International Economic Law and Policy Blog

A Possible Approach to Transitional Double Hatting in Investor-State Arbitration

In a recent ESIL Reflection, Malcolm Langford, Daniel Behn and Runar Hilleren Lie examine “The Ethics and Empirics of Double Hatting” in investor-state arbitration. (For the full article, see the Journal of International Economic Law). They found that a total of 47% of the cases they studied involved at least one arbitrator simultaneously acting as legal counsel. They also showed that the practice of double hatting is dominated by many of the most powerful and influential arbitrators in the system (who are often referred to as forming the system’s “core”). In some cases, double hatting occurs as a younger counsel transitions into being an arbitrator. But, “empirically, double hatting is more a norm than transition,” they conclude.

To me, there is a difference between the argument against double hatting in the core and in the periphery of the system. In the core of the most well established arbitrators, I think that the argument against double hatting in investor-state arbitration is strong. But in the periphery, when dealing with relatively new arbitrators or those with few appointments who are transitioning within the system, I think that a more nuanced approach is required. Why? If we adopt too stringent an approach against double hatting in the periphery, we are going to make it harder to develop the next generation of arbitrators (generational renewal) and increase the diversity of the existing pool (diversity). To the extent that the existing pool is largely ‘pale, male and stale,’ adopting a strict approach against double hatting has the potential to reinforce the pool’s narrowness.

So my question is whether one could craft an effective rule that would prevent double hatting in the core but allow transitional double hatting in the periphery. I am thinking of something along the lines of new arbitrators being permitted to double hat within X years from their first appointment in an investor-state case or Y number of investor-state cases in which they have been appointed as an arbitrator, whichever comes first. At then end of that period, lawyers might need to choose which way they go. Do they switch over into exclusive work as an arbitrator? Or do they continue work as an advocate and turn down future arbitral appointments? I am not sure if this would be a good rule, but I am curious to get reactions from others. I am also interested in people’s views about what the right numbers for X and Y would be. Five cases or five years? More, less? 

In the ESIL Reflection, Langford, Behn and Lie accept that “it may be possible to defend double hatting when it truly is a graduated and transparent transition between roles,” but they argue that:

From an economic perspective, it may be fair to permit legal counsel seeking to become full-time arbitrators space to carry on their legal counsel practice until there is some guarantee that arbitral appointments will come in the future. This argument, however, probably only holds for a short period of time: once a counsel obtained their first or even second arbitrator appointment, they could desist from accepting future counsel appointments as they ease into a new role.

 My sense is that a 1 year or a 1-2 case rule is too strict and does not reflect the reality of how arbitrators build effective reputations and practices or the basis upon which investors and states select arbitrators. The strictness of this approach could unduly harm generational renewal and diversity. But if one is persuaded that double hatting in the core is a problem, and yet one wants to permit transitions in order to encourage generational renewal and diversity, what should be the parameters of the rule or ethical code of conduct? Langford, Behn and Lie have the statistics to be able to check how this rule would play out based on adopting a years/cases rule, but I invite readers to comment on (1) whether such a rule would be workable and wise and (2) what the relevant numbers for X and Y should be.

Two other asides are worth noting. The first is that one could adopt a graduated approach with respect to investment treaty arbitration while also adopting a stricter, no double hatting rule in the context of the movement toward investment courts, as suggested by CETA and the EU/Canada’s proposals for a multilateral investment court. The stricter rule is easier to justify when one is identifying a smaller pool of permanent or quasi-permanent arbitrators or judges, though states should then be attentive to issues of generational renewal and diversity in the way they select, and construct the selection criteria and voting rules for selecting, those arbitrators/judges.

The second is that we should be grateful to scholars like Langford, Behn and Lie (as well as others like Wolfgang Alschner, Joost Pauwelyn and Sergio Puig) who are pioneering data driven approaches to the investment treaty field. The scholarly field benefits from many different approaches and this is surely one of them. These scholars are allowing those working within the system to get a much better handle on the trends and nuances that make up this disaggregated field. They permit us to test our intuitions and observations against concrete data and to model what impact different rules might have. This is important as we strive to better understand our field and to craft reforms that might help to improve it.

First published on EJIL: Talk! by @AntheaERoberts

Another Point for the NAFTA Chapter 19 Debate

At the risk of overdoing it with NAFTA Chapter 19 here on this blog, another question just occurred to me. The bi-national panel system for reviewing domestic AD/CVD decisions started in the Canada - U.S. FTA, and was then brought into NAFTA.  But it has never been used in any other U.S. FTA, or for that matter by anyone else anywhere in the world (as far as I know).  

Having seen a number of defenses of Chapter 19 recently, let me ask this question to its supporters (and any others who want to weigh in):  Should this bi-national panel system be extended to other FTAs?  I can't think of anything specific about North American trade that makes Chapter 19 useful only there. If it works, it should work everywhere.

Ultimately, there are three options: (1) Eliminate it from NAFTA; (2) Keep it in NAFTA but do not use it anywhere else; and (3) Incorporate it into other FTAs.

I see why the politics of the issue might lead us to (2), but from a policy perspective, that seems like the strangest outcome.

Call for Papers: Thinking a Global Trade Governance for the 21st Century

From the Institute for International Law and Justice, NYU School of Law:

The IILJ is co-organizing a conference in Buenos Aires, on 12 December 2017 on: “Thinking a Global Trade Governance for the 21^st Century: Challenges and Opportunities on the Eve of the WTO´s 11^th Ministerial Conference.” 

Abstracts and panel proposals shall be sent no later than 15 September 2017 in English, Spanish or French to [email protected]. Abstracts and panel proposals in Spanish or French must be accompanied by an English version.  

The call for papers, and additional details, can be found here.

 

Section 232 Steel Duties Delayed?

This is from the WSJ:

President Donald Trump said his administration would take its time in making a long-awaited decision on whether to block steel imports, saying “we don’t want to do it at this moment.”

Mr. Trump and his Commerce Secretary, Wilbur Ross, had earlier this year said they would complete a plan to reduce steel imports in the name of “national security” by the end of June. But the decision has been stalled amid objections from trading partners, domestic steel users, and some of Mr. Trump’s own aides.

Mr. Trump, in a Wall Street Journal interview Tuesday, said the issue was still on the table, and that “we’re going to be addressing the steel dumping,” which he called “a very unfair situation.” But he backed off promising imminent action. He started to say a move would come “very” soon, but then caught himself and instead changed his wording to “fairly soon.”

He indicated that the timetable had gotten bogged down by extensive study and various regulations governing the decision. “You can’t just walk in and say I’m doing to do this,” Mr. Trump said. “You have to do statutory studies… It doesn’t go that quickly.”

The president suggested that a final decision on a steel trade policy may have to wait until other top-priority issues on his agenda get addressed, saying: “we’re waiting till we get everything finished up between health care and taxes and maybe even infrastructure.”

This delay is good news. Let's hope other issues get in the way for as long as possible.

A Mexican Perspective on NAFTA Chapter 19

This is from blog reader and occasional commenter Adrián Vázquez Benítez, a Mexican trade lawyer:

AFTER CHAPTER 19 NAFTA ELIMINATION: WHO WILL DEFEND US?

USTR recently announced its objectives regarding the renegotiation of NAFTA, one seeking to remove Chapter 19 "Review and Dispute Settlement in Antidumping and Countervailing Duty Matters”. Chapter 19 provides that ad-hoc Panels may review the decisions of the investigating authorities regarding antidumping and countervailing duties, replacing the judicial review of local courts.

I have read with attention what has been written in Mexican news outlets, which mainly criticize the position of the United States and suggest defending this instrument. But, what do litigants think about all this? Allow me to say that my experience on this matter arises from representing "complainants" that challenge Mexican authorities; in other words, defending "American" interests.

As such, even if many may criticize me for attacking Mexican interests, I have been fortunate enough to participate in more than a third of all antidumping disputes that have reviewed the actions of the Mexican investigating authority. I am aware of the system’s strengths and weaknesses. I am neither defending the actions of the Mexican authorities nor attacking this dispute settlement mechanism, I simply intend to give an honest opinion on what I observe and perceive from a Mexican trade law practitioner point of view.

Chapter 19 system was not only an innovative mechanism at the end of last century, but also at the very beginning, it worked wonderfully. The three countries began with the willingness to believe in the system and it worked relatively well. Eventually, it ran out of gas and it ended up being a “zombie”, but it at least has some life. Although Article 1907 provides a mechanism to modernize its operating rules, none of the three countries paid attention to it -because of disdain or fear to the unknown- and here we are now!

I understand that the US does not want a supranational court to review the decisions of its administrative agencies, but that it is just one side of the coin. What about the decisions of Mexican and Canadian authorities? Does the US really wants domestic courts to hear the cases of their exporters? Is this also a prelude to the abolition of the WTO dispute settlement mechanism?

As long as the WTO dispute settlement mechanism exists, which can only be triggered by its Members and is overwhelmed by the amount of disputes, there will be an opportunity to defend our industries against the abusive, discretionary and partial practices of the investigating authorities from other countries. Let us state the obvious; all countries including Mexico seek to disguise protectionist positions with legitimate measures. The WTO exists precisely to reveal and correct those “protectionist” measures that are disguised in the form of anti-dumping and countervailing duties, however, that will only happen when a Member brings a complaint against another. Meanwhile, the beauty in Chapter 19 is that an exporter is free to pursue a challenge in front of an impartial bi-national panel without its government’s consent.

The point here is that without Chapter 19, US producers and exporters (as well as Mexican importers) will have to rely on Federal Administrative Justice Court (TFJA, acronym in Spanish) when they face an adverse antidumping or countervailing determination in Mexico. However, they will first have to exhaust the archaic administrative reconsideration in order to be able to access Mexico’s courts. While it is true that the TFJA’s Specialized International Trade Chambers were recently created, these Chambers are neither specialized nor do they have the competence to decide on antidumping or countervailing determinations. The competence to resolve these disputes continues to reside on the TFJA’s Superior Chamber, which, with all due respect, are not familiar with anti-dumping and subsidy law. Exporters and importers would be at the mercy of Mexican courts!

Some may argue that it is good news that Mexican antidumping or countervailing decisions will not be challenged. Nevertheless, American producers and exporters may request their Government to challenge Mexican decisions before the WTO. Mexico might be defending itself more often at the WTO, unless, of course, the US is not willing to or intends to eradicate that system too.

Referring to the US – Tuna II and US – COOL disputes, the Mexican Minister of Economy recently stated that the WTO disputes settlement mechanism has been more efficient for Mexico than Chapter 19.[1] What a terrible statement from our chief negotiator! On the one hand, neither the tuna nor COOL disputes are anti-dumping or subsidy cases and, on the other hand, our Minister forgot that practically all of Mexico’s antidumping determinations that have been challenged at the WTO were found inconsistent. Moreover, Chapter 19 was designed to make its rulings more expeditious than the proceedings carried out in both domestic courts and WTO.

Regarding Mexican producers and exporters, the situation is also worrisome. Without this instrument, Mexican producers and exporters would be forced to litigate before the US courts, namely USCIT and USCAFC’s, or to request the Mexican government to challenge the US before the WTO. Therefore, one may wonder if Mexico is prepared to claim every US decision before the WTO? Such scenario is unlikely as not every "case" is worthy or has sufficient grounds to bring it before WTO panels, in addition to the political cost and resources that are required to do so.

In light of the above, this leads to the following observations and conclusions:

• The elimination of Chapter 19 does not suit producers and exporters of Mexico or the United States.
• The system of Chapter 19 is outdated, impractical and its procedural rules need to be modernized.
• A permanent Panel system must be established, with authentic expert panelists, because, let the truth be said, few are truly experts, and in Mexico only a handful may be found.

• If this chapter is eliminated, what rules will Mexico establish so that its industries can genuinely access the WTO mechanism through the Mexican government?

• If its elimination is imminent, why not abolishing the possibility of imposing anti-dumping and countervailing measures between the three countries?

 

[1] Reuters, “Más efectivo Mecanismo de OMC que de TLC”,  July 21, 2017<http://www.reforma.com/ >

Does NAFTA Chapter 19 Constrain AD/CVD Use?

This is from Chad Bown:

Figure 1 illustrates the United States’ use of [trade remedies] over the NAFTA period of 1994–2016, as well as a projection for potential use in 2017 (more on this below). Each line represents the share of US imports from a different foreign source that are covered by US trade restrictions under these laws.

Figure 1 Share of US imports covered by barriers imposed under trade laws, including projection for Trump’s 2017 policies

Source: Author’s construction, building from Chad P. Bown, Steel, Aluminum, Lumber, Solar: Trump's Stealth Trade Protection, PIIE Policy Brief 17-21, June 2017.

Three results stand out: First, since China’s 2001 accession to the World Trade Organization (WTO), the United States has increasingly used these policies to target imports from China. In 2000, 1.4 percent of US imports from China were covered by US AD/CVDs; this share had increased to 9.2 percent by 2016. Some of this use is related to China’s treatment as a nonmarket economy in AD investigations.

Second, US coverage of imports from the rest of the world (ROW, non-NAFTA) has been declining over time. In 2016, only 2.7 percent of US imports from ROW were covered by these policies, down from 6.5 percent in 2000.

Third, these US barriers covered even fewer US imports from Canada and Mexico. By 2016, US AD/CVDs covered only 1.3 percent of US imports from NAFTA partners. There was a slight uptick during 2001–06 when the United States imposed trade restrictions on imports of Canadian softwood lumber.

Many factors contribute to the fact that the United States applied antidumping, countervailing duties, and safeguards against relatively few imports from Canada and Mexico over 1994–2016. First, there was a general decline in US AD/CVD use against imports from all (non-Chinese) foreign sources. A second factor is the deepening economic integration in North America under NAFTA. The groups that typically request that the US government impose new trade barriers under these laws have increasingly cross-border common firm ownership (including in steel) and common labor union representation of workers; this especially discourages US use against imports from Canada.

Nevertheless, the legal disincentives provided by NAFTA Chapter 19 and Article 802 likely contributed to the relatively low levels of US use of such laws against imports from Canada and Mexico.

A key point here is that Canada and Mexico have fewer U.S. imports subject to AD/CVDs than other countries do, which leads Chad to conclude that the "legal disincentives provided by NAFTA Chapter 19 and Article 802 likely contributed to the relatively low levels of US use of such laws against imports from Canada and Mexico."

As a counter to Chad's argument here, I'm going to cite to another piece by Chad, which has this table in it:

If I'm reading this correctly, this table breaks down the "rest of the world" calculations from his other piece a bit, giving us individual countries to look at.  What I see here is that imports from Germany and the UK are less likely to be subject to AD/CVDs than imports from Canada and Mexico, even though there is no NAFTA Chapter 19 procedure in place for Germany and the UK (they can only go to U.S. courts or the WTO, like everyone else).

I have lots of question about NAFTA Chapter 19.  Here are a few of them:

-- Canada says keeping Chapter 19 is a "red line," but do they mean that, or is it just a negotiating tactic to get something in exchange?

-- Is NAFTA Chapter 19 constitutional? And what are the chances there will be a constitutional challenge that gets all the way to a ruling on this issue?

-- How different are NAFTA Chapter 19 and U.S. appeals court results today?  Someone should update this older data.

-- How do agency responses differ as between NAFTA Chapter 19 decisions and U.S. court rulings?  Are agencies more likely to comply with one or the other?

-- Does the existence of NAFTA Chapter 19 have an impact on the decision to file AD/CVD petitions?

-- On the last three questions, what are the answers in relation to Canadian and Mexican proceedings? 

Is NAFTA Chapter 19 Constitutional?

Here are some excerpts from an old law review debate about the constitutionality of CUSFTA Chapter 19:

Alan Morrison of Public Citizen:

If the meaning and applicability of the laws of the United States dealing with antidumping and countervailing duties are enunciated and given legally binding effect in decisions directly affecting the rights of private parties, as well as the government, the Appointments Clause requires that such decisions be made by officers of the United States for whom the President and the Senate are accountable. Moreover, it surely forbids final administrative decisions that are made by officers of the United States, appointed by the President with the advice and consent of the Senate, especially when the purpose behind the creation of the panels was to alter the result under the very laws that the members of the panel are supposed to be upholding. The use of these bilateral panels is dangerous to our system of democracy, even in this limited context, but their potential application in other international agreements requires that the courts promptly step in and hold the panel review scheme unconstitutional before it spreads to many other areas of law.

Jim Chen, currently a law prof at Michigan State:

As salient exceptions to free trade between Canada and the United States, antidumping and countervailing duty laws can undermine the FTA. This concern, no doubt, led both nations to substitute binational arbitration for traditional judicial review. Yet a government based on checks and balances "rank[s] other values higher than efficiency." Both Article III and the Appointments Clause pose substantial constitutional obstacles to the FTA. These obstacles protect the citizens affected by the trade laws by preserving institutional safeguards built into the Constitution. Like all other citizens in the United States-Canadian free trade zone, these parties will reap enormous benefits from the FTA, but they should not be forced to sacrifice rights assured them by the separation of powers. Adherence to the Constitution's structural requirements ultimately benefits all by ensuring that the compromises emerging from the political branches retain their crucial core of accountability. As Justice Scalia has noted, "in the long run the improvisation of a constitutional structure on the basis of currently perceived utility will be disastrous."

Bill Davey of ... well, you all know Bill Davey:

... I wish to make essentially three points: First, the dispute settlement provisions of Chapter 19 of the United States-Canada Free Trade Agreement (FTA) do not violate even a strict reading of the Appointments Clause. Second, if a court deemed the constitutionality of the Chapter 19 procedures to be a close question under the Appointments Clause, there is ample precedent for finding them to be constitutional because of their connection with foreign affairs, where the Supreme Court has traditionally been less concerned with separation of powers issues. Finally, upholding these provisions is consistent with and reinforces representative democracy.

Beyond the constitutionality issue, this from Davey was also interesting:

Under Chapter 19, the decisions issued by panels are in reality only advisory, which suggests that the panels are not exercising power pursuant to U.S. law. While it is true that the United States has agreed to abide by the rulings, it cannot be compelled to. To put it another way, a prevailing party in a panel decision could not get an enforceable order from the panel or a U.S. court that would direct the Commerce Department or the International Trade Decision to implement the panel ruling.  Obviously, a decision by those agencies to ignore the U.S. commitment might lead to a denunciation of the FTA by Canada, but that does not change the fundamental power relationships. The panels, and those favored by their decisions, in the end cannot make the United States do anything. As such, it cannot be said that the panels exercise significant authority pursuant to U.S. law.

I'm a little surprised that there has never been an issue with U.S. agencies refusing to follow NAFTA Chapter 19 rulings (at least as far as I've heard).  In addition to the political reasons Davey suggests, is it also because the agencies can often find a way to comply with the rulings that allows them to achieve a similar result with new reasoning?

The New Calvo Doctrine of the Trump Administration: Renegotiating the Investment Chapter of NAFTA

In a recent post here, I commented on the absence of Fair and Equitable Treatment and protection against expropriation from the text on investment in the recently released (thought not finalized) Japan-EU Economic Partner Agreement (JEEPA), speculating that this might be seen as a shift to a focus on non-discrimination in international investment law, in contrast to investor protection.  Yesterday in releasing its re-negotiation objectives for NAFTA the Trump Administration seemed to be making a parallel move, stating the principle of "ensuring that NAFTA country investors in the United States are not accorded greater substantive rights than domestic investors."  

This is one Trump Administration move that Senator Elizabeth Warren and other progressive Democrats should love.  Those familiar with the history of international investment law will recognize this principle as part of the Calvo Doctrine, which was, ironically, a position taken by states in the global South against the United States, and other developed-country exporters of capital ; they should not have to provide rights to foreign investors beyond those provided to domestic investors in the same circumstances.  Now with the Trump Administration, the United States is propounding the Calvo Doctrine (or at least that part that concerns substantive rights rather than dispute settlement) against its NAFTA partners, Canada and Mexico.  

At the same time as asserting the Calvo Doctrine for itself, the United States, according to the Trump Administration's negotiating objectives, should also "secure for U.S. investors in the NAFTA countries important rights consistent with U.S. legal principles and practice."

So how can Mr. Trump's NAFTA negotiators square the circle, demanding important rights for US investors while holding the line at the Calvo Doctrine as far as how investors from Canada and Mexico are treated in the United States?

The answer is rather straightforward: focus on market access and removing discriminatory barriers to investment that matter to US companies-in other words, take a hard look at exceptions to the National Treatment obligation in NAFTA as a start, as well as the reservations, and the interaction of National Treatment and the investment chapter with other chapters, such as Financial Services and Monopolies and State Enterprises.  Adding a general public policy exception to the NAFTA investment chapter while perhaps narrowing these specific carve outs could strengthen the rights of inter alia US investments and investors, while at the same time holding the line at non-discrimination.  In their classic form, by contrast, the fair and equitable treatment obligation and the expropriation obligation would need to be eliminated.  Certainly Canadians and Mexicans will not tolerate the United States insisting that these norms may give US investors greater rights than domestic firms in those countries, while the Calvo Doctrine applies with respect how Canadian and Mexican investors are treated in the US.  An alternative to eliminating FET and protection against expropriation, would be to have a kind of cap or defense to a claim on those provisions, which states that the treatment of investors/investments from other NAFTA parties required under those provisions need not exceed the standard of treatment provided to domestic investors/investments under like circumstances.

If the Calvo Doctrine (as applied to substantive rights) is to be entrenched in the NAFTA effectively, the MFN clause in the investment chapter will need to be substantially rewritten, to prevent treaty-shopping-since the entire US approach until now has been different, above all, as represented by norms against expropriation and FET understood as autonomous international standards largely unaffected by the level of treatment afforded domestic actors (though FET does itself have a non-discrimination component).  More on how to achieve this revision of MFN in posts to come  (as well as thinking about strengthening the non-discrimination part of the investment chapter of NAFTA in light of the case law to date on National Treatment.)      

  

The Trump Administration's NAFTA Negotiating Objectives

USTR has just published the Trump administration's NAFTA negotiating objectives here. Many of them will look familiar, as they are a standard part of U.S. trade negotiations.  Here are some examples:

Investment - "Secure for U.S. investors in the NAFTA countries important rights consistent with U.S. legal principles and practice, while ensuring that NAFTA country investors in the United States are not accorded greater substantive rights than domestic investors."

E-commerce - "Establish rules to ensure that NAFTA countries do not impose measures that restrict cross-border data flows and do not require the use or installation of local computing facilities."

State owned enterprises - "Ensure that SOEs accord non-discriminatory treatment with respect to purchase and sale of goods and services."

Intellectual property - "Ensure provisions governing intellectual property rights reflect a standard of protection similar to that found in U.S. law."

These and many other objectives set out in the document are things we've heard before. On these issues, the new NAFTA may look very similar to the old TPP, although there could be some tweaks here and there. 

On the other hand, a couple issues seem new, and reflect Trump's more skeptical approach to trade.  Here are two examples from the trade remedies section:

• "Eliminate the NAFTA global safeguard exclusion so that it does not restrict the ability of the United States to apply measures in future investigations."
• "Eliminate the Chapter 19 dispute settlement mechanism."

Obviously, Canada and Mexico will push back on these U.S. objectives.

There is also the obligatory trade deficit concern:

"Trade in Goods: - Improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries"

And some vague language on currency:

"Currency: - Through an appropriate mechanism, ensure that the NAFTA countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage."

Overall, my quick read suggests there is a lot of boilerplate language, which could have been drafted by any U.S. administration, and also plenty of discretion for the Trump administration to take the NAFTA renegotiation in any direction it wants (subject to the views of Congress and U.S. trading partners, of course).

A New Environmental Exception in the JEEPA?

This is from the Trade and Sustainable Development chapter of the Japan-EU Economic Partnership Agreement (JEEPA), circulated by the EU last week:

Article 4

Multilateral environmental agreements

...

4. The Parties reaffirm their commitment to achieving the ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC). The Parties commit to work together to take actions to address climate change towards achieving the purpose of the Paris Agreement adopted by the Conference of the Parties to the UNFCCC at its 21st session.

5. Nothing in this Agreement prevents a Party from adopting or maintaining measures to implement the multilateral environmental agreements to which it is a party provided that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties or a disguised restriction on trade.

Paragraph 4 might seem to be the bigger deal, with its reference to the Paris Agreement, but it just has the usual soft language typically used for environmental issues.  I'm more interested in paragraph 5.  To my surprise, this looks, at first glance, like a real exception, and an interestingly worded one at that.  (The EU-Singapore FTA also has this provision).

Perhaps I missed it, but I did not see a JEEPA general exception for trade in goods yet (the exceptions for services, investment and e-commerce are here). But presumably, such exceptions will be included when the agreement is fully negotiated (at least by incorporation from GATT Article XX), and will use language something like this (from Article XX):

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(b) necessary to protect human, animal or plant life or health;

...

(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

Note three key differences between the JEEPA Article 4, paragraph 5 language quoted above and GATT Article XX.  

First, there is no qualification about measures being "necessary" or even "relating to."  JEEPA just says "measures to implement the multilateral environmental agreements."  Now, perhaps the "to" is enough of a connection to imply that such measures must be something close to "relating to," and the analysis would be a typical means-ends one.  But even so, we have something easier to satisfy than "necessary."  Why not include "necessary"?  Is there a shift in thinking about the appropriateness of "necessary" tests?

Second, rather than saying "nothing in this Agreement shall be construed to prevent," the JEEPA says "[n]othing in this Agreement prevents."  Does that matter?  Is there an argument that paragraph 5 is not supposed to be an operative exception, like Article XX is, but rather paragraph 5 just describes the negotiators' view of the impact of the JEEPA more broadly?

And third, the provision is not in a section entitled "exceptions."  Not that an exception has to be in such a section, but nonetheless does this give us any insight as to whether the negotiators meant this provision to be an exception?

So what's going on here?  Is this a new, easier to satisfy, exception that applies only to a sub-category of environmental measures?  Or is it more like a non-binding preambular statement?

ISDS Tobacco Litigation Costs

How much does ISDS litigation on tobacco regulation cost?  And who has to pay? 

This was from the Philip Morris v. Uruguay tribunal:

588. In view of the outcome of the case and the significant disproportion between the Parties’ respective costs, the Tribunal deems it fair and reasonable that the costs of the proceedings be paid by the Parties as follows: each Party shall bear its own costs but the Claimants shall reimburse the Respondent for part of the latter’s costs in the amount of US$ 7,000,000.00 and, in addition, pay all fees and expenses of the Tribunal and ICSID’s administrative fees and expenses.

And here's an explanation of that award: 

At eight paragraphs out of an award that exceeded 76 pages (not including the 45-page dissent), the tribunal’s analysis of costs is a study in brevity. Philip Morris’s costs were about $17 million, Uruguay’s slightly over $10 million, and the arbitration and administrative fees totaled $1.5 million. The tribunal ultimately opted for a “loser pays” approach, requiring Philip Morris to cover the vast majority — $7 million — of Uruguay’s expenses, and all $1.5 million of the arbitration costs, for a total cost allocation award of $8.5 million, on top of Philip Morris own costs of $17 million that had already been spent to pursue the arbitration.

Despite the magnitude of this cost award, the tribunal provided little explanation of its bases. The tribunal cited in passing “the significant disproportion between the Parties’ respective costs,” the fact that the total costs exceeded the amount Philip Morris had sought in the arbitration ($22 million plus interest), and the fact that Philip Morris’s merits claims had been “substantially rejected.” “On balance,” the tribunal concluded, “the outcome of the case has favored the Respondent to a large extent.” Thus, the tribunal said, it was “fair and reasonable” for Philip Morris to bear the bulk of the costs.

Compare that with the Philip Morris v. Australia case:  

Why are the figures all blacked out? Over at IAReporter, Jarrod Hepburn had this to say:

It is highly unusual for a tribunal to redact such basic costs information – presumably in response to a demand of one or both parties – before the award is published. The upshot of this is that the Australian taxpayer will bear some of the costs of this case, without being permitted to know the extent of this outlay.

In terms of the amounts involved, the media reported the following:

Tobacco giant Philip Morris has been ordered to pay the Australian government millions of dollars in legal costs after its failed bid to kill off plain packaging laws.

While the exact figure is a closely-guarded secret - and is redacted from the Permanent Court of Arbitration's new ruling - it's believed the bill could be as high as $50 million.

Anyway, in both cases, Philip Morris lost, and had to pay money to the governments it sued.  The reported figures sound like a lot of money to me, but it may not be all that much for Philip Morris. 

(On the other side of things, perhaps it works out well for governments when they can win the case and get reimbursed.  It means their lawyers get trained without charging taxpayers the full amount!)

Fumbling towards multilateralism? A first read of the investment text in the Japan-EU FTA

The Japan-EU trade deal, the JEEPA, has many facets and implications-economic, geopolitical and legal. On its own, the text of the investment chapter merits attention.   The EU and Japan seemed to have scrapped the classic BIT/investor protection architecture as a model, and instead designed a set of disciplines that focuses not on giving guarantees or privileges to firms but rather the elimination of discriminatory barriers to investment.  Fair and equitable treatment and protections against expropriation, the norms by which historically investors have been able to demand full market value compensation for regulatory changes, are completely out.  Instead, the legal structure seems much more akin to classic WTO architecture.

This becomes immediately evident when one encounters the first substantive legal obligations in the JEEPA investment chapter:

Market Access
1. Neither party shall maintain or adopt with regard to market access through
establishment or operation by an investor of a Party or by an enterprise constituting a
covered investment, either on the basis of its entire [EU: territory, JP:...] or on the basis of a
territorial subdivision, measures that:
a) impose limitations on:
i) the number of enterprises, whether in the form of numerical quotas, monopolies,
exclusive rights or the requirements of an economic needs test;1
(ii) the total value of transactions or assets in the form of numerical quotas or the
requirement of an economic needs test;
(iii) the total number of operations or on the total quantity of output expressed in terms
of designated numerical units in the form of quotas or the requirement of an
economic needs test;
(iv) the participation of foreign capital in terms of maximum percentage limit on foreign
shareholding or the total value of individual or aggregate foreign investment;
(v) the total number of natural persons that may be employed in a particular sector or
that an enterprise may employ and who are necessary for, and directly related to,
the performance of the economic activity in the form of numerical quotas or the
requirement of an economic needs test.
b) restrict or require specific types of legal entity or joint ventures through which an
investor of the other Party may perform an economic activity.

 

The model here is of course not any BIT but the WTO General Agreement on Trade in Services.  At the same time, instead of opting into sectoral coverage for the market access commitment (as with the GATS) , the parties have the possibility of scheduling existing non-conforming measures to which the commitments don't apply (which is like the NAFTA architecture, in a way).

Then there are a National Treatment obligation and disciplines on performance requirements.

The MFN provision in the text signals a clear intent to avoid the kind of treaty shopping that has occurred under investor-state arbitration, where MFN provisions in BITs have been used by investors to argue that they are entitled to better treatment offered in a different agreement between the host state and a third country.  Not only does the JEEPA prevent the use of MFN to claim better dispute settlement provisions (a reigning in of MFN already evident in a number of  IIAs) but it goes further:

5. Substantive provisions in other international agreements concluded by a Party with a
non-Party
do not in themselves constitute “treatment” under this Article. For greater
certainty, actions or inactions of a Party in relation to such provisions can constitute
treatment
and thus give rise to establishing a breach of this Article, only if the breach:
(i) is established based on this Article and not based on the said provisions, and
(ii) in the case of a covered investment, causes loss or damage to it, which is not
established based on differences in the amount of compensation that could be
obtained by using the said provisions in a dispute settlement case.

In other words, "treatment" simply doesn't apply to cases where other agreements have different substantive obligations.  Crucially, the fact that other agreements that the EU (e.g. CETA) or Japan have entered into contain FET or protections against expropriation cannot lead to an MFN-based claim that these norms should be read in, as it were, to the JEEPA in a particular dispute.  

There is some uncertainty as to how public policy exceptions for non-conforming investment measures will be brought into the architecture of the JEEPA.  In the current text, the option presented is that a general public policy exceptions chapter will apply to investment provisions; this chapter incorporates the exceptions in Article XX of the GATT, that are the subject of an extensive jurisprudence in the WTO Appellate Body.   But brackets in the text indicate that this has not been fully decided; the exceptions might yet end up in the investment chapter itself.    

What is the meaning of new approach or architecture for international norms on investment?   Some have suggested that a clue lies in the overall rubric, which is investment "liberalization"-as opposed to protection.  As I have documented in a recent study, the economic case for using international law to protect investors against regulatory change is weak, ambiguous and unfounded at best.   At the same time, supply chains involve both external contracting (trade) and internal contracting (investment) and the case for removing protectionist investment barriers is closely linked to that in favor of curbing trade protection.  Traditional BITs and investor-state arbitration have had little to do with this more sound economic rationale for international law disciplines in the investment area.  While the overall logic is sound,  as is taken into account by the possibility of scheduling non-conforming measures, and also by the exceptions chapter, there may be circumstances where the barriers in question could constitute legitimate public policies,even where there are elements of discrimination.  That is an important debate, as illustrated by discussions in the WTO about local content requirements and industrial policies in areas like renewable energy.

The bigger point here is the EU and Japan have decided to shift the frame from a system of investor protection in full legitimacy crisis (the BIT/ISDS regime) to an expansion of the basic approach of the GATT/WTO to the investment field, in some sense strengthening the TRIMs Agreement  as well as the GATS (mode III).   Could this be a first step toward the outlines of a multilateral approach to investment within the WTO framework?  Despite the attempt to launch an investment "facilitation" agenda in Geneva, major developing countries like India are skeptical.  The question is whether, by dropping FET and expropriation clauses, there is a clear enough signal of a break from the earlier investment regime, with its colonial and neocolonial origins, to make the likes of India think again.   

As the overarching Agreement in Principle states, there is one aspect of the investment chapter that remains open, namely the matter of dispute settlement:

there is still no agreement on the whole
chapter, as the issue of investment dispute resolution remains fully open. The EU has tabled its
reformed investment court system on the table in the negotiations with Japan. The EU continues to
insist that there can be no return to old-style ISDS. Under no conditions can old-style ISDS provisions
be included in the agreement. More discussions will be required to arrive at a conclusion on this in the
next months.

But of course the EU is already moving toward multilateralism in dispute settlement; it has an ongoing initiative in partnership with Canada to develop a multilateral investment court instrument.  The ultimate result overall may be a serious effort to start multilateral or at least plurilateral negotiations in Geneva.  The more that developing countries are confident that this is not the old agenda of protection of multilateral firms against regulatory change, the more chance such an effort has to distance itself from, for example, the failed MAI negotiations of decades ago. But as developing countries denounce BITs, or move to fundamentally different treaty structures (India's new model BIT for example), or reconstitute government/foreign firm relations as a matter of domestic law (South Africa) the more secure they may be in engaging in negotiations about investment liberalization that do not carry the taint and baggage of the ancien regime.  At the same time, activists in Canada and Europe concerned about regulatory chill might legitimately ask: if one can do without FET and protections against expropriation in JEEPA, what justifies their existence in CETA?  Perhaps, in the end, all roads lead to Geneva.  

This is a very quick read of a text that deserves careful study-but that is a clear departure from the status quo.  Much more to be said. 

 

In the Race to Set International Standards, the EU is Taking the Lead

The conclusion of an “Agreement in Principle” on the Japan-EU Economic Partnership Agreement (JEEPA) is being heralded by many as a major victory for free trade. Despite growing concerns about a rise in protectionism, the EU and Japan are trying to buck this trend. Beyond the big picture, however, some of the technical details are very interesting. For instance, the Agreement in Principle notes:

The disparity in terms of levels of liberalization on both sides is justified by the commitments undertaken under this agreement by Japan to eliminate non-tariff barriers to EU exports, notably virtually total alignment on international standards in the automobile sector.

To really understand what this might mean, however, we need to look further, specifically, at the section on non-tariff measures in the auto annex. The summary in the Agreement in Principle states:

The NTM auto annex has solved all issues mentioned by industry, and was developed in close consultation with industry associations. It covers a very substantial part of UNECE (United Nations Economic Commission for Europe) Regulations – most of which will be in force at entry (as a result of the work undertaken under the NTM list for cars, the implementation is already under way by the relevant Japanese regulators). It covers passenger cars, and commercial vehicles like buses and trucks of all sizes as well as motor cycles. The auto annex, together with the NTM work concluded, should lead to the removal of all regulatory barriers for accessing the Japanese car market. The annex includes robust cooperation procedures and obligations to ensure that this state of affairs can be maintained over time. On domestic regulatory measures a special consultation procedure was defined. The limits of these obligations were defined by the EU's need to maintain its regulatory autonomy in areas related, for instance to environmental measures, but also measures on new technologies like autonomous driving or electric cars.

Special attention was paid to establish robust compliance provisions similar to the one agreed under the EU-Korea FTA. In addition, it contains a safeguard clause, allowing the EU to reintroduce tariffs in case Japan stops applying UNECE Regulations or reinstalls removed NTMs (or develops new ones). In particular, the safeguard would allow to snapback tariffs on the affected products quasi automatically. The most important feature is however the cooperation in-built in the annex, which allows to ensure joint work in international standard setting fora. This is also the main reason why the safeguard is limited to 10 years. It can be expected that all UNECE Regulations will have been updated in accordance with the cooperation obligations.

As we don’t have the text of the annex yet, my guess is that this could be something similar to what appears in the CETA Annex 4-A under the TBT Chapter, but with the exception that there is no equivalent safeguard clause in the CETA. In the CETA, Canada incorporated a number of UN Regulations, but “maintains its right to modify its law, including by amending or revising which United Nations Regulations are incorporated into its law, or the manner in which or the extent to which these Regulations are incorporated into its law.” From what we know so far, the JEEPA appears to go further than CETA in this regard, though we can’t know for certain until we see the final text. Compared to CETA, the EU-South Korea Free Trade Agreement, for example, has a far more detailed annex on motor vehicles and parts (Annex 2-C), which contains obligations on harmonization of regulations and UNECE standards.

The part I find most interesting, however, is the last sentence on “joint work in international standard setting,” which is where I think the EU may have made its most significant mark. It is well known through discussions surrounding the TTIP that auto standards are one major area where the U.S. and EU take very different approaches, mainly because the U.S. relies heavily on voluntary, industry-set standards, and has been generally hesitant in adopting international standards. Though the U.S. participates in the working party created by the 1998 Global Agreement administered by the World Forum for the Harmonization of Vehicle Regulations, it does not observe the mutual recognition of products with UN certifications, which basically means that any auto parts that meet UN standards still must comply with the U.S. FMVSS standards as well, which in practice means compliance with two separate certification processes.

Regulatory cooperation and the elimination of NTMs has become a major feature of modern trade agreements, and the EU is pushing forward with its approach, which gives more deference to international standard setting bodies. The problem is that without TTIP, the U.S. is being left out of these discussions entirely, and its regulatory model may become ever more isolated from the disciplines others agree to adopt. Article 6 of Annex 4-A in the CETA recognized this might be a problem in the future, and states:

The Parties recognise their mutual interest to cooperate with the United States of America in the field of motor vehicle technical regulations. If the European Union and the United States conclude an agreement or an arrangement on the harmonisation of their respective technical regulations related to motor vehicles, the Parties shall cooperate with a view to determining whether they should conclude a similar agreement or arrangement.

But we have no TTIP, and may have no TTIP ever. And if Canada, and now Japan, continue to work with the EU in harmonizing and eliminating divergence in auto standards, they will ultimately move closer to the EU approach, which may have significant implications for automotive supply chains. Since the U.S. relies heavily on both Canada and Japan for auto parts, and Japanese auto-parts companies now employ more people in Canada than U.S. auto-parts firms, this is an important development to watch.

How Many Jeffs Do You Need? Calling Out Foreign Affairs on its Definition of “Expert”

In June 2017, Foreign Affairs published a piece entitled “Will Economic Globalization End? Foreign Affairs Asks the Experts.” In it, the editors explained that they had decided to ask a “broad pool of experts” for their take and so, as with previous surveys, they approached “dozens of authorities,” some with deep specialized expertise relevant to the question at hand, together with a few leading generalists in the field.

Foreign Affairs then proceeded to give the views of 30 experts. I have no criticism of these experts. I know a number of them and think highly of them. But I am critical of the extraordinary lack of diversity in this list. If this is a “broad pool,” I have no idea what a “narrow” one would look like. Seriously, Foreign Affairs, #its2017. If you want to understand the world today, you need to burst this bubble and redefine your approach to “expertise.”

Of the 30 experts featured by Foreign Affairs, 29 were men and only one was a woman. I tweeted in exasperation:

Why does @ForeignAffairs "broad pool of experts" include 5 x more men called Jeff/Jeffrey/Geoffrey than women? https://t.co/Lv2nqpDx3u

— Anthea Roberts (@AntheaERoberts) June 27, 2017

 

The geographic and racial diversity did not fare much better. Most of the experts appeared to be white. The vast majority were based in the U.S. One appeared to be based in Paris, another in Germany, one in London, and two in Singapore. Most were older, though there was more age diversity than other types of diversity. 

As a Western woman who works in international economic law, I am used to operating in a strongly male, and Western-dominated field. International commercial and investment treaty arbitration, for example, are criticised for being dominated by arbitrators who are “male, pale and stale.” I am pale, I am not male, and (at least so far) I am not stale. There are efforts underway to change this lack of diversity, such as the Pledge, which seeks to address gender diversity in international arbitral appointments. Some progress is being made, but it is slow and uneven.

For the most part, I tend not to speak much about gender issues in my field. I feel that one of the most important things that I can do is just to operate within the field as a woman without remarking on that fact — because it should be unremarkable. But I was moved to write about the Foreign Affairs piece because I simply could not believe that in 2017, a magazine could feel that it was legitimate to say that they were presenting the views of a broad pool of experts and then so strongly correlate “expertise” with the views of white, Western men.

Foreign Affairs bills itself as “The leading magazine for analysis and debate of foreign policy, economics and global affairs.” It seeks to be the place where readers go not just for commentary, but also for capital-E “Expertise.” With this ambition should come the recognition that its choice of experts plays an educative function in shaping readers’ ideas of who is an “Expert.” To call these sorts of panels “Brains Trusts,” as Foreign Affairs likes to do, does not help the cause of diversity. Nor does it help the pursuit of knowledge. Instead, it represents an extremely worrying example of sampling bias that perpetuates out-dated notions of expertise.

The gender inequality in the Foreign Affairs piece simply cannot be justified, though it is something that shows up elsewhere too, such as in op-ed columns and think tank panels about foreign policy. Beyond gender, the lack of geographic diversity was also troubling. The specific debate prompt asked whether the populist surge in advanced industrial democracies would bring economic globalization to a halt. Can only experts from advanced industrial democracies opine on this point? This seems like a questionable assumption. If the question had been about the effect of China’s rise on economic globalization, would only opinions from Chinese experts be appropriate?

Although the pushback against globalization has largely come from within developed Western states, economic globalization is a global phenomenon. Current world politics is seeing a shift from Western (U.S.) hegemony to greater multipolarity. Some of the rising non-Western states, like China, are ramping up their support for economic globalization, partly because globalisation has produced different winners and losers. If one wants to understand whether economic globalization is going to end, wouldn’t it be worth seeking the views of some experts from those other states as well?

I received a number of humorous responses to my tweet. One person answered my question with “Because ‘Jeff’ is a silly name for a woman?” Indeed. Another suggested that a possible solution was to institute a “One-Geoff policy.” Interesting approach. @WomenAlsoKnowStuff asked “Is there a #GeoffsAlsoKnowStuff account we haven’t come across yet?” Another person made a plea for Jeff Diversity: Geoffrey, Jeff, Jeffry, Jeffy, Jefrey, Jeffery, Jeffeory, Jefferson. “That would be Jefftastic,” I replied. I found all of this very amusing.

But the underlying issue is serious. Lack of representation is a pattern that shows up in other Foreign Affairs expert panels, despite previous criticism on Twitter. It sends the message that “expertise” on foreign policy, economics and global affairs is largely confined to white, Western, mostly American, mostly older men. It implicitly gives expertise a race, nationality, age and gender.

It is 2017 and this is not acceptable. We need to change our out-dated images of what it means to be an expert. We need to seek expert views from different ages, genders and geographical locations. We need to do this so that we can better understand the world in which we live.

First published by @AntheaERoberts on Just Security

Amending the KORUS FTA

Inside US Trade has some KORUS news:

Following President Trump's promise to renegotiate the U.S.-Korea free trade agreement “right now,” an administration official told Inside U.S. Trade the Office of the U.S. Trade Representative will formally request that both countries' joint committee convene in a so-called “special session” to consider potential amendments to the deal – a provision that sources said has never been used before, and one that runs counter to South Korea's conviction that KORUS has been a “mutually beneficial” agreement.

The administration official said USTR will request the special session under Article 22.2 of the agreement, which will start a 30-day clock until both countries' officials have to meet for the first time.

...

Sources said it was unclear what kind of amendments the Trump administration was looking for and that the urge to renegotiate the deal was largely related to what some called an “obsession” with the U.S. bilateral trade deficit.

The KORUS Chapter 22 text is here.

Add the KORUS FTA to the list of trade agreements and domestic trade laws for which new directions are being pushed by the Trump administration, but where we still have very little idea where this is all going to end up.  It's easy to call for a renegotiation or an amendment.  It's much harder to reach agreement.

Call for Papers: International Investment Treaties and National Governance

The Centre for International Law at the National University of Singapore is pleased to announce a call for papers for a workshop, entitled “International Investment Treaties and National Governance”, which shall take place on 16 -17 November 2017 in Singapore. 

Please submit a 1-page abstract (no more than 500 words) of the paper you plan to present to [email protected], no later than 31 July 2017.  We expect to be able to announce the result of the paper selection in early August. The deadline for the submission of selected papers of approximately 8,000 words will be 31 October 2017.

The workshop will take place on 16-17 November 2017 at the Centre for International Law at the National University of Singapore. Travel and accommodation will be provided for selected presenters travelling to Singapore. For colleagues wishing to attend the workshop without presenting a paper, registration is open too.   

For further inquiries, please contact Dr. Ayelet Berman ([email protected]).

View the full details here.