International Economic Law and Policy Blog

Request for Proposals, Centre for Trade and Investment Law (India)

This is from the Centre for Trade and Investment Law in New Delhi, India:

Request for Proposals: Training session and capacity building in the field of international trade and economic diplomacy.

The Centre for Trade and Investment Law, established by the Ministry of Commerce, Govt. of India, is inviting proposals from internationally recognised and reputed organisations for a 3-day training and capacity building programme for Indian Government officials working in the field of international trade and economic diplomacy. The session is scheduled to take place in August/September 2018. 

The deadline to submit proposals is May 31, 2018. See additional details here. 

 

Conference: "National sovereignty and regional economic integration: non-trade values and international trade"

The Department of Private International Law of the University of Szeged and the HAS-Szeged Federal Markets "Momentum" Research Group cordially invites you to:

"National sovereignty and regional economic integration: non-trade values and international trade", on  May 3, 2018.

The event will take place at: Room 110, Academic Committee of Szeged of the Hungarian Academy of Sciences (MTA SZAB Székház)
6720 Szeged, Somogyi u. 7.

The conference is supported by the Pallas Athéné Domus Animae Foundation.

The conference program is available here. The conference is open to the public but participants are kindly requested to register here.  

Finishing the NAFTA Renegotiation: Some Outstanding Issues

There are reports that an "agreement in principle" on a new NAFTA is almost ready. Will they try to resolve all of the major points as part of this, or will they gloss over some of them? I'm not sure. Anyway, here are 13 issues I'm watching to see if/how they are handled:

-- Investor protections and investor-state dispute settlement (ISDS). It sounds like the U.S. will be opting out of ISDS, but what will happen to the substantive protections? Will there be any changes there? And with the U.S. opting out of NAFTA ISDS, will Canada and Mexico bother with anything as between themselves, given that they will have TPP ISDS?

-- State-state dispute settlement. At one point, it sounded like the U.S. wanted to "soften" this, but we haven't heard anything recently, and it's hard to see Congress or Canada/Mexico going along with that approach.

-- Chapter 19 disputes. The U.S. has said it wants Chapter 19 eliminated; Canada and Mexico want to keep it. Is there a middle ground? We haven't heard much about this recently either.

-- Sunset clause/performance review. The suggestion for an automatic expiration of NAFTA unless all three governments decide to stay in always seemed like a non-starter. But is there some possibility for a periodic performance review?

-- Rules of origin for autos. This issue has been discussed in great detail in the negotiations. Is there some new approach they can develop that looks like a change, but does not disrupt the integrated production network that keeps North American production competitive? Or will they make a change that is so burdensome that auto/auto parts trade takes place largely outside of NAFTA tariff preferences?

-- Government procurement. I fear that existing liberalization of government procurement will be substantially scaled back in a new NAFTA. The question is, by how much?

-- Modernization. Is there anything new and exciting in the modernized provisions of NAFTA? How will the Labor, IP, E-Commerce, Anti-Corruption, and SOE provisions compare to what was in the TPP?

-- Currency manipulation. Will there be a binding and enforceable chapter on currency manipulation? It sounds like the U.S. is pushing for that.

-- Canadian dairy restrictions. Is this still on the agenda? I haven't heard much about it recently.

-- Regulatory issues. Will this go beyond the TPP regulatory coherence chapter? How much, if any, of the current RCC model will be incorporated?

-- Seasonal growers. Will the NAFTA make it easier for seasonal growers to bring anti-dumping cases?

-- De minimis thresholds. Will Canada and Mexico agree to raise their thresholds (perhaps to the US $800 per shipment level) so that low value shipments can cross the border duty-free?

-- Progressive issues. Will trade/gender and trade/indigenous rights chapters be included?

Secretariats in Bilateral Trade Agreements

This is from the newly released text of the EU - Japan Economic Partnership Agreement:

ARTICLE 21.25

Administration of the dispute settlement procedure

1. Each Party shall:

(a) designate an office which shall be responsible for the administration of the dispute settlement procedure under this Chapter;

(b) be responsible for the operation and costs of its designated office; and

(c) notify the other Party in writing of the office's location and contact information no later than three months after the date of entry into force of this Agreement.

2. Notwithstanding paragraph 1, the Parties may agree to jointly entrust an external body with providing support for certain administrative tasks for the dispute settlement procedure under this Chapter.

Paragraph 2 seems like it envisions the possibility of setting up something like a secretariat ("an external body") to oversee dispute settlement. This is the first time I've seen such a provision in a bilateral trade agreement. Are there any other examples of this? Given the problems we have seen with NAFTA dispute settlement, an independent secretariat could be helpful.

Splitting EU Trade and Investment Agreements: Not So Fast

Last week, I posted about the EU splitting up its trade and investment agreements, with the EU - Singapore agreements separated out into a trade part and an investment protection apart. But it seems that the EU is taking a different approach in its updated, and almost completed, agreement with Mexico. This is from the European Commission's explanation of the agreement:

Who has the final say on whether or not the agreement goes ahead?

The trade agreement with Mexico is part of a wider Global Agreement, which covers areas for which both the EU and EU Member States are responsible not just the EU.  This means it is a so-called ‘mixed agreement’ as opposed to an ‘EU only’ agreement.

Once the negotiations have ended, as a 'mixed' agreement, it must then be approved by: 

• the governments of the EU's Member States 
• the European Parliament
• Member State national – and possibly regional – parliaments

As Colin Brown explained to me on twitter, because the original EU - Mexico trade agreement was a broad Association Agreement, and thus required member state ratification, the updated agreement follows the same model. What we could see in this case, then, is the provisional application of the trade parts, with later member state votes on other parts. So it's still kind of a split, but not the formal one we saw with EU - Singapore.

The Boundaries of Free Trade under Canada's Constitution

Today, the Canadian Supreme Court decided the Comeau case, involving provincial barriers on trade in beer. This decision could have created a Canadian "single market" (to borrow a phrase), but the justices decided on a narrower approach. For anyone who follows WTO jurisprudence or debates about policy space/sovereignty, the reasoning here is likely to be of interest. Maybe calling it a "fun read" goes too far, but I enjoyed it!

The court sets out the issue, and the relevant constitutional provision, as follows:

I.               Introduction

[1]                              In 1867, The British North America Act, 1867 (U.K.), 30 & 31 Vict., c. 3 , united individual British colonies into one new country, the Dominion of Canada. Prior to this, each colony had its own power to impose tariffs at its borders. Part VIII of that Act (now the Constitution Act, 1867 ) contains provisions for the transfer of this power to levy tariffs to the Dominion government. At the heart of Part VIII is s. 121 , the provision at issue in this appeal:

All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.

[2]                              The respondent, Mr. Gerard Comeau, contends that s. 121  is essentially a free trade provision — in his view, no barriers can be erected to impede the passage of goods across provincial boundaries. On the other side of the debate, the appellant, Her Majesty the Queen in Right of New Brunswick (“the Crown”), argues that s. 121  was only intended to dismantle the power to impose tariffs or tariff-like charges at provincial boundaries. The trial judge agreed with Mr. Comeau. The question before us is whether he erred in doing so. What does it mean for articles to be “admitted free” as stated in s. 121 ? How does that requirement constrain state action? Fundamentally, does s. 121  constitutionalize some particular form of economic union? These questions lie at the core of this appeal.

It then establishes the following standard for internal Canadian free trade under Section 121: 

[107]                      It follows that a party alleging that a law violates s. 121  must establish that the law in essence and purpose restricts trade across a provincial border. “Essence” refers to the nature of the measure — “‘what a thing is’; . . . [its] character”: TheOxford English Dictionary (2^nd ed. 1989), at p. 400. “Purpose” focuses on the object, or primary purpose, of the measure.

[108]                      The first question is whether the essence or character of the law is to restrict or prohibit trade across a provincial border, like a tariff. Tariffs, broadly defined, are “customs duties and charges of any kind imposed on or in connection with importation or exportation”: General Agreement on Tariffs and Trade (World Trade Organization), Can. T.S. 1948 No. 31, Part I, Article I. The claimant must therefore establish that the law imposes an additional cost on goods by virtue of them coming in from outside the province. Put another way, a claimant must establish that the law distinguishes goods in a manner “related to a provincial boundary” that subjects goods from outside the province to additional costs: Murphy, at p. 642, per Rand J. A prohibition on goods crossing the border is an extreme example of such a distinction.

[109]                      The additional cost need not be a charge physically levied at the border, nor must it take the form of an actual surcharge; all that is required is that the law impose a cost burden on goods crossing a provincial border. A law that provides that “rum produced in the Maritime provinces will be subject to a 50% surcharge upon entering Newfoundland” has the same effect, in principle, as a law that states that “any person who brings rum produced in the Maritime provinces into Newfoundland is guilty of an offence and liable to a fine”. Both laws impose a burden on the cost of goods that cross a provincial boundary.

[110]                      In some cases, evidence may be required to determine if an impugned law imposes a charge on the basis of a provincial border. Consider a fictional law that requires Alberta distillers to get a special licence to import rye. It is not plain on the face of the law whether the law (1) imposes any sort of charge on the movement of rye or (2) whether any such charge is linked to a distinction between goods related to a provincial boundary. If the cost of the licence is substantial or if it is very difficult to acquire, the measure may impede cross-border trade in rye. Similarly, if the only rye available to Alberta distillers is from Saskatchewan, the licence requirement may function like a tariff against a Saskatchewan good. On the other hand, if the licence is not burdensome to acquire or if the licensing requirement applies equally where Alberta enterprises have access to rye from within Alberta, the law may not impose a burden or charge based on a provincial border and s. 121  is not violated.

[111]                      If the law does not in essence restrict the trade of goods across a provincial border, the inquiry is over and s. 121  is not engaged. If it does, the claimant must also establish that the primary purpose of the law is to restrict trade. A law may have more than one purpose. But impeding trade must be its primary purpose to engage s. 121 . The inquiry is objective, based on the wording of the law, the legislative context in which it was enacted (i.e. if it is one element of a broader regulatory scheme), and all of the law’s discernable effects (which can include much more than its trade-impeding effect). If the purpose of the law aligns with purposes traditionally served by tariffs, such as exploiting the passage of goods across a border solely as a way to collect funds, protecting local industry or punishing another province, this may, depending on other factors, support the contention that the primary purpose of the law is to restrict trade: see, e.g., Murphy, at pp. 638-39, per Rand J.; Reference re Agricultural Products Marketing Act, at p. 1268, per Laskin C.J.; National Trade and Tariff Service (loose-leaf), at §. 1.3; Black’s Law Dictionary (9th ed. 2009), at pp. 1593-94.

[112]                      Stand-alone laws that have the effect of restricting trade across provincial boundaries will not violate s. 121  if their primary purpose is not to impede trade, but some other purpose. Thus a law that prohibits liquor crossing a provincial boundary for the primary purpose of protecting the health and welfare of the people in the province would not violate s. 121 . More commonly, however, the primary purpose requirement of s. 121  fails because the law’s restriction on trade is merely an incidental effect of its role in a scheme with a different purpose. The primary purpose of such a law is not to restrict trade across a provincial boundary, but to achieve the goals of the regulatory scheme. 

[113]                      However, a law that in essence and purpose impedes cross-border trade cannot be rendered constitutional under s. 121  solely by inserting it into a broader regulatory scheme. If the primary purpose of the broader scheme is to impede trade, or if the impugned law is not connected in a rational way to the scheme’s objective, the law will violate s. 121 . A rational connection between the impugned measure and the broader objective of the regulatory scheme exists where, as a matter of reason or logic, the former can be said to serve the latter: see, e.g., RJR-MacDonald Inc. v. Canada (Attorney General), [1995] 3 S.C.R. 199, at para. 153, per McLachlin J. (as she then was), and at para. 184, per Iacobucci J. The scheme may be purely provincial, or a mixed federal-provincial scheme: Gold Seal; see also Reference re Agricultural Products Marketing Act.

[114]                      In summary, two things are required for s. 121  to be violated. The law must impact the interprovincial movement of goods like a tariff, which, in the extreme, could be an outright prohibition. And, restriction of cross-border trade must be the primary purpose of the law, thereby excluding laws enacted for other purposes, such as laws that form rational parts of broader legislative schemes with purposes unrelated to impeding interprovincial trade.

It seems to me that this standard is very deferential to provincial governments. It will catch protectionist measures other than tariffs, but only if they are blatantly and obviously protectionist. The court could have gone with a slightly broader standard than "primary purpose" and still not interfered too much with provincial power, but it went with a narrow vision instead. Only a small number of measures are likely to be at risk of violating Section 121.

Finally, it applies this standard to the provincial measure at issue here as follows: 

VI.         Application

[117]                      Does s. 134(b) of the Liquor Control Act contravene s. 121 ? We conclude that it does not. To reiterate, s. 134(b) provides:

134 Except as provided by this Act or the regulations, no person, within the Province, by himself, his clerk, employee, servant or agent shall

. . .

(b) have or keep liquor, not purchased from the Corporation.

[118]                      Our task is to determine if the essence and purpose of s. 134(b) is to restrict trade in liquor across New Brunswick’s border.

[119]                      The first question is whether s. 134(b), in its essence or character, functions like a tariff by impeding cross-border trade. Section 134(b), in conjunction with other provisions, makes it an offence to stock excessive amounts of liquor obtained from anywhere other than the New Brunswick Liquor Corporation. Liquor from the Corporation can be stocked for free, while liquor from elsewhere cannot, without running the risk of incurring a fine and having the alcohol confiscated. These penalties act to burden the cost of such liquor both directly and indirectly. First, the penalties imposed for stocking liquor purchased from outside the Corporation function to directly increase the cost of acquiring such liquor. Second, the risk of fine and confiscation indirectly acts as a general disincentive for New Brunswickers who would otherwise seek lower-priced liquor than that available through the Corporation, where it exists.

[120]                      By making people who stock liquor acquired from outside the provincial Corporation pay fines and thus more generally depriving them of cheaper goods, the law burdens the cost of the targeted liquor. If the authorities seize any liquor identified when a charge is laid under s. 134(b) — as occurred in Mr. Comeau’s case — the law, in practical terms, prohibits, and therefore completely bars access to, non-Corporation liquor. This prohibition functions like a tariff at the extreme end of the spectrum. With respect to out-of-province liquor, the liquor is not just prevented from being “admitted free”; it cannot be admitted at all.

[121]                      This restriction is related to a provincial boundary. Section 134(b) impedes liquor purchases originating outside of the provincial Corporation above a certain threshold. The law thus has two effects. The first effect is to restrict access to liquor from other provinces. The other effect is to restrict access to liquor within the province that is not controlled by the Corporation. But although the fine functions to restrict purchases of liquor from the black market within New Brunswick, this does not negate the fact that it also imposes a burden on bringing liquor across a provincial boundary. The presence of the first effect — restricting access to liquor from other provinces — is sufficient to establish that s. 134(b), in essence, functions like a tariff, even though it may have other purely internal effects.

[122]                      The next question is whether this restriction on trade is the primary purpose of s. 134(b). As discussed, the text, the effects and the legislative context assist in identifying the primary purpose of s. 134(b). Here, the text and effects are aligned and suggest the primary purpose of s. 134(b) is not to impede trade. Section 134(b) prohibits “hav[ing] or keep[ing]” liquor above a certain threshold “not purchased from the Corporation”. In effect, it restricts holding liquor obtained from non-Corporation sources within New Brunswick and restricts holding liquor from non-Corporation sources coming into New Brunswick. The text and effects of s. 134(b) indicate that its primary purpose is to restrict access to any non-Corporation liquor, not just liquor brought in from another province like Quebec. This is reinforced when one reads s. 134(b) in conjunction with s. 43(c), the provision that sets the maximum amount of allowable non-Corporation liquor that can be kept by someone within New Brunswick. The existence of a statutory threshold, as opposed to an absolute prohibition, suggests that the purpose of s. 134(b) is not to specifically target out-of-province liquor, but to more generally prevent defined quantities of non-Corporation liquor from entering the liquor supply within New Brunswick’s borders.  

[123]                      This conclusion is confirmed when one considers the broader scheme of which s. 134(b) forms part — a scheme that governs New Brunswick’s capacity to regulate how liquor is managed within the province. The Liquor Control Act sets out diverse and extensive rules and prohibitions aimed at controlling access to liquor in New Brunswick. A companion statute, the New Brunswick Liquor Corporation Act, S.N.B. 1974, c. N-6.1 (now R.S.N.B. 2016, c. 105), establishes the province’s public liquor supply management monopoly. Together, these statutes set out a comprehensive and technical scheme to ensure that the liquor trade within the province is monitored. Section 3 of the federal Importation of Intoxicating Liquors Act, R.S.C. 1985, c. I-3 , endorses provinces’ capacity to enact such schemes.

[124]                       The objective of the New Brunswick scheme is not to restrict trade across a provincial boundary, but to enable public supervision of the production, movement, sale, and use of alcohol within New Brunswick. It is common ground that provinces are able to enact schemes to manage the supply of and demand for liquor within their borders: Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581, at para. 55, citing R. v. Gautreau (1978), 21 N.B.R. (2d) 701 (S.C. (App. Div.)). Governments manage liquor prices, storage and distribution with a view to diverse internal policy objectives. Although the Crown conceded that New Brunswick generates revenue from its legislative scheme, this is not the primary purpose of the scheme, but an offshoot of it. Finally, s. 134(b) is not divorced from the objective of the larger scheme. It plainly serves New Brunswick’s choice to control the supply and use of liquor within the province.

[125]                      We conclude that the primary purpose of s. 134(b) is to prohibit holding excessive quantities of liquor from supplies not managed by the province. New Brunswick’s ability to exercise oversight over liquor supplies in the province would be undermined if non-Corporation liquor could flow freely across borders and out of the garages of bootleggers and home brewers. The prohibition imposed in s. 134(b) addresses both. While one effect of s. 134(b) is to impede interprovincial trade, this effect is only incidental in light of the objective of the provincial scheme in general. Therefore, while s. 134(b) in essence impedes cross-border trade, this is not its primary purpose.

So this particular claim failed, but with the detailed reasoning now on the table, perhaps people will come up with creative ways to challenge other Canadian provincial regulatory barriers as being protectionist in a way that violates Section 121.

The Separation of EU Trade and Investment Agreements Is Continuing

The legal texts of the EU - Singapore Free Trade Agreement and the EU - Singapore Investment Protection Agreement are now available here. A European Commission press release related to these agreements, and also covering the EU - Japan Economic Partnership Agreement, explains the next steps as follows:

European Commission proposes signature and conclusion of Japan and Singapore agreements

The Commission today presented the outcome of negotiations for the Economic Partnership Agreement with Japan and the trade and investment agreements with Singapore to the Council. This is the first step towards the signature and conclusion of these agreements.

A swift conclusion and a quick implementation of the most important trade agreement ever negotiated by the EU was a personal commitment undertaken by the President of the European Commission Jean-Claude Juncker and the Prime Minister of Japan Shinzo Abe. During a bilateral Summit and at the margins of a G7 Summit, both leaders provided political leadership at the highest level in order to accelerate and finalise negotiations in 2017. The agreement should be signed in the upcoming EU- Japan Summit, to be held in Brussels by the summer.

... 

The trade and investment agreements with Singapore are the EU's first completed bilateral deals with a member of the Association of Southeast Asian Nations (ASEAN). ...

Once approved by the Council, the agreements will be sent to the European Parliament, aiming for the entry into force of the trade agreements with Japan and Singapore before the end of the current mandate of the European Commission in 2019; the investment protection agreement with Singapore will follow its ratification procedure also at Member State level.

At the same time, negotiations with Japan continue on investment protection standards and investment protection dispute resolution. The firm commitment on both sides is to move towards an agreement in the investment protection negotiations as soon as possible, in light of the shared commitment to a stable and secure investment environment in Europe and Japan.

I assume the EU - Singapore trade/investment agreements and the EU - Japan trade agreement will be approved by the relevant EU institutions, but I guess you never know with these things.

With regard to the EU - Singapore investment protection agreement, EU member state ratification is also required. The EU explains here that: "The agreement contains all aspects of the EU's new approach to investment protection and its enforcement mechanisms that are not present in the existing bilateral investment treaties between Singapore and EU Member States. The agreement replaces the 12 existing bilateral investment treaties and establishes a modern common investment protection framework for all EU investors in Singapore." Will the EU member states vote to replace the existing BITs with the new investment court system?

The EU - Japan investment protection agreement still needs to be negotiated. Will the two sides make any progress on reconciling their different views, or will they eventually abandon the effort?

How Many WTO Members Will Argue that the Section 232 Steel/Aluminum Tariffs are Safeguard Measures?

China already made the argument that the Section 232 steel/aluminum tariffs are actually safeguard measures, both in a Safeguards Agreement consultations request and a DSU consultations request. Now both the EU and India have filed Safeguards Agreement consultations requests based on this same argument. The EU says the following about the Section 232 tariffs:

Notwithstanding the United States' characterisation of these measures as security measures, they are in essence safeguard measures.

And India says:

India considers the above-mentioned measure of the United States to be an emergency action/safeguard measure within the meaning of Article XIX of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and the Agreement on Safeguards.

Are any other countries going to pursue this line of argument? Will the decision whether or not to do so have an impact on whether a country's steel and aluminum are exempted from the tariffs?

The Costs and Benefits of Trade Agreements/Liberalization

This is from Krzysztof Pelc's review of Dani Rodrik's new book:

In the case of trade, one such wrinkle, long overlooked, comes from economic models’ focus on the “average citizen.” And while trade agreements may indeed be beneficial to the “average Canadian,” no such animal exists in the wild. There are Canadians who work in the finance sector in Toronto and eat organic yogurt, and there are Canadians who work in the dairy industry in Sainte-Anne-des-Plaines, say, and drive pick-up trucks. The first group will likely be better off after the TPP, while the second (which theory tells us should be smaller) may well be worse off, at least in the short term.

Just how short that short term is turns out to be the crux of the matter. On this question, a number of scholars have recently done that unusual thing of changing their minds in the face of new evidence, and I include myself among them. Until recently, the assumption was that while the dairy industry in Quebec may suffer from opening up to competition from organic dairy from Australia, those workers will swiftly find new work in another growing sector, and we’ll all end up better off. The term of art is a reallocation of resources, and the gains from trade rely on it. But what we’ve learned of late is that the reallocation is far from swift. A series of studies looking at the U.S. has shown that areas most exposed to trade competition from China, especially, have experienced decreased earnings, lower employment, and increased disability claims, even a decade later. The losses in the losing industries have not been offset by gains in winning industries nearly as fast as we thought, and the effects will be generational. You won’t be surprised to hear that such trade-exposed areas also disproportionately voted for Trump in the U.S., and Brexit in the U.K.

Which is to say that I’ve been chastened. When journalists ask me whether the TPP is “good for Canada,” I now have a more sheepish answer. I respond, “Which Canada?” Because whether or not such agreements are beneficial in any meaningful sense depends on our ability to redistribute some of the benefits, from the majority that gains to the minority that stands to lose. Canada happens to be quite good at this, given its strong social safety net. But it remains a massive looming policy challenge, especially with further labour market shocks, such as artificial intelligence, on the horizon. And it is not just a problem for individual countries: U.S. behaviour over the last year has been that of a country externalizing its domestic pains, rather than dealing with them domestically. Trump passes a tax reform bill that helps the wealthy, and then lashes out against NAFTA on the basis of its costing working-class jobs. Domestic troubles have a way of spilling over borders. The danger emerges when countries “putting their own economic houses in order” do so at the expense of the house next door.

It seems to me that when evaluating the costs and benefits of trade agreements and liberalization, you need to break down the analysis into two steps.

First, compare the overall costs to the overall benefits. On this measure, my sense is that almost all economists would agree that the benefits outweigh the costs (although no doubt they would argue about the precise numbers). This conclusion has been understood by economists for decades, the evidence hasn't changed, and no one has changed their mind about it. The "China shock" wasn't actually much of a shock, and followed the normal pattern. Trade liberalization allows for more specialization, and the opening up of trade will disrupt the existing production structure, which is what happened with China's rapid industrialization. I guess you can be surprised by the pace of China's industrialization, although Japan, South Korea and Taiwan provide a good precedent for fast development in that region, so perhaps this was more predictable than some people are suggesting.

Second, there is the question of how to compensate those who are harmed. Nobody thinks or thought that everyone would be better off. Trade liberalization will make society better off as a whole, but some will be hurt. People who work in the Canadian dairy industry might end up worse off, to take the example above.

So what kind of social safety net do you need for those harmed? Should there be a special safety net for trade, or just a general one that applies for all economic dislocation (e.g., the artificial intelligence Pelc mentions)? This is where the big debate should be taking place. Opinions vary, and some experimentation is probably needed.

The key point here is that trade liberalization is economically beneficial overall. There may be harm to specific people, but the best policy is still to liberalize, and that doesn't depend on redistribution. Even if there were no redistribution, liberalization would make society better off in terms of overall economic welfare. The adjustment period is important, but does not affect this conclusion. Adjustment may take a while in some cases, but that doesn't mean regulation to prevent trade with China or the development of new technologies is a good idea.

If you are skeptical of that conclusion, think about the alternative. We could have tariffs that impose economic harm on everyone, but with targeted benefits to the favored few. Under this policy, the costs will outweigh the benefits, making society worse off in terms of economic welfare. Going back to the Canadian dairy example, we can take from all Canadians and give to the dairy industry, but we reduce overall welfare by doing so. If someone asks, "Are tariffs good for Canada?", the right answer, in my view, is, "On balance, they are not, as they impose large costs throughout society, although some influential interest groups will benefit." (It's also worth noting that this is the right answer for any question about changes in economic policy: Overall the answer is X, but some groups are helped and others are hurt.)

This is the way I learned it all in the early 1990s, and as far as I can tell not much has changed. New evidence has come in, and it confirms what everybody already knew.

Now, you can complain about some of the rhetoric surrounding trade agreements. Krzysztof  says: "Ask a politician why Canada recently joined the Trans-Pacific Partnership (TPP), and you’re likely to get some well-rehearsed patter about growing Canadian jobs and expanding market access for our exporters." But that's just governments marketing trade agreements, not objective experts. In the world of economists, political scientists, and trade lawyers, the rationale for trade liberalization has always been about an overall weighing of costs and benefits.

Of course, there's always a small minority who wants to keep making the case that tariffs, in some circumstances, could lead to greater economic growth, and that debate will probably never end. And trade agreements have expanded into new areas, so we are not always talking about liberalization anymore. But if you are just thinking about the core issue of whether free trade or protection is the better policy, things haven't really changed much since the beginning. In this regard, check out the great new Doug Irwin book Clashing over Commerce, and you will quickly see that most of the arguments we are having today were all being made hundreds of years ago.

Brief Thoughts on Trump's Trade Remarks from Today

Is it worth responding to things President Trump says about trade? I'm not sure, but I'm doing it anyway, very briefly. The transcript of his remarks from today is here. Feel free to add your own comments.

Trump:

THE PRESIDENT:  As you are all aware, China has consistently treated the United States agriculture unfairly.  I was very proud of something I did at Mar-a-Lago, in Florida.  I had President Xi, who’s a friend of mine, who’s a very, very good man.  And I don’t blame China; I blame our representatives that — our people over the past, our Presidents and negotiators and trade representatives — that they allowed this to happen.

But during a very brief conversation, I said, “President, the United States, we want to sell beef again to China.”  Now, they hadn’t sold it in, what, 14 years or something.  And he looked at me and he said, “Say it again.”  I said, “We want to sell beef” — that’s a big industry — “in China.”  And he said, “We will sell beef in China.”  And we did other things too.  But the one that really is the most interesting for the people at this table is beef.

And I think, Governor, that made a big impact, and they’re selling a lot of beef in China that hadn’t been — for 14, 15 years, they were not allowed to sell beef in China.

A colleague and I did a short paper on U.S. beef sales in China. One of the conclusions was that U.S. negotiators have not yet achieved much in relation to beef sales in China.

Trump:

So we have the kind of a relationship that, I think, is going to be very aggressively sustained.  Yesterday, as you know, President Xi made a very good speech, and he said he’s going to open up China.  He’s going to open it up, take down a lot of the trade barriers — maybe all of them — but take down a lot of trade barriers.

And he’s going to get rid of a lot of the taxes or tariffs that they charge.  Because, right now, if you have — and I use this example because it’s so easy — if we sell a car into China, number one, they won’t take the car; and number two, if they did take the car, it’s 25 percent tariff.  Whereas we have no barrier, and when they sell a car into us, it’s 2.5 percent.  So they have barriers, but when they don’t have barriers, it’s 25 percent versus 2.5 percent.  That’s not a good way to make money.  Chuck will tell you that.  So we’re straightening that out.

We want to be reciprocal.  So if they charge 25, we charge 25.  If they charge 2.5, we charge 2.5.  And maybe what happens is we both charge nothing, because I know we’d all like that.  I think Ben would like that better than anybody, okay?  That’s simpler than 25.  Let’s save all the transfer of funds, right?

"[M]aybe what happens is we both charge nothing" sounds great to me. In some ways, the existing NAFTA is a good model for trade agreements.

 Trump:

THE PRESIDENT:  So that’s what we want.  We want more trade.  We want no barriers.  But the only way you can knock it down, you can’t just go in — for 25 years, Presidents have been trying to negotiate and they’ve been very unsuccessful, because they’d meet and they’d say, “Can we talk?”  And the Chinese would say, “Yes, we can.”  And that’s what they do — they talk for four years, then they’ll talk for another four years, and that would be the end of that.  Nothing would happen.  So nothing would happen.  So we’re doing a job there.

The U.S. negotiators who handled China's WTO accession were able to bring down Chinese trade barriers considerably.

Trump:

NAFTA — we’re renegotiating NAFTA.  It’s coming along great.  I have no time.  You know, I keep reading from the “fake news” media that we’re pushing it.  I’m not pushing it; I don’t care.  Oh, you’re laughing.  That’s good, Chuck.  See, Fox can smile because — (laughter) — you know, you do a very beautiful job.

But I keep hearing how we’re pushing NAFTA, we want it done.  There’s no timeline.  There’s no timeline.  Now, in the meantime, nobody is moving into Mexico.  Because as long as NAFTA is in flux, no company is going to spend a billion dollars to build an automobile plant.

So I say this — I’ve told it to the Mexicans:  We can negotiate forever.  Because as long as we have this negotiation going, nobody is going to build billion-dollar plants in Mexico, which is what they’ve been doing a lot.  They have taken our auto industry by the throat.  And so many jobs have been lost, so many massive plants have been built in Mexico.  Top-of-the-line stuff.  But it’s not happening now, and they’re coming back.  Chrysler has moved back; a lot of them have moved back.

I have to concede that this could work for a brief period, maybe a few months. But eventually people will catch on, won't they?

Trump:

So now we’re really negotiating, and I think they’re going to treat us very fairly.  I think they want to.  And again, I don’t blame my friend, President Xi.  I blame our representatives, for years, that didn’t do a damn thing, and they allowed it to happen.  I wish we could do what they did because that would make everybody at this table very happy.  So perhaps we’re in the process of doing it.

Does anyone think this kind of transparent flattery is effective? And on the other side, how do the U.S. negotiators feel? Do they care?

Trump:

The other thing is, if you look at the European Union — we’re talking to them — I don’t know if you realize it, but they have virtual barriers against even agriculture, from going in.  So they sell us their Mercedes-Benzes, and they sell us their BMWs, and they sell all the different things.  And we have no barriers whatsoever.

No one actually believes that we have no barriers, right? I'm sure I've debunked this before, but I don't recall where. I can look it up if need be.

Trump:

So we are opening up the European Union or we’re not going to be very nice about it.  At the European Union, we’ll lose about $151 billion this year.  We lose with almost everybody.  We lose with Canada.  We lose with Mexico.  We lose with the European Union.  We lose with — certainly, we lose with China, Vietnam.  I mean, no matter where you go, it’s very rare — very rare that our country has a surplus.

A current account deficit is not actually a loss. But you all know that.

Trump:

So the European Union makes it very hard for agricultural products because their farmers don’t want you there.  The farmers say, “We don’t want the American farmers.”  But that’s not fair because we take all of their stuff.  A lot of cars and lot of other things.  So they’re going to have to take down the barriers because we can’t have it.

The EU does have some trade barriers. So does the U.S. A mutual arrangement to remove them would be a good idea.

Trump:

THE PRESIDENT:  And we’re starting to get much better results at the World Trade Organization, WTO, because they know we’re not playing games anymore.  You know, we’re going to get the results or they’re not going to be so happy.  I mean, it was set up to hurt us.

I mean, if you look at it, 25 years ago, or whatever it was, it was really set up to take advantage of the United States, as far as I’m concerned.  But we’re starting to get much better results, and that would make, I think, a lot of people very happy.

I can see how someone might look at the results of the recent DS487 and DS491 cases [ADDED: Also DS381] and reach the conclusion that we are getting "better results" in WTO dispute settlement. I'm not saying the U.S. behavior has caused this, but I do see how someone might argue that it did.

Trump:

I just — while we’re talking about China, we are getting along very well.  I think we’re going to do some great things.  But very importantly, they’re very much helping us at the border of North Korea and they’re continuing to.  And, you know, they view it as something they should do.  I think it’s certainly very beneficial to them.  Getting rid of nuclear weapons is very good for them.  Good for everybody.

But they have really been a great help to us at the border of North Korea, and maybe that all plays into what we’re doing because I think it does.  I think everything does.  But perhaps that’s one of the reasons that they are so helpful.  They’ve been really terrific in helping us get to some kind of a settlement.

Meetings are being set up right now between myself and Kim Jong-un, who will be — I think it will be terrific.  I think we’re going with a lot of respect, and we’ll see what happens.  So we’ve come a long way.  But China has really helped us at the border, and we appreciate it.  Okay?

I've often wondered whether and how much foreign policy considerations have prevented the U.S. from being tougher on China (e.g. more WTO complaints). I wonder whether that will be the case with Trump as well.

Trump:

Steel, we have taken the tariff off some countries when we’ve been able to renegotiate deals.  For instance, in South Korea, when they heard they had to pay 25 percent tariff on steel coming in, they went absolutely crazy and we made a deal.  The KORUS deal is now pretty much concluded.  And we really made that, I would say, Bob, largely because of the fact that they did not like the fact that they were having to pay tariffs on steel. 

From what we have seen so far, the U.S. got virtually no new market access from Korea in the KORUS renegotiation.

There was also this from today:

U.S. Senator Ben Sasse, an outspoken advocate for trade and agriculture, issued the following statement regarding his meeting with the President today.  

“The best thing the United States can do to push back against Chinese cheating now is to lead the other eleven Pacific nations that believe in free trade and the rule of law. It is good news that today the President directed Larry Kudlow and Ambassador Lighthizer to negotiate U.S. entry into TPP.”

I'm not holding by breath on this.

The New WTO Law of Market Economy Status for China

The New WTO Law of Market Economy Status for China

Steve Charnovitz

12 April 2018

In this era of China bashing, WTO watchers should be reminded of one area of WTO law where the United States and the EU continue to engage in WTO-illegal behavior. That is, the unjustified application of so-called non-market economy adjustments to China's domestic prices as part of a protectionist strategy to raise antidumping duties to higher levels.

China lodged a WTO complaint against the EU practices in 2017 and that panel (Price Comparison Methodologies, DS 516) is ongoing.  Unfortunately, China has not made its briefs available to the public, so I have no way of knowing whether China is making a cogent legal case against the mistreatment it is suffering.

The key issue in the non-market economy debate and in the China-EU dispute is the meaning of Section 15 of the Accession Agreement between China and the WTO.  Like any WTO accession agreement, the terms of the agreement have the status of higher WTO law that prevails over regular WTO law.  Often, accession agreements give applicants more stringent obligations than exist for WTO Members generally and such provisions are known as applicant WTO-plus law.  See Steve Charnovitz, Mapping the Law of WTO Accession, January 2007, available on SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=957651.

China signed up for many WTO-plus obligations when it joined the WTO in 2001.  But in one instance, the Chinese negotiators were able to secure arguably better treatment than exists for the rest of the WTO Members, in that the Accession agreement gives China specific guarantees on how it will be treated regarding market economy status after 15 years of membership.  The key takeaway for Section 15 is that it installs an incumbent WTO-plus obligation on all WTO Members in how they treat imports from China.

This Section 15(a) law provides a new primary rule, just for China, in Section 15(a)(i) which states that the importing WTO Member "shall use Chinese prices or costs for the industry under investigation" when "the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product...."  In other words, if the Chinese producers being investigated for dumping can clearly show that there are market economy conditions in their domestic industry, then those producers have a right for any antidumping determination (by the United States, the EU, or any WTO Member) to be based on Chinese prices rather than the commonly used surrogate pricing methodologies designed to inflate antidumping duties. 

China's accession protocol does not define "market economy conditions" and there is no definition of that term in WTO antidumping law because WTO antidumping law does not even contain the term "market economy." The only use of that term in WTO law is in Article 29 of the SCM Agreement (Transformation into a Market Economy).  Yet that article does not define "market economy" and has not been explicated by a WTO panel.  Thus, in an appropriate WTO case, the panel would have the role of defining "market economy conditions" in Section 15(a).

The scholarship on the Chinese accession agreement (including my own) has largely missed the point that Section 15(a) creates a new primary rule that overrides any inconsistent rule in the Antidumping Agreement or GATT Article VI.  This China-only rule has several significant features: 

First, Section 15(a) transforms the determination of whether a Chinese industry has "market economy conditions" from being a matter of national law to being a matter of international law.  In other words, the decision made by a domestic antidumping authority on whether to use Chinese prices has to be based on the new WTO standard rather than on any idiosyncratic national law standard.  So hypothetically, if the conditions in the Chinese widget industry have become market economy, then the industry should be treated as "market economy" by all WTO Members.  Moreover, if one of the national law criteria for a market economy seems inapposite for the WTO (for example, the extent to which wage rates in the foreign country are determined by free bargaining between labor and management), then a WTO panel ought to consider itself justified in rejecting that criterion.

Second, the WTO's normal standard of review in antidumping provided in Article 17.6(i) of the Antidumping Agreement should not apply to the Section 15(a) market economy law because under Article 17.6(i), a panel has to defer to a national antidumping judgment if it is "unbiased and objective" even if the panel might have reached a different conclusion.  This deferential standard of review — which is unique to WTO trade remedy law — should not apply to Section 15(a) because that Section makes no mention of national law or of national investigating authorities.  A counterfactual of leaving the final determination of "market economy conditions" to each WTO Member country could lead to one WTO member using Chinese prices to quantify widget dumping and another WTO member rejecting those same Chinese prices. Although my argument is not free from doubt, the most reasonable way to understand the new incumbent WTO-plus law is that it requires an objective standard whereby a panel could reverse a domestic authority for failing to make an objective assessment of the facts as to whether the industry being investigated has clearly shown that it enjoys market economy conditions.

Third, the new law of market economy conditions also means that the focus of investigations needs to be on the particular Chinese industry rather than the aggregate Chinese economy.  In other words, governments like the United States and EU should no longer be able to make decisions about antidumping prices based on whether China as a whole has a market economy.  That's because Section 15(a) is clear that the determination is based on the market economy conditions in the industry producing the like product to the import that is allegedly being dumped.  So China could have market economy conditions in one industry yet not in another.

Fourth, Section 15(a) suggests that the respondent producers have the burden of proof to show, and show clearly, that market economy conditions prevail in order to receive the benefit of domestic prices in an antidumping investigation.  This is not a light burden, and so one can reasonably assume that the EU or the United States will continue to be able to use conditions outside of China (rather than China's own domestic prices) in certain antidumping investigations.  But if domestic investigating authorities apply the wrong legal standard or if they make unjustified dumping determinations, then a WTO panel should not hesitate to find a WTO law violation in the national authority's decision. 

Fifth, Section 15(d) addresses the interaction of national antidumping law to the new primary rule in Section 15.  Two sentences in Section 15(d) will be discussed:  The first sentence applies only to WTO Members, such as the United States, that had market economy criteria in domestic law at the time of China's accession in 2001. The first sentence states that when one of those WTO Members accepts that China has established that "it is a market economy," then Section 15(a) will be terminated for that Member (and presumably kept for other qualifying WTO Members).  The first sentence is silent on what would happen if one of those Members sought to withdraw China's market economy status.  The third sentence addresses an establishment under an importing Member's national law that market economy conditions prevail in a particular Chinese industry or sector.  Should such a legal finding occur, the third sentence provides that the provisions of Section 15(a) "shall no longer apply to that industry or sector" in that Member (but presumably still applies for other Members).

The confusion about the lex specialis status of Section 15 is illustrated in the Trump Administration's third party WTO Brief submitted for DS516.  According to USTR (see §1.8), the primary rule for determining price comparability in China is contained in GATT Article VI and the Antidumping Agreement, rather than Section 15(a).  In effect, USTR would turn Section 15(a) on its head and deny that it has important normative value added.  But Section 15 is clear that the normal WTO law applies to China only when it is "consistent with" the new rule articulated in Section 15(a).   Although I think USTR is correct to note (see §8.6.3) that the treaty words used are "consistent with" rather than "subject to", this commentator would not draw the conclusion that USTR seems to draw which is that Section 15 merely means that the accession agreement is consistent with regular WTO antidumping law.  And without dwelling on the details of the now-expired Section 15(a)(ii) and Section 15(d) second sentence, suffice it to say that USTR held the opposite position about the original meaning of Section 15(a) which was said to give the United States license for 15 years to impose non-market economy pricing on China.  Now that the 15 years is over, USTR is in effect claiming that Section 15(a) was always bereft of content.

I hope that the WTO panel in Price Comparison Methodologies will see through USTR's casuistry and construe Section 15 of the Accession agreement contra proferentem.

China's WTO Complaint against the Section 232 Tariffs

This is the legal basis of China's WTO complaint against the U.S. Section 232 tariffs, filed on April 5:

The measures at issue, operating separately or together, appear to be inconsistent with the United States' obligations under:

• Articles XIX:1(a), XIX:2 of the GATT 1994 and Articles 2.1, 2.2, 4.1, 4.2, 5.1, 7, 11.1(a), 12.1, 12.2 and 12.3 of the Agreement on Safeguards, because with regard to the measures at issue which constitute safeguard measures in substance, the United States has failed to make proper determination and to provide reasoned and adequate explanation of "unforeseen developments", imports "in such increased quantities" and "under such conditions", and "cause or threaten to cause serious injury to domestic producers", and the United States has also failed to follow proper procedural requirements including, for example, notification and consultation procedures, and has failed to apply the measures in a proper manner, for example, application irrespective of source of supply and only for necessary period of time.
• Article II:1(a) and (b) of the GATT 1994, because the United States has imposed import duties on certain steel and aluminum products in excess of the duties set forth and provided in the United States' Schedule of Concessions and Commitments annexed to the GATT 1994, and has failed to exempt products of China subject to the measures at issue from ordinary customs duties in excess of those set forth and provided in the United States' Schedule of Concessions and Commitments annexed to the GATT 1994 and from all other duties or charges in excess of those imposed on the date of the GATT 1994 or those directly and mandatorily required to be imposed thereafter by legislation in force in the United States on that date.
• Article I:1 of the GATT 1994, because the selective application by the United States of the additional import duties on certain steel and aluminum products originating in different Members, including providing exemption or applying alternative means, has failed to extend immediately and unconditionally to China any "advantage, favor, privilege or immunity" granted by the United States "[w]ith respect to customs duties and charges of any kind imposed on or in connection with" the importation of products originating in the territory of other Members, as well as with respect to "the method of levying such duties and charges" and the "rules and formalities in connection with importation".
• Article X:3(a) of the GATT 1994, because the United States has failed to administer its laws, regulations, decisions and rulings in relation to the measures at issue in a uniform, impartial and reasonable manner.

As discussed in the comments here, there is some disagreement about whether the U.S. measures "constitute safeguard measures in substance" (and I have it on good authority that some bets have been placed on this issue over on Twitter). When I was having that conversation in the comments, I was thinking about the issue in the context of whether the U.S. would be bringing a WTO complaint against the Chinese rebalancing/retaliation measures. But I think all the same arguments apply when you turn it around and have China challenging the U.S. measures as violating the GATT/WTO safeguards obligations.

The GATT Articles I and II claims seem pretty straightforward, and the issue there is really going to be about the U.S. Article XXI defense. Presumably the Article XXI defense will also apply to the safeguards claim, although it gets tricky because some of the safeguards obligations are under the Safeguards Agreement rather than the GATT.

I don't see a non-violation nullification or impairment claim in there, which is disappointing on a personal level.

A couple questions:

-- Will this dispute actually get litigated, or will a settlement be reached?

-- Will the U.S. file a WTO complaint against China's retaliation, which, as noted, is based on the idea that the U.S. measure is really a safeguard measure?

The Dog that Didn't Bark in the US IP Claim Against China

One of the most significant complaints made by the US in its Section 301 investigation of China's IP practices is the claim that China conditions permission for foreign investment on transfer of technology.  However, in the US' recent WTO complaint against China's IP practices, the US does not bring a claim under Art. 7(3) of China's Protocol of Accession, which (as Julia Qin pointed out a while back) in relevant part reads as follows:

Without prejudice to the relevant provisions of this Protocol, 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. 

This commitment is clearly mentioned in the US Section 301 Report into China's IP Practices, at page 19.  So why is it not in the WTO request for consultations?  

ASIL Annual Meeting Videos

This is from Kathleen Claussen:

Select videos from the 112^th Annual Meeting of the American Society of International Law (ASIL) held last week in Washington, DC are now available on the ASIL website (https://www.asil.org/resources/video/2018-annual-meeting).  These include video from a session on the future of ISDS and from a session on current challenges and opportunities in the practice of international trade law, among other topics that may be of interest to readers of this blog.  A “late-breaking” session held on Saturday morning on “Revisiting the Multilateral Trading System” discussed the issues facing the WTO membership with respect to the WTO Appellate Body.  Participants included Jennifer Hillman (Georgetown), Hugo Perezcano Diaz (Center for International Governance Innovation), Richard Steinberg (UCLA), Terry Stewart (Stewart and Stewart), and Rufus Yerxa (National Foreign Trade Council).  The audio for that session is forthcoming.

How can China respond to the Trump tariffs in a WTO-consistent manner?

The $50 billion tariffs proposed by the Trump Administration put China into a “Catch-22” position. If China doesn’t retaliate and only follows the proper dispute settlement procedure to challenge them in the WTO, then it has to wait at least 2 years before the US measures are finally ruled illegal by the WTO, while Chinese exports take a big hit. On the other hand, by retaliating with its own $50 billion list, China has committed prima facie violations of, inter alia, Arts. I.1 & II.1(a) of the GATT, and Art. 23 of the DSU.

Is there any way China may respond to the tariffs in a WTO-consistent manner? Some have looked beyond the covered agreements and refer to things such as self-defence under natural law, suspension of the operation of a treaty as a consequence of its breach under Art. 60 of the VCLT, and even waivers under Art. IX.3 of the WTO Agreement. But these all have problems. The first two obviously go beyond the covered agreements and are unlikely to provide sufficient justifications for blatant violations of explicit obligations under the covered agreements pursuant to the lex specialis principle. The last one, while theoretically possible, would backfire against China. As one of the largest, if not the largest, beneficiaries of the multilateral trading system, China’s interest lies in safeguarding the current WTO rules framework. Even if China may overcome the consensus requirement and successfully obtain the waiver to justify its suspension of obligations against the US, the US is likely to follow suit with its own waiver request against China. Then the EU, Japan, and who knows how many WTO Members would follow, as many believe that China takes unfair advantage of the multilateral trading system without shouldering corresponding responsibilities. If that happens, the US would essentially have gotten what they wanted, i.e., expelling China from the WTO and essentially put China back to the position of a country seeking accession, as it was 17 years ago.

Does that mean that there is no WTO-consistent way China could adopt to react to the Trump tariffs? I don’t think so and would propose the following:

1. Revoking existing visas and refusing to process new visa applications from US citizens. Some might say that this violates the GATS, but according to para. 4 of the GATS Annex on Movement of Natural Persons, visa issues are not covered by the GATS.

2. Imposing restrictions on trade or investment pursuant to Art. XVIII.B of the GATT, as the Trump tariffs are likely to create balance of payments difficulties for China;

3. Imposing restrictions on trade or investment pursuant to para. 2(a) of the GATS Annex on Financial Services, as the Trump tariffs are likely to endanger the integrity and stability of the financial system of China.

Of course, such measures might well lead to violations of China’s obligations under other international agreements, but at least they are (facially) consistent with the WTO and thus good enough for us trade lawyers to get a good night's sleep, which we badly need these days.

China's WTO Complaint on the Section 301 Tariffs

China's consultations request on the U.S. Section 301 tariffs is here. This is the key part:

On 22 March 2018, the United States published related documents of the Section 301 investigations against China. On 3 April, the United State published a list of products of Chinese origin, as identified in the Annex to the Notice of Determination and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301, that an additional ad valorem duty of 25 percent are proposed to be imposed on. The proposed duties would be only applied to China's products and in excess of the United States's bound rates in its Schedule of Concessions and Commitments annexed to the GATT 1994.

The legal documents through which the United States implements its proposed tariff measures include:

1. Section 301-310 of the Trade Act of 1974, as amended (19 U.S.C., paragraphs 2411-2420);

2. 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, dated 22 March 2018;

3. Actions by the United States Related to the Section 301 Investigation of China's Laws, Policies, Practices, or Actions Related to Technology Transfer, Intellectual Property, and Innovation, dated 22 March 2018;

4. Notice of Determination and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, dated 3 April 2018. 

This request for consultations also concerns any amendments, or related, successor, replacement, or implementing measures to the measures identified above.

These measures appear to be inconsistent with the relevant provisions of the WTO covered agreements including:

1. Article I.1 of the GATT 1994, because the measures at issue fail to extend immediately and unconditionally to China an "advantage, favour, privilege or immunity" granted by the United States "[w]ith respect to customs duties and charges of any kind imposed on or in connection with" the importation of products originating in the territory of other Members.

2. Article II.1(a) and (b) of the GATT 1994, because the measures at issue fail to accord to the products originating in China identified in the above mentioned documents the treatment no less favourable than that provided for in the United States's Schedule of Concessions and Commitments annexed to the GATT 1994.

3. Article 23 of the DSU, because the measures at issue fail to recourse to, and abide by, the rules and procedures of the DSU, when the United States seek the redress of a violation of obligation or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements.

In addition, and as a consequence of the foregoing, the measures at issue appear to nullify or impair benefits accruing to China directly or indirectly under the cited agreements.

Of course, no tariffs have actually been imposed yet, but I don't think that will matter too much. The tariffs will flow from the actions taken so far, and should be considered as part of this complaint. If China is at all worried about that technical problem, it can file an additional consultations request after the tariffs are imposed. 

Two of China's legal claims are pretty straightforward. If the United States imposes tariffs on China, at a rate above the bound rate in the U.S. Schedule, there will be a violation of GATT Articles I and II. As I mentioned yesterday, I haven't heard of any defense the U.S. will put forward to these claims, but perhaps it will come up with something. (Some kind of creative GATT Article XX(d) argument?)

As for DSU Article 23, the issue here is going to be whether the concerns the U.S. is reacting to are covered by WTO obligations. If the U.S. tariffs are not related to WTO obligations, DSU Article 23 is not implicated. Some of the issues raised by the U.S. about Chinese actions are probably not covered, while for others there is at least an argument that they are covered. This is going to make things a little complicated, as some of the tariffs might be for WTO issues, whereas others are not.

A final question: Will China also file a WTO complaint about the Section 232 tariffs?

The U.S. Response to China's Retaliation: What Role for the DSU?

Here is the U.S. response to China's decision to deem the Section 232 tariffs a safeguard measure and to impose tariffs pursuant to provisions of the Safeguards Agreement:

The United States has received China's requests for consultations under Article 12.3 of the Agreement on Safeguards with respect to the Proclamations issued with respect to steel and aluminum on 8 March 2018.

The United States notes that the premise for China's requests for consultations under Article 12.3 of the Agreement on Safeguards is that the Steel and Aluminum Proclamations are safeguard measures for purposes of that Agreement. The President issued the Steel and Aluminum Proclamations pursuant to Section 232 of the Trade Expansion Act of 1962, under which the President determined that tariffs are necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the United States. These actions are not safeguard measures, and therefore, there is no basis to conduct consultations under the Agreement on Safeguards with respect to these measures.

The United States did not take action pursuant Section 201 of the Trade Act of 1974, which is the law under which the United States imposes safeguard measures. It did not submit notifications with respect to these measures because they are not safeguard measures. As evidenced by our recent notifications with respect to solar products and washers, the United States is well aware of its notification obligations for safeguards measures under the Agreement on Safeguards.

Article 12.3 of the Agreement on Safeguards states that a "Member proposing to apply or extend a safeguard measure shall provide adequate opportunity for prior consultations" with Members having a substantial interest in exports of the product concerned. However, the United States is not proposing "to apply or extend a safeguard measure" with respect to steel or aluminum, and therefore Article 12.3 does not apply. Accordingly, China's requests for consultations pursuant to Article 12.3 have no basis in the Agreement on Safeguards. The United States has taken note of China's notification of 29 March 2018, in which China stated its intent to suspend concessions and other obligations, purportedly under Article 8.2 of the Agreement on Safeguards. We note further that China put these measures into effect on 2 April 2018. Because the actions under the Steel and Aluminum Proclamations are not safeguard measures, the United States considers that Article 8.2 of the Agreement on Safeguards does not justify China's suspension of concessions or other obligations. China has asserted no other justification for its measures, and the United States is aware of none. Therefore, it appears that China's actions have no basis under WTO rules.

Should China still have questions related to U.S. actions under Section 232 of the Trade Expansion Act of 1962, we nevertheless stand ready to fix a mutually convenient date with China to engage in bilateral discussions. Such discussions would not be held pursuant to the Agreement on Safeguards and would be without prejudice to our view that the Proclamations are not safeguard measures.

(footnotes omitted)

As noted in the comments here, I agree with the U.S. view of this. But here's my question: Is the U.S. going to file a complaint against China under the DSU? What role will WTO dispute settlement play in this escalating tariff battle?

Justifications in the U.S.-China National Security/Safeguards/Section 301 Tariff Fight

I have been puzzling over what is happening with the safeguards issues related to the U.S. steel/aluminum "national security" tariffs (and as I was drafting this post, Brett Williams raised the same issue in a comment here). This is what I see so far.

Safeguards Agreement Article 8.2 provides:

If no agreement is reached within 30 days in the consultations under paragraph 3 of Article 12, then the affected exporting Members shall be free, not later than 90 days after the measure is applied, to suspend, upon the expiration of 30 days from the day on which written notice of such suspension is received by the Council for Trade in Goods, the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure, the suspension of which the Council for Trade in Goods does not disapprove.

On March 26, China requested consultations for both steel and aluminum. This is from the steel request:

On 8 March 2018, the United States of America ("United States") issued a presidential proclamation, indicating that steel articles are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States, adjust the imports of steel articles by imposing a 10% ad valorem tariff on steel articles.

China takes the view that the above-mentioned measure of the United States is safeguard measure although it's in the name of national security measure.

As a Member that is an interest party of the product at issue, The People's Republic of China ("China" or "we") hereby formally requests consultations with the United States pursuant to Article 12.3 and 8.1 of the Safeguards Agreement and Article XIX:2 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) with respect to the United States' safeguard measures on steel.

Then on March 29, China submitted a notification under Article 12.5 of a proposed suspension of concessions and other obligations under Article 8.2, which contains the following: 

1. Which Member is proposing suspension of concessions and other obligations referred to in Article 8.2?1. Which Member is proposing suspension of concessions and other obligations referred to in Article 8.2?
 
China.
 
2. Specify the measures, the product subject to the measures, and the Member imposing the measures in relation to which the Member is proposing suspension of concessions and other obligations referred to in Article 8.2.
 
The applied measures imposed by the United States on imports of steel and aluminum from 23 March 2018.
 
China takes the view that the above-mentioned measures of the United States are safeguard measures although it's in the name of national security. We believe the measures taken by the United States are not consistent with its obligations under the relevant provisions of the GATT 1994 and Safeguards Agreement.
 
3. Describe the proposed suspension of concessions and other obligations referred to in Article 8.2 and the proposed date from which it will come into effect.
 
The proposed suspension of substantially equivalent concessions and other obligations under Article XIX:3 of the GATT 1994 and Article 8.2 of the Agreement on Safeguards takes the form of an increase in tariffs on selected products originating in the United States (as indicated in Annex I and calculated as indicated in Annex II), based on the part of the measures of the United States which were not taken as a result of an absolute increase for the last 3 years (2014-2016) . China reserves its right to further suspend substantially equivalent concessions and other obligations based on the rest part of the measures of the United States.
 
Without prejudice to the effective exercise of its right to suspend substantially equivalent concessions or other obligations referred to in Article 8.2, China reserves its right to effectuate the proposed suspension immediately and adjust the products as well as the tariff rates.

China then listed the products for which it was suspending concessions, along with the tariff rate to be applied. 

And finally, as I understand it, China's tariffs took effect on April 2.

If these dates are all correct, how are China's actions consistent with the time-frames set out in Safeguards Agreement Article 8.2?

And while we are talking about justifications, we all know that the U.S. has offered GATT Article XXI as a justification for its steel/aluminum tariffs. But I haven't heard the U.S. offer any argument to justify the Section 301 tariffs. What argument would it use if China brings a WTO complaint against these tariffs? 

China Retaliates Against the U.S. Steel/Aluminum Tariffs

This is from the Financial Times:

China has unveiled retaliatory duties on US food imports including pork, fruit, nuts and wine of up to 25 per cent as a response to the Trump administration’s new tariffs on steel and aluminium imports.

Beijing said the additional duties on 128 kinds of products of US origin would be introduced from Monday “in order to safeguard China’s interests and balance the losses caused by the United States additional tariffs”, according to a statement posted online late on Sunday.

The highest additional tariffs of 25 per cent will be imposed on top of existing duties on imports of US scrap aluminium and various kinds of frozen pork, the statement said. An added 15 per cent tariff will apply to dozens of US foods including fresh and dried fruits such as cherries, nuts such as almonds and pistachios, and wine and various kinds of rolled steel bars.

The list was consistent with measures proposed by Beijing last month when it said it was planning tariffs on $3bn of US imports. The response was seen as relatively measured since it left out key US exports to China such as soyabeans, of which the US exported some $14bn last year. 25% Top end of extra tariffs planned by China, adding to existing duties on imports of US scrap aluminium and frozen pork

The new duties are specifically in retaliation for steel and aluminium tariffs announced by the Trump administration early in March, not for the 25 per cent levy on up to $60bn of annual imports from China that Mr Trump promised later last month. That leaves open the prospect that Beijing could make a tougher response in the future. 

China appears to be treating the U.S. tariffs as a safeguard measure:

China's Ministry of Finance announced the new tariffs in a statement, writing: "The Customs Tariff Commission of the State Council has decided to suspend duty concessions on certain imported goods originating in the United States and implemented it on April 2, 2018."

It said the measures were imposed in response to Trump's tariffs on steel and aluminium, adding: "[The US] measures violated the relevant rules of the World Trade Organization and did not comply with the 'security exceptions' provision, which actually constituted safeguard measures.

As I explained in the comments here, I'm skeptical that this is consistent with WTO rules, but the boundaries of the rules are being pushed a lot these days. How will the U.S. react? Will it file a WTO complaint against the Chinese tariffs? Will it escalate by retaliating for the retaliation? The Section 301 tariffs are already hanging over the situation, so maybe there is no need for anything additional, as new U.S. tariffs are already coming, and perhaps China factored that in to its decision to retaliate now.

Here's the big question: How do we rein all this in before it gets out of control?