International Economic Law and Policy Blog

Forced Technology Transfer and the WTO

This is from the U.S. statements at the DSB meeting on March 27:

The United States would be pleased to discuss at length the seriously trade distorting policies adopted by China that are the subject of the ongoing Section 301 investigation mentioned in China’s statement. It is these policies, and not responses by the United States or other Members, that are a threat to the international trading system. 

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The [Section 301] report contains extensive evidence that China engages in the following four types of practices involving technology transfer:

First, China uses foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.

Second, China’s regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients.

Third, China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.

Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets.

These policies harm every Member, and every industry in every Member, that relies on technology for maintaining competitiveness in world markets and increasing its people’s standards of living.

Instead of addressing its harmful policies, China accuses the United States of “unilateralism.”

This criticism has absolutely no validity. The United States made no findings in the Section 301 investigation that China breached its WTO obligations.

From the outset of the investigation, the United States was clear that where an act, policy, or practice appeared to involve WTO rules, the United States would pursue the matter through WTO dispute settlement.

In fact, one of the areas of investigation – involving technology licensing – appears to be amenable to WTO dispute settlement. In particular, certain technology licensing measures adopted by China appear to deny patent rights to foreign IP holders and discriminate against foreign IP holders. Thus, China’s measures appear to be inconsistent with China’s obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement).

Accordingly, last Friday, March 23, 2018, the United States initiated a WTO dispute on this issue. The consultation request has been circulated, and WTO Members may review the request to see the TRIPS Agreement issues involved.

And to be absolutely clear, the United States made no findings in the Section 301 investigation that the licensing measures at issue are inconsistent with China’s TRIPs Agreement obligations. Rather, as for any WTO dispute, the matter will be resolved by the parties or findings may be sought through WTO dispute settlement.

In contrast, the three other categories of measures covered in the U.S. investigation do not appear to implicate specific WTO obligations. Nonetheless, if China wishes to inform the DSB that the three other sets of acts, policies, and practices covered in the Section 301 investigation do amount to breaches of WTO rules, it may do so now.

According to the U.S., the second type of practice identified in the Section 301 report, involving technology licensing, is "amenable to WTO dispute settlement," and the U.S. therefore filed a WTO complaint. But, the U.S. says, the other three categories "do not appear to implicate specific WTO obligations," and therefore the U.S. did not file WTO complaints.

But what about the first practice described by the U.S.? The U.S. says: "China uses foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies." Is this covered by WTO obligations? Section 7(3) of China's Accession Protocol states:

... China shall ensure that the distribution of import licences, quotas, tariff-rate quotas, or any other means of approval for importation, the right of importation or investment by national and sub-national authorities, is not conditioned on: whether competing domestic suppliers of such products exist; or performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China.  

The key language here is that "means of approval for ... the right of ... investment" must not be "conditioned on" "the transfer of technology." Along the same lines, paragraph 203 of the Working Party Report, which was incorporated into the Protocol, says: "The allocation, permission or rights for … investment would not be conditional upon performance requirements set by national or sub-national authorities, or subject to secondary conditions covering, for example, the conduct of research, the provision of offsets or other forms of industrial compensation including specified types or volumes of business opportunities, the use of local inputs or the transfer of technology." (Thanks to Julia Qin for pointing these provisions out in the comments a while back).

As described by the U.S. above, the concern related to this first practice is investment restrictions being used "to require or pressure technology transfer." Isn't the practice identified by the U.S. covered by the obligation in Section 7(3)? Of course, whether there is a violation in this case can only be determined by applying WTO law to the specific measures at issue. But it seems like there is a good argument that the U.S. concerns are covered by the obligation.

Operative Time Frames for the Imposition of the China Section 301 Tariffs

Jennifer Hillman asked me to post the following: 

Does anyone know what the operative time frames are for the imposition of the China 301 tariffs?

The President’s memorandum of March 22, in using the language “unreasonable or discriminatory and that burdens or restricts U.S. commerce,” has made it clear that any tariff action falls under the “discretionary” half of 301 (subsection (b)) and must be considered an action taken pursuant to Section 302(B)(1)(A). The memo goes on to say that USTR shall publish a proposed list of products and any intended tariff increases within 15 days of the March 22 date of the memo—or by Friday, April 6, 2018—and that, after a period of notice and comment in accordance with section 304(b) and after consultations with appropriate agencies and committees, USTR shall publish its final list and implement its tariff increase.

My question relates to the reference to 304(b) (19 U.S.C. 2414(b)) and what constitutes a “determination.” Section 304 seems to contemplate that USTR will make two determinations at the same time: a) whether China’s practices are unreasonable or discriminatory and burden or restrict US Commerce, and b) what action to take. (Section 304(a)). Section 304(b), which is specifically referenced in the President’s March 22 memo, talks about consultations before the determinations are made and then sets forth requirements for: a) an opportunity (after giving not less than 30 days’ notice) for parties to present views, including a public hearing if requested, b) obtain advice from the appropriate committees, and c) possibly requesting probable economic effects advice from the USITC. Section 305 then goes on to state (with some possibility for exceptions) that any actions under 301 should be implemented not later than 30 days after the determination to impose a remedy is made.

Would others agree that neither of the two determinations has been made yet or is the release of the President’s memo and the March 22 release by USTR of the excellent FINDINGS OF THE INVESTIGATION INTO CHINA’S ACTS, POLICIES, AND PRACTICES RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND INNOVATION UNDER SECTION 301 OF THE TRADE ACT OF 1974 constitute the first determination noted above? Note that the process leading up to the issuance of the FINDINGS included a request for consultations with the Chinese, two rounds of public comments and a hearing.

If neither determination as been made, when does the clock start ticking?

--when the list of products is released on April 6?

--whenever the public comments on the list and hearings (if requested) related to the list and changes to the list have been completed?

--when the advice from the private sector advisory committees has been provided?

--only after all of the above and USTR issues a revised list and formal determination of its “unreasonable and burdensome” findings?

Is all of this process subject to time limitations in the law other than the general 12 month limit in 304(a)(2)(B)?

When should we expect these tariffs to be implemented?

Anyone have any thoughts?

Will Anyone File a WTO Complaint Against the KORUS Steel Quotas?

Inside US Trade describes the steel quotas agreed to as part of the KORUS modifications as follows:

Korea’s trade minister Kim Hyun-chong announced at a press briefing Monday that Korea would receive a quota of about 2.68 million tons of steel exports to the U.S. annually, which is equivalent to about 70 percent of the annual average exports between 2015 and 2017.

This seems like a clear violation of Safeguards Agreement Article 11.1(b), which states:

(b) Furthermore, a Member shall not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side.^3,4 These include actions taken by a single Member as well as actions under agreements, arrangements and understandings entered into by two or more Members. Any such measure in effect on the date of entry into force of the WTO Agreement shall be brought into conformity with this Agreement or phased out in accordance with paragraph 2.

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^{3 An import quota applied as a safeguard measure in conformity with the relevant provisions of GATT 1994 and this Agreement may, by mutual agreement, be administered by the exporting Member.
4 Examples of similar measures include export moderation, export-price or import-price monitoring systems, export or import surveillance, compulsory import cartels and discretionary export or import licensing schemes, any of which afford protection.}

The KORUS steel quotas almost certainly fall within the description above.

But the question is, will anyone file a WTO complaint against one or both countries? The jurisprudence on "standing" related to whether a country has an interest in a measure seems broad enough that it shouldn't be much of a hurdle to bringing a case. On the other hand, if a country can't demonstrate any economic harm, there might not be much hope of being able to impose retaliation that could lead to compliance. Nevertheless, some countries may be able to demonstrate harm, and other countries might bring the case as a matter of principle just to get a ruling that there is a violation here.

The First Trump Trade Deal: The KORUS Renegotiation May Be Complete

Unlike NAFTA, the KORUS FTA renegotiation was not a complete overhaul, but more of a "refurbishing" of the agreement (as Ambassador Lighthizer put it the other day), one that was designed to avoid Congressional oversight. There are reports out now that the KORUS talks are complete, with what appears to be three major changes (from Reuters):

U.S. Truck Tariffs Extended

As part of the KORUS revision, the countries agreed to extend U.S. tariffs on Korean pickup trucks by 20 years until 2041.

No South Korean automakers currently export pickup trucks to the United States, but Hyundai Motor said last year it planned to launch a model there to catch up with a shift away from sedans.

Korean Vehicle Quotas Expanded

Under KORUS revisions, U.S. automakers will be able to bring into South Korea 50,000 vehicles per automaker per year that meet U.S. safety standards, not necessarily Korean standards, up from 25,000 vehicles previously.

Kim said no automakers previously exceeded the 25,000-vehicle threshold. Ford Motor Co and General Motors each shipped fewer than 10,000 vehicles last year.

Quotas on Korean Steel Exports Imposed

South Korea will be forced to cut its steel exports to the U.S. by 30 percent of past three years’ average

There may be other items as well, but all the news reports I've seen mention only these three.

If this is the entire deal, what should we make of this in terms of substance? On the first two items, one looks trade liberalizing and one looks trade restricting, but both may not have much impact in practice (for the reasons indicated in the Reuters article). However, the third one will have a negative impact on U.S. consumers (and possibly Korean producers, depending on the price effect), and will almost certainly violate Safeguards Agreement Article 11.1(b). Given the circumstances, what is the proper reaction here? Outrage that protectionism has increased and the rules-based system has been undermined? Or celebration that the outcome was not worse?

ADDED:

Inside US Trade reports on additional items:

Sources briefed on the currency language said USTR’s proposal went beyond what was negotiated in the Trans-Pacific Partnership talks, where the currency provisions were non-binding and outside the core text of the agreement. However, those sources added, the KORUS currency language is not as far reaching as some stakeholders and members of Congress had hoped.

 

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According to MOTIE, the U.S. agreed to transparency obligations on trade remedies as well as investor-state dispute settlement -- two key demands on the Korean side.

The Section 232 Tariffs in U.S. Court

The first challenge to the Section 232 steel/aluminum tariffs has been filed (thanks to Larry Friedman for the tip). This is an excerpt from the complaint:

Accordingly, Plaintiffs Severstal Export GmbH ("SSE") and Severstal Export Miami Corporation ("SSE M ") (collectively, "Plaintiffs"), by and through their undersigned counsel, bring this Complaint against the United States of America, United States Customs and Border Protection, Acting Commissioner Kevin K. McAleen.an, the United States Department of Commerce, Secretary Wilbur L. Ross, and President of the United States Donald J. Trump (collectively "Defendants"). The Complaint seeks injunctive relief against the imposition of the Steel Proclamation tariffs and a declaration that those tariffs are unconstitutional because they are not tied to the interest of protective national security.

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44. The Steel Proclamation states on its face that it was issued because the importation of steel articles threatened to "impair the national security." However, the national security basis stated in the Steel Proclamation is a pretext to the actual intent for the imposition of tariffs on steel articles: President Trump's regularly stated intent, both prior to entering the Office of the President, and after assuming the Presidency, to obtain a "positive trade balance" with other countries, to "bring jobs home", and win trade wars. Because President Trump did not base his decision on national security grounds as required under Section 232 in issuing the Steel Proclamation, the Proclamation is unlawful.

45. The Constitution vests in Congress all powers related to the regulation of trade, including the imposition of tariffs and duties, The Executive has only those powers delegated to it by Congress. President Trump exceeded the authority delegated to him by Congress in Section 232, since that authority was limited to circumstances where he was legitimately acting in the interest of national security. Since the asserted national security grounds were a thinly veiled pretext for the President's political agenda and his America First economic policy, the Steel Proclamation is unconstitutional and should be struck down. Sees e.g., Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 585-86 (1952) (courts have authority to review whether the President's actions violated the United States Constitution or another federal statute); .Panatna Refining Co. v. Ryan, 293 U.S. 388, 433 (1935) ("When the President is invested with legislative authority as the delegate of Congress in carrying out a declared policy, he necessarily acts under the constitutional restriction applicable to such. a delegation."). 

46. Because the Steel Proclamation was unlawfully and unconstitutionally issued, any actions taken by the Defendants to implement and enforce the Steel Proclamation are ultra vices and unlawful. 

Lighthizer on a Sunset Clause in NAFTA

Here is another interesting issue that came up at last week's House Ways and Means Committee hearing with U.S. Trade Representative Robert Lighthizer:  

Congressman Johnson: Can you tell me what the sunset clause is and what they are trying to accomplish with it?

Ambassador Lighthizer: Absolutely, Congressman. So, the way the sunset clause works is that at the end of five years, the president would make a decision as to whether or not the agreement should continue. It would not require congressional action; it would not be a difficult decision. The thought behind it is, number one, we have a number of members in this committee, particularly on the Republican side, that believe we ought to be sunsetting things. So I would have thought this would have been something that would be consistent with that. And the idea is ‘If it is such a good agreement, we will naturally roll it over. If it is not a good agreement, we won't.’ So, after a period of time, we ought to be sitting down and reviewing what happens to these agreements. There is nothing about trade in my opinion that makes it above all other logic in the way we approach the legislation. So the basic idea of an agreement like this is that you have baseline WTO trade, and then we are giving someone a benefit – a benefit versus the rest of the world. And they are giving us approximately a similar benefit. And that's how you create an FTA. If you find yourself in a position at some point, and I would suggest five years is a reasonable period of time, where what we gave and what we got is so out of balance, it’s reasonable to suggest that we ought to rebalance it. Things change, the economy changes. Indeed, I would think NAFTA is a classic example of why we have this problem. We have a 24-year agreement and that agreement… the whole economy has changed. We have gotten way out of whack in terms of what our deficits are – it’s having a peculiar effect on various industries, and it’s reasonable to sit back and look at it. But if the agreement is as business people tell me that it is going to be so spectacular, it strikes me that the president looking at it after five years won't be a huge hurdle. But’s it’s a reasonable thing to expect people to do, and that's the nature of it.

If the idea is that, "after a period of time, we ought to be sitting down and reviewing what happens to these agreements," I'm just not sure why we need a new clause in the agreement in order to do so. Isn't this exactly what the Trump administration has set in motion with KORUS and NAFTA right now?  Any individual party can undertake an internal review, or push for the other parties to review a trade agreement, at any time. And there already are provisions in place for the parties to review an agreement jointly, though the Joint Committees or Commissions set up to supervise the implementation of the agreement. Thus, as things stand now, parties can have a review whenever they want. A sunset clause wouldn't add to that.

What the administration really seems to want is more executive branch power over the agreement: "at the end of five years, the president would make a decision as to whether or not the agreement should continue." Congress has already delegated a lot of its constitutional power over trade to the President; I'm not sure it will be very enthusiastic about giving up more. If there is going to be a review of trade agreements, Congress is likely to want a say in the decision.

Do investment treaties de-politicize investment disputes?

When I hear people claim that ISDS/investment protection "de-politicizes" investment disputes, in the sense that governments can avoid the unpleasant task of espousing diplomatic claims against other governments, I usually respond by pointing out that ISDS claims create political controversy of another kind, so at best the whole thing is a wash. But what if ISDS/investment protection does not even get governments out of the espousal business? This is the abstract of a new paper from Geoffrey Gertz, Srividya Jandhyala and Lauge Poulsen: 

Empirical research on the impact of investment treaties has focused almost exclusively on their effect on foreign investment, with mixed results. Yet, another important promise of the treaties has been ignored altogether. Architects of the investment treaty regime, as well as many current proponents, have suggested that the treaties allow developing countries to de-politicize investor-state disputes; i.e. shield commercial disputes from broader political and diplomatic considerations with developed states. While this argument is widely accepted by legal scholars and practitioners and explicitly promoted by capital-exporting states, it has never been subjected to empirical investigation. We provide the first such test, using an original dataset of US diplomatic actions in 219 individual investment disputes across 73 countries as well as detailed case studies drawing on internal US State Department diplomatic cables. We find no evidence for the de-politicization hypothesis: diplomatic engagement remains important for investor-state dispute settlement, and the US government is just as likely to intervene in developing countries that have ratified investment treaties with the US as those that have not. Coercive American intervention in investment disputes is rare, but this is a general feature of American investment diplomacy after the Cold War, rather than one limited to investors with recourse to legalized dispute settlement procedures. These findings provide a critical corrective to our understanding of the investment treaty regime, and have important implications for understanding the effects of international legalization on developing countries.

An example from the paper may be helpful here:

In June 2006, the American investment company Iselo Holdings LLC, a small firm run by a former investment banker, purchased the Guatemalan telecommunications company Americatel Guatemala (‘Americatel’). The company had a pre-existing interconnection agreement with Telgua, the dominant telecom player in the country and part of Carlos Slim’s telecom empire. In October 2006, in the midst of a contractual dispute between the two firms, Telgua unilaterally disconnected 20 percent of Americatel’s capacity. This was a violation of the competition rules that Guatemala’s telecoms regulator – known by its Spanish acronym SIT – had agreed to as part of the Central American Free Trade Agreement (CAFTA), which had been ratified that same year. Americatel repeatedly appealed to SIT to enforce these regulations and filed injunctions against the regulator in Guatemalan courts. As SIT refused to act, the company turned to the US embassy for assistance, alleging that the regulator was discriminating against Americatel and failing to live up to its international legal obligations.

Officials from the United States Trade Representative (USTR) in Washington became involved in the dispute as well.²¹ In multiple meetings the embassy and USTR encouraged SIT to resolve the dispute by enforcing CAFTA’s competition rules. This had little effect, likely because Guatemala was in the midst of an election and change in administrations in late 2007 and early 2008. Frustrated with the lack of progress, Americatel began the formal procedures to initiate an ICSID claim based on CAFTA (interview with Americatel representative; 08GUATEMALA689).²² This prompted the Guatemalan government to act, as it preferred to rely on diplomatic negotiations rather than have the arbitration claim proceed (08GUATEMALA689). Several high-ranking USTR officials visited Guatemala and met with the Minister of Economy, the head of SIT, and officials from the Ministry of Communications (08GUATEMALA1036). American diplomats believed the Minister of Economy was motivated to settle the dispute, but saw “no indication” that the key agencies – SIT and the Ministry of Communications – wanted to change course and US officials thus predicted the ICSID claim would have to proceed (08GUATEMALA1036). Soon thereafter, however, the case was settled through the personal intervention of Guatemala’s President and Carlos Slim, who agreed to settle the underlying dispute between Telgua and Americatel – by buying out Americatel’s interests in Guatemala – and thereby obviate the looming CAFTA arbitration (personal interview with senior Americatel representative). While this did not address the broader shortcomings in Guatemala’s telecoms regulations, it ensured Americatel could salvage its investment.

As in the case of Oxy above, events in the Americatel case do not support the expectations of the de-politicization hypothesis. Access to investment arbitration provided a useful leverage point for the investor, but it was a complement rather than substitute for diplomatic interventions. Unlike in the Oxy case, the investor was not a major multinational but a relatively small firm owned by an individual, and it is implausible such a company would have the political power to bring pressure on the US government to intervene. Rather, American diplomats wanted to link – rather than compartmentalize – the dispute to broader Guatemala-US relations, namely the liberalization and effective regulation of Guatemala’s telecoms sector (08GUATEMALA1036). In fact, a senior Americatel representative reports that USTR was “disappointed” the case would not be going forward, because American officials “saw it as an opportunity from a broader perspective” (interview). The US did not explicitly threaten the host state government with a sanction or economic penalty – as in the Oxy case – and the Americatel dispute is thereby more similar to the majority of politicized diplomatic interventions observed in the cables. Yet the US government was still heavily involved in the dispute, despite the availability of investor-state arbitration.

Are the Section 232 Steel Tariffs Unconstitutional?

Here is the link to the March 15 podcast by Tim Meyer, Jeff Rosen, and discussing the issue of whether Section 232 violates the US Constitution.

https://constitutioncenter.org/debate/podcasts/trump-tariffs-and-trade

Brady-Lighthizer ISDS Exchange

Congressman Kevin Brady and U.S. Trade Rep. Robert Lighthizer had a good exchange today on ISDS at a House Ways and Means hearing. Here is a messy transcript (hopefully it is mostly accurate):

Brady: You know I'm confident you and your team are going to negotiate a pro-growth NAFTA that makes America stronger economically. To do that, and to maximize the economic growth from our now one of the most competitive tax codes in the world, to maximize on that we need more customers, and many of those customers live outside the United States. Many of them are in Mexico, in Canada. And when we compete and win on a level playing field, we grow American jobs here. But, to do that, we all sometimes have to invest in those countries to compete and win against China, Europe, and the rest of the world. But if that investment in those countries is to benefit America, our investors have to receive fair treatment from other governments. And many countries don't provide basic, substantive or procedural protections for American businesses. That means American investors have to rely on the investor state dispute settlement process to ensure that they are treated fairly, and they aren't discriminated against in these other countries, that the rule of law, the property, and investment is protected as it is in America. Without ISDS Americans’ property is left unprotected against discrimination, foreign seizure, or regulatory abuses and other forms of unfair action. This issue is basically a question ‘When other countries treat American investment unfairly, who has their back?’ The answer should be ‘America has their back.’ I'm deeply concerned about reports that Mexico and Canada are negotiating bilateral ISDS provisions without us, because USTR said it doesn't want to participate in that. Mr Schweiker from Arizona has led a letter that many of us have signed now, signed by 103 Republicans, affirming that inclusion of a strong ISDS is essential in the NAFTA agreement. Mr Ambassador, we've had many discussions about that; this is a key part of passing a strong NAFTA agreement that we're convinced you will negotiate well for us. So, how do you square USTR’s current proposal against the Congressional objectives that are in law, and that 103 of us have as of today said are crucial for passage of this agreement?

Lighthizer: Well, thank you Mr Chairman. Yes, I'm aware that there are some controversies surrounding ISDS.

Brady: You picked up on that?

Lighthizer: Yeah, I have picked up on that. I would say this about it: First of all, that whatever happens on ISDS, the kinds of issues that members are concerned about in terms of U.S. investment overseas will be able to be handled within the context of what we call Chapter 20 or the state-to-state dispute settlement. So it isn't like we will be in a position where there will be no recourse. So, that is the first thing I would say.

The second thing I would say that we have proposed an opt-in/opt-out proposal. We are skeptical about ISDS for a variety of reasons which I would like to go into if I have a second to do it. Number one, on the U.S. side there are questions of sovereignty. Why should a foreign national be able to come in and not only have the rights of Americans in the American court system but have more rights than Americans have in the American court system? It strikes me as something that at least we ought to be skeptical of and analyze. So a U.S. person goes into a court system, goes through the system and they're stuck with what they get. If a foreign national can do that and then at the end of the day say ‘I want three guys in London to say we're going to overrule the entire US system.’ So on the inward bound, it strikes me as a question of sovereignty and I view it myself as a conservative and a “sovereigntist”. So this is troubling in that respect.

On the outgoing side, there are many people who believe that in some circumstances, and I can discuss the varieties, that in some circumstances it's more of an outsourcing issue. So what is it? It's a situation where somebody says ‘I want to move a plant from Texas and I want to put it in Mexico; and when I go down there, I don't want to take the political risk that AMLO is going to win in Mexico and change my bargain. So I want the U.S. government essentially to buy political risk insurance for me.’ Our view tends to be that if you want to move a plant from the United States to Mexico, and the economics suggest that, then you should go with the economics, it is too bad, and your responsibility as a Congress is to make the U.S. more competitive so that isn't the problem. But if you're going there because we are underwriting the investment, we are putting our finger on the scale, we're encouraging you to move your plant down there, that's not the job in my opinion at least of the United States government.

I would say also this is an area that's not without controversy. This is, the National Association of States attorney general thinks this is a mistake. The Cato Institute, an issue which I don't always agree with, a liberty issue, they think ISDS is something that we shouldn't have. The National Association of State Legislatures which is controlled by Republicans is on record as against ISDS. So there are a whole variety of issues; I can go on and on and on. People will respond ‘Well we haven't lost cases in the United States in our position,’ and while in fact that is the case, we have come close to losing some. But more importantly we've had situations where real regulation which should be in place which is bipartisan, in everybody's interest, has not been put in place because of fears of ISDS. So I think it is something we have to think about very carefully.

Our view was that rather than have this mandatory ISDS provision, which we think is a problem in terms of our sovereignty in the United States, encourages outsourcing and losing jobs in the United States, and by the way lowering standards in a variety of places, that we should be very careful before we put something like that into place. So you say ‘What are the risks, what are the alternatives for these companies?’ The first alternative I’d say is state-to-state dispute settlement, the second alternative is if you go to any one of these companies and ask them ‘Why do you need this; why don't you put in place an arbitration provision in your contract?’ They'll all say ‘Well we could do that,’ and indeed they did do it - did it before we had ISDS. In a country like Mexico they subscribe to all the conventions and they have to enforce those. If they put that contract in arbitration provision in their contract, these things are then resolved in a similar manner, but without the United States ceding sovereignty in order to encourage people to outsource jobs. It's just not a good trade in my opinion. I realize however that it's a controversial provision and that my view is in the minority in some very intelligent caucuses.

Brady: Mr Ambassador, thank you for that defense – a couple quick thoughts before I turn to Mr Neal. There is no threat to sovereignty. Foreign investors have no more rights than American investors because in our country you have the greatest standards and protections for property rights, investment rights in the world – bar none. Secondly, your client is Congress. Speaking out for our agriculture community that wants you to have America's back when they have to invest in other countries, to win customers, energy, manufacturing, technology, services – every key industry in America has to compete against China and the rest of the world, and other countries, is saying ‘We need to have their back’ when they make their investments, and so you're right there is a disagreement there; we're going to continue to work together with you Mr Ambassador to get to a good place and make sure we're keeping this in a trade agreement and we have the backs of our American investors.

 

"Regulatory Chill" in NAFTA

This is from the NY Times:

The contentious negotiations over the fate of the North American Free Trade Agreement have veered into one of the world’s most pressing health issues: fighting obesity.

Urged on by big American food and soft-drink companies, the Trump administration is using the trade talks with Mexico and Canada to try to limit the ability of the pact’s three members — including the United States — to warn consumers about the dangers of junk food, according to confidential documents outlining the American position.

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Officials in Mexico and Canada — along with governments in Brazil, Peru, Uruguay, Argentina and Colombia — are discussing options like the use of colors, shapes and other easy-to-understand symbols that warn consumers of health risks. They were inspired in large part by Chile’s introduction of stringent regulations in 2016 that include requirements for black stop-sign warnings on the front of some packages.

But the Office of the United States Trade Representative, which is leading the Nafta talks on the American side, is trying to head off the momentum. It is pushing to limit the ability of any Nafta member to require consumer warnings on the front of sugary drinks and fatty packaged foods, according to a draft of the proposal reviewed by The New York Times.

The American provision seeks to prevent any warning symbol, shape or color that “inappropriately denotes that a hazard exists from consumption of the food or nonalcoholic beverages.”

...

In most cases, trade law allows governments to retain the right to make rules in the interest of public health, experts say, but the proposal by the United States appears to be aimed at curbing that.

Ms. Jones of the George Institute said research found that trade policy had also been used to try to block efforts to adopt warnings in Ecuador, Peru, Thailand, Chile and Indonesia. Chile has moved forward as has Ecuador, but with a less aggressive labeling system, Ms. Jones said.

Thailand and Indonesia “appear to have been deterred,” she said, adding, “We call this ‘regulatory chill.’”

I would be surprised if NAFTA goes further than the WTO or other FTAs in terms of requiring that product labelling be science-based or no more trade-restrictive than necessary, so I suspect this is just a misunderstanding of the U.S. proposal, or perhaps the result of some reporters talking only to trade critics and not to practicing trade lawyers. But in case anyone knows more about what is being proposed here, and there is actually something to it, I'd love to hear about it.

The issue came up at today's House Ways & Means Committee hearing with Ambassador Lighthizer (about an hour into it), but there wasn't much clarification about what exactly this proposed NAFTA provision says.

Litigating GATT Article XXI: The U.S. View of the Scope of the Exception

The U.S. submissions in the Russia - Traffic in Transit case are now available here. Here's an excerpt from the third party oral statement:

III. The Text of Article XXI, in its Context, Establishes That the Exception Is Self-Judging

11. Article XXI of the GATT 1994, in relevant part, states that “[n]othing in this Agreement shall be construed . . . to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests . . . taken in time of war or other emergency in international relations[.]”2 On its face, the text establishes two crucial points: first, nothing in the GATT 1994 prevents a Member from taking any action needed to protect an essential security interest; and second, the action necessary for the protection of its essential security interests is that “which it considers necessary for” such protection. That is, a Member has the discretion and responsibility to make the serious determination, with attendant political ramifications, of what is required to protect the security of its nation and citizens.

12. The self-judging nature of Article XXI is established through use of the crucial phrase: “which it considers necessary for the protection of its essential security interests.” The ordinary meaning of “considers” is “regard (someone or something) as having a specified quality” or “believe; think”.3
The “specified quality” for the action is that it is “necessary for” the protection of a Member’s essential security. Thus, reading the clause together, the ordinary meaning of the text indicates it is the Member (“which it”) that must regard (“considers”) an action as having the quality of being necessary.

In its responses to the panel questions, the U.S. cites to some GATT negotiating history. It doesn't appear that they have turned up anything more than I discussed here and here, but nevertheless, I think it's still worth it for others to dig around the archives. I'll be curious to see how the EU and others respond to the U.S. arguments on this point.

One thing I wonder about the U.S. position is whether it promotes a balance that favors U.S. interests going forward. If the exception is "self-judging," and is completely un-reviewable by a panel as soon as it is invoked, other countries could use this, without any sort of domestic process or justification, in complaints filed by the U.S. On the other hand, if there is a good faith requirement under Article XXI, any invocation by the U.S. at least has a chance of complying with any panel review, because the U.S. does have a process for determining whether security is at issue (e.g., Section 232) and its justification will have some basis.

 

Litigating GATT Article XXI: The EU's View of the Scope of the Exception

A clarification of the scope of the GATT Article XXI security exception may come sooner than expected, as Russia has invoked Article XXI(b)(iii) in the Russia - Traffic in Transit (DS512) dispute. The EU's third party submissions are now online: Third party written submission and third party oral statement. Here's an excerpt from the written submission:

61. Article XXI(b), nevertheless, differs form Article XX in that the term "necessary" is preceded and qualified by the terms "which it considers". These terms imply that, in principle, it is for each Member to assess by itself whether a measure is "necessary". However, once again, this does not mean that Members enjoy unfettered discretion and that panels must accord complete deference to a Member asserting the necessity of the measure.

62. Panels must review, within the analytical framework described above, whether invoking Member can plausibly consider that the measure is necessary. This limited review is necessary in order to ensure that the exception is applied in good faith by the invoking Member and prevent abuses.

63. In order to allow panels to conduct this limited review, the invoking Member, which bears the burden of proof, must provide the panel with an explanation of why it has considered that the measure at issue was necessary having regard to the factors mentioned above. Where, as in the present case, the invoking Member fails to provide such explanations, it must be concluded that that Member has failed to meet its burden of proof.

And this is from the oral statement:

21. The term "necessary" in Article XXI(b) of GATT 1994 must be given the same meaning as in Article XX. However, the terms "which it considers" imply that, in principle, it is for each Member to assess by itself whether a measure is "necessary". Again, this does not give the Member unfettered discretion. However, a panel's review should give deference to the invoking Member. The review should be limited to assessing whether the invoking Member can plausibly consider the measure necessary and whether the measure is applied in good faith. Since the invoking Member bears the burden of proof, it must provide the panel with an explanation of why it has considered the measure necessary in light of the factors mentioned above.

The panel was composed on June 6, 2017. The panelists are Georges Abi-Saab, Ichiro Araki, and Mohammad Saeed.

The Drafting History of GATT Article XXI: Where Did "Considers" Come From?

In my last post, I highlighted the comments of John Leddy, a U.S. delegate to the GATT negotiations, on the meaning and scope of the GATT security exception. But you probably noticed that the version under discussion as part of the New York draft does not have the crucial word "considers" in it, a word which provides part of the basis for arguing that the security exemption is "self-judging." So how and when did "considers" get in there? I don't have all the answers, but here is a partial explanation.

In the New York draft of the ITO Charter (corresponding with Article XX of the New York draft of the GATT, which was being drafted simultaneously and separately), the security exception was in Article 37, and was combined with the public policy exceptions that are now part of GATT Article XX. Here's what the security exception provisions looked like in this draft: 

SECTION H.
 
GENERAL EXCEPTIONS
 
Article 37
 
General exceptions to chapter V

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

(c) Relating to fissionable materials;

(d) Relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on for the purpose of supplying a military establishment;

(e) In time of war or other emergency in international relations, relating to the protection of the essential security interests of a Member;

...

(k) Undertaken in pursuance of obligations under the United Nations Charter for the maintenance of international peace and security. 

The date of this draft was March 5, 1947.

Soon after, negotiations started up again in Geneva. On July 4, 1947, the U.S. proposed (p. 13) moving the security exceptions to a different part of the Charter and re-wording them a bit: 

Article 94

General Exceptions.

Nothing in this Charter shall be construed to require any Member to furnish any information the disclosure of which it considers contrary to its essential security interests, or to prevent any Member from taking any action which it may consider to be necessary to such interests:

a) Relating to fissionable materials or their source materials;

b) Relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on for the purpose of supplying a military establishment;

c) In time of war or other emergency in international relations, relating to the protection of its essential security interests;

d) Undertaken in pursuance of obligations under the United Nations Charter for the maintenance of international peace and security.

This is where "considers" makes its first appearance, in the introductory clause to the provision. This version was discussed on July 24, as seen here (p. 4) and here (pp. 25-26).  Perhaps importantly, it was in this latter document that Leddy offered his explanation of the scope of the security exceptions (pp. 19-21). Thus, the U.S. proposal, with "considers" in it, was already on the table at that time.

When we get to the Geneva Draft of the GATT, dated August 30, 1947, there was additional re-wording, and "considers" had migrated down into the sub-paragraphs:

Article XIX

General Exceptions

1. Nothing in this Agreement shall be construed

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests, or

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests.

(i) relating to fissionable materials or the materials from which they are derived;

(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

(iii) taken in time of war or other emergency in international relations; or

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

That's all I could find about the appearance of "considers" in the security exceptions using the online archives. If anyone knows more, please tell us all about it!

The Drafting History of GATT Article XXI: The U.S. View of the Scope of the Security Exception

In the New York draft of the GATT, the security exception was in Article 37, and was combined with the exceptions that are now part of GATT Article XX. Here's what the security exception looked like in this draft: 

SECTION H.
 
GENERAL EXCEPTIONS
 
Article 37
 
General exceptions to chapter V

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in Chapter V shall be construed to prevent the adoption or enforcement by any Member of measures:
...
(e) In time of war or other emergency in international relations, relating to the protection of the essential security interests of a Member;

This language is the precursor to today's Article XXI(b)(iii) (the other sub-provisions of Article XXI were combined with it later in the negotiations).

During the discussions of this provision, in response to questions from another delegate, one of the U.S. negotiators provided this explanation of the meaning of this version of the security exception:

Dr. SPEEKENBRINK: (Netherlands): Just before you start, I would ask for some further clarification on (e). I see, "In time of war or other emergency in international relations, relating to the protection of the essential security interests of a Member". I have, I may say, read that phrase many times, and still I cannot get the real meaning of it.

What do we mean - "emergency in international relations"? Is that "immediate", through a war? - or what is the "emergency in international relations"?

The second point that is troubling me here is, what are the "essential security interests" of a Member? I find that kind of exception very difficult to understand, and therefore possibly a very big loophole in the whole Charter.

I might say that in a time of emergency we have no Peace Treaties signed, and I consider that it is essential for me to bring as much food to the country as possible, so that I must do everything to develop my agriculture, notwithstanding all the provisions of this Charter. It might be a little bit far fetched, but as it stands here it really is worrying me. I cannot get the meaning of it. 

CHAIRMAN: The Delegate of the United States.

Mr. J.M. LEDDY (United States): I suppose I ought to try to answer that, because I think the provision goes back to the original draft put forward by us and has not been changed since.

We gave a good deal of thought to the question of the security exception which we thought should be included in the Charter. We recognized that there was a great danger of having too wide an exception and we could not put it into the Charter, simply by saying: "by any Member of measures relating to a Member's security interests," because that would permit anything under the sun. Therefore we thought it well to draft provisions which would take care of really essential security interests and, at the same time, so far as we could, to limit the exceptions and to adopt that protection for maintaining industries under every conceivable circumstance.

With regard to sub-paragraph (e), the limitation, I think, is primarily in the time: first, "in time of war." I think no one would question the need of a Member, or the right of a Member, to take action relating to its security interests and to determine for itself - which I think we cannot deny - what its security interests are.

As to the second provision, "or other emergency in international relations," we had in mind particularly the situation which existed before the last war, before our own participation in the last war, which was not until the end of 1941. War had been going on for two years in Europe and, as the time of our own participation approached, we were required, for our own protection, to take many measures which would have been prohibited by the Charter. Our exports and imports were under rigid control. They were under rigid control because of the war then going on.

I think there must be some latitude here for security measures. It is really a question of a balance. We have got to have some exceptions. We cannot make it too tight, because we cannot prohibit measures which are needed purely for security reasons. On the other hand, we cannot make it so broad that, under the guise of security, countries will put on measures which really have a commercial purpose.

We have given considerable thought to it and this is this is the best we could produce to preserve that proper balance.

CHAIRMAN: Does that give satisfaction to the Delegate of the Netherlands?

Dr. A.B.SPEEKENBRINK: (Netherlands): Well, Mr. Chairman, I certainly could not improve the text myself. I only wanted to point out certain dangers. Otherwise I agree with it.

CHAIRMAN: In defence of the text, we might remember that it is a paragraph of the Charter of the ITO and when the ITO is in operation I think the atmosphere inside the ITO will be the only efficient guarantee against abuses of the kind to which the Netherlands Delegate has drawn our attention.

That's an insightful observation from the Chairman at the end.

EU Can Retaliate Immediately Against Trump's Metal Tariffs

EU Can Retaliate Immediately Against Trump's Metal Tariffs

Steve Charnovitz

9 March 2018

In a recent post about the Trump Administration's proposed Section 232 actions against steel and aluminum, Simon Lester comments that "I'm not convinced by the argument that because the national security argument is a sham, the measures can be treated as a safeguard measure, and therefore the retaliation is permitted." See "How Should Countries Retaliate Against the Steel/Aluminum Tariffs?, 6 March 2018.

That skepticism had long reflected my view too. Two wrongs do not make a right.  But I reconsidered the matter yesterday after watching a TV appearance by EU Ambassador David O'Sullivan. O'Sullivan argued that the EU has a "right" to retaliate.  He is correct.  Whether or not the national security argument is a sham (and of course it is), the EU has a right to act now.

The question of how to characterize the Section 232 action is a knotty one.  Often in WTO dispute settlement, there is a disagreement by the complaining and responding WTO member country as to which WTO provision applies to a measure that is the subject of a complaint.  Are the Section 232 actions just mere tariffs governed by GATT Article II, or are they antidumping duties, safeguard actions, countervailing duties, national security measures or some combination of the above?  Normally, when the issue is the legality of the action, questions as to the validity of causes of action are resolved in dispute settlement. But a different issue exists when the dispute is not only about legality. Here the issue is when and how countries can respond to Section 232 actions. 

In my view, the governing law appears in GATT Article XIX which addresses "Emergency Action on Imports of Particular Products." The WTO case law on this article has focused on the "unforeseen developments" precondition and certainly by that standard, the Trump metal tariffs would not qualify as a legal Article XIX safeguard. But the US emergency action on metal imports does not have to be GATT-legal for the European Union to invoke its so-called "rights" under Article XIX to engage in counterbalancing trade retorsion.

The subject of GATT Article XIX is trade action to suspend obligations in whole or in part or to withdraw or modify trade concessions. Unilateral trade actions to suspend GATT obligations are presumptively illegal, but can be legal under GATT Article XIX in prescribed circumstances. But the legal status of the obligation suspension (i.e., the Section 232 action) has nothing to do with the right of the European Union to respond to the US action that suspends obligations or modifies trade concessions.  In other words, the United States does not have to invoke Article XIX for the EU to be able to avail itself of the remedies under GATT Article XIX.  Thus, the recent empirical work of Chad Bown and others to quantify the trade remedies that would be available to the EU are entirely on point.

The remedies available to the EU are laid out in GATT Article XIX:3. Although these remedies have been limited by Article 8.3 of the Safeguards Agreement, since the procedural (if not substantive) prerequisites of a Safeguards-legal measure do not exist, the limitations of Article 8.3 do not apply.  Under those Article XIX provisions (see 3a), the United States is supposed to notify the WTO of the Section 232 action, and then after 30 days the "affected contracting parties" are free to respond to the WTO member taking the emergency action by suspending "substantially equivalent concessions or other obligations" the suspension of which is not disapproved by the WTO.  Obviously, there would be no consensus WTO disapproval of EU countermeasures and so the EU may lawfully retaliate 30 days after the US notice to the WTO. 

Moreover, under the rules in GATT Article XIX:3(b), if the US Section 232 action is taken "without prior consultation," and if the US action threatens serious injury, and if such damage would be "difficult to repair," then the right to retaliate by other WTO Members such as the EU, Brazil or South Korea would begin upon the taking of the Section 232 action by the United States.

One of the lessons of the economic sanctions over the years has been that an immediate response by the EU and others is likely to be more effective in changing the misbehavior of the target country (here the United States) than a 30-day delay would be.  Therefore, the EU should use its rights to retaliate on day 1 of the Section 232 actions.

One final point:  Given the continued action by the Trump Administration to eviscerate WTO dispute settlement by blocking the replenishment of the Appellate Body judges, there is estoppel against any US government argument that the proper response by the EU under DSU Article 23 would be to first bring a WTO case against the Section 232 action on steel and aluminum.

The Steel/Aluminum Tariff Country Exemptions

Presidential proclamations here and here. Canada and Mexico exempt for now. Here is the situation for other countries (from the steel proclamation):

9.  In adopting this tariff, I recognize that our Nation has important security relationships with some countries whose exports of steel articles to the United States weaken our internal economy and thereby threaten to impair the national security.  I also recognize our shared concern about global excess capacity, a circumstance that is contributing to the threatened impairment of the national security.  Any country with which we have a security relationship is welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country.  Should the United States and any such country arrive at a satisfactory alternative means to address the threat to the national security such that I determine that imports from that country no longer threaten to impair the national security, I may remove or modify the restriction on steel articles imports from that country and, if necessary, make any corresponding adjustments to the tariff as it applies to other countries as our national security interests require.

I've never seen anything like this. How is this process supposed to work? The White House fact sheet says this:

• The President welcomes any country with which we have a security relationship to discuss alternative ways to address our concerns, including our concerns about global excess capacity.  He has left open an avenue for potentially modifying or removing a tariff under certain conditions for individual countries.
  • Modification or removal of the tariffs would be possible if alternative means are agreed upon to ensure imports from a country no longer threaten to impair our national security.
  • Under the direction of the President, the United States Trade Representative is responsible for negotiations with countries that seek an alternative means to the steel and aluminum tariffs.

I assume all of the affected countries will get in touch with Lighthizer. But what are they supposed to say? What are the possible "alternative means"?

And what exactly is a "security relationship." Do China and the U.S. have one in relation to North Korea?

ADDED: Presumably they have in mind voluntary restraint agreements, but is any government really willing to sign one of those these days?

What a WTO Complaint Against Section 232 Tariffs/Quotas Might Look Like

In anticipation of possible U.S. tariffs/quotas on steel/aluminum imports under Section 232, citing national security, I'm going to run through the possible WTO claims against such measures. Let's hope everyone can talk the Trump administration out of this, but if not, a WTO complaint is an important element of fighting back, even if retaliation is taken at the same time.

Let's start with the obvious violations. If it's tariffs and quotas, there are clear GATT Article II and/or Article XI violations. Not much elaboration needed.

The interesting part is the GATT Article XXI defense. When the U.S. invokes Article XXI, what will the panel do with the issue? Roger Alford has laid out a couple possibilities:

The degree to which these exceptions are self-judging is an open question. According to one interpretation, a Member State can decide for itself whether a measure is essential to its security interests and relates to one of the enumerated conditions.  Another interpretation would recognize a Member State's prerogative to determine for itself whether a security exception is applicable, but would impose a good faith standard that is subject to judicial review. Under a third interpretation, a Member State can decide for itself whether "it considers" a measure to be "necessary for the protection of its essential security interests," but the enumerated conditions are subject to judicial review.

I have no idea what a panel would do here (aside from the obvious, which is to hope the parties resolve the dispute before it has to rule).

Beyond the GATT, there is also the AD Agreement. The Appellate Body said the following in the 1916 Act case:

124. Article 18.1 of the Anti-Dumping Agreement contains a prohibition on the taking of any "specific action against dumping" of exports when such specific action is not "in accordance with the provisions of GATT 1994, as interpreted by this Agreement". Since the only provisions of the GATT 1994 "interpreted" by the Anti-Dumping Agreement are those provisions of Article VI concerning dumping, Article 18.1 should be read as requiring that any "specific action against dumping" of exports from another Member be in accordance with the relevant provisions of Article VI of the GATT 1994, as interpreted by the Anti-Dumping Agreement.

Trump and others in the administration have made a lot of references to "unfair" trade and dumped goods in the context of steel and aluminum imports. Is there an argument that the measures imposed pursuant to the Section 232 investigation are, in part, a "specific action against dumping," and one that is not consistent with GATT Article VI? If so, then maybe they violate AD Agreement Article 18.1. And if they violate Article 18.1, it's not clear GATT Article XXI can be invoked (Article XXI begins with "Nothing in this Agreement shall be construed," with "this Agreement" being the GATT). Personally, I like the argument that GATT Article XX and Article XXI should apply to all the goods agreements. But I get the sense that most people disagree, so maybe it's worth making the Article 18.1 argument in the hopes of getting a finding of violation that can't be defended with Article XXI. (Of course, the U.S. can also argue that invoking Article XXI means there is no inconsistency with Article VI).

And then finally, there is my favorite kind of claim: A non-violation nullification or impairment claim. Whether or not the Section 232 measures violate WTO obligations, they certainly nullify or impair benefits. The problem is, even if you win this kind of claim, it's not clear how strong a remedy there is (see DSU Article 26).

There's one additional wildcard with a non-violation claim. Would the U.S. argue that invoking Article XXI means that even a non-violation claim cannot be considered? When I read the GATT Nicaragua Embargo case, it doesn't seem like the U.S. made that argument ("The United States recognized that a measure not conflicting with obligations under the General Agreement could be found to cause nullification and impairment and that an invocation of Article XXI did not prevent recourse to the procedure of Article XXIII"). But that was then, and this is now, so who knows.

This was all to get the discussion started. Any other thoughts from readers? 

Guest Post: The CJEU Strikes Again in Achmea. Is this the end of investor-State arbitration under intra-EU BITs?

This is a guest post from Dr. Szilárd Gáspár Szilágyi, a Postdoctoral Fellow at PluriCourts, University of Oslo

These are exciting times for both investment law and EU law professionals. The EU’s recent moves in international investment law have become the topic of much discussion, be it the conclusion of a new generation of FTAs with investment chapters (here, here, here), the Investment Court System (here, here), the plan to create a Multilateral Investment Court, or the faith of intra-EU BITs. In this short exposé I will briefly comment on the much-awaited judgment of the Court of Justice of the EU (CJEU) in Case C-284/16, Slovak Republic v Achmea BV, which seems to seal the fate of investor-State arbitration (ISA) under intra-EU BITS.

What are intra-EU BITs?

One could say that intra-EU BITs have become somewhat of a legal ‘anomaly’ from the perspective of EU law. Numbering close to 200, they were mainly concluded between Central and Eastern European states, prior to their accession to the EU, and older members of the EU. After the former acceded to the EU in 2004, 2007, and 2013, legal professionals soon started wondering whether these BITs between now EU Member States were compatible with EU law. This legal question had very important practical implications since EU investors became avid users of intra-EU BITs. For example, EU investors brought 13 out of 14 ISDS cases against Hungary under intra-EU BITs or/and the Energy Charter Treaty (ECT). Such ‘anomalies’ were one of the reasons why the EU Commission embarked on a campaign to end these agreements, even bringing infringement proceedings against several Member States to terminate their intra-EU BITs.

What happened in the Achmea case?

Prior to the dispute before the CJEU, the Achmea case concerned a dispute between a Dutch investor and the Slovak Republic. The Dutch investor initiated an UNCITRAL arbitration against Slovakia in 2008, pursuant to Article 8 of the Netherlands-Slovakia BIT (1992, NL-SK BIT). The investor claimed that Slovakia’s 2006 measures - to partly reverse the liberalization of the private sickness insurance market - had caused damages to its investments in Slovakia. During the arbitral proceedings, Slovakia raised an objection against the jurisdiction of the arbitral tribunal, arguing that after its accession to the EU in 2004, Article 8 of the NL-SK BIT became incompatible with EU Law. The arbitral tribunal dismissed this objection in its 2010 Award on Jurisdiction, Arbitrability and Suspension (pp. 68-72). In 2012, the arbitral tribunal rendered its Final Award and ordered Slovakia to pay damages in the amount of 22.1 million euros to the investor, for breaching the FET standard under the BIT and the obligation to ensure the free transfer of payments. Slovakia brought an action before the Higher Regional Court of Frankfurt to set aside that arbitral award, which was later appealed to the Federal Court of Justice of Germany. The latter referred a set of questions to the CJEU under the Article 267 TFEU preliminary reference procedure.

The German Court asked three questions. First, whether Article 344 TFEU precluded the application of a provision providing for ISA under an intra-EU BIT. Second, in case of a negative answer to the first question, whether Article 267 TFEU would preclude the application of such a provision. Third, in case the first two questions were answered in the negative, whether Article 18 TFEU precluded the application of this provision.

What did the CJEU decide?

Before laying out the main arguments of the Court, it is important that investment lawyers understand where this judgment fits into in the grand scheme of things. A recurring topic in the CJEU’s case law is whether adjudicative mechanisms outside the EU legal order are compatible with EU law. These cases can find their way before the CJEU either as preliminary references from Member State courts – such as in the present case – or as requests made by the Member States or the major EU institutions under Article 218(11) TFEU for an opinion on whether an international agreement is compatible with EU law. The underlying idea of these cases is that, in principle, EU law does not prohibit the EU and its Member States to set up or participate in extra-EU courts, provided these courts do not interfere with the autonomy and special features of the EU legal order.

Because of this latter condition several international courts have not received the CJEU’s blessing, such as the failed attempt to create a Court for the European Economic Area (which led to the creation of the EFTA Court), the failed attempt to create a European Patent Court, and the EU’s failure to accede to the European Convention on Human Rights. In other words, before investment lawyers might think that the CJEU is hostile towards investor-state arbitration, they need to understand the bigger picture that paints a CJEU, which is quite protective of its own ‘turf’ against other international tribunals and courts. Probably the only reason why the CJEU never had a problem with the compatibility of the WTO DSM with EU law is because no one asked the Court about this issue before the WTO Agreement entered into force. (In Opinion 1/94, on the competence to conclude the WTO Agreements covering services and intellectual property, the Commission did not ask this question).

Thus, considering this intricate case law, what first strikes the eye in the present case is the succinct way in which the CJEU decided it. Unlike the extensive Opinion of Advocate General Wathelet, which found no incompatibility between the ISDS mechanism under the NL-SK BIT and EU law (commentary here), the CJEU in the present case found such an incompatibility.

The CJEU held that the first and second questions referred to it by the German Court must be answered in light of several considerations. First, it is long standing case law that an international agreement cannot affect the allocation of powers under the EU Treaties and the autonomy of the EU legal system. This is enshrined in Article 344 TFEU, under which Member States undertake not to submit a dispute that involves the interpretation or application of the EU Treaties to a method of dispute settlement other than those provided for in the EU Treaties (para 32). According to the CJEU, the autonomy of EU law – with respect to both Member State law and international law- is justified by the essential characteristics of the EU legal order and its constitutional structure, such as the primacy of EU law and direct effect (para 33). Second, Member States share a set of common values that justifies the existence of mutual trust and Member States are obliged by the principle of sincere cooperation under Article 4(3) TEU to ensure the application and respect of EU law. Third, the EU judicial system – comprised of the CJEU and national courts - is based on the need to ensure its consistency and uniformity, a keystone of which is the preliminary reference system under Article 267 TFEU (paras 35-37). 

In light of these considerations, the CJEU predominantly based its arguments on the need to ensure the autonomy of EU law, its uniform interpretation and effectiveness. The Court held that Article 8 of the NL-SK BIT allowed an arbitral tribunal to take into account, as applicable law, the law of the contracting parties and international agreements between them, which also includes EU law. Thus, such an arbitral tribunal could be called “on to interpret or indeed apply EU law”, including the freedom of establishment and free movement of capital (para 42). It followed that the Court had to ascertain whether such arbitral tribunals are situated in the EU judicial system, which would ensure that their decisions are subject to “mechanisms capable of ensuring the full effectiveness of the rules of the EU” (para 43).

The Court found that this was not the case, since the arbitral tribunal was not part of the judicial systems of the Netherlands or Slovakia. Therefore, it could not be classified as a Member State “court or tribunal” under Article 267 TFEU and it could not make a preliminary reference to the CJEU. The Court could also not classify such an arbitral tribunal as a court common to several Member States, such as the Benelux Court of Justice. Furthermore, the CJEU held that the awards of such a tribunal are not subject to review by Member State courts to an extent that would allow them to refer a question to the CJEU on issues of EU law raised before the arbitral tribunal (paras 50-52). The Court also differentiated between awards of commercial arbitrations and investor-state arbitrations, as the latter remove disputes from the judicial systems of the Member States and thus the EU.

In conclusion, the ISDS mechanism under the NL-SK BIT could not ensure that disputes were solved in a manner that safeguarded the full effectiveness of EU law. Furthermore, such a mechanism would also call into question the principle of mutual trust between the Member States, as well as the preservation of the specific characteristics of the EU legal system and its autonomy.

It is not just the ‘autonomy’

It is important to stress that it is not only the ‘autonomy’ of the EU legal order that was important in this case, but also the ‘uniform’ interpretation and the ‘effectiveness’ of EU law. As the CJEU highlighted, because of the very limited review of ISA awards, there is no adequate mechanism to control how those tribunals might have interpreted and applied EU law. If such a control mechanism is lacking, then Member States might very well have to enforce an award that interprets EU law in a different way than the CJEU. This, on the other hand, would result in some Member States applying concepts of EU law in a different way than others. Thus, the uniformity and effectiveness of EU law would be in jeopardy.

One just needs to re-read the Achmea Award on Jurisdiction (pp. 68 and beyond) and understand why the CJEU held what it held. What the arbitral tribunal did, was to tell an EU Member State what is compatible with EU law (paras 245, 249) and what type of treatment EU law provisions cover (para 250). This is a clear interpretation of EU law, which would be very difficult to challenge by a domestic court under the New York Convention or almost impossible to do so in case of the ICSID Convention. In practice this would result in a binding interpretation of EU law, which – as the CJEU stressed out many times – is an exclusive prerogative of the CJEU.   

What are the broader implications of this Judgment?

The importance of this judgment is evidenced by the fact that the Grand Chamber rendered it and that 16 out of the 28 Member States intervened, together with the Commission.

In this short analysis, I will not tackle how this case fits into the CJEU’s existing case law on the relationship between the EU legal order and other international tribunals. Instead, I will point out the broader implications for the EU’s investment law and policy.

In preliminary references, the CJEU tends to use judicial economy and only answers the questions that are referred to it and those that it considers necessary to give an adequate answer to the referring national court. The CJEU chose not to answer the third question, since it answered the first two questions in the positive. Nonetheless, the implications of this judgment go beyond this specific case. While the case only concerned the compatibility with EU law of the ISA mechanism under Article 8 of the NL-SK BIT, the Court did not limit its holdings to this specific case. Instead, the language employed by the Court - for example, “a tribunal such as that referred to in Article 8 of the BIT” (49) or “arbitration proceedings such as those referred to in Article 8 of the BIT” (55) -  ensures that the arguments and holdings of this case have a wider application. In other words, any ISA mechanism under an intra-EU BIT, “such as” the one under the NL-SK BIT, is incompatible with EU law. This has several broad implications.

First, it means that the Member States – the ones that have not yet terminated their intra‑EU BITs and their sunset clauses – are under an obligation to ensure that they “remove” all the intra-EU ISA mechanisms that are “such as” the one in the NL-SK BIT (pretty much all of them). This obligation does not only flow from the present judgment, but also from Article 351 TFEU. This article obliges Member States to “take all appropriate steps to eliminate” the incompatibilities between their international agreements that precede their accession to the EU and EU law. The Court has interpreted this obligation to go as far as Member States having to denounce their prior international agreements.

Second, this judgment also has implications for any arbitral awards rendered under these intra‑EU BITs. Since these arbitral tribunals are now incompatible with EU law, any awards rendered by them will also be incompatible with EU law. In other words, under EU law Member States will be prohibited to enforce arbitral awards of tribunals constituted under intra-EU BITs. This means that these Member States will breach their obligations under the ICSID Convention and the New York Convention.

Third, what will happen to cases brought under the ECT[1] by the investors of one EU Member State against another EU Member State? One could argue that the ISDS mechanism under the ECT, to the extent that it is used between EU Member States and EU investors, is also incompatible with EU law. In such cases, the ECT would effectively function as an intra-EU BIT.

Fourth, last year Belgium requested the CJEU for an Opinion under Article 218(11) TFEU on whether the CETA ISDS mechanism is compatible with EU law. A similar mechanism was included in the EU-Vietnam FTA as well. There are strong signals now, as I have also argued several years ago, that such a standing Investment Court might also put into jeopardy the autonomy of the EU legal order, especially the jurisdiction of the CJEU to interpret and apply EU law. It is quite possible now that the Investment Court under CETA will be incompatible with EU law. In a way, the CJEU already eased the path towards such a possibility by providing the possibility to ‘split’ the investment and trade components of EU FTAs in Opinion 2/15.

Lastly, what about the Multilateral Investment Court? As is well known, the EU is pushing for such a court, which in many ways might address some of the legitimacy concerns faced by ISDS. Nonetheless, how should such a mechanism be designed so that it will also be compatible with EU law? The best tactical choice for the EU Commission would be simply not to ask the CJEU about the compatibility of such a future MIC with the EU legal order. Nonetheless, any of the other major EU institutions or the Member States are free to refer such a question to the Court.

 

[1] I thank Taylor St John for pointing this out

How Should Countries Retaliate Against the Steel/Aluminum Tariffs?

This is from Politico:

But European Union officials are already planning retaliatory actions, targeting products from politically sensitive Republican-run states, including the imposition of tariffs on Harley-Davidsons made in Speaker Paul Ryan’s home state of Wisconsin; duties on bourbon made in Senate Majority Leader Mitch McConnell’s home state of Kentucky; and duties on orange juice from Florida, a critical swing state.

That's all pretty standard stuff. Maybe it's worth getting a little more creative? Here are some thoughts:

-- Services are not covered in the same way goods are, so perhaps there are opportunities to retaliate against U.S. services in a way that does not violate trade rules, depending on what commitments were undertaken. For example, someone could ban Facebook. Or Twitter. Or just Trump's Twitter account.

-- Government procurement is only partially covered, so there are probably lots of opportunities to shift purchases to non-U.S. products.

-- Intellectual property is another possibility. Governments could order compulsory licensing of U.S. pharmaceuticals. Or invalidate trademarks held by the Trumps.

-- Canadian journalist Andrew Coyne suggests: "Rather than raise tariffs on American exports, why not lower them on exports of the same goods from other countries, giving them a leg up over the Americans in our market?"

-- Governments could build wind farms right near Trump's golf courses, which is something he hates. 

Some of these options have the advantage of benefitting consumers, unlike the EU's proposed tariffs.

Any other suggestions?

Ideally, talking about these measures would be enough to discourage Trump from applying the tariffs, and none of these measures would actually be imposed.

(For what it's worth, I'm not convinced by the argument that because the national security argument is a sham, the measures can be treated as a safeguard measure, and therefore the retaliation is permitted.)

Dispute Settlement in the NAFTA Talks

If you are looking for a distraction from the general panic about Trump's possible steel/aluminum tariffs, take a look at this from Inside US Trade:

Efforts to fix NAFTA’s state-to-state dispute settlement process have also progressed during this round, sources said. Mexico and Canada are making recommendations to fix the chapter – including, they said, suggestions about how to select panelists and how to describe their decision-making process. NAFTA’s state-to-state dispute settlement mechanism, contained in Chapter 20 of the agreement, has rarely been used because parties can unilaterally block the nomination of a panelist indefinitely.

At the fourth round last October, the U.S. proposed that panel decisions in state-to-state dispute settlement chapters be non-binding. Mexico disagrees with this proposal, as have a litany of business and labor stakeholders. Discussions this week have included talk of a mechanism through which a panel decision could be reviewed in “extraordinary” circumstances, sources said, and the U.S., to date, has not rejected that idea, they added.

I'm very curious about the suggestions on "how to describe [panels'] decision-making process." I know this is a big deal for the U.S., and I'll be interested to see what new language they come up with, and how it might affect the approach of panels.

The "mechanism through which a panel decision could be reviewed in 'extraordinary' circumstances" is also intriguing. Sounds like something short of WTO-style appellate review, which the U.S. has criticized aspects of.

Director of the Rules Division

The WTO Secretariat is advertising for a new Director of the Rules Division (application deadline March 28):

General Functions  The incumbent will lead the Rules Division, which is responsible for all matters in the areas of subsidies, contingent trade remedies (anti-dumping, countervailing measures and safeguards), trade-related investment measures, state trading enterprises and trade in civil aircraft including negotiations, dispute settlement, implementation and surveillance and technical assistance. Specific responsibilities will include: 1. Leading the Division, including defining the strategic objectives of the Division; setting the objectives for, and motivating, a multidisciplinary staff of lawyers, economists, trade specialists and support staff to meet those objectives; providing guidance to staff in carrying out their duties; reviewing the output and performance of the staff; and supporting the development of the knowledge and skills of staff, and ensuring appropriate staff training plans are in place and executed;  2. Contributing to the goals, objectives and management of the WTO as a senior manager in the organization. 3. Overseeing the work of the Division in respect of the operation of Committees responsible for implementation and surveillance of the Agreements within the Division's competence; 4. Overseeing the work of staff of the Division involved in dispute settlement, and ensuring the efficient management of procedural and organizational aspects of the panel process; 5. Managing the conduct of negotiations in the Rules area, including through advice to the Chairman of the Rules Negotiating Group and to the Senior Management, support to delegations and to WTO Secretariat senior management; 6. Building relationships with the Members in order to serve the WTO as appropriate, be it in committee work, negotiations, dispute settlement, or otherwise, while maintaining neutrality and observing the rules of conduct; 7. Overseeing the participation of the Division in the organization's extensive technical assistance and training programmes with regard to all matters under the Division's purview; such oversight extends to the preparation of teaching and training materials to this end, including for practical hands-on training of investigators and further development of e-learning training tools; 8. Working closely with the Director of the Legal Affairs Division in ensuring consistency in procedures and legal advice given to dispute settlement panels on horizontal/systemic matters;  9. Coordinating the Division's work with that of other Divisions, including providing substantive contributions to the work of other Divisions; 10. Liaising with relevant international organisations, NGOs, and private sector entities, including speaking engagements; and 11. Representing the WTO Secretariat in various public and academic functions in Geneva and abroad that address issues falling within the purview of the Rules Division.

This is kind of a big deal. Arguably, it's almost as big a deal as an Appellate Body Member position. I would imagine that a U.S. government trade lawyer who wants to ensure that WTO dispute settlement does not encroach too much on U.S. trade remedies would be very interested in who gets this job. Unfortunately, I don't know how much we'll hear about who all the candidates are. We'll just see the result eventually.

The Appellate Body's Review of the Meaning of Domestic Law

Here's something else from USTR's 2018 Trade Policy Agenda and 2017 Annual Report:

iv. Appellate Body Review of facts and review of a Member’s domestic law de novo

Another significant concern is the Appellate Body’s approach to reviewing facts. Article 17.6 of the DSU limits an appeal to “issues of law covered in the panel report and legal interpretations developed by the panel.” Yet the Appellate Body has consistently reviewed panel fact-finding under different legal standards, and has reached conclusions that are not based on panel factual findings or undisputed facts. 

The United States has also noted with concern the Appellate Body’s review of the meaning of Member’s domestic law that is being challenged. In a WTO dispute, the key fact to be proven is what a Member’s challenged measure does (or means), and the law to be interpreted and applied are the provisions of the WTO agreements. But the Appellate Body consistently asserts that it can review the meaning of a Member’s domestic measure as a matter of law rather than acknowledging that it is a matter of fact and thus not a subject for Appellate Body review. Furthermore, when the Appellate Body reviews the meaning of a Member’s domestic measure, it does not provide any deference to a panel’s findings of fact. As other commentators have noted:

[T]he logic of the Appellate Body’s finding [that panel findings on municipal law are issues of law under DSU Article17.6] is difficult to understand. Just because a panel assesses whether a domestic legal act – which represents a fact from the perspective of WTO law – is consistent or inconsistent with WTO law does not suddenly turn the meaning of the domestic legal act into a question of WTO law . . . . [T]here must . . . be a discernible line between issues of fact and issues of law. After all, the Appellate Body’s jurisdiction is circumscribed precisely by this distinction.

The Appellate Body’s approach is therefore not only contrary to WTO rules but again raises concerns about the purpose of insisting on an unnecessary and erroneous approach. 

(footnotes omitted)

I agree that it's a mistake to treat interpretations of domestic measures as a matter of WTO law for the purposes of appellate review. Here's what we said on this issue in our DSC for China - Auto Parts back in 2009:

Appellate Review of Issues of Fact and the Legal Characterization of the Facts

DSU Article 17.6 provides: "An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel." This provision defines the scope of appellate review, and, in doing so, reflects a distinction between legal and factual issues. In short, only "issues of law" and "legal interpretations" may be appealed. This language appears to exclude appeals of purely "factual" issues, although the Appellate Body has made clear that a panel's factual findings can be appealed under the more deferential standard of DSU Article 11 (under which the Appellate Body will determine whether the panel made an "objective assessment").

Roughly speaking, there are three categories of issues: pure law questions (questions of legal interpretation); pure factual questions; and mixed questions of law and fact, which are more accurately described as questions of applying the law to the facts or the legal characterization of the facts (the term used by the Appellate Body here). It is fairly clear that both pure legal questions and questions of legal characterization are considered "issues of law" or "legal interpretations" that may be appealed. However, the boundary between pure factual questions and legal characterization questions can be difficult to define.

In examining the measures at issue in relation to the claims under the Working Party Report, the Appellate Body offered some general guidance on its standard for reviewing panel findings on factual issues and issues of legal characterization. In this regard, the Appellate Body stated the following in paragraph 225:

The Appellate Body has explicitly stated that the municipal law of WTO Members may serve not only as evidence of facts, but also as evidence of compliance or non-compliance with international obligations. When a panel examines the municipal law of a WTO Member for purposes of determining whether the Member has complied with its WTO obligations, that determination is a legal characterization by a panel, and is therefore subject to appellate review under Article 17.6 of the DSU. The Appellate Body has reviewed the meaning of a Member's municipal law, on its face, to determine whether the legal characterization by the panel was in error, in particular when the claim before the panel concerned whether a specific instrument of municipal law was, as such, inconsistent with a Member's obligations. We recognize that there may be instances in which a panel's assessment of municipal law will go beyond the text of an instrument on its face, in which case further examination may be required, and may involve factual elements. With respect to such elements, the Appellate Body will not lightly interfere with a panel's finding on appeal.

Thus, the Appellate Body explained that it treats situations where "a panel examines the municipal law of a WTO Member for purposes of determining whether the Member has complied with its WTO obligations" as the "legal characterization" of the facts. These issues, the Appellate Body said, are "subject to appellate review under Article 17.6" (that is, the Appellate Body may review them de novo, with no deference given). In addition, the Appellate Body referred to situations involving "factual elements," such as "instances in which a panel's assessment of municipal law will go beyond the text of an instrument on its face, in which case further examination may be required." For these, the Appellate Body said that it "will not lightly interfere" with panel findings. (What this means is that it will show greater deference to factual issues than it would with legal characterization issues, where it would give no deference.)

The Appellate Body's statements here appear to draw the line between factual and legal characterization issues in a way that puts some issues with a high factual component and little or no connection to WTO law into the legal characterization category. In particular, the Appellate Body may be blurring two issues in relation to the legal characterization of the facts. Arguably, there are two separate issues involved with legal characterization. First, there is the examination of municipal law, which involves understanding the wording of the measure and how it operates. And second, there is the evaluation of whether that measure violates WTO obligations. The latter is clearly the legal characterization of the facts. However, the former seems more factual in nature, as it involves only the examination of the measures themselves, outside the context of any WTO obligations. The Appellate Body's apparent inclusion of the examination of the measures outside the context of WTO law as part of the legal characterization of the facts constitutes a broad scope for this category. Similarly, its view that factual questions are those that go "beyond the text of an instrument on its face" seems quite narrow, especially if these are the only issues that could be considered factual. Indeed, there may be cases where there is no examination of the measures beyond their text, in which case there would seem to be no factual issues at all if the Appellate Body's approach is followed.

Applying these concepts to this case, much of the Appellate Body's review of the measures at issue seems very factual in nature. Many of the questions it addressed involve the operation of the measures themselves, outside the context of whether these measures are consistent with the Working Party Report. As the Appellate Body itself put it in paragraph 226, it would examine the Panel's "construction of certain provisions of Decree 125." It is easy to understand how the evaluation of the consistency of provisions of Decree 125 with WTO obligations would constitute the legal characterization of the facts. However, the consideration of Decree 125 provisions on their own, outside the context of the WTO obligations in question, seems to be more of a factual question. In this regard, the Appellate Body's analysis in paragraph 227 through paragraph 238, following which it concludes that "the Panel's construction of Article 2(2), read together with Article 21(1), amounts in our view to legal error," does not even make reference to WTO obligations.

As a matter of policy, it may be desirable to give the Appellate Body a good deal of leeway in reviewing the measures that are being challenged. However, Article 17.6 explicitly narrows the scope of appellate review to "issues of law" and "legal interpretations." Arguably, the Appellate Body's decision to consider the panel's construction of the challenged measures, outside the context of WTO obligations, as a legal characterization issue stretches the boundaries of this provision, as the Appellate Body seems to have taken a very broad view of what constitutes a legal characterization question.  

Most people I talk to about this agree that the Appellate Body got it wrong. Will the Appellate Body change its position at some point?

Summing up the Steel/Aluminum Tariff Situation

Here's a concise summary of what is happening with the Section 232 steel/aluminum tariffs: President Trump said some things yesterday about tariffs on steel and aluminum. We'll find out next week (or later) what, if anything, it means.

NAFTA Chapter 19 vs. The CIT

A while back, I said I would be trying to gather some evidence on the relative impact of appeals to NAFTA Chapter 19 vs. appeals to the U.S. Court of International Trade. Well, I finally have some data, but let me clarify in all caps that it is PRELIMINARY AND INCOMPLETE. But it's something, and I know people are interested, so here it is.

Some Cato colleagues and I looked at all ITC AD/CVD final injury determinations, in investigations and reviews, from 2007 to 2017. (We focused on the ITC rather than Commerce because the determinations are more straightforward (affirmative or negative), and we only went back to 2007 just to make the task more manageable and get some results quickly. We'll try to do more later.) Here's what we found.

In that period, there were 330 ITC determinations involving countries other than Canada and Mexico, and 33 determinations involving Canada/Mexico. (There was some overlap, as some determinations covered Canada/Mexico and other countries as well).

Of the 33 determinations involving Canada/Mexico, 3 were appealed to a NAFTA Chapter 19 panel and resulted in a ruling (3 others were appealed but the proceeding was terminated before a ruling).

Of the 330 cases involving other countries, 29 were appealed to the CIT.

In response to the NAFTA Chapter 19/CIT rulings in these appeals, the results were as follows.

For the NAFTA Chapter 19 cases, the panel found a violation in all 3 cases, and remanded to the ITC. In all of these cases, the ITC issued redeterminations that reached the same result. Two of these redeterminations were reviewed by the NAFTA Chapter 19 panel, and were sustained.

For the CIT cases, the court found no violation in 22 cases, and found a violation in 7. In the 7 cases remanded to the ITC, the ITC changed its ruling from affirmative to negative in one of these.

Let me repeat the caveat that this data is PRELIMINARY AND INCOMPLETE. We are still working on it, and please feel free to provide comments and suggestions.

Call for Papers— G2 Conference on Resolving Disputes in International Economic Law

This is from Georgetown's Institute of International Economic Law and the Graduate Institute, Geneva's Center for Trade and Economic Integration:

 

Georgetown's Institute of International Economic Law and the Graduate Institute, Geneva's Center for Trade and Economic Integration will be hosting a one-day conference on resolving disputes in international economic law, on July 11, 2018. 

 

The G2 conference will explore dispute resolution broadly, comparing insights and strategies from international trade, financial regulation, tax and monetary affairs. Academics from law, economics, and political science, as well as regulators and policymakers, are invited to participate, and we hope to provide exceptional conversations and strong networking opportunities for those in the field.

 

The call for papers can be found here. Paper proposals are due by March 30. 

What Is the Precedential Value of Appellate Body Reports?

This is from USTR's 2018 Trade Policy Agenda and 2017 Annual Report (p. 28), released yesterday:

v. The Appellate Body claims its reports are entitled to be treated as precedent

Without basis in the DSU, the Appellate Body has asserted its reports effectively serve as precedent and that panels are to follow prior Appellate Body reports absent “cogent reasons.” However, this is not consistent with WTO rules. WTO Members established one and only one means for adopting binding interpretations of the obligations that they agreed to: Article IX:2 of the WTO Agreement. While Appellate Body reports can provide valuable clarification of the covered agreements, Appellate Body reports are not themselves agreed text nor are they a substitute for the text that was actually negotiated and agreed. Indeed, the Appellate Body’s approach means that panels are simply to abdicate their responsibility to conduct an objective assessment of the matters before them and just follow prior Appellate Body reports.

Everyone agrees that Article IX:2 of the WTO Agreement has more authority than an Appellate Body clarification, so let's put that aside.

The issue here is the precise role of Appellate Body reports as precedent for panels. USTR says these reports "provide valuable clarifications of the covered agreements," but says they "are not themselves agreed text nor are they a substitute for the text that was actually negotiated and agreed."  I think everyone would agree with this as well.

The disagreement is over this: "the Appellate Body has asserted its reports effectively serve as precedent and that panels are to follow prior Appellate Body reports absent 'cogent reasons.' However, this is not consistent with WTO rules."

On the one hand, we have the U.S. saying that Appellate Body reports "provide valuable clarifications." On the other hand, we have the Appellate Body saying that panels are to follow prior Appellate Body reports absent "cogent reasons."

Are the two approaches really all that different? What is the point of a judicial clarification if it does not serve as precedent?

With the GATT, we had panel reports issuing conflicting clarifications, and that was seen as problematic. The Appellate Body was, in part, a response to the problem of inconsistent panel interpretations. By saying that panels must follow Appellate Body reports absent “cogent reasons,” the jurisprudence becomes more consistent and Members have a clearer understanding of what the rules mean. The U.S. and other Members frequently cite Appellate Body reports in their submissions, presumably because they think these reports have some degree of precedential value.

An alternative approach would be that panels could choose not to follow Appellate Body clarifications for any reasons, whether cogent or not. But that would give Members very little certainty over what WTO rules actually mean. Appellate Body clarifications would not be particularly valuable if panels were not giving them any weight.

Of course, panel interpretations are subject to appeal, so ultimately the Appellate Body can keep the jurisprudence consistent. But having panels go off in their own direction will just add confusion to the process.

I'm sympathetic to some of the other U.S. concerns in the document (which I'll try to blog about later), but on this one, I'm not sure what they have in mind and how it would change the system for the better. 

Appellate Body Reform Proposals from the IIEL

In a new Issue Brief, which it describes as "a product of discussions between IIEL faculty, students and stakeholders," Georgetown's Institute of International Economic Law has the following proposals for reforming the Appellate Body transition rules:

Proposal 1: Limit Carry-Over to Disputes Where the Hearing Has Begun

 

First, instead of extending outgoing ABMs to continue to serve on all cases they were appointed to before their term expired, as is the practice today, carry-over could be limited to those cases where the oral hearing (on the merits) has occurred or started. The main reason for carry-over is efficiency: if all the parties have already spent the resources to prepare for and travel to Geneva for the hearing and an ABM has already spent considerable time and resources on a case, starting all over with a replacement ABM is burdensome and inefficient. A better option would be to replace the outgoing ABM with an alternate ABM (randomly selected amongst all sitting ABMs) on a case where the hearing has not yet been held. At that stage, the parties and third participants have only exchanged submissions and the AB itself has not yet heard or discussed the dispute.

...

Proposal 2: Outgoing ABMs Continue to Serve Until They Have Been Replaced

 

Secondly, in order to provide an incentive to WTO Members to start appointment proceedings early or, at the very least, to avoid vacancies on the AB, any outgoing ABM could continue to be a full ABM, even after the formal expiry of her term, up to the day her replacement is appointed and sworn in. This is, interestingly, the rule for most international courts and tribunals. Yet in the WTO, where the appointment procedure is the strictest (consensus versus majority-based or unilateral member state appointments), and the risk of vacant seats thereby higher, this transition rule is, surprisingly, absent. This twin companion to the proposed carry-over rule would mean that blocking an appointment would simply extend the term of the outgoing ABM. A WTO Member from one region would then no longer be able to veto the replacement of an ABM from another region, for example, to block that region from representation on the AB.