International Economic Law and Policy Blog

Periodic Review of Trade Agreements

The Trump administration has caused a lot of controversy by proposing a "sunset clause" for the NAFTA, under which the agreement would expire automatically after five years unless the parties agree to renew it. That proposal has come under a lot of criticism, and personally I think it adds uncertainty without offering much in the way of benefits. However, I do think a periodic review of trade agreements is worthwhile. So, instead of a sunset clause, what about adopting this proposal from an Australian Labor Party MP:

Ten year independent review of free trade agreements

There is also a lot we can learn from the trade deals we have already done - where they have worked and where they haven't.

At the moment there is no independent economic analysis of the existing free trade deals we have signed to see if the benefits we were promised have been delivered.

These are big deals.  We should know what the impact of them has been.

Again this sort of information has been called for from a number of organisations including the Australian Chamber of Commerce and Industry.

If we win the next election a Shorten Labor Government will do this.  We will instruct the Productivity Commission to conduct 10 year reviews of free trade agreements. 

I see a lot of value in this.  It will identify the sorts of things we should do differently in future agreements – and what we should seek to change in these ones.

Good companies do this. It’s the best way to learn and improve. Governments should do the same thing.

It will also put the heat on governments and the bureaucracy to try to get as much out of these agreements as we can.  That’s not happening at the moment. 

Compared to other countries we massively under-utilise the trade deals we sign.[18]  Part of that is because a lot of exporters don’t even know if an FTA applies to their business.[19]  Part of it is the complex, technical nature of these deals.  And part of it is problems with market access.  I’ll talk more about how we can tackle that in a moment.

The U.S. doesn't have an entity exactly like the Productivity Commission. Maybe the ITC could do the analysis; maybe the GAO; maybe some new entity. 

What I have in mind is not a modelling exercise, in which someone comes up with estimates of GDP growth. Rather, it should be a qualitative analysis of the specific effects of each part of the agreement.

U.S. Proposal on WTO Notifications

The U.S. has a new proposal to crack down on WTO Members who do not provide notifications on time:

4. It is broadly recognized that compliance with the notification requirements of the various WTO Agreements is inadequate. For example, the most recent report by the WTO Secretariat for the Committee on Subsidies and Countervailing Measures indicates that less than half of the WTO Members have provided their 2015 subsidy notification. ...

20. The Annex includes a draft Ministerial Decision that sets out proposed actions intended to improve compliance with, and the quality and effectiveness of, notification requirements in general, as well as under specific agreements. The United States proposes that Members consider adopting this decision at MC11 as an important contribution to improving the functioning of the WTO. If timing does not permit agreement to be reached for MC11, the United States proposes that Members consider continuing work on this proposal as a part of broader institutional reform post-MC11.

As set out in the draft Decision in the Annex to the document, the following penalties would apply to non-compliance:

5. That beginning in 2018, a Member that fails to provide a required notification under an agreement listed in paragraph 1(b) by the relevant deadline or has failed to provide any prior required notification shall submit to the relevant committee by 1 November 2018 and by 1 November of each subsequent year an explanation for the delay, the anticipated time-frame for its notification, and any elements of a partial notification that a Member can produce to limit any delay in transparency. If a Member fails to provide the complete notification within one year of the deadline, the Secretariat shall research the matter and, in consultation with the relevant delinquent Member, provide a notification on its behalf.

6. For an agreement listed in paragraph 1(b), if a Member fails to provide the complete notification within one year of the deadline and the delinquent Member fails to cooperate with the Secretariat so that the Secretariat is unable to obtain enough information to provide a notification, the following administrative measures shall apply to the delinquent Member:

(a) After one but less than two full years from a notification deadline, the following measures shall be applied to the delinquent Member at the beginning of the second year:

(i) representatives of the delinquent Member cannot be nominated to preside over WTO bodies;

(ii) documentation will not be provided to delinquent Member delegations in Geneva nor to the Member's capital;

(iii) the delinquent Member's access to the WTO Members' web site will be discontinued;

(iv) the Director-General will contact annually the Minister of the delinquent Member responsible for the WTO, or any other official at the appropriate level emphasizing the question of notifications;

(v) the Secretariat will report annually to the Council on Trade in Goods on the status of the delinquent Member's notifications; and

(vi) the delinquent Member will be subject to specific reporting at the General Council meetings.

(b) After two but less than three full years following a notification deadline, the following measures shall be applied to the Member at the beginning of the third year, in addition to the measures in paragraph 6(a):

(i) the Member will be designated as an Inactive Member;

(ii) the Inactive Member will be denied access to training or technical assistance other than that necessary to meet their WTO Article XIV:2 obligations; and

(iii) when the Inactive Member takes the floor in the General Council it will be identified as such.

 A couple thoughts on all this:

-- Is this a sign that the U.S. is trying to improve the WTO rather than abandoning it?

-- Is this overkill and impossible for the WTO Secretariat to manage? (Bob Wolfe suggested this on twitter).

-- Why not just file complaints against countries who do not notify? (Not all of them, but the big economies that matter most).

More GATT Negotiating History

Here's one more post on the original GATT negotiations from Roy Santana of the WTO:

_______________________________

GATT 1947 and the grueling task of signing [something…] 

The negotiations of the General Agreement on Tariffs and Trade were formally concluded on 30 October 1947. To mark the occasion U.N. press release No. 469 proudly announced that:

" there is no parallel to this achievement in any previous trade negotiations, all of which have been on a more limited scale. The completion of such a large number of simultaneous negotiations of such broad scope in a little over six months is in itself a remarkable feat. Since April 1947, when negotiations were opened, nearly 1,000 scheduled meetings between the representatives of the countries concerned have taken place in Geneva. In addition, there were continuous discussions of a less formal character between the delegations concerned. … During the time when both tariff negotiations and Charter discussions were proceeding, the delegations and their staff numbered approximately 760 persons."

How did they manage to pull it off?

While the bitter differences on how to handle tariff preferences were still being addressed by Clayton and Strafford Cripps (part 1 can be read here), and before the breakthrough of the "Brown-Helmore proposals" (part 2 can be read here), GATT negotiators had to face a number of though legal and practical issues in order to conclude. This was particularly challenging because they had to do so while simultaneously being involved in a larger negotiation of the "Preparatory Committee of the United Nations Conference on Trade and Employment" (Prepcom), which was at the time drafting the "Havana Charter for an International Trade Organization" (Havana Charter) that would create the International Trade Organization (ITO). In other words, the Havana Charter and the GATT negotiations were closely intertwined but separate negotiating processes.

This third installment "zooms" into the legal and practical issues that trade diplomats had to tackle in order to conclude the GATT, and is largely based on official negotiating documents and internal records. To stir your curiosity, I included hyperlinks to several documents, as well as to websites with additional information. Some of the issues are quite complex, but I did my best to simplify them to a non-expert audience. If you are an expert, please bear in mind that this took place 70 years ago, so the terminology and concepts used may have changed a bit since then.

A. THE PLAN

In 1947, and a year after the ITO negotiations had been launched, a group of negotiators was concerned by the amount of time that would be necessary to conclude the Havana Charter and implement the results of the tariff negotiations. To this end, they devised a relatively simple approach to avoid the undue delay of the tariff concessions:

1. Countries would launch a series of bilateral tariff negotiations in April 1947. The best treatment offered to any party in those negotiations would be extended to all the other parties through the tariff schedules. As I like to joke with my students, tariffs were so much at the heart of the GATT, that this is precisely why they decided to call it the General Agreement on Tariffs and Trade, and not something else. Unfortunately, having hundreds of pages of tariff schedules would not be enough: in the absence of other rules, they could be easily nullified or impaired through non-tariff measures. A basic framework of rules were definitively needed, but where could they come from?

2. Since most of the work of the Havana Charter had focused, precisely, on developing trade rules and tackling a number of non-tariff measures, negotiators opted for the easy way out and decided to copy and slightly adjust those draft provisions. This would have the benefit of avoiding lengthy discussions and allowing for the quick implementation of the tariff concessions. While a big part of the text could be borrowed from the Havana Charter, it would still be necessary to draft some provisions to conclude a self-contained General Agreement.

3. The GATT would be a temporary vehicle to quickly obtain results in the tariff front. The larger rule-making and institutional discussions of the Havana Charter would continue and these were meant to prevail. To this end, once the negotiations on the "Havana Charter" had been concluded in 1948, and its provisions had entered into force, that important "T" (i.e. the tariff concessions) would then be transferred from the General Agreement and absorbed by the institutional framework of the ITO. 

B. THE MEN FOR THE JOB

Now, how best to wrap these ideas and develop a General Agreement on Tariffs and Trade? Eric Wyndham White, Director of the Division on International Trade and Balance of Payments of the United Nations, was in charge of overseeing the larger work of the Prepcom, as well as the more limited GATT negotiations. However, given his multiple responsibilities, the task fell on the shoulders of his 29-year-old deputy, Julio Lacarte Muró, who would be assisted by Alan Renouf, legal counsel at the UN Secretariat. 

C. A LEGAL CONUNDRUM…

As early as May 1947, negotiators were concerned by the considerable delays that could arise from the domestic legal procedures necessary to ratify an international agreement, and were eager to find ways to expedite the implementation of the tariff concessions. Negotiators had the view that "it would not be practicable unduly to defer application of the tariff concessions. In addition, it is desirable that early proof should be given to the world of the benefits accruing from the present negotiations." (see p. 8 of E/PC/T/135) With this goal in mind, diplomats began exploring "the possibility of arranging for the Agreement to be applied provisionally, in anticipation of its definitive entry into force". They decided to survey whether there was way of provisionally applying the tariff concessions without having to obtain parliamentary approval and having to deposit an instrument of acceptance.

With a view to studying this question, Lacarte and Renouf circulated a questionnaire on 18 June 1947 (E/PC/T/100) asking participants what internal procedures would be required to bring the GATT into force and, in particular, to implement the tariff concessions at the national level. Most countries replied that both elements would require ratification by the national Parliament and preparation of an instrument of acceptance, so the procedures could take several months after concluding the deal (see E/PC/T/135, p. 8). Only a handful of countries, including Chile and the Customs Union of Syria and Lebanon, were in a position apply the tariff concessions without parliamentary approval. Internal records suggest that the Netherlands questioned the overall approach, as they were dubious about submitting the GATT for approval to Parliament while, at the same time, the Prepcom kept discussing very similar provisions for the Havana Charter. Why would the same or similar provisions have to be submitted twice to Parliament as separate agreements? However, the Dutch changed their mind and did not block the approach.

D. LOGISTICS, LOGISTICS…

While the official records reflect the hard legal questions and choices that had to be made, the internal records provide a unique window into the practical challenges faced by Lacarte and Renouf. These included "teleprinter messages" exchanged between the UN offices at Geneva and Lake Success, NY, as well as writing internal memoranda and other informal recordes. One of the very practical considerations was whether the "U.N. seal" could be used for the signature of the General Agreement, which ended-up being considered inappropriate as "the UN as an organization is not a party to it". (Teleprinter message No. 27 of 17 September 1947). Another teleprinter message from the same date warned that the Spanish translation of the draft Havana Charter would take at least 10 more weeks if given priority, which meant that only the English and French versions could be copied. Spanish would need to be dropped for the GATT to conclude…

E. CAN I SIGN? SIGN WHAT?

A more complicated issue had to do with the "credentials" of those who would be signing the General Agreement, which involved the question of whether the representatives in Geneva had to demonstrate that they had sufficient authority to sign on behalf of their countries. After initial discussions that began in June 1947, and based on the work by Lacarte and Renouf, instructions concerning credentials were circulated on 9 October 2017 (E/PC/T/237) and a subcommittee on credentials created a few days later (E/PC/T/257). This committee would ascertain whether credentials were in the proper form on a case by case basis.

Lacarte and Renouf spent a considerable amount of time chasing delegations and gathering information. At one point, a troubled Renouf questioned the approach as he considered that many of the delegates had insufficient credentials to sign a General Agreement. However, one of the teleprinter messages clarified that this initial concern could be overcome if, instead, they signed a "final act", which is a formal summary of the proceedings of a diplomatic conference. (See here). In that scenario, the representatives would have sufficient credentials, as the assumption would be that the authority to sign derived from the general authority that had been given to delegations when they had been accredited to the Prepcom. On that basis, it appeared reasonable "that heads of delegations could delegate responsibility to members of his delegation in course of ordinary committee business without securing specific authorization from home". (Teleprinter message of 18 September 1947)

The discussion on credentials also led to a peculiar problem arising from important geopolitical changes that were taking place in parallel: the partition of British India. The Dominion of India had thus far been represented by a single delegation, but there were plans to adopt an "Indian Independence Bill" on 15 August 1947, which would result in the succession of that government by the Governments of the Dominion of India and the Dominion of Pakistan. Ironically, Stafford Cripps, the lead UK negotiator who was clashing with Will Clayton, had in 1946 been a major player of this political event through his participation in the "Cabinet Mission Plan" that eventually led to India's Partition. By July 1947, Lacarte and Renouf were asked to clarify whether a representative of Pakistan would also need to sign the Final Act. In a letter dated 28 July 1947, Lacarte informed Mr Banerji from the Indian delegation that, in Renouf's opinion, it was possible for Pakistan to sign. However, Renouf felt that "it would be preferable, although not absolutely essential, that the Agreement be signed on behalf of India and Pakistan by different individuals each possessing and producing the necessary credentials from the two governments concerned." 

F. DECISION TIME

By August 1947, trade diplomats adopted key decisions for the future of the General Agreement. Firstly, they agreed that it would not be necessary to submit the GATT for approval to the larger Economic and Social Council, effectively decoupling it from the Havana Charter negotiations. Secondly, rather than signing the General Agreement itself, a "final act" would record in brief terms what had taken place, and would attach the text of the GATT and the tariff schedules. This would effectively prevent further changes to the texts and the tariff concessions that had been exchanged. Thirdly, the elements concerning the provisional application would be removed from the GATT itself and moved into a specially designed Protocol of Signature (see E/PC/T/135, p. 9). Unfortunately, there were also issues on that front. Following a series of discussions, it became apparent that only eight "key" countries would be in a position to sign the Protocol and six other countries would only be able to do it later on (Brazil, Cuba, New Zealand, Norway, South Africa, and Southern Rhodesia). Lastly, a detailed timetable was agreed, which intertwined with the World Conference that would take place in Havana later that year. (See E/PC/T/W.301, E/PC/T/W.313 and E/PC/W/W.333) 

G. 23 SIGNED, BUT IT WAS SIX THAT REALLY MATTERED

The efforts by Lacarte and Renouf finally paid off on 30 October 1947, when the Final Act of the General Agreement on Tariffs and Trade was signed by its 23 Contracting Parties, with English and French as the only authentic languages. On the same day, eight of those 23 countries were meant to sign the so-called "Protocol of Provisional Application" (PPA) thereby committing to provisionally apply the GATT and its tariff concessions: Australia, Belgium, Canada, France, Luxembourg, the Netherlands, United Kingdom, and the United States. However, Press release No. 479, shows that only six key countries were able to sign that day, as Australia and France had to be given until 15 November to do it. The six key signatures were those of P.A. Forthomme (Belgium), L.D. Wilgress (Canada), the Grand-Duchy of Luxembourg (J. Storm), Netherlands (A.B. Speekenbrink), United Kingdom (T.M. Snow), and the United States (Winthrop G. Brown).

Through the PPA, these countries undertook "to apply provisionally on and after 1 January 1948: (a) Parts I and III of the General Agreement on Tariffs and Trade, and (b) Part II of that Agreement to the fullest extent not inconsistent with existing legislation." Paragraphs 3 and 4 of the PPA allowed the remaining Contracting Parties to also provisionally apply the GATT at a later date. The PPA is also a good reflection of the overall plan that was explained above. Part I of the GATT encompassed Articles I (MFN) and II (Schedules of concessions) and, most importantly, the Schedules of concessions themselves. Part II reflected the draft provisions that had been copied from the Havana Charter discussions, i.e. Articles III to XXIII. Part III, comprised of Articles XXIV to XXXIV, dealt with the "treaty" aspects of the GATT. (Warning: remember that the "GATT 1947" that you see today does not incorporate a large number of subsequent changes).

A few months later, other countries signed the PPA including Brazil, Ceylon (Sri Lanka), Cuba, Czechoslovakia, India, Burma (Myanmar), New Zealand, Norway, Pakistan, South Africa, and Southern Rhodesia (Zimbabwe). Although Lebanon and Syria also submitted an acceptance, they individually withdrew from the GATT at the beginning of the 1950s. Chile and Uruguay failed to submit an acceptance in 1948, but became Contracting Parties subsequently, through a "Protocol of the Accession of Signatories of the Final Act". Many other countries quickly joined the GATT ranks either through the acceptance of dedicated protocols or through the figure of succession. For a detailed description of these accessions, see "GATT: Status of Legal Instruments".

H. AGAINST ALL ODDS

As you already know, things did not go as originally planned in 1947. Although the Final Act of the Havana Charter was successfully signed in March 1948, it was not ratified by the US Congress so the ITO never came into existence. What is perhaps less known is that the GATT, as an international treaty, never entered into force either. Unknown to the 23 delegations celebrating 70 years ago, it was the signature of the PPA by those six "key" countries, and not the 23 signatures of the "Final Act" of the GATT, that ultimately provided the legal hook that saved the multilateral trading system. The PPA allowed for the provisional application of the GATT for almost 50 years, and was finally terminated on 1 January 1996, one year after the entry into force of the Marrakech Agreement Establishing the WTO (see para. 3 of GATT document L/7583).

I. EPILOGUE

The events that took place in 1947 and 1948 forged the professional careers of those involved in the negotiations. Alan Renouf eventually became the Secretary of the Department of Foreign Affairs of Australia, and the Australian ambassador to Washington. Eric Wyndham White and Julio Lacarte remained deeply involved in the early work of the GATT and eventually became legends of the multilateral trading system. And, thanks to the 10 week delay in the translation, it took decades for Spanish to become an official language in the GATT.

Roy Santana

Note: I would like to thank Dolores Halloran and János Volkai for their insightful comments and suggestions on an earlier draft, as well as to Ali Khilji for pointing out the role of Stafford Cripps with British India's partition. All errors are mine. 

Clarifying AD Agreement Article 17.6(ii)

The United States has expressed concerns about various Appellate Body interpretations of WTO obligations, in particular relating to trade remedies, but as far as I know it has not offered any specific proposals to address the flaws it sees in the Appellate Body's approach to treaty interpretation in these cases. There was a proposal many years ago that involved, among other things, "partial adoption" of Appellate Body reports and interim review of those reports, but that doesn't directly address the interpretive process. I have wondered if it has some proposals coming on interpretation, but I'm getting a little antsy so I thought I'd offer one of my own.

The United States -- and others as well -- has suggested that the AD Agreement Article 17.6(ii) legal standard is not working properly. Here is the text of that provision:

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

The concern is that panels and the Appellate Body have been too reluctant to find that multiple permissible interpretations exist, and in this way are applying the provision with too little deference to investigating authorities.

Are there drafting changes that could ensure more deference to investigating authorities? Here's one idea I had. Article 32 of the Vienna Convention on the Law of Treaties says:  

Article 32: Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure; or

(b) leads to a result which is manifestly absurd or unreasonable.

Based on this provision, we know that there are situations where the Article 31 treaty interpretation process "leaves the meaning ambiguous or obscure." Throughout the history of treaty interpretation, there must be a fair amount of experience with this and some good examples to guide the way. Perhaps, then, we could use this to inform the Article 17.6(ii) standard. Specifically, if the Article 31 interpretation process "leaves the meaning ambiguous or obscure," there could be a presumption that multiple permissible interpretations exist. In this way, Article 17.6(ii) could be given a little more substance, and panels and the Appellate Body would have a better sense of how to apply it with the kind of deference the United States is looking for. (The "leads to a result which is manifestly absurd or unreasonable" language could also be used in the same way, but that seems a little harder to demonstrate).

The redrafted Article 17.6(ii) text could look something like this:

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations. As an illustration of a situation where more than one permissible interpretation exists, if the panel concludes that the interpretive approach set out in Article 31 of the Vienna Convention on the Law of Treaties leaves the meaning of a provision ambiguous or obscure, there shall be a presumption that the provision admits of more than one permissible interpretation, and the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

We could take the same idea even further. Here is the full text of Article 31:

Article 31: General rule of interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

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

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

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

(c) any relevant rules of international law applicable in the relations between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

The revised Article 17.6(ii) text could say that if the meaning is "ambiguous or obscure" after Article 31(1) alone is applied, then the presumption of multiple permissible interpretations would apply.

This is just one suggestion. There are probably many others along the same lines.

I have no idea how other Members would react to a proposal such as this. But at least it might get the discussion moving in a productive direction.

Reforming International Investment Law: Opportunities, Challenges, Paradigms

Here's some info on a conference on international investment law to be held at Boston College Law School on October 25:

The law school is hosting an international conference on the ferment surrounding international investment law and how this crisis can be an opportunity to reform the system towards better global governance.

The legitimacy crisis in international investment law today offers an opportunity to fundamentally re-conceptualize this legal regime away from its history as a functionalist system of investor protection, towards becoming a key element in global economic governance alongside international trade law. This conference explores both the nature of the crisis, and how the core policies and basic structures of investment law must be rethought and reformed so that investment law can more effectively discharge its key role in 21^st century global governance. The panelists represent a diverse range of regions, institutions and perspectives, but share a common interest in the balanced and coherent evolution of investment law norms and institutions, and a concern with the social and normative critiques of investment law circulating today.  We hope you can join us.

This is a product of the collaboration between BC Law and the Pontifical Catholic University of Chile through the Luksic family's generous grant to BC, and Sebastian (our PUC visitor this month) and I have assembled a team of reform-minded scholars from around the world to discuss various ways investment law can be reformed to better support human flourishing while safeguarding private development capital.

The conference runs 9-5pm and we hope you can join for breakfast before, coffee, lunch or afternoon coffee and some amazing sessions. 

More: Draft Principles for Investment Law Reform

For more information contact: Frank J. Garcia at [email protected]
Professor and Dean's Global Fund Scholar

Lighthizer's Trade Optimism

Jenny Leonard of Inside US Trade reports the following statements by U.S. Trade Representative Robert Lighthizer after the NAFTA press conference earlier this week:

U.S. Trade Representative Robert Lighthizer on Tuesday said he was seeking to shake up the congressional voting landscape for free trade deals, suggesting a retooled NAFTA could be a “historic agreement” backed by both the business community and labor unions -- as well as their champions on Capitol Hill.

“I think in the final analysis business is going to support it, if we do it well. In the final analysis we can get labor to support it; if we do that then we’re in a whole new ballgame now and going forward,” Lighthizer said after a contentious fourth round of NAFTA talks, which ended in a decision to delay the next discussions. “I think there are ways to do that, have it be something that’s balanced and really, in my judgment, at least more market-oriented.”

Lighthizer said he hoped to “get back to the days where there was a substantial majority of people in both parties that voted for these trade agreements,” adding “that is my objective right now. I want to have a huge number of Republicans and a huge number of Democrats.”

A broadly bipartisan deal would be “truly be a historic agreement and it could be really a paradigm change in terms of the way the Congress reacts to trade and that’s really what my objective is at this point,” he said.

...

...  Lighthizer, in his post-round briefing to reporters, acknowledged that for observers who have followed previous trade negotiations and their fate on Capitol Hill, his vision was “pretty unlikely.”

“But,” he said, “I think it’s important for the trading system that we end up re-establishing a solid majority for the kinds of things we’re doing. And that we not keep operating right on the fringe.”

First of all, I like the optimism here. We should aim for a broad popular and political consensus in favor of trade liberalization and trade agreements, and I'm glad this is Lighthizer's goal.

At the same time, an observer of the Trump administration might point out that some of the recent U.S. proposals seem designed to destroy trade agreements, not generate support for them. Well, there is that. However, there's always a lot of negotiating bluster, and not all of it will be carried through, so maybe we are getting too worked up about some of this. What if the Trump folks did something like the following in the NAFTA renegotiation:

-- They back off their "sunset clause" proposal, under which the agreement would expire after 5 years unless all parties decide to stay in. Periodic recurring votes on trade agreements sound like a political nightmare, especially if applied to every trade agreement. Maybe instead there could just be a more general review of trade agreements every few years, without a vote on staying in/pulling out.

-- They stick with their ISDS pullback (an opt-in, plus exclusion of MST and indirect expropriation). Maybe this, combined with tougher labor standards, would be enough to bring some liberal trade critics on board. (And on the other side, would anyone in Congress really care about losing ISDS? I know the business community insists they want it, but I see this issue as different than IP, where specific industries really depend on it, and I'm not sure how strong the ISDS support really is.)

-- They continue with their pullback on procurement liberalization, but to a lesser degree than currently proposed. I would hate this, as would the free trade supporters in Congress, but it could pull in a few more votes from trade critics. If I can survive with anti-dumping, I guess I can survive this.

-- They scale back their auto rules of origin proposal, which would likely cause job losses in the U.S. industry. Perhaps they could take out the U.S. content requirement demand (which establishes a really bad principle), and lower the regional content percentage.

-- They are able to convince Canada and Mexico to take out Chapter 19. That could help pull in a few of the sovereignty-focused conservatives, as well as shore up support from pro-trade remedies folks.

-- They accept Canada's proposed trade and gender chapter, which would make Canada happy, and give progressive U.S. law-makers something they hadn't even been asking for.

Think of all those elements -- or something roughly along these lines -- together. Is it possible that this package of changes could generate a comfortable political majority in support of a new NAFTA (and other trade agreements)? (Or is this take on the state of NAFTA far too optimistic, and I should adopt the pessimistic mood that many others have right now?)

Submissions for the new SIEL/Hart Prize in International Economic Law

From the SIEL and Hart Publishing:

Submissions for the new SIEL/Hart Prize in International Economic Law are now open!

ABOUT THE PRIZE

The SIEL/Hart Prize is a brand new prize awarded every two years to an outstanding unpublished manuscript by an early career scholar in the field of International Economic Law.

The manuscript can be a doctoral thesis or an original, book-length piece of scholarship. The manuscript can focus on any field of, or perspective on, International Economic Law.

The prize is sponsored by Hart Publishing

The winner of the prize will receive a contract for publication within the Hart series Studies in International Trade and Investment Law and a £250 Hart book voucher

Submissions are now open for the 2018 Prize! The deadline for submissions is 15th January 2018

The winner of the Prize will be announced on 15th May 2018 on the SIEL and Hart Publishing websites

Click here to see the eligibility criteria and details for submissions

HOW TO ENTER

Submissions and enquiries should be emailed to [email protected] by 15th January 2018

With Blinders On? How International Law Casebooks Teach Students in the United States

First published on Just Security.

The United States disagrees with many countries, including key allies, on important questions of international law, including the geographical scope of armed conflict, the extraterritorial application of human rights, and the existence and scope of a right to preemptive self-defense. Underlying these particular disagreements is a broader divide between US and non-US approaches to international law. One could identify many features of this divide (such as in approaches to WTO dispute resolution), but an underlying aspect worth highlighting is the way in which American international lawyers often privilege US views and practice above not only those of other states but also of international institutions, such as international courts and tribunals.

US international law often gives the impression of being US foreign relations law under a different name. In his Manley Hudson Lecture at the American Society of International Law in 2012, for instance, Professor (now Judge) James Crawford lamented that “much that passes for the study of international law in the United States academy is at best the foreign relations law of the United States with ideological interpolations.” The overwhelming impression on reading this body of scholarship, he concluded, was one of isolationism: “It is as if we heard the sound of one hand clapping; a conversation in which the United States is its own and only interlocutor.” If this approach had a theme song, Crawford ventured, it would be “it takes one to tango.”

When comparing commonly used international law textbooks and casebooks across a range of states in my new book Is International Law International? (OUP 2017), I frequently recalled Crawford’s observations. These books form the bread-and-butter materials used to teach the next generation of lawyers about how to conceptualize and approach the field. The US casebooks stood out for being exceptionally nationalized in terms of how heavily they relied on US cases, executive practice, legislation, academics and publications. This approach reflects and reinforces what Samuel Moyn has insightfully described as the parochialism of American cosmopolitanism: “international law in American debates [is often] not so much a breakthrough to an external perspective as a continuum of positions tightly bound to local assumptions and audiences.”

There are many ways one could demonstrate the highly nationalized focus of US international law casebooks. One graphic way to illustrate the point is to look at the percentage of cases referenced in the textbooks and casebooks published in different states: the exercise here is to compare the degree to which books from each state refer to cases issued by international courts and tribunals, cases by that state’s domestic courts, and cases by foreign courts (see Figure 1, below, from Chapter 4 of my book). The US international law casebooks were the only ones that contained a higher – and, indeed, significantly higher – percentage of cases from their own domestic courts (64%) than from international courts and tribunals (31%). They were also distinctly (though not uniquely) non-comparative, featuring few foreign court cases. 

Figure 1: Percentage of Domestic, International and Foreign Cases Cited in the Main International Law Textbooks/Casebooks from each State

There are likely many reasons why US casebooks might rely heavily on US practice, including that US courts produce a lot of case law relating to international issues, and the United States is a major world power whose practice is particularly important in constituting international law. Part of it may also have to do with the common profiles of the international law academics in the United States (see Chapters 1 and 3 available on SSRN). When looking at foreign cases, textbooks and casebooks from a wide range of other states also looked strongly to US and UK case law, a point that I develop more fully in the book. However, one result of this difference is that the US casebooks often contain a much stronger focus on US practice and foreign relations law than is true of the books used in many other states.

One can get a sense of how extreme this divergence can be by looking at the word clouds in Figures 2 and 3 below, which show how frequently different cases are referred to in a leading US casebook (Carter & Weiner) and a leading UK textbook (Evans). Both are called “International Law,” yet their content and focus differ radically.

Figure 2: Word Cloud of Cases in a Major US International Law Casebook (Carter & Weiner)

Figure 3: Word Cloud of Cases in a Major UK International Law Textbook (Evans)

Most of the cases featured in the US casebook (Carter & Weiner) were decided by US courts, primarily the US Supreme Court, and many deal with important issues of US foreign relations law. These issues include whether and when US courts have jurisdiction to hear claims based on customary international law under the Alien Tort Statute (Filartiga and Sosa v Alvarez-Machain), the power of the President/executive to settle claims by US nationals and establish military commissions (Dames & Moore and Hamdan) and the application of immunity and act of state doctrines by US courts (Samantar and Sabbatino).

By contrast, most of the cases featured in the UK book (Evans) were decided by international courts and tribunals, mainly the International Court of Justice, and most do not focus on UK foreign relations law issues. Few domestic cases feature prominently. The main exception is Pinochet. After that, it is possible to identify Jones v Saudi Arabia. Other than that, UK domestic cases are not particularly prominent. There is a much greater focus on cases before international courts and tribunals than there is on cases concerning the reception of international law into the UK legal system. Even the cases before international courts did not seem to be particularly geared toward cases involving the United Kingdom as a party.

The one major case both books had in common – Nicaragua v. United States – represents the intersection of US foreign relations law and international courts and tribunals. It is the case in which the US objected to the International Court of Justice’s jurisdiction and, when the Court nevertheless took jurisdiction, the US withdrew from the case and revoked its recognition of the Court’s compulsory jurisdiction.

Not all of the books in a single state necessarily have the same profile. While the Evans textbook was characteristic of the other UK books in its predominant focus on international case law, the Carter & Weiner casebook was the most domestically oriented of all of the US books and, indeed, of the entire study. The Damrosch & Murphy casebook (US) included an even higher percentage domestic cases (73% compared to 71%), but gave greater emphasis to some of the international cases, resulting in a more nationalized/denationalized mix. Nonetheless, as I detail in case studies in my book, on many issues it still relied very heavily on US materials and practice in a way that sometimes made it hard for US students to get an external perspective.

The Dunoff & Ratner casebook (US) was the least nationalized of the US books with only 46% of the cases referenced being domestic. However, even this book contained a higher percentage of domestic cases than the vast majority of the textbooks and casebooks of the other states surveyed. Some non-US books even deliberately made a point of featuring domestic practices, including Don Rothwell’s International Law: Cases and Materials with Australian Perspectives, Dugard’s International Law: A South African Perspective, and Hugh Kindred and Jean-Gabriel Castel’s International Law: Chiefly as Interpreted and Applied in Canada. Yet even these books contain lower percentages of domestic cases (28 percent, 27 percent, and 45 percent, respectively).

The divergence among the approaches adopted by these books raises a broader point, also asked by the ILA’s Committee on the Teaching of International Law, which is whether the teaching of international law should be “internationalist” (denationalized) or “municipalist” (nationalized) in its broader orientation. To what extent should textbooks seek to present a denationalized approach to international law or situate the field within the foreign relations law of a particular state? What do students gain or lose through each approach? And does it make a difference which state one is talking about?

A number of scholars have been critical of US international law casebooks for overemphasizing US materials and perspectives in a way that “tacitly equat[es] what is American with what is international or universal.” For instance, in a review of an earlier edition of the Carter & Weiner casebook (US), US international lawyer David Bederman criticized it for being “strikingly parochial” in its selection of materials, stating that the authors seemed to “purposefully . . . reject a diversity of voices for international law.” The unmistakable message of this “selection bias,” he concluded, was that “the only tribunals really competent to opine about international law—the only version of international law that actually matters to American lawyers—is that espoused by US courts.”

Although US casebooks might be critiqued for being too nationalized, taking too denationalized an approach can also be problematic as it may fail to situate students in their own state’s legal system and foreign relations law. This seemed to be a particular problem when textbooks from former colonial powers, such as France and the United Kingdom, were imported for use in some of their ex-colonies, such as Senegal and India. Students in those states often learned little, if anything, from these imported textbooks about how international law was received into their own states or what positions their states took on key questions of international law. It may be that these issues are covered in other subjects, like constitutional law, but it is also possible that many of these issues end up falling between the cracks.

When it comes to international law and foreign relations law, perhaps it inevitably takes two to tango. Maybe we need to aim for a balance between the two approaches within each book or, at least, a balance across books that are available within a given state. In some states, this might mean taking a more denationalized approach than currently exists to encourage more of an external and global perspective, whereas in others it might mean developing a more nationalized approach in order to foster a stronger internal focus. Arguably, the best approach may be to help students understand the international law approach and to situate their own state’s foreign relations law within that context so that they are able to move comfortably between the two without confusing one for the other. This approach would be more of a “compare and contrast” than an “either/or.”

Either way, it should be imperative for international law textbook and casebook writers and teachers to be explicit about when they are adopting a more nationalized or denationalized approach and what their choices are likely to reveal and obscure. Depending on the state in question, a particular state’s foreign relations law may be particularly important in constituting international law. For instance, international law cannot be understood fully without taking US practice into account because the United States is unusually influential in shaping the field. Yet international law also cannot be understood fully by focusing primarily on US practice because US perspectives on and approaches to international law are often not representative of those of the vast majority of other states.

There is room for a focus on international law and on a particular state’s foreign relations law but we should be careful not to confuse one for the other. We should also engage in the study of international law with self-awareness about where these boundaries exist and what biases and blind spots our approaches and materials might contain.

SPS Agreement vs. GATT

This is from the Indonesia - Chicken WTO panel report, circulated yesterday:

Fn. 318. We note that Indonesia's defence under Article XX(b) raises a food safety issue. We observe that the SPS Agreement, according to its Preamble, "elaborates rules for the application of the provisions of the GATT 1994 which relate to the use of sanitary or phytosanitary measures, in particular the provisions of Article XX(b)". Brazil, in its panel request, made a number of claims under the SPS Agreement, which it, however, did not develop in its submissions. In its response to a question from the Panel, Brazil took the view that it would have been for Indonesia to "claim" that the challenged measures are SPS (or TBT) measures (see Brazil's response to Panel's question No.1). We do not share the view that it would be for the responding party to make a "claim" that a measure is in the nature of an SPS measure. It is for a complaining party to raise claims under the specific covered agreements, not for the responding party to "invoke" such agreements. In our view, therefore, in the absence of evidence and arguments submitted by Brazil, we cannot address any SPS claims, even if we were to consider that they are applicable. See Appellate Body Report, US – Gambling, para. 281 (citing Appellate Body Report Chile - Price Band System, para. 173).

Are SPS cases getting too complex and unwieldy? Is it easier to make a GATT claim and then let the respondent invoke GATT Article XX, as Brazil chose to do here?

Some GATT Negotiating History

Here are two posts on the original GATT negotiations, from Roy Santana of the WTO:

CLASH OF THE GATT NEGOTIATORS  

September 1947: Following months of good progress in Geneva, GATT negotiators had entered a delicate phase where the most difficult issues had to be tackled, chief amongst which was the American demand for the new multilateral system to be based on the principle of the "most favoured nation" (MFN). With the proposed MFN clause, any privilege granted to any country would have to be granted immediately and unconditionally to all GATT Contracting Parties. Secretary of State Cordell Hull, the champion of free-trade internationalism, was convinced that US exporters should not continue to be harmed by the large number of preferential regimes that had proliferated prior to WWII, and in particular the preferences stemming from British Commonwealth of Nations, considered by the US a protectionist perversion. Political support was strong, as even President Harry Truman was behind the idea of wiping out all discriminatory trade practices.

Sir Richard Stafford Cripps, President of the British Board of Trade, disagreed and strongly continued to oppose the dogmatism of the "American free traders". For him, the immediate elimination of the "Ottawa System of Imperial Tariff Preferences" was a red line that could not be crossed, as it would severely impact the already weak post-war economies of the Commonwealth. Members of the British Empire enjoyed tariff preferences (i.e. a lower duty of rate than third countries), which had been designed in 1898 as a means for commercial integration, and further developed in the Ottawa agreement of 1932 as a response to the Great Depression. Back in Britain, the immediate implementation of the MFN clause was perceived as naïve dogmatism and a selfish idea by the US negotiators. While embracing the ultimate goal of eventually achieving MFN trade, the British considered that considerable time would be required for their economy to adjust. It was feared that an immediate elimination of tariff preferences would lead to a ruinous trade deficit and a balance of payments crisis, as it had nearly happened at the beginning of 1947 with the "dollar crisis". Australia, Canada and other Commonwealth members were also concerned about the American proposal and were not ready to sacrifice their economies in the GATT negotiations. Even John Maynard Keynes, the famous economist, had publicly argued that the ongoing British problems required the UK to use of tariffs to protect its domestic industries, expand output and increase employment.

While the Americans were willing to bargain for a fair deal, they considered that the British position was unacceptable, as the US would had to grant large-scale tariff concession before Britain would take action to reduce its trade preferences. Frustration within the American delegation was growing. In a letter to capital dated 30 September 1947, lead negotiator Winthrop Brown described the situation as follows: "It is an absolutely beautiful day. The lake is very blue, the hills look like a picture postcard, and the only blots on the landscape are British preferences about which I spend most of the night dreaming."

Secretary of State Cordell Hull was replaced in the midst of the negotiations by Will Clayton who, unfortunately for the British, continued insisting on immediate MFN conditions as the only possible outcome of the GATT. Why should the US, the most important victor of World War II, be asked to make one-side sacrifices? Sir Richard Stafford Cripps told an infuriated Clayton to simply withdraw some tariff offers if he was unhappy with the British concessions. The Anglo-American alliance entered a tense phase which was complicated by the personal animosity between Clayton and Stafford Cripps.

Convinced of the fairness of their positions, the Americans and the British dug their heels and grew deeply entrenched. Clayton had had enough with the British stubbornness and proposed to walk away from the negotiating table. Short of a miracle, the GATT negotiations appeared doomed to fail...

Source: Thomas W. Zeiler (1997), GATT Fifty Years Ago: U.S. Trade Policy and Imperial Tariff Preferences, Department of History, University of Colorado at Boulder.

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GATT 1947: How Stalin and the Marshall Plan helped to conclude the negotiations

Last week's post (read here) described the clash between Will Clayton, lead US negotiator, and Sir Richard Stafford Cripps, lead UK negotiator, who profoundly disagreed on the level of ambition that had to be achieved by the GATT negotiations. I went through the internal photo archives of the WTO and was lucky to find a picture of one of those bilateral meetings, a historical jewel that perfectly illustrates the tension between them. 

So, what happened? How did they manage to overcome such a profound difference?

Clayton's problem with the GATT went beyond the MFN clause and Starfod Cripp's defense of the Ottawa Imperial Preferences. Several key provisions that appeared to set strong rules prohibiting or regulating protectionist measures were then followed by exceptions that, in practical terms, nullified their value. For example, Article XI of the GATT was meant to prohibit introducing or maintaining quantitative restrictions, broadly defined as prohibitions or restrictions other than tariffs or taxes, but was immediately followed by Article XII which would allow Contracting Parties to restrict the quantity of the value of imports in order to safeguard its external financial position and its balance of payments. At the time, many of the countries negotiating the GATT faced acute balance of payments problems, including key markets such as the UK and practically all other European countries, which meant that the General Agreement would allow them to legally stop American exports. Even worse, the Protocol of Provisional Application contained a grandfather clause that would allow Contracting Parties to continue applying GATT inconsistent legislation preceding the General Agreement. What then, was the point of having a trade agreement that would open the American market to imports without achieving reciprocal access in the other markets? 

Clayton was not shy in expressing his frustration and was concerned that such a deal would not be approved by Congress. On 6 August 1947, he tasked Clair Wilcox, his deputy, to prepare a "short list" of margins of preference that the UK would have to eliminate, or else the US would be walking away from the negotiations. Anticipating a negative answer from the stubborn Stafford Cripps, Clayton advised the administration to drop the negotiations with the UK and to seek a multilateral deal with the others. Politically, the blame would lie squarely on the British for not moving enough on the preferences.  

While the strategy was arguably sound from the trade perspective, there were several other geopolitical elements that had to be considered by the US administration. Two people had the ultimate responsibility of deciding to walk away from the GATT: President Truman himself and Robert Lovett, Undersecretary of State who was closely following the discussions. The political dimension was infinitely more complex than the relatively straight forward trade aspects. Only two years before the deadlock with the UK, the leaders of the three victorious powers of World War II -Truman, Churchill and Stalin- had failed to reach consensus at the Yalta Conference of 1945 on how to reconstruct Europe and maintain post-war security. The western allies aspired to a security system based on democratic governments and the peaceful resolution of conflicts through international organizations, while the Soviet Union was determined to protect itself by dominating the internal affairs of the countries bordering it, a strategy that eventually became known as the "iron curtain". A Cold War was emerging from the midst of growing tensions between the Soviet and the Western allies. In 1947, the "Truman doctrine" was developed as a countermeasure to the Soviet Union's growing influence and with a view to containing communism. A key part of this doctrine was the Marshall Plan, which would assist in the reconstruction of all European countries willing to participate. 

These major political events not only impacted on the GATT negotiations but, in fact, sealed its faith. When considering Clayton's proposal to walk away from the negotiations with the UK, the Department of State was keenly aware that the Soviets had been closely monitoring the discussions, and seemed ready to fully exploit the emerging disagreement to their advantage. A collapse of the GATT negotiations would have been disastrous to the American foreign policy plans and weakened one of its most important strategic relationships. Based on derestricted US internal communications from that time, Prof. Thomas W. Zeiler concluded that it was national security officials, and not trade experts, who made the ultimate call. According to him, Robert Lovett successfully convinced President Truman that a "thin agreement" that would preserve international trade co-operation was instrumental to U.S. foreign economic and security policy. As weak as it was, a General Agreement was "better than none". 

Later in September 1947, as expected, the UK refused to accept the final "short list" that had been prepared by Wilcox. Following instructions of the highest order, the US delegation came ready to accept the UK proposal to rebalance the deal by withdrawing concessions that they had been initially tabled, thereby diminishing the US contribution. But even then, Clayton and his team were not ready to give up. Mindful of the leverage given to the US by the Marshall Plan, Clayton made a final attempt to convince the UK to eliminate at least some of those preferences. Unmoved, Sir Stafford Cripps replied that the UK Cabinet had a "large number of people who would not shed tears if the negotiation broke down altogether". According to Prof. Zeiler, Sir Stafford Cripps had correctly guessed the political importance that the Americans attached to the GATT and had bet that Secretary of State, Gorge Marshall, would prevent Clayton from walking away. In the end, Stafford Cripps was proven right as Marshall instructed Clayton not to insist on the immediate elimination of the imperial preferences and to accept what the UK was able to offer. With those instructions, technical officers were sent to Geneva in October 1947. Winthrop Brown, from the US, fleshed out the final details with James Helmore, from the UK Board of Trade. Ultimately, the "Brown-Helmore proposals" set the basis on which the GATT negotiations were concluded by late October 1947. For those with a passion for details, the formal exchanges between the US and the UK were recently derestricted by the WTO and can be consulted here. 

The text of Article I of the GATT 1947 remains a testament of Clayton's lost battle against the Ottawa Imperial Preferences: paragraph 1 sets the rule that his team would have liked to prevail, but is then followed by 4 paragraphs and six annexes with exceptions freezing the preferential rates under different arrangements. Article I:2(a) of the GATT expressly states that the MFN clause shall not require the elimination of any preferences among territories in Annex A, which lists the Commonwealth. Prof. Zeiler believes that Clayton had such a hard time digesting what he considered a terrible deal that he resigned shortly after the conclusion of the talks citing personal reasons. 

Although it is highly tempting to draw lessons from these often-ignored historical events, it is perhaps more enlightening to focus on how quickly things changed afterwards. The tariff preferences that Stafford Cripps so ardently defended were quickly dismantled in the first three rounds of tariff negotiations that followed (Annecy 1949, Torquay 1951 and Geneva 1955-56), once the Commonwealth economies began recovering. This was largely made possible by the Marshall plan and the increased security, transparency and predictability for traders that resulted from the General Agreement. Moreover, fortune had bigger plans for that "thin agreement" that Clayton so much despised. When the US Congress refused to ratify the Havana Charter in 1950, it not only killed the possibility of having an International Trade Organization as had been originally envisaged, but also placed the GATT as the last bastion of multilateral trade. The GATT was not the perfect agreement, but rather the agreement of what was possible. The rest is well-known: the GATT morphed into the bedrock on which the multilateral trading system was built and developed, including through the establishment of the World Trade Organization in 1994. 

As we approach the 70th anniversary of the signature of the GATT, let's not forget how difficult it was to conclude it and, more importantly, how perceived losses can be transformed into major victories.

PS: The signature of the GATT was also challenging in many ways, and I found some nice historical pictures, but I don't know if there is enough interest out there to write about it.

NAFTA Round 4: Time to Panic, or Time to Relax a Bit?

After NAFTA Round 4 wrapped up today, there were some strong words at the press conference. I can't find the full transcript of her remarks, but here is a news report on what Canadian Foreign Minister Chrystia Freeland had to say:

Freeland said the "unconventional" demands from the U.S. are making the work of negotiating the trilateral trade pact "much more challenging." She stressed that NAFTA has created jobs and opportunities for Canada, Mexico and the U.S. for the last 23 years that have benefited middle-class families.

"Yet in rounds three and four, we have seen proposals that turn back the clock on 23 years of predictability, openness and collaboration under NAFTA," she said. "In some cases, these proposals run counter to World Trade Organization rules. This is troubling."

...

She also warned that an updated NAFTA can't be achieved with a "winner-takes-all mindset," or one that tries to undermine, rather than modernize, the agreement.

And here is what U.S. Trade Representative Robert Lighthizer said:

Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts.  We have made some headway on the first objective, but even here we have sometimes seen a refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past.

In certain cases, partners who agree to TPP have actually rejected its text here.  I would have thought by now we could have cleared chapters dealing with digital trade, telecommunications, anticorruption, and several sectoral annexes, for example.

As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.  Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage.  Countries are reluctant to give up unfair advantage. 

That doesn't sound too positive! However, while this is not how I would approach this sort of thing, I can see how others would think it makes sense, especially for the purposes of playing to a particular domestic audience.

Despite the rhetoric, I was actually a bit encouraged by this round. This is the round where all the most contentious issues were put on the table, and yet the negotiations did not break down. Instead, the parties agreed on a much more realistic time-frame: 

Parties have now put forward substantially all initial text proposals.  New proposals have created challenges and Ministers discussed the significant conceptual gaps among the Parties. Ministers have called upon all negotiators to explore creative ways to bridge these gaps. To that end, the Parties plan on having a longer intersessional period before the next negotiating round to assess all proposals. Mexico will host the fifth round of talks in Mexico City from November 17-21, 2017. Additional negotiating rounds will be scheduled through the first quarter of 2018. 

The end of the year deadline they set up initially always seemed a bit unlikely to me. This new schedule is much more reasonable, and, I think, increases the chances of success. I still see a deal to be had, one that could satisfy Canada, Mexico, U.S. politicians and interest groups. I hope the negotiators figure out how to get there.

Announcing a new paper on International Expositions Law

I would like to announce the availability of my new research paper on international expositions law. The title of this paper is Steve Charnovitz, "Why the International Exhibitions Bureau Should Choose Minneapolis for Global Expo 2023."  The Bureau of International Expositions (BIE) will be making this important decision in November 2017.  The working paper explains how the United States recently strengthened its bid by a remarkably rapid bipartisan action by the US Congress and Trump Administration to rejoin the BIE which the United States had quit in 2002. This paper also reviews the legislative history of US membership in the BIE treaty going back to 1968 and provides a brief overview of the role of the BIE in supervising world's fairs and expos going back to 1928. The BIE is an unusual treaty in having its own customs regime and in making decisions by a majority vote. The paper describes the three competing bids for the expo by Argentina, Poland, and the United States, and discusses the political and legal factors that may be in play in choosing the winning proposal. The paper explains why the bid by Minneapolis/United States is the superior proposal because of the salience and definiteness of its proposed theme of "Healthy People, Healthy Planet." The paper can be downloaded from SSRN at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3053623.

Competing U.S. NAFTA Proposals

Here's a U.S. proposal, in the NAFTA renegotiation, to open Canada's dairy market a bit:

The proposal came as the U.S. made its first significant move on dairy, a traditional sticking point with Canada. Several insiders said Friday the U.S. has asked Canada to scrap its special classifications benefiting domestic producers for things like diafiltered cheese-making products.

On the other hand, here's a U.S. proposal to modify NAFTA Chapter 20 state-state dispute settlement:

The United States, at the fourth round of NAFTA negotiations, has tabled text on a state-to-state dispute settlement system that would allow countries to disregard panel decisions, effectively making the chapter non-binding, sources said.

One source said the proposed system would allow parties to determine whether a panel erred in making a decision that goes beyond the scope of NAFTA. A country could disregard a ruling if it decided a panel ruled in a way it deemed “clearly erroneous.”

The obvious problem here is that if responding parties can disregard rulings so easily, how will the U.S. enforce any rulings against Canadian dairy restrictions? And why would the U.S. dairy industry sign on to an agreement that would be so hard to enforce?

More on NAFTA Chapter 20, including a list of all complaints, here.

It's All About Sanctions:Why Trump's Decertification Won't Sink the Iran Deal-If Others Act Responsibly

There has been much handwringing in recent days about the imminent likelihood that President Trump will "decertify" the Iran deal.  But little of the media coverage has focused on the exact meaning and legal and political consequences of "decertification."  Often "decertification" is associated with the US pulling out of the deal, or even with its possible demise.  A careful read of the relevant US law, and the Iran deal itself (the Joint Comprehensive Plan of Action:JCPOA) shows that there's no reason to panic-yet.  As I'll try to explain, much will depend on how other participants in the deal, Iran itself and the EU, decide to respond.

The notions of certification and decertification refer to provisions of the 2015 Iran Nuclear Agreement Review Act (INARA).  This law requires that every 90 days the President endeavor to determine that Iran is in full compliance with the JCPOA and has not taken certain other actions that undermine its compliance with the deal. If the President determines that this is the case, then the President must certify. Otherwise, two courses of action are open to the President.  He can simply fail to certify or he can certify that Iran is in material breach of the JCPOA, and the breach has not been cured.     It is the latter that could probably most accurate be called "decertification."

Now the difficulty that faces Trump is the following: his Administration has already admitted that Iran is, so far, in full "technical" compliance with the deal. In this scenario, Trump would be in breach of the INARA if he fails to certify, unless it is the case that Iran has taken actions "including covert activities, that could significantly advance its nuclear weapons program". These would, logically, have to be activities that occurred or came to light in the last 90 days, i.e. after the previous certification that Iran was not, inter alia, engaging in such actions.  Finally, Trump could rely on the notion in the IRANA of the lifting of sanctions no longer being in the national security interests of the United States to justify non-certification. But this much is clear from reading the INARA as a whole: the certification procedure in the INARA is not a mechanism whereby the President can exercise political judgment about the overall desirability of maintaining the Iran deal; instead the President is required to play a supporting role in Congress's oversight of the Iran deal, and in Congress's determination that lifting of sanctions continues to be justified.

This goes to the consequences under the legislation of the President's failure to certify. Contrary to the impression that some have based on media reports, these consequences do not include (at least not directly) US withdrawal from the deal, or even exercise of the snapback provisions in the JCPOA (these, as will be discussed, allow a single participant, whose concerns about Iranian non-compliance are not resolved through a dispute resolution mechanism, to require the reinstatement of the Security Council resolution requiring sanctions of all countries).         

So what does follow if President Trump, as many expect him to do in the coming days, fails to certify? In brief, the failure to certify would allow the fast-tracking of legislation through Congress that reinstates US sanctions.  So, in a word, it's up to Congress.  There is no actual requirement that such legislation be tabled.  Now there are doubtless, besides Netanyahu sycophant and arch- warmonger Tom Cotton, some legislators who still may not like the deal.  But a significant number of those who voted against it at the time probably did so because of doubts about whether Iran would hold up its end of the bargain.  And yet the JCPOA participants, even including the hostile Trump Administration, have all said Iran is in compliance.  In sum, unless there is marked appetite in Congress for setting in motion the destruction of the Iran deal, Trump's failure to certify is largely meaningless (apart from it being taken as a signal by Tehran and other participants that the deal is shaky).

But let's say, for the sake of argument, that Trump's failure to certify were to trigger new legislation that reinstates US sanctions.  To the extent to which these are sanctions that the United States agreed to remove in the Iran deal, it would be in breach of the JCPOA. In such a situation, Iran could trigger the dispute resolution mechanism in Article 36 of the JCPOA. If after exercising  that option, Iran is still convinced that the US reimposition of sanctions is "significant non-performance" of its end of the bargain, then Iran would have the option of ceasing its own commitments in whole or in part, or withdrawing from the deal altogether.  

The question is whether it would be in Iran's interests to take such steps in response to Congress re-imposing sanctions.  Much of the benefit of the JCPOA to Iran comes from the renewed business ties with the EU and participants other than the US.  If they hold to the deal and keep the sanctions off, it would not seem rational for Iran to scuttle it, despite new US sanctions that are in non-compliance with the JCPOA.

As far as attacking the Iran deal,  the real "nuclear option"  (not to make a bad pun), is to invoke snapback, the provision of the JCPOA that would force all the participants to bring back the sanctions required by the UN Security Council in its pre-Iran deal resolution. Snapback can be triggered where, after exhausting the specified dispute settlement process, a participant still has an “issue of significant non-performance” and so notifies the Council.  The Council then is required to vote to continue the lifting of UN sanctions. In the absence of such a new Security Council resolution, the older resolution requiring sanctions snaps back.  (Of course, the US, as a permanent member of the Security Council, could veto any new resolution, thus ensuring snapback.)

One question is whether under US law it is the President or Congress that ultimately decides concerning the invocation of snapback.  A larger one is what options would be left in such a situation to salvage the Iran deal, given that, apart from Trump and Netanyahu, there is a huge global consensus that it’s been a good thing and would continue to be.  To invoke snapback, the United States must, besides exhausting dispute settlement under deal, have a good faith belief, arguably, that there is an “unresolved issue… of significant non-performance” by Iran of its obligations under the JCPOA.  Barring dramatic new evidence of violations, the EU and others might simply take the position that the United States is estopped from asserting “significant non-compliance” by the Administration’s own repeated determinations or admissions that in fact Iran is in technical compliance.  These countries might thus say that a condition precedent for the older UN Security Council sanctions resolution snapping back has not been met, and therefore that they will not reinstate their own sanctions.  Now, in theory, Congress might decide to (re-) impose secondary sanctions to punish foreign businesses that have dealings with Iran. That would probably lead to a confrontation at the WTO, and certainly to heightened tension with the US’s European partners.   It is far from certain that Congress would want to take such a step, even if it ever got to the point of giving its blessing to the abuse of snapback to execute President Trump’s errant judgment that the Iran deal must go.

The bottom line:  even if the President fails to certify the Iran deal in the coming days, its demise can be avoided-provided that the others in the room, so to speak, act like grown ups.          

What To Do With "Fair and Equitable Treatment" Provisions?

Politico has this report today:

U.S. ISDS PROPOSAL WOULD CUT TWO KEY PROTECTIONS: Expect USTR to put at least one of those “poison pills” forward at talks this week. The final U.S. proposal on investor-state dispute settlement comes not only with an “opt-in” provisions that effectively makes the whole process voluntary, but also rolls back two key investor protections private companies have been able to use under the mechanism in past U.S. agreements. U.S. business and agriculture groups have already signaled that a radical departure from the current U.S. approach to investor protections would be forcefully opposed by them.

Despite that warning, the U.S. will move forward on its ISDS proposal this week. It is said to no longer permit a violation of the “minimum standard of treatment” as grounds for foreign investors to request an independent arbitration panel if they feel government action has diminished the value of their investment.

The concept of a minimum standard of treatment, found in customary international law, establishes that governments must generally provide foreign investors with fair and equitable treatment under their laws. It is supposed to serve as a threshold for defining when a company experiences a "denial of justice." But critics have argued that the concept has repeatedly become subject to overly broad interpretations by arbitration panels.

Second, the NAFTA proposal the administration is expected to unveil would also eliminate “indirect expropriation” as an argument a foreign investor could use to file a claim. That would make it harder for a foreign company to win damages based on a government action that has only partially devalued an investment as opposed to a full seizure of the investment without proper compensation. Read the full story here.

Maybe I was thinking of this issue as I drove home today, but for some reason I noticed this quote on the Commerce Department building:

 

The full sentence from the Benjamin Franklin quote is: "Commerce among Nations as well as between Private Persons should be fair and equitable, by Equivalent Exchanges, and mutual Supplies."

It seems to me that "fair and equitable treatment" is a good general principle to follow, and maybe put in a preamble to offer general interpretive guidance, or include in some other way. But is it appropriate to make it a binding obligation that can be litigated? And to let investors invoke it with regard to the treatment of foreign investments? I have long had doubts:

the core principle [of investment agreements] should be nondiscrimination, with some of the broader principles currently in effect taken out. The point of constraints on discrimination is to establish a policy of openness toward foreign investment, so as to encourage capital to flow to its most productive use, at home or abroad. An anti-discrimination rule also prevents an escalating, back-and-forth economic competition between nations in the field of investment policy, where tit-for-tat retaliation against foreign investment may become a problem. One nation excludes its rival’s foreign investors; the rival then retaliates with a similar exclusion. In contrast, government actions that are not discriminatory can have an impact on investment, but not in the same way. Experiencing the incidental effects of domestic regulation usually does not lead to the same reaction as with intentional discrimination. While broader principles such as “fair and equitable” treatment or “indirect expropriation” sound reasonable in a general sense, and are part of many countries’ domestic legal systems, including them as part of the international investment regime pushes the regime into areas that bring great controversy, without addressing the core problem of promoting good economic relations through equal treatment for investors of all nationalities.

Not surprisingly, then, based on what I've heard about it so far, I like this proposal from the Trump administration, assuming it is close to what has been reported. (On the other hand, I'm still confused by the opt-in idea. Opt-in at what point? And is this a one-time decision?)

The politics of this proposal are going to be interesting. How will other ISDS critics, such as Senator Elizabeth Warren, react? One view is that this is the most they can possibly expect to get, so they should take it and celebrate. At the same time, I can imagine that they will find other reasons to object to a renegotiated NAFTA, and this won't sway them. Nevertheless, I'll be curious to see what they have to say about this specific proposal. 

It's a Big Week for NAFTA

Round 4 of the NAFTA renegotiation starts on Wednesday. After this round, we may have a better sense of the chances of a successful renegotiation. We have heard hints and rumors of a number of U.S. proposals, but this round may give us something more concrete.  Here are some key issues to watch -- the first three relate to liberalization (in some cases reversing it!), and the next three to dispute settlement.

Rules of origin on autos: A U.S. proposal to raise the required North American content levels, and include a U.S. content requirement, for auto trade might have the effect of excluding this trade from NAFTA's zero tariffs, as companies decide not to bother with trying to comply and instead just trade at MFN rates. The policy here is terrible, moving us away from free trade, but there is still an interesting political question of whether members of Congress and the auto industry can effectively push back, and also how Canada and Mexico will respond.

Procurement: Opening up government procurement to foreign competition has long been a core feature of trade liberalization, but the U.S. seems to want to pull way back on this now. Canada and Mexico won't like this at all, but how will they react? Will they just take away their own procurement liberalization in response? Will this be another instance of taking the free trade out of NAFTA?

Canadian agriculture restrictions: Canada is famous for closed markets in areas such as dairy. Will the U.S. push for liberalization of these markets? How can they expect to get this if they are proposing scaled back liberalization of the U.S. market in other areas?

ISDS: We are hearing that the U.S. is proposing some kind of "opt in" for ISDS. I don't fully understand the proposal. Would this opt-in take place at the end of the negotiation or some time after? Is it a one-time choice, or can the country change its mind later? And politically, I'm not sure how it could get much support from either the pro- or anti-ISDS camps in the U.S., although maybe some clarity on what exactly the proposal is would change how I see this.

Chapter 20 Dispute Settlement: The main problem I see with Chapter 20 dispute settlement is the broken panel selection process, but apparently the U.S. wants to "soften" the process in some way. I don't understand exactly what they have in mind, but it's hard to see how anyone would be on board with this.

Chapter 19 Dispute Settlement: This one is simple: The U.S. wants to eliminate it, while Canada and Mexico want to keep it, possibly with some reforms. Is there any middle ground to negotiate here? 

The big question hovering over the talks is this: Does the Trump administration want a successful NAFTA renegotiation? To reach an agreement, there has to be some balance. If Canada and Mexico concede on everything, the deal would not be politically acceptable for them back home. Can a balanced deal be reached? Or, as some people think, is the Trump administration hoping for failure so that they have an excuse to withdraw? At that point, we have to start thinking about what Joel has been saying.

The EU's New Anti-Dumping Calculation Methodology

This is from the European Commission:

The EU is changing its anti-dumping and anti-subsidy legislation to address state induced market distortions

Brussels, 4 October 2017

The European Parliament and the Council have agreed to change the EU's anti-dumping and anti-subsidy legislation following a proposal from the European Commission from November 2016.

The main change to the anti-dumping legislation is the introduction of a new way to calculate dumping in anti-dumping investigations on imports from members of the World Trade Organization (WTO) in case prices and costs are distorted because of state intervention. The changes do not target any particular country. ...

...

What will be the new methodology for calculating dumping margins, and what countries will be affected?

For WTO members, the dumping margin is normally calculated under the standard rules mentioned above. However, domestic prices and costs can be distorted owing to state interference. In this case, they do not provide a proper basis to determine the comparison with the export price. Under the new methodology when it is not appropriate to use domestic prices or costs due to these distortions, other benchmarks reflecting undistorted costs of production and sale will be used. These could include benchmarks, or corresponding costs of production and sale including in an appropriate representative country with a similar level of economic development as the exporting country. This new methodology will allow the Commission to establish the actual magnitude of dumping where distortions exist.

There is no list of countries to which the new methodology applies – it will be used in dumping cases if significant distortions are found in the exporting country concerned which impact on prices and costs.

What type of state interference affects the reliability of prices and costs in an exporting country?

State interference can occur, for instance, when a market contains a large number of firms operating under the ownership, control or guidance of the authorities of the exporting country. It could also occur where there is a state presence in firms allowing for interference in prices or costs or pursuing policy objectives. Other examples are public policies discriminating in favour of domestic suppliers, or exporters' access to financing pursuing public policy objectives.

Under the new methodology can costs in the exporting country be used to calculate dumping?

Domestic costs in the exporting country are used where they are undistorted by state interference. The legislation ensures that there is no ambiguity: distorted costs will not be used in the new methodology. This was a primary concern in the drafting of the legislation.

How would the Commission decide if the economy of a country is distorted?

The Commission intends to prepare and issue reports describing the specific circumstances of the market in any given country or sector. These reports and the evidence on which they are based would become part of any anti-dumping investigation into that country or sector, and would be publicly available. EU industry could also use information from these reports when lodging a complaint or a request for review. 

Will poor social and environmental standards be taken into account in the new methodology?

For the first time, social and environmental standards will play a role in the context of trade defence. Notably, where the Commission has a choice between a number of appropriate representative countries with a similar level of economic development as the exporting country under investigation, the level of social and environmental protection in the representative source country will be taken into account in the selection.

...

Do the changes grant 'market economy status' to any country?

These changes will not lead to any country being granted 'market economy status'. The proposal is about introducing a dumping methodology which can take into account the changes in the global trading environment, as well as changes in the legal framework of the WTO.

This new policy seems to shift away from formally giving countries "market economy status," and instead focuses on whether prices and costs are "distorted because of state intervention." Is that really any different? Is this just repackaging the same policies under a new name?

One aspect that is particularly interesting is the reference to "poor social and environmental standards."  The Commission says that where it "has a choice between a number of appropriate representative countries with a similar level of economic development as the exporting country under investigation, the level of social and environmental protection in the representative source country will be taken into account in the selection." One question I have is whether this will have any impact on social and environmental standards. At first glance, it's not clear to me how it would, and if that's the case I'm not sure I see the point of including this (except to be able to make reference to social and environmental standards in the press release). Another question I have is what impact this will have on dumping calculations. For that, we will probably have to wait and see how it is applied. A third question is, "taken into account" how exactly? Should the representative country have the same level of these standards as the exporting country? A higher level? A final question is whether this is permitted under the AD Agreement. What exactly is the basis for taking these factors into account in this context? It sounds kind of arbitrary.

NAFTA Conferences

It sounds like the NAFTA renegotiation is about to get exciting, with proposals on controversial issues such as ISDS, rules of origin, and dispute settlement coming soon. To hear more about all this, you might want to attend a (free!) conference or two in Washington, DC. Georgetown University has one on October 6, and then we are having one at Cato on October 26. 

The link to the Georgetown one is here. The full program is here. Here is the main part of the schedule (with me just added -- I'm not on the official program yet):

9:15-10:45am: Panel 1 - The Balance of NAFTA

• Rufus Yerxa | President, National Foreign Trade Council
• Laura Dawson | Director, Canada Institute - Wilson Center
• Gerardo Esquivel | Professor, El Colegio de Mexico
• Simon Lester | Cato

11:00am-12:30pm: Panel 2 - Wither NAFTA 2.0?

Chair/Discussant: Jennifer Hillman, Georgetown University Law Center
• Debra Steger | Professor, University of Ottawa
• Melinda St. Louis | Director of International Campaigns, Global Trade Watch
• Antonio Ortiz Mena | Senior Advisor, Albright Stonebridge Group
• Chad Bown | Senior Fellow, Peterson Institute for International Economics

2:30-4:00pm: Panel 3 - Domestic Measures to Bolster NAFTA

Chair/Discussant: Matthew Carnes, Georgetown University Department of Government/ Director, Center
for Latin American Studies
• Dany Bahar | Fellow, Brookings Institution
• Celeste Drake | Policy Specialist, AFL-CIO
• Edward Alden | Senior Fellow, Council on Foreign Relations
• Mario Delgado | Senator, Mexican Senate (MORENA)

 

The link to our Cato conference is here. Here is the schedule:

 

9:15 – 10:15AM	SESSION I: NAFTA’S ORIGIN & PURPOSE  John Weekes, Bennett Jones Rufus Yerxa, National Foreign Trade Council Moderator: Jim Bacchus, Former Chairman of the WTO Appellate Body
10:15 – 10:35AM	BREAK
10:35 – 12:00PM	SESSION II: THE DEBATE OVER NAFTA Marta Bengoa, City College of New York Steve Charnovitz, George Washington University Law School Dan Griswold, Mercatus Center Alvaro Santos, Georgetown University Law Center Todd Tucker, Roosevelt Institute Christopher Wilson, Wilson Center Moderator: Dan Ikenson, Director, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute
12:00 – 1:00PM	KEYNOTE LUNCHEON
1:15 – 2:30PM	SESSION III: POLITICS & REALITY Ted Alden, Council on Foreign Relations Phil Levy, Chicago Council on Foreign Affairs Ricardo Ramirez, World Trade Organization Bill Reinsch, Stimson Center Moderator: Scott Lincicome, Adjunct Scholar, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute
2:30 – 3:45PM	SESSION IV: HOW TO MODERNIZE NAFTA Christine Bliss, Coalition of Service Industries Amgad Shehata, UPS David Weller, Google Moderator: Inu Manak, Visiting Scholar, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute
3:45 – 4:05PM	BREAK
4:05 – 5:15PM	SESSION V: BREAKOUT SESSIONS  In the Shadow of NAFTA: Dairy, Lumber, and Bombardier Ed Farrell, OFW Law Dan Ikenson, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute Chris Sands, Johns Hopkins, School of Advanced International Studies Moderator: Colin Grabow, Trade Policy Analyst, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute Dispute Settlement Jennifer Hillman, Georgetown University Law Center John Magnus, TradeWins Mike Smart, Rock Creek Advisors Moderator: Simon Lester, Trade Policy Analyst, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute

 

 

The GNLU International Moot Court Competition (GIMC)

This is from the Gujarat National Law University, Gandhinagar (GNLU):

The GNLU International Moot Court Competition is GNLU’s flagship event, organized every year in February, by the University.

GIMC is one of the very few moots in the world that simulates the WTO dispute settlement mechanism, and India’s only moot on international trade law. For a decade, it has served as a unique platform for law students to explore nuances of international trade law and hone their research and advocacy skills. With each edition of GIMC, we strive to help teams realize their full potential by creating an atmosphere of amicable yet intense competition.

The 10th edition is scheduled to be held from the 7th to the 11th of February 2018.

For more details see here.