International Economic Law and Policy Blog

Canada Agrees to the EU's Investment Court System

Apparently, Canada has agreed to amend the CETA investment provisions, to include the EU's new investment court. Here is the EU summary of the changes:

Background

The most important elements of the revised CETA investment chapter are the following:

Investment protection

The revised CETA text includes a new article which ensures that the right to regulate for public policies is fully preserved. The article also ensures that investment protection provisions shall not be interpreted as a commitment from governments that legal frameworks will remain unchanged. This clarifies that a measure that may negatively affect an investment or affect an investor’s expectations of profits is not inconsistent with the agreement for that reason alone.

A further provision clarifies that CETA will not prevent the EU from enforcing its laws on state aid.

Establishment of the tribunal

CETA establishes a permanent Tribunal of fifteen Members which will be competent to hear claims for violation of the investment protection standards established in the agreement. The Members of the Tribunal competent to hear investment disputes will be appointed by the EU and Canada and will be highly qualified and beyond reproach in terms of ethics. Divisions of the Tribunal consisting of three Members will hear each particular case. The CETA text now follows the EU's new approach as set out in the recently concluded EU-Vietnam FTA and the EU’s TTIP proposal.

Appellate Tribunal

While the original CETA text foresaw the possibility to establish an appeal mechanism in the future, the updated CETA text establishes at the entry into force of the Agreement an Appellate Tribunal. It also addresses the relationship between the decisions of the Appellate Tribunal and the Tribunal. The EU and Canada will promptly adopt a decision of the CETA Joint Committee which will include further technical elements necessary to make the Appellate Tribunal operational.

The multilateral investment Court

The EU and Canada both share the objective of establishing a permanent multilateral investment court. The text of CETA recognises that such a multilateral mechanism will come to replace the bilateral mechanism established in CETA.

CETA and domestic law

The revised CETA text confirms that the Tribunal shall only apply the agreement, in accordance with the principles of international law, when adjudicating upon claims submitted by investors. It cannot decide on matters of EU or Member State law. It can only look at EU or Member State law as a matter of fact, for example to make sure that the property rights in question are in fact held by the investor. It will therefore not interpret EU or Member States law in a manner binding on EU courts or EU governments. It also puts in black and white that determining whether a measure of a Party is legal under domestic law remains the monopoly of the Party's competent authorities.

The original CETA text and the need for improvement

The original CETA text, published in August 2014 was already the most progressive system for the protection of investment and the settlement of investment disputes. The text included clearly defined standards of protection, full transparency of proceedings, a ban on forum shopping, governmental control of interpretation of the agreement, a strict code of conduct, early dismissal of unfounded claims and the loser pays principle to avoid vexatious claims.

The EU approach towards investment dispute settlement has further evolved since then and the CETA text now includes all its new main features.

The old CETA investment text is here (p. 146); the new CETA investment text is here (p. 38). For comparison, the EU - Vietnam FTA investment text is here (p. 6).

Substantively, these changes don't address any of the criticisms I've made of ISDS, so I don't have a strong opinion of them, except that the law is less clear than it was before.  But politically, it's kind of fascinating to watch this all play out, in both domestic politics and international relations.  Has the EU done enough to save ISDS within the EU political system?  What will the impact of these changes be on the TTIP negotiations?  And what did the EU offer Canada to get them to go along with this?

And what if creating a more credible, widely known institution for foreign investors to use to sue governments leads to more complaints being filed? 

Green Industrial Policy, Tariffs, and Domestic Content Requirements

The WTO panel report in India - Solar Cells, circulated last week, triggered some thoughts about green industrial policy, by which I mean government actions to help push us towards the use of cleaner energy.

I'm skeptical of all industrial policy, and therefore I'm also skeptical of green industrial policy, although the degree of my skepticism varies based on the particular government actions involved.  If we subsidize consumption of particular products, that's not quite as bad as some other options, although I worry that we will subsidize the wrong products.  It's often hard to know which products will succeed.  (Back in 2000, I was really into fuel cell cars, but I haven't seen any on the road yet.)

But the real problem is subsidies and other advantages that are given to domestic producers.  In my view, government promotion of domestic producers, at the expense of foreign producers, will almost always lead to inefficient production, higher prices, lower quality, and lots of trade conflict.  (Even though trade litigation is good for my business, and the business of many of you reading this, the world as a whole is better off with less of it.)

But let's just assume, for the sake of argument, that green industrial policy which favors domestic producers over foreigners can be beneficial.  If so, why not just use tariffs?  Tariffs are legal under trade rules.  You just have to negotiate for them.  To me, the idea of shifting most protectionism to tariffs, which are highly transparent, is one of the greatest achievements of the GATT/WTO.  It keeps protectionism out in the open, and subject to scrutiny.

By contrast, when you use regulation to favor domestic industries, it can be difficult for other countries to monitor what is going on.  It takes a lot of time to dig through every proposed and actual law or regulation to look for disguised protectionism.  Again, it's great for lawyers, but not so great for everyone else.  

Also, using regulation as a disguised means of protectionism undermines one of the core principles of the GATT/WTO, and, once detected, can lead to particularly bad feelings and accusations of cheating.

Domestic content requirements are still widely used, but the text of the WTO agreements is pretty clear on these measures, and the Appellate Body has been equally clear.  So, in the future, governments who want to favor domestic green energy producers may need to take my advice and shift over to tariffs.  (Although I wish someone would put a stop to the continued use and abuse of trade remedy tariffs in this area -- but trade remedy reform seems like a lost cause these days.)

INDIA-SOLAR CELLS: THE STRANGE ABSENCE OF THE SCM IN THE US CLAIM

 

In India-Solar Cells, the United States' first request for consultations was also made (beyond TRIMS and Article III:4 of GATT 94) pursuant to Articles 4 of the SCM prohibiting subsidies contingent about the use of domestic products.

However, the United States' second request for consultations was not made pursuant to the SCM, nor did the United States' request for the establishment of a panel make reference to any  provisions of the SCM Agreement.

I am wondering about the underlying causes behind this change of mind. My intuition is that this change of mind is far from being  anecdotal.  I see two potential causes behind this change of mind:

1) The Canada Feed-in jurisprudence about the difficulty to prove the existence of a benefit when governments “create a market”

2) Fear of counter-claims: Since 2001, California has given $2 billion in such subsidies, while states ranging from Minnesota to Kansas and Mississippi have doled out hundreds of millions of dollars each. Cities, such as Austin and Los Angeles, have also gotten into the act, contributing millions to renewable energy firms.

3) Any other unknown cause?

The First GATT Article XX(j) Case

From today's India - Solar Cells WTO panel report:

7.202. We note at the outset that the general exception contained in Article XX(j) has never been invoked as a defence before a GATT/WTO dispute settlement panel. Article 3.2 of the DSU directs us to interpret this provision "in accordance with customary rules of interpretation of public international law". In accordance with the general rule of treaty interpretation reflected in Article 31 of the Vienna Convention on the Law of Treaties, we will interpret the terms "products in general or local short supply" pursuant to the ordinary meaning of the terms of Article XX(j), read in their context and in the light of the object and purpose of the covered agreements. In accordance with Article 32 of the Vienna Convention, we may have recourse to supplementary means of interpretation to confirm the meaning resulting from the application of Article 31, or to determine the meaning of the terms if we conclude that the interpretation according to Article 31 leaves the meaning ambiguous or obscure, or leads to a result that is manifestly absurd or unreasonable.

...

7.265. For the reasons set forth above, we find that solar cells and modules are not "products in general or local short supply" in India within the meaning of Article XX(j) of the GATT 1994. Accordingly, we find that the DCR measures do not involve the acquisition of "products in general or local short supply" in India, and are therefore not justified under the general exception in Article XX(j) of the GATT 1994.

The "Right to Regulate" and ISDS/ICS

There's an interesting exchange on ISDS/ICS between MEP Bernd Lange and EU Trade Commission Cecilia Malmstrom (the latter is a subscriber-only Inside US Trade document).  I was particularly interested in Commissioner Malmstrom's explanation of the new "right to regulate" provision (discussed here and here):

The article on the right to regulate is one of the important innovations in the new EU approach. It is intended to guide the interpretation of the substantive standards of protection and ensure that the right of governments to take regulatory measures in the public interest is not hindered in any way by the conclusion of the trade and investment agreements, including by what has become known as "regulatory chill" (i.e. alleged hesitation of governments to adopt measures in the public interest due to the fear of being sued by investors). ...

The provision is in Article 2.1 of the EU draft TTIP investment text, and reads:

The provisions of this section shall not affect the right of the Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity.

My sense is that the minimum standard of treatment has been one of the more difficult international economic law provisions for which to articulate a clear meaning.  And at first glance, the right to regulate provision would be similarly challenging.

So what happens when the right to regulate provision "guides the interpretation" of the minimum standard of treatment?  How exactly would the right to regulate interact with a minimum standard of treatment? 

For example, the minimum standard of treatment targets, among other things, "manifestly arbitrary" government actions.  How would a right to regulate guide the interpretation of the phrase "manifestly arbitrary"?  Would it provide flexibility to governments to be a bit more arbitrary than otherwise?  How arbitrary can they be when the right to regulate is present, as opposed to when it is not?

I can imagine a lot of possibilities.  It is not clear which one a tribunal (or an appellate tribunal) might choose.

 

Update on Regulatory Issues in the TTIP

Inside US Trade reports on the state of regulatory issues in the TTIP:

The European Commission has decided to hold off on tabling a revised text on regulator-to-regulator cooperation at the 12th round of Transatlantic Trade and Investment Partnership (TTIP) talks this week, and likely will not come forward with that proposal until April, according to EU sources.

The EU had earlier been expected to table two texts on regulatory cooperation during the round here this week, one covering regulatory transparency and another laying down rules for a proposed regulator-to-regulator cooperation body. The commission tabled one text in April 2015 covering both of those areas, and had planned to split them into two revised proposals.

But sources say the EU now plans to table only the first text on regulatory transparency, and will only include a placeholder note explaining that the regulatory cooperation text is forthcoming, sources said.

...

One private-sector source also said the EU could be focused on agreeing on areas of common interest first before proceeding to more difficult issues. The U.S. has been seen as dragging its feet on the idea of creating a regulatory cooperation body because it is wary of encroaching on regulatory agencies’ independence.

 

...

The text the EU is planning to put forward at this round will focus on good regulatory practices and will be revised from the original April 2015 version to encapsulate the notice-and comment-procedures that were instituted under Commission Vice President Frans Timmermans' Better Regulation Agenda.

The U.S. is also expected to put forward a new text on regulatory issues this week, but it is not clear how it will differ from its previous proposal, sources said.

The previous U.S. proposal insisted that the EU implement notice and comment style procedures akin to what the U.S. uses under the Administrative Procedures Act. These would require that the commission allow stakeholders to comment on proposed primary legislation before the College of Commissioners agree to a draft proposal, which goes beyond what the EU has done under its Better Regulation Agenda.

...

Is either side going to be able to get what it wants on regulatory issues?  How much transparency and cooperation can be achieved?

President Obama on the TPP Tobacco Carveout

From remarks by President Obama yesterday:

With respect to tobacco, we said very explicitly in this trade deal that any country that regulates tobacco is not somehow violating trade agreements as long as it’s done fairly, as long as they’re not discriminating against American tobacco companies versus their own or those of other countries, but, as a public health matter, they can regulate tobacco.  That raises some sensitivities in Kentucky.

So for tobacco products, through the special tobacco carveout, if you regulate fairly, and in a non-discriminatory way, you won't violate the TPP.  Based on this explanation, I suppose that, conversely, with products other than tobacco, you might regulate fairly, and in a non-discriminatory way, but still somehow violate the TPP.

Using the Tobacco Carveout

From the National Interest Analysis of the TPP undertaken by Australia:

5. Australia will also lodge a notification, expressly permitted under Article 29.5, electing to prevent any and all Investor-State Dispute Settlement (ISDS) challenges to Australia’s tobacco control measures under the TPP.

No word on whether Australia thinks there should be any oversight or review of whether measures are, in fact, "tobacco control measures" as defined in the TPP.  I'm curious to see whether it specifies something about this in its notification.

Professor (or Associate Professor) in International Economic Law

From PluriCourts:

A position as professor (or associate professor) in International Economic Law is announced at PluriCourts. The application deadline is 1 April.

Job Description

A position as professor (or associate professor) is announced at PluriCourts, a Centre for the Study of the Legitimate Roles of the Judiciary in the Global Order. PluriCourts is a multidisciplinary Centre of Excellence at the Department of Public and International Law, Faculty of Law, University of Oslo. The Faculty may appoint an associate professor if no applicant is found qualified as professor.

While at PluriCourts the candidate will primarily conduct research, with the exception of 10 % workload of tasks such as teaching and supervision. More teaching and supervision may be agreed with the Faculty. The position will be integrated in the Faculty of Law when PluriCourts expires in the year 2023, at which time the position will have the same obligations concerning research, teaching and administrative tasks as other professors at the Faculty.

Read the full announcement.

Negotiating Debt Relief for Greece in the Shadow of the Brexirendum

I've been saying for some time now that Greece's Prime Minister Alexis Tsipras is, contrary to conventional wisdom, a shrewd negotiator and tactician (see my post on this blog last summer  bit.ly/1HqHRyA).  These traits were clearly on display this last week, when Europe's leaders met to broker a deal on which British Prime Minister David Cameron could base his case for staying in the EU when Brexit gets put to a vote in the UK this June.  Tsipras threatened to veto the deal if Greece were not given assurance that it could remain in Schengen for the time being, despite concerns about the control of its border with Turkey during the ongoing refugee crisis.  Not surprisingly, given the stakes,Tsipras won. 

Now let's turn to Greece's other crisis.  The European institutions are stalling on approving further disbursements to Greece, stretching out the current review of Greece's implementation of  last summer's bailout memorandum.   Debt relief, a key element in the deal, has also been postponed.  In particular, with the complicity of the IMF, Greece has been pushed to make deep across the board cuts in public pensions.  Some pensions in Greece are anomalously high, and the responsible minister, George Katrougalos, freely admits that restructuring the pension system and creating a modern, effective social welfare state in Greece is a necessity for economic recovery and good governance.  But with sky-high unemployment and falling wages, for many, pensions have become a de facto safety net; whole families are living from the income of a single pensioner.  In these circumstances, the kind of indiscriminate slashing that the institutions want would inflict extreme and unjustifiable human hardship.    It is difficult to know what is behind the unreasonableness in dealing with Greece on this issue: is it just the usual Germanic pious cruelty, or is it a strategy to try to bring down the Tsipras government in the hope of being able to deal with a more pliable, conservative new regime?   Recently, the IMF's point man on Greece, Poul Thomsen, publicly defended the hard line on pensions, on the basis that this is the only way that Greece can meet its budgetary targets that are necessary for restoring debt sustainability. bit.ly/1KepnZk.  But Thomsen made a key admission, perhaps unwittingly:  debt relief, he suggested, could have the same effect on sustainability as would slashing pensions.  He thus essentially told the Greeks to their face that further hardship was being forced on them, not because of any deep economic logic, but just because the needed amount of debt relief was not forthcoming.  

The current line in the mainstream financial press is that Tsipras has no real cards he can play to resist the demands of the institutions on pensions.  I think that's wrong.  If the institutions won't be reasonable and moderate their demands, he can always blow up the third programme and default on Greece's official debt to Europe; one way to do that would be to draw up a final offer on pensions and related reforms, and put it to the people in a new referendum that if Europe doesn't accept that offer, Greece should default.  Now, you say, isn't that exactly the "nuclear" option that Tsipras backed off from last summer, for fear of utter economic and social catastrophe in Greece, despite then winning a mandate for it by referendum?  True enough, but certain things have changed since.  Back then, it became painfully clear very quickly that Greece's banking system would have collapsed had it been cut off from further support from Europe in the wake of default.  Now the banks have been recapitalized; and the problem of marginal,failing banks addressed by restructuring and consolidation.   Secondly, Greece has, shrewdly, built a new friendship with Israel; Netanyahu, ever the savvy politician, sees the value of having a country in the Mediterranean amenable to Israel's interests and point of view (and there are the mutual gains of cooperation on offshore gas as well).  Israel may well have made some kind of promise to Greece to function as a lender of last resort if things get bad. 

But, most importantly, there is the looming referendum on Brexit (I call it Brexirendum for convenience).  By defaulting but keeping the Euro, and perhaps also threatening non-cooperation on refugees, Greece is quite capable of throwing the EU into crisis,conflict and even chaos, precisely at a time when the utmost solidarity is needed to help out the campaign against Brexit.  Just recall how bad the atmosphere was last summer until Tsipras blinked.  What are the chances of defeating Brexit  if an even worse climate of crisis pervades Europe when Britons go to the polls on June 23? It is perhaps no accident that the first concrete indication that debt relief for Greece is indeed on its way, and will include cutting interest not just extending maturities, came within hours of the end of last week's EU Brexit summit (in the form of apparent leak to a Greek newspaper about the drafting of a debt relief document reut.rs/1Q7sgf0). Germany stands to lose significantly from Brexit; the UK is perhaps the most important EU country that shares its economic ideology, and some German politicians have even gone so far as to threaten that Germany would erect steep trade barriers to British products in the face of Brexit (as many have noted a rather idle threat given Germany's/the EU's WTO obligations).     Some Germans may still get moralistic pleasure from inflicting suffering on the Greek people, but hardly enough to hand the pro-Brexit forces, on a silver platter,as it were, a new or renewed Eurocrisis of huge proportions on the eve of the Brexirendum. And we should not forget that Schengen, the survival of which may depend on Greece continuing to play ball on borders and refugees, is not just some nice idealistic symbol of European civic unity; reinstatement of border controls and delays at crucial crossings will ultimately affect trade-the supply chains and inventory management of European business  And that's most true of some of the countries that have been hardest on Greece, like Germany.   Offering Greece a fair, sustainable deal on debt is not just the right thing to do on principle, it is hugely in Europe's, and even Germany's, self -interest at this crucial juncture.              

Spinning the WTO GPA to intimidate the BDS Movement: The UK Crackdown

The WTO Government Procurement Agreement (GPA) is at the heart of a controversy in the UK surrounding the boycott  by some local councils of products and services associated with illegal settlements in Palestine.   It has been widely reported in the UK press that the government is imposing severe legal penalties on local governments, and perhaps even student organizations, who engage in such boycotts.  The UK Cabinet Office has offered as a reason, or pretext, for this action the need to comply with the EU's (hence UK's) obligations under the GPA.  

In fact, an examination of the document issued today by the UK Government reveals that it is little more than an intimidation tactic.http://bit.ly/1mHC97f  The document merely states, in general terms, the existing international obligations that apply to UK sub-national authorities by virtue of the GPA.  It doesn't create any new legal requirement to avoid boycotting.     Instead through a kind of sleight of hand, it implies that the general disapproval (without creating any new legal constraint) of boycotts as "inappropriate" follows necessarily from the existing international obligations under the GPA.

So what are these obligations in the case of the EU?  The GPA does apply to EU sub-central government bodies, including regional and local authorities and to bodies governed by public law.  It is unclear that student organizations would fall within the category "bodies governed by public law". For the UK, universities and polytechnics do (Annex I EU Directive 93/37) but the question of student organizations or unions that operate autonomously or semi-autonomously from the institutions in question is more complex.

But there are other limitations on the application of the GPA to EU sub-central authorities that are relevant.  The first is the minimum threshold of 200,000 SDRs (roughly 200,000 UK pounds) for both goods and services generally.  The second limitation is in Annex V of the EC GPA schedule, which sets out the 15 classes of services that the GPA applies to for the EU.  Certainly, one major area of local council procurement is clearly covered:  waste disposal and management.  But housing and construction services (generally speaking) are not covered (except for architectural services), nor are services related to fire and public safety.      

Finally, and perhaps most important, is the "public morals" exception in Article III:2:a of the GPA.  This is modeled on similar exceptions in GATT and GATS.  Of course, recently the WTO Appellate Body found that, in general (subject to some concerns about exceptions in the fine print), a ban on seal products by the EU was justified on public morals grounds, based on cruelty in the seal hunt being contrary to fundamental beliefs of the community.  It is certainly plausible that some forms of boycott in procurement that target illegal settlements might be justified, along similar lines, in terms of "public morals." 

Personally, I'm largely against the BDS movement, though I'm sympathetic to peaceful activism against the settlements. That's a longer story.  The bottom line here:  local councils and other organizations shouldn't back off just because of today's intimidation tactic by the UK Cabinet Office.  Instead, they should learn the law of the WTO on procurement.  Knowledge is power. 

Is it Ratification of the TPP or Not?

Monday (February 15, 2016) , a new investor-state hearing began here in Toronto. This was the opening of the Windstream case. Though I seldom comment on these proceedings, especially as I’ve participated in quite a number of these investor-state cases, and their hearings, this opening, at least with respect to the Government of Canada’s statement on subsequent practice and or agreement deserves highlighting.

My colleague's (Sean Stephenson) recent blog post here at IELP, dated February 1^st and titled, “Canada Must Sign in New Zealand with Other Ministers, According to the Government of Canada. Is This Right?” examined International Trade Minister, Chrystia Freeland’s statement in a "Public Letter to Canadians" that the signing of the TPP with other states had no effect but that Canada was required to sign the TPP on February 4, 2016 to maintain its "full TPP membership."  This open letter was followed up in one of  

Canada’s leading papers by the former Director General of the Department of Global Affairs (formerly DFATD), Matthew Kronby, now back in private practice, who supported Minister Freeland’s statement.  

Now in the blog post by Sean Stephenson, he concluded that the Minister's statement was misleading at best, noting that the TPP was silent on the actual process and effects of signing of the Agreement, and that the Entry into Force provisions could not be interpreted to mean that Canada was "bound" to sign the TPP with other countries who negotiated the TPP, and as a result in not doing so Canada would not lose its "full status."

So what does the question of signing this multilateral trade agreement with the ministers of the other countries have to do with the opening statement of the Government of Canada in an investor-state case?  The case is called Windstream Energy.  The case was filed under chapter 11 of the NAFTA and Windstream, the complainant has sought damages for the failure of the Government of Ontario (under the NAFTA of course the Party, Canada acts as the Respondent in the case) to enable Windstream to build an offshore wind farm that the Ontario Power Authority had contracted with Windstream to build at a guaranteed rate.

All good so far.  But what raised a concern (while I was not in the webcast room, my colleague Sean Stephenson was) were submissions by Sylvie Tabet the General Counsel and Director, Trade Law Bureau on the question of subsequent practice and or agreement.  As most of you are aware Article 31(3) of Vienna Convention (VCLT) codifies customary law with respect to subsequent practice.  The interpretation includes:

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

• any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation. 

Why the concern?  Well, Counsel in her submissions referenced the TPP.  This is curious on at least two counts.  First, and with reference to interpretation, how does a separate treaty with well more than the NAFTA parties as signatories reflect subsequent agreement or practice or have anything meaningfully to say about the subsequent practice of the three NAFTA Parties. 

But beyond this, and more critically, how can Canada’s Counsel reference a Treaty that the Minister made clear that notwithstanding its signing by Canada just shortly before, nevertheless said nothing about Canada’s ratification of the Treaty.  The Minister stated clearly that Canada’s adherence to the TPP is to be determined in the future and after broad consultation with Canadians. So Counsel’s reference to the TPP is either meaningless, and should be ignored, or the statement by the Minister to the Canadian public is meaningless. The latter, however, would be a serious undermining of Canadian democratic practice. 

Tom Bollyky on the TPP Tobacco Carveout

CFR Senior Fellow, and former USTR official, Tom Bollyky makes the case for the tobacco carveout from ISDS in the TPP. Here's an excerpt, but read the whole thing:

The Obama Administration has done itself a disservice by not making the basis for the tobacco carve-out clearer. It has allowed cigarette companies to mobilize opposition by characterizing the carve-out as a campaign against ISDS that will eventually implicate products from other industries. It has also undermined the White House’s efforts to ease the public’s concerns with ISDS, which do not end with tobacco. The TPP specifically respects the legitimacy of environmental, health, and safety regulations and includes stricter limits on ISDS claims, but the value of these provisions are discounted by those citing the tobacco carve-out as proof the changes are not protective enough.

In the end, the TPP tobacco carve-out says a lot about the special role of tobacco in U.S. and international law, but less about investment disputes generally. It is an exception motivated by a unique combination: a widely subscribed treaty binding all other TPP countries, an executive order mandating U.S. trade policy, and a pattern of tobacco industry abuse in the face of a proven public health threat. It is a constellation of factors unlikely to reoccur in other health and environmental areas.

If the White House hopes to move the TPP toward congressional passage, it will need to make this argument much more forcefully. Otherwise, the TPP may have to wait to be part of the next president’s legacy, if it happens at all. 

He makes about as strong a case as you can make, but with all due respect to Tom, I'm not convinced that having the Obama administration be more forceful and clear about this will help.  I think they have been pretty forceful and clear, and have put a lot of effort into promoting the carveout as good policy.  Their inability to convince people is about the fundamental flaws in the policy, not their lack of effort.

I've weighed in all this before (including here and here), and for the reasons stated there, I don't think the tobacco carveout makes much sense. Let me just add the following.

With this carveout, the drafters have excluded tobacco control measures from ISDS, but they have not excluded those measures from any other obligations. They are not carved out of the core non-discrimination provisions, not out of the TBT chapter, not out of the IP chapter, not out of anything else.  All those provisions apparently work fine, with no need for a carveout. So right away, if you support this carveout, you are indicating that there is a particular problem with ISDS that triggers a need for a carveout.

What might the problem with ISDS be?  Well, for one thing, companies can bring lawsuits on their own, without a government filter. But that issue is not unique to tobacco, and if we were ranking industries who were using and/or abusing ISDS, tobacco companies would be pretty low on the list.

Another issue is that some of the investment provisions are broad enough that you can make a credible claim against what at least some people would consider reasonable, non-discriminatory public policy measures. But again, this isn't a tobacco issue at all. That's just the nature of obligations such as the minimum standard of treatment.  They are written broadly enough that you can make a non-frivolous claim against a wide range of non-protectionist laws and regulations.  

A third issue is the absence of general exceptions. The GATT general exceptions are included in Chapter 29 in relation to many TPP chapters, but do not apply to the investment chapter.  Perhaps the reason we don't need to worry about the impact of trade obligations on domestic health policy (including tobacco control) is the carefully written exceptions that apply.

The tobacco companies are almost completely irrelevant to all of these issues. They have brought two cases against tobacco control measures, and one of these claims has already been rejected.  This grand total of two is a tiny percentage of the hundreds of cases brought by a wide range of industries.  I have no idea if there will be any more cases on tobacco measures, but it seems pretty clear that the tobacco industry will continue to be a negligible player here.

Thus, the issue here is not with tobacco; it's with the impact of ISDS on public policy generally. The tobacco carveout acknowledges the problem, but does not address it, even though there are plenty of ways to do so.

More on those TPP Economic Estimates

A couple days ago, I briefly expressed skepticism about the economic estimates being offered up related to the TPP (see also here). Working independently, but with similar ideological priors, here's my Cato colleague Dan Ikenson offering more detailed thoughts:

With apologies to my trade economist friends, anyone who treats the estimates produced by economic models as mathematical truths is, well, part of the problem. Lawrence doesn’t do that, but too many trade policy combatants do. Certainly, some models are more rigorous than others, but all rely on assumptions. The greater the number and complexity of exogenous policy changes being modeled, the greater the number of estimates and assumptions to incorporate, and the further removed from reality the results will be. Sometimes the estimates are merely best guesses and sometimes the assumptions have no better than a 50 percent probability of occurrence.  For example, many of the economic benefits of TPP will derive from reductions in non-tariff barriers to trade, such as regulatory opaqueness.  How does one model the increase in regulatory transparency?  How does one account for stricter environmental or labor or intellectual property regulations? How does one assign numeric values to rules limiting restrictions on cross-border data flows?

...

... Economics is not science. The preferences, information, and knowledge that drive economic decisions are all personal, nuanced, and dispersed.  They cannot be represented mathematically with any precision.  Assumptions about how economic agents should react that are, at best, based on probabilities and expectations of utility- or profit-maximization don’t always hold. ...

Dani Rodrik on TPP Economic Estimates

This is from economist, and trade skeptic (to some extent), Dani Rodrik:

The bottom line is that neither side’s models generate numbers reliable enough on which a case for or against the TPP can be made.

I'm a lot more pro-trade than Dani Rodrik is, but I tend to agree with him about the reliability of the numbers. That's the case generally, but it's particularly true where "non-tariff barriers" are at issue:

The Petri-Plummer study predicts that the bulk of the economic benefits of the TPP will come from reductions in non-tariff barriers (such as regulatory barriers on imported services) and lower obstacles to foreign investment. But the modeling of these effects is an order of magnitude more difficult than in the case of tariff reductions. The assumptions needed to do so are not standard and require many arbitrary short cuts.

Trade Barriers to Facebook

In India:

India's telecoms regulator has blocked Facebook's Free Basics internet service app as part of a ruling in favour of net neutrality.

The scheme offered free access to a limited number of websites.

However, it was opposed by supporters of net neutrality who argued that data providers should not favour some online services over others.

The free content included selected local news and weather forecasts, the BBC, Wikipedia and some health sites.

"No service provider shall offer or charge discriminatory tariffs for data services on the basis of content," ruled the Telecom Regulatory Authority of India.

The body had been investigating whether any online content should be prioritised over others, or offered for free while others were not.

And in France:

France’s data-protection regulator on Monday threatened to fine Facebook Inc.if the social-media site doesn’t change how it handles data about its users and others on the Internet, escalating a series of coordinated privacy probes into the social-network across five countries in Europe.

In a 17-page order dated Jan. 26 but published late Monday, France’s Commission Nationale de l’Informatique et des Libertés, or CNIL, said Facebook must within three months change a host of ways it collects and uses information about Internet users or face a sanctions proceeding that could lead to fines of up to 150,000 euros ($168,000).

The CNIL has ordered Facebook to, among other things, inform people who don’t have Facebook accounts that their Internet surfing is being tracked via like buttons across the Web, and to seek explicit consent for collecting information about users’ religious beliefs, sexual orientation and other sensitive information.

I am assuming that somebody, somewhere is writing a memo on whether these actions violate international trade agreements.

 

Will Someone Please File a WTO Complaint against New Zealand?

In my daily trade news reading, I was surprised to come across this sentence:

[New Zealand] has not lost a dispute at the WTO in 20 years.

Can that really be true, I thought?  Luckily, there's a web site that tracks these things, so I looked up the data on WTO complaints. As it turns out, New Zealand has filed 9 consultations requests, and the 4 (so far) that have led to a circulated panel report were all successful (not surprising, given that 90% of panel reports have at least one finding of violation).

Moreover, New Zealand has not yet had a WTO complaint brought against it, so obviously there was no way to lose such a case.

I hadn't been aware of New Zealand's perfect WTO record, so I was intrigued. How about disputes at the GATT?  Here, New Zealand brought 4 complaints, and had one brought against it in 1984, which led to a finding of violation in 1985. 30+ years without having a measure found to violate GATT/WTO obligations is pretty good!

So what's the story here? Is New Zealand's behavior on trade matters so impeccably scrupulous that no one has anything to challenge? Is its economy so small that violations are not worth challenging? Are its trade lawyers so good that it's just not worth bringing a case?

Project Coordinator, TradeLab – International Economic Law (Trade and/or Investment)

From TradeLab:

POSITION VACANT

Project Coordinator, TradeLab – International Economic Law (Trade and/or Investment)

Georgetown University School of Foreign Service in Qatar, together with the Graduate Institute of International and Development Studies in Geneva, the University of Arizona, Qatar University School of Law and a number of international partners, is the recipient of a research award from the Qatar National Research Fund.

The Project, under the overall direction of Professor Joost Pauwelyn, proposes to design and build an on-line TradeLab in Qatar, assembling a global network of experts and students on international trade and investment law to empower smaller stakeholders, be it small or poor countries, NGOs or SMEs, and help them reap the full development benefits of global trade and investment rules.

The proposed TradeLab will – linked to existing “law clinics” at the Graduate Institute in Geneva, Georgetown Law Center, University of Arizona and the University of Ottowa, and a new “law clinic” to be established in Qatar – provide key knowledge for policymakers and the non-governmental community – in Qatar and around the world – on negotiating, implementing, understanding and enforcing trade and investment treaties, along with access to global experts with substantial direct experience who can advise on specific issues and problems.

The Project Coordinator will be based in Doha for a two-year period, with occasional travel to Geneva and within the region. At the same time, the Project Coordinator will work closely with Professor Joost Pauwelyn, based in Geneva, and other project partners across the globe (including Professor Marc Busch at Georgetown University in Washington DC; Professor Sergio Puig at University of Arizona; and Including LawGives, a legal start-up based in Silicon Valley, USA and Legal.io, a legal technology company based in Silicon Valley, USA.

This position is fulltime for two years.

The successful applicant will possess or be about to receive an LLM or equivalent with a specialization in International Economic Law, with specific interest in and knowledge of trade law and/or investment law. The candidate should preferably have conversational Arabic and experience living in the Middle East. The successful candidate will also ideally have some exposure to web design methods but if not, will receive training within the Project.

The position will start on 15th April 2016 or as soon as possible after that date. The successful candidate will be expected to attend the project kick-off workshop from 29th to 31st May 2016.

Responsibilities:

The Project Coordinator will play a critical role in developing and coordinating the “law clinic” in Qatar, maintaining communication between Geneva and Qatar as well as coordinate and further develop the broader TradeLab network of “law clinics”, experts and beneficiaries/stakeholders. Specifically, the Project Coordinator will:

• Facilitate and maintain communication amongst the research team and beneficiaries.

• Be responsible for background research and information gathering.

• Assist the Lead-PI in Switzerland and Co-Lead PI in Qatar in preparations for the fieldwork components of the project, including interview content.

• Assist the Lead-PI in Switzerland and Co-Lead PI in Qatar to establish contacts within Qatar and the region.

• Assist in analysis and writing-up of research findings.

• Prepare all project outcome documents.

• Function as a communication conduit and first point of contact between the LPI, Co-LPl, PIs and other SFS Qatar / Qatar University research and administrative personnel and managing continuous follow up on all administrative aspects of the Project's workflow.

• Other duties as assigned.

Hiring will be done through Human Resources at GU SFS-Q. Recruiting for this position will mainly target international recent LLM graduates or candidates; alternatively, the position could be of interest to a more senior person looking for a new role. The position attracts a competitive package including an attractive salary plus housing allowance, fringe benefits (medical insurance), transport allowance, and home leave after 12 months.

To apply for this vacancy, please send a letter of motivation explaining your interest in the position together with your curriculum vitae and the names and contact details of three referees (these people will not be approached until a later stage) to: Dr Fadi Makki ([email protected]) and Dr Theresa Carpenter ([email protected]). More information in respect of the online platform can be found at www.tradelab.org and on the “law clinics” at http://graduateinstitute.ch/trade-law-clinic. Informal enquiries may be addressed to either Dr Makki or Dr Carpenter. Once the suitable candidate is found the position will be filled.

11th February 2016

The Ministerial Decision on Export Competition

Can anyone enlighten me on how the obligation to eliminate export subsidies on agricultural products in articles 6 and 7 of the Ministerial decision on Export Competition  WT/MIN(15)/45 — WT/L/980  (https://www.wto.org/english/thewto_e/minist_e/mc10_e/l980_e.htm  ) fits into the obligations under the Agreement on Agriculture. It does not substitute a new AoA for the old AoA in Annex 1a. It is not an agreement containing an obligation to file new schedules under the AoA. It is not an amendment to the AoA. It is just a decision of the Members under WTO Agreement Art IX:1. I did not think that decisions under Art IX:1 could amend obligations - the Ministerial Conference has power to make decisions under any of the Agreements in annex 1, 2 and 3. There is no power in the AoA giving the Ministerial Conference a power to make decisions to change the content of a Member's schedule. There is no provision in the AoA giving the Ministerial Conference a power to enact an amendment to the AoA.

It seems to me that these obligations to phase out export subsidies will not actually come into force until each of the relevant Members files a new Schedule under GATT so as to amend the content of Section II of Part IV of its Schedule by inserting zero as the budgetary limit and zero as the subsidised volume.

However, there is nothing in the Ministerial Declaration about having to file new Schedules. I do not understand why this is not set up in the same way as the ITA with an obligation to file new schedules.

Please tell me I am missing something!

How Are Aliens Treated in Domestic Courts?

From a post at the EFILA blog:

An investor in a Host State court is automatically an alien, advancing a claim in a foreign court automatically places the investor at a disadvantage of itself.

This seems like an assertion that could be studied empirically. How are aliens treated in domestic court, as compared to how citizens are treated there? And within the category of aliens, how are foreign investors treated as compared to, say, indigent farmworkers?

ISDS Transparency, But Only for Torontonians

There's an interesting NAFTA Chapter 11 claim going on related to wind energy. As Lise Johnson explains in Investment Arbitration Reporter: 

The NAFTA Chapter 11 case relates to an offshore wind energy project being developed as part of Ontario’s Feed-in-Tariff (FIT) Program. Windstream claims to have been lured in by provincial officials in Ontario and convinced to commit millions of dollars to efforts to develop one of the largest offshore renewable energy projects in the world. However, the claimant complains that it lost its investment – suffering as much as $569 million in future lost profits – when government officials pulled the plug on the project in the face of political concerns and higher-than-anticipated costs.

The hearings are coming up, and I thought it might be worth watching, but as Lise also points out, they are only available for viewing in Toronto. The press release from the Permanent Court of Arbitration says:

Live Stream of the Hearing Scheduled from 15 to 26 February 2016 From 15 to 26 February 2016 the hearing in an arbitration between Windstream Energy LLC (USA) and the Government of Canada will be streamed by live video feed to a venue in Toronto, Canada, which will be open to the public. The arbitral proceedings are being conducted pursuant to Chapter Eleven of the North American Free Trade Agreement (NAFTA).

As capacity at the venue is limited, attendance is by prior registration. Members of the public wishing to register should e-mail the PCA at [email protected] with “Registration for PCA Live Stream” in the subject line, before 17:00 CET, 5 February 2016.

Why only stream to a special room in Toronto? Is that marginally cheaper than live-streaming it on the web for all of us?  I've watched live streams of NAFTA ISDS hearings before. Why is this one different?  

(Actually, what is really useful, and I only see occasionally, is when they make a transcript of the hearing available. I can live without the live video if they provide a transcript later).

Fact Checking the TPP

From the Australian Broadcasting Corporation:

The claim

The Trans-Pacific Partnership trade and investment agreement was formally signed by 12 ministers in Auckland on February 4.

Independent Senator Nick Xenophon spoke in the Senate about the agreement.

"It has been put to me that, if a government introduced poker machine legislation to protect consumers, an overseas poker machine manufacturer could end up suing that government for doing what was clearly in the public interest," he said on November 10, 2015.

ABC Fact Check asked the Senator whether this statement reflected his own views.

"The risk I have identified in the statement is, I believe, well founded, given my understanding of the TPP and the initial analyses of the text," he told Fact Check.

Fact Check takes Senator Xenophon's statement to mean a successful legal claim against the Government, given a manufacturer can already launch an unsuccessful claim against the Government in an Australian court or elsewhere.

The verdict

The scenario painted by Senator Xenophon is unlikely.

Technically, under the TPP it will be possible for an overseas poker machine manufacturer to bring a claim for damages against the Government.

However, for this to succeed and not be quickly dismissed, the company needs to have real operations in Australia and the Australian government must have changed gambling laws in such an egregious or discriminatory way that it breaches the investment protections in the TPP.

Ultimately, a TPP dispute will be decided on the specific facts of the case, and a tribunal's interpretation of the agreement remains uncertain.

But the introduction of reasonable gambling legislation that is "clearly in the public interest" is unlikely to lead to a successful claim by an overseas poker machine manufacturer.

That sounds right to me. But the more interesting question, and the one more likely to arise, is what happens to unreasonable legislation with a tenuous connection to the public interest.

There is more to the piece, with quotes from lots of experts.

Hatch: "it can take years to get [a trade] agreement through Congress AFTER it is signed"

Some cold water from Senator Orrin Hatch:

Long story short, Mr. President, no one should be under any illusions that, because the TPP is being signed today, an up or down vote on the agreement is imminent or that our oversight responsibilities are at an end.

If history has taught us anything, it’s that this process can, and often does, take a very long time to complete.  In fact, it’s not an exaggeration – or even all that remarkable – to say that it can take years to get an agreement through Congress AFTER it is signed.

Canada Must Sign in New Zealand with Other Ministers, According to the Government of Canada. Is This Right?

My colleague Sean Stephenson, in his personal capacity, had some thoughts on the presumption that Canada's Minister of International Trade must attend in New Zealand and sign the TPP in order for Canada to retain full membership.

 

Enjoy his views.

Alan

 

In the lead up to a signing ceremony on February 4^th in New Zealand, the majority of TPP countries have publically indicated that they will sign the Agreement, despite continued debate on the merits of the Agreement. However, Canada’s announcement, in the form of an Open Letter to Canadians by the International Trade Minister, Chrystia Freeland, draws specific attention to the TPP’s entry into force provisions, its effects, and its rare language. The Minister said:

Not attending would mean withdrawing from the TPP altogether, even before Canadians have had an opportunity to fully debate its implications. 

…

In addition, it is important to note that signing next week preserves Canada’s status as a potential full partner in the Agreement, with all of the rights and powers that go with it.  

Shortly after the Minister’s Announcement, in an article in the Globe and Mail, a leading Canadian newspaper, the former Director General of the Department of Global Affairs (formerly DFATD), Matthew Kronby, supported Minister Freeland’s action. He wrote:

…The problem is that the TPP does not define an “original signatory.” Instead, it assumes that all of the 12 negotiating countries would sign the agreement at the same time. But what if that were not the case? Could a negotiating party such as Canada still have qualified as an “original signatory” if it signed at a later date but before the TPP entered into force?

The agreement’s text offers no clear answers. The TPP does provide that after it is in force for the first group of six or more original signatories, other original signatories can join if the first group agrees. It also offers an accession process for new parties that were not among the original negotiating parties to join. But it is silent on when or how it can enter force for any of the 12 original negotiating parties that are not “original signatories.”

This uncertainty meant that the risks for Canada in not signing on Feb. 4 greatly outweighed any criticism the Liberals may endure by signing it.

In light of these statements a careful review of the words of the TPP are instructive. The TPP text, like the text of many treaties, says nothing about the process of signing the treaty. The TPP refers simply to the process for the “entry into force” of the TPP in Chapter 30 of the Agreement. Article 30.5 says:

1. This Agreement shall enter into force 60 days after the date on which all original signatories have notified the Depositary in writing of the completion of their applicable legal procedures.

2. In the event that not all original signatories have notified the Depositary in writing of the completion of their applicable legal procedures within a period of two years of the date of signature of this Agreement, it shall enter into force 60 days after the expiry of this period if at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 20131 have notified the Depositary in writing of the completion of their applicable legal procedures within this period.

3. In the event that this Agreement does not enter into force under paragraph 1 or 2, it shall enter into force 60 days after the date on which at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013, have notified the Depositary in writing of the completion of their applicable legal procedures.

4. After the date of entry into force of this Agreement under paragraph 2 or 3, an original signatory for which this Agreement has not entered into force shall notify the Parties of the completion of its applicable legal procedures and its intention to become a Party to this Agreement. The Commission shall determine within 30 days of the date of the notification by that original signatory whether this Agreement shall enter into force with respect to the notifying original signatory.

As Mr. Kronby notes, the term “original signatory” is not defined. However, it is difficult to ascertain how both Canada and Mr. Kronby came to the conclusion that by not signing on February 4 that Canada may lose some or all of its status. Using the well known rules of treaty interpretation that all words in a treaty must be given meaning and this meaning must be interpreted in the context of the entire treaty- it becomes clear that an “original signatory” should not take this meaning but most likely was intended to mean an “original negotiating party.” 

If Canada and Mr. Kronby’s interpretation of the entry into force provision is correct, then the TPP agreement should enter into force 6o days after the ratification of the agreement by the parties signing the agreement on February 4, 2016. This would be the case if only two of the parties signed, or if all other parties signed.  In the event that only two parties signed on that date, all the other parties, who would sign at a later date, would have to be formally approved again by the newly created “TPP Commission” before becoming Treaty Parties.

Additionally, the parties clearly thought of the alternative where not all parties would sign at the same time.  The Treaty notes the key threshold of six parties comprising of 85 percent of GDP.  Here again, the conclusions would be illogical if the term “original signatories” meant only the parties that are intending to sign on February 4.

• First, if the entry into force requirement of 85% of GDP only applies to the parties that sign on February 4, then theoretically, the TPP could enter into force without either the US or Japan having signed it. For example, if eight parties signed the TPP and six of those parties, comprising 85% GDP of the “original” eight signing parties, ratify the TPP, the TPP would enter into force. This hardly seems like the intent of the drafters, who appear to have wanted an agreement of scale.

• Second, one interpretation of the requirement of “six parties” ratifying the Agreement could result in the TPP never entering into force. In this hypothetical, if six parties signed at the same time becoming the “original signatories,” and one of those six parties did not ratify, the Agreement could never enter into force. There would be no mechanism through which other parties could be considered the sixth “original” party. The same reasoning would apply even after the two year period from the date of signing.

In short, it is unclear how “original signatory” could mean anything but “original negotiating party.” While Canada undoubtedly is facing external pressures to sign the TPP does not require Canada, or any other party to sign with the some other parties on February 4^th. On a larger scale, small misstatements like these exemplify the importance of accuracy from public officials in the contentious public debate that lies ahead for the TPP. Clarity of what the TPP does and does not do, and its corresponding rights and obligations would be a great benefit for everyone involved in the debate.

The TPP and NTBs

This is from a Peterson Institute working paper, by Peter Petri and Michael Plummer, that estimates the economic effects of the TPP:

The bottom half of the table shows NTBs, represented as tariffs that would have had the same protective effect (tariff equivalents). NTBs include quotas in agriculture and energy, standards and regulations that may be arbitrary, measures that explicitly or implicitly favor domestic producers, certification requirements that are unreasonably difficult to meet, lengthy or unpredictable customs procedures, and a host of other limitations on how companies are allowed to operate in foreign markets. NTBs have been widely recognized as the leading challenge to trade policy (UNCTAD 2010) and data suggest that their use has been rising (Evenett and Fritz 2015), perhaps to compensate for declining tariffs.

Some regulations that have legitimate, welfare-increasing objectives (for example, product safety standards) may be included in estimates of NTBs developed by other researchers, but they should not be counted as barriers. To account for the exclusion of these components, only three-quarters of NTBs are considered barriers subject to reduction in the TPP. Like tariffs, the remaining NTBs are relatively low for goods, except for food products, textiles, and apparel. They are higher in service industries, which involve more regulated and less easily defined products. In addition to excluding legitimate regulations, the current analysis assumes that only 50 percent of the remaining NTBs in services and 75 percent of those in goods are “actionable,” that is, subject to politically feasible reductions through trade policy.

Combining those assumptions, the actionable portion of initially estimated NTBs is calculated as 56.3 percent for goods and 37.5 percent for services. To simulate the effects of trade policy, these barriers are then reduced in proportion to scores (from 0 to 100) that represent the quality of the provisions of an agreement that address barriers in various goods and service sectors. The scoring methodology is explained in appendix A; it relies on textual analysis of trade agreements by the WTO and other experts. Th e scores for the TPP are based, in the first instance, on such a quantitative analysis of KORUS. Because similar analysis is not yet available for the TPP, KORUS scores were subjectively adjusted (typically slightly downward) to account for differences between the two agreements. These adjustments are reported in appendix B. 

Even after looking at Table 1 and Appendix A, I can't follow what the authors are doing when measuring the fall in NTBs through the TPP. I don't doubt that some aspects of the TPP could, in theory, reduce some NTBs, including arbitrary standards and regulations.  But I'm not sure how the authors are tying specific TPP provisions to a reduction in actual NTBs.

A First Look at the EU's New Investment Court System

A few weeks ago, I noted that the EU - Viet Nam FTA would include the EU's proposed new Investment Court System (ICS). The text of that FTA has just been released, so now everyone can see what the big deal is. The ICS part is in Chapter 8, Section 3, "Resolution of Investment Disputes," available here. Sub-section 4 is titled "Investment Tribunal System," and has all the details if you are into this issue.

Watching the debate among ISDS supporters about whether the old "arbitration" system or the new "court" system is preferable has been interesting. On the other side of the issue, as far as I can tell, not one ISDS critic has been remotely convinced, with one very important exception: It sounds like this change may be sufficient to sway a few members of the European Parliament. Will it be enough to get the European Parliament to approve an FTA with ISDS? And how will the Parliament feel about yet to be approved FTAs that have the old ISDS?