International Economic Law and Policy Blog

The Trump Administration and WTO Disputes

This is from the FT:

The Trump administration is exploring alternatives to taking trade disputes to the World Trade Organisation in what would amount to the first step away from a system that Washington helped to establish more than two decades ago.

Incoming officials have asked the US Trade Representative’s office to draft a list of the legal mechanisms that Washington could use to level trade sanctions unilaterally against China and other countries.

Their goal, people briefed on the request told the Financial Times, is to find ways that the new administration could circumvent the WTO’s dispute system. 

Is this as simple as going to back to unilateral sanctions imposed through Section 301, or some modified version of that approach?  I'm not sure how well it worked back then.  Would it work at all today?  It's hard to imagine it being a productive way to open foreign markets.  More likely it would just lead to a series of trade wars.

But putting that aside, I wonder if the real objective here is to gain leverage for the proposed changes to WTO dispute settlement that are likely to be coming from the Trump administration.  The idea might be that the U.S. could threaten to leave the system and use an alternative approach if it did not get the changes it wanted.

Exceptions from the Fair and Equitable Treatment Obligation

Over on twitter, my friend Colin Brown and I were discussing exceptions clauses in international investment agreements.  When I suggested that it was important to have such exceptions apply to the fair and equitable treatment obligation, he asked, "but why would one need an exception from failure to provide due process or protection from manifest arbitrariness?"  140 character tweets are insufficient for this topic, so I'm taking the discussion over here.  (I've said all this before at greater length in various other places.)

I'll begin my answer by saying that, in my view, it is extremely problematic to have fair and equitable treatment provisions (or other broadly worded provisions of this kind) in international investment agreements.  When such provisions are included, there is a conceivable, non-frivolous claim against a wide range of non-discriminatory government actions.  By including such provisions, governments open themselves up to challenges by foreign investors against many of their policies.  Of course, that doesn't mean all of these claims will be successful.  But there will be a fair number of claims, and some of them will be successful.  For the EU, I would think one of the big concerns here would be the various food regulations that are not based on science, but that's just one small aspect of the vast number of government polices that might have a hard time meeting this standard.  (The main constraint on complaints against EU measures will probably not be the substance of these standards, but rather locating foreign investors who are affected and willing to bring cases. But I'm sure there are law firms who are willing to spend time looking.)

Now, as many of you are aware, I'm skeptical of a lot government actions, so I'm not here to defend government regulation.  I'm just pointing out that by taking on these obligations, governments are giving foreign investors an additional way to challenge regulations.  Foreign investors and others can already take advantage of similar domestic procedures.  When international investment agreements are available, foreign investors get an extra legal option as well.  For those of you in government who want to be able to govern, this seems like it should be an important consideration.  

As to the corresponding domestic procedures, governments probably get annoyed with domestic courts striking down their actions, but at least there you have a system of checks and balances between the different branches of government.  With investment courts, by contrast, the judicial side is not very well checked.  As a result, it is more of a problem to have investment courts applying these broad legal obligations than to have domestic courts do the same thing.  (The NT and MFN obligations in investment agreements, by contrast, are pretty narrow, and don't interfere with many government policies. Thus, there is far less impact on domestic governing when international courts apply non-discrimination requirements.  And if interpreted in a way that takes into account the purpose of the measures, I'm not sure you really need exceptions for these obligations.)

Nevertheless, for now, governments keep including FET-type provisions in international investment agreements, which takes us to Colin's point.  Why should there be an exception to an obligation that governments not act in a "manifestly arbitrary" manner?  Why not make governments provide compensation to foreign investors in every case where they act this way?

Basically, I'm just trying to limit the damage here.  By including these obligations, governments have opened the floodgates for claims. If I can't convince them not to include the obligations in the first place, maybe I can give them a better chance of defending themselves against the many claims coming their way.  In theory, tribunals could take into account public policies as part of the consideration of manifest arbitrariness. But I'm not sure this is always being done, and perhaps making it explicit that such purposes should be considered, through a well-designed, flexible exception, would help the situation.  (Here's an example of some wording that I think would work in this regard: "Nothing in this Agreement shall prevent the adoption or enforcement of measures related to public health, provided the measures do not discriminate based on nationality.")

Of course, just to make sure this discussion does not distract us from the larger point, let me just add that nobody has provided convincing evidence that there is a general problem with bad treatment of foreign investors/investments that needs be addressed with international agreements.  If anything, the big problem with foreign investment is all the subsidies governments throw at it.  An international agreement to stop giving subsidies to investors seems like a good idea.

Annual Conference on WTO Law-- Call for Papers (Deadline Mar. 1)

The deadline for submissions is fast approaching. Please submit your paper or abstract proposal by next Wednesday, March 1st. 

For details please see the call for papers here.

 

About the conference:

The Graduate Institute’s Centre for Trade and Economic Integration and Georgetown University’s Institute of International Economic Law are proud to present a call for papers for our 2017 Conference on WTO Law.

The Annual Conference on WTO Law, which has its origins in the partnership created in the year 2000 between University Professor John H. Jackson of Georgetown, and Professor Sir Francis Jacobs, KCMG, QC, a Trustee of BIICL, has a longstanding affiliation with the Journal of International Economic Law (JIEL), published by the Oxford University Press.

Widely considered one of the most important and prestigious conferences addressing developments in international trade law, the Annual Conference on WTO Law pursues cutting-edge issues of interest to academics and practitioners alike.

The 2017 Conference will be held in Geneva. Sessions will take place at the Graduate Institute on Friday, 9 June; the venue for Saturday, 10 June will be announced.

The UK Is Hiring Trade Lawyers

Details are here. Some highlights:

• The deadline to apply is Wednesday 8 March.
• You will not be alone. It says, "NUMBER OF POSTS: Up to 17"
• Not that I am buying this, but it says, "For those working full-time, you will be expected to work a five-day week of 37 hours (excluding lunch breaks)." So, about half of what the average USTR person works.
• In terms of pay, it says, "The minimum salary for this grade is £48,400 (London); there may be scope for some flexibility on starting salaries depending on relevant experience." As Lorand Bartels suggested on twitter, perhaps this is intended to be a test of the applicant's negotiating skills.

How Canada Can Help Get CETA Ratified

This is from the CBC:

The first Canadian troops will arrive in Latvia in June, kicking off a much-anticipated NATO deployment to restrain potential Russian ambitions in eastern Europe, Gen. Jonathan Vance said Friday.

Roughly 450 Canadians will form the backbone and leadership of a multinational battle group that will eventually number between 1,200 and 1,500 troops.

And this is also from the CBC:

The journey toward full ratification of Canada's trade deal with the European Union will be long and complicated, but an early step was taken Thursday as Latvia's parliament voted in favour. 

...

Of the 28 member countries currently in the European Union, 27 are required to hold ratification votes in one or more national legislatures.

Latvia is the first, with legislators voting by a margin of 71-5 in favour, with one abstention.

I'm not saying there is a connection here, but Canada may want to look into whether there is something it can do for Wallonia.

(The idea for this post came from someone in a trade discussion forum. She is welcome to show up in the comments here and take credit publicly, but I don't think she wants it.)

Update on the Trade Deficit Recalculation

This is from Inside US Trade:

Trump administration officials this week defended the current methodologies applied to collect and present U.S. trade data and statistics, and dismissed as “completely inaccurate” a report by the Wall Street Journal that claimed U.S. agencies are considering changing those methodologies.

Last week's Wall Street Journal article stated that administration officials have asked the Commerce Department and the Office of the U.S. Trade Representative to change the way they calculate trade flows in a manner that would increase the trade deficit. That calculation would exclude re-exports -- goods that pass through the U.S. without “substantial transformation” -- from the total exports but those goods would be included in the U.S. imports data.

A senior Commerce department official on Feb. 21 clarified to Inside U.S. Trade that the discussion referred to in the news report was a “general” one that suggested additional data could be collected but that was not aimed at changing the methodologies the Bureau of Economic Analysis applies to date. 

I also see that Lori Wallach of Global Trade Watch has been writing about the same issue, but suggesting a different approach than what was discussed in the WSJ article in question: 

Currently, each month, the U.S. Census Bureau releases raw data on the “total exports” from the United States and total imports coming in (called “general imports”). This data, as demonstrated by the NAFTA example, distorts bilateral trade balances. For example, this data counts as U.S. exports goods produced in China, stored in a warehouse after being taken off a ship from China in California’s Long Beach port and then later, without alteration, trucked to a destination in northern Mexico. This data also counts the Chinese imports into the United States as part of the U.S.-China trade balance. The result: The U.S. deficit with Mexico would be artificially reduced, and the U.S. deficit with China would be artificially increased. (The Census measure does provide accurate accounting of our trade balance with the world because the re-exports and those imports that get re-exported balance out.)

A more accurate measure for bilateral trade balances come from the U.S. International Trade Commission (ITC). Each month, a few days after the Census data is released, the ITC posts refined data for “domestic exports” that includes only U.S.-produced exports and data for “imports for consumption” that removes imports destined for export processing zones. This ITC data is used in the congressionally mandated trade agreement studies required under Fast Track that are the basis for projections on trade pacts’ effects on economic growth and jobs. This data accurately captures American-made exports. But the import data still can be skewed because some of the imports counted in “imports for consumption” may be re-exported. That is to say that the U.S. International Trade Commission’s current import data is not detailed enough to avoid distorting the U.S. bilateral trade balances with numerous nations on the import side even as it corrects for the false inflation of exports.

If the U.S. government provided data on where all goods exported from the United States were actually produced, then it would be possible to extract from the import data those goods that end up being re-exported. Canada requires that all imports indicate a country of production. So, for instance, if a Korean firm producing televisions in Mexico so as to obtain duty-free access into the U.S. consumer market under NAFTA were to import $2 billion in televisions into the United States, but then $500 million of those goods were re-exported to Canada, the Canadian data would let us know to count only $1.5 billion as U.S. imports for consumption. Expanding on this notion, if the Trump administration were to require that all U.S. exports indicate their country of production, then the import side of the ITC data could be perfected across the board.

In terms of how it compares to the existing approach, this methodology would not appear to change the overall trade balance.  However, it could shift the numbers around a bit between countries. For example, it could make the trade deficit with China lower and the trade deficit with Mexico higher.  Of course, most people would say that bilateral trade deficits don't matter (and the 40+ year overall trade deficit hasn't hurt the U.S. economy either), but the goal here may be to get some new numbers and use them for political purposes, perhaps to help push for a "tougher" trade deal with Mexico.  Will this strategy work? The more interesting question for me is what exactly these proposed NAFTA changes will be, as they are probably coming regardless of the trade deficit figure.

International Law Weekend—South Conference (March 2-3, 2017)

Texas A&M University School of Law, in cooperation with the American Branch of the International Law Association (ABILA) and co-sponsored by the American Society of International Law (ASIL), present International Law Weekend—South: "The Global Future of International Trade, Human Rights, and Development," March 2-3, 2017, in Fort Worth, Texas.

For details please visit the conference website here.

What Will Happen to WTO Dispute Settlement in the Trump Administration?

From Politico:

America’s relationship with the World Trade Organization is about to get a lot more complicated.

President-elect Donald Trump already has threatened to withdraw from the Geneva-based organization, but his selection of Robert Lighthizer to be the next U.S. Trade Representative last week increases the odds that the U.S. will turn the WTO into a major battlefield.

Lighthizer, a longtime trade attorney who spent his career defending U.S. steel companies and other domestic industries from allegedly unfair foreign competition, can be expected to make a push for a major reform of the WTO’s dispute settlement process, or at least carry out such an aggressive litigation strategy that he could shake the group's well-insulated legal system to its core, experts say.

“That’s an area Bob knows well,” said a trade lawyer who has worked closely with Lighthizer defending domestic companies. “He will try to put pressure on the WTO to rein in some of these outlier decisions.”

I'm preparing myself for the worst here, but I really don't know where the Trump administration trade folks will try to take WTO dispute settlement. I can imagine something that completely undermines the system, but I can also imagine a few tweaks that improve it.  Some of the key areas they are likely to want to address are particular substantive issues related to safeguards, anti-dumping and countervailing duties, as well as the standard of review for these kinds of cases. 

I hope they do some stakeholder consultations when coming up with their objectives and developing their strategy. A lot of different groups will be affected by whatever they try to do, and it's worth getting a range of views about the best approach.

Seven Ongoing Appeals

As of Monday, when Russia filed an appeal in the DS479 dispute, there were seven ongoing WTO appeals. That will end soon, as the Appellate Body is scheduled to circulate its report in the Russia - Pigs case by February 23, but I'm going to declare here on this blog that seven is the most ongoing appeals the Appellate Body has ever had to deal with.  (I should probably look it up before making this declaration, but seven is so many that I am reasonably confident this is the record.)

India should hold firm against the European efforts to undermine its new model Bilateral Investment Treaty

In the process of moving to a new approach to international investment law and dispute settlement, India has elaborated a model BIT that differs significantly from older agreements.  It is much more balanced between investor interests and those of legitimate public policy.  The model BIT, for instance, contains a tightly-drafted general exceptions clause like that of GATT Article XX, safeguarding key policy objectives like health and the environment.  Compensation for expropriation may be less than full market value, to take into account policy considerations like environmental impacts. And anti-corruption and corporate responsibility obligations are imposed on investors, making this one of the first models for an investment agreement to be genuinely not one-sided; typically investment agreements impose burdens on states without any corresponding responsibilities on corporations, hardly an equitable state of affairs.There is also in India's model a robust exhaustion of local remedies provision:  while exhaustion seems like a step back to the anachronistic world of diplomatic espousal it is an arguably justified response to the way in which arbitrators have unpredictably expanded jurisdiction, allowing businesses to bring claims where they have reorganized on paper their corporate structure to fall within a particular treaty even without any real contact to that jurisdiction (the so-called "Dutch Sandwich"), allowing end-runs around contractually limited investor protection by elevating contractual claims into treaty violations (sometimes through expansive readings of "umbrella clauses" with vague aspirational language suggesting a host state must honor all commitments to investors), and defining investors to include secondary market purchasers of sovereign bonds from holdouts in sovereign debt restructurings, who have nothing to do with the host country.  It is a challenge to reign in such expansion of jurisdiction by arbitrator creativity, since arbitrators are judges for hire, and when they grant jurisdiction they get paid handsomely to hear the case. Exhaustion of local remedies seems an old-fashioned and blunt instrument, but it has the advantage of not being easy for arbitrators to interpret away.

In the transition to its new approach to investor protection, India has sought to terminate its existing BITs with individual EU Members.  Now the European Commission is pressuring India to extend those existing treaties, which don't have the safeguards of the new approach outlined above, for six months. India should not fall for this move, which would undermine significantly its negotiating power to get its economic partners to agree to new treaties based on the 2016 model BIT.  The 6 month extension would give European companies an opportunity to get in under the old regime, giving them 10 years or more protection based on treaty norms that India has now determined are not in its national interests.  Any company organized so as to be considered a national of any EU state that had an old BIT with India (including those exploiting the "Dutch sandwich" assuming that the Netherlands treaty-already expired-is included in the request for extension) could use the 6 month window to engage in the de minimus level of economic activity to qualify as an investor or investment under the old agreements, and then depending on the treaty they would be guaranteed 10 to 15 years of protection.   Having allowed practically any company with the legal resources to figure out how to qualify as an investor or investment of some EU country under the old treaty to lock in 10 to 15 years protection under the old standard (if this is really what the Commission is proposing for the extension), India will have little leverage to bring the EU to agreement on its new approach. The EU can play hardball knowing its companies have used the 6 month window to protect themselves under the old treaties.  There is a certain irony in the Commission's request because post-Lisbon it has sought generally the termination of investment agreements between individual EU Member States and other states, in order to align Member State practice with the shift in competence over investment from the Member States to the EU level, as set out in the Lisbon Treaty.  Here the Commission proposal for extension is frustrating its own policy of a timely and efficient transition to the exercise of EU-level competence.    

While standing firm against a a six month come one-come all extension of the old treaties, it is arguable, along the lines of this recent oped, that India should be more open to considering the EU/Canada initiative of a multilateral investment court, not dismissing it out of hand.  Concerns about expansive jurisdiction can be handled through a judicial model, where instead arbitrators who profit from taking jurisdiction, one has salaried judges who are not in it for personal wealth acquisition.  

The Future of Trade Defence Instruments Conference, Mar. 30-31 (Brussels)

The Future of Trade Defence Instruments: Global Policy Trends and Legal Challenges conference will take place in Brussels from March 30-31, 2017. It is jointly organized by the University of Passau, the Europa-Institut Saarbrücken, the Institute of European and International Economic Law & the World Trade Institute - University of Berne, and Cleary Gottlieb Steen & Hamilton LLP.

This conference is being organized against the backdrop of envisaged important modifications to the European Union’s Trade Defence Instruments. The conference will (i) analyze Trade Defence Instruments in their socio-economic, political and legal contexts; (ii) describe the changing international environment, in particular as regards the WTO framework; (iii) look at the EU rules as they exist today, seven years after the entry into force of the Lisbon Treaty; and (iv) consider the envisaged changes to such rules. Finally, the conference will (v) contrast the EU’s Trade Defence Instruments with other related legal instruments, such as competition law or regional trade agreements. In this context the implications for the future relationship with the UK after Brexit will also be analyzed.

See the full program and details on how to register here. The official invite can be accessed here.

 

Trade Deficit Shenanigans

From the WSJ:

The Trump administration is considering changing the way it calculates U.S. trade deficits, a shift that would make the country’s trade gap appear larger than it had in past years, according to people involved in the discussions.

The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged, these people told The Wall Street Journal.

Economists say that approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.

...

Several economists interviewed by the Journal were uneasy with fully excluding re-exports from exports but not imports.

“As a statistician, you generally want symmetry,” said Steve Landefeld, former BEA director. “If you’re going to begin to exclude re-exports from the U.S. export figures, you probably for reasons of symmetry” would want to adjust import figures as well. 

If that's really what they have in mind, I'm not sure how this differs from, say, multiplying the deficit by 2, or inserting a minus sign in front of a bilateral trade surplus and calling it a deficit. But putting that aside, how is it possible that coming up with a higher trade deficit number could convince anyone to take a different approach to trade policy?  The article says this:

A larger trade deficit would give the Trump administration ammunition in arguing that trade deals need to be renegotiated, and might help boost political support for imposing tariffs.

OK, but the employment numbers won't change. The GDP growth numbers won't change. Why would pointing to a different trade deficit number cause any change in policy? Is there really anyone in Congress, or anywhere else, who would buy this as an argument for imposing tariffs?  As for the renegotiation, I thought that was coming regardless of any trade deficit numbers. The question there is simply what parts of trade deals the Trump administration wants renegotiated. So far we haven't heard much on that one.

UPDATE here: http://worldtradelaw.typepad.com/ielpblog/2017/02/what-exactly-is-the-trade-deficit-recalculation-being-considered.html

Banning Imports/Junk Food in Vanuatu

From the NY Times:

Cookies and sugary drinks served at government meetings are about to go away. So are imported noodles and canned fish served in tourist bungalows.

Taking their place? Local coconuts, lobsters and lime juice.

While many governments struggle to ban soda to curb obesity, the tiny Torba Tourism Council in the remote Pacific island nation of Vanuatu is planning to outlaw all imported food at government functions and tourist establishments across the province’s 13 inhabited islands.

Provincial leaders hope to turn them instead into havens of local organic food. The ban, scheduled to take effect in March, comes as many Pacific island nations struggle with an obesity crisis brought on in part by the overconsumption of imported junk food.

“We want to ban all other junk food from this province,” Luke Dini, the council’s chairman and a retired Anglican priest, said in a telephone interview from Torba. He said the province had about 9,000 residents and got fewer than 1,000 tourists a year, mostly Europeans.

Mr. Dini said the pending ban was an effort to promote local agriculture and a response to an increase in diabetes and other diseases that council members have observed in Vanuatu’s capital, Port-Vila. Passing a more comprehensive ban on junk food imports to Torba could take at least two years, he added, and a final decision on which products to ban would be made by the national government.

 

...

 

An open question for Vanuatu, a member of the World Trade Organization, is whether it would face regulatory blowback if Torba passed a comprehensive junk food ban, experts said. ...

Here are a couple thoughts:

• If the measures under consideration are a ban, or partial ban, on imported food -- either on sale/distribution or importation -- they would clearly violate WTO obligations. If, instead, the measures are a ban on particular foods for which there is evidence that they are unhealthy, regardless of their country of origin, the measures are unlikely to violate WTO obligations.
• I'm not sure why you need to impose a formal ban on imported food at government functions. The government agencies involved can just choose to serve lobsters and coconuts.
• The amount of trade here must be quite small. I'm not sure there would be enough incentive for anyone to bring a WTO complaint.
• If the Torba Tourism Council wants to fly me to Vanuatu to consult about all this, I will make time in my schedule. 

Is the U.S. Complaint on BC Wine Measures an Easy Win?

For anyone who has ever lived in, or traveled to, Canada, there is one indisputable fact—buying liquor is a challenge. Rules have slowly been relaxed, however, with wine sales in groceries stores leading the way.  I remember a trip to Toronto a few years back where a “store within a store” set-up at a grocery store allows you to pick up a bottle of wine (and just about anything else) on your way out. I thought that was pretty clever, and reduced the annoyance of having to make another stop. My home province of British Columbia has been a little late in following suit, but it was great to hear that wine would be sold in grocery stores by 2015. However, I was a little disappointed to find there were only a few stores within the metro-Vancouver area, and only 14 in all of BC, that are currently licensed to sell wine. Inefficient roll-out aside, the legislation, and its application has resulted in a request for consultations at the WTO by the United States. Why?

It’s really about how the licensing system works, and the choices available to grocery stores. There are two basic options: either have a store-within a store that can sell both hard liquor, and wine, imported and domestic; or, to place wine directly on grocery store shelves, but only selling BC wine. The latter option, as explained in the Wine Store Terms and Conditions handbook, is technically a BC VQA (Vintners Quality Alliance) wine store license that permits the sale of “wine that is made from 100% B.C. agricultural products (including cider, mead and sake) off grocery store shelves.” One reason this may be the option of choice is the fact that in BC, liquor stores have to be at least 1-kilometer apart, a rule that does not apply to stores just selling wine. This is potentially a problem because liquor stores tend to be closely situated to grocery stores anyways, and therefore a grocery store could not use this option. Currently, of all the grocery stores selling wine in BC, none have adopted the store within a store model.

Now Simon has already detailed some interesting ways this dispute may play out here, particularly with regard to sub-national measures, which will be fascinating to watch. I just want to focus attention, however, on a very basic point, that I think is sure to help the GATT III:4 claim. With the assistance of my brother who I sent out into the “field” to see what these stores look like, I present the following exhibits:

 

 

 

Now, I think BC wine is great, but an avid free-trader like myself sees red-flags go off (literally in this case).  Apparently, so did the U.S. government, which led to the WTO complaint.

So the question that remains is, does Canada have a defense here? Is it possible that we will see something similar to Korea-Beef, where it is argued that a dual-retail system was necessary to counteract fraudulent and deceptive practices? Or will Canada come up with another clever justification for what appears to be a very clear case of discrimination?

Clarifying the NAFTA Renegotiations

Canadian heartthrob and panda-lover (and Prime Minister) Justin Trudeau was in DC yesterday to meet with President Trump, and there were some brief discussions of trade:

PRESIDENT TRUMP:  ... We have a very outstanding trade relationship with Canada.  We’ll be tweaking it.  We’ll be doing certain things that are going to benefit both of our countries.  It’s a much less severe situation than what’s taking place on the southern border.  On the southern border, for many, many years, the transaction was not fair to the United States.  It was an extremely unfair transaction.  We’re going to work with Mexico, we’re going to make it a fair deal for both parties.  I think that we’re going to get along very well with Mexico; they understand and we understand.

So for Canada, NAFTA will involve just tweaks, ones that will benefit both countries. What kind of tweaks do they have in mind?  There was also this statement:

The United States and Canada also recognize the importance of cooperation to promote economic growth, provide benefits to our consumers and businesses, and advance free and fair trade.  We will continue our dialogue on regulatory issues and pursue shared regulatory outcomes that are business-friendly, reduce costs, and increase economic efficiency without compromising health, safety, and environmental standards.  We will work together regarding labor mobility in various economic sectors. 

I'm not sure what this means, but allowing TransCanada to build the Keystone pipeline and eliminating various U.S. regulations are likely to be seen as a positive in the Canadian business community.

How the Trump Administration Might Deal with "Currency Manipulation"

From the WSJ:

The White House is exploring a new tactic to discourage China from undervaluing its currency to boost exports, part of an evolving Trump administration strategy to challenge the practices of the U.S.’s largest trading partner while stepping back from direct confrontation.

Under the plan, the commerce secretary would designate the practice of currency manipulation as an unfair subsidy when employed by any country, instead of singling out China, said people briefed on or involved in formulating the policy. U.S. companies would then be in a position to bring antisubsidy actions themselves to the U.S. Commerce Department against China or other countries.

The currency plans are part of a China strategy being assembled by the White House’s new National Trade Council, which seeks to balance the goals of challenging China while still keeping relations with the country on an even keel. To do that, measures taken against China would also apply to other nations.

The administration would avoid, at least for now, making confrontational claims about whether China is manipulating its currency for trade benefit, the people said.

The move could be a sign the Trump administration is softening its stance on China. During his presidential campaign, Donald Trump threatened to label China a currency manipulator on the first day of his administration, which he didn’t do. He also threatened to slap 45% tariffs on Chinese goods, an idea he hasn’t raised recently.

During a phone call with Chinese President Xi Jinping last week, President Trump backtracked on a threat involving the “One China” policy, which recognizes Beijing sovereignty over Taiwan. Mr. Trump said the U.S. would honor the “One China” policy, according to the White House, after he earlier threatened he might not do so unless China made big concessions on trade.

But the currency move, if put into effect, is bound to be controversial because it may violate World Trade Organization rules. Other countries are also sure to take similar measures against U.S. exports and could argue that Federal Reserve policies that weaken the dollar qualify as subsidies. The Obama administration, concerned about such consequences, decided against naming currency practices as a subsidy.

Is this more evidence of the reality of Trump's trade policy not matching his rhetoric? This approach would certainly be a lot better than imposing a 45% tariff on all Chinese goods, and it may end up not being used, as currency manipulation seems to have diminished recently.

A new DOC policy of this kind will linger out there as a possible source of tariffs, though, and WTO litigation about its consistency with the SCM Agreement is likely if it is ever invoked (and there could also be an "as such" challenge before that).  The chances of any new rules in this area being found in violation depend on the details of the methodology, which may not be available for a while even if this is the approach they settle on.

When Are All the Bilateral Trade Agreements Coming?

We've heard many times now from Trump and his advisers that they will be pursuing bilateral trade agreements. For example, in withdrawing from the TPP, Trump said this:

it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals.  

The prospect of bilateral trade agreements is already keeping me occupied, as I've written about possible agreements with the UK (could take a while to start), Japan (could borrow heavily from the TPP), and the EU (don't get hung up on whether it is "bilateral," and don't give up on it).

But here's my question: When will we see these agreements?

There are two aspects to this question.  First, when will the U.S. start negotiating these bilateral trade agreements? In 3 months? 6 months? A year?

And second, how long will it take to complete the negotiations? 1 year? 2 years? 3+ years?

Will we only get answers to these questions after USTR and other trade agencies are close to fully staffed?

Does the Cash flow Tax with Border Adjustment “have sufficient characteristics in common" with TVA ? An important unnoticed precedent in WTO case law

Everyone familiar with the Kevin Brady/Paul Ryan "Blueprint" cash flow tax seems to agree that the first line of defense of the United States before a WTO Panel would be to argue that this tax is akin to VAT (Value Added Tax).  Let us recall that VAT is explicitly recognized by footnote 58 of the SCM as being an indirect tax. This kind of tax is eligible for border tax adjustment and does not constitute an export subsidy (footnote 1 of the SCM).

Many observers have noted however that this kind of non-formalistic legal argument is unlikely to be accepted by a WTO  Panel or the Appellate Body. The aim of this  post is to suggest that this conclusion is premature.

In Boeing, the Appellate Body had to determine whether NASA and USDOD payments to Boeing for undertaking research, constituted a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) of the SCM. Confronting an absence of definition of the expression “direct transfer of funds”, the Appellate Body resorted to a kind of reasoning that may be highly relevant for the cash flow tax:

We recall that, under subparagraph (i), there is a financial contribution where “a government practice involves a direct transfer of funds”. Several examples of direct transfers of funds are provided. These examples are not exhaustive. Where, as here, there are measures that have sufficient characteristics in common with one of the examples in subparagraph (i)  [namely,  debt-to-equity swaps] , this commonality indicates to us that the measures fall within the concept of ““direct transfers of funds” in Article 1.1(a)(1)(i). 

This situation is similar to what would happen in a cash flow tax case before a WTO panel. Footnote 58 of the SCM does not offer a substantive definition of an indirect tax.It offers only examples of indirect taxes and a tautological residual category based on being other than an direct tax which is itself poorly defined in the same footnote:

The term "indirect taxes" shall mean sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than direct taxes and import charges;

The Boeing precedent indicates that if the United States could present a prima facie case that the cash flow tax has "sufficient characteristics in common with” a TVA tax, it could prevail. In other words, when confronted with an absence (or poor) definition of a category, the Boeing precedent shows that the Appellate Body is not allergic to non-formalistic arguments based of commonality criteria with an example provided in a list. For the Appellate Body, this method has the great advantage of avoiding to give risky abstract definitions of poorly defined categories, while nonetheless  resolving the dispute at issue.

Trump's Tariff Tweet

Donald Trump tweeted the following on Friday:

Countries charge U.S. companies taxes or tariffs while the U.S. charges them nothing or little.We should charge them SAME as they charge us!

Under NAFTA, Canada, Mexico and the U.S. reduced all tariffs to zero (aside from trade remedies of course), and therefore all three countries charge the SAME tariffs to each other. I am taking his tweet as an endorsement of that, and a commitment not to raise any tariffs on Canada or Mexico.  Also, this is a good precedent for all of the bilateral trade agreements we are about to negotiate.

As for any taxes charged by other countries, I assume here he means the VAT. Obviously, the United States is free to adopt a VAT of its own, although that seems unlikely. Can Trump and the Republicans agree on a version of the Destination Based Cash Flow Tax that treats imports and domestic products roughly equally (as the VATs used by other countries do), and therefore has a chance of being found consistent with WTO rules?  Maybe, but there is still work to be done to get there.

Kenneth Juster as Deputy Assistant for International Economic Affairs

From a White House press release:

President Trump’s National Security Advisor Michael T. Flynn today announced the following additions to the National Security Council senior staff.

...

Kenneth I. Juster will serve as Deputy Assistant to the President for International Economic Affairs.  He will coordinate the Administration’s international economic policy and integrate it with national security and foreign policy.  He will also be the President’s representative and lead U.S. negotiator (“Sherpa”) for the annual G-7, G-20, and APEC Summits.  Juster has previously served in the U.S. Government as Under Secretary of Commerce (2001-2005), Counselor (Acting) of the Department of State (1992-1993), Deputy and Senior Advisor to Deputy Secretary of State Lawrence S. Eagleburger (1989-1992), and Law Clerk to Judge James L. Oakes of the U.S. Court of Appeals for the Second Circuit (1980-1981).  In the private sector, Juster has been a Partner and Managing Director at the global investment firm Warburg Pincus (2010-2017), Executive Vice President of salesforce.com (2005-2010), and Senior Partner at the law firm Arnold & Porter (1981-1989, 1993-2001).  Juster has also served as Chairman of the Advisory Committee of Harvard’s Weatherhead Center for International Affairs, Vice Chairman of the Board of the Asia Foundation, and a member of the Trilateral Commission, the Council on Foreign Relations, and the American Academy of Diplomacy.  Among his honors, Juster is the recipient of the Secretary of Commerce’s William C. Redfield Award and the Secretary of State’s Distinguished Service Award.  Juster holds an A.B. in Government from Harvard College, a Master’s Degree in Public Policy from Harvard’s Kennedy School, and a J.D. from the Harvard Law School.

On twitter, Luke Peterson pointed out that Juster has worked in the investment arbitration field (e.g., here). Does that tell us anything about what a Trump administration will think of ISDS? More generally, I still have very little idea how the battle between establishment and anti-establishment members of Trump's international economics team will play out.

The Trump Administration's Draft Executive Order on Treaties

Over at Opinio Juris, Julian Ku writes the following about a draft executive order on multilateral treaties being considered by the Trump administration:

The draft executive order on multilateral treaties is potentially more significant because the President has broad powers to withdraw from treaties.  But the order itself simply creates another committee to review U.S. participation in all multilateral treaties that the U.S. is negotiating, in the process of considering ratification, or already ratified and joined.  The committee is instructed to recommend whether the U.S. should continue negotiating, ratifying, or being part of those treaties.

The only unusual part of this process is to elevate treaty review to an interagency committee. But such a review process is reasonable for any new administration.  The only real action in the draft order is a moratorium on submitting new treaties to the President or the Senate absent a committee recommendation.  This might slow down the already slow treaty ratification process, but given the glacial pace of Senate consideration of most treaties, I doubt this “moratorium” will have much an effect.

The draft order starts off as follows:

In recent decades, there has been a proliferation of multilateral treaties that purport to regulate activities that are domestic in nature. For example, the UN Convention on the Elimination of All Forms of Discrimination Against Women is an international treaty that, according to the international committee officially charged with interpreting it, would, among other things, prohibit the celebration of Mother's Day and require the decriminalization of prostitution. Likewise, the UN Convention on the Rights of the Child has been interpreted to prohibit spanking. Whether one agrees or disagrees with these outcomes as a substantive policy matter, these are not appropriate matters for international treaties. To the contrary, these types of treaties are emblematic of a larger problem, whereby these treaties are used to force countries to adhere to often radical domestic agendas that could not, themselves, otherwise be enacted in accordance with a country's domestic laws.

One thing that I've been puzzling about in relation to trade agreements is how the Trump administration will view the inclusion of issues that relate to "activities that are domestic in nature."  Some examples of this are intellectual property protection, labor rights, and the environment.  Yes, these things do affect trade, but probably no more than, say, discrimination against women.  Will the Trump administration pull back on using trade agreements to regulate domestic activities, or will they use the existing model?

WTO@20 Conference 2017, New Delhi

From the WTO Appellate Body and National Law University, Delhi: 

The Appellate Body of the World Trade Organization (WTO), together with National Law University, Delhi, is organizing the WTO@20 Conference in New Delhi on 16-18 February 2017 to mark the 20th anniversary of the establishment of the WTO. Five highly successful conferences as part of the WTO@20 series have already been held at Florence (Italy), Seoul (South Korea), Beijing (China), Cancun (Mexico), and Cambridge (USA). The Conference in New Delhi (India) will be the final event of the series.

Coming at a time when the world has witnessed significant developments in the areas of global cooperation and economic relations, the Conference will reflect on the current state and the future prospects of the multilateral trade regime, in general, and its legal disciplines, in particular. Over the course of three days, the WTO@20 Conference in New Delhi will bring together leading practitioners, adjudicators, business leaders, policymakers, diplomats, and academics working in the field of international trade and law. Details about the Conference, including the program and registration information, are available on the Conference website: http://ciipc.org/wto20

The Conference will feature a keynote speech by Mr Arvind Subramanian, the Chief Economic Adviser to the Government of India, on India's role and interests in the multilateral trade regime. The keynote will be followed by a roundtable discussion titled "The New Global Politics: Is There Space for Trade Multilateralism?"

The Conference sessions will develop on six main themes:

• The WTO and trade in services;
• The evolution of, and challenges posed by, trade remedy disputes at the WTO;
• Addressing non-trade concerns at the WTO;
• The role of the WTO in international intellectual property governance;
• The WTO dispute settlement system and other areas of global governance; and
• Developing countries' participation in WTO dispute settlement.

For further details please visit the Conference website http://ciipc.org/wto20 or email the Organizers at [email protected].

See the draft program here.