International Economic Law and Policy Blog

What is "Socialist Market Economy"?

This is the million dollar question that has been asked about China's economic and trade system all the time. Last week, China's WTO Ambassador Dr. Zhang Xiangchen gave the following reply at the General Council meeting, 

"Back in 1992, when China announced that it would build a socialist market economy, right in the Room W, a question was posed to a Chinese delegate, that is, what is a socialist market economy? I clearly remember this delegate replying that the socialist market economy was the market economy under the leadership of the Chinese Communist Party. 26 years passed since then, we have never changed our position. "

nterestingly, this is quite different from the official explanation given by the Chinese government during its accession negotiation, which noted in an Apr 1988 submission to the GATT titled "THE PROGRESS AND OBJECTIVE OF CHINA'S ECONOMIC STRUCTURAL REFORM" that

"The term "planned commodity economy" means socialist commodity economy. It may be translated into "socialist market economy". The crucial difference between a socialist market economy and a capitalist market economy lies in the difference of ownership. Public ownership plays a predominant role in China while private ownership serves as a foundation for capitalist countries. However, in terms of economic mechanisms such economic principles as comparative advantage, supply and demand relationship and market competition must be observed in developing market economy regardless of different social and economic systems. In short, the new system of socialist commodity economy China pursues is the one in which "the state regulates the market and the market orientates enterprises" by integrating both forms of regulations through planning and the market so as to ensure the predominant role of public ownership. By the so called "the state regulates the market and the market orientates enterprises", it denotes that the state regulates the total supply and demand of the society and the equilibrium between them through industrial policies, economic means like taxation and monetary instrument, legal means and necessary administrative means, so as to create a favourable economic environment for competition among enterprises guide them towards correct management decisions."

According to the Chinese constitution,  public ownership is defined as "ownership by the whole people and collective ownership by the working people". That apparently is quite different from Party leadership, as the Party, though the largest in the world with 90 million members, only accounts for about 6% of the whole population. As a counter-argument, one could point to para. 2 of Art. 1 of the Constitution, which notes that  "the leadership of the Communist Party of China is most fundamental characteristics of Socialism with Chinese characteristics", and deducts that, 

1. Socialism = Party leadership 
2. Socialist market economy = market economy with Party leadership.

The problem with this logic is that, according to Art. 11 of the Constitution, non-public economies such as sole-proprietorship and private economies are also important components of the Socialist market economy, but it would be quite odd to suggest that the Communist Party also leads such non-public economies, as the CPC constitution states that its ultimate aim is achieving Communism, which according to the Communist Manifesto "may be summed up in the single sentence: Abolition of private property." 

Am I missing something here?

Do we need new WTO rules in dealing with China?

I understand that Geneva has been hot these days, but yesterday, the hottest place in town was nowhere but inside Centre William Rappard, where the US and China engaged in a white-hot debate on the Chinese economic system at the General Council meeting. Firing the first shot by calling China "the most protectionist, mercantilist economy in the world”, US Ambassador Dennis Shea argued that  “change is necessary if the WTO is to remain relevant to the international trading system”.  

Amb. Shea's "gunpowder-smelling" remarks led to a lengthy retort from the Chinese ambassador Zhang Xiangchen, who dissected his oral statement and written submission entitled " China’s Trade-Disruptive Economic Model" like an impatient professor trashing a poorly-researched term paper, as he enumerated the problems with their logical flaws, inconsistencies, and even the sloppy footnotes. 

Interestingly, notwithstanding their numerous differences, the two ambassadors do seem to share something in common. Despite his keen interest to see "change", Amb. Shea made clear that “the WTO itself does not currently provide the tools needed to bring about that change”.  Similarly, Amb. Zhang regarded these issues as "beyond the realm of the WTO and beyond our capacities". In other words, both seem to subscribe to the view, which has become rather fashionable lately, that the existing WTO rules are inadequate in dealing with China. 

In a recent paper co-authored with Weihuan Zhou and Xue Bai, we rebutted this view by arguing that, to the contrary, we do not necessarily need new rules to tackle the problems created by China’s SOEs. Our main argument is summarized in the conclusions, which we reproduce below:

"As a matter of fact, the WTO’s existing rules on subsidies, coupled with the China-specific obligations relating to SOEs, competition and subsidies, actually do provide sufficient defense against the encroachment of Chinese SOEs beyond its own shores. Unfortunately, for too long, these rules on SOEs and subsidies remain largely unused, due to three common misconceptions regarding the utility of these provisions. In this paper, we have set the record straight by addressing each of the three misconceptions. The first misconception is that subsidy-CV actions are impossible without sufficient information about the subsidies programs in China. Our response is that the open-ended language “special difficulties” in Section 15(b) of the Accession Protocol does provide wide leeway to IAs in applying subsidy-CV measures against China, especially in cases where the information is lacking, insufficient, or otherwise difficult to obtain. The second misconception is that the AB’s narrow interpretation of “public body” as one with government authority has rendered it very difficult for IAs to find SOEs as “public bodies”. Again, we argue that this is no longer the case with China’s designation of certain SOEs as exercising key governmental functions and its push to install Party committees in SOEs and to enhance their roles in the decision-making of these SOEs. These moves have made it much easier to find the exercise of government authority by the SOEs and the control of the government in these firms. The third misconception is that CV actions are ineffective in practice. However,  as we discussed earlier, CV measures tend to provide higher protection compared to AD measures. Moreover, with the expiration of the NME Methodology, the current set of inflated AD rates can no longer sustain. This leaves CV measures the only meaningful option." 

Thus, we conclude that "the real problem is not the lack of sufficient rules to deal with China’s state capitalism, but the lack of utilization of these additional rules."

Those interested in perusing the paper may download it on SSRN (with the full argument on the SCM & CVD issues made in pp. 53 onwards). Any comment or criticism would be greatly appreciated (of course, we hope you'd be more lenient than Amb. Zhang). 

The Section 301 Action Against China (Fed. Reg. filing by Steve Charnovitz)

Comments by Professor Steve Charnovitz regarding the Proposed Determination of Action Pursuant to Section 301

By Professor Steve Charnovitz

George Washington University

USTR-2018-0018

July 23, 2018

This is a comment regarding the proposed action of imposing an additional 25 percent ad valorem duty on the products classified in the list of tariff subheadings in Annex C of the subject notice.  The question posed by USTR is whether the increased duties on products in Annex C “would be practicable or effective to obtain the elimination of China's acts, policies, and practices, and whether maintaining or imposing additional duties on a particular product listed in Annex C would cause disproportionate economic harm to U.S. interests, including small- or medium-sized businesses and consumers.”

The Trump Administration’s proposal to impose the Annex C tariffs would be a violation of international trade law, particularly Article II of the General Agreement on Tariffs and Trade (GATT).  Because it violates international law and longtime US commitments to the World Trade Organization (WTO), this tariff scheme would impose (and already has imposed)  disproportionate economic harm to US interests, including businesses, consumers, and the commonweal.  The harm is clearly disproportionate because there will be no benefits to the US economy from raising tariffs.  Tariffs are always a negative sum game.  Some US stakeholders will gain from greater protectionism, but there will be a significant and sustained net aggregate dynamic loss to the US economy.

Using Section 301 to raise tariffs (above the bound level) on a particular country will always violate GATT Article II (and possibly Article I).  The Section 301 tariffs also have the potential of violating one of the constitutional rules in the WTO, namely Article 23 of the Dispute Settlement Understanding (DSU).  If a foreign country is engaging in unwelcome practices related to technology transfer, intellectual property, or innovation, then the three-part decision tree embedded in WTO law should be strictly followed:  First, if the practices violate WTO law and the Trump Administration has lodged a WTO case against them, then in line with DSU Article 23.2, USTR should  refrain from imposing any retaliatory tariffs unless the WTO finds that the practices violate trade law and unless the WTO authorizes the SCOO.  Second, if the practices violate WTO law, but the Trump Administration has failed to lodge a case against them, then the Trump Administration should lodge such a case pursuant to DSU 23.1 so as to promote trade justice.  Third, if the practices being complained about do not violate WTO law, then the Trump Administration should seek to negotiate needed improvements in WTO law to discipline such practices.  Becoming a scofflaw nation through Section 301 in the manner proposed by the Trump Administration will only make matters worse for the American public as this scheme will focus attention on US misbehavior and distract attention from the misbehavior of other countries.

In summary, the proposed Annex C 25% tariffs should not be imposed and the Trump Administration should rethink its continuing flirtation with policies that move the United States away from being a market-driven economy and that withhold the level of transparency and honesty expected of any country aspiring to be great.

The Constitutional Claim Against Section 232

Following up on their complaint, this is from a Motion for Summary Judgment filed by the American Institute for International Steel and two companies last week: 

SECTION 232 IS UNCONSTITUTIONAL AS AN IMPROPER DELEGATION OF LEGISLATIVE AUTHORITY AND A VIOLATION OF SEPARATION OF POWERS.

Plaintiffs’ nondelegation challenge to section 232 and the 25% tariff issued pursuant to it has two inter-related elements: the delegation to the President in section 232 lacks the “intelligible principle” required by the Supreme Court since it decided J.W. Hampton, Jr,. & Co. v. United States, 276 U.S. 394, 409 (1928), and the President’s choice of remedies under section 232 is not subject to judicial review or to any of the other procedural checks that are the hallmarks of controlling Executive Branch decisionmaking in the administrative state. The result is that President has unbridled discretion to impose whatever trade barriers he chooses with nothing in section 232 to limit him in any way. That result—“a blank check for the President,” cf. Hamdi v. Rumsfeld, 542 U.S. 507, 536 (2004)—is wholly antithetical to the separation of powers and checks and balances embodied in our Constitution and therefore cannot stand.

The Framers understood that “[t]he accumulation of all powers, legislative, executive, and judiciary in the same hands . . . may justly be pronounced the very definition of tyranny.” THE FEDERALIST NO. 47, at 301 (James Madison) (Clinton Rossiter ed., 1961). To guard against that possibility, the Constitution contains a separate Article for each of the three branches, which spells out their respective duties. Article I, section 1 of the Constitution provides that “All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.” U.S. CONST., art. I, § 1. As for the President, the Constitution specifies the powers of the office and then in Article II, section 3, directs that “he shall take Care that the Laws be faithfully executed.” U.S. CONST., art. II, § 3. As Justice Black observed for the majority in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 587 (1952): “In the framework of our Constitution, the President's power to see that the laws are faithfully executed refutes the idea that he is to be a lawmaker.” Justice Black then applied that principle to the case before him in language fully applicable to this challenge: “The President’s order does not direct that a congressional policy be executed in a manner prescribed by Congress—it directs that a presidential policy be executed in a manner prescribed by the President.” Id. at 588.

To be sure, Congress is not precluded from assigning to the President or others in the Executive Branch the authority to carry out directives of Congress embodied in duly enacted laws. Congress may constitutionally permit officials in the Executive Branch to make some policy decisions. But in section 232, Congress granted the President virtually unlimited discretion over the core Article I power to impose taxes, and to do so in unlimited amounts and duration, as well as to mandate quotas, licensing requirements, and similar measures on entire classes of imported goods affecting wide swaths of the U.S. economy. There is a point beyond which the Executive Branch’s delegated authority may not constitutionally go. The Constitution requires that Congress “lay down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform . . . .” Mistretta v. United States, 488 U.S. 361, 372 (1989) (alteration in original) (quoting J.W. Hampton, 276 U.S. at 409). As Plaintiffs now show, section 232 does not have intelligible principles for either its trigger finding or its remedies, nor does it contain any other protections against presidential misuse of its powers that will assure that the President complies with the law and that principles of separation of powers are preserved. 

1. Section 232 Lacks Intelligible Principles and Other Protections Necessary to Assure that the President Executes the Law and Does Not Make the Law.

Under section 232, the President is free to act as long as he concurs in the finding of his own Secretary of Commerce that a subject article (here steel) “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security . . . .” 19 U.S.C. § 1862(c)(1)(A). National security is broad term on its own, but Congress has vastly expanded it beyond its ordinary meaning in section 232(d):

the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair the national security.

19 U.S.C. § 1862(d) (emphasis added). The result is that national security in section 232 includes the impact of potentially any imported product—with no guidance or restrictions on the definition of the product—on the economic welfare of any domestic industry, the impact of foreign competition on our internal economy, and the impact of foreign competition on federal government revenues. Indeed, “national security” as defined in section 232(d) has no conceptual limits as underscored by the emphasized “without” phrase. The President is expressly authorized to consider any “other factors” he wishes, without any guidance or limit on what those factors should be.

Both section 232(b), governing the Secretary’s finding, which serves as a trigger for the President’s authority under section 232(c), and section 232(c), governing the President’s authority to adjust imports, refer to “national security.” The elastic—indeed, virtually unbounded—definition of national security set forth in section 232, lacks the necessary intelligible principle to serve as a constitutional trigger to activate Presidential powers to impose trade barriers under section 232(c). But even if “national security” as defined in section 232 could be considered sufficient to provide a required intelligible principle, section 232(c) is still a constitutionally improper delegation because it allows the President to “determine the nature and duration of the action [i.e. trade barriers] that, in the judgment of the President, must be taken to adjust the imports of [steel] and its derivatives so that such imports will not threaten to impair the national security,” 19 U.S.C. § 1862(c)(1)(A)(ii), as that term has been expansively defined. It is this limitless grant of discretionary remedial powers, as applied to section 232’s capacious definition of national security, which eliminates any doubt as to the constitutionally improper delegation of lawmaking authority to the President, as the imposition of the 25% tariff illustrates.

...

Last, and in addition to these multiple failures of Congress to cabin the unbounded discretion of the President under section 232(c), there is no provision in section 232 for the judicial review of the President’s decisions under it. Moreover, since the 1990s, the APA has not been available as an avenue for judicial review of the President’s actions. In both Franklin v. Massachusetts, 505 U.S. 788 (1992), and Dalton v. Specter, 511 U.S. 462 (1994), plaintiffs sought APA review of decisions made by the President under other statutes. The Court, however, refused to consider the merits of those claims, although it did consider a constitutional claim in Franklin. Franklin, 505 U.S. at 796, 806; Dalton, 511 U.S. at 476. It held that, under the relevant statutes, only the final decision of the President can be challenged. See Franklin, 505 U.S. at 779. Moreover, because the President is not an agency under the APA, his actions are also not subject to judicial review under the APA for claims that his discretionary decisions failed to comply with the APA and the applicable substantive statutes (like, in the present case, section 232). Franklin, 505 U.S. at 801; Dalton, 511 U.S. at 476. 

...

In short, the final protection against presidential arbitrary action—the ability of injured parties such as Plaintiffs to seek redress from Article III judges—is foreclosed, and the President is free to do what he did here: to decide unilaterally whether to impose trade barriers, which ones to utilize, at what levels, for what duration, applicable to what products, which countries should receive exemptions, and whether to ignore the inevitable adverse consequences from imposing the selected barrier. Section 232 allows such limitless discretion, and in doing so violates the nondelegation doctrine and creates an administrative scheme that is inconsistent with the separation of powers and the checks and balances embedded in our Constitution. As Justice Scalia observed in his dissenting opinion, in which Chief Justice Roberts and Justice Alito joined, in Zivotofksy v. Kerry, 135 S. Ct. 2076, 2116 (2015):

Before this country declared independence, the law of England entrusted the King with the exclusive care of his kingdom’s foreign affairs. . . The People of the United States had other ideas when they organized our Government. They considered a sound structure of balanced powers essential to the preservation of just government, and international relations formed no exception to that principle. 

 I like the argument, but don't know enough about the issues to say anything very insightful. I'm hoping others with a constitutional law background will weigh in.

Deciding Whether the Section 232 Tariffs Are Safeguard Measures

So far, there have been 13 WTO consultations requests related to the Section 232 tariffs and the subsequent retaliation. Here are the 8 requests against the Section 232 tariffs, which allege violations of the GATT, and also allege that the tariffs are safeguard measures and violate the Safeguards Agreement:

U.S. - Measures on Steel and Aluminium (DS556)	July 9, 2018	Switzerland
U.S. - Measures on Steel and Aluminium (DS554)	June 29, 2018	Russia
U.S. - Measures on Steel and Aluminium (DS552)	June 12, 2018	Norway
U.S. - Measures on Steel and Aluminium (DS551)	June 5, 2018	Mexico
U.S. - Measures on Steel and Aluminium (DS550)	June 1, 2018	Canada
U.S. - Measures on Steel and Aluminium (DS548)	June 1, 2018	EU
U.S. - Measures on Steel and Aluminium (DS547)	May 18, 2018	India
U.S. - Measures on Steel and Aluminium (DS544)	April 5, 2018	China

And here are the 5 consultations requests by the U.S. against the retaliatory tariffs:

Turkey - Additional Duties on U.S. Products (DS561)	July 16, 2018
Mexico - Additional Duties on U.S. Products (DS560)	July 16, 2018
EU - Additional Duties on U.S. Products (DS559)	July 16, 2018
China - Additional Duties on U.S. Products (DS558)	July 16, 2018
Canada - Additional Duties on U.S. Products (DS557)	July 16, 2018

In the cases against the retaliatory tariffs, the U.S. alleges violations of the GATT, and presumably the responding Members will argue that the Section 232 tariffs are safeguard measures, and that the retaliation was taken pursuant to the Safeguards Agreement.

A fundamental question common to both cases is whether the Section 232 tariffs are, in fact, safeguard measures. It would be nice to avoid multiple answers to that question. In this regard, it seems likely that the 8 cases against the U.S. will be consolidated into one proceeding. The 5 cases brought by the U.S. are trickier, because the measure is different in each one, but perhaps a single set of panelists could hear all of the complaints. But could the complaints against the U.S., on the one hand, and the complaints by the U.S., on the other hand, be heard by the same set of panelists? That would be a lot of work for those panelists, so perhaps not. If it is not possible, could the two sets of panelists coordinate their answer to the question of whether the Section 232 tariffs are safeguard measures?

EU DSU Reform Proposals

Bryce Baschuk of Bloomberg has posted a European Commission document with some WTO modernization proposals.  This is from the part on dispute settlement: 

EU position:

Without prejudice to EU position on whether the concerns formulated by the United States are well founded, this paper explores avenues in which addressing these concerns could lead to the improvement of the system, while preserving and further strengthening its main features and principles.

In order to achieve balance, this paper also explores other potential improvements. In particular, in 2016, following the US' veto against the re-appointment of one Appellate Body member, there was a wide recognition that a systemic solution was needed in order to preserve the independence and impartiality of Appellate Body members. Indeed, the non-reappointment of an Appellate Body member for reasons related to the content of particular rulings has created a situation in which there may be doubts as to whether decisions of particular Appellate Body members are influenced by such threat of non-reappointment. This situation is not tenable and needs to be addressed systemically.

These various solutions should be seen as part of one package. In particular, the strengthening of the independence of the Appellate Body and its members allows for introducing an additional mechanism for their interaction with the WTO Members without fear that such interaction may unduly influence their decisions.

Future proposals

The EU should put forward a comprehensive proposal to address the concerns raised by the WTO Member blocking the Appellate Body appointments, where this may improve the functioning of the system, while preserving and further strengthening the main features and principles of the WTO dispute settlement system. This proposal will - in a first stage, and in order to unblock the appointments - aim at improving the efficiency of procedures, at creating conditions for a better interaction between the Appellate Body and the WTO Members while at the same time strengthening the independence of the Appellate Body. In a second stage, substantive issues concerning the application of WTO rules would be addressed.

I. First stage: comprehensive amendment of the provisions of the DSU relating to the functioning of the Appellate Body addressing all points of concern with the "approach" of the Appellate Body

This amendment could include the following elements. A deeper reflection would be needed to define the exact scope and nature of these amendments:

i) Article 17.5 of the DSU and the issue of 90 days

Changing the 90-days rule in Article 17.5 of the DSU by providing an enhanced transparency and consultation obligation for the Appellate Body. In particular, Article 17.5 could be amended to provide that "In no case shall the proceedings exceed 90 days, unless the parties agree otherwise".

The Appellate Body would need to consult with the parties early in appellate proceedings (or even before the appeal is filed) if it estimates that the report will be circulated outside 90 days. If there is no agreement of the parties on the exceeding of this timeframe there could be a mechanism pursuant to which the procedure or working arrangements for the particular appeal could be adapted to ensure the meeting of the 90-day timeframe. For example, the Appellate Body could propose to the parties to voluntarily focus the scope of the appeal, set an indicative page limit on the parties' submissions or it could take appropriate measures to reduce the length of its report. This could also include the publication of the report in the language of the appeal only, for the purposes of meeting the 90-day timeframe (the translation to the other WTO languages and formal circulation and adoption would come later).

It should however be clear that those changes - such as the consultation obligation -- cannot impact on the (negative consensus) adoption procedure in Article 17.14 of the DSU nor on the validity of late Appellate Body reports.

In addition, the following changes would have a positive impact on the timeframes of appellate review: 

• Increasing the number of Appellate Body members from 7 to 9. This would help increasing the efficiency of the Appellate Body while improving the geographical balance on the Appellate Body after the accession of important Members since 1995. Also, the internal
  organisation of the Appellate Body could be improved (for instance three divisions of three members could hear an appeal at any time, without overlaps with regard to the membership of these divisions).
• Providing that the membership of the Appellate Body is a full time job (currently, de jure, pursuant to the DSB decision WT/DSB/1, it is a part time job). This would improve the efficiency of the Appellate Body. This would need to be accompanied with appropriate changes in the employment conditions (remuneration, pension etc.).
• Expansion of the resources of the Appellate Body Secretariat could also be considered as an accompanying measure (this would not require any change in the DSU).

ii) Transitional rules for outgoing Appellate Body members

Codifying Rule 15 (or similar) in the DSU, thereby addressing head on the US concern that this Rule was not approved by WTO Members. For example the D5U could provide that an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has already taken place during that member's term.

iii) Findings unnecessary for the resolution of the dispute

Modifying Article 17.12 of the DSU, according to which the Appellate Body "shall address each of the issues raised" on appeal. For instance, it could be added "to the extent this is necessary for the resolution of the dispute". This would address concerns about Appellate Body making long "advisory opinions", or "obiter dicta", not necessary to resolve the dispute. Indirectly, this would also address the concern related to Article 17.5 DSU (90 days).

iv) The meaning of municipal law as the issue of fact

It could be clarified that "'issues of law covered in the panel report and legal interpretations developed by the panel" do not include the meaning of the municipal measures (even though they do and should include their legal characterisation under the WTO law). To that end, a footnote could be added to Article 17.6 of the DSU "For greater certainty [... j"

v) The issue of precedent

Providing for regular exchanges between the Appellate Body and WTO Members (e.g. annual meetings), on top of the Members' right, in Article 17.14 of the DSU, to express views on Appellate Body reports when they are adopted. This would provide an additional "channel of communication" where concerns with regard to some Appellate Body approaches could be voiced (for example treating previous rulings as precedents, no evolution of case-law). Indeed, the WTO Membership would have a chance to comment on more systemic issues or on trends in the jurisprudence in meetings unrelated to the adoption of particular Appellate Body reports. At the same time, this change would not be inconsistent with the independence of the Appellate Body members, especially if they were not, in any event, eligible for re-appointment (see below the proposal for one but longer term). Adequate transparency and "ground ruies" for such meetings could also be put in place, in order to avoid undue pressure on Appellate Body members.

vi) independence of Appellate Body members

Providing for one single but longer (6-8 years) term for Appellate Body members. This would address the EU concern (and that of the vast majority of the WTO Membership) with respect to the independence of the Appellate Body. It would also improve the efficiency of the Appellate Body (there would be certainty about the length of one's term and a longer term would allow to benefit from the experience on the job).

•••

The amendments envisaged above would all concern Article 17 of the DSU.

It is not the intention to pursue other matters, such as these that are being pursued in the context of the DSU review negotiations. Indeed, the approach would be to proceed with the amendments swiftly, so issues that are known to be controversial should be avoided.

Such amendments could be made pursuant to the applicable (simpler) amendment procedure in Article X:8 of the WTO Agreement, according to which amendments to the DSU can be decided by the Ministerial Conference, on a proposal from any WTO Member. The decision is taken by
consensus and amendments would take effect upon approval by the Ministerial Conference. In the intervals between meetings of the Ministerial Conference, amendments could be approved by the General Council (see Article IV:2 of the Marrakech Agreement).

At EU level, a Council decision pursuant to Article 218(9) TFEU would be required for joining such consensus. The Council would act by qualified majority (Article 16(3) TEU), on a proposal from the Commission.

II. Second stage: addressing substantive issues

As set out above, the US takes issue with the interpretations developed by the Appellate Body ("overreach") especially, but not exclusively, in the trade defence field.

Without prejudice to the EU position on the alleged "overreach" by the Appellate Body, it is pointed out that the substantive rules as such can be modified or interpreted by the WTO Membership in accordance with the relevant procedures.

In the second stage, once the AB appointment process has been unblocked, WTO Members would engage in discussions on such possible changes or authoritative interpretations.

The U.S. Challenges the Section 232 Retaliatory Tariffs

I had been wondering if the U.S. would bring WTO complaints against the tariffs applied by various governments in retaliation for the Section 232 steel and aluminum tariffs. USTR has just announced that it will:

The United States today launched separate disputes at the World Trade Organization (WTO) against China, the European Union, Canada, Mexico and Turkey, challenging the tariffs each WTO Member imposed in response to President Trump’s actions on trade in aluminum and steel to protect the United States’ national security interests. 

The U.S. steel and aluminum duties imposed by President Trump earlier this year are justified under international agreements the United States and its trading partners have approved.  However, retaliatory duties on U.S. exports imposed by China, the EU, Canada, Mexico and Turkey are completely without justification under international rules.

“The actions taken by the President are wholly legitimate and fully justified as a matter of U.S. law and international trade rules.  Instead of working with us to address a common problem, some of our trading partners have elected to respond with retaliatory tariffs designed to punish American workers, farmers and companies,” said U.S. Trade Representative Robert Lighthizer. “These tariffs appear to breach each WTO Member’s commitments under the WTO Agreement.  The United States will take all necessary actions to protect our interests, and we urge our trading partners to work constructively with us on the problems created by massive and persistent excess capacity in the steel and aluminum sectors.”

There were many discussions last week at the G2 and SIEL conferences about the Trump administration's intentions with regard to WTO dispute settlement. Does the administration want to maintain the system at all, and is it willing engage in good faith reform efforts? Or is it simply taking steps that it expects will lead to the system's demise? In the context of those discussions, if you are looking for positive signs, you could see these complaints as an indication that the administration does still believe in the system.

The Timing of Panel Reports

As I discussed recently, the U.S. has raised the issue of the length of time it has been taking the Appellate Body to circulate its reports. But what about the length of time panels have been taking? DSU Articles 12.8 and 12.9 say this:

8. In order to make the procedures more efficient, the period in which the panel shall conduct its examination, from the date that the composition and terms of reference of the panel have been agreed upon until the date the final report is issued to the parties to the dispute, shall, as a general rule, not exceed six months. In cases of urgency, including those relating to perishable goods, the panel shall aim to issue its report to the parties to the dispute within three months.

9. When the panel considers that it cannot issue its report within six months, or within three months in cases of urgency, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will issue its report. In no case should the period from the establishment of the panel to the circulation of the report to the Members exceed nine months.

Let's look at the period of time taken by the first 10 WTO panels (for the early panels, some of the dates were not made public): 

Decision	Panel Established	Panel Composed	Days between Composition and Final Report to Parties	Final Report Issued to Parties	Days between Composition and Final Report Circulated	Final Report Circulated	Days between Establishment and Final Report Circulated
EC - Bananas (Panel)(U.S.)	May 08, 1996	Jun 07, 1996	326	Apr 29, 1997	349	May 22, 1997	379
EC - Bananas (Panel)(Mexico)	May 08, 1996	Jun 07, 1996	326	Apr 29, 1997	349	May 22, 1997	379
EC - Bananas (Panel)(Guatemala/Honduras)	May 08, 1996	Jun 07, 1996	326	Apr 29, 1997	349	May 22, 1997	379
EC - Bananas (Panel)(Ecuador)	May 08, 1996	Jun 07, 1996	326	Apr 29, 1997	349	May 22, 1997	379
Canada - Periodicals (Panel)	Jun 19, 1996	Jul 25, 1996	211	Feb 21, 1997	232	Mar 14, 1997	268
U.S. - Shirts and Blouses (Panel)	Apr 17, 1996	Jun 27, 1996			193	Jan 06, 1997	264
U.S. - Underwear (Panel)	Mar 05, 1996	Apr 19, 1996	189	Oct 25, 1996	203	Nov 08, 1996	248
Brazil - Coconut (Panel)	Mar 05, 1996	Apr 16, 1996			184	Oct 17, 1996	226
Japan - Alcohol (Panel)	Sep 27, 1995	Oct 30, 1995			255	Jul 11, 1996	288
U.S. - Gasoline (Panel)	Apr 10, 1995	Apr 28, 1995	264	Jan 17, 1996	276	Jan 29, 1996	294

 

Now let's look at the last 10 panels:

 

Decision	Panel Established	Panel Composed	Days between Composition and Final Report to Parties	Final Report Issued to Parties	Days between Composition and Final Report Circulated	Final Report Circulated	Days between Establishment and Final Report Circulated
U.S. - Supercalendered Paper (Panel)	Jul 21, 2016	Aug 31, 2016	471	Dec 15, 2017	673	Jul 05, 2018	714
Australia - Plain Packaging (Panel)	Sep 25, 2013	May 05, 2014	1,239	Sep 25, 2017	1,515	Jun 28, 2018	1,737
Korea - Pneumatic Valves (Panel)	Jul 04, 2016	Aug 29, 2016	451	Nov 23, 2017	591	Apr 12, 2018	647
Korea - Radionuclides (Panel)	Sep 28, 2015	Feb 08, 2016	616	Oct 16, 2017	745	Feb 22, 2018	878
EU - Biodiesel (Indonesia) (Panel)	Aug 31, 2015	Nov 04, 2015	722	Oct 26, 2017	813	Jan 25, 2018	878
U.S. - Coated Paper (Indonesia) (Panel)	Sep 28, 2015	Feb 04, 2016	610	Oct 06, 2017	672	Dec 07, 2017	801
U.S. - OCTG (Korea) (Panel)	Mar 25, 2015	Jul 13, 2015	667	May 10, 2017	855	Nov 14, 2017	965
Indonesia - Chicken (Panel)	Dec 03, 2015	Mar 03, 2016	433	May 10, 2017	593	Oct 17, 2017	684
Brazil - Taxation (Panel)	Dec 17, 2014	Mar 26, 2015	635	Dec 20, 2016	888	Aug 30, 2017	987
Indonesia - Iron or Steel Products (Panel)	Sep 28, 2015	Dec 09, 2015	526	May 18, 2017	618	Aug 18, 2017	690

 

With regard to speeding up WTO dispute settlement and adhering to the DSU deadlines, where should the focus be and what improvements are possible? As I said in relation to the appellate process, perhaps the original deadlines are no longer realistic for panels. Maybe we need to extend those time-frames a bit, but then somehow force/encourage panels to comply with them. 

How Do We Measure Trade-Restrictiveness?

Back in 2000, the Appellate Body said this in Korea - Beef about the "necessary" standard in GATT Article XX(d):

164. In sum, determination of whether a measure, which is not "indispensable", may nevertheless be "necessary" within the contemplation of Article XX(d), involves in every case a process of weighing and balancing a series of factors which prominently include the contribution made by the compliance measure to the enforcement of the law or regulation at issue, the importance of the common interests or values protected by that law or regulation, and the accompanying impact of the law or regulation on imports or exports.

165. The panel in United States – Section 337 described the applicable standard for evaluating whether a measure is "necessary" under Article XX(d) in the following terms:

It was clear to the Panel that a contracting party cannot justify a measure inconsistent with another GATT provision as "necessary" in terms of Article XX(d) if an alternative measure which it could reasonably be expected to employ and which is not inconsistent with other GATT provisions is available to it. By the same token, in cases where a measure consistent with other GATT provisions is not reasonably available, a contracting party is bound to use, among the measures reasonably available to it, that which entails the least degree of inconsistency with other GATT provisions.

166. The standard described by the panel in United States – Section 337 encapsulates the general considerations we have adverted to above. In our view, the weighing and balancing process we have outlined is comprehended in the determination of whether a WTO-consistent alternative measure which the Member concerned could "reasonably be expected to employ" is available, or whether a less WTO-inconsistent measure is "reasonably available".

This kind of analysis has been brought over to Article 2.2 of the TBT Agreement. In Tuna II, the Appellate Body said:

322. In sum, we consider that an assessment of whether a technical regulation is "more trade-restrictive than necessary" within the meaning of Article 2.2 of the TBT Agreement involves an evaluation of a number of factors. A panel should begin by considering factors that include: (i) the degree of contribution made by the measure to the legitimate objective at issue; (ii) the trade-restrictiveness of the measure; and (iii) the nature of the risks at issue and the gravity of consequences that would arise from non-fulfilment of the objective(s) pursued by the Member through the measure. In most cases, a comparison of the challenged measure and possible alternative measures should be undertaken. In particular, it may be relevant for the purpose of this comparison to consider whether the proposed alternative is less trade restrictive, whether it would make an equivalent contribution to the relevant legitimate objective, taking account of the risks non-fulfilment would create, and whether it is reasonably available.

The Australia - Plain Packaging panel applied this same approach (see paras. 7.31-32). In doing so, it explained the meaning of the "trade-restrictiveness" element as follows:

7.1072. The Appellate Body has understood the word "restriction" as referring to "something that restricts someone or something, a limitation on action, a limiting condition or regulation". Accordingly, it found, in the context of Article XI:2(a) of the GATT 1994, that the word "restriction" refers generally to something that has a limiting effect. It further determined that as used in Article 2.2 in conjunction with the word "trade", the term means "something having a limiting effect on trade". Specifically, what is at stake in this context is the limiting effect of the measure on international trade, as is made clear by the reference to "international trade" in the first sentence of Article 2.2. We therefore understand that a technical regulation is "trade-restrictive" within the meaning of Article 2.2 when it has a limiting effect on international trade.

With all this in mind, it seems to me that if you want to weigh and balance factors such as the degree of contribution a measure makes to its objective, on the one hand, with the measure's trade-restrictiveness (limiting effect on international trade), on the other hand, you need to have some sense of how trade-restrictive the measure is.

But when I read pp. 419-473 of the Plain Packaging panel report, I'm not sure exactly what the limiting effect was in this case. Just how trade-restrictive is it? The Plain Packaging panel concludes with this:

7.1255. On the basis of the foregoing, we conclude that the TPP measures are trade-restrictive, insofar as, by reducing the use of tobacco products, they reduce the volume of imported tobacco products on the Australian market, and thereby have a 'limiting effect' on trade.

There are a lot of pages in this report, and I don't claim to have read every one of them at this point, but I didn't get a good sense of the degree of limiting effect on trade in this case. I can see how there would be some limiting effect, but precisely how much of an effect is there?

I don't mean to blame the panel here. I'm really not sure what panels are supposed to do with this legal standard. I have a sense of how you would characterize trade-restrictiveness in the more obvious cases. A total import ban would be extremely trade-restrictive; an internal measure that discriminates on the basis of nationality would be significantly trade-restrictive. But if the measure does not do either of these things, on what basis do we determine the level of trade-restrictiveness? Is it about (potential) volume of trade affected, which is what the panel's statement in para. 7.1255 seems to imply? Is it more of a design, structure, architecture analysis? I think we need something more concrete to go on here, or else I'm not sure how the weighing and balancing, and comparing to alternatives, is supposed to work.

Busy Week Coming Up For IEL Conferences in DC

Next week is a busy week for international economic law conferences in DC. On Wednesday, Georgetown's Institute of International Economic Law and the Graduate Institute Center for Trade and Economic Integration will host the G2 Conference on Resolving Disputes in International Economic Law. And then on Thursday, Friday, and Saturday, American University's Washington College of Law will host the 2018 SIEL conference, entitled International Economic Law in Unsettling Times. Four straight days of international economic law discussions may not solve all (or any) of the conflicts going on right now, but it may at least be somewhat therapeutic for those in attendance.

New Position: Postdoctoral Fellow for Project on the Belt & Road Initiative

The Singapore Management University (SMU) is seeking a post-doctoral fellow, in a position jointly sponsored by SMU’s School of Law and School of Social Sciences. This position is on an exciting new interdisciplinary research project studying the interplay between infrastructure building and institutional building under China’s Belt & Road Initiatives (BRI). The ideal candidate will need fluency in both Chinese and English and have background in either international laws or international political economy. Having experiences working on cross-country comparative studies and knowledge of the BRI will be an advantage. The candidate will report to the project’s co-PIs, Prof. Henry Gao (School of Law) and Prof. Forrest Zhang (School of Social Sciences).

In this position, the postdoctoral fellow will be reviewing relevant literature in international law, international political economy, China and regional studies, liaising with partner institutions and scholars, developing research instruments, preparing grant applications, authoring and co-authoring manuscripts, conference papers and presentations, and assisting with some project-related admin work. The post-doctoral fellow will be embedded within interdisciplinary research environments and will be mentored to facilitate transition to independent research careers by emphasizing the acquisition of analytic, writing, and other research skills. This post-doctoral appointment is funded for 8-12 months. Renewal for one or more years might be possible with new funding.

Minimum qualifications for this position include 1) a doctoral degree in one of the following disciplines: law and legal studies, political science, sociology, development studies, international relations, environmental studies, and geography; 2) strong verbal and written skills in Chinese (Mandarin) and English; 3) experience working in interdisciplinary and multicultural environments; 4) substantive knowledge of Asia, especially China.

Compensation is highly competitive and includes medical and other standard benefits. Application requirements include a curriculum vitae, names and addresses of two references, a writing sample (e.g. first-authored article), and a cover letter describing expertise and qualifications, research and scholarship interests, and career plans. Please include in the cover letter when you are available to start and clearly describe your expertise and experience related to this project. Preference will be given to applicants who can start immediately or ASAP. Applications will be reviewed on a rolling basis, and the position will remain open until filled. 

The application shall be submitted to [email protected] with the subject “BRI PDF”.  

How To Negotiate Lower Tariffs

This is from Axios:

Axios has obtained a leaked draft of a Trump administration bill — ordered by the president himself — that would declare America’s abandonment of fundamental World Trade Organization rules.

Why it matters: The draft legislation is stunning. The bill essentially provides Trump a license to raise U.S. tariffs at will, without congressional consent and international rules be damned.

The details: The bill, titled the "United States Fair and Reciprocal Tariff Act," would give Trump unilateral power to ignore the two most basic principles of the WTO and negotiate one-on-one with any country:

1. The "Most Favored Nation" (MFN) principle that countries can't set different tariff rates for different countries outside of free trade agreements;
2. "Bound tariff rates" — the tariff ceilings that each WTO country has already agreed to in previous negotiations.

...

[USTR] Spokeswoman Lindsay Walters said, "It is no secret that POTUS has had frustrations with the unfair imbalance of tariffs that put the U.S. at a disadvantage. He has asked his team to develop ideas to remedy this situation and create incentives for countries to lower their tariffs. The current system gives the U.S. no leverage and other countries no incentive."

I'm not taking this too seriously, and I don't mean to worry anyone by mentioning it here. But I did want to note, for the benefit of the trade folks in the Trump administration, that a good way to lower the tariffs faced by U.S. exporters is to negotiate trade agreements with other countries. This is what the U.S. did with NAFTA, and through NAFTA Mexican tariffs on U.S. imports were lowered to zero. So there is, in fact, a way to lower tariffs, if the Trump administration would like to do this.

ADDED: I also wanted to note that the Trump administration needs to decide what it considers most important in trade negotiations. If lowering foreign tariffs is its priority, I have no doubt it can do that. On the other hand, if it wants stronger intellectual property protection or labor rights, it can push for those instead of for lowering tariffs all the way. But it can't get everything it wants on all three, unless of course it wants to offer up something in exchange such as lowering U.S. agriculture subsidies, which I suspect it does not.