements of normative claims for agricultural exceptionalism along with positive political economy explanations for the disproportionate influence of agricultural producers in the political process.

Recognizing this resilience counsels patience and incrementalism in any attempt to unwind the extreme degrees of agricultural protectionism, especially in developed countries, and argues for a central role for transition cost mitigation strategies in moving to a more liberal international trading environment. In future multilateral or regional trade negotiations, we favour locking in substantial tariff reductions, implemented over an extended implementation period (e.g. 10 years, although much longer transition periods may be warranted for developing countries with large vulnerable, traditional, subsistence agricultural sectors where household incomes fall significantly below some national norm, e.g. the average manufacturing wage);

I've sometimes wondered whether long, slow liberalization periods are the answer to the current trade negotiation impasse at the WTO.  What if WTO Members agreed to eliminate all tariffs (including anti-dumping tariffs) over a 50 year period?  That's so far off that any negative political impact would be felt by a future political regime.

Norway's Draft Model BIT

Norway has just published a new draft model BIT. It offers some explanations here.  Here are some of my thoughts on a few of the provisions.

First up, national treatment: 

ARTICLE [3] NATIONAL TREATMENT

1. Each Party shall accord to investors of the other Party and to their investments, treatment no less favourable than the treatment it accords in like situations¹ to its own investors and their investments, with respect to the establishment, acquisition, expansion, management, conduct, operation and disposal of investments.

¹ The Parties agree/ are of the understanding that a measure applied by a government in pursuance of legitimate policy objectives of public interest such as the protection of public health, human rights, labour rights, safety and the environment, although having a different effect on an investment or investor of another Party, is not inconsistent with national treatment and most favoured nation treatment when justified by showing that it bears a reasonable relationship to rational policies not motivated by preference of domestic over foreign owned investment.

I like the clarification in the footnote, and I think this provides a good basis for a non-discrimination obligation.  But let me just quibble over two minor issues.  First, I wish that the footnote came after "treatment no less favourable," rather than "like situations."  In my view, you have to torture logic and language to get these concepts into likeness, and it's not necessary to do so because they fit so naturally with treatment.  Second, the "when justified" language seems like it might put the burden of proof on the respondent on this issue, and I'm not sure that's the best approach.

Next, the minimum standard of treatment reads as follows:

ARTICLE [5] GENERAL TREATMENT AND PROTECTION

Each Party shall accord to investors of the other Party, and their investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.

As I've said before, I don't think we need this provision at all, and I'm not convinced that the reference to customary international law is sufficiently limiting.  However, later on, there are some exceptions that do provide additional limits:  

ARTICLE [24] GENERAL EXCEPTIONS

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international [trade or] investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary³:

i. to protect public morals or to maintain public order;⁴

ii. to protect human, animal or plant life or health;

iii. to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement;

iv. for the protection of national treasures of artistic, historic or archaeological value; or

v. for the protection of the environment

³ For greater certainty, the concept of ”necessity” in this Article shall include measures taken by a Party as provided for by the precautionary principle, including the principle of precautionary action.

⁴ The public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society

I'm not sure I understand footnote 3 at all.  Wouldn't these exceptions have applied to precautionary measures anyway?  How does footnote 3 add anything to the analysis?  Are they saying that if you invoke the precautionary principle, your measures automatically qualify as necessary?

And let me also note that I think "reasonable relationship," as used in FN. 1 under National Treatment, works better than "necessary."

Finally, there is this:

ARTICLE [12] RIGHT TO REGULATE

Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety, human rights, labour rights, resource management or environmental concerns.

Clearly, this provision is not a real exception and will have little or no impact, because it only applies to measures "otherwise consistent with this Agreement."  More generally, I think the use of the term "right to regulate," in the abstract, may be doing more harm than good.  The ability of a government to regulate consistently with an international agreement is determined by the substantive obligations, mainly those on national treatment, minimum standard of treatment, and expropriation.  For me, as I've said many times, minimum standard of treatment is the key here.  Taking out this standard entirely would mean the least interference with the ability to regulate; a standard based on "outrageous" conduct would mean only a little interference with the ability to regulate; and a standard based on "arbitrary" or even "manifestly arbitrary" conduct would mean quite a bit of interference with the ability to regulate.  Thus, the focus of concerns about regulatory autonomy needs to be on the substance of these provisions, not on provisions like Article 12 above or the preambular language on this issue in the CETA.

Madrid Arbitration Day on WTO/ISDS

If you are in or near Madrid, there is an interesting seminar on the WTO and investment arbitration, this Friday, May 22.  Details here and here:

Introduction (“Policies”, 9:00-10:00 am)

Policy development challenges with WTO dispute settlement and international arbitration: why is the interface between trade and investment relevant from a political, economic and legal point of view?

Moderator: Antoine Romanetti, Romanetti Avocats, Geneva/Paris

• Prof. Giorgio Sacerdoti (Professor at Bocconi University, former Chairman of the WTO Appellate Body, Milan)
• Jochen Müller (Political Counselor, European Commission, Madrid)
• Victor do Prado (Director of the Council and Trade Negotiations Committee Division, WTO, Geneva)
• Vicente Montes (Vice President, Red Española del Pacto Mundial, President Association of State Economists, Madrid)

Round Table One (“Substantive rules”, 10:00-11:10)

Convergence and divergence within the substantive rules: what are the standards of protection; how are they different or similar to one another; what are the convergences and divergences?

Moderator: Fernando Lanzón, CEA member, Clifford Chance, Madrid

• Fernando Piérola (Senior Counsel, Advisory Centre on WTO Law, Geneva)
• James Flett (Legal Services, European Commission, Brussels)
• Mark Bravin (Partner, Winston & Strawn LLP, Washington, D.C.)
• Manuel Conthe (Of Counsel, Bird & Bird, Madrid)
• Prof. Yuka Fukunaga (Law Professor, Waseda University, Tokyo)

Coffee Break (11:10-11:40)

Round Table Two (“Remedies”, 11:45-13:00)

Effective implementation of trade & investment protection: what are the remedies available; what are the challenges and opportunities of using one or the other, or both?

Moderator: Fernando Bedoya, CEA-40 Member, Pérez Llorca Madrid

• Prof. Walid Ben Hamida (Professor at the University of Evry Val d’Essonne and at Sciences Po, Paris)
• Dr. Todd Weiler (investment arbitration advisor and arbitrator, London, Ontario)
• Prof. Joost Pauwelyn (Professor at IHEID/GIDSG and Georgetown University, Geneva and Washington, D.C.)
• Katrina Naut (Director-General of Foreign Trade and Administration of Trade Treaties, DICOEX, Dominican Republic)
• Manuel García Cobaleda (General Counsel, Gas Natural Fenosa)
• Fernando Cuñado (Partner, KPMG)

Lunch (13:00-14:00)

 Round Table Three (“Multiple Fora”, 14:00-15:30)

Trade and investment disputes in real life: are they complementary; what are the pros and cons of parallel proceedings; how should they be coordinated?

Moderator: Alejandro García, CEA-40 Member, Winston & Strawn, London

• Naboth van den Broek (Partner, WilmerHale LLP, Washington, D.C. and Brussels)
• Gabriela Wurcel (Director of International Commerce, Philip Morris International, Geneva)
• Patricio Grané (Partner, Volterra Fietta, London)
• Stefano Catelani (In-house Counsel, Dupont de Nemours)
• David Jiménez Márquez (General Counsel, Codere)

Round Table Four (“Companies in Spain and in the EU at the crossroads of trade and investment”, 15:30-17:00)

How can Spanish and European companies be affected by the overlap between trade and investment regimes: will there be disputes; how will they be tackled from a legal, regulatory and policy angle?

Moderator: Melanie Riofrío Piché, CEA-40 Member, Armesto & Asociados

• Antonio Fernández-Martos (Spanish Government, Director General of the Spanish Ministry of Commerce, Madrid)

• Lourdes Catrain (Partner, Hogan Lovells International LLP, Brussels)

• Rocío Ingelmo (General Counsel, Altadis, Madrid)

• Beatriz Martínez-Falero (General Counsel, Mahou-San Miguel, Madrid)

The COOL Article 21.5 AB Report

It is here.  No big changes from the panel report: still a violation of TBT Article 2.1, and still no violation of TBT Article 2.2.  Next up on the agenda, most likely, is an arbitration over the proper amount of retaliation.

I'm trying to sort out if the Appellate Body's clarifications of Article 2.2 tell us anything new.  Maybe there is some guidance on the "gravity of the consequences" factor?  Here are two possibly relevant passages:

5.254. However, as we have elaborated above, we do not consider that a complainant must demonstrate that its proposed alternative measure achieves a degree of contribution identical to that achieved by the challenged technical regulation in order for it to be found to achieve an equivalent degree. Rather, in our view, there is a margin of appreciation in the assessment of whether a proposed alternative measure achieves an equivalent degree of contribution, whose contours may vary from case to case. In particular, a margin of appreciation in assessing the equivalence of the respective degrees of contribution may be affected by the nature of the risks and the gravity of the consequences arising from the non-fulfilment of the technical regulation's objective. ...

and: 

5.296. In any case, as we have explained above, difficulties or imprecision that arise in assessing "the risks non-fulfilment would create", due to the nature of the relevant risks or the gravity of the consequences of non-fulfilment of the objective of the measure at issue, should not, in and of themselves, relieve a panel from its duty to assess this factor. A panel should proceed further with a holistic weighing and balancing of all relevant factors, and reach an overall conclusion under Article 2.2. In our view, the term "taking account of" calls for the active and meaningful consideration of "the risks non-fulfilment would create", even where there is imprecision in their nature or magnitude, in the weighing and balancing under Article 2.2 of the TBT Agreement.

5.297. In the light of these considerations, we find that the Panel erred, in paragraph 7.423 of the Panel Reports, in concluding that it was unable to ascertain the gravity of the consequences of non-fulfilment of the amended COOL measure's objective.

I see two things here.  The Appellate Body says panels really need to evaluate this factor; and it says this factor will affect the "margin of appreciation" related to the equivalency of the contribution.  I suspect this factor will play a big role in the plain packaging dispute, where there are sure to arguments from Australia about the gravity of the consequences of smoking.

On another topic, I wonder how long the trend under TBT Article 2.2 will last under which there are endless clarifications but never any findings of violation.

And in somewhat related news, I just counted, and there are 21 ongoing WTO panels right now.  That's a lot of jurisprudence coming!

Debating ISDS

I've organized an ISDS debate over at Cato Unbound.  We have Jason Yackee and me as critics, and John Veroneau and Ingrid Persson as supporters.  We each write essays, and then respond to each other's points.  So far we have essays up there from me and from John; more essays, and the responses, are on the way. Anyone else who wants to weigh in can comment, and I encourage you to do so!

An ISDS Lawsuit on Marijuana Taxation/Regulation?

This is from Vox:

... Due to a section of the tax code known as 280E, many state-legal marijuana businesses have to pay taxes on basic expenses like rent, employee salaries, and utility bills — unlike other legal businesses, which are allowed to deduct these types of expenses.

For some businesses, this can drive their effective tax rates to 70 to 90 percent of their profits, which is enough to force many shops out of business. In comparison, other types of businesses can expect effective tax rates closer to around 30 percent.

That doesn't sound very "fair and equitable."  In fact, it feels quite arbitrary, perhaps even "manifestly" so.

There's no legal trade in marijuana, but there is some cross-border investment in this growing industry:

Over the past few weeks [the Canadian company] Affinor Growers Inc. has made 3 major announcements, advancing its plan to mass produce high quality, in-demand produce and pharmacy grade plants for global distribution. The company is currently working toward becoming a grower of premier medical marijuana and will soon begin producing other major cash crops such as romaine lettuce and strawberries.

To that end, Affinor recently announced the acquisition of a 49% interest in Good to Grow LLC, a medical marijuana dispensary and grower located on Washington’s Olympic Peninsula.

So, maybe there's a NAFTA Chapter 11 lawsuit to be brought by a Canadian company who feels aggrieved by these outrageous tax rules?  

(I thought I had seen an exemption for tax measures in some investment treaties, but I couldn't find it in Chapter 11.  Even if that did exist, though, this wouldn't be a challenge to the taxes per se, but rather to the associated regulations.)

Airline Subsidies

As the current trade negotiating agenda struggles along, both at the multilateral and mega-regional levels, perhaps there are some government actions out there that could provide the basis for productive new negotiations.  One area that always gets me fired up is subsidies:  agriculture subsidies and export credits are big ones, but here's another:

... Emirates, Etihad and Qatar — are hard-charging relative newcomers to the battle for worldwide reach. They each envision their respective home-base airports in Dubai, Abu Dhabi and Doha as mega-hubs for international travel. (Dubai and Abu Dhabi are city-states run by absolute monarchs who operate under the umbrella of the UAE.)

All three airlines are government-owned; those governments see airlines as engines for economies made fabulously wealthy by oil, and they have been pumping money into them by the billions.

And there’s the rub.

The U.S. airlines say that money amounts to multibillion-dollar government subsidies, creating an unfair playing field on which they can’t hope to compete. They want the federal government to step in, seeking a formal consultation with the UAE and Qatar under the Open Skies agreement and freezing new routes to the United States by those airlines until discussions reach a resolution.

...

The U.S. airlines formed a coalition, the Partnership for Open and Fair Skies, that stitched together all of the available information on their adversaries, which are not subject to the same transparency demands as publicly traded companies. The result was a 55-page white paper that details the myriad ways their rivals are financially buoyed by the governments that own them:

●Billions in loans that often are interest-free, some of them ultimately forgiven or granted without any set time for repayment.

●Government guarantees that reduce interest payments for commercial loans.

●Labor costs that are lower because unions are banned.

●Exemptions from airport fees paid by other airlines landing in their home countries.

●Tax exemptions for local companies that do business with gulf airlines.

●Exemptions from customs fees paid by others bringing goods into the countries.

●Billions of government investment in airport expansion that will give one airport, Dubai’s World Central, the capacity to handle five times the traffic of Chicago’s O’Hare. Last year, World Central surpassed London Heathrow to become the globe’s busiest airport.

Of course, there are no rules as of right now on subsidies to services, but perhaps this gives us the incentive to negotiate some.  Given that one of the companies is from Qatar, just for fun we could call the negotiations on this issue Doha Round II.

Canada's Submission in the WTO Plain Packaging Dispute

Someone sent me Canada's third party submission in the WTO plain packaging dispute.  I checked with a friend who works for the Canadian government, and he said it was fine to post it, so here it is.  Here's an excerpt:

42. A finding of a right to use a sign or trademark would effectively restrict Members' ability to take legitimate measures to protect public health. Members have clearly and unequivocally preserved the freedom to regulate in the interest of protecting public health and this is evident in TRIPS Articles 7 and 8.1, and paragraph 4 of the Doha Declaration on Public Health. Article 15.4 must be interpreted in a manner supportive of a Member's right to protect public health. As such, the TRIPS Agreement, and in this instance Article 15.4, must not be interpreted so as to restrict a Member's ability to take measures to protect public health. 

Canada's discussion of Article 20 of the TRIPS Agreement was also interesting.

Senator Warren on ISDS

From a Washington Post interview with Senator Elizabeth Warren:

You can’t envision even in theory a way to structure ISDS that would assuage your concerns?

WARREN: Once a group of independent arbiters, whose decisions cannot be appealed, can issue a money judgment of any size, then the ISDS problem arises….Here’s what you could do. If corporations had to go through the same procedures that anyone else has to go through to get the trade deal enforced, then the problem wouldn’t exist.

Now, if a labor union says, ‘Vietnam promised not to work people for a couple of dollars a day, and to raise working conditions, and then failed to do it,” they have to get the U.S. government, through the trade rules, to go to Vietnam and prosecute the case. If corporations had to do the same thing, then it would be a level playing field…ISDS gives a special break to giant corporations, a break that nobody else gets.

It sounds like she would be fine with international investment obligations if state-state procedures replaced investor-state.  I suspect she might also have concerns about the fair and equitable treatment and expropriation obligations, but she didn't mention those here.

President Obama on ISDS

It's kind of incredible to see a U.S. President talking about an issue as technical as ISDS.  Check it out at 10:48 and 19:10 of this video.  Putting aside the argument about whether ISDS is good or bad, I think he is making a mistake in the way he is presenting the issue.  (Although I suppose you could argue that presenting it the way I think he should, set out below, would be the real mistake!)  At around 20:12 or so, he says there is "zero chance" the U.S. would be sued on the basis of our financial regulations, food safety regulations, or environmental regulations.  That's pretty clearly not true, and I'd be surprised to hear any ISDS supporters defend that claim.  The only real questions are when and how often we will be sued on this basis.  (TransCanada has thought about suing under NAFTA Chapter 11 based on the failure to approve the Keystone pipeline, and may decide to bring the claim at some point.)  Sometimes the U.S. discriminates against foreign companies on the basis of nationality, so we could certainly be sued for that.  But the bigger issue is the "fair and equitable treatment" obligation, under which we could be sued even if we are not discriminating in that way.

Of course, a lawsuit does not necessarily mean a successful claim, but the suggestion that the U.S. will never lose an ISDS case is not very credible.

In contrast to President Obama's take on ISDS, I think Ted Posner (an ISDS supporter) hits the nail on the head when he puts the issue this way (from Inside U.S. Trade):

"Why should any government get a free pass because it deems a particular level of protection appropriate, not based on science, and not based on evidence, but just based on a subjective sense of what it feels is appropriate?" Posner said. "Why shouldn't that subjective judgment be subject to the obligation to accord fair and equitable treatment and other investment-related obligations?"

That's the issue that all governments, including the U.S., really need to think about.  In those instances, and there are plenty, where your actions are not based on science or evidence, or are otherwise arbitrary, should an international tribunal review those actions and award damages to the affected foreign investors?  It's easy to be for such rules in theory, as most people believe they regulate properly as a general matter.  But as ISDS litigation continues, and the lawsuits and awards proliferate, governments may think differently about this.  We're already seeing a change in viewpoint, and each new case is likely to push that further.

And just to be clear, there's a difference between this kind of review, on the one hand, and a review that considers whether your actions were protectionist, on the other hand.  The latter does not interfere much with your regulatory autonomy; the former is pretty intrusive.

Benefit and Market in the AB Feed-In Tariff Report

I'm at the BIICL WTO conference, which has me thinking about a good discussion last year of the Appellate Body's ruling on "benefit" in the Canada - Feed-In Tariff case (see prior posts here and here).  As I recall, there were two people on the BIICL Feed-In Tariff panel last year who were praising the ruling, and one criticizing it.  (I won't name names -- they can weigh in with a comment on this post if they'd like).  I had been meaning to do a post about this at the time, but never got to it.  The one year anniversary seems like a good occasion to come back to it.

I'm pretty sure where I stand on these issues (there was definitely a benefit in the case, and the AB got it wrong), but the conversations at BIICL forced me to think about it all a bit more carefully.  Why exactly is there a benefit in the situation where a government financial contribution "creates a market," as the AB put it?  Recall that the following was a key point in the AB's reasoning:

5.188. Nevertheless, a distinction should be drawn between, on the one hand, government interventions that create markets that would otherwise not exist and, on the other hand, other types of government interventions in support of certain players in markets that already exist, or to correct market distortions therein. Where a government creates a market, it cannot be said that the government intervention distorts the market, as there would not be a market if the government had not created it. While the creation of markets by a government does not in and of itself give rise to subsidies within the meaning of the SCM Agreement, government interventions in existing markets may amount to subsidies when they take the form of a financial contribution, or income or price support, and confer a benefit to specific enterprises or industries.

I think one possible answer is this: There's actually no such thing as "creating a market."  The financial contribution arising from the feed-in tariff has not, in fact, created a market for energy produced from solar panels and wind energy.  That market already existed.  Of course, this energy was so expensive that no one wanted to buy it.  But that doesn't change the fact that a market was there.  If someone offered enough money for the product (clean energy), someone else would provide it.  The fact that no one is currently offering the money or providing the product does not mean there is no market.  It just means that everyone has chosen not to participate in the market at the going sales price.

Let's take another example.  You could probably pay someone an exorbitant sum to build a rocketship that would take you to the moon.  But no one does it, because it's not worth the money to them.  That doesn't mean there is no market.  It just means no one wants to participate at the market price.

Thus, the financial contribution in the feed-in tariff market here does not create a market, but rather stimulates the development of an industry, by offering a high enough price so that companies enter the market.  In other words, the measure just lures participants into the market.  Just like if the government subsidized moon trips, clean energy subsidies are not creating a market, but rather bringing people into the market.

Furthermore, the distinction the AB drew between creating a market and supporting players or correcting market distortions is a false one.  A typical financial contribution goes to producers who can't compete with other producers, so as to help them enter a market.  They are inefficient and can't sell at a price people want to pay.  Imagine a new aircraft producer comes along and can't compete with the incumbent. The government might offer some money to help it compete.  (I think I vaguely recall that happening!)

What we have with wind and solar is just a variation on this.  No producer can sell at a price people want to pay.  Demand is not strong enough to create a steady supply at the market sales price.  The financial contribution helps producers enter the market, despite this.  That's the whole point.  A subsidy brings producers into a market they could not otherwise enter.  A situation with no prior transactions is no different than the one with prior transactions.  Through the financial contribution, the government is stimulating demand so that supply starts up or increases (or vice versa).  It is no different if supply already existed or if it did not -- a demand stimulus changes the intersection of the supply and demand curves.  Basically, in these circumstances, benefit is all about whether demand for, or supply of, a product has been stimulated.

So, governments never really create markets.  Markets exist outside of any government action.  There is always a market.  We often say, casually, "there is no market," but that's generally not correct.  What we really mean is that, at the market price, there are currently no buyers or sellers, as demand and supply do not match up.

Since we are talking about AB decisions, to help with all this let's now turn to a "specialized dictionary," i.e., my undergrad econ textbook (Samuelson and Nordhaus), which defines "market" as: "An arrangement whereby buyers and sellers interact to determine prices and quantities of a commodity."  As I read it, the focus here is on the interaction, not the actual transaction.  You don't need a sale for there to be a market.  If you take your antiques to a flea market, and no one buys them, you have still been participating in a market.

Thus, to sum up, the market is just the level of supply and demand that exists in the absence of the artificial government stimulation.  Benefit is not so much about actual market transactions; rather, it is about government stimulation of supply and demand.  Existing supply and demand levels are the market, and government actions -- in the form of financial contributions -- that influence supply and demand can confer a benefit.

Let me conclude by saying that I'm just thinking out loud here, and I reserve the right to retract all of this if I decide at some later point that it's nonsense.

New ISDS Concepts and Texts

EU Trade Commissioner Cecilia Malmström has just announced some new ideas on ISDS, set out in this concept paper.  One of the ideas is to move investment arbitration towards being a real "international investment court."  Along the same lines, here are some ideas coming from Germany, which also has in mind making investment arbitration more like a court:

EU trade ministers will vote this week on an ambitious German plan to break a stalemate in the EU-US trade talks over settling disputes between companies and governments.

The proposal is a permanent trade court between the EU and the US, with public proceedings and an appeals process to replace the existing system of arbitrary panels settling fights on a case-by-case basis.

Critics, among the loudest coming from within Germany, say the current so-called Investor State Dispute Settlement (ISDS) scheme lacks independence and lets companies attempt to overrule democratically-passed laws.

...

German trade minister Sigmar Gabriel is pushing the alternative. The social democrat is expecting support from his colleagues from France, the Netherlands, Sweden, Denmark and Luxembourg, after they gave an informal nod to the initiative at a meeting in Madrid in February. Austria sees the plan as “principally positive,” according to an official in the economics ministry in Vienna.

The proposal responds to the critique that the current draft in the trade deal operates outside the rule of law, Markus Krajewski, a professor in international law who drafted the 30-page document for Gabriel, told POLITICO.

The text by Markus is here.  All the "court" aspects -- appeals mechanisms, judge selections -- are interesting, but I get more excited by the substantive issues.  I'm going to focus on just one:  General exceptions.  The text by Markus says the following in this regard: 

 Article 12 - General exceptions

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination nothing in this Agreement shall be construed to prevent the adoption or enforcement of measures by a Contracting Party necessary:

a) to protect public security or to maintain public order only, but only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society

b) to protect human, animal or plant life or health, including environmental measures;

c) to protect social and labour laws and collective bargaining agreements;

d) to implement its human rights obligations;

e) to preserve the diversity of cultural expressions;

f) for the conservation of living or non-living exhaustible natural resources; and

g) to secure compliance with laws or regulations 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

It is followed by this explanation:

In WTO law, general exceptions have helped to ensure that a balance is struck between trade interests and non-commercial interests. In traditional BITs, this instrument is only found in isolated instances.

Derogation clauses are one way to exceptionally justify the violation of a standard which applies under international law. They thus foster an appropriate balance between state regulation and private commercial interests. That is why both EU and WTO rules contain derogation clauses for all fundamental freedoms and trade law standards (e.g. Art. 36 TFEU or Art. XX GATT), and the courts or WTO panels have no problems with this. There is no reason to assume that this will be different for bilateral investment treaties. The proposed wording is based on Art. XX GATT, supplemented by further public interests. The qualification that the measures have to be necessary takes up the standard of proportionality familiar from WTO law.

Let me say a couple things about this approach.

First, one very good thing is that this exception applies to all obligations, including fair and equitable treatment.  In CETA, last I heard -- but there is "legal scrubbing" going on -- the exceptions do not apply to FET.  Now, I don't think the FET obligation is needed at all, but if it is going to be included, the "general exceptions" should apply to it as well, or else not that much has been accomplished.

Second, Markus relies on "necessary" to connect measures to their objectives, and explains that this is similar to GATT Article XX.  But it's worth noting that Article XX does not always use "necessary," sometimes using "relating to" or other formulations.  I know that some people love "necessity" as a test, but I think it is fair to say that it has caused a lot of controversy, and I wonder if "relating to" is better here.  I would also point out that his prudential exception, in Article 15 of the text, does not use the word "necessary."

Finally, the list of policy objectives offered by Markus is a closed one.  Perhaps it is worth making it open with language along the lines of "measures that pursue legitimate policy objectives, including the following:"

She Sells Seychelles by the Shore of Lake Geneva

Just for fun, I've been reading the Working Party Report related to the recent Seychelles accession to the WTO (and yes, I am available to come to the Seychelles and give WTO training courses to government officials, in case they are looking for someone).  I saw three items of interest in the report.

First up is restrictions on wrong hand drive cars. The report says:

 167. Concerning left-hand drive vehicles, the representative of Seychelles said that, since cars were driven on the left-hand side of the road in Seychelles, a ban had been introduced for security reasons as this helped avoid road traffic accidents potentially harmful to human health and safety when manoeuvring and overtaking other vehicles.  Certain exemptions from the ban applied to off-road left-hand specialty vehicles, such as golf carts.  No exemptions applied to (on-road) specialty vehicles.  In further updates, he stated that left-hand drive vehicles would be moved from the prohibited to the restricted list with the enactment of the draft "Customs Management (Prohibited and Restricted Goods) (Amendment) Regulations 2014".  This regulation was expected to be adopted by October 2014, but no later than the final Working Party meeting, at which this Report would be adopted, ad referendum. 

...

175. Some Members continued to express concerns with regard to the import ban on left-hand vehicles for safety purposes, and asked Seychelles to consider a less trade-restrictive approach.

176. The representative of Seychelles said that the ban on left-hand drive vehicles had been reviewed. As a result, he stated that the ban would be revoked and left-hand drive vehicles would be moved to the restricted list, whereby imports would be subject to an import licence (referred to as "import permit" under national legislation), with the enactment of the draft "Customs Management (Prohibited and Restricted Goods) (Amendment) Regulations 2014". This regulation was expected to be adopted by October 2014, but no later than the final Working Party meeting, at which this Report would be adopted, ad referendum. He added that a completed questionnaire on import licensing procedures, based on these provisions, was contained in document WT/ACC/SYC/14/Rev.2

This also came up in Samoa's accession.  If someone is looking for a really obscure research issue that will be of interest to virtually no one, try finding all of the WTO commitments related to wrong-hand drive vehicles, and analyze them!

Second, I was excited to see that Seychelles does not use trade remedies:

216. The representative of Seychelles said that currently Seychelles had no statutory provisions for anti-dumping duties, countervailing duties, or safeguard measures.

Keep up the good work, Seychelles!  Or I guess that should be, keep not doing any work on this.

And finally, there's this from the list of "Goods Subject to an Import Prohibition":

Any non-tobacco product which resembles a tobacco product (including sweets, snacks, toys and electronic cigarettes), as per the National Tobacco Control Act, 2009. 

These goods are not actually prohibited, I don't think; rather, they just require an import license.  But regardless, the e-cigarettes trade disputes are coming!  Although I suppose the Seychelles is unlikely to be the first government challenged on its e-cigarettes regulations.

CALL FOR PAPERS - Joint ASIL-ESIL-Max Planck Scholarship Workshop, "The Future of Transatlantic Economic Governance in the Age of the BRICS"

From the ASIL/ESIL/Max Planck: 

 On 11-12 December 2015, the International Economic Law Interest Groups of the American and European Societies of International Law, together with the Max Planck Institute for Comparative Public Law and International Law, will hold a joint works-in-progress workshop in Heidelberg, Germany. The overarching theme of the workshop is "The Future of Transatlantic Economic Governance in the Age of the BRICS." The deadline for paper proposals is 30 June 2015. Proposals are encouraged across all areas of international economic law (trade, investment, financial regulation, monetary law, cross-border regulation of MNCs, law and development, etc.) For full details, please consult the below Call for Papers. We look forward to receiving your proposals!

Details here: http://www.asil.org/sites/default/files/Call%20for%20Papers_ASIL-ESIL-MPI%20Heidelberg%20Workshop_11-12%20Dec%202015.pdf

The TPP and Tobacco: More on the Carveout

Law profs Sergio Puig and Greg Shaffer want to get tobacco out of the TPP:

The Obama administration is poised to finalize the Trans-Pacific Partnership (TPP) agreement. If Congress passes the current trade promotion authority bill, the TPP will become subject to a simple up or down vote, without possibility for any amendment. The Obama administration refuses to tell the public what's in the agreement and Congress seems pressed to accept provisions that many Americans might deplore. This is a problem. Consider the TPP's secretive advocacy for big tobacco.

The U.S. government is supporting big tobacco companies by negotiating dozens of international trade and investment agreements, but largely without the public's knowledge. Historically, the U.S. has supported big tobacco to expand their profitability abroad, despite known health risks. For example, dating back to the 1990s the U.S. Government Accountability Office (GAO) reported that US tobacco trade surpluses doubled after "the U.S. government provided assistance in removing [trade] barriers." The GAO report also notes how the prevalence of smoking in "Taiwan and South Korea had increased since the removal of U.S. cigarette export barriers," which resulted in "the opening of Asian cigarette markets, [and increased] cigarette advertising..."

These agreements reduce tariffs on tobacco products around the world and grant big tobacco companies the right to sue governments that post aggressive warning labels on cigarettes. For example, Australia enacted a "plain packaging law" that depicts disquieting, smoking-related images on cigarette packages sold in its country above the brand of the cigarette. Tobacco companies sued. But it's not just the big nations these companies go after -- it's also the poorest.

I've weighed in on this before.  I don't see any more reason for tariffs on tobacco products than on any other products.  Protecting domestic producers from competition is never a good idea.  As for ISDS and IP, those are general problems that need reform; they are not tobacco-specific issues.  Thus, I don't see any reason to exclude tobacco from trade agreements.

Sergio and Greg say this on tariffs:

... Vietnam now has a 135 percent tariff rate on cigarettes (for a list of other countries, see here), arguably in part to protect local state-owned producers, but also because cigarette imports serve no useful purpose for its economy. ...

...

More importantly, there is no justifiable reason for including tobacco in the TPP, whatever one thinks of free trade or global economic integration. Mainstream economists contend that free trade makes more goods available at cheaper prices and thus increases a country's welfare and its consumers' standard of living. However, this core argument does not apply to tobacco. Predictably, consumer welfare will decline with increased tobacco consumption; we have seen this in the U.S. With tariff rates at zero, big tobacco companies will not only increase exports, but also bombard poor countries with advertising. Based on their record, how appealing do you think their ads will be?

Of course, after Vietnam reduces its tariff rates to zero, it could increase its domestic sales tax to 135 percent. But anyone who has visited a developing country and seen their outdoor markets knows that collecting sales taxes is much more difficult And Philip Morris certainly knows that, which is why it wants the tariff rate at zero.

This issue can be tested empirically, and someone gave it a shot here.  My sense is that in the early 1990s, lower tariffs might have led to lower cigarette prices, but now with the spread of tobacco control, lowering tariffs in a country like Viet Nam would probably lead to high taxes and tougher regulations.  So, I'm a little skeptical that Viet Nam could not deal with this as a domestic issue, but I'll see Greg next week and he can try to convince me otherwise!