International Economic Law and Policy Blog

Is the Keystone Pipeline Permit about to be Denied?

From the Financial Post:

As if conditions in Canada’s oilpatch weren’t bad enough, more pain could flow north from Washington, D.C., before the Labour Day long weekend, when President Barack Obama is expected to finally deny a permit to the Keystone XL pipeline.

The latest in the United States capital is that an announcement will be made next Thursday or Friday, when many are out of town, reducing potential for blowback, said a well-connected source.

After seven years of review and despite widespread U.S. public support, the President is expected to offer a convoluted rationale for spiking the Canadian project: that approving KXL would facilitate oil sands growth and make it more challenging for him to rally countries to unite for a greenhouse gas reduction deal in Paris in December; and that there is no need for it because the U.S. has plenty of oil of its own.

A denial has been widely expected since Senator John Hoeven, the North Dakota Republican, said last month that Obama would turn down the project in August. Obama has also been repeatedly dismissive of its benefits and earlier this year vetoed a Republican-backed bill that would have bypassed his State Department’s review.

The article also notes:

If KXL isn’t approved, the company is expected to look at all options, including launching a challenge under the North American Free Trade Agreement, re-applying for a permit under a new administration and abandoning the project altogether due to escalating costs.

Original Meaning and Canadian Free Trade

I may be the only non-Canadian following this "free trade under the Canadian constitution" case, but it's really kind of fascinating. Here's a report of some testimony from the hearing:

A professor of political history testifying at a hearing over the right to buy beer in another province says the Fathers of Confederation wanted Canada to be a united country with unfettered trade.

Andrew Smith of the University of Liverpool in England is considered the key defence witness in the case of a New Brunswick man charged with illegally importing alcohol from Quebec.

Gerard Comeau of Tracadie is fighting the charge on constitutional grounds.

An agreed statement of facts says he was caught in October 2012 with 14 cases of beer and three bottles of liquor that he had bought in nearby Pointe-a-la-Croix.

The New Brunswick Liquor Control Act limits anyone from having more than 12 pints of beer not sold by a provincially licensed liquor outlet.

The defence argues that a section of the Liquor Control Act is unconstitutional because Section 121 of the Constitution Act says all goods from a province are to be admitted free into each of the other provinces.

“Admitted free means of all impediments,” Smith told the court Wednesday.

Smith said his study of history shows the Fathers of Confederation wanted free trade within the provinces.

“There was general acceptance of the need for free trade and a consensus for economic union,” he said.

Defence lawyer Mikael Bernard said it was important to have Smith explain to the court what the Fathers of Confederation intended.

“Let’s go back to 1864, 1863, 1865, 1866 and 1867 to find out what were their intentions were, not just read the piece of paper as it stands today. Let’s put everything into context,” Bernard said.

Any of you Canadians out there with more details on the proceeding, feel free to post them in the comments!

Big Tobacco's Lobbying on the TTIP

This is from the Independent:

The European Commission has been accused of a cover-up after refusing to release details of talks between its officials and the tobacco industry during negotiations over the proposed Transatlantic Trade and Investment Partnership (TTIP) treaty.

Corporate lobbying campaigners published documents that revealed the EU’s executive body had met and corresponded with lobbyists from British American Tobacco and Philip Morris.

But the documents, as released, revealed little else.

Almost all the content, including the names of officials and tobacco lobbyists involved, the issues discussed and even the dates some meetings took place, had been redacted.

The documents relate to ongoing talks between the EU and the United States over the proposed TTIP free trade deal, as well as separate talks between the EU and Japan.

Critics of the trade talks, which centre on reducing the regulatory barriers to international trade for big business, said the documents back up fears that TTIP will allow tobacco giants to take legal action against the UK and other European governments who attempt to tighten smoking legislation.

So-called “Big Tobacco” firms have already used similar legislation to sue countries around the world: Philip Morris used a comparable trade treaty to take legal action against Australia over mandatory plain cigarette packaging and is also suing Uruguay in a $25m lawsuit over its attempts to enlarge health warnings on cigarette packets.

The heavily redacted documents were released by Catherine Day, Secretary-General of the European Commission, in reply to a freedom of information transparency request by the research and campaign group Corporate Europe Observatory (CEO).

They include a 14-page letter from British American Tobacco, written on 15 May last year from the company’s London office, which sets out its “serious concerns with the consistency of [redacted]”.

The remaining 13 pages are blacked-out entirely with the exception of some perfunctory closing remarks. A previous letter from Commission officials to the tobacco company is also almost entirely redacted with the exception of a reference to “allegations” made by BAT, presumably over the trade talks.

In another document - a one-page summary of a meeting between Commission officials and the US cigarette firm Philip Morris - even the date of the meeting is removed.

I understand that some people are concerned that the big, powerful tobacco companies are using their influence to push the Commission around on ISDS, and that these letters would have provided evidence in this regard.

However, is it also possible that the letters would show that these companies are upset about their lack of influence on ISDS, and expressing the view that the Commission is undermining ISDS through its recently proposed reforms?

A Nationality-Based National Treatment Standard in Investment Law

In response to the recent NAFTA Chapter 11 Bilcon award, Canada, Mexico and the U.S. all made submissions in the ongoing Mesa arbitration, offering their views on the Bilcon reasoning. One issue they all addressed was whether the national treatment standard covers only nationality-based discrimination:

• Canada: "As Canada previously argued, a national treatment violation must be founded upon a finding of discrimination based on a foreign investor’s nationality. This position has been unanimously supported by the United States and Mexico. Specifically, the United States agrees that “[a] claimant must establish that the measure, whether in law or in fact, treats foreign investors or investments less favorably than domestic investors or investments on the basis of nationality.”  By failing to require proof of nationality-based discriminatory treatment, the Bilcon tribunal erred in its interpretation of Article 1102. This Tribunal should not do the same, and instead, should follow the mandate given to it by the NAFTA Parties, and reaffirmed in the NAFTA Parties submissions here, by limiting its analysis with respect to Article 1102 to whether the Claimant has proven nationality-based discrimination. Any differing or broader interpretation put forward by the Claimant must be rejected."
• Mexico: "Article 1102 is intended to prevent discrimination on the basis on nationality. Mexico agrees that the NAFTA Parties are unanimously of the view that a national treatment violation requires a finding of discrimination based on a foreign investor's nationality. ... "
• U.S.: "The purpose of Article 1102 is to protect against nationality-based discrimination. Article 1102 is not intended to prohibit all differential treatment among investors and investments, but to ensure that the NAFTA Parties do not treat investors in like circumstances differently based on their NAFTA-Party nationality. A claimant must establish that the measure, whether in law or in fact, treats foreign investors or investments less favorably than domestic investors or investments on the basis of nationality. All three NAFTA Parties agree on this point. The Parties’ common, concordant, and consistent position constitutes the authentic interpretation of Article 1102 and, under the Vienna Convention on the Law of Treaties, “shall be taken into account, together with the context.”

I find this situation puzzling. All three NAFTA parties agree that the Chapter 11 national treatment obligation is about nationality-based discrimination.  Yet somehow that's not always the standard being applied by tribunals. 

Why can't this situation be corrected? The governments have options for forcing tribunals to follow the government view. I don't think the text is unclear on this point, and I agree with these governments' view of the proper interpretation, but they could certainly amend the text to make it impossible for the tribunal to follow any other approach.  Why don't the governments do that?  Alternatively, the governments could issue an official interpretation, as they did a while back with the minimum standard of treatment.

Do they not care enough about this issue to fix the problem?  They seem to be satisfied, at least for now, with making arguments to tribunals in the hopes that eventually the jurisprudence will go their way.

This has implications for the TPP/TTIP as well.  If you use the same treaty language there, the same problems could arise.

ADDED: For reporting on this and related issues, see Lise Johnson's article at IAReporter: https://www.iareporter.com/articles/as-decision-in-mesa-v-canada-looms-investor-and-all-three-nafta-parties-weigh-in-on-significance-of-bilcon/

A Novel DSU Article 22.6 Arbitration Argument

This is from the U.S. written submission in the COOL DSU Article 22.6 arbitration between the U.S. and Canada (DS384), although Mexico's argument in the parallel DS386 proceeding is referenced too:

118. Both Canada and Mexico's Methodology Papers add to the alleged trade effects of the amended COOL measure a novel, separate element. Both Methodology Papers argue to include in the level of nullification or impairment of benefits accruing under a trade agreement estimated economic effects in Canada or Mexico's domestic market, referred to in the Papers as "price suppression losses." With respect to the "price suppression losses," complainants allege that the amended COOL measure resulted in a surplus of animals in their respective domestic markets, which ultimately "suppress[ed] the domestic price of feeder cattle in Mexico," and "suppressed prices for livestock in Canada." Canada attributes CDA $1.023 billion (U.S. $802 million) of nullification or impairment to this "price suppression," while Mexico attributes $198 million of its total nullification or impairment estimate to domestic "price suppression." There is, however, no basis under the DSU for considering domestic price suppression as a part of the level of nullification or impairment of benefits under the TBT Agreement or the GATT 1994.

...

121. In this dispute, Canada and Mexico's request to include in the level of the suspension of concessions authorized an amount equivalent to alleged price suppression losses is inconsistent with the DSU and goes beyond any possible nullification or impairment of Canada and Mexico's benefits under the TBT Agreement and the GATT 1994. Canada and Mexico both make claims with respect to internal transactions within their domestic economies. As such, the transactions which would serve as the basis for Canada and Mexico's suggested price suppression losses are not lost exports to the United States, and thus are not properly included in a measurement of either Canada or Mexico's nullification or impairment of trade benefits under the covered agreements.

So it's not just lost exports that are part of the nullification or impairment; it's the lower prices that result from the excess supply in the domestic market. Of course, the U.S., as set out in the quote, says this approach is not permitted.  It seems to me that this argument by Canada and Mexico is not completely unreasonable, but nevertheless they may have trouble convincing the Arbitrator to go along with it.

COOL Retaliation and the Tuna Appeal

As we await the TPP conclusion, not to mention the inevitable Donald Trump position paper on trade policy (I'm setting the over/under at 20 WTO violations -- place your bets!), there are some interesting WTO disputes going on.

First, there is the COOL retaliation litigation.  Canada asked for $2.41 billion in retaliation; the U.S. has countered with $43.22 million.  The U.S. written submission is here.  Mexico wants $713 million; the U.S. countered with $47.55 million.  That U.S. submission is here.  The hearing in this dispute is Sep 15-16, and is open to the public.

There is also the Tuna Article 21.5 appeal. The Appellate Body has announced that the report will be circulated Nov 20.  The U.S. submissions in that case are here.

TTIP and the Iran Deal: European Business Should Be Protected Against US Unilateral Sanctions

In the debate over the Iran deal among US legislators, high-profile enemies such as New York Senator Charles Schumer attack the Administration's suggestion that the one alternative to this agreement is war-bombing Iran's nuclear facilities.  Such critics hold out that continued or perhaps intensified sanctions could bring Iran to its knees, submitting to demands for a "better" deal. The hiccup is that the rest of the world is likely to lift sanctions and do business with Iran.  Hence, Schumer and company  have to insist that the US take punitive action against foreign economic interests that are willing to engage with Iran (so-called secondary sanctions).   Such punitive action would, it is suggested, bring other countries into line and produce collective economic pressure that brings Iran to heel.

 This reasoning is understandable from the groupies of Netanyahu: it has been a key element of the Israeli leader's Gaza policy of siege.  That is, the notion that reducing a people to economic desperation will break their will.  But is this realistic, or rather is it based upon a distorted and craven understanding of human nature?

The enemies of diplomacy with Iran have scoured the JCPOA with a fine tooth comb, operating from the most negative and cynical assumptions of how each provision will be interpreted, and how Iran will implement it.  On the other hand, when it comes to the defense of their own strategy they have offered barely more than a dogmatic assumption that an economic siege can cause so much suffering and despair in Iran that it will capitulate; and that through another set of brutal penalties, we can force the hand of those who disagree-namely the rest of the world sans Netanyahu.

The peace party, led by the Administration, has offered a detailed and intricately crafted diplomatic settlement. The war party that dare not say its name has provided only a dogmatic appeal to human desperation, that if we pummel Iranians enough, and then pummel our allies and trading and finance partners enough, they will do our will.  Such a strategem would, to say the least, betray the values that make America great and undermine our moral credibility in the world; at the same time it is a wild fantasy, albeit a perverted one.

Enter today US Treasury  Secretary Jack Lew.  In the New York Times nyti.ms/1IQDwW8 , Lew offered a reality check. Cutting off European and other businesses and financial institutions would  be an economic disaster for the United States, Lew persuasively argued.  Our  exporters and investors need access to global payment networks, and we have debt service obligations in other places, including Japan, that require continuing economic and financial relations. I would add that, ironically, Charles Schumer purports to represent New York in the Senate; following Lew's impeccable  reasoning, New York as a financial center would be hardest hit of all by cutting off foreign economic actors from our financial networks, which means cutting off our networks from them.

Secretary Lew also mentioned the WTO.  Most likely punitive secondary sanctions of the kind contemplated by Schumer and company  would have to be justified under the national security exception in the GATT (Article XXI) and in related agreements-very pertinently the GATS that covers financial services. The US has often taken the view that the national security exception in the GATT is self-judging.  The fact that the wording of Article XXI refers to measures that a nation "considers" to be necessary for its national security is the textual hook for saying national security is self-judging.

But under the investment treaties the United States has entered into with numerous countries it has signed on to obligations that could not so easily be waived on the basis of a self-judging national security provision.  As is clear from litigation under the Argentina-US BIT, the language in BITs is likely not to qualify the requirement of necessity with an expression such as "considers", which could imply extreme deference if not self-judging by the state taking sanctions.  Plainly said, if the enemies of the Iran deal had their way, under the existing investment agreements that are binding on the United States, the US could be liable for hundreds of millions if not billions of dollars of damages if foreign companies doing business in the America were penalized for transactions with Iran.

Secondary sanctions already exist to some extent.  But their premise is a multilateral consensus on sanctions, reflected in the UN Security Council resolutions.    Continuing or intensifying secondary sanctions is a whole new game where the Congress rejects the Iran deal but our allies and trading partners disagree and are unwilling to renew their own sanctions.  In those changed circumstances, secondary sanctions would be an affront to our allies and trading partners, attacking their sovereignty and impeding their choice to deal with Iran in the circumstance of the Congress's closure of the path of diplomacy.  It would be nigh impossible to show that secondary sanctions were necessary to the national security of the United States where the Congress threw out the window a tangible fully worked-out diplomatic alternative.

The United States is currently attempting to finalize economic agreements with important partners-TTIP with the Europeans and TPP looking out toward the Pacific.  Investor-state dispute settlement (ISDS) is often regarded as a threat to national sovereignty. But ISDS can protect the sovereignty of America's economic partners by allowing monetary claims against the United States if it punishes foreign firms that deal with Iran.   

Both the EU and the TPP partners of the United States should demand clear language in these accords, cutting off at the pass the possibility that non-US business entities could be punished for dealings with Iran. Such sanctions should be prohibited where they are unilateral, and not justified by an agreed framework for responding to violations.  Since the Obama Administration has pioneered the path of diplomacy and cooperation, it could scarcely object to such a clause. Further, some enemies of diplomacy with Iran have ventured that even if Congress does not halt America's participation in the deal, a future President might unravel it.  Significant financial consequences if such an effort were to try to force the hand of America's allies and trading partners would have at least some dissuasive effect on future efforts to undo the Iran deal.  With fast track now in place, the Congress would only be able to stop such a safeguard provision by nixing the trade agreements altogether.  Something many Republicans would have second thoughts about doing. 

Shaping the Pacific Alliance

Readers may be interested in a new blog, Shaping the Pacific Alliance, which aims to contribute to discussion about the Pacific Alliance, an integration scheme comprising Chile, Colombia, Mexico and Peru. The blog provides a platform for governmental and intergovernmental communities to engage with civil society, academics and industry in constructive conversations about the future prospects of and challenges facing the Pacific Alliance. The blog is edited by Ana Maria Palacio, a current PhD student at Melbourne Law School, the University of Melbourne, formerly with Colombia’s Ministry of Trade, Industry and Tourism. Her research project will propose a viable legal architecture to support the Pacific Alliance in long term consolidation. pacificallianceblog.com

How Strong is TransCanada's NAFTA Chapter 11 Case?

A couple months ago, I mentioned the possibility of a NAFTA Chapter 11 claim by TransCanada related to the failure to approve the Keystone XL pipeline. I'm not sure why this issue suddenly made headlines again the other day, but here is something from Bloomberg:

A two-decade old trade accord could let TransCanada Corp. recoup some of the $2.4 billion spent on its Keystone XL project, even if President Barack Obama rejects the pipeline.

A provision in the North American Free Trade Agreement would let the Canadian company file a claim against the U.S., accusing the government of discrimination. While trade specialists say a successful challenge would be a long shot, a Nafta tribunal could award damages for costs as well as lost profit.

The article notes some skepticism about the chances of success:

“The Keystone regulatory decision-making process, while time consuming and probably frustrating from the point of view of TransCanada and others, is not obviously discriminatory,” said Scott Miller, a senior adviser for the Center for Strategic & International Studies, a Washington research group. “The burden required to prevail in these cases is fairly high.”

Of course, as we know, discrimination is not required for investment claims, and I would have thought a "fair and equitable" treatment claim would be a fairly strong claim here.

But let's talk about discrimination for a second.  It can mean a couple different things.

Most prominently, there is nationality-based discrimination, where a government discriminates against a company because it is foreign.  I'm guessing, although I'm not completely sure, that this is what the Bloomberg article has in mind when "discrimination" is mentioned.

But there is also just plain old "you discriminated against me" ("class of one" discrimination, for example).  As for this kind, I'm not a fan of such a broad conception of discrimination in investment agreements, but the idea is out there, and I assume TransCanada would argue it, under one provision or another.

Turning back to nationality-based discrimination, could TransCanada come up with evidence that its treatment by the U.S. government is based on its nationality?  Here are some quotes it might use in this regard:

• Sen. Udall: "There is really one basic question. Is the Keystone Pipeline in our Nation’s interest—not Canada’s interest or Wall Street’s interest but our Nation’s interest. I do not believe it is. I say this for two reasons. First, we are being asked to do something I believe is unprecedented—for Congress to step in and promote a bill for one private-sector energy project, to wave ahead a private pipeline for a private foreign company so that Canadian oil can be piped to Texas for export to other nations. Again, how does this serve our Nation?" https://www.congress.gov/crec/2015/01/16/CREC-2015-01-16-pt1-PgS221-9.pdf
• Rep. Waxman: "Today, we are voting once again to grant special treatment to TransCanada’s Keystone XL tar sands pipeline. This is the third time this Congress and the eighth time since Republicans took control of the House. Instead of helping families deal with pressing problems, we are helping Canadian tar sands producers and pipeline builders. We are spending our time trying to exempt a foreign company from the rules that every other company in America has to follow. This bill is not an energy policy. It is about a single pipeline that will allow Canadian tar sands to flow across our country for export to other countries. That is oil going through the United States but not to the United States. We don’t need this oil. We have our own sources of oil, and we are using less oil because of our efficiency in new cars getting better mileage.” https://www.congress.gov/crec/2014/11/13/CREC-2014-11-13-pt1-PgH7965-2.pdf 
• Sen. Cantwell: "we are sitting here today discussing whether we are going to override current environmental law and give special carve-out exceptions to a foreign company to basically build a pipeline through the United States of America, the fundamental question in my mind is, What is the hurry in giving them exemptions to these various laws as a way to get the pipeline built? These are things U.S. businesses don’t get. They don’t get these exemptions and they certainly don’t get the U.S. Senate voting to basically override the President’s authority. . . we should be discussing what we can do to further pipeline safety in the United States of America and not let a foreign company roll back existing U.S. laws on environmental issues that they should be complying with." https://www.congress.gov/amendment/114th-congress/senate-amendment/25/text
• Sen. Durbin: “[t]he notion that we are going to use foreign steel to build a pipeline for a Canadian company so that the refined products from that pipeline can be exported overseas is somehow, in the eyes of the majority in the Senate, an American jobs bill. I don’t think the American people would agree with that." https://www.congress.gov/crec/2015/01/27/CREC-2015-01-27-pt1-PgS495-8.pdf 
• Rep. Lucille Roybal-Allard: "this bill allows a foreign company to take property from U.S. landowners through eminent domain. The taking of private land for public purposes has always been for local government or local interests. We cannot allow a foreign company to take our private property to feed its corporate profits. . . Considering this foreign-built pipeline takes private property and poses serious economic and safety risks, I stand in firm opposition to this bill." https://www.congress.gov/crec/2015/01/13/CREC-2015-01-13-pt1-PgE56.pdf 

There is lots of nationalist sentiment and many references to "Canada" and "foreign" in there!  Is that enough to support a claim of nationality-based discrimination?  I don't know, but I suspect that a well-financed team of investment lawyers could add quite a bit more to my quickly assembled list.

Of course, the law may be less important than the politics here.  If a Republican wins the Presidency, the pipeline will almost certainly be approved and the debate will be over.  What about Hillary Clinton or a Democrat?  That's a little less clear, and that's when TransCanada might give up on politics and turn to the law.

On the other hand, even the law has politics in it, as Georgetown law prof Robert Stumberg points out in the same article:

Robert Stumberg, a law professor at Georgetown University in Washington, said challengers to the U.S. may face an especially high hurdle. Arbitrators may be wary of ruling against of the world’s biggest commercial partners for fear of turning its citizens against free trade.

I agree that a fear that finding against the U.S. would wreck the whole system could be a factor.  But if we are focusing only on the law itself, it seems to me that TransCanada has a pretty good case, under one Chapter 11 provision or another.

Why Obama Has Already Delivered on Iran-a Response to Alan Dershowitz

Relatively few well-known legal academics have waded into the debate over the Iran deal.  Alan Dershowitz is a notable exception. He has published an e-book against the deal, for one thing.  Here, I'm not responding to that but instead his recent oped in USA today http://usat.ly/1UoDhJ4 making the point that, from a constitutional point of view, the Iran deal will not have the status of law in the United States, and thus could be undone politically by future administrations; to have such a status, Dershowitz claims, it should have to be implemented as a "treaty" under the US Constitution.  This is an issue that Ruti Teitel and I addressed at Just Security before the current deal was finalized. bit.ly/1aZKYnF I probably wouldn't want to re-litigate it, especially against such an able litigator as Professor Dershowitz. 

Normally, Dershowitz argues with great clarity.  But the US Today piece is, well, rather obscure.  First off, Dershowitz seems to be targeting the Obama Administration, as if the Administration were claiming that the JCPOA could have the binding force of law in the US simply by being signed by the Administration.  But the Administration has long acknowledged that many of the commitments under the JCPOA could only be legally effectuated through positive action by Congress.  In various places, the JCPOA itself indicates a distinction between what actions are to be taken "pursuant to Presidential authorities" and what actions would involve initiation of legislative action. The Administration and other supporters of the deal accept that its full implementation by the United States must hinge on future actions of Congress.  Finally, there is a clause in the JCPOA that accepts that state and local government sanctions cannot simply be invalidated by federal action.  In sum, the JCPOA seems to have been drafted in awareness of, and in respect for, constitutional constraints.

But the constitutional argument, though it takes up most of Dershowitz's article, turns out to be largely a red herring (no pun intended).  Because Dershowitz's appeal is ultimately not to the US Supreme Court but to the "court of public opinion" (even if the Iran deal were implemented as a "treaty" under the US Constitution, a subsequent act of Congress could trump it).  Here Dershowitz's observation, while it might seem trite to those savvy in democratic politics, is valid: the commitment of the US to the Iran deal will depend on how public opinion develops in the months and years ahead, and of course, who the elected representatives are.

Were the Iranians naive, then, or unaware of US political realities,in signing a deal that doesn't have any clause that would punish the US for not living up to its commitments in future? There is no clause in the JCPOA, at least none I've found, that allows Iran to walk away from its end of the deal, if the US doesn't fully implement.  The only case in which Iran has reserved its right not to perform in whole or in part, is if UN sanctions are reinstated through snap back. (JCPOA 37)

My sense is that, in fact, the Iranian negotiators were exceedingly shrewd, navigating domestic, US and global political realities adroitly.  When Security Council resolution 2231 was passed on July 20, the diplomatic achievement of Obama, Kerry and their Iranian and other counterparts was made secure.  By virtue of that resolution, the UN sanctions framework is lifted once the IAEA says that Iran has taken a series of defined steps to modify its nuclear program. On that day, to repeat a point I've made in another recent post here, Iran will be open for business with the world.  If the US doesn't lift sanctions, well, it doesn't.  Everyone understands the narrow political interests driving the Congressional debate on this issue, and the world admires the leadership of Obama and Kerry to getting to where we are now-for truly opening the path of diplomacy.  Apart from punishing our allies and trading partners and their companies for doing business with Iran, largely futile and indeed self-wounding in a world of economic interdependence and multipolarity, Congress can't really do much to close down the path of diplomacy post-Resolution 2231. Of course, in pique at US non-performance of its commitments, Iran could, politically, decide simply to walk away from JCPOA before Implementation Day. But that would be to hand a huge victory to Netanyahu and his backers, and sacrifice the great prize of doing away with the UN sanctions framework.   By supporting Resolution 2231, the US has already delivered big-time on the Iran deal, and I bet that informed Iranians appreciate that.  Les jeux sont fait. 

   

     

Why Congress Can't Block the Iran Deal

Even if there are enough votes to override President Obama's veto of the Congressional resolution disapproving the Iran deal, Congress's disapproval may mean little in terms of the future of the deal.  While contrary to the conventional wisdom, including that of many US supporters of the deal, this may explain the President's confident tone in his speech last Wednesday, a tone not so much calculated to win over those on the fence, as to explain why history is on his side, and against that of the neocon opponents of diplomacy with Iran.

Under the relevant legislative framework, and under the US constitution, Congress's almost sole ability to affect the future of the Iran deal is its power to lift, impose or reimpose economic sanctions. The non-lifting of US sanctions is the practical impact of the resolution of disapproval, assuming that the President's veto can be defeated.

If we turn to the text of the JCPOA itself, what is clear is that, while full implementation of the deal does require lifting of US sanctions that are under Congressional authority, the JCPOA and the related UN Security Council resolution remain fully valid, even if Congress disapproves the deal and refuses to lift those sanctions within its control.  There is no provision in the JCPOA that would allow other parties, including Iran, to withdraw from the deal or not to perform their commitments, should the US Congress fail to lift sanctions.  On the contrary, explicit language in the JCPOA foresees the possibility that, despite best efforts, the US might fail to achieve full implementation of its commitments.  Annex V of the JCPOA makes it clear that the sanctions-relief measures expected of the United States on Implementation Day, when the IAEA has verified that Iran has taken a defined set of actions to alter its nuclear program, are those that are "pursuant to Presidential authorities."(Annex V, B 11) As far as further actions by the United States, in terms of other sanctions to be lifted later, once Iran has fully implemented the deal, what the US has specifically committed to is seeking legislative action to lift the sanctions in question (JCPOA, 23). "The United States will make best efforts in good faith to sustain this JCPOA" (JCPOA, 26).   In sum, even if Congress prevents the US from fully implementing its specific sanction-lifting commitments, the JCPOA can still go forward.

But as a political matter, wouldn't Iran simply walk away from the deal in the face of Congress's refusal to play its part in the lifting of sanctions required by the JCPOA?  It is no accident that the other parties' sanction- lifting obligations under the JCPOA have been spelled out independently from those of the US.  They clearly operate regardless of what Congress does or doesn't do.  The economic value of having those sanctions lifted is arguably more than sufficient to keep Iran interested in maintaining the deal for now.  And, later on, a new Congress might think differently, anyhow.     

Here, Security Council resolution 2231 is of key importance. Once the IAEA determines that Iran has done the required actions in modifying its nuclear program that are specified in the JCPOA, we have "Implementation Day" and the previous Security Council sanctions resolutions are terminated.  The trigger for that is the IAEA determination: it is essentially out of the hands of the parties, including the United States. So after implementation day, UN Members are basically under no further UN-based obligation to impose nuclear-related sanctions on Iran.  This is a huge gain for Iran and it is difficult to see that it would decide, even in the face of Congressional rejection, not to go forward with the deal to "Implementation Day", where Security Council sanctions are lifted.  The only situation in which the UN sanctions framework could be re-established (except by a new Security Council resolution that would surely be vetoed by Russia, China, etc.) is "snap back" if there were "significant non-performance" of Iran's commitments. But Congress cannot force the President to invoke "snap back" if it rejects the deal; if Congress were to lift sanctions and approve the deal, on the other hand, it could conceivably condition any such lifting on the President being required to invoke "snap back" if Iran is in a situation of "significant non-performance".   It may seem somewhat ironic, but Congress's resolution of disapproval thus wastes what might be the one form of leverage it has to bring back Security Council-based sanctions binding on all UN Members in a situation where Iran appears to be forging ahead with its nuclear ambitions.           

In sum, opponents of the Iran deal are unlikely to stop the path of diplomacy even if they succeed in making the Congressional resolution of disapproval veto-proof.  Some, such as Senator Charles Schumer, have suggested "secondary sanctions", where Congress punishes foreign nations and foreign companies for their dealings with Iran.  But how effective will such sanctions be with no Security Council framework in place, and, for example, the possibility of structuring transactions with Iran through financial intermediaries and corporate vehicles beyond US jurisdiction?  The main negative impact of such measures will be on US businesses and especially financial institutions.  Iran will still gain much of the value of having removed itself from the straightjacket of the UN sanctions framework.  But secondary sanctions merit a post of their own.  Coming soon.   

Senator Charles Schumer: Incoherence and Confusion on Iran

New York Senator Charles Schumer has taken a stance against the Iran deal. https://medium.com/@SenSchumer/my-position-on-the-iran-deal-e976b2f13478 Predictable some will say; disappointing, others will moan.  But Schumer's statement defending his position is a must-read.  Schumer says that his overall judgment is that, in relation to the key goal of restraining Iran's nuclear ambitions, "we might be slightly better off with it."  In this respect, i.e. a cautious realistic  assessment that on balance the deal is better than the alternatives as far as restraining Iran's nuclear capacities goes, Schumer's position turns out to be little different than that of others, such as Congressman Adam Schiff, who support the deal but with eyes wide open.

So how does Schumer end up with an overall negative verdict?  It is the "non-nuclear" aspects that Schumer says tip the balance toward a negative verdict.  When I  read that remarkable sentence, I was sent scurrying back to the text of the JPOA.  What "non-nuclear" aspects was Shumer talking about?  In my parsing of those pages, had I missed a whole series of clauses unrelated to nuclear matters?

But, in fact, Schumer never does refer to any part of the text of the JPOA about non-nuclear aspects, even though this is apparently  the crucial basis of his determination to vote against.

Instead,  in plain contradiction to his own statements, Schumer goes on simply to make the hackneyed claim that, unless Iran changes, it can't be counted on to comply with the nuclear aspects.  

Now Senator Schumer is a smart guy.  So he knows that neither he, nor anyone else, can really predict whether  Iran will stay the same or change for the better or worse.  So we are dealing with decision-making under uncertainty.  Schumer has a personal feeling or belief that Iran will not change.  Fine, he is entitled to his own ESP.     

But this leads him to his final failure of logic.   Schumer says that if one assumes,  and again he admits it's just a crap shoot, that Iran will not change, we are better off with sanctions and strengthening sanctions than with the deal. 

But why? For  if Iran is irredeemable, as is Schumer's unsubstantiated hunch, wouldn't  sanctions result in defiance and resistance not capitulation?  

Schumer is aware also that the US cannot unilaterally determine whether other nations have sanctions against Iran.  So what he proposes is that the United States enact "secondary sanctions" against our allies and trading partners who take a different view.  The cavalier reference to "secondary sanctions" by a Senator who supposedly represents a state that has one of the world's most important global financial centers is made with utter indifference to the economic consequences to New York, or to the unity we need with our  most important allies to address many threats and challenges in a dangerous world.  It shows that Charles Schumer has not bothered to think through America's or New York's interests in a complex and interdependent world.  Rather he has fallen victim to the dangerous and deranged ideology of Netanyahu-and his billionaire backers.

Peru--Agricultural Products: WTO versus RTAs (and other non-WTO international law)

In addition to the AB's findings on interpretation in this case, discussed by Adarsh Ramanujan, it seems to me that para 5.112 of the AB decision (quoted below) is also very important, stating that the amendment and waiver provisions of the WTO are lex specialis, prevailing over Art. 41 of the VCLT.  Therefore, an RTA cannot modify Peru's WTO obligations inter se, except as specifically permitted by Article XXIV of GATT or other WTO law.   This seems to reject an important argument that Joost Pauwelyn and others have made.  I might have approached it another way—arguing that the FTA modification does not comply with Art. 41 because it is not provided for by the multilateral treaty and is inconsistent with the amendment provisions of the multilateral treaty, which implicitly prohibit other forms of amendment. This would be an appropriate understanding of both the amendment provisions of the WTO agreement and Art.41, and would avoid finding conflict between the VCLT and the WTO.   Here is para. 5.112:

5.112. Nevertheless, we note that the WTO agreements contain specific provisions addressing amendments, waivers, or exceptions for regional trade agreements300, which prevail over the general provisions of the Vienna Convention, such as Article 41. This is particularly true in the case of FTAs considering that Article XXIV of the GATT 1994 specifically permits departures from certain WTO rules in FTAs. However, Article XXIV conditions such departures on the fulfilment of the rule that the level of duties and other regulations of commerce, applicable in each of the FTA members to the trade of non-FTA members, shall not be higher or more restrictive than those applicable prior to the formation of the FTA.

Guest Post on Peru - Agricultural Products

This is a guest post from trade lawyer Adarsh Ramanujan:

 

Comments on Article 31 of the Vienna Convention

The AB Report in DS457: Peru –Agricultural Products (adopted on July 31) had some very interesting points on Article 31 of the Vienna Convention, in particular, sub-paragraphs (a) and (c), and their relationship with Article 31(1). Just for convenience, I have reproduced the relevant parts of Article 31 of the Vienna Convention below:

“1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

…

3. There shall be taken into account, together with the context: 

 (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; 

…

(c) any relevant rules of international law applicable in the relations between the parties.”

I. Inter se Relationship within Article 31

Here’s what the AB states on this point (para 5.94):

“While context is a necessary element of an interpretative analysis under Article 31 of the Vienna Convention, its role and importance in an interpretative exercise depends on the clarity of the plain textual meaning of the treaty terms. If the meaning of treaty terms is difficult to discern, determining the ordinary meaning under Article 31 may require more reliance on the context and the object and purpose of the treaty and possibly other elements considered "together with the context" and the tools mentioned in Article 32. However, we do not see how, in an interpretative exercise under Article 31, elements considered "together with the context" can be used to reach the conclusion that the textual terms "shall not maintain" in Article 4.2 of the Agreement on Agriculture should be read as meaning "may maintain" based on a particular provision found in the FTA. We do not consider that Article 31 can be used to develop interpretations based on asserted subsequent agreements or asserted "relevant rules of international law applicable in the relations between the parties" under Article 31(3)(a) and (c) that appear to subvert the common intention of the treaty parties as reflected in the text of Article 4.2 and Article II:1(b).”

(Emphasis added in bold)

Is the AB implying an internal hierarchy within Article 31 of the Vienna Convention? I always believed that this idea of a first text, then context and then other materials, was more to structure a judgment or an argument, but nothing more. Article 31(1) itself mentions ‘context’ – it is the “ordinary meaning in their context” that is relevant under Article 31(1). Article 31(3) mandates that “together with the context” subsequent agreements or relevant rules of international law be taking into account. The plain words of the Vienna Convention make it more than apparent that there is no internal hierarchy and I always believed this to be the correct approach as a student of public international law. I have always believed that the Vienna Convention tries to lay out all the factors that would be relevant to understanding the relationship between the parties and, no one factor can be more important than the other. In contrast, you can see the Vienna Convention making an explicit hierarchy between Article 31 principles and Article 32 (reference to preparatory work).

This observation from the AB does not fit with the text of the Vienna Convention itself. In any case, the argument taken up by Peru was dismissed on other (perhaps stronger) reasons and I feel that this comment was unnecessary.

II. What is a “relevant” rule of international law under Article 31(3)(c) (and Article 31(3)(a))?

In dismissing Peru’s claim that certain provisions of the ILC Articles and the relevant FTA between the parties are ”relevant” under Article 32(3)(c), the AB finds (paras 5.101-103):

“5.101. In order to be "relevant" for purposes of interpretation, rules of international law within the meaning of Article 31(3)(c) of the Vienna Convention must concern the same subject matter as the treaty terms being interpreted…The Appellate Body has also considered that agreements "regarding the interpretation of the treaty or the application of its provisions" within the meaning Article 31(3)(a) of the Vienna Convention are "agreements bearing specifically upon the interpretation of a treaty".

5.102. Paragraph 9 of Annex 2.3 to the FTA states that "Peru may maintain its Price Range System". ILC Article 20 addresses the issue of validity of consent by a State that precludes the wrongfulness of a given act by another State within the limits of that consent. ILC Article 45, paragraph (a) concerns the loss of right to invoke responsibility of a State, in circumstances where the injured State has validly waived the claim.

5.103. The specific interpretative issues arising under Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994 in question in this dispute are not whether Peru "may maintain" its PRS with regard to designated products , or whether Guatemala has consented to the maintenance of the PRS or waived its right to challenge it.  Rather, in order to determine whether Peru could maintain its PRS, the Panel had to interpret the meaning of the terms in Article 4.2 and footnote 1 of the Agreement on Agriculture, and find whether the additional duties resulting from the PRS could be characterized as "variable import levies", "minimum import prices" or "similar border measures" rather than "ordinary customs duties" within the meaning of footnote 1. With respect to Article II:1(b) of the GATT 1994, the Panel had to determine whether the additional duties resulting from the PRS could be characterized as "other duties or charges" or "ordinary custom duties". Paragraph 9 of Annex 2.3 to the FTA and ILC Articles 20 and 45 do not provide "relevant" interpretative guidance in this respect. Thus, we do not see how the FTA and ILC Articles 20 and 45 can be considered as rules concerning the same subject matter as Article 4.2 and Article II:1(b), or as bearing specifically upon the interpretation of these provisions.”

(Emphasis supplied in bold)

Of course, what is “relevant” is a very factual question. However, at first glance, I feel that AB applied the standard quite strictly. The idea that it has to “concern the same subject-matter” is something I can understand as a legal test - but its application is what I am concerned with. More than the ILC Articles, my focus is on the FTA itself and the phrase in that FTA that Peru “may maintain” its PRS system. It appears that the AB has come to its conclusion simply based on the fact that the same terms are not used in the two treaties. Perhaps there is another way to understand the AB’s ruling, but this is how I understand it.

There is still the larger question – is the legal standard used by the AB correct? Article 31(3)(c) only uses the word ‘relevant’ and not the word ‘same subject matter’. As far as I am personally aware (I welcome any corrections in this respect), there is no settled understanding in the realm of pubic international law on how ‘relevance’ under Article 31(3)(c) is determined. My personal and initial opinion is that two provisions could be considered logically ‘relevant’ not just because the terms  indicate that the two provisions bear on the same subject matter, but also because  of the real world / de facto impact they have. I have come across instances in my limited experience as a domestic practitioner, where even though the subject-matters in two different legislations / provisions may prima facie appear disjoint, they tend to have overlapping spheres when applied on facts. Usually, I would consider those different legislations / provisions as being ‘relevant’ to one another. Anyway, I think the jury is still out on this issue and may be future jurisprudence will provide further clarification.

Of course, I am not arguing that the FTA fully supports Peru’s stand, but I believe that rejecting the FTA provisions as not being “relevant” may be too strict an approach.

III. Who are the ‘Parties’ referred to in Article 31(3)(c)?

                There was also some discussion about whether the FTA could be applied under Article 31(3)(c) since not all WTO members are parties to that FTA, though the AB did clarify that there is no need to issue a finding of this issue (para. 5.105). However, it does make the following general observation in understanding Article 31(3)(c) (para. 5.95):

“5.95. Moreover, Peru clarified at the oral hearing that it is advocating an interpretation of Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994 as permitting the PRS exclusively in the relations between Peru and Guatemala, who are the parties to the FTA.  Article 31(1) of the Vienna Convention states that "[a] treaty shall be interpreted" such that the object of the interpretative exercise is the treaty as a whole, not the treaty as it may apply between some of its parties. We thus understand that, with multilateral treaties such as the WTO covered agreements, the "general rule of interpretation" in Article 31 of the Vienna Convention is aimed at establishing the ordinary meaning of treaty terms reflecting the common intention of the parties to the treaty, and not just the intentions of some of the parties. While an interpretation of the treaty may in practice apply to the parties to a dispute, it must serve to establish the common intentions of the parties to the treaty being interpreted.

5.96.  Therefore, although Peru submits on appeal that the Panel erred in the interpretation of Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994, in our view, these arguments are beyond the scope of an interpretative exercise as envisaged in Article 3.2 of the DSU and in Article 31 of the Vienna Convention…”

(Emphasis supplied in bold)

It appears that there is an implied finding that the term ‘parties’ must effectively be all members of the WTO.  I say ‘effectively’ because the language of the AB suggests that even for FTAs or bilateral treaties applicable between a subset of WTO members, they could be considered under Article 31(3)(c) if they “serve to establish the common intentions of the parties to the treaty being interpreted”. For instance, we may consider an FTA between three WTO members bearing on a WTO treaty provision, but some sort of evidence can be produced that all other members of the WTO consider it to be the correct understanding. At least, this is what I understand by the AB’s observation. I think from the perspective of intrinsic stability and coherence to the WTO regime, this finding makes sense, though I think the world of public international law is still divided on this front.

Apart from the above, this decision also made me think some more fundamental or academic questions – there are clearly issues about understanding the Vienna Convention itself. It would seem circular to apply Article 31 itself to interpret Article 31. What then? The other question would then be whether interpretation of the Vienna convention is even something the Panel can do under the DSU?

I would welcome any thoughts or comments.

Can Section 337 Be Used to Block Digital Imports?

From the WSJ:

A U.S. appeals court this month will consider whether federal tariff law gives the International Trade Commission the power to order a halt to foreign digital transmissions into the U.S. when those communications infringe U.S. intellectual property. Traditionally, the ITC has intervened only to stop the importation of physical goods.

In a proceeding closely watched by tech companies and the movie, music and publishing industries, the commission expanded its approach last year while reviewing a trade dispute over orthodontic devices. The ITC decided it could take action against virtual material coming into the U.S. and ordered a Texas-based company, ClearCorrect, to stop receiving digital models and data from Pakistan for the manufacture of teeth aligners, invisible mouthpieces used as an alternative to braces.

The ITC had said ClearCorrect was infringing patents held by larger rival Align Technology Inc., a San Jose, Calif., company that generated more than $700 million in revenue last year from its Invisalign devices.

The U.S. Court of Appeals for the Federal Circuit will hear arguments on ClearCorrect’s appeal in Washington on Aug. 11.

...

ClearCorrect’s manufacturing process starts with a physical model of a patient’s teeth in the U.S., which is scanned digitally. The file is uploaded and received by technicians in Pakistan who create virtual models of a patient’s teeth moving into straight positions. The files are transferred back to the U.S. electronically, where ClearCorrect prints 3-D models that are used to make aligners.

The ITC in court papers said ClearCorrect hoped to skirt U.S. patent law by farming out part of its process to Pakistan. The commission argues it would be unreasonable to say it could block physical dental molds at the border yet do nothing to stop digital ones.

Relatedly, would a finding that Section 337 can be used to block digital imports lead to challenges to Section 337's consistency with WTO obligations?

Maui Post-Mortem

As everyone has probably heard by now, negotiators could not reach a TPP deal in Maui.  Here's a roundup of some commentary:

Washington Post:

High-level talks to forge a ­12-nation trade deal spanning the Pacific broke up Friday without resolving contentious disputes over Canadian dairy tariffs, the protection of cutting-edge drugs known as “biologics” and Japanese access to the North American automobile market.

Inside US Trade:

In an interview, New Zealand Trade Minister Tim Groser indicated that the negotiations broke down over the auto issues and that, because of this, parties never really advanced to a high-pressure negotiation on dairy.

There was “too much time clearing away this other undergrowth, and then the autos issues stood up as this other gnarled root, and there just wasn't enough time, and it was clear that people were never going to have the political base to reassess a few simple questions about their negotiating position … on both autos and dairy,” he said.

Sydney Morning Herald:

Some blame lies with Canada, an otherwise open trading nation that insists on pampering the boutique dairy farmers of Quebec. Some blame sits with Mexico, which lavishes taxpayer money on second-rate cars.

But true responsibility lies with an Obama administration that was too weak, too presumptuous and far too late in lobbying its case.

Deborah Elms:

So what happened on the ground in Hawaii?  There will be much finger pointing and recriminations in the wake of the talks.

If I had to put my own finger on it, the immediate cause of collapse can be traced to Canada’s refusal to discuss dairy in any meaningful way until the final 3 days of negotiations.  This was, as I have previously noted, a high risk strategy. 

...

Mexico, which has been defending its special access to the NAFTA markets all along in various sectors, suddenly came forward to object to rules of origin (ROOs) around autos.  The current NAFTA provisions call for 65 percent content from NAFTA countries.  These rules have helped make Mexico into an automotive powerhouse and the possibility of lowering the percentage of content required in the TPP led to strong Mexican objections.  

With the unraveling of autos and the contested dairy elements of the agreement, various other complaints from different TPP members must have risen to a crescendo.  ...

FT:

The timing of that next meeting was unclear, however. Some reports pointed to a gathering not being held until as late as November, in part because elections are due in Canada in October and Ottawa’s reluctance to remove trade barriers protecting its politically-sensitive dairy industry represents one of the major sticking points.

Inside US Trade again:

Akira Amari, Japan's minister in charge of the Trans-Pacific Partnership (TPP) talks, said Friday (July 31) after the conclusion of a four-day meeting that failed to yield a deal that he and his counterparts share a common understanding that they should meet again before the end of August.

Deborah Elms again:

... Hawaii really did represent the last, best chance for a deal in the near term.  Ministers have apparently decided to reconvene on the sidelines of APEC in November to try again. 

The cold logic of deadlines, however, shows that a deal reached in November is not going to be helpful.  Recall that once the officials agree on a draft text, this is not the end.  Instead, internal procedures in the United States (and others) means a delay of at least 90 days prior to final signatures on the agreement.  Entry into force is even further off.