International Economic Law and Policy Blog

The Impact of International Economic Law on Tobacco and Public Health

If you are interested in trade, tobacco and public health, as I am, law prof Sergio Puig has a new paper on tobacco litigation in international courts. There's a lot in there, and I couldn't possibly discuss everything in this blog post. I'm going to focus on just a couple points; I encourage everyone to read the whole paper.

I hope Sergio corrects me if I've gotten this wrong, but it seems to me that one of his general points is that anti-tobacco advocates shouldn't be so fearful of international economic law. In fact, he argues, IEL can help with their efforts, in the following two ways.

First, while international economic agreements may, in the past, have been about tobacco expansion, now they can actually help move away from this.  In this regard, he says that "a policy import of the main conclusion involves delinking the interest in tobacco expansion from international economic agreements without eliminating the role of ICs. To that end, future agreements can start to exempt tobacco products from tariff cuts and to mandate the elimination of subsidies."  (p. 62) 

Second, he argues that international economic courts can play an important role in supporting effective anti-tobacco policies.  For example, he says, "[international courts] can positively contribute to tobacco control by acknowledging, endorsing, and legitimizing sensible regulatory efforts and by evidencing how domestic politics and interest groups can shape regulations to meet their needs. Arguing for complete, unfettered deference to government regulators and defending any regulatory initiatives at all costs can be problematic for different reasons." (p. 64) 

On both of these points, I am not convinced. With regard to tariffs, if I were a government health official regulating tobacco, my biggest concern would be the influence of protected domestic monopolies, state-owned or otherwise.  These are the kinds of institutions who can push back most effectively against stronger tobacco regulation, for example with arguments about lost domestic jobs. Thus, as a health official, I would argue for removing all tariffs, in order to increase competition and limit the power of domestic tobacco interests. That could be done unilaterally, of course, but it could also be done through reciprocal tariff elimination in a trade agreement.  In today's world, removing tariffs is not about tobacco expansion (although three decades ago it may have been), but rather about undermining domestic monopolies.  In the current environment, I would think that the tariffs would almost certainly be replaced by higher sales taxes, so tobacco expansion is highly unlikely.

As for the role of international courts, I guess I kind of see what he means. If an international court says something like, "this particular regulation was discriminatory, but in general your goal of tobacco reduction is permissible," maybe that could be seen as an affirmation by an international court of the legitimacy of anti-tobacco policies.  I suppose that if anti-tobacco groups saw language like that in an opinion, they would use it to their advantage.  But my sense is that, on balance, they don't want international courts interfering with domestic tobacco regulation in the ways they do now.  They see much more downside then upside.

Finally, I think there is another key point worth exploring.  Sergio talks about the principle of discrimination as the basis for international legal claims, as follows (p. 22):

3. Claims over Discrimination

More prevalent are claims involving disparate effects, discriminatory intent, or violations of due process that provide an advantage to certain tobacco products or producers over others. These include claims under the umbrella of nondiscrimination provisions (for example, most-favored-nation (“MFN”) status and national treatment), proportionality standards, or “fair-and-equitable treatment” clauses.  

To me, this explanation of the legal principles at issue groups together some very different obligations, and, in fact, "discrimination" is not the general category here.  Rather, the obligations he mentions should be broken down into two categories.

First, there are obligations that prohibit nationality-based discrimination (NT and MFN). These should have virtually no impact on the ability of states to regulate.  I say "should have" because there are broad interpretations of these obligations out there, but generally speaking, these obligations will not interfere with tobacco regulation that is done for public health reasons.  Many public health folks that I've talked to see this point, and are not worried about these obligations (if interpreted properly). They have no desire to discriminate against foreign producers; they just want strong domestic regulations.

And second, there are obligations such as fair and equitable treatment, which are about much more than discrimination, and serve as the basis for broad constitutional-type review of domestic measures.  It's the latter that anti-tobacco campaigners should be -- and I think are -- worried about.  I think Sergio may see this type of review as having the ability to shape regulation for the better.  Maybe.  But the anti-tobacco folks who read the Gary Born dissent in the Philip Morris v. Uruguay case are probably not going to be convinced that international courts are so positive.

To be honest, I only skimmed through this paper quickly, so I may have missed some things, or misunderstood some of Sergio's arguments. I am counting on him to show up in the comments with any corrections or further thoughts.

National Courts vs. International Arbitration

Over at EJIL: Talk!, David Caron and Esme Shirlow comment on the backlash against investment arbitration and international economic law more generally, and say this:

For many, the assumption is that investment disputes, absent an arbitration mechanism, will go to the national courts of host States. This has been proposed in the statements of various non-governmental organizations as well as some States. It is undeniable that all States “should strengthen their domestic justice systems for the benefit of all citizens and communities, including investors”. While such a result may be desirable, there are nevertheless a number of hurdles to be overcome before it is possible. In particular, there is the issue of how to test whether national courts are an appropriate or feasible alternative to treaty arbitration. ...

It's a fair point, but I wonder if it goes the other way as well. When considering whether to include investment arbitration in a treaty, should there be an evaluation of whether arbitration is an appropriate or feasible alternative to national courts?  This could be done, for example, in the context of CETA, TTIP, and TPP, before establishing treaty arbitration there.  

For that matter, it could also be done for all existing investment treaties. I don't recall the issue being considered in any great detail, or with empirical study; there are just assumptions which have never been tested.

Massaging the TPP

This is from Senator Mitch McConnell, as quoted in Inside US Trade:

“So TPA -- Trade Promotion Authority -- is in place for the next president whoever that may be and the current agreement, the Trans-Pacific agreement, which has some serious flaws, will not be acted upon this year,” McConnell said in Aug. 25 remarks at the Kentucky State Farm Bureau Ham Breakfast. “But it will still be around, it can [be] massaged, changed, worked on during the next administration. So I hope America will stay in the trade business and to do that its going to have to be done on the bipartisan basis.”

What kind of massage does Senator McConnell have in mind? Maybe one that works the tobacco carveout out of the TPP?

Banning the Burqini

Over in Europe, there is a great deal of controversy over bans on the use of Burqini swimwear:

A village in Corsica became the third place in France to ban the Burqini from its beaches Monday after a fight broke out over the weekend over the swimsuit favored by some Muslim women, Agence-France Presse reports. 

...

Sisco’s Burqini ban, which goes into effect Tuesday, follows those imposed in the French resorts of Cannes, where the ban was upheld by a court Saturday, and Villaneuve-Loubet, which banned the costume, prompting a nationwide debate over the role of conservative Muslim dress in secular France.

Banning the Burqini seems like a clear case of religious discrimination to me, but feel free to offer opposing views in the comments. For the purposes of this blog, I was curious as to whether there were any trade or investment law issues. As it turns out, the Burqini was invented by an Australian Muslim woman named Aheda Zanetti:

In the early 2000s, Australia’s cultural melting pot was set to boil over. Racial tensions spiked after a series of gang rapes perpetrated by Lebanese Muslim youths targeting non-Muslim teen girls; it got worse after the September 11, 2001 terrorist attacks in the U.S., then hit a low point in December 2005, when race riots erupted in response to reports that a group of Middle Eastern men had beaten up white lifeguards at South Sydney’s Cronulla beach, popular with both the Muslim community and white, working-class Australians.

In the aftermath of the Cronulla riots, the government sought to bridge the divide, banding together with Surf Life Saving Australia to recruit Muslim surf life-savers through the “On the Same Wave” campaign.

...

To get Muslim women on board, Surf Life Saving Australia approached Zanetti, who lives in Sydney’s western suburbs with her Greek-Muslim husband and has four children aged 13 to 27. Before she became a clothing designer she was a hairdresser, though sewing and designing her own clothes had been a hobby since the age of 12.

Before the burkini, Zanetti invented the hijood, an amalgamation of a hijab veil and a hood, made of breathable material suitable for land-based sports. She came up with the design after watching her niece struggling during a game of netball, a popular sport in Australia similar to basketball, while wearing her team’s uniform over her Islamic garb. After failing to find a sports-friendly hijab on the market, Zanetti decided to make one herself.

The genesis of the burkini is similar — Zanetti read an article about Muslim women swimming in their billowing burqas, and decided to create an outfit they could wear without restricting their movement in the water.

More here. Zanetti set up a company called Ahiida, and the name Burqini (also Burkini) is trademarked; I think there are other companies making similar products, though.

My question is, if places in Europe (or elsewhere) ban these products, are there possible trade or investment complaints for someone to file?

Ahiida is an Australian company and Burqinis are produced there. Perhaps Australia might decide to raise the issue at the WTO? GATT Article III:4 is probably the most likely basis of a complaint.

And if by some chance Ahiida or another producer has any investment (maybe a retail shop?) in Europe, and there's an investment treaty that could be relied on, then there may also be a pretty good claim that the treatment being offered here is not fair or equitable.

Call for Papers: Cognitive Sociology, Culture, and International Law

Call for Papers: Cognitive Sociology, Culture, and International Law

iCourts, Centre of Excellence for International Courts, University of Copenhagen
28-29 April 2017

Workshop Theme

The past few decades have seen growth in behavioural approaches in the social sciences. In this new behavioural revolution, cognitive psychology, behavioural economics, and sociologists of culture have all paid increasing attention to the role of cognition, focusing in the main on decision-making, both with regard to everyday routines and in the context of risk and uncertainty. This third workshop on the sociology of international law aims to break open the study of interactions between various cognitive processes and the formation, interpretation and implementation of international law.

Sociological work on culture and cognition is particularly promising here, with Bourdieu’s work in particular said to have “supercharged” a cognitive turn in sociology by emphasizing the formation and effects of habitus (Cerulo 2010). Yet sociological work on cognition extends beyond this. Research on cognition explains, for example, how people classify and make decisions based on their social contexts (Zerubavel 1997); how individuals draw on cultural schemas as a toolkit for action, both in settled and unsettled moments (Swidler 2001); how culture offers individuals skills, habits, and practices; the work of moral grammars, justifications, and reasoning styles such as analogies; how collective memory is built and sustained; and how beliefs and values motivate action. Some of this work in sociology also draws on related fields, prominently cognitive sociology, behavioural economics and neuroscience.

We believe that international law is a prime locale for bridging insights from this research on cognition with research on institutions. This would complement recent moves to draw together work in cognitive psychology and behavioural economics with the study of international relations (e.g., Hafner-Burton, Hughes and Victor 2013; Stein 2013). Our hope is to include papers that investigate both how individual cognition shapes institutions and how institutions shape cognition. We see these possibilities along several dimensions that we intend to explore at the workshop:

1. Decision-Making, Cognitive Bias, and Practices: Cognition is, primarily, an approach for studying decision-making and developing strategies for action. What can we learn from this field for international law? For instance, international adjudicators are frequently required to process and categorize volumes of information, and develop strategies for action in perceiving and processing the evidence. Similarly, certain international instruments aim to regulate some risky activities while bracketing other hazardous activities – raising questions over how risks are evaluated in international legal regulation and adjudication, a prime concern of research in cognitive psychology.

2. 'Optical communities', organizational identities and collective memories: Views of collective memory are central to the fast growing field of international criminal law. And beyond this, how would collective memories shape a collective identity of an international organization or alter members’ identities? The ‘optical communities’ (Zerubavel 1997) of which we are part affect cognitive processes, including how we attend to some features of reality, while leaving other aspects 'out of frame'. Similarly, how can we understand the cognitive elements that explain the social and professional trajectories of international legal actors: what underlies the international legal habitus? 'Is there an international legal habitus, and what forms does it take?

3. Communication, Routines, and Knowledge Formats: Underlying much of this is the question of how legal modes of thought and reasoning can be explored given what we know from research on decision-making, estimation, and cognitive biases. What role does analogical reasoning play in international law? What forms of justification are deployed in international legal settings? How would international organization norms qua language transform members’ communicative competence into administrative power? International organizations often engage “(metaphorical) framing” to facilitate meaning generation and schematization of knowledge. How do these legal forms of reasoning interact with cognitive biases and decision-making? And how do processes of anthropomorphization – whether of a state or an international organization – affect the work of international law by bestowing cognitive properties that presume intentionality and consciousness?

4. International law as a domain of expertise: International legal practices produce and disseminate expert knowledge, and many would agree that experts play significant parts in the drama of global governance, both by framing with world for ‘decision-makers’, and by interpreting and implementing their ‘decisions’. But more work is needed to map the modalities of their practice, and to reflect on alternative possibilities. Where does an acknowledgement of the centrality of expertise lead us in rethinking spaces and processes of global governance? What theoretical resources are available to lawyers to conceptualise the nature of ‘expertise’ and the roles that it plays in collective structures of governance? And what are the different forms and categories of ‘knowledge’ or ‘expertise’ which are particularly worth of scholarly attention?

Academics and experts in various stages of their careers are invited to submit abstract exploring various interactions between sociological cognitive processes and international law.

Details

The workshop is hosted by iCourts, Centre of Excellence for International Courts, Faculty of Law, University of Copenhagen on 28-29 April 2017.

Abstracts of no more than 300 words should be sent to Sungjoon Cho at <[email protected]>, by 1 November 2016, and must include the author’s name, affiliation, and full contact information. Decisions regarding inclusion in the workshop program will be sent by 15 December, 2016. Those presenting will be expected to provide short discussion papers (3,000-4,000 words) by 15 March, 2017.

We regret that we are unable to cover participants' travel and accommodation expenses. Limited assistance might be available for junior scholars who are unable to secure funding from other sources.

Steering Committee:

Mikael Madsen, iCourts, University of Copenhagen
Sungjoon Cho, IIT Chicago-Kent College of Law
Moshe Hirsch, Hebrew University of Jerusalem
Andrew Lang, London School of Economics
Ron Levi, University of Toronto

Judging from Afar

This is from today's Russia - Pigs WTO panel report:

6.2. In light of the parties' comments to the Interim Report, on 4 March 2016 the Panel informed the parties that it had decided to have an interim review meeting, which took place on 10 March 2016. The Panel Chairman, Mr Mohammad Saeed, presided the meeting, whilst Ms Delilah Cabb Ayala and Mr Juan Antonio Dorantes participated by videoconference. ...

Is this the future of international litigation? Instead of everyone flying around the world to one location, just stay home and do it all by Skype?

Guest Post: Intellectual Property Cases in a Trade Law Tribunal: From separation anxiety to fusion fallacies

This is a guest post by Matthew Kennedy, a professor in the Faculty of Law at the University of International Business and Economics, Beijing.  He was formerly a senior lawyer in the WTO Secretariat and Secretary of the WTO Council for TRIPS. 

Intellectual Property Cases in a Trade Law Tribunal: From separation anxiety to fusion fallacies

Twenty years of TRIPS disputes in the WTO show that many controversies spring from collisions between intellectual property and trade law.  Whether the issue is the role of non-trade policy objectives, the relationships between agreements, access to cross-retaliation or the scope for non-violation, the key is to establish where TRIPS fits in the WTO framework.   

The current dispute in Australia – Tobacco Plain Packaging shows that even today the WTO has yet to decide whether TRIPS can exclude a goods agreement, which is surprising considering that the relationship between intellectual property and GATT was the single biggest issue facing the TRIPS negotiators almost 30 years ago.

TRIPS complements GATT 1994, mostly

TRIPS was concluded as a precondition to fair trade, not an exception to free trade.  The opening clause of the TRIPS preamble indicates that the new agreement was designed to complement trade rules, so they apply concurrently.  TRIPS’ minimum standards prescribe domestic regulation, even when they are enforced at the border.  GATT 1994 also applies to domestic regulation but does not prescribe standards. As for the general exception in Article XX(d), it is doubly qualified and does not contain a general carve-out for IP laws. 

It follows that non-violation complaints are no more available under TRIPS itself than they are under GATT rules, or the TBT Agreement for that matter.  The separate annex that houses TRIPS divides administration and sanctions but does not isolate TRIPS rules from scheduled concessions under GATT 1994.   Non-violation complaints are available regarding IP-protected goods just like any others - on the basis of tariff concessions.  All those ministerial decisions on TRIPS and non-violation are chiefly political. 

Some conflict with GATT 1994 is inevitable.  The ‘no export’ and ‘low export’ clauses buried in TRIPS’ compulsory licensing conditions for copyright and patents are not domestic regulation.  They provide for export restrictions inconsistent with Article XI that are not covered by Article XX.  The WTO Agreement contains no applicable precedence clause because TRIPS is not an Annex 1A agreement.  Lex specialis might solve this particular conflict but that does not make TRIPS a self-contained regime. 

Curiously, export restrictions are multiplying as time goes on.  The TRIPS Amending Protocol adds one (necessary to protect health).  Arbitrators on cross-retaliation have embraced them too, without authorization under GATT 1994, TRIPS or the DSU. 

The DSU can suit TRIPS disputes, with a proviso

The DSU is flexible enough to deal with intellectual property standards provided they are not squeezed into the corset of GATT trade rules.  At the most basic level, the DSU’s focus on “measures” does not suit cases about positive obligations to implement minimum standards.  In fact, the TRIPS test case on India – Patents (US) never cited a measure at issue.  The “as such/as applied” distinction does not assist when minimum standards only concern measures “as such”, which has implications for evidence.  The “mandatory/discretionary” distinction makes sense when TRIPS applies GATT principles but not when TRIPS provides for discretionary authority, which is often.  Private rights have caused difficulties at every stage of TRIPS disputes, notably when “exceptions” to private rights are compared to “exceptions” to GATT obligations, reversing the burden of proof.   

Although the DSU imports rules of treaty interpretation from public international law, specific challenges arise from TRIPS’ overlap with the intellectual property framework outside the WTO.  Interpretation must reflect the subject matter of TRIPS as a specialized agreement and should take into account at least some developments in WIPO. GATT/WTO jurisprudence on the reduction of trade barriers is easy to find but no substitute for proper analysis of an IP agreement. 

The DSU’s greatest attraction – trade sanctions – turned out to be something of a damp squib.  The prospect of retaliation probably spurred adoption of TRIPS-implementing legislation but it has never been authorized in a TRIPS dispute.  Non-compliance with detailed minimum standards does not necessarily produce large trade effects.  The flipside – IP sanctions in goods and services disputes – has been hindered more by arbitrators than by the DSU.

The integrated nature of the DSU means that problems in TRIPS disputes can spread to disputes under other covered agreements.  The scope of appellate review regarding the meaning of municipal law, including in trade remedy cases, can be traced to TRIPS appeals. 

The DSU is much better than the old way of dealing with IP disputes

Overall the DSU has delivered major improvements in intergovernmental dispute settlement compared to the days before TRIPS.  It created a functioning forum for IP disputes, which the International Court of Justice has never been.  And DSU procedures are multilateral, unlike the investigations conducted under Section 301 of the US Trade Act of 1974 and its European analogue.  TRIPS channelled US and EU complaints through the DSU’s multilateral procedures, as it was intended to do, carrying forward the campaign for higher IP standards but subjecting trade sanctions to multilateral control.  The goal was not the generation of disputes; if anything, just the opposite.

The DSU has proved largely effective in obtaining changes to IP legislation with or without a panel report – a significant achievement.  However, the system counts two notable failures where DSB recommendations have not been implemented.  TRIPS provisions for on-the-ground IP enforcement have not really been tested.  The DSU has not proven entirely effective in preventing unilateral investigations either.  GSP country practices reviews in the US keep alive threats to market access for intellectual property reasons, which raise questions of consistency not so much with TRIPS or the DSU as with the Enabling Clause.

The WTO’s dispute settlement mechanism continues to hold its attractions for other new issues.  TRIPS shows that fresh thinking on the single undertaking, relationships to new agreements and flexibility in DSU practice should precede any expansion of the WTO tent.

WTO Dispute Settlement and the TRIPS Agreement: Applying intellectual property standards in a trade law framework is published by Cambridge University Press.  For further information click here. 

Clinton on Trade: Part II

Besides stopping TPP, the focus of my post earlier this week, Hillary Clinton is responding to Trump on trade with proposed measures to counter offshoring by US companies.  Once again I cite her recent economic policy speech in Detroit:

Right now, when a corporation outsources jobs and production, it can write off the costs. We must stop that, and we must make them pay back any tax breaks they received from any level of government in our country. 

In  the same speech, Clinton has repeated her proposal during the primary to enforce existing trade rules against foreign countries that "cheat" on them to the detriment of American businesses and workers:

As President, I will stand up to China and anyone else who tries to take advantage of American workers and companies. And I’m going to ramp up enforcement by appointing, for the first time, a chief trade prosecutor, I will triple the number of enforcement officers, and when countries break the rules, we won't hesitate to impose targeted tariffs.   

What these two proposals have in common is that neither involves any change or renegotiation to existing trade rules.  At the same time, punishing offshoring without running afoul of current WTO prohibitions on domestic content requirements will require some careful drafting, if offshoring means not only relocating jobs elsewhere, but replacing domestically sourced products with products imported from overseas production facilities.   

Clinton assumes that enforcement shortcomings are due to inadequate vigilance in Washington rather than faulty procedures, remedies and doctrines at the WTO, for example.  Perhaps she is boxing herself a little too much in the corner of defender of the status quo of international trade law; arguably, somewhat of an overreaction to Trump's crazed threats to tear up existing legal arrangements wholesale.   

One issue on which Trump has been vocal is America's trade deficit; arguably, Clinton needs a clear response. Should the trade deficit matter or not?  The standard neoliberal free trade line is that concern with trade deficits (or surpluses) is mostly just economic ignorance.  This notion is well-articulated by American Enterprise Institute analyst Mark Perry, in a Los Angeles Times oped some months back:  

Let's start with two basic economic principles. First, countries don't engage in trade with each other — only businesses and consumers do. Second, when individuals engage in a voluntary market exchange, both parties — the buyer and the seller — are almost always made better off, because both parties get something they want. Trade is win-win, not win-lose as so many politicians these days would have us believe....when American businesses and consumers voluntarily purchase more products from China than Chinese businesses and consumers buy from us, it does lead to a U.S. trade deficit with China. But the trade deficit can't accurately be referred to a “loss,” because it's based on millions of mutually agreeable individual exchanges that took place between a willing seller and a willing buyer.

But one of Hillary Clinton's biggest backers in the corporate world, Warren Buffett, no ignoramus when it comes to the laws of supply and demand, has taken a quite different view:

We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that’s the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary–and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card’s credit line is not limitless.The time to halt this trading of assets for consumables is now, and I have a plan to suggest for getting it done. My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur. We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties–either exporters abroad or importers here–wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

Mr. Buffett's plan (first set out in 2003) has now been endorsed by Nobel Prize-winning economist and former Bill Clinton administration economic official Joseph Stiglitz in his new book The Euro (the immediate context there being the Greek crisis):   

governments would provide to any exporter a chit, a "token" (in this case, electronically recorded) the number in proportion to the value of what was exported; to import [a single unit of currency[ worth of goods, there wold be a requirement to pay, in addition a [single unit of currency] worth of chits or "trade tokens." There would be a free market in chits, so the demand and supply of chits would be equal; and by equating the demand and supply of chits, one would automatically balance the current account.

As Stiglitz recognizes (in a footnote) the trade chits proposal may run into problems under existing WTO rules, which strongly disfavor any form of balancing of exports and imports (even though on this plan there would be the advantage, articulated by Buffett, of non-discrimination among countries and products, and no particular economic actor would be required to balance their imports with exports).   While the US probably couldn't invoke  the balance of payments exception to Article XI of the GATT (as Stiglitz rightly suggests Greece might well), Article XX (a) public morals  is a different story. Trade deficits can undermine fundamental social values or interests. As Stiglitz explains, trade deficits threaten employment:  "A high level of imports weakens aggregate domestic demand.Unless their is an investment boom-for example, a real estate bubble-to sustain employment the government has to spend more."

The GATT rules were drafted assuming the Gold Standard  and the managed adjustment of persistent national trade deficits and surpluses.  Today we live in a different world; the Bretton Woods mechanisms for dealing with imbalances are simply dysfunctional. It seems wrong that GATT rules should preclude new ways of addressing this fundamental policy challenge.

The Stiglitz/Buffett proposal could allow Hillary Clinton to open a serious conversation about the trade deficit, and how to deal with it-countering the zero-sum perspective of Donald Trump while at the same time facing the issue directly and candidly. 

 

The Anti-Globalists

At a time when pandering politicians scapegoat trade, it is unfortunate to see some of the world’s greatest economists join, incorrectly, in the chorus.  Dani Rodrik and Joseph Stiglitz have recent articles in Project Syndicate doing just this. 

For example, Stiglitz argues that “in the US, the bottom 90% has endured income stagnation for a third of a century,” but fails to say how much trade contributed to this stagnation, or to note how trade has increased welfare by making the products these people buy cheaper.  Stiglitz’ main point that stagnation and inequality are problems and need to be addressed is no doubt correct, but he suggests without foundation that trade is the problem.  He writes against TPP and TTIP, without confronting the possibility that these would both make people better off. 

Rodrik makes an even broader point.  He distinguishes what he thinks of as narrow areas, such as climate change or global pandemics, in which global cooperation may be beneficial, from economic policies, in which he asserts that global cooperation is unnecessary and harmful.  (He does make an exception for terms of trade theory and optimal tariffs, but neglects to explain why these don’t justify international cooperation.)  He makes the point “good economic policies—including openness—benefit the domestic economy first and foremost, and the price of bad economic policies is primarily paid domestically as well.”  Note first, that Rodrik seems to accept something Stiglitz does not—that openness is good.  Note second, though, that Rodrik, like generations of economists before they discovered politics, assumes that governments will do the right thing on their own.  What he seems to miss is that if foreign governments, hurt also by the bad economic policies of the protectionist government, assert their interests through reciprocity, that can add to the political forces for openness.  See my review of his earlier work in this area.  He seems to miss that this incremental political force might help achieve beneficial openness. 

Rodrik’s error is in thinking that international economic cooperation is only useful where the larger effect is externalized, and is not useful where smaller externalities exist.  Perhaps this is true in some areas in a politically perfect world, but it is not true in the world in which we presently live.  Of course, his main point, calling for better, more broadly accountable, domestic politics cannot be gainsaid, but until the day of perfect domestic politics, international reciprocal negotiations causing governments to take account of harm they cause foreign persons, will be needed. 

Trial by Numbers-or Trial by the FT? The case for and against Greek statistician Andreas Georgiou

Based upon a re-examination of the case by Greece's highest court, former statistics chief Andreas Georgiou will again face criminal charges in relation to changing the estimates of Greece's deficit made by his staff:  it is apparently alleged that Georgiou, a long-time IMF technocrat who was appointed to lead Greece's statistical authority in 2010, altered these numbers in order to present Greece as having a deficit so large that it would have to seek emergency assistance from international actors, and have its economic and other policies come under the tutelage of people like Mr. Georgiou's former colleagues at the IMF. There is no doubt that the size of the deficit as reported by Mr. Georgiou had a significant impact on how Greece's situation was viewed outside the country, including by its creditors; in this case, the prosecution argues that this impact undermined the national interest.

In a remarkable public relations victory, Mr. Georgiou and his friends have convinced, it seems, the international media that the criminal charges are merely a political witch hunt; Georgiou did his duty in reporting honestly the state of affairs in Greece, resisting the politicized statistical practices that had been all to common in Greece until he took the helm.   Now, it is suggested, Greece's political elite is engaged in a vendetta. Yesterday in an oped the Financial Times decried the charges against Mr. Georgiou, stating:  "The campaign against Mr Georgiou looks like a vindictive attempt to shift the blame for Greece’s financial collapse from a discredited political class that still hopes to make a comeback."  Because EU officials took the side of Mr. Georgiou's reworking of the numbers (as if they didn't have their own interests at stake!) and because Mr. Georgiou was a seasoned IMF official (consider how numbers were massaged or ignored inside the Fund in relation to Greece, as recently documented by the IMF's own internal watchdog), he has to be right, according to the underlying logic of the FT.  

I myself don't presume to know whether Mr. Georgiou is guilty of the charges against him.  Before taking its stance that this is a political trial, it isn't even clear to me that the FT examined such crucial documents as the original complaint, the argument before Greece's Supreme Court, or the Court's judgment sending the case back to the Appeals Council.  Neither in the oped in question nor in other recent coverage, does the FT (or other international media) actually recite the exact provisions of the law under which Mr. Georgiou is charged.  This is the extent of mere presumption that Greece is manufacturing a political show trial.  

While the FT has given Mr. Georgiou ample space to state his side of the matter, it seems to have forgotten the econometrician whistleblower who first brought the accusations against him.   To be sure, Zoe Georganta, a professor at the University of Macedonia who was on Mr. Georgiou's staff at the time, doesn't have quite the neoliberal cosmopolitan pedigree of Mr. Georgiou, with his University of Michigan PhD and all those years at the Fund.  But she does have a doctorate from Leeds in econometrics, and has been a visiting scholar at Cambridge University's department of economics as well as at Harvard and the NBER in the US-twice.  One would think that if the FT was giving Mr. Georgiou a chance to argue for his innocence, they might have asked Professor Georganta, his original accuser, her view of the turn that the case has now taken. In 2011, the FT was indeed more careful; the paper interviewed and briefly quoted Professor Georganta, who insisted on the veracity of her claims against Mr. Georgiou.  Granted, Professor Georganta may now be a witness in the proceeding, and unavailable to the media; but the lack of all mention of her in the FT's oped gives the unjustified impression that the charges against Mr. Georgiou were merely trumped up political offenses. It should be added that Professor Georganta is no puppet or apologist of Greek politicians: she ends a fascinating 2011 scholarly article "Greek Fiscal and Financial Data: More Than Meets the Eye" by accusing Greece's governments of having "promoted clientism to an extreme form."

Even if the current charges against Mr. Georgiou originate (at least to some extent) from the allegations of a competent, independent-minded former employee and academic economist, the real question that the FT and others should be asking is whether highly selective criminal trials like this are the best way of handling accountability for the Greek crisis.  Before she broke with Syriza the former speaker of the Greek Parliament Zoe Konstantopoulo, a brilliant if dfficult political personality, had initiated a truth commission into Greek debt, which was suspended after a preliminary report that suggested broad avenues of inquiry as to whether some or all of the debt was "odious" within the international law conception of that term.  Accountability is important; but it needs to be expanded way beyond the specific question of odiousness to many features of the handling of the crisis, and indeed  the events that originated it, going back to how Greece's entry into the Eurozone was handled (See Joseph Stiglitz's new book The Euro); those who must be made to answer-without prejudice to how the responsibility is ultimately allocated-should include not only domestic actors in Greece, but former and in some cases current EU and IMF officials not to mention Goldman Sachs.   

An International Body Assisted by an Office within a Government Agency

Via Inside US Trade, this is from the draft Statement of Administrative Action for the TPP:

1. Implementing Bill

...

g. Dispute Settlement

Section 105(a) of the bill authorizes the President to establish within the Department of Commerce an office responsible for providing administrative assistance to dispute settlement panels established under Chapter 28 (Dispute Settlement) of the TPP Agreement and panels established pursuant to the Appendix between Japan and the United States on Motor Vehicle Trade (Appendix D to the Schedule of the United States to Annex 2-D). This provision enables the United States to implement its obligations under Article 27.6 of the TPP Agreement. This office will not be an “agency” within the meaning of 5 U.S.C. 552, consistent with treatment provided under other U.S. free trade agreements, including the North American Free Trade Agreement and free trade agreements with Australia, Chile, Singapore, Peru, Colombia, Korea, and Panama. Thus, for example, the office will not be subject to the Freedom of Information Act or the Government in the Sunshine Act. Since they are international bodies, panels established under Chapter 28 are not subject to those acts.

Section 105(b) of the bill authorizes the appropriation of funds to support the office established pursuant to section 105(a).

So there are "international bodies" (in the form of TPP panels) that exist, and are assisted by an "office" "within" a U.S. government agency (the Department of Commerce). This office is not, according to the provision quoted above, itself an "agency," and thus is not subject to some of the normal requirements of U.S. agencies, such as the Freedom of Information Act (FOIA).

A couple thoughts:

-- This exists under previous trade agreement as well, but I can't recall anyone exploring the various political science and legal questions that arise here. Has anyone filed FOIA requests related to the NAFTA Secretariat or other FTA Secretariats? If there ever are any TPP panels, I can imagine someone deciding to test these FOIA restrictions.

-- Are there other examples of offices within a U.S. government agency, outside of the FTA context, that do not count as an agency?

-- I would be curious to know how other countries handle this issue.

Hillary Clinton on Trade: Part I

This is the first of three posts on the challenges that Hillary Clinton faces on trade in campaigning against her rival Donald Trump. 

Heading to Detroit last week fast on the heels of Donald Trump, Hillary Clinton outlined her own economic plan and took some effective swipes at Trump's.  Clinton's speech gives a pretty good indication of what's there (as well as what's arguably missing) in her stance on trade.     Reflecting what seems to be a decision by the campaign that Trump's attack on trade has to be met head on, Clinton made a remarkable admission that past trade agreements (including, implicitly, some she supported) had not turned out as promised for American workers:  "It’s true that too often, past trade deals have been sold to the American people with rosy scenarios that did not pan out. Those promises now ring hollow in many communities across Michigan and our country that have seen factories close and jobs disappear.  Too many companies lobbied for trade deals so they could sell products abroad but then they instead moved abroad and sold back into the United States." Clinton then went on to affirm her opposition to TPP in the strongest terms yet:  "The answer is to finally make trade work for us, not against us.  So my message to every worker in Michigan and across America is this: I will stop any trade deal that kills jobs or holds down wages – including the Trans-Pacific Partnership. I oppose it now, I’ll oppose it after the election, and I’ll oppose it as President."  

Having accepted that past trade deals haven't been working out for ordinary Americans, what Clinton did not say is that she would, like Trump, take the next step of opening up these deals and attempting to renegotiate them with the other parties. Going forward, there is probably some value in Clinton responding to Trump more explicitly on the renegotiation point.  One response might be that the damage is already done in large part (the jobs already gone) and using the US's global economic and political power to reopen past deals in those circumstances is wasteful.  Another might be to say simply that there will be occasion in the future to revisit past deals, and where these are subject to review or revision-as with WTO treaties in new rounds of negotiations-that if she is President she'll insure that they are changed in ways that protect workers, and reflect progressive values.  

On TPP, Clinton's position seems firm and unambiguous as regards the current signed text.  But some progressive groups are asking her to go further, and actively oppose President Obama putting that text to Congress before the end of his administration.  Though I'm opposed to TPP in its present form, I do think that the President is owed the respect or deference to be given a chance to pass TPP during his mandate.  Whatever one thinks of the merits of TPP, the President won TPA ("fast-track") fair and square.  If Congress were to approve the agreement and the US to ratify it on President Obama's watch, however, this would not eliminate Hillary Clinton's options, if elected, to stop TPP in its present form.  Briefly, because of the ratifications of other countries that are required before TPP comes into force, it is virtually certain that the agreement is not going to be definitively binding before the next President takes office. Could Clinton, consistent with international law, simply withdraw the consent of the United States to TPP before it comes into force? One reading of the Vienna Convention on the Law of Treaties Article 18 is that a state has the opportunity to make its intention clear not to be bound by a treaty at any point in time between signature and the treaty coming into force. As a matter of domestic US law as opposed to international law, Clinton would have to go back to Congress, I'd assume, in order to reverse effectively consent to TPP.  The plausibility of that would depend on how the new Congress looks.  

What Clinton could say is that, if elected President, she will take all steps consistent with her authority as President and with international law to ensure that TPP is changed to address the concerns that underlie her opposition to the current text, and if not, that it is stopped.  Given the ongoing debates about ratification in several TPP countries, it is unlikely that the other parties to TPP would simply at this stage close the door to changes.  The amendments provision of TPP is broadly drafted, and just says that the parties may agree in writing to amendments without establishing any particular set of procedures or preconditions that have to be met for an amendment to be proposed.  And uncertainty about ultimate US adhesion to TPP could provide a boost to anti-TPP forces in other countries that have not yet ratified.   

Now what if Congress does not approve TPP before Clinton is elected?  Does she simply say to the other parties that the US is out of it?  Or does she try at least to open the door to further negotiations and possible amendments?  That goes to the more general question of whether Clinton's policy on trade is simply about stopping bad agreements.  Would a Hillary Clinton administration take any initiative to pursue good trade agreements, for example those that would support Clinton's climate objectives, or provide leverage for cooperation on tax evasion?  In a powerful recent oped, Dani Rodrik suggests that we probably don't need much more global economic governance, our economic policy challenges (especially those of the large powers like the US and the EU) need to be solved by better domestic governance. I'm not 100% persuaded by Dani's argument (more on that next post); but if the notion that we don't need more trade agreements is the unspoken premise of Clinton's exclusive emphasis on stopping bad ones, at least she has one of the world's leading international economists on her side.            

Attribution of the measures of an international organization to a member in the Russia - Tariff Treatment panel report

I was curious to know why the panel report in Russia - Tariff Treatment found violations by Russia because of duties that it was 'required' to apply. It turns out that the reason for this terminology is that the duty rates at issue were adopted, as a Common Customs Tariff (CCT), by the Eurasian Economic Union (EAEU), an organization that (unlike the EC-Turkey customs union at issue in Turkey – Textiles) has legal personality. This raised the question whether Russia was responsible for the EAEU’s CCT.

The EU’s submission is not yet available, but it would appear that it made three separate arguments on this point. None was contested by Russia.

First, the EU argued that Russia was responsible for the EAEU’s CCT by virtue of para 2 of its accession protocol (incorporating by reference certain commitments made in its Working Party Report) (para 7.43). One such commitment is in para 275, which states as follows:

The representative of the Russian Federation confirmed that, from the date of accession, the application of all laws, regulations and other measures affecting importation or exportation of goods, whether by the Russian Federation or the competent bodies of the CU, would be in conformity with relevant provisions of the WTO Agreement ….

It is not clear how Russia could, in practice, make promises about the conduct of an organization of which it is a mere member. But that aside, the relevance of such a commitment would presumably be that Russia had violated paragraph 2 of its accession protocol. And yet the EU did not make such a claim. Wisely, the Panel ignored this argument. On the other hand, the notion of responsibility for obligations may explain the 'required by' language used in the Panel's findings.

Second, the EU argued that the EAEU’s CCT could be attributed to Russia because 'the CCT is Russia's customs tariff'. This might have meant no more than that, as was uncontested, under Russian constitutional law the CCT had the status of Russian law (a point noted in the Working Party Report). Surprisingly, the Panel treated this somewhat straightforward argument (as it would appear to be) rather differently. It stated that '[i]n our view, the relevant CCT requirements are attributable to Russia, insofar as, on the evidence before us, it can be presumed that the CCT requirements will lead to the relevant duty rates being applied by Russia' (para 7.46). But the EU had not challenged future duty rates; it had challenged the CCT. So this argument linking the CCT with future duties imposed by Russia was irrelevant to the EU's claim. It also nothing to do with the question at issue, namely whether the CCT is attributable to Russia. Technically, then, it would appear that the Panel did not find that the CCT was Russian because it formed part of Russian law.

Third, the EU argued attribution on the basis that ‘Russia has treated the challenged measures as if they were its own measures, and has not denied that it actually applies duty rates enacted by the EAEU or that this happens pursuant to legal instruments enacted by bodies of the EAEU.’ (para 7.43). In a somewhat roundabout way, the Panel accepted this argument (para 7.46).

In sum, this means that Russia was responsible for the EAEU CCT not because this was also Russian law (which would have been a straightforward argument) but because it adopted the CCT as its own. This is in accordance with Article 11 of the Articles on State Responsibility (not cited by the Panel), which states:

Conduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own.

But it is a rather slender basis for the all-important finding of attribution of the CCT to Russia.

Some further observations.

First, the EU challenged the CCT ‘as such’ rather than duties actually ‘applied’ to any given imported products. That this can be done is well established in WTO law. Often, this is explained in policy terms: the point is to prevent systemic duty violations (eg in US – Corrosion-Resistant Steel Sunset Review, para 82). But there must also be a concrete legal basis for such a claim. In cases where the obligation itself refers to the future, such as competitive conditions of competition, this is straightforward. For formal obligations it can be a little trickier. But it can be done, and in particular it can be done for Article II:1(b), at issue here. This provision states that imported products ‘shall, on their importation into the territory to which the Schedule relates … be exempt from ordinary customs duties in excess of those set forth and provided therein’ (Art II:1(b) GATT). One can read ‘shall’ as meaning that both past and future ‘applied’ duties must not be in excess of the scheduled duty levels, in particular given the prospective damages regime in the WTO. The question then turns into one of evidence: is it likely that such duties (in excess) will be applied in future? If there is a rule requiring a customs authority to do this, then the answer will, presumably, be yes (as the Panel recognized, albeit at the wrong place).

Second, a slight twist to the facts would make for a more complex problem. Imagine a customs union with international legal personality that adopts a CCT, but the WTO member (a member of that customs union) does not have a monist system, and does not otherwise adopt a CCT either in practice or formally (in Art 11 ARS terms). All it does is apply customs tariffs. One could presumably treat that practice as the relevant ‘measure’, a la Argentina – Import Measures. But would it also be possible for the WTO Member to be responsible for the customs union’s measure in some other way? This has long been a tricky question of state responsibility.

Third, this panel report shows yet again that international law finds its way into WTO law, whether one likes it or not, even if only by analogy. But it also shows that this is unproblematic provided that WTO rights and obligations are not ‘added to or diminished’ as per Articles 3.2 and 19.2 of the DSU. That, it seems, will be the case when a rule of international law has the direct effect of rendering a WTO norm inapplicable to the relevant facts of the dispute (which could be facts relevant to jurisdiction). In this case, that did not happen because there is no WTO rule on attribution. And rightly so.

Trump on Trade: The one comparative advantage he may know is his own

 

The usual suspects will doubtless be outraged by Trump’s economic policy speech today in Detroit, where he declared in almost no uncertain terms autarchy (a purely national self-sufficient economy) as the goal of his economic plan:  “American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring….and it will be American energy-mined from American sources-that powers this country. It will be American workers who are hired to do the job. Americanism not globalism will be our new credo.” Yet in this very same speech, Trump claimed:  “Trade has big benefits, and I am in favor of trade. Isolation is not an option, …”

Are these contradictions merely another sign of Trump’s erratic and illogical behavior? Without careful study, it’s dangerous to jump to that conclusion. As the famed strategist Sun Tzu suggested, “If you know neither the enemy nor yourself you will succumb in every battle.”  Far too much effort has been put into denouncing Donald Trump’s posture on trade,  and the rage and supposed disinformation it feeds on; far too little has been invested in studying the strategy and tactics behind his stance.

Donald Trump knows himself, or at least the self-image that attracts his followers.  Each of the elements of Trump’s trade policy has been crafted (consciously or unconsciously) to project one of the elements of this self-image. 

First, Trump the deal-maker. Contrary to alarmist reactions to some of his off-the-cuff remarks, Trump’s plan with NAFTA and the WTO is not to tear them up but to drive a better bargain for the United States.  If you believe (of course I don’t) Trump’s claim to be the consummate deal-maker, then why wouldn’t you give some credence to the idea that he could come away with better terms for American businesses and workers?  And given America’s economic power, it seems implausible that other countries would refuse to come (back) to the negotiating table.   

Then there is Trump the litigator.  Trump has been notoriously aggressive in pursuing his interests through filing lawsuits, or threatening them.  He claims that the US needs to enforce WTO rules more, especially against China, and find ways not only of filing and winning more cases but imposing larger penalties for non-compliance.   Of course, as others have pointed out, that’s certainly at odds with pulling out of the WTO, and some of the penalties that Trump has in mind may not be consistent with America’s international trade obligations; but when Trump’s listeners hear him talk about trade enforcement, it isn’t surprising that they are hearing the authentic voice of Trump the litigator.

Third, there is Trump the dream salesman.  This is where the bit about American cars on the roads and so on comes in.  As with the Leave campaign in the Brexit referendum, Trump has mobilized a constituency whose most powerful longing is to have back a different country they remember, or think they remember or that their parents remember: in Trump’s case, an America where working class life had dignity and stability, and where participating in the great American industrial machine brought not only a decent paycheck and a chance for a better life for one’s kids, but also a sense of honor or even patriotism.  You only need glance at the website of the Trump Organization to see Trump’s credentials as a dream salesman.  According to Trump, his hotel collection “offers a lifestyle where you can do more, experience more and live life without boundaries, limits or compromise.”  Yes, without boundaries, limits or compromise”!  Trump promises to fulfill dreams and not to allow what others call reality to get in the way-if we want something enough, at least if we are Americans, we can get it. 

Finally, there is Trump the avenger.  Trump is an angry man, who won’t put up with others getting away with harming his interests.  There are many who probably, at least on their more clairvoyant or sober days, don’t buy the fantasy of bringing back some older greater America, but who sure want to hold to account those whom they think took that America away from them.  So, for example, in the speech today, “Detroit is still waiting for Hillary Clinton’s apology [for supporting NAFTA and China’s entry into the WTO]”.  Trump's slogan "I am your voice" is in no small part a promise to channel the anger of others, and in some way or other, to bring to book those who are the objects of their rage. 

 Thus, when Trump shifts on trade, he is shifting between different authentic voices-at least they are authentic in relation to the Trump image or brand (which is probably the only relevant meaning of authentic in this case). Though fully justified, challenging Trump with statistics, economic arguments and legal realities may not make enough of a difference, unless Hillary Clinton can find her own voice on trade, and make it resonate in these times.  Trump understands this and so in his speech today he made the case that Clinton in inauthentic in her opposition to TPP, given her advocacy for it at various times while she was in the Obama Administration.  

I was a strong supporter of Bernie Sanders though always uneasy with the balance (or imbalance) between protectionism and progressivism in his trade stance.  I’m impressed with Hillary Clinton, and most of the general ideas of Bernie Sanders have found their way into her platform, in a modified way to be sure; overall, I think that reflects her different voice rather than any lack of seriousness about re-discovering a progressive side that had gotten, at times, very submerged by the demands and attitudes of machine politics.   But, on trade, the Clinton campaign has not, since the primary, elaborated a developed position: Trump has managed to seize the advance, with so much attention focused on the question of Clinton’s sincerity or lack thereof in opposing TPP.  This should, and can, be reversed by a full strategy that counters Trump-addressing all four of the voices in which he talks about trade.  In another post, coming soon, I’ll offer some thoughts about what such a strategy might look like.   

Gary Born Defending Investment Arbitration

Global Arbitration Review published a summary of an interview with Gary Born about international arbitration. Here's an excerpt, focusing on the investment arbitration part:

Interviewed as part of a New York International Arbitration Centre event in memory of its late founding chair, Judith Kaye, Born addressed a range of topics from the continuing importance of the seat of arbitration to the Lord Chief Justice of England and Wales's recent comments proposing more judicial review of cases and the criticisms that face investor-state dispute settlement.

Born was adamant that the arbitral system works and works well. He said that in the past 30 years it has "flourished" with caseloads soaring at every institution, including regional ones, and been used to resolve sports, tax, IP and financial disputes when historically it wouldn't have been.

... 

What also works is investor-state arbitration, Born argued after his interviewers raised the litany of criticisms the process has received in recent times.

"It's not perfect" – no process can be that involves disputing parties whose primary objective is "to make life as horrible as possible for the other party" –but the portrayal of it by critics is "wildly distorted", Born said. We should embrace not slander a system that ensures the rule of international law prevails in contemporary affairs.

Born said he finds it "odd" even to have to respond to some of the criticisms of investment arbitration. For example, he said you "really have to scratch your head" over claims it isn't transparent, in light of amendments to NAFTA and ICSID, the Mauritius Convention, the UNCITRAL Transparency Rules, the availability of awards on the web and the practice of cases being broadcasted live online.

If one wants cases to be more transparent, one should make them so not attack the system as fundamentally flawed, he said.

In answer to the criticism that investment arbitration is tilted against host states, Born noted empirical research on outcomes by Washington & Lee Law School professor Susan Franck which shows that "about a third" of all disputes result in the investor's claim being rejected entirely.

Some claims are upheld – but often only in small part – and some are resolved consensually. There's no "stacked deck", he argued.

States furthermore have found "a very able set of arbitrators" who they are comfortable appointing, including experienced practitioners and academics such as Brigitte Stern, J Christopher Thomas and Toby Landau QC.

As to the alleged inconsistency of awards, Born acknowledged there are divergences of opinion on whether, say, cooling-off periods affect jurisdiction and the meaning of fair and equitable treatment. But he said "parties don't cite investment arbitration awards for no purpose or to no end. It's because investment tribunals pay a lot of attention to what prior awards have decided."

Where states want clarity rather than organic development of precedent, they amend their investment treaties – "that's exactly how the law ought to resolve".

The criticisms of investment arbitration are not just wrong but "wildly wrong" and those who attack the system "would do well to take a step back and think about what a world would look like without neutral and independent application of legal rules because that is the direction that their criticisms take us," Born said.

He acknowleged that work is needed to reduce the cost of the process. But he noted that, despite the general criticism of the expense of arbitrating, "when you get to an individual investment arbitration, or, frankly, other arbitrations, the individual parties [...] never seem particularly concerned".

"States never fail to take every jurisdictional objection, no matter how unlikely it is that it will prevail; claimants never don't seek to go after every possible request for document disclosure, no matter how unlikely it is it will be granted".

He added that he regards ethical rules or guidance to govern the conduct of arbitration counsel as unnecessary. "Questions of ethics are complicated. I think our current system of regulation basically by the counsel's home jurisdiction, though certainly one can find cases where things go awry, largely works."

I have a couple reactions to this.

First, I think it's true that some of the transparency complaints about investment arbitration are a bit dated. Most recent agreements have some pretty good provisions ensuring transparency in the litigation process. On the other hand, older agreements without such provisions still exist, and when complaints arise under those agreements, transparency is still lacking.  In addition, with regard to cases being broadcast "live online," sometimes that means you have to travel to the city where the arbitration is being held, and watch "live online" in a designated room. So, there is still room for improvement here.

As to the data on outcomes of investment disputes, e.g., a third of cases rejected entirely, I've never understood how this is a rebuttal to a criticism that investment arbitration is biased against host states. Investors can sue states; states can't sue investors. That's the structural bias in the system. Is there additional bias due to outcomes favoring investors or governments? That's harder to measure. But regardless, the structural bias is there. Investment arbitration is sometimes presented as a neutral way for foreign investors and states to resolve disputes. But that's not really what it is under investment treaties/FTA investment chapters, is it?  The ability to invoke arbitration does not go both ways.  Rather, investment arbitration is a way for investors to sue states when the investors object to the states' behavior and actions.

(Actually, this is only part of the bias. The other part is that, with a couple exceptions, only foreign investors, as opposed to ordinary citizens, have an effective means to sue states under international law.)

He also makes reference to "the meaning of fair and equitable treatment," and notes that where states want clarity, they amend their investment treaties.  I agree that there is an issue of clarity with regard to FET, but I think a larger issue than clarity is the inherent scope of this obligation. Some governments have tried to clarify it, and perhaps narrow it, but it remains extremely broad. As long as you have words such as "fair" and "equitable" and "arbitrary" -- even with manifestly in front of it -- in there, this obligation is broad enough to support credible claims against a very wide range of government actions (including tobacco regulation). Thus, as long as FET is in there in some form, controversial cases will come along, and the system will face the same criticism it does now. No clarifying of the obligation will help with this.

Finally, the possibility of abandoning the system makes him worry about "what a world would look like without neutral and independent application of legal rules." It seems to me that a basic assumption of many investment arbitration supporters is that domestic political and legal systems cannot offer a neutral and independent application of legal rules (maybe to foreign investors, maybe in general, I'm not sure what they have in mind exactly). On this point, I'd want to see some empirical data on domestic systems, to see which of them do and which of them do not offer this already. I suspect the problem is not nearly as widespread as investment arbitration supporters would have us believe, and that more narrow and targeted solutions are probably available in those circumstances where a problem does exist.  But I think the domestic problem needs to be defined first, and with regard to investment obligations such as FET, it never has been.

President Obama on the TPP

From a press conference today:

Q    Thank you, Mr. President.  You're here today touting the Trans-Pacific Partnership, but Hillary Clinton is against it.  Her vice presidential nominee, Tim Kaine, has now reversed himself and is now against it.  Donald Trump is, too, meaning that the next President is opposed to this deal.  So my question is, if you take both candidates at their word, how do you plan to get Congress to pass this deal during the lame duck, and what’s your plan to convince members to do so given the opposition I just described?  

...

PRESIDENT OBAMA:  Well, right now, I'm President, and I'm for it.  And I think I've got the better argument.  And I've made this argument before; I'll make it again.  We are part of a global economy.  We're not reversing that.  It can't be reversed, because it is driven by technology, and it is driven by travel and cargo containers, and the fact that the demand for products inside of our country means we've got to get some things from other places, and our export sector is a huge contributor to jobs and our economic wellbeing.  Most manufactured products now involve a global supply chain where parts are made in all corners of the globe, and converge and then get assembled and packaged and sold.  And so the notion that we're going to pull that up root and branch is unrealistic.  Point number one.

Point number two.  It is absolutely true, the evidence shows that some past trade deals have not delivered on all the benefits that were promised and had very localized costs.  There were communities that were hurt because plants moved out.  People lost jobs.  Jobs were created because of those trade deals, but jobs were also lost.  And people who experienced those losses, those communities didn't get as much help as they needed to.

And what is also true as a consequence of globalization and automation, what you've seen is labor, workers losing leverage and capital being mobile, being able to locate around the world.  That has all contributed to growing inequality both here in the United States, but in many advanced economies.  So there’s a real problem, but the answer is not cutting off globalization. The answer is, how do we make sure that globalization, technology, automation -- those things work for us, not against us.  And TPP is designed to do precisely that.

Number one, it knocks out 18,000 tariffs that other countries place on American products and goods.  Our economy currently has fewer tariffs, is more open than many of our trading partners.  So if everybody agrees that we're going to have lower tariffs, that's good for American businesses and American workers.  And we should want that, we should pursue it.

Number two, the complaint about previous trade deals was that labor agreements and environmental agreements sounded good, but they weren’t enforceable the same way you could complain about tariffs and actually get action to ensure that tariffs were not enforced.   Well, TPP actually strengthens labor agreements and environmental agreements.  And they are just as enforceable as any other part of the agreement.  In fact, people take them so seriously that right now, for example, Vietnam is drafting and presenting unprecedented labor reforms in Vietnam, changing their constitution to recognize worker organizations in Vietnam for the first time.  

So what we're doing is we're raising standards for workers in those countries, which means it’s harder for them to undercut labor standards here in the United States.  The same is true for environmental standards.  The same is true for things like human trafficking, where we’ve got a country like Malaysia taking really serious efforts to crack down on human trafficking.  Why?  Because TPP says you need to.  It gives us leverage to promote things that progressives and people here in this country, including labor unions, say they care about. 

So if you care about preventing abuse of workers, child labor, wildlife trafficking, overfishing, the decimation of forests, all those things are addressed in this agreement.  I have not yet heard anybody make an argument that the existing trading rules are better for issues like labor rights and environmental rights than they would be if we got TPP passed.  

And so I’m going to continue to make this case.  And I’ve got some very close friends, people I admire a lot, but who I just disagree with them.  And that’s okay.  I respect the arguments that they’re making.  They’re coming from a sincere concern about the position or workers and wages in this country.   But I think I’ve got the better argument, and I’ve got the evidence to support it.

And hopefully, after the election is over and the dust settles, there will be more attention to the actual facts behind the deal and it won’t just be a political symbol or a political football.  And I will actually sit down with people on both sides, on the right and on the left.  I’ll sit down publicly with them and we’ll go through the whole provisions.  I would enjoy that, because there’s a lot of misinformation.

I’m really confident I can make the case this is good for American workers and the American people.  And people said we weren’t going to be able to get the trade authority to even present this before Congress, and somehow we muddled through and got it done.  And I intend to do the same with respect to the actual agreement.

I don't agree with everything President Obama said here, but I'm struck by the contrast between his remarks on the TPP and the discussion that is taking place as part of the Presidential campaign. It would be nice if there were other politicians -- both for and against the TPP -- who could talk about the issues with as much depth and nuance.

Who Wrote the TPP?

Political scientists Todd Allee and Andrew Lugg have a new article showing that the TPP is textually more like U.S. FTAs than it is like the FTAs of other TPP parties:

We evaluate the TPP in a new way by systematically comparing the recently-released text of the TPP to the language in previous trade agreements that its members have signed. Our text-as-data analyses reveal that the language in the TPP comes disproportionately from US trade agreements. The ten PTAs that most closely resemble the TPP are all US agreements, and the contents of the most controversial chapters in the TPP draw heavily from US PTAs....

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... we adopt a methodology that computes textual similarity for any two documents – in our case the TPP and each of the 74 existing PTAs – by identifying perfectly-matching text in common word sequences greater than six words. Relying on common 6-grams or greater allows us to preserve important information contained in word order and ensures that simple, everyday phrases do not constitute a match. This approach, and these same metrics, have been used in other social-science applications (e.g. Corley et al., 2011; Ehsbaugh-Soha, 2013). For each PTA–TPP pairing we generate the number of perfectly matching words, which we then divide by the total words in the PTA to produce a “percentage copied” number that is comparable across agreements. We also aggregate these agreement percentages at the country level, to see which of the 12 members was most successful in getting its preferred contents in the TPP.

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The six most-copied chapters in the TPP (investment, financial services, general services, telecommunications, and safeguards) draw particularly heavily upon past US agreement language. This includes some TPP chapters in which two-thirds or more of an earlier US PTA chapter is copied verbatim. ...

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The most striking result in Table 2, however, concerns the agreement language on investment. As noted earlier, selected parts of the TPP’s investment chapter have attracted substantial attention and controversy. Investment is widely considered among the most important chapters of the TPP and long has been “a high priority for the USA in its FTA negotiations” (Fergusson et al., 2015: 36). We consider the contents of the entire chapter, not just the subset on ISDS, and find that a staggering 80% of the language from past US PTA chapters on investment is included in the TPP’s investment chapter, as depicted in the left side of Figure 4 (and also Table 2). This is by far the highest percentage for the USA or any other TPP member across any chapter. Indeed, more than 80% of seven US investment chapters are copied verbatim into the TPP’s investment chapter, as shown in the right side of Figure 4. One of the text illustrations in the Appendix, on minimum standards of treatment for investment, also shows this dominance. Furthermore, the amount of text being copied is significant: more than 7500 words from past US investment chapters are written directly into the TPP’s investment chapter – a final piece of evidence that the US “got what it wanted” in this controversial area to an extent even greater than is realized.

Of course, the substantial similarity with U.S. FTAs doesn't preclude there being some TPP text that is adverse to U.S. interests; a trade agreement can say a lot in a very small space. But nevertheless, the U.S. was clearly very influential in writing the TPP.  

And yet despite all that influence, the TPP is at least as controversial in the U.S. as it is in other TPP countries.  The investment chapter, which the authors note was substantially drawn from U.S. FTAs, is particularly controversial here.

If the U.S. wrote the TPP, why is it so contentious in the U.S.?  Because the U.S. is not a single entity, and there is much internal disagreement as to what should be in the text of a trade agreement.  Perhaps what we need is a way to compare the actual TPP text with the text of proposals submitted by various interest groups, to help explain who in the U.S. was most influential in writing the TPP and why some groups in the U.S. now object to it.