International Economic Law and Policy Blog

Talking Tuna

On Friday, ICTSD and WTI Adivisors hosted an excellent discussion of the US - Tuna II WTO Appellate Body report, with Lorand Bartels, Joel Trachtman, Iain Sandford, David Agnew, and Matthew Owens as speakers. You can view the recording here. 

Via twitter, I asked the following questions: "The AB focused its findings of violation/lack of justification on the determination provisions. Is the AB imposing too high a standard on legislators/regulators for the effectiveness of domestic laws and regulations? Is it really possible for measures to be so closely calibrated to the risks they address and their overall goals? Should we allow more leeway for imperfect laws and regulations?"

The answers came at about 1:40:20 of the recording.

-- Lorand started it off by noting that this is "exactly what proportionality analysis gives you -- it gives you a tool for figuring out when a measure is properly calibrated." He emphasized that when he referred to proportionality, he had in mind an examination of "necessity." 

-- Joel then noted that once we start weighing costs and benefits, we are asking tribunals to replicate a very complex national regulatory process. He said that perhaps we need a threshold determination of protectionist intent.

-- Iain suggested that identifying intent is a challenging task. He also said he was wary of deference here, and was not sure too much deference should be given to national government regulation.

-- Matthew added that the measure here was not protectionist, and that it is applied "relatively evenly" to all producers.

-- Finally, Lorand weighed in one more time, in response to Joel, noting that the WTO does more than stop protectionism, and this is a good thing. It also addresses dumb rules that harm exports, and that it promotes good regulation.

I'm going to declare a partial victory here, in the sense that my questions generated exactly the kind of debate I was hoping for, with the different views set out clearly.  On the other hand, I feel like a lost a bit as well, given that two of the speakers had views that seem very different than mine on this issue, so I still have a lot of work to do!

But regardless of who is right and wrong, I think this is the discussion government officials should be having when crafting trade agreement rules. Are trade/investment rules about stopping protectionism? Or are they about promoting good regulation? Those are very different ideas, with enormously different impacts on domestic regulation: Think about how much regulation could be considered protectionist, as compared to how much regulation could be considered dumb.

Cecilia Malmstrom on the Precautionary Principle and TTIP

From a speech by EU trade commissioner Cecilia Malmstrom:

I'd like to talk about three benefits in particular but the theme of today's event is the precautionary principle, so let me say a few words about that first.

*

As a starting point, it's good that you raise this issue because I think it goes to the heart of the debate on this agreement.

When I travel across Europe it's raised all the time. That discussion -- whether it's about regulatory cooperation or investment protection -- ultimately comes down to how a trade agreement like TTIP interacts with domestic policies.

And the precautionary principle is a central tool for us in Europe - though not just in Europe - when we decide what kind of policies we are going to have. It's been an important principle of our approach to law-making in the European Union for many years.

And, as far as environmental legislation is concerned, it's written into the Lisbon Treaty. So I fully understand why people would be concerned if they see a threat to how the precautionary principle and how it operates in Europe.

And this is one area where the Commission has been listening to people's concerns and reacting to them.

That's why we have made an explicit public pledge in the Trade for All strategy that we released last October.

It applies to all our agreements, not just TTIP, and it has three elements:

- First, no trade agreement will ever lower the levels of consumer, environmental or social and labour protection we decide on in Europe. That means that nothing in TTIP will touch the precautionary approaches we have taken to regulating in the past.

- Second, if ever a trade deal did make a change to the levels of protection the EU offers its citizens, that change can only be upward. That means any change would lead to more, not less precautionary approaches.

- And third, nothing in trade deals will limit the EU's right to make new policies in the public interest. That's the most important part. When it comes to the intensified regulatory cooperation we want to see in TTIP - it will not change our precautionary approach. We want more discussion between regulatory authorities. But we will always insist that they are free to go their own way, including by applying the precautionary principle, if that's what they believe is right. Beyond regulatory cooperation per se, we have also undergone a major reform of the EU's approach to investment protection. I know that the TACD has views on that. I've seen the paper you have just released. But we'll be talking about this in more detail in a few moments. So let me just say that our proposal is specifically designed to make sure that there too, we protect our right to regulate in the public interest. And that includes the precautionary principle.

So our approach is clear. We will defend the precautionary approach to regulation in Europe in TTIP in all our other agreements.

My sense, based on past trade conflicts, is that the precautionary principle runs into problems with trade rules when precautionary measures are not science-based.  In some instances, such measures could also be deemed more trade-restrictive than necessary.  (The measures could even discriminate based on nationality, depending on how you define discrimination, but they shouldn't -- in my view -- violate the non-discrimination provisions if they really are science-based).

So, the question is, can the EU apply the precautionary principle in a way that complies with trade obligations?  The answer depends on two factors: How the EU applies the principle in practice, and how the trade obligations are defined.  So, for example, if the investment provisions say that foreign investors cannot be treated in a way that is "manifestly arbitrary," will the EU apply precaution-based regulations to foreign investors in a way that is not manifestly arbitrary?  Opinions probably vary on this, but past WTO jurisprudence suggests the EU may have trouble defending some of its measures.

New Appellate Body Appointment

From the WTO:

The DSB agreed with the Chairman’s proposal for appointment/reappointment of Appellate Body members. In particular, it agreed to launch a selection process for one position in the Appellate Body to replace Ms Yuejiao Zhang, whose second four-year term of office will expire on 31 May 2016. Consistent with the procedures set out in the DSB rules and with previous selection processes, it agreed to establish a Selection Committee composed of the Director-General and the 2016 Chairpersons of the General Council, the Goods Council, the Services Council, the TRIPS Council and the DSB, to be chaired by the DSB Chair.

There was agreement to set a deadline of 15 March 2016 at 6 pm for members to submit nominations of candidates, and to request the Selection Committee to carry out its work in April/May 2016 in order to make a recommendation to the DSB by no later than 12 May 2016 so that the DSB can take a decision to appoint a new Appellate Body member at its regular meeting scheduled for 23 May 2016.

So which countries will be campaigning for this slot?  Is there a China slot on the Appellate Body? 

Senator Wyden on the TPP Tobacco Carveout

From Politico:

“I pushed very, very, very aggressively for that tobacco provision to be part of this,” Wyden told POLITICO about the carveout that protects tobacco control-related policies from being challenged in investor-state cases. “I have watched the tobacco companies over the years particularly focus on global markets where they can, in effect, get kids addicted at an early age, and so I feel very strongly about that provision. I worked very hard for it.”

I wonder what Senator Wyden would have thought of a general exceptions clause -- which would provide a defense for all public health measures and measures for other policy purposes -- instead of a carveout that applies only to tobacco control measures.

WHY DOES US CVD LEGISLATION MODIFY ARBITRARILY THE WORDING OF WTO PROVISIONS?

I have noticed for a long time that, in the CVD context of determination of injury, the US  national legislation is at odds with the mirror WTO provision.

In the US, Section 771(7)(C)(i) of the Act provides that the “Commission shall consider whether the volume of imports of the merchandise, or any increase in that volume, either in absolute terms or relative to production or consumption in the United States, is significant”.

In contrast, Article 15.2 of the SCM specifies that “With regard to the volume of the subsidized imports, the investigating authorities shall consider whether there has been a significant increase in subsidized imports, either in absolute terms or relative to production or consumption in the importing Member”.  

It is clear that the SCM indicates that the increase of the volume of subsidized imports is the sole aspect connected to the adjective “significant”, whereas the US legislation considers that the absolute volume of subject imports could by itself be significant.

In US-DRAMS (DS 296), the US attempted unconvincingly (by playing on the disjunctive words “either” and “or”) to read Article 15.2 of the SCM  in a way justifying US legislation. The Panel rejected this attempt  by considering that only two of the three  International Trace Commission's determinations, namely those relating to increase, were acceptable.

I am wondering if US legislation is the result of:

a) bad drafting 

b) bad but good faith reading of WTO provisions 

c) an attempt to force a certain preferred outcome by considering that the SCM should have included  consideration of the absolute volume of subsidized subject imports 

d) any other unknown cause

Donald Trump on the Keystone XL Pipeline

The Obama administration's rejection of the Keystone XL pipeline was controversial; opinions on TransCanada's NAFTA Chapter 11 claim vary. Now Donald Trump has weighed in. You can probably imagine the result. This is from the Toronto Star:

Republican presidential front-runner Donald Trump says he would reject the Keystone XL pipeline if TransCanada Corp. didn’t give the U.S. a “big, big chunk of the profits, or even ownership rights.”

All of Trump’s Republican rivals say they would immediately approve the pipeline from the Alberta oil sands, which President Barack Obama rejected in November. Trump, who bills himself as a master negotiator, now says he would require TransCanada to fork over billions.

“I want 25 per cent of the deal for the United States. They’re going to make a fortune,” he declared in Muscatine, Iowa on Sunday. On Saturday, he said he would ask for “25 per cent of the profits forever.”

Trump, campaigning as an economic nationalist, said he wants the pipeline approved. But he said TransCanada should not be allowed to send Canadian oil through American land—“through farmland and through cities and wherever the hell they’re going” — without paying a hefty price.

“When they do this pipeline, it’s going to be a very profitable thing and it’s really Canada oil coming down — so it’s not — I like Canada, I want these people to be happy, but I want the developers of the pipeline to give the United States a big, big chunk of the profits or even ownership rights, like I do in business. That’s what I do,” he said.

“I want a big piece of the deal. Otherwise I’m not going to approve it. They will give us a lot.”

Trump also declared that he is “not in love with the idea of taking Canadian oil.” He added, “I love Canada, by the way.”

This would all be a lot funnier if his poll numbers weren't so high!

ISDS Lawsuits: Small vs. Big Business

This is from a new paper by Gus Van Harten and Pavel Malysheuski:

The sociological legitimacy of investment treaty arbitration, commonly known as investor-state dispute settlement (ISDS), appears to depend in part on an expectation that it benefits smaller businesses, not just large multinationals and the super wealthy. Proposed trade agreements that would expand greatly the role of ISDS – such as the U.S.-led Trans-Pacific Partnership (TPP), Europe-U.S. Transatlantic Trade and Investment Partnership (TTIP), and Canada-EU Comprehensive Economic and Trade Agreement (CETA) – have been promoted as delivering benefits for smaller enterprises.

We examined the relationship between ISDS and smaller firms by collecting data on size and wealth of the foreign investors that have brought claims and received monetary awards due to ISDS. Our main findings are that the beneficiaries of ISDS-ordered financial transfers, in the aggregate, have overwhelmingly been companies with more than USD1 billion in annual revenue – especially extra-large companies with more than USD10 billion – and individuals who have over USD100 million in net wealth. ISDS has produced monetary benefits primarily for those companies or individuals at the expense of respondent states.

It should be noted that actual small businesses -- like, say, the local dry cleaner -- do not have nearly enough money to make use of ISDS.  With ISDS, we are talking about lawsuits by very wealthy companies and individuals, as well as lawsuits by moderately wealthy companies and individuals.  But putting that aside, is it surprising that wealthier companies and individuals are more likely to win ISDS lawsuits and collect money?  Would the breakdown be similar under domestic law?

Also, does any of this matter?  Is it true that the "sociological legitimacy of investment treaty arbitration" depends in part on "an expectation that it benefits smaller businesses, not just large multinationals and the super wealthy"?  I would have thought that the legitimacy of investment treaty arbitration depends more on whether international law -- because investment treaty arbitration is part of international law -- offers protections for both foreign investors and people who are not foreign investors.

There is also this from the paper:  "The data on ISDS costs also highlights financial benefits of ISDS for ISDS lawyers, arbitrators, experts, and other actors who earn income from ISDS fees. In 214 ISDS cases with a confirmed adjudicative resolution, based on the OECD estimate of ISDS costs the total payments of fees from disputing parties to the ISDS industry would have been about USD1.7 billion."  No word on whether it is large or small law firms getting most of that business.

Canada vs. the EU vs. the U.S. on ISDS

This is a fascinating article on ISDS from CBC news, explaining the tension between the EU and U.S. positions on ISDS, and how Canada is caught in the middle:

European Union officials quietly approached Justin Trudeau's new government last fall with a request to revisit the controversial investment protection clause in the Canada-EU trade deal.

Negotiations for the Comprehensive Economic Trade Agreement (CETA) were supposed to have concluded in the summer of 2014 — the former Conservative government led by Stephen Harper had trumpeted success since an agreement in principle in 2013.

But nothing was signed then. Or since.

Now, stoked by fears of setting a bad precedent for trade talks with the United States, well-organized dissent in Europe has taken hold.

It risks a humiliating defeat on a ratification vote expected at the EU's parliament in Brussels this fall, unless a compromise can be reached to appease moderate opponents.

...

Europeans now see things as a two-part North American deal: part one is CETA with Canada, and its passage sets up part two with the U.S.

...

Facing these political headwinds, the EU proposed a new Investment Court System (ICS) this fall. Unlike the case-by-case ad hoc tribunals that adjudicate in North America, this suggests permanently-appointed judges, a formal court of appeal and clear rules to make things fair, particularly for small and medium-sized businesses.

...

Americans aren't receptive to the new court idea. Neither, at least fully, is Canada.

In an article written for a Polish newspaper last week and translated for Maclean's magazine by Canada's embassy in Warsaw, Canada's lead negotiator, Steve Verheul, candidly admits that the opposition to ISDS comes as a "significant surprise." (Ambassador Coninsx told CBC News her side didn't foresee it either.)

Speaking to the Polish audience, Verheul tips Canada's hand: "Canada can agree to some of the changes," the translation reads, but we have concerns that the [proposed court] is significantly more complicated and expensive. It also does not guarantee that a case will be heard by the most appropriate panel of judges."

"We think it will bring more assurances for some, but not more costs," Coninsx told CBC.

Trade lawyer Mark Warner, part of Ontario's legal team during the CETA talks, agrees with Verheul that while NAFTA's ad hoc tribunals are composed of recognized experts, the kind of generalist judges named to this permanent court could lack tailored expertise.

It all puts Freeland in a tight spot if she takes seriously her mandate letter marching orders to proceed with ratification as quickly as possible.

"I think the Americans will be pretty pissed off at us," Warner told CBC News.

If Canada agrees to a compromise the U.S. doesn't want, "it's like throwing a finger into their eye. And I thought Justin Trudeau said he was going to have better relations with [Washington.]"

...

I suppose you could describe the situation this way.  NAFTA has an older version of ISDS, which TPP will slightly tweak.  CETA reflects an early EU reform of ISDS, which seemed like a big enough reform at the time, but it turns out it wasn't.  Now the EU wants TTIP to include a bigger reform of ISDS (the investment court).  The U.S. is skeptical of the investment court, but the EU has already been touting it, and the EU now feels like it needs to reform the existing CETA reform in order to get domestic support for CETA.

No doubt everyone is looking for a compromise, but in trying to balance out different national interests, along with different interest groups within each nation, I'm not sure there is a middle ground position that works very well.

The Roster of WTO Panelists vs. Actual WTO Panelists

Here's the list of Americans on the recently updated indicative list of WTO panelists:

BROWN-WEISS, Ms. Edith
CONNELLY, Mr. Warren
GANTZ, Mr. David A.
GORDON, Mr. Michael Wallace
HODGSON, Ms. Mélida
KASSINGER, Mr. Theodore W.
KHO, Mr. Stephen
LAYTON, Mr. Duane
LICHTENSTEIN, Ms. Cynthia Crawford
McGINNIS, Mr. John Oldham
PARTAN, Mr. Daniel G.
POWELL, Mr. Stephen J.
SANDSTROM, Mr. Mark R.
THOMPSON, Mr. George W.
TROSSEVIN, Ms. Marguerite
VERRILL, Jr. Mr. Charles Owen

And here's the list of Americans who have been WTO panelists:

Davey, William
Horlick, Gary
Hudec, Robert
Hufbauer, Gary
Jackson, John
Janow, Merit
Lavorel, Warren
Powell, Stephen
Echols, Marsha

Steve Powell aside, is there any lesson to draw other than, if you want to be a WTO panelist, stay off the indicative list?

That's a joke, of course, but if nobody has written about this yet, it would be interesting to compare the people on the roster with the people selected as panelists for each country, and speculate about the results.

WTO Conference

The conference formerly known as the BIICL WTO conference, and this year organized by BIICL, the IIEL, the Graduate Institute and SIEL, will be held in Geneva this year, on June 10-11. The call for papers is here. Here are the topics being covered:

• 1. LEGAL INNOVATION IN TPP AND OTHER “DEEP” FTAs: TOWARD A “COMMON LAW” OF FTAs OR SUBSTANTIVE FRAGMENTATION ON “NEW ISSUES”?

The conclusion in fall 2015 of the Trans-Pacific Partnership (TPP) was a major landmark. Other “deep” FTAs such as CETA or the EU-Singapore agreement have also been concluded, and more are under negotiation (TTIP, TiSA, RCEP etc.). What legal/rule innovation can be found in and across these 21st century trade agreements, both at the institutional and the substantive or procedural level (including dispute settlement)? Are some “new issues” (e.g. e-commerce, investment, corruption, data flows, environment, competition, labor, SOEs, regulatory cooperation) dealt with in all of these agreements and in similar ways, making some of them possible candidates for a multilateral or at least plurilateral approach? Where, in contrast, reside the major differences, both on substantive and institutional issues and why are they there? Are some FTAs more open or “WTO friendly” than others? Is the trend one of consolidation toward something of a “common law of international trade” (the term used by J.H.H. Weiler in a 2001 edited book) or rather one of fragmentation with deepening divisions especially on “new issues”?

• 2. INTERPRETING “OLD” WTO RULES IN A WORLD OF NEW FTAs AND OTHER NORM DEVELOPMENTS OUTSIDE THE WTO TREATY

In a recent ruling (Peru – Agricultural Products, DS457), the WTO Appellate Body addressed the potential impact of a bilateral free trade agreement on the interpretation of WTO rules between the disputing parties. In a context where WTO treaty updates are stalled, can or should the AB interpret 20 years-old WTO rules to accommodate new developments, be it new clarifications in post-1995 WTO declarations or committee decisions (outside of the formal WTO treaty), party agreements to settle disputes outside the WTO or substantive rules in FTAs or multilateral environmental agreements (such as the 2015 Paris Agreement on climate change)? If the AB sticks strictly to the “old rules” does it risk losing credibility or even becoming obsolete? Or, conversely, would reference to such “outside sources” depart from the AB’s original purpose and risk undermining its hard-fought authority? Is it the AB’s task to bring some clarity and order in the world of overlapping trade agreements, or should the AB “do what it does best” and consider only WTO rules and defend those rules against “outside interference”? How can treaty interpretation in this evolving legal context remain objective and predictable? What is the role of competing dispute settlement fora under other trade and investment agreements?

• 3. GLOBAL TAX REFORMS & DISPUTES AT THE INTERSECTION OF TRADE AND DIRECT TAXATION OF MULTINATIONALS

In October 2015, OECD members agreed on major new tax rules to address tax avoidance and increase tax transparency (the so-called Base Erosion and Profit Shifting (BEPS) Package). At the same time, Panama filed a noted WTO complaint (DS453) against Argentina for “blacklisting” Panama as a tax haven and imposing certain allegedly trade restrictive measures against it (Appellate Body report expected in the first half of 2016). Also, in another move to counter unfair or illegal tax practices of multinationals, the EU Commission is examining the tax treatment offered by certain EU countries to certain multinationals as potential state-aid/subsidization, and by the end of January 2016 it will have proposed a new set of binding rules to curb corporate tax avoidance. These global tax reforms and disputes will likely have an important impact on multinationals and how countries divide tax revenues. How do updated tax rules interrelate with existing trade rules? Could the WTO (e.g. the traditional arms-length principle in the Subsidies Agreement) be used to stall the implementation of some of these tax reforms (e.g. in respect of BEPS transfer pricing rules which move away from the traditional arms-length principle)? Or rather is there scope to use WTO dispute settlement (e.g. national treatment disciplines in GATT and GATS) to enforce some of these tax reforms or to settle direct taxation disputes between WTO members in the absence of binding dispute settlement in the international tax arena? What is the continued relevance in this context of the direct v. indirect taxation distinction?

• 4. THE WTO APPELLATE BODY: AN EXAMPLE TO SHUN OR TO FOLLOW?

At the 20th anniversary of the WTO, most observers are celebrating the achievements of WTO dispute settlement and the WTO Appellate Body (AB) in particular. In ongoing efforts to reform investor-state dispute settlement (ISDS) some countries have even urged to copy the AB model including AB appointment and remuneration rules. Other voices have strongly criticized the AB for an obsessive textual approach or, conversely, expansive activism or “subjective” interpretations, reading new obligations into the WTO treaty. When the AB “clarifies” ambiguities, does it assist WTO members or rather make future negotiations more difficult (as negotiators may refuse to conclude a deal with any ambiguity in it for fear that the AB will “complete the contract” in some unexpected way)? Yet others have stated that rather than clarifying WTO rules and making them more predictable, the AB has complicated compliance and reduced predictability especially in the trade remedies field. Has the AB gone out of bounds or been too conservative? Has WTO dispute settlement clarified or complicated the WTO treaty? Is the AB respecting the same standard of review in all disputes (e.g., comparing the non-interventionist standard of review in EC - Hormones II with that in the zeroing disputes and the recent US – Tuna II 21.5 AB report)? Is the standard “recommendation”, after lengthy and complex legal findings, to “bring the measure into compliance” specific enough or too vague (and inviting even more complicated 21.5 compliance proceedings where claimants may get to relitigate the entire case)? After 20 years, does WTO dispute settlement remain an attractive proposition for the private sector affected by trade barriers? Is its success spread equally across agreements and WTO members, or have WTO disputes been filed selectively in some areas and against some countries leaving “black holes” elsewhere?

• 5. WTO NEGOTIATIONS POST-NAIROBI: WHAT? HOW? WHEN?

The 10th WTO Ministerial Conference in Nairobi, Kenya, resulted in a series of discrete, substantive commitments (e.g. on export competition) but disagreement on what to discuss next and in what format, in terms of WTO negotiations post-Nairobi. How can negotiations on outstanding “old issues” (e.g. domestic farm subsidies) be completed? What “new issues” can realistically be taken on board, how and when, if at all? Should negotiations be issue-specific or continue to be “package deals” with bargains across subject matters? Given the complexity and time it takes for formal WTO amendments (e.g. the TRIPS amendment) or new treaties (e.g. the Trade Facilitation Agreement) to enter into force, how can the WTO remain relevant and engage in effective rulemaking or rule clarification? Can new commitments, for example, be taken on in mere “ministerial declarations” but are they subject then to WTO dispute settlement and sufficient domestic scrutiny and democratic support?

 

Cecilia Malmstrom on the Future of WTO Negotiations

She has three proposals:

First, we must continue to work on outstanding Doha issues, particularly those issues that can only be solved by the WTO and not in bilateral or regional agreements. One such issue is subsidies. We cannot approach them in the same way that we have in the past; we need to look at them with fresh eyes and seek new avenues for compromise. But neither should we just close up shop and walk away.

Second, we must begin to discuss, and eventually to negotiate, issues that have not been addressed under the DDA but are critical for the world economy today. Helping trade and investment flow in 2016 is a different task to what it was in 2001. That is evident from the kinds of barriers many WTO members are addressing in their free trade agreements. Of the over 200 bilateral and regional agreements notified to the WTO secretariat since 2000, 59 percent contain commitments on competition — an area where there is no multilateral agreement at all. They also go far beyond WTO commitments on areas such as investment, services and intellectual property protection.

To remain relevant, the WTO needs to look at broadening its agenda to address some of these questions. Such issues could include e-commerce and digital trade, investment, regulatory issues affecting goods and services behind the border or enhanced disciplines on subsidies and on murky forms of local content obligations, to name just a few.

Third, we need to work differently. The WTO has made important progress in recent years — on trade facilitation in Bali, and, in Nairobi, on information technology equipment and subsidies to agricultural exports. We are also making good progress on environmental goods and, outside the WTO, in the Trade in Services Agreement negotiations. But this progress has been achieved by tackling problems individually or in small packages, not through a grand bargain in which nothing is agreed until everything is agreed by everyone. That suggests that we should favor more focused negotiations and tackle specific issues on their own merit.

I had the following thoughts in reaction:

-- I think the old approach to cutting subsidies, whereby governments resisted cutting them, should be replaced by a new approach, in which governments offer proposals for cutting them.

-- Adding competition and investment to the WTO agenda would probably face great resistance.

-- Competition and investment are very different issues. In FTAs, competition chapters do not do very much; investment chapters, by contrast, may be the most important aspect of these agreements.

-- IP protection does go further in FTAs than at the WTO, but not everyone agrees that this is, on balance, a good thing.

-- The WTO services commitments may not go as far as some FTA services commitments, but the WTO commitments are on an MFN basis, which is a big plus.

-- Regulatory issues for behind the border measures are a huge part of WTO obligations already. (That's what most of the fun disputes are about!) It is not clear to me how these rules can be expanded. Similarly, local content requirements are mostly prohibited already.

-- Focusing on specific sectors may be the most practical way forward.

-- What happened to trade remedies? Let's put that back on the agenda!

The ITC's Assessment of the TPP

This is from Congressman Sandy Levin's testimony to the ITC on the impact of the TPP on the U.S. economy:

We all recognize that trade can be beneficial. The issue is not whether Members of Congress such as myself could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class. A growing number of prominent economists today recognize those complexities, from the Nobel laureate economists like Paul Krugman and Joseph Stiglitz, to Columbia professor Jeffrey Sachs, former IMF chief economist Simon Johnson, and former White House advisor Jared Bernstein. But too many want to pretend the question of a trade agreement is a “no brainer,” as Professor Mankiw suggests. Or that the benefits of trade “follows from the classic theory of trade gains first expounded by David Ricardo in 1817” because, as Charles Krauthammer recently wrote, the “law of comparative advantage has held up nicely for 198 years.”

What do David Ricardo and Adam Smith have to say about the inclusion of investor state dispute settlement in our trade agreements? Nothing, to my knowledge. What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? What does the theory of comparative advantage have to say about those specific issues? Nothing – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today.

 Here's what the statute says the ITC is supposed to do:

Not later than 105 calendar days after the President enters into a trade agreement under section 3(b), the Commission shall submit to the President and Congress a report assessing the likely impact of the agreement on the United States economy as a whole and on specific industry sectors, including the impact the agreement will have on the gross domestic product, exports and imports, aggregate employment and employment opportunities, the production, employment, and competitive position of industries likely to be significantly affected by the agreement, and the interests of United States consumers.

Generally speaking, the ITC is supposed to offer up an economic analysis of the TPP, but for the parts of the TPP that are not about liberalization, the economics seems underdeveloped.  My sense, based on its analysis of past FTAs, is that the ITC will simply discuss these issues, and offer a narrative description, without quantifying the impact.  This is in contrast to how it approaches tariff cuts, where the analysis is more quantitative.

Ideally, someone would develop tools for examining the impact of ISDS, IP protection, labor and environmental rules, and the rest of the regulatory/governance aspects of trade agreements.  But in the absence of that, it's not clear what the ITC is supposed to do with these issues, so it will probably just keep doing what it has been doing.

The Washington Post has a short piece on the ITC's role in assessing the TPP here. ("While the report is not the only economic analysis of TPP, it is considered the most authoritative, unbiased and official. Fast-track legislation requires the ITC to send the report to Congress and the President.")

How Will the Tobacco Carveout Affect the Congressional TPP Vote?

This is from Inside US Trade:

The Campaign for Tobacco-Free Kids, a U.S. anti-smoking group, is actively lobbying Democratic members of Congress hoping to sway them in support of the Trans-Pacific Partnership (TPP) based on the argument that the agreement's tobacco carveout is a major public health victory, according to the head of the organization.

"We have made clear to many longtime tobacco control supporters -- including many Democrats -- that we think that the TPP carveout is significant" and that they ought to support the agreement, Matthew Meyers, president of the Campaign told Inside U.S. Trade in an interview on Jan. 13.

Meyers would not reveal which lawmakers the group is targeting, and was cautious when asked whether he thought the effort was proving successful.

With a vote on TPP still a long ways away, he said, it is premature to say how heavily the tobacco issue will weigh into members' considerations -- especially those who oppose TPP on other grounds. "But for those on the fence," he added, "our message is, 'this is a very important.'"

So the President of an anti-tobacco group is lobbying for the TPP, not because of the free trade parts, but because it carves tobacco out of the TPP's investment provisions to some extent. Presumably, he thinks this sets a good precedent for the overall relationship of trade and tobacco in international law.  This precedent is so important to him that he is willing to campaign for the TPP even though its main focus has nothing to do with tobacco, and even though it lowers tobacco tariffs, which many anti-tobacco folks object to.

When the Obama administration was strategizing about how to get the TPP through Congress, they must have done some calculations about how to package and market the agreement.  As part of this, they seem to have decided to pursue some liberal votes at the risk of losing some conservative votes. By carving tobacco out of ISDS, they hoped they would end up with enough votes for TPP to pass, with additional Democratic votes outnumbering lost Republican votes.

But did they do this calculation correctly?  It appears they have gotten at least one liberal interest group on board with the lobbying effort. But will this lobbying convince any Democratic members of Congress to support TPP?  That remains to be seen.

As for the Republicans, we have already heard that a number of members of Congress -- mostly Republicans, I think -- might vote against the TPP based on the carveout.  But those members have other constituents who will support the TPP for other reasons. Will they really vote against the TPP based solely on the treatment of tobacco?

This was a big gamble by the Obama administration, and it's not clear to me how it will play out.  As much as governments continue to insist that the TPP cannot be renegotiated at this point, I can't help wondering if there is a compromise of some sort out there, such as a general exception provision that provides flexibility for taking public health (and other) measures, but without targeting a specific product.  I would think public health groups (and others) would be very happy with a general exception; and the tobacco folks would prefer not to have tobacco singled out.  On the other hand, there would likely be objections from business groups and international arbitration specialists, who have a lot of influence.  That might mean we are stuck with the tobacco carveout, at least until we see how the Congressional vote goes.

The GOP Candidates Talk Trade Policy

Have you been following the U.S. presidential primaries? I don't recommend it. They are kind of awful.

However, last night's GOP debate did have a bright spot or two related to trade. After the usual bluster by one candidate, and some mangled nonsense from another, there was this from Marco Rubio:

RUBIO: But on this point, if I may add something on this point. We are all frustrated with what China is doing. I think we need to be very careful with tariffs, and here's why.

China doesn't pay the tariff, the buyer pays the tariff. If you send a tie or a shirt made in China into the United States and an American goes to buy it at the store and there's a tariff on it, it gets passed on in the price to price to the consumer.

It's as if he has actually studied economics!

But there was more. Here's Jeb Bush following-up:

BUSH: Here's -- apart from the -- apart from the higher prices on consumers and people are living paycheck to paycheck, apart from that, there will be retaliation.

...

BUSH: So they soybean sales from Iowa, entire soybean production goes -- the equivalent of it goes to China. Or how about Boeing right here within a mile? Do you think that the Chinese, if they had a 45 percent tariff imposed on all their imports wouldn't retaliate and start buying Airbus? Of course, they would. This would be devastating for the economy. ...

Now we see some international relations thrown in!

All very heartwarming, but most of the rest of the night was painful, and I urge you not to read the full transcript.

What's the Status of the Doha Round after Nairobi?

This is from Indian trade lawyer R.V. Anuradha:

It is in this context that the Nairobi Ministerial Declaration’s admission of dissonance in the WTO membership on the ‘Doha mandate’ assumes greater significance. This dissonance is presented in the text of the declaration which records what “many Members” versus “some Members” want. While “many” reaffirm the Doha mandate, the others do not. While “many Members want to carry out the work on the basis of the Doha structure”, “some want to explore new architectures”. And finally, while “some wish to identify and discuss other issues for negotiation” (a reference to issues other than those under the Doha mandate), “others do not”.

For the first time in a Ministerial Declaration adopted by consensus, there is reference to a consensual acknowledgement of divergence of views, which underlies the slow progress of the Doha round. While there is no identification in the declaration, the developing countries, including India, clearly belong to the “many” category, while “some” includes the U.S., the E.U., and other developed countries. The use of the word “many” could perhaps be seen as an implicit recording of a majority view in favour of the Doha mandate. A glimmer of hope, however, remains — that the views of the majority could potentially be tapped for driving at a logical and hopeful conclusion of the Doha mandate.

I've tried to sort out what happens next with Doha, to no avail. If the U.S. and EU do not, in fact, want there to be a Doha round anymore, does it still exist?  If not, what do we do now?

The TPP's Chances in Congress

If President Obama's mention of the TPP in the State of the Union address falls flat in Congress, and most people pretend they didn't hear it, will we hear the sound of Congress passing the TPP any time soon? This is from Inside US Trade:

Members of Congress on Tuesday night (Jan. 12) gave differing interpretations of the lukewarm response to President Obama's push for congressional approval of the Trans-Pacific Partnership (TPP) during his State of the Union address. Obama's call elicited applause from members of his Cabinet and some House Democrats who voted for fast track in 2015, but few others in the chamber.

Several lawmakers said the tepid response showed there is no support right now in Congress for passing TPP, with some saying members simply do not want to tackle an issue as controversial as trade prior to the November election. Many lawmakers agreed that TPP is not likely to be considered until the lame-duck session or later.

But other lawmakers insisted the lack of applause merely reflected the fact that many members of Congress are undecided on the trade pact. Still others downplayed the response and cautioned against reading too much into it.

Is TransCanada's NAFTA Chapter 11 Claim "Frivolous"?

This is from Inside US Trade:

One business source said the Keystone ISDS claim definitely complicates the TPP approval process, but should be “manageable.” This source said the administration will likely fight back against criticism by arguing that the Keystone claim is frivolous and by highlighting the changes it secured to the TPP investment language.

Whatever your take on the case, I'd be wary of suggesting that the Keystone claim is "frivolous." Reasonable people may disagree on the chances of success for this claim, but I think a fair estimate is somewhere between a 25% and 75% chance of TransCanada winning. I can see why you might think TransCanada won't win, but surely there are enough decent arguments it can make to give it at least a 25% chance. So, even if you question the strength of TransCanada's claim, it's hard to characterize it as frivolous.

My own estimate is somewhere just above 50%, based on what I know now.  (I'm sure I will learn a lot more during the briefing stage, if we get there).

With regard to the changes to ISDS in TPP, my sense is they are so negligible that they would not have any impact on those percentages. But perhaps someone can convince me they would bring down TransCanada's chances by 5% or so, if the TPP standards were to be applied to this case. 

Call for Papers: Adjudicating International Trade and Investment Disputes: Between Interaction and Isolation

PluriCourts, at the University of Oslo Faculty of Law, has issued a call for papers for a conference on "Adjudicating International Trade and Investment Disputes: Between Interaction and Isolation" (more details at the links):

CALL FOR PAPERS

Adjudicating international trade and investment disputes: between interaction and isolation 

The PluriCourts Centre of Excellence at the University of Oslo is organizing a conference titled ‘Adjudicating international trade and investment disputes: between interaction and isolation.’ The conference will be hosted at the Faculty of Law of the University of Oslo on Thursday and Friday 25- 26 August 2016. Submission procedures and timelines are detailed at the end of this call.

This conference aims to focus on the relationship, interactions and comparisons between the international trade and investment regimes in the context of adjudication of disputes. The conference will welcome research across the disciplines of law, political science, and philosophy relating to three themes: the new mega-regionals, comparisons and practices, and cross-fertilization and learning.

Historically, the global regulation of international trade and investment relations have been closely interrelated; but in the post-war period, international trade law and international investment law developed on largely divergent paths. While international trade regulation has culminated in a multilateral regime with a permanent dispute settlement mechanism, the international regulation of foreign direct investment is primarily governed by 3500 essentially bilateral treaty relationships calling for ad hoc investor – state arbitration potentially to be hosted by a variety of international institutions. Despite these seemingly distinct structures, there is a recent trend that some say signal a move towards regime convergence: most clearly seen in the rise of mega-regional free trade agreements (FTAs) with investment chapters.

This potential convergence may be deceiving, however. The investment chapters of FTAs remain separate from the rest of the agreements and provide for distinct rules and procedures on dispute settlement. Moreover, issues of overlap between trade chapters and investment chapters have not been resolved, which means that the same case could possibly be raised simultaneously in two separate disputes under the same FTA. Legal disputes based on investment chapters in FTAs to date (ie under the NAFTA and DR-CAFTA) appear to interpret the investment protection chapters as standalone agreements with little or no reference to other sections of the FTAs.

Despite the limitations to integration that this new generation of trade and investment agreements may represent, there are other areas of interaction between the trade and investment regimes that could provide better evidence of a gradual move towards cohesion. This conference aims to look at the development of the new mega-regionals, but also the ways (or lack thereof) that the trade and investment regimes share practices and cross-fertilize.

TransCanada Will File a NAFTA ISDS Claim

From TransCanada's press release:

TransCanada Corporation ... announced today it has filed a Notice of Intent to initiate a claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) in response to the U.S. Administration's decision to deny a Presidential Permit for the Keystone XL Pipeline on the basis that the denial was arbitrary and unjustified.

TransCanada also has filed a lawsuit in the U.S. Federal Court in Houston, Texas, asserting that the President's decision to deny construction of Keystone XL exceeded his power under the U.S. Constitution.

...

TransCanada's legal actions challenge the foundation of the U.S. Administration's decision to deny a Presidential border crossing permit for the project. In its decision, the U.S. State Department acknowledged the denial was not based on the merits of the project. Rather, it was a symbolic gesture based on speculation about the perceptions of the international community regarding the Administration's leadership on climate change and the President's assertion of unprecedented, independent powers.

The State Department concluded Keystone XL would not significantly increase global greenhouse gas (GHG) emissions and that, in fact, alternative methods of oil transportation were more GHG intensive.

Through the NAFTA claim, TransCanada will be seeking to recover more than US$15 billion in costs and damages that it has suffered as a result of the U.S. Administration's breach of its NAFTA obligations.

The NAFTA claim asserts that TransCanada had every reason to expect its application would be granted as the application met the same criteria the U.S. State Department applied when approving applications to construct other similar cross-border pipelines - including the existing Keystone pipeline, which was approved in under two years, in contrast with the seven years the Administration took to make a decision on Keystone XL. The Keystone Pipeline System has now safely transported more than 1.1 billion barrels of Canadian and American oil through Canada and the United States.

Furthermore, in the federal court filing, TransCanada asserts the Administration's action was contrary to Congress' power under the U.S. Constitution to regulate interstate and international commerce. While the President has traditionally granted permits on narrow, established grounds, any such power does not exist when Congress has acted to the contrary or when the decision is based on the unprecedented and symbolic grounds that are the foundation of the denial in this case. In early 2015, both houses of Congress passed a bipartisan bill approving the construction of Keystone XL, which the President later vetoed.

The legal documents are here. The NAFTA Notice of Intent specifies the damages being sought:  "The Disputing Investors seek damages of over US$ 15 billion arising from the United States’s breach of its NAFTA obligations."

There's plenty of time to talk about the legal issues (these cases take a while), so let's move on to politics.  What does having a NAFTA ISDS claim on such a sensitive environmental issue (or "environmental" issue, if you prefer) do to the TPP debate?  Does the filing of this case energize opponents?  Does it sway anyone who was on the fence?  (That could apply to both sides -- anti-Keystone Democrats who would now oppose TPP, or pro-Keystone Republicans who would now support it!).

(I changed the title of this post from "files" to "will file," because so far we have only a notice of intent).

10 Years of Blogging

10 years, man! 10 years!

That's how long it has been since Joel did the first post (Tomer had the first comment).  It was on the EU GMO ban, and the EU's failure to comply with its WTO obligations.  What are the chances this issue will be resolved by our 20th blog anniversary?

Since then, there have been 3621 posts (362 per year, or almost one per day!), and 6265 comments.

Hope you are all enjoying the blog, and feel free to pass along any comments or suggestions!

 

Presidential Candidates Threatening To Violate International Economic Law Obligations

You may have heard that there's this leading U.S. Presidential candidate making threats to violate U.S. international economic law obligations.  Yes, that one, but also this one:

Hillary Clinton signaled a willingness to hold as "leverage" the patents of American companies keeping assets overseas until they bring the income back into America to pay taxes on it.

The policy hadn't been a part of Clinton's plans to increase pressure on companies keeping assets overseas or on corporate inversions--business deals where U.S. companies merge with another foreign company and reestablish overseas to avoid paying American taxes.

But when prompted by a question from an audience member in Sioux City, Iowa, on Tuesday afternoon, she told supporters that she'd do just that ... .

"We have major corporations in this country--GE, Apple, many others--that are salting money away offshore. Can't we use their patents as leverage to make them pay their taxes?" an attendee asked Clinton.

"Yes, we can and we will," Clinton responded.

The Clinton campaign did not immediately respond as to what using "patents as leverage" would entail.

Of course, she is targeting "American companies," but obviously some of these companies operate in other countries, too, so you can imagine that a trading partner might be upset about having a company's patents "leveraged" in this way, and file a complaint under TRIPS or an FTA; and there may be possible ISDS claims as well.

The Indian Model BIT

Recall that a while back, I talked about a new draft Indian model BIT.  As Investment Arbitration Reporter explains, India now has a final version of this model BIT.  IA Reporter has the complete rundown; I'm just going to mention briefly the general exceptions clause.  In the draft version, this appears to have been "self-judging."  Now, by contrast, it looks more like a typical exceptions clause:

Article 32

General Exceptions

32.1 Nothing in this Treaty shall be construed to prevent the adoption or enforcement by a Party of measures of general applicability applied on a nondiscriminatory basis that are necessary⁶ to:

(i) protect public morals or maintaining public order;

(ii) protect human, animal or plant life or health;

(iii) ensure compliance with law and regulations that are not inconsistent with the provisions of this Agreement;

(iv) protect and conserve the environment, including all living and nonliving natural resources;

(v) protect national treasures or monuments of artistic, cultural, historic or archaeological value.

6 In considering whether a measure is “necessary”, the Tribunal shall take into account whether there was no less restrictive alternative measure reasonably available to a Party.

I'm not sure why these exceptions clauses are so rare in investment obligations.  Somebody is pushing back against them, obviously, but if we are trying to find a good balance in the rules, this could help a lot. One thing it would do is create a general health exception, which seems like it would be less controversial, politically speaking, than a health related carveout for tobacco only.  Maybe that's a tweak that could get the TPP moving.  Take out the TPP tobacco carveout, so as to get the tobacco state members of Congress on board; and add a general exceptions clause, to soften up the ISDS critics.

Does the TPP Tobacco Carveout Allow for Discriminatory Measures?

Recall that the TPP tobacco carveout says this:

Article 29.5: Tobacco Control Measures¹²

A Party may elect to deny the benefits of Section B of Chapter 9 (Investment) with respect to claims challenging a tobacco control measure¹³ of the Party. Such a claim shall not be submitted to arbitration under Section B of Chapter 9 (Investment) if a Party has made such an election. If a Party has not elected to deny benefits with respect to such claims by the time of the submission of such a claim to arbitration under Section B of Chapter 9 (Investment), a Party may elect to deny benefits during the proceedings. For greater certainty, if a Party elects to deny benefits with respect to such claims, any such claim shall be dismissed.

12 For greater certainty, this Article does not prejudice: (i) the operation of Article 9.14 (Denial of Benefits); or (ii) a Party’s rights under Chapter 28 (Dispute Settlement) in relation to a tobacco control measure.

13 A tobacco control measure means a measure of a Party related to the production or consumption of manufactured tobacco products (including products made or derived from tobacco), their distribution, labeling, packaging, advertising, marketing, promotion, sale, purchase, or use, as well as enforcement measures, such as inspection, recordkeeping, and reporting requirements. For greater certainty, a measure with respect to tobacco leaf that is not in the possession of a manufacturer of tobacco products or that is not part of a manufactured tobacco product is not a tobacco control measure.

Let's say a TPP government adopts a plain packaging measure for cigarettes, but the measure only applies to cigarettes made by foreign-owned companies, while domestically-owned companies can keep using cartoon animal images, macho guys with mustaches, etc.

If a foreign investor from another TPP party challenges this measure using ISDS, and the government that adopted the measure elects to deny benefits pursuant to the tobacco carveout, would the measure be deemed a "tobacco control measure" that is covered by the carveout?  Clearly, it relates to the labelling and packaging, among other things, of the measure to a certain degree.  However, the measure seems arbitrarily and unjustifiably discriminatory on the basis of the nationality of the company, and a large section of the industry is left "uncontrolled." So, can the measure's purpose really be said to be "tobacco control," when it seems to have a protectionist purpose that undercuts its tobacco control objectives?

And, following-up on points I raised here, who decides whether the measure is a tobacco control measure? Does a tribunal need to be set up to answer this preliminary question?