International Economic Law and Policy Blog

Despite Trade Wars, the American Public Largely Supports Free Trade

This is what Scott Lincicome has recently observed in his policy brief (The “Protectionist Moment” That Wasn’t: American Views on Trade and Globalization).  It is a mega-survey of five recent surveys (Pew; WSJ/NBC News; Gallup; Monmouth; the Chicago Council) on the American attitude toward foreign trade and globalization.  Quite ironically, Lincicome finds that trade and globalization are “more popular today than at any point in recent history.”  For example, Americans overwhelmingly believe that trade is good for the U.S. economy (Gallup: 70%; WSJ/ NBC News: 66%), rather than being a threat to it (Gallup: 25%; WSJ/ NBC News: 20%).

Lincicome draws two main conclusions from his mega-survey.  First, the current U.S. protectionism is a perfect example of “public choice” model (“[C]oncentrated benefits and diffuse costs can push self-interested politicians into adopting polices that are actually opposed by most of the electorate.”)  Second, free trade advocates may want to advertise this result (“A winning message on trade starts with the simple fact that the vast majority of Americans currently support international trade and globalization.”)

The next question: does, and will, the American public equally support the WTO?

The Progressive Parts of the New NAFTA: Footnotes at War with Obligations

Recall that the original Article 23.9 of the new NAFTA said this:

Article 23.9 Sex-Based Discrimination in the Workplace

The Parties recognize the goal of eliminating sex-based discrimination in employment and occupation, and support the goal of promoting equality of women in the workplace. Accordingly, each Party shall implement policies that protect workers against employment discrimination on the basis of sex, including with regard to pregnancy, sexual harassment, sexual orientation, gender identity, and caregiving responsibilities, provide job-protected leave for birth or adoption of a child and care of family members, and protect against wage discrimination.

The new version released today adds a crucial footnote:

Article 23.9: Discrimination in the Workplace

The Parties recognize the goal of eliminating discrimination in employment and occupation, and support the goal of promoting equality of women in the workplace. Accordingly, each Party shall implement policies¹³ that it considers appropriate to protect workers against employment discrimination on the basis of sex (including with regard to sexual harassment), pregnancy, sexual orientation, gender identity, and caregiving responsibilities; provide job-protected leave for birth or adoption of a child and care of family members; and protect against wage discrimination.

___________________________________

13 The United States’ existing federal agency policies regarding the hiring of federal workers are sufficient to fulfill the obligations set forth in this Article. The Article thus requires no additional action on the part of the United States, including any amendments to Title VII of the Civil Rights Act of 1964, in order for the United States to be in compliance with the obligations set forth in this Article.

If I'm reading this correctly, this footnote is a declaration that the United States is in compliance with the obligation. In a sense, the footnote tries to say that even if the U.S. is not technically in compliance with Article 23.9, it is nonetheless in compliance with Article 23.9. (In addition, while the old version talked about "policies that protect workers," the new version refers to "policies that it considers appropriate to protect workers." As we know, "considers" adds a lot of discretion to a provision.)

What is also strange is that the obligation seems to apply to all situations of discrimination, regardless of who the employer is, while the footnote declares that "existing federal agency policies regarding the hiring of federal workers" are enough to fulfill the obligation. But how is it possible that these policies limited to one category of workers fulfills the whole broad obligation?

I doubt we were likely to see complaints under this provision anyway, but nevertheless this new footnote is puzzling.

The Difficult Task of Getting the New NAFTA Through Congress

The new NAFTA -- AKA, the USMCA here in the U.S., but different acronyms in Canada and Mexico -- has now been signed. With apologies to the hard-working negotiators, that was the easy part. Now the Trump administration has to get Congress to sign off.

Ambassador Lighthizer sounds confident:

“I want to remind everyone that this was negotiated from the beginning to be a bipartisan agreement,” Lighthizer said on Nov. 30 after the signing of the U.S.-Mexico-Canada Agreement on the sidelines of the G20 summit. “Democrats were involved from the beginning, the middle and the end. I seldom go a day without talking to one of the Democratic leaders -- and the same thing is true of the Republicans. The president’s instruction to me from the beginning [was] that he wants a bipartisan agreement."

Asked whether the agreement would win adequate Democratic support, Lighthizer said “I absolutely believe it will.”

“I think we will get the support of a lot of Democrats -- a very high number of Democrats -- absolutely; I have no doubt about it. Now, will we have to emphasize some things in the implementing bill? Of course. And I’m in discussions with a variety of Democratic leaders on those points and they will be very much involved in the process moving forward and will have a strong influence on how we put things together because I want them not only to vote for it, I want them to be happy,” Lighthizer said.

I think this may be more challenging than he is letting on. With a Republican-controlled Congress, it might not have been so difficult. However, with the Democrats in charge of the House, this looks complicated to me.

If the Republicans had full control, I could see how the Trump administration would use a withdrawal threat to its advantage. Sign off on the new NAFTA, they would say, or else they will withdraw from the old one, creating international and domestic law chaos. NAFTA supporters in the GOP would panic and agree, even if there were things in the new NAFTA they didn't like (e.g., the scaling back of ISDS, protections against gender discrimination, etc.).

But the Democrats are in a different position. First of all, many of them don't like NAFTA to begin with, so a withdrawal threat wouldn't feel so threatening. Furthermore, a withdrawal threat could lead to an internal GOP war over trade policy, which would be wonderful for the Democrats. This all puts the Democrats in a pretty good spot to make demands.

So what might they demand? Here are a few of the more extreme possibilities:

-- get rid of the investment chapter entirely.

-- give labor unions a private right of action like the one foreign investors have under ISDS.

-- let the Labor Department have control over whether to bring complaints under the labor chapter.

-- demand some new (and enforceable) language on climate change.

-- get rid of the biologics protections.

Obviously, the Republicans will hate all of these demands.

So how much will Democrats demand, and how much will Republicans be willing to give? Honestly, I have no idea, but it's going to be really interesting to watch it play out.

Guest Post: What’s our goal for Buenos Aires: Help the US or hurt China?

This is a guest post from law professor David Trubek:

With a meeting between Presidents Trump and Xi at the G-20 in Buenos Aires about to occur, many hope for a truce in the trade war and a deal that will benefit both countries. But that will not happen if some in the U.S. Administration have their way. For them, higher tariffs are not a ploy to get a better deal: they are tools to weaken China.

That is the viewpoint of an alliance of trade nationalists and national security hawks who see the trade war as a zero sum struggle for global predominance and whose goal is halting China’s rise as a world power. This is not “Let’s do a deal,” it is Stop China. The trade nationalists want to move production back to the US, make it harder for the Chinese to compete with US-based high tech firms, and divert China-based supply chains to other countries. The defense hawks want to limit China’s influence with our allies and ensure that China does not secure advanced war-making technologies. All want to stop China from being the world’s largest economy. Some claim this will promote liberal economic, political and cultural values.

The President of the United States seems to side with the Stop China faction. Referring to measures taken to punish China, Trump said:

“…China has come down tremendously. Tremendously. China would have superseded us in two years as an economic power; now, they’re not even close.”

 He went on to state, erroneously, that he forced China to abandon its ambitious “Made in China 2025” plan to become a world leader in high-tech:

“China got rid of their ‘China ’25’ because I found it very insulting…. ‘China ’25’ means, in 2025, they’re going to take over, economically, the world. I said, That’s not happening.”

Officially, our policy is to impose tariffs unless China ends certain abuses. There are real issues that need to be addressed and distortions to be eliminated. If the war were just about reducing the bilateral trade balance, getting more access to Chinese markets, and limiting IP piracy, there is a deal that could and should be struck. But the hawks want China to fundamentally alter its system of economic organization, abandon strategies that have benefited millions, and give up its ambition to become a world leader in high tech industries.

China cannot and will not accept those changes. Xi cannot agree to slow growth, change China’s economic model, or stop building world class industries. These are at the core of his and the entire regimes’ legitimacy. The memory of the Opium Wars and other kinds of foreign imposition is too strong to allow the Xi regime to abandon core policies under pressure from the West. They are already fighting back.

The Stop China strategy is both wrong and futile. It is wrong because China should be allowed to maintain an economic strategy that has achieved miracles for its people. It is futile because nothing we do can stop China from eventually becoming the world’s largest economy. And if this were really about preserving or enhancing liberalism, nothing is more likely to harden illiberal tendencies in China than a long-drawn out fight with the West.

I want us to get a better deal for the US. I know there is a win-win deal to be had. But I am appalled that our goal may be not to help US citizens but harm the Chinese. If the Stop China people control US trade policy, they could maintain high tariffs indefinitely to forestall Chinese growth. That would disrupt the world economy and harm our own businesses.

Wall Street has figured that out and started talking directly to Beijing. They must be looking for a deal the Chinese would accept and the Trump Administration cannot turn down. This brought an amazing rebuke from Peter Navarro the Lord High Executioner of the Stop China movement: he told Wall Street to keep hands off trade policy. Think of it: a Republican Administration telling the US business community to keep out of economic policy making.

There are other voices encouraging a return to “Let’s do a deal”: I hope they prevail as we come down to the crunch in Buenos Aires. If not, there will be no truce when Trump meets Xi and we will all lose politically, economically, and morally.

Guest Post: Brexit. Maybe not such bad news for intra-EU investment awards after Achmea?

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

On 29 March 2019, 11 pm, the UK will officially leave the European Union, unless by some miracle it decides to withdraw its notification to exit the Union. Everyone is anxiously awaiting the outcome of CJEU Case C-621/18 Wightman, on whether or not the UK is allowed to unilaterally withdraw its exit notification under Article 50 TEU, and whether on 11 December this year the House of Commons votes in favour of the Withdrawal Agreement. Academic writings on Brexit abound, covering topics such as the fall-back on WTO rules after Brexit or the fate of approximately 1100 international agreements to which the UK is party either by its membership to the EU or as a contracting party to a mixed agreement.

This latter issue, discussed in length by Prof. Ramses Wessel, has prompted me to ask myself what will happen to the intra-EU BITs to which the UK is a party, and more specifically, what will happen to pending investor-state arbitrations initiated by UK companies against EU member states.

The UK and intra-EU investment disputes

The UK, as a major exporter of capital, has concluded over the years 105 Bilateral Investment Treaties (BITs). Furthermore, via its EU Membership or by being a contracting party to mixed agreements, it is a party to a further 70 Treaties with Investment Provisions (TIPs), not all of which have yet entered into force. Of the 105 BITs, 12 were concluded (and are still in force) with states which have eventually become EU Member States (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, and Slovenia). Besides the 10 intra-EU BITs, the UK is also a party to the Energy Charter Treaty (ECT).

Why is this important? Because UK investors are avid users of the investor-State dispute settlement provisions under these agreements. Of the total of 78 pending or concluded investor-state arbitrations launched over the years by UK investors, 23 were brought against other EU Member States. Currently, there are 12 pending investor-state arbitrations against:

• Spain, 5 cases under the ECT
• Italy, 2 cases under the ECT
• Hungary, 1 case under the UK-HU BIT
• Latvia, 1 case under the UK-LV BIT
• Poland, 1 case under the UK-PL BIT
• Romania, 1 case under the UK-RO and CA-RO BITs
• the Czech Republic, 1 case under the UK-CZ BIT and the ECT

This means that investors can potentially win these cases - some of which will entail very significant financial compensation - and they will try to enforce the arbitral awards. This year the CJEU has delivered its Achmea ruling, which has seriously affected the enforcement of arbitral awards rendered by tribunals set up pursuant to intra-EU BITs. However, Brexit might bring them unexpected benefits.

Achmea and its immediate consequences

Without entering into too much detail, as this ruling been amply discussed (here, here, and here), in this year’s Slovakia v Achmea the CJEU decided that Articles 267 and 344 TFEU ‘precluded’ investor-state tribunals ‘such as’ the one under the Netherlands – Slovakia BIT. In other words, intra-EU investor-state tribunals and their awards are incompatible with the EU legal order and such awards cannot be enforced in EU Member States. The German Federal Court of Justice, which referred the question for a preliminary ruling in Slovakia v Achmea, decided to abide by the CJEU’s ruling and set aside the original arbitral award, which was in favour of the Dutch investor. Furthermore, I have argued that Achmea should also apply to investor-state tribunals and awards under the ECT, if an EU investor initiated the case against another EU Member State.

Thus, following Achmea it looked like awards rendered by arbitral tribunals set up under intra-EU BITs or under the ECT, but in an intra-EU context, would be unenforceable in the EU. But…

But, Brexit

As Wessel has argued, disentangling the UK from the EU does not only have an internal component, but an external component as well. Three categories of international agreements (with subcategories of course) exist to which the UK is a party, the relationship of which needs to be clarified following Brexit. First, there are the so-called EU ‘only agreements’ that were concluded by the EU alone with third states and which are binding on the UK because of its membership to the EU. Second, the so-called ‘mixed’ agreements to which both the EU and its (all or some) Member States are parties, that are binding on the UK under both international and EU law. Third, there are also those agreements that are only concluded by the UK, but might still have ‘links with EU law’ (Wessel, p. 125).  

The UK has yet to terminate its intra-EU BITs (neither have the other contracting parties) and it is highly unlikely that it will, especially following Brexit. Thus, these intra-EU BITs will remain in force after Brexit as well, with a small change: they will not be considered intra‑EU BITs anymore, since the UK will be a non-EU contracting party. It follows that the Achmea ruling of the CJEU, as a general rule, would not apply to an arbitral award rendered under a BIT between the UK and an EU Member State. Some further observations are needed:

1. As I have previously argued, an expansive reading of Achmea could result in concluding that arbitral awards rendered under Member State BITs with third countries would also be incompatible with EU law. Until CJEU Opinion 1/17 is delivered, this remains a theoretical possibility.
2. If we follow a narrow reading of Achmea, as only applying to intra-EU arbitral awards, then the enforcement of arbitral awards rendered under UK BITs with EU Member States could result in some interesting outcomes:

• If the intra-EU investment tribunal delivers the award before 29 March 2019, then the courts of the EU Member States (or even the UK courts) - where investors will seek to enforce the award - could argue that the award is incompatible with EU law under Achmea, because it was rendered pursuant to an intra-EU BIT, the UK still being an EU member at the time the award was delivered
• If the investment tribunal delivers the award after 29 March 2019, the EU or UK courts where enforcement is sought would need to recognize that the BITs are not intra-EU anymore, therefore Achmea would not bar their enforcement.

The situation of the ECT and awards rendered under it is slightly trickier. The ECT was signed as a mixed agreement and it does not contain a ‘disconnection clause’ (a clause which ensures that the treaty’s provisions do not apply in the relationship between EU Member States). Following Brexit, the UK (possibly following some negotiated adjustments with the other contracting parties) would remain a party to the ECT under international law. Thus, if one reads Achmea so as to apply to intra-EU arbitral disputes under the ECT as well, then the enforcement of such awards will follow a similar path as described above in point (b).

In conclusion, Brexit might actually allow UK investors to enforce investor-State arbitral awards against EU Member States in both the UK and the EU, as the Achmea prohibition would not apply following the UK’s exit.   

Geoeconomics: The Variable Relationship Between Economics and Security

This is more from Anthea Roberts, Henrique Choer Moraes, Victor Ferguson on geoeconomics at the Lawfare blog:

There has been much consternation (particularly in the United States) about China’s use of geoeconomic strategies, meaning the “use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results.” Commentators have accused of China employing “debt-trap diplomacy” to gain control over strategic infrastructure abroad as part of its Belt and Road Initiative; using informal sanctions to coerce its neighbors; and establishing parallel international institutions, like the Asian Infrastructure Investment Bank, to undermine existing alternatives.

Whether or not these concerns about China are justified or overstated, it is important to note that geoeconomic strategies are not new, nor is their use one-sided. The United States has long used geoeconomic strategies, such as international institution building and employing positive and negative economic sanctions, to achieve its national interests. But in recent years, the United States has changed in how it understands its national interests and how prevailing ideologies and institutional structures have combined to affect its pursuit of those interests.

 

Do Anti-Dumping Measures Address Market Distortions?

This is from the latest WTO monitoring report on G20 trade measures: 

Regarding trade remedy actions, it has been highlighted in discussions among G20 economies, as well as more broadly in the WTO, that some of these measures are taken to address what is perceived by some as a market distortion resulting from trade practices of entities in another trading partner. The WTO Antidumping and Subsidies Agreements permit WTO Members to impose antidumping (AD) or countervailing (CVD) duties to offset what is perceived to be injurious dumping or subsidization of products exported from one Member to another. The Reports are not in a position to establish if, where or when such perceived distortive practices have taken place. The Reports have never categorized the use of trade remedies as protectionist, WTO inconsistent or criticized governments for utilizing them. The main objective of monitoring these measures is to provide added transparency and to identify emerging trends in the application of trade policy measures.

Most people agree that countervailing duties are taken to address market distortions, in the form of government subsidies. But with regard to anti-dumping, the existence of market distortions is much less clear. It is sometimes implied that market distortions are the reason for dumping, but this question is not part of the domestic anti-dumping assessment.

One thing that might help here is a requirement that companies filing anti-dumping complaints identify the market-distorting practices they believe led to the dumping. This identification would at least give some credibility to the idea that market distortions are responsible.

And if we want to take things a step further, the investigating authority could evaluate whether distortive practices actually led to dumping. It would be a similar causation analysis to what we see with determining whether dumped or subsidized imports led to injury.

Obviously, it is not realistic to propose such an approach at the WTO right now. But perhaps two relatively free trade-oriented countries who are negotiating an FTA could consider it as between each other.

Some Questions About "Gap-Filling"

In its statement at the November 21 DSB meeting, the U.S. responds as follows to China's argument that it should be able to "include persons other than government officials" in consultations under the DSU:

24. RIGHT OF A MEMBER TO DECIDE THE COMPOSITION OF ITS DELEGATION FOR CONSULTATIONS: STATEMENT BY CHINA

The United States takes note of China’s statement.

We understand China to assert a so-called “right” for one Member to decide unilaterally to include persons other than government officials in meetings between parties consulting pursuant to Article 4 of the DSU.

Consultations play an important role in helping to resolve a dispute.

Article 4.2 of the DSU provides that “[e]ach Member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of any covered agreement taken within the territory of the former.”28

And Article 4.5 of the DSU provides that “[i]n the course of consultations in accordance with the provisions of a covered agreement, before resorting to further action under this Understanding, Members should attempt to obtain satisfactory adjustment of the matter.”

Thus, consultations are not simply a box-checking exercise.

Rather, they “serve the purpose of, inter alia, allowing parties to reach a mutually agreed solution, and where no solution is reached, providing the parties an opportunity to ‘define and delimit’ the scope of the dispute between them.”29

The DSU text does not specify the right asserted by China to insist that a nongovernmental person be permitted to attend consultations between two WTO Members.

The “right” asserted by China would therefore encompass the ability to force another Member to make statements in the presence of that person.

In addition to not seeing such a right expressed in the DSU, we do not see how insisting on the ability to bring non-governmental persons to consultations, over the objections of the other consulting Members, would serve the aim of consultations.

For instance, if a party to consultations were to indicate they did not think it was helpful or appropriate to include persons other than government officials, insisting on the presence of such non-government persons would not assist in reaching a positive solution to that dispute.

Moreover, what China attempts to frame as a Member’s “right” is essentially a view that its preference concerning the participation of non-governmental persons in consultations meetings must dominate over the preferences of the other consulting Member.

This hardly seems to reflect the cooperative spirit in which consultations should be held. We would consider this an issue – not unlike venue or timing – that the consulting parties in a given dispute should discuss and work out among themselves.

...

DSU Article 4 governs consultations, and doesn't say anything about the composition of Members' delegations in these consultations. Thus, there is, in some sense, a "gap" in the rules. We are not dealing with dispute settlement here, so it's not a question for an adjudicator. Nevertheless, in order to answer the question, we need to interpret the DSU. And in doing so, we need to fill the gap.

This leads me to a question about the U.S. criticism of "gap-filling" by the Appellate Body. How exactly do we define "gaps"? Does everyone agree there is a gap with regard to the issue about the delegations for consultations? What are all the different categories of gaps, and how vague do the rules have to be in order for there to be a gap? And assuming we wanted to do so, how would we impose constraints on when gaps should be filled by adjudicators?

Guest Post: The U.S. and China Rivalry: Geo-Political Context of Free Trade Agreements

This is a guest post from Bashar H. Malkawi (Dean and Professor of Law, University of Sharjah)

International trade constitutes a vital lynchpin of the global governance architecture with a staggering $20 Trillion of annual trade. The global trade order consists of trade policies and systems – in particular free trade agreements ("FTAs") – which have played an increasingly crucial role in the infrastructure of global governance and substantially impacting international economic development and strategic affairs. The shifting sands of trade rules and policies both impacts upon, and is reflective of, the current great power rivalry.

Important questions arise from the current political and economic contexts and the transformative changes sweeping the global governance architecture.  For the current Chief Architect – the United States - do FTAs advance U.S. economic and national security interests and objectives? If so, which route is preferred - limited FTAs or expansive agreements?  Should FTAs be viewed as complementary or a replacement to the multilateral trade system of the WTO? On what basis should partners be selected or rejected?  Does the failure to sign on to the TPP reflect a temporary or specific policy as to the TPP or a long-term secular change that reflects a disengaged US?  How should trade policy be shaped in the context of China which is offering itself as a global leader on trade and globalization?

A mere five years ago, the U.S. did not presume that its position could be challenged (Ryan Hass, https://www.brookings.edu/blog/order-from-chaos/2017/12/07/the-u-s-can-no-longer-ignore-china-as-a-global-internet-player/  Dec. 7, 2017). However, the global context has materially altered and added further complexity to these multifaceted questions. The world has changed remarkably in a relative brief time span in three significant ways.  One, until recently, globalization was viewed favorably with economic integration perceived to bring economic benefits.  However, in recent years, national movements against globalization and free trade have reached a critical mass and have resulted in the election of new political leaders who want to stop or even reverse globalization and restore perceptions of lost national power and sovereignty.  Two, until recently, the U.S. was viewed as the sole hegemon with superlative primacy in finance, technology and military spheres. The U.S. was the “indispensable nation” and the unchallenged leader and rule-setter of the post WWII governance architecture.  However, the U.S. hegemony is at risk to co-option by a rising China which has skillfully ensconced itself as a global leader championing globalization, trade and establishing institutional frameworks such as the AIIB and OBOR. Three, as late as the 1990s, the internet, e-commerce and virtual currencies were either in nascent stages or non-existent.  Global business is becoming based on a digital economy with widespread access to the internet in developed nations (and increasing access overall), transformation to robotics, AI and virtual currencies.  Even traditional industries such as banking face changes due to the ability of clients to bypass banking channels and transfer non-governmental issued currency (or stores of wealth) via the internet seamlessly and privately.

FTAs are inextricably and increasingly linked to global strategy and the international political order and broad, geopolitical and global governance contexts and have always played a role in international investment and trade agreements. The U.S. trade policy has been dominated by the establishment of FTAs to both create new, and cement existing economic relationships, and a means of entrenching the presence of the U.S. in different regions. Indeed, the impetus for the (currently abandoned by the U.S.) TPP was the drive to retain the U.S. lead in rule making so that Washington, rather than Beijing, to create the foundation for "21st-century trade rules," including standards on trade, investment, data flows, and intellectual property.

For example, the U.S.-Jordan FTA was at least partly motivated to show U.S. appreciation of Jordan’s efforts in supporting the Mideast peace process and in combating international terrorism.  Such interests encompass other FTAs as well. The post-Jordan U.S. FTAs with Morocco, Bahrain and Oman represented a key element in a broader U.S. political and economic strategy. That strategy was designed to encourage economic development and democracy in the Middle East and North Africa, with most of the same political/security considerations that were material in the conclusion of the U.S-Jordan FTA.

The geo-political context is particularly important in the emerging U.S.-China hegemonic rivalry.  Indeed, China recognizes the significance of trade agreements as a pillar of the global governance architecture and has embraced trade as means to grow its economy as well as to exert influence globally. Just as access to American markets and capital was once a key component of u.s. diplomacy, China is now employing its financial and trade muscle to win friends and influence. China has embraced trade as means to advance its global ambitions as the U.S. has done for decades. It is obvious that China's trade policy focuses on regional leadership.

Of course Chinese goals are in furtherance of the socialist model and it will be interesting whether the success of China and its emergence as a major architect of the governance architecture will influence nations to imitate the Chinese model.

Indeed, the importance of the strategic context is further illustrated by NAFTA. Prior to NAFTA, U.S.-Mexico relations were cool.  Mexican attitudes towards American investors have been described as antagonistic.  Yet NAFTA changed a former cool neighborly relationship into a significantly warmer friendship. In terms of both private sector and governmental relations, the U.S. and Mexico are on significantly better terms. NAFTA dramatically improved the dynamic of official and private relations.

The move towards imitating a U.S. economic/political model through NAFTA is clearly the opposite of the Chinese model of state capitalism and one party rule.  And, in the context of a rivalry for which model should be embraced globally, the economic effects should not be underestimated. In the U.S.-China rivalry, an economically unified North America is a vastly more powerful competitive platform than the United States alone in seeking to address global economic challenges including China.

The Geoeconomic World Order

Here is the opening of a new blog post from Anthea Roberts, Henrique Choer Moraes, and Victor Ferguson over on Lawfare:

We appear to be entering into a new geoeconomic world order, characterized by great power rivalry between the United States and China and the clear use of economic tools to achieve strategic goals. This increased convergence of economic and security thinking and strategies is likely to lead to a significant restructuring of the laws and institutions that govern international trade and investment.

I worry that the authors are correct about where we are going. I hope we are not too late, and that some creative thinking can get us moving in another direction.

GATT Article XX and non-GATT WTO Agreements

Last week's Thailand - Cigarettes (Philippines), Article 21.5 panel report considered the issue of whether GATT Article XX can provide a defense to claims under the Customs Valuation Agreement: 

7.732. Thailand argues that, insofar as the Charges are inconsistent with the provisions of the CVA, such inconsistency is justified under Article XX(d) because the Charges are measures "necessary to secure compliance with laws or regulations" and that such inconsistency is also justified under Article XX(a) because the Charges are measures "necessary to protect public morals". As a threshold issue, Thailand submits that Article XX is available to justify inconsistencies with the CVA. ... 

The Panel set out the issue as follows:

7.745. We understand the parties to agree that the applicability of Article XX of the GATT 1994 to the CVA must be determined on the basis of a textual analysis of the CVA and the GATT 1994. Specifically, we understand Thailand to accept that Article XX does not automatically apply to obligations in the covered agreements other than the GATT 1994, as reflected in its view that Article XX applies to other covered agreements where there is "a clear textual link between the provisions under which claims are made and the text of the GATT 1994, in particular Article XX." We understand the Philippines to accept that the absence of a specific textual reference to Article XX is not in and of itself dispositive, as reflected in its view that panels and the Appellate Body "have required sufficiently clear affirmative language to justify its application outside of the GATT 1994".

7.746. Therefore, we start our analysis with an examination of the textual bases identified by Thailand. Following that, we address Thailand's argument that the inapplicability of Article XX to the CVA would lead to an absurd result since Article XX would be available to justify a violation of Article VII of the GATT 1994, but not the Agreement that implements that provision. We then address Thailand's argument that Article XX applies to the CVA since this is the only way to establish a balance between Members' obligations and Members' right to regulate. In our assessment of that issue, we consider the consequences of the inapplicability of Article XX to the CVA on Members' right to enact measures to combat customs fraud.

7.747. Thailand identifies three textual bases to support its assertion that Article XX of the GATT 1994 is available to justify violations of the CVA. First, Thailand refers to the full title of the CVA, namely the "Agreement on Implementation of Article VII of the GATT 1994", which refers to Article VII of the GATT 1994.1603 Second, Thailand refers to the language in the preamble to the CVA indicating the desire to "further the objectives of the GATT 1994", and recognizing "the importance of the provisions of Article VII of GATT 1994 and desir[e] to elaborate rules for their application in order to provide greater uniformity and certainty in their implementation". Third, Thailand notes that Article XX(d) of the GATT 1994 explicitly indicates that Members may adopt measures necessary to secure compliance with their laws "relating to customs enforcement", which indicates that Article XX(d) "can be used to justify measures … that are necessary to enforce a Member's customs laws". While we recognize that treaty interpretation calls for a holistic analysis, for analytical clarity we will assess these three textual bases in turn.

The whole section of the panel report is worth a read, but I'm going to focus on one of Thailand's arguments:

7.751. Thailand submits that, if Article XX is not available to justify violations of the CVA, this would "result in an absurd situation, contrary to the principle that 'a treaty interpreter must read all applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously'". This result would be absurd, according to Thailand, as this would allow a violation of Article VII of the GATT 1994 to be justified, in principle, under the general exceptions in Article XX of the GATT 1994, but would not allow for the justification of a violation of the CVA, notwithstanding that the CVA is an agreement that expressly implements Article VII of the GATT 1994.

7.752. We observe that the core concept of the "transaction value" established in the CVA is not necessarily identical to the concept of "actual value" as articulated in Article VII:2(b) of the GATT 1994, and that the CVA elaborates on the rudimentary provisions of Article VII by establishing a comprehensive system for customs valuation, comprising a series of multiple different steps and methods subject to detailed rules governing their sequential application. We do not consider that it follows from the fact that Article XX is applicable to the obligations contained in Article VII of the GATT 1994 that there would be a legal conflict or absurd result if Article XX were not applicable to the obligations in the CVA. In our view, it does not follow that the applicability of Article XX exceptions to the general obligations regarding customs valuation contained in Article VII of the GATT 1994 mandates that those same exceptions must also be applicable to the system of customs valuation comprising detailed methodologies found in the CVA. Indeed, the CVA contains specific and technical rules that elaborate how the customs value of imports may be determined, which are additional to, and different from, those found in Article VII of the GATT 1994.

7.753. We also note that, with the exception of China, all of the other third parties in this dispute that expressed a view on the matter, including Canada, the European Union, Japan, and the United States, agree with the Philippines that Article XX is not available to justify inconsistencies with the CVA and that the applicability of Article XX to violations of Article VII, but not to violations of the CVA, would not lead to an absurdity. We note Japan's view that "the CVA is a special agreement on the implementation for a specific article, namely, Article VII of the GATT 1994. Therefore, by its nature, the CVA constitutes special law vis-à-vis GATT 1994, and provides special rules focusing on how Member states should determine the customs value." We also note the European Union's view that "the rationale and nature of obligations set out in the CVA are not such as to justify the conclusion that Article XX should justify breaches in this context". 

7.754. Thailand submits that in the context of the TBT Agreement, the Appellate Body found that there exists a "balance" between a Member's obligations and a Member's right to regulate that is "inherent" in the TBT Agreement, and that it was for this reason that Article XX of the GATT 1994 was found to be inapplicable to the TBT Agreement. Thailand considers that "in the case of the CVA, there is no such balance that can be found between obligations it contains and the right of Members to regulate", that there is "no reason why the CVA should be deprived of such a balance", and that therefore "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available to justify a measure that is found to be inconsistent with certain provisions of the CVA."

7.755. We observe that the Appellate Body has repeatedly characterized the object and purpose of various WTO agreements in terms of "balance". As Thailand notes, the Appellate Body has articulated the object and purpose of the TBT Agreement in terms of striking a "balance …. between, on the one hand, the desire to avoid creating unnecessary obstacles to international trade and, on the other hand, the recognition of Members' right to regulate", and has said that this "is not, in principle, different from the balance set out in the GATT 1994". The Appellate Body has confirmed that the GATS likewise "seeks to strike a balance between a Member's obligations assumed under the Agreement and that Member's right to pursue national policy objectives". The Appellate Body has also defined the object and purpose of the SCM Agreement as reflecting a "delicate balance between the Members that sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures". The Appellate Body has also described accession protocols as containing a "delicate balance of rights and obligations".

7.756. We consider that there is also an inherent balance in the CVA. This inherent balance finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations. These obligations elaborate a methodology and a set of procedural obligations that must be followed by domestic authorities when making customs valuation determinations, but these obligations apply only where the customs authority engages in a determination of the monetary worth or price of imported goods for the purposes of levying ad valorem customs duties. Thus, measures taken by a Member to combat customs fraud will not run afoul of the obligations contained in the CVA unless such measures are premised on a false customs value that was determined inconsistently with the provisions of the CVA. This is confirmed by Article 17 of the CVA, which establishes that nothing in the CVA restricts or calls into question the rights of customs authorities to satisfy themselves as to the truth or accuracy of statements made by importers. Given the limited scope and reach of the obligations in the CVA, we see no reason why authorities pursuing the legitimate regulatory purpose of identifying or combatting customs fraud would need to deviate from the system of customs valuation established in the CVA, so as to require recourse to Article XX of the GATT 1994. For these reasons, we do not agree with the premise that there is no "inherent balance" in the CVA, such that "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available".

7.757. Based on the foregoing, the Panel finds that the general exceptions in Article XX of the GATT 1994 are not applicable to the obligations in the CVA.

One thing that interests me about this argument is how it might apply to the other multilateral trade in goods agreements. The panel said that there is "an inherent balance in the CVA," which "finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations." So what are the implications of this approach for other agreements? Not all of them have such a limited scope, but don't they all have an "inherent balance" of some sort? How does each one's balance -- in particular, its impact on the "right to regulate" -- play a role in this kind of analysis?

I think Thailand is right that making an Article XX defense available for GATT obligations, but not for the obligations in other trade in goods agreements that further articulate those GATT obligations, is "absurd" in a sense. While panels and the Appellate Body can come up with interpretations that limit potential problems, as the Appellate Body tried to do with its interpretation of certain provisions of the TBT Agreement, having the standard defenses available seems useful. Nonetheless, it doesn't seem like the jurisprudence is going in that direction.

More WTO Complaints Against China, Including an "Adverse Effects" Nullification or Impairment Claim

Along with Jim Bacchus and Huan Zhu, I have a new Cato paper out today on using the WTO to make China more market-oriented. Some of the main points are:

-- China's economic ambition is good. The world is better off with a wealthier China. 

-- However, China does need to play by the rules that everyone else is playing by. 

-- There is an assumption that China does not play by the rules, but when we looked at all the WTO complaints against China (41 at the time of writing), its compliance record is actually pretty good.

-- So one thing governments should start doing right away is bringing more WTO complaints against China. 4 possible areas are: general IP protection, trade secrets, forced tech transfer, subsidies. But with all the allegations against China, there are sure to be many other possible complaints as well.

-- In addition, there are gaps in the rules, and we should look to expand existing rules, eg, on state-owned enterprises.

-- In contrast to relying on the WTO, the Trump administration's approach is unilateral tariffs to push China to change. This approach makes it politically difficult for China to do so.

But here's the part I really wanted to run by readers of this blog. What do you think of this argument for an "adverse effects" SCM Agreement claim against certain Chinese subsidies? 

... [SCM Agreement Article 5(b)] sets out a potentially broad, but mostly unexplored, type of actionable subsidy claim. There has been a long-standing GATT/WTO remedy for “nullification or impairment” that occurs even in the absence of a violation, generally referred to as a “non-violation” claim. These claims have a higher burden of proof, which makes them difficult to win, and they also have a weaker remedy, which makes winning them less valuable.69 However, by incorporating the nullification or impairment language into SCM Agreement Article 5(b), the WTO drafters may have given this remedy more teeth. There is little existing precedent for such claims, but the language is broad enough to make it worth exploring creative complaints under it.

As an example, China recently introduced tax exemptions and tax reductions for Chinese semiconductor producers, to last for a period of 10 years. For the first two to five years, the taxes will be eliminated completely.70 Subsequently, the taxes will be cut in half, through the 10th year.71

These tax exemptions and reductions clearly constitute “specific subsidies” under Articles 1 and 2 of the SCM Agreement, since they target a particular Chinese industry. The more difficult question is whether they cause “adverse effects to the interest of other Members” under Article 5. There is an argument that, because of their substantial size and the overall design of China’s policies in this sector, the tax exemptions and reductions given by China to its semiconductor industry cause adverse effects under Article 5(b).

According to footnote 12 to Article 5(b), nullification or impairment is “used in this Agreement in the same sense as it is used in the relevant provisions of GATT 1994, and the existence of such nullification or impairment shall be established in accordance with the practice of application of these provisions.” Where a measure is inconsistent with a provision of the GATT, Article XXIII:1(a) applies, and nullification or impairment is presumed. In addition, however, Article XXIII:1(b) gives rise to a cause of action when a member, through the application of a measure, has “nullified or impaired” “benefits” accruing to another Member, “whether or not that measure conflicts with the provisions” of the GATT 1994 (so-called non-violation complaints). The concept of nullification or impairment as an independent basis for a claim, even where there is no violation, has been elaborated in only a few GATT/WTO disputes. One panel offered detailed explanations, and the Appellate Body discussed the issues briefly, which can be summarized as follows.

The text of Article XXIII:1(b) establishes three elements that a complaining party must demonstrate in order to make out a claim under Article XXIII:1(b): (1) application of a measure; (2) a benefit accruing under the relevant agreement; and (3) nullification or impairment of the benefit as the result of the application of the measure.72

In the case of the Chinese tax exemptions and reductions, the application of the measure is clear and the benefits accrue on the basis of the tariff concessions made by China as part of its accession and through further commitments made under the recent Information Technology Agreement (ITA) expansion with regard to semiconductor products.73

The issue here is whether the semiconductor tax exemptions and reductions nullify or impair the benefits of China’s tariff concessions. There is a strong argument that this is the case, due to the fact that the competitive relationship between Chinese chipmakers and U.S. chipmakers has been upset by a very substantial subsidy.

Importantly, in order to prove an Article 5(b) adverse effects claim, there is no need to show lost sales. In this regard, the GATT EEC–Oilseeds I panel concluded: “In the framework of GATT, contracting parties seek tariff concessions. . . . The commitments they exchange in such negotiations are commitments on conditions of competition for trade, not on volumes of trade.”74 Instead of an effect on the volume of trade, a claim of “nullification or impairment” is based on “upsetting the competitive relationship” between domestic and imported products.75 Thus, in the present case, even though the immediate effects of the subsidy on trade flows between the United States and China are not known, the United States may still argue that its producers have been put at a competitive disadvantage relative to their Chinese competitors.

In this case, the benefits in question accrued to the United States on the date of China’s original tariff schedule taking effect after accession, and the date of the ITA expansion being incorporated into China’s schedule. The subsidy (i.e., the tax exemptions and reductions) was announced on March 30, 2018, and was to be effective from January 1, 2018. Since the tax exemptions and reductions were announced on a date subsequent to the tariff concession, the United States is entitled to rely on a presumption that it did not anticipate the introduction of the subsidy and its consequent upsetting of the expected competitive relationship between U.S. and Chinese chipmakers.76

Elaborating on this standard, in EEC–Oilseeds I, a GATT panel considered that nullification or impairment would arise when the effect of a tariff concession is “systematically offset by a subsidy programme”:

The Panel considered that the main value of a tariff concession is that it provides an assurance of better market access through improved price competition. Contracting parties negotiate tariff concessions primarily to obtain that advantage. They must therefore be assumed to base their tariff negotiations on the expectation that the price effect of the tariff concessions will not be systematically offset. If no right of redress were given to them in such a case they would be reluctant to make tariff concessions and the General Agreement would no longer be useful as a legal framework for incorporating the results of trade negotiations.77

This standard was reiterated by a WTO panel in the U.S.–Offset Act dispute: “This would suggest, therefore, that the EEC–Oilseeds panel considered that non-violation nullification or impairment would arise when the effect of a tariff concession is systematically offset or counteracted by a subsidy programme.”78

Examining the semiconductor tax exemptions and reductions under the standard of “systematic offsetting/counteracting” makes clear that the measure has caused nullification or impairment, for the following reasons.

First, the amount of subsidy provided is of great importance. Here the amount of subsidy is the amount of government revenue forgone, which is a complete rebate from a corporate income tax of 25 percent, for two to five years, covering a wide swath of semiconductor manufacturers, plus a 50 percent rebate from income tax through to the 10th year. This large tax rebate serves to completely undermine the promise of lower tariffs, which was a substantial concession that could have been of great benefit to foreign producers, and indicates that the subsidy is counteracting the competitive benefit accruing to the United States under China’s promises.

The U.S. semiconductor industry is the leading global provider of semiconductors and semiconductor manufacturing equipment, accounting for 50 percent and 47 percent shares of the world market, respectively. More than 80 percent of U.S. production is exported, with China its biggest export market. Moreover, China’s growing demand for semiconductors is met mainly by imports, including 56.2 percent from the United States.79 These trade figures make it clear that the United States will be hit hard and put at a competitive disadvantage by these Chinese subsidies relative to what it enjoyed previously. Any competitive edge that U.S. chipmakers had because of tariff reductions on their exports to China will be offset by the Chinese grant of subsidies in the form of tax breaks to domestic Chinese chipmakers.

Secondly, the systematic nature of the Chinese measures can be seen through the broader context of the measure. The Chinese government, motivated by economic and national security goals, has publicly asserted its desire to build a semiconductor industry that is far more advanced than today’s and less reliant on the rest of the world.80 The strategy aims at making China the world’s leader in Integrated Circuit (IC) manufacturing by 2030.81 Therefore, the intention of the Chinese government is clear: it wants to promote domestic production, either for domestic use or export.

Thirdly, the effect of the tax exemptions on U.S. manufacturers must be viewed in light of China’s broader strategy. The stated aim of Chinese policy is for China to be at an “advanced world-level [semiconductor capability] in all major segments of the industry by 2030.”82 China has set goals to promote its IC sectors and is supplementing these specific policies with a series of complementary policies that are applied across the IC sector. According to public reports, it places conditions on access to its market to drive localization and technology transfer.83 All these measures taken together have the potential to (1) force the creation of market demand for China’s indigenous semiconductor products; (2) gradually restrict or block market access for foreign semiconductor products as competing domestic products emerge; (3) force the transfer of technology; and (4) grow non-market-based domestic capacity, thereby disrupting the global semiconductor value chain.

Summing up, while China promised to reduce semiconductor tariffs as part of its accession and under the ITA, and has therefore made commitments under Article II benefiting its trading partners, including the United States, it has nullified or impaired those benefits through the use of specific subsidies, resulting in adverse effects under SCM Agreement Article 5(b). 

More on How to Determine Whether a Measure is a Safeguard Measure

In the India - Iron and Steel Products panel report circulated last Wednesday, the panel explained that it would consider the question of whether the measure at issue is a safeguard measure: 

7.30. In this dispute, most of the claims have been raised by Japan under Article XIX of the GATT 1994 and under different provisions of the Agreement on Safeguards. The parties have not questioned the applicability of Article XIX of the GATT 1994 or the Agreement on Safeguards to the dispute. Indeed, both parties agree that the challenged measure is a safeguard within the meaning of Article XIX:1(a) of the GATT 1994 and the Agreement on Safeguards.74 However, given the facts before us and the arguments made by the parties and third parties in this proceeding75, we consider it appropriate to examine whether the measure at issue falls within the scope of the Agreement on Safeguards and Article XIX of the GATT 1994, before addressing the merits of Japan's claims.

The panel later offered the following reasoning in support of its finding that the measure constitutes a safeguard measure:

7.75. We have already noted that the manner in which a Member's domestic law characterizes its own measures is not dispositive of the characterization of such measures under WTO law. Likewise, the manner in which a Member conducts an investigation or notifies measures to the WTO is not dispositive of the legal characterization of the measure. However, all these factors may be relevant elements when considering a measure's design and structure. In this regard, we find that the following elements confirm our conclusion. First, the fact that the Indian competent authority imposed the measure at issue and conducted the respective investigation under domestic legislation that authorizes the Government to impose duties on imports after determining that relevant products are being imported into India in increased quantities and under conditions so as to cause or threaten to cause serious injury to the domestic industry. Second, the fact that the measure at issue had the typical characteristics of a safeguard measure, including (i) that it resulted in duties imposed on imports of the like or directly competitive product to that produced by the affected domestic industry; (ii) that the duties were only temporary; (iii) that the measure was subject to a progressive liberalization at periodic intervals; and (iv) that imports from certain developing countries that did not exceed a threshold were exempted from the duties. Third, the fact that India notified this investigation and measures to the WTO Committee on Safeguards pursuant to the provisions in Article XIX of the GATT 1994 and in the Agreement on Safeguards.

This reasoning offers some guidance as to how to approach the question of whether the U.S. Section 232 tariffs are safeguard measures, as claimed by the governments imposing retaliatory tariffs in response to the Section 232 tariffs. Let's go through each of the three elements the panel mentioned, to see how they would apply in the case of the Section 232 tariffs:

1. The first element is whether the competent authority "imposed the measure at issue and conducted the respective investigation under domestic legislation that authorizes the Government to impose duties on imports after determining that relevant products are being imported into India in increased quantities and under conditions so as to cause or threaten to cause serious injury to the domestic industry." That was not the case with the Section 232 tariffs, as, among other things, Section 232 does not look at serious injury (the standard under Section 232 is somewhat analogous, but it's clearly different).

2. On the second element, there are four sub-elements, 3 of which suggest that the Section 232 tariffs are not safeguard measures. While the duties are imposed on like imported products, they are not temporary (as far as we can tell at the moment), they are not subject to progressive liberalization at periodic intervals, and they do not exempt developing countries below a threshold.

3. And as for the third element, the United States did not notify the Section 232 investigation and measures to the WTO as safeguard measures.

Investment Arbitration Workshop in Oslo

The folks at Pluricourts asked me to post the following:

Reforming International Investment Arbitration Workshop 1-2 February 2019

Call for papers:

The ISDS Academic Forum, together with PluriCourts Centre for Excellence (LEGINVEST) and Forum for Law & Social Science at the University of Oslo, will host a workshop on reforming international investment arbitration in Oslo 1-2 February 2019. 

Submission Deadline: 1 December 2018. 

The workshop will be structured around six themes that have triggered criticism of the existing regime:

• Excessive costs & recoverability of cost awards
• Excessive duration of proceedings
• Lack of consistency & coherence in legal interpretation
• Incorrectness of decisions
• Lack of diversity among ISDS adjudicators
• Lack of independence, impartiality & neutrality

We welcome submissions on these themes and especially how they would be dealt with under many or all of the following four scenarios:

1. Improvement of current system, by effecting changes in respect of appointment of arbitrators or other procedural changes (for instance, appointment of arbitrators entrusted predominantly with arbitral institutions or effected jointly by disputing parties; roster-system; adoption of ethical rules; etc.) (“ISDS improved”);
2. Current ISDS system + appellate mechanism (“ISDS + appeal”);
3. Multilateral investment court, with or without a built-in appeal (“MIC”);
4. No ISDS, with two sub-scenarios, namely (i) recourse to domestic courts only; and (ii) state-to-state arbitration in addition to domestic courts (“No ISDS”).

One paper on each theme will be selected for the workshop and be presented alongside the studies prepared by the Forum’s working groups.

The workshop will also include a public session on the reform process while the remainder of the workshop will be limited to Forum members, presenters and a limited number of academic observers.

There is no registration fee. 

Submit a paper abstract

In order to apply, please submit a paper abstract of 250-500 words and an academic CV by 1 December 2018. Notification of acceptance will occur by 7 December 2018.

The full draft paper of maximum 8,000 words must be submitted by 25 January 2019.

Programme Committee

• Gabrielle Kaufmann-Kohler, President, International Council for Commercial Arbitration and Professor Emerita, Geneva University Law School, CIDS Geneva
• Michele Potestà, Senior Researcher, Geneva Center for International Dispute Settlement (CIDS)
• Malcolm Langford, Professor of Public Law & Affiliate, Pluricourts, University of Oslo
• Daniel Behn, Associate Professor, Pluricourts, University of Oslo and Lecturer, University of Liverpool

UNCITRAL and ISDS Reforms: Moving to Reform Options … the Politics

First published on EJIL: Talk!

In the last blog, I provided an update on the UNCITRAL process, including the consensus decision from Vienna last week to move forward to consider possible reforms of investor-state arbitration. This decision is very significant. But to get a sense of how this decision was reached and where the process might be heading, I thought it would be helpful to provide my sense of the politics of the process as well as some projections about how it might move forward.

As stated previously, I am a member of the Australian delegation but I am included in that delegation in my independent academic capacity, so nothing in my writings or talks should be taken to reflect Australia’s views. My academic views are exactly that: mine and academic. Nevertheless, I hope that these views are informed. These blogs are based on official interventions during the UNCITRAL plenary sessions as well as discussions with a diverse range of actors from the process.

1. Politics

Let me start with some of the politics and atmospherics. I focus here, as previously, largely on the states, leaving for others to chart the role of the non-state actors.

One reason that states agreed to consider ISDS reforms at UNCITRAL was that it was a multilateral forum that permitted wide participation by states and other interested actors. UNCITRAL has certainly delivered on this score. Over 400 delegates registered for the meeting in Vienna. Importantly, a significant number of new states from the developing world, particularly Africa, joined the meeting for the first time. This was partly due to the UNCITRAL travel fund, newly replenished courtesy of the European Union and Switzerland. It was also because of the active role of NGOs in seeking to encourage attendance by these states.

The old camps of incrementalists and systemic reformerswere evident once again. However, some divisions could also be detected within the established camps, at least with respect to tone and strategy. For instance, Mauritius was forceful, explicit and keen to get states to declare their hands as incremental or systemic reformers, whereas the European Union was more restrained and patient and made no moves to divide the room in this way. Japan made points early and late in the week on process, much more so than the United States and Chile, leading to the perception by some that it was “filibustering.” Canada seemed supportive of multilateral reform options, but also took the time to note some of the positive developments in the CPTPP.

Some states did not speak often, but still made significant interventions. For instance, on day one, China proposed the plan that the Chair ultimately adopted in calling for states to put forward proposals on the next steps in the work plan before the New York meeting. China also reiterated its view that inconsistency and incorrectness were problems in the system and that the existing mechanisms of review (annulment and judicial review) were inadequate. But it took a more measured approach on the concerns raised about arbitral appointments, indicating that it didn’t necessarily believe there was a problem with the party appointment mechanism itself. This might indicate that China is warming up to a position of supporting ISDS, with possible improvements, but subject to an Appellate Body.

South Africa did not speak much but clearly indicated that some of the concerns raised required at least systemic reform (using that word for the first time) and, importantly, that procedural reforms were not enough. According to South Africa, states needed to take holistic approaches on both procedural and substantive reforms in order to gear investment protection to the ultimate goal of sustainable development. Brazil reiterated its approach of rejecting investor-state arbitration in favour of state-to-state arbitration. These paradigmatic reformersseem to be content with leading by example and do not appear to be coordinating. They are following the process without actively trying to develop their own followers.

A number of states were more active this time around than previously, including Cameroon, Cote D’Ivoire, Dominican Republic, Egypt, Indonesia, Iran, Kenya, Korea, Germany, Morocco, the Netherlands, Thailand, and Vietnam, with most if not all calling for reforms. By contrast, Russia was much less vocal than previously, saying nothing on issues like inconsistency, though affirming again the importance of party appointment. This prompted speculation by some about whether its approach had softened. Other important states were silent despite considerable experience with the system, including most notably India.

2. Projections

Projecting forward is always hard and not always reliable. Despite this, let me give you my best guess of where the politics of this is going.

First, there seemed to be clear momentum in the room for considering some sort of systemic reform, so I find it hard to imagine that a Multilateral Investment Court and/or Appellate Body won’t be one of the reforms being considered in New York. The bigger question to me is whether some of the states that are less keen on this multilateral solution will propose working on other options, such as a range of incremental reforms like developing a code of conduct or putting together a series of “best practices” on issues like multiple proceedings, non-disputing party submissions and frivolous claims.

Second, if a range of reforms were to be considered, I doubt that there would be a consensus agreement to consider the incremental options first. Some states might say that it would be logical to start with smaller and more universally agreed upon reforms (like a code of conduct) before moving onto larger and more controversial options (like a court). But delegations that want more systemic reform – which I expect will be a majority – are unlikely to sit by patiently while incremental reforms are discussed given that states could take years to work through these options. This conclusion is particularly so as some states view the incremental option as being strategically used to delay consideration of multilateral reforms.

It might be possible to consider an “a la carte” range of incremental and systemic reforms in the format of an opt-in Mauritius-style convention. Any given reform would apply only if both parties to an investment treaty had opted into that reform (a “Tinder Treaty”). But if the Working Group were to agree to consider a range of reforms – which is an “if” – it seems to me that that would be only if it also agreed to consider these on a concurrent basis. Different reforms could potentially be considered by different sub-groups within Working Group III or possibly even different working groups. For instance, Working Group II could perhaps work on a code of conduct while Working Group III worked on a standing body. Some incremental reforms might also be worked on in conjunction with other bodies, such as ICSID and the PCA.

Third, it is possible that a state or series of states might put in a proposal to work on an Appellate Body without also working on the two-tiered Multilateral Investment Court. There was general agreement by states in the room that inconsistency and lack of a procedure to ensure correctness was a problem requiring reform. On arbitral appointments, however, many states recognized that there were problems in the system (e.g., perceptions or realities of pro-investor and pro-state bias, lack of diversity and perverse incentives), but a significant number also raised the importance of parties getting to select their own arbitrators. Yet no state has emerged to champion a stand-alone Appellate Body so far.

I would not be surprised if more states ultimately end up being in favour of an Appellate Body than a two-tiered Multilateral Investment Court. That being said, some states might ultimately conclude that they cannot adequately address issues like independence, impartiality and diversity while keeping party appointments. In this regard, Pluricourts provided what one delegation exclaimed were “head-turning” statistics, such as that women account for only 9% of arbitral appointments, that 86% of these go to just two “formidable women,” and that the rate of improvement is so small that women would not be set to achieve 25% representation until 2100 and parity in 10,000. Regional diversity statistics also troubled many delegations.

The European Union is unlikely to give up easily on its two-tier solution given its belief in reform and the toxicity of “private justice” in some of its domestic settings. One option would be to try to get agreement on considering an Appellate Body first and a Court second. But if you want an integrated system at the end, this seems far from ideal. Probably a better move would be to consider both at the same time but with a flexible open-architecture structurethat allowed states to sign onto either the first level court and/or the appellate mechanism. That would permit a larger body of states to agree to some level of systemic reform, with each one selecting the reforms that best suited their needs coupled with a Tinder-style matching approach.

Finally, there may be debates about what counts as “systemic” or “multilateral” reform. Some states might propose that the Working Group needs to first identify some of the best practices that have been adopted in recent treaties (e.g., the CPTPP) and other reform processes (e.g., the ICSID Rules), then assess whether these practices have been successful in addressing some or all of the identified concerns, then consider whether these practices could provide multilateral or systemic reform through a Mauritius-style convention, and only then identify whether additional systemic reforms might be needed to address remaining concerns. I expect that many delegations in the room would view such a proposal as a delay tactic, even if they considered some of the recent innovations to be worth pursuing in their bilateral approaches.

*          *          *

Although states were not meant to debate potential reforms in Phases 1 and 2, “different solutions lurked in the room like elephants, often seeming to inform the positions taken by various delegations on whether particular issues.” When attempts were made to talk about Phase 3 reforms during the plenary sessions, many actors were quick to shut them down in order to follow the carefully sequenced mandate. During that first session in Vienna, I recall circulating this cartoon to some colleagues as it seemed to be clear that the EU’s Multilateral Investment Court proposal was the elephant in the room.

By the time we get to New York, I expect that the elephant proposal will have formally entered the room, though at a high level of generality. Whether or not UNCITRAL ultimately decides to move forward with focusing on a single reform or a suite of reforms, it is going to have to start somewhere. Hence New York is likely to be a menu planning session. And, as one non-state delegation stated during the week, “How do you eat an elephant? One bite at a time.” I think that I know what the main course will be. It will be interesting to see if it comes with any appetizers or side dishes.

UNCITRAL and ISDS Reforms: Moving to Reform Options … the Process

 

First published on EJIL Talk! 

Last week has been described as a watershed moment for ISDS reform. During a meeting in Vienna, states decided by consensus on the desirability of developing reforms in UNCITRAL with respect to investor-state arbitration. States now have an opportunity to make proposals for a work plan about what reforms to consider and how to go about considering them. To the extent that the tide has turned on traditional investor-state arbitration, it is now up to states to tell us where they want to sail.

As you might imagine, reaching a decision like this involved quite a process, along with a lot of politics. In this blog, I set out the process in terms of what was decided in Vienna, what was not decided, and what the next steps will be for moving forward in 2019. In the next blog, I will provide some context to this development, giving some insights into the politics of the process as well as some projections about how this process might develop.

This reform process will be long and its ultimate outcome remains unknowable. But the momentum for and direction of reforms are becoming increasingly clear. The calls for systemic reform are rising, though different states may mean different things by “systemic.”

1. How did we get here?

In response to deep controversy about the legitimacy of investor-state arbitration, the Member States of UNCITRAL granted Working Group III a mandatein July 2017 to: (i) identify and consider concerns regarding ISDS; (ii) consider whether reform was desirable in light of any identified concerns; and (iii) if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.

The mandate calls for the process to be “fully transparent” and thus recordings of the session are available online. These posts are in keeping with that call for transparency. I am a member of the Australian delegation but I am included in that delegation in my independent academic capacity, so nothing in my writings or talks should be taken to reflect Australia’s views. I was unable to attend the meetings in Vienna, but these blogs are based on the official interventions during the plenary sessions as well as discussions with a diverse range of actors in the process.

In 2017-2018, the Working Group largely completed Phase 1 outlining numerous concerns with the system, including with respect to inconsistency and correctness, arbitral appointments, and costs and duration. However, the Chair has noted on numerous occasions that states can still raise additional concerns under Phase 1 if they wish, which is particularly important as additional states join the process. Following the last session in New York, the Secretariat completed working paperson these concerns that formed the basis for discussions in Vienna last week on Phase 2.

2. What Was Decided

The Working Group moved through Phase 2 relatively swiftly and without significant controversy. The group agreed by consensus that it was desirable to consider reforms with regard to: (1) arbitral outcomes, including concerns relating to consistency, coherence, and correctness of arbitral interpretations; (2) arbitrators, including concerns relating to independence, impartiality, conflicts of interest, and diversity; and (3) costs and duration, including concerns relating to length, cost recovery and frivolous claims. The decision was pitched at such a high level of generality that it would have been hard for states not to reach consensus on this issue given the concerns raised in Phase 1.

A few issues from Phase 2 were held over to be discussed first in New York. For instance, the Secretariat had not yet completed its report on third party funding, so discussion on that issue was reserved until the start of the next session. States were invited to write in to UNCITRAL about other issues that should be considered. China mentioned that it might have views to share in New York on conciliation, for example. However, Phase 2 considerations of most issues were completed in Vienna and on these a decision was made to develop a work plan for Phase 3. Significantly, no effort was made to prevent a decision to move forward from being taken before Phase 2 was completed in its entirety.

As the discussion in Vienna was limited to Phase 2, states did not have to outline any proposed reforms or their views on different options, so any comments on specific reforms made should be treated as provisional, though they may point the finger toward the future.

3. What Was Not Decided

Two key issues about Phase 3 remain to be resolved in New York. The first is which reform or reforms the Working Group should consider in order to address some or all of the concerns previously identified in Phase 2. The second is what work plan UNCITRAL should adopt considering issues such as sequencing, priority, multi-tracking, coordination with other organizations and ways to continue working between Working Group sessions.

On the first issue, there seems to be significant momentum in the room for considering some form of systemic reform. The European Union, its Member States and states like Canada and Mauritius were of course supporting this course of action. But a diverse – and growing – number of other states (including Argentina, Morocco and Pakistan) also lent their weight to the idea that the concerns identified in Phase 1 were real and systemic reform was needed. Of course, different states can mean different things by “systemic” reform, so this only tells us so much. But the general sense of the week was that calls for some form of systemic reform were getting louder and, importantly, were being made by a more diverse group of states.

There were also voices in the room, including the United States, Chile, Japan and to some extent Australia, Israel and Mexico, cautioning that states should take a balanced approach to the concerns identified in Phase 1 (e.g., inconsistencies had been identified, but were they all really unjustified?) and/or that some of these issues might be adequately addressed through adopting some innovations from recent treaties or other reform efforts. In particular, provisions from the CPTPP and KORUS were highlighted by multiple states, including on issues such as a code of conduct for arbitrators, rules on multiple proceedings, early dismissal of frivolous claims, non-disputing party submissions and a procedure for joint interpretations. Reforms to the ICSID Rules also received numerous favourable mentions.

What was not decided was whether UNCITRAL would focus on one reform option or multiple reform options and what that option or those options would be. This unresolved first point has implications for the second undecided issue: what work plan should the Group adopt to develop and evaluate reform options? This second question is important even if a single reform is considered. For instance, if a draft Multilateral Investment Court were to be prepared for consideration in the Working Group, how would that be done? Would it be prepared by states, the Secretariat or an expert group?

But this second issue becomes crucial (and highly political) if multiple reforms are considered. If UNCITRAL decides to consider a range of more incremental and more systemic reforms, how will it go about doing that? For example, would it take a sequential approach and, if so, on which reform will it start? Would it take a concurrent approach and, if so, will different sub-groups or Working Groups take the lead on different reform proposals? How might UNCITRAL work with other institutions (like ICSID, the PCA, UNCTAD and the OECD) to leverage rather than duplicate work?

4. Next Steps

As the mandate originally made clear, this is a government-led process. That is a point that the Chair returned to at the end of the week when he invited states to make submissions ahead of New York about UNCITRAL’s work plan, addressing substantive issues such as which reforms should be addressed and procedural issues such as sequencing, multi-tracking, priority and coordination. These submissions are due in mid-January.

At this point in the process, the Chair and Secretariat seemed to consciously step back and invite the states to step forward. Behind the scenes, and in some cases during the plenary sessions, a number of states had been suggesting this state-led approach. There had also been some controversy about the Secretariat having listed potential reform options and their relationship to different concerns in the working papers ahead of this meeting.

The meeting in New York will be important as key procedural markers for the reform process will be set down and these are likely to have important substantive implications. But I would not expect there to be any substantive progress on the reforms themselves. In 2017, I said that “Change is coming; it is just a question of what change will occur and when and how it will transpire.” We still do not know what that change will be, but we will soon have a better sense of when and how it will transpire.

A Watershed Moment for ISDS Reform

Last week marked a watershed moment for the movement to reform investor-state dispute settlement (ISDS). Meeting in Vienna, Delegations to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII) agreed to work multilaterally to reform the resolution of investment disputes. Delegations agreed to focus on responding to key systemic concerns with ISDS, as identified in WGIII’s two previous sessions.[i]

WGIII began its work on ISDS in Vienna last year, at its 34^th Session. From the start, Delegations divided the process into three broad phases: identifying concerns about ISDS (Phase I); deciding which concerns, if any, were ripe for multilateral reform in UNCITRAL (Phase II); and designing options for reforms responding to any such concerns  (Phase III). Phases I and II would be of prime importance in setting the frame. Though additional concerns can always be raised, any agenda for reform would be largely grounded in the problems identified in these early meetings. WGIII began its work identifying concerns with ISDS in 2017, and essentially concluded Phase I at its 35^th Session in New York last Spring. By the end of that meeting, WGIII had identified a range of procedural and structural concerns with ISDS, relating to: (1) fragmented arbitral outcomes; (2) the arbitrators charged with adjudicating disputes; (3) matters of duration and cost; and (4) third-party funding.

The Working Group concluded Phase II last week, in its 36^th session in Vienna, finding that these concerns about ISDS were serious enough to merit reform, and agreeing to pursue reforms multilaterally. The turn to Phase III opens the door to the most dramatic opportunity for thinking through multilateral and systemic reforms to ISDS in a generation – arguably since its inception. WGIII will begin debating questions of form and design at its 37^th Session in New York next Spring. Before then, Delegations will surely circulate diverse reform proposals. Options discussed thus far have ranged from soft law, to incremental treaty-based reform, to more transformative institutional reforms – including establishing an Appellate Mechanism, a standing Appellate Body, or the Multilateral Investment Court championed by the European Union.[ii]

The reform process is thus at an inflection point. All options are formally on the table. Yet it should be understood that the future of the process will be shaped by its beginning. The agenda for reform within UNCITRAL will be largely framed by the concerns that WGIII has identified in its first three sessions. Though subject to future additions, the package of concerns identified thus far will largely channel the reform debate to come, and delimit its scope. It is thus crucial to be clear about what exactly was decided in Phases I and II.

With respect to arbitral outcomes, the Working Group decided to address concerns about consistency, coherence, and correctness of arbitral interpretations, all of which affect predictability for States and investors in their interactions ex ante. For WGIII, this means considering reforms to those features of ISDS that enable and exacerbate such problems. These include both the limits of current mechanisms to correct inconsistency and incorrectness in arbitral case law (e.g. no systematic mechanism for appeal), as well as the lack of a framework to address multiple claims arising out of the same injury (including the possibility of shareholder claims for reflective loss, and parallel treaty and contract claims).[iii] 

With respect to the arbitrators, Delegations expressed concerns relating to independence, impartiality, conflicts of interest, and diversity. In this vein, WGIII decided to consider reforms to institutional features of ISDS relating to arbitrator selection (especially party appointment of arbitrators); party remuneration of arbitrators; and possibilities of issue-conflict and double-hatting (where the same individuals serve as arbitrators in some disputes, and as  counsel in other potentially related disputes).

Finally, with respect to costs, WGIII determined that reforms were desirable to redress the excessive length of ISDS disputes, the difficulty in recovering costs awards against investors (including the need for rules on security for costs), and the lack of a mechanism to address frivolous or unmeritorious claims. Previously WGIII had also identified concerns related to third party funding, but deferred deciding whether to place these matters on the reform agenda until its 37^th Session in New York (2019).

Together these concerns make up the agenda for Phase III. At present there is no roadmap for how to reform ISDS – only a decision to pursue reforms multilaterally through UNCITRAL. From the discussions in WGIII thus far, it is at least clear that there will be dramatic differences among member Delegations about how far to go. Some are pushing for incrementalism (like Chile, Japan, and the U.S.). Others are openly advocating for a full-blown multilateral investment court (including E.U. Member States, Canada, and Mauritius). And many remain in between or undeclared.[iv] Nothing is yet decided, and formally, at least, all options are on the table.

Still, the agenda itself will frame the process going forward. It thus behooves anyone following WGIII’s progress to ask where the concerns identified thus far point us. Though there is no single unifying theme tying together the concerns on the agenda, there are clear leitmotifs. ISDS’ lack of systematicity, uniformity, and unpredictability all loom large – implicated by interpretive inconsistency as well as the lack of arbitral ethical standards, and the limits to mechanisms for resolving arbitrator conflicts of interest or streamlining matters of cost.

As we turn to Phase III, the question will be how to calibrate reforms to these specific kinds of concerns. Will soft law standards be deemed sufficient? Or will larger-scale institutional mechanisms ultimately appear necessary? In the event, we can be sure that there will be schisms among Delegations in the room. But from where I sit, the agenda decided in Vienna points toward systemic reform.

 

[i] I have had the privilege of participating in WGIII’s discussions as an Observer Delegate with the American Society of International Law.

[ii] The UNCITRAL Secretariat has compiled a non-exclusive range of options. See Possible Reform of Investor-State Dispute Settlement, Note by the Secretariat, U.N. Doc. A/CN.9/WG.III/WP.149, available at https://www.uncitral.org/pdf/english/workinggroups/wg_3/WGIII-36th-session/149_main_paper_7_September_DRAFT.pdf ; see also Sergio Puig & Gregory Shaffer, Imperfect Alternatives: Institutional Choice and the Reform of International Investment Law, 112 Am. J. Int’l L. 361 (2018).  

[iii] For a more fulsome discussion of the problems of shareholder reflective loss and the treaty/contract problem, see Julian Arato, The Private Law Critique of International Investment Law, 113 Am. J. Int’l L. ___ (forthcoming 2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3246425; David Gaukrodger, “Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law”, OECD Working Papers on International Investment, 2014/02, OECD Publishing (2014), available at https://dx.doi.org/10.1787/5jz0xvgngmr3-en.

[iv] On incremental vs. systemic reform strategies, see Anthea Roberts, Incremental, Systemic, and Paradigmatic Reform of Investor-State Arbitration, 112 Am. J. Int’l L. 410 (2018).

The Problem of Insufficient Notifications

Last year, I mentioned a U.S. proposal on WTO notifications. It looks like the U.S. now has a few others on board:

PROCEDURES TO ENHANCE TRANSPARENCY AND STRENGTHEN NOTIFICATION REQUIREMENTS UNDER WTO AGREEMENTS

COMMUNICATION FROM ARGENTINA, COSTA RICA, THE EUROPEAN UNION, JAPAN, AND THE UNITED STATES

The following communication, dated 1 November 2018, is being circulated at the request of the Delegations of Argentina, Costa Rica, the European Union, Japan, and the United States.

_______________

Draft General Council Decision

Procedures to Enhance Transparency and Strengthen Notification Requirements Under WTO Agreements

Decision of X Date

The General Council,

 Recognizing that transparency and notification requirements constitute fundamental elements of many WTO agreements and a properly functioning WTO system, and thus of Members' obligations;

Acknowledging the chronic low level of compliance with existing notification requirements under many WTO agreements; and

 Desiring to strengthen and enhance transparency and improve the operation and effectiveness of notification requirements;

 Decides:

General

1.  To reaffirm existing notification obligations and recommit to providing complete and timely notifications under the WTO Agreements within the remit of the Council for Trade in Goods, for which there is regular annual reporting provided by the Secretariat (G/L/223/Rev.24 and its revisions), including the:

(a)  Agreement on Agriculture

(b)  Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping)

Agreement on Subsidies and Countervailing Measures

Agreement on Safeguards

Understanding on the Interpretation of Article XVII of the GATT 1994 (State Trading)

Agreement on Implementation of Article VII of the GATT 1994 (Customs Valuation)

Agreement on Import Licensing Procedures

Agreement on Rules of Origin

Agreement on Preshipment Inspection

Decision on Notification Procedures for Quantitative Restrictions ( G/L/59/Rev.1 )

Agreement on Trade Related Investment Measures

Agreement on the Application of Sanitary and Phytosanitary Measures

Agreement on Technical Barriers to Trade.

2.  To instruct appropriate committees, working groups or other bodies, such as the Working Group on Notification Obligations and Procedures (Working Group), to assess and report annually to their designated supervisory bodies on Members' compliance with notification obligations under the agreements listed in paragraph 1, take appropriate steps to reinforce compliance with the notification requirements under such agreements (for example, by carrying out notification workshops), and to make recommendations, as appropriate, on means by which greater compliance can be encouraged and achieved.

3.  To instruct the Working Group to meet before [x date] to develop recommendations on improving Member compliance with notification obligations under the agreements listed in paragraph 1. The Working Group will consult with appropriate committees, other working groups and bodies as appropriate, and consider both systemic and specific improvements that can help Members improve compliance with notification obligations. The Working Group will also consult with the WTO Secretariat as appropriate, including the WTO Institute for Training and Technical Cooperation (ITTC) to assess the contribution of WTO trade-related technical assistance to improving notification compliance, as well as the Central Registry of Notifications. The Working Group will report to the Council for Trade in Goods on its findings before [x date], and provide updates at each subsequent meeting.

4.  In light of the particular importance Members attach to the WTO's work to reform agriculture, and in order to strengthen and enhance the effectiveness of the review process of the implementation of commitments in the Agreement on Agriculture, the Committee on Agriculture is requested to review and update its Notification Requirements and Formats ( G/AG/2 ), taking into account recommendations made by the Working Group and other bodies described in paragraphs 2 and 3.

5.  To instruct the Working Group to work with the Secretariat to update the Technical Cooperation Handbook on Notifications ( WT/TC/NOTIF/INF/3 ) and present it to the Council for Trade in Goods for its [x date] meeting.

6.  To instruct the Trade Policy Review Body to ensure that beginning in 2019 all trade policy reviews include a specific, standardized focus on the Member's compliance with its notification obligations under the agreements listed in paragraph 1.

7.  At any time, Members are encouraged to provide a counter notification of another Member concerning notification obligations under the agreements listed in paragraph 1.

8.  That beginning in [x date], a Member that fails to provide a required notification under an agreement listed in:

(a)  paragraph 1(a) within [720 days] [2 years] following the year that a notification is required by the Committee on Agriculture's Notification Requirements and Formats ( G/AG/2 ) or has failed to provide any prior required notification, that Member is encouraged to submit to the Committee on Agriculture by [x date] of each subsequent year an explanation for the delay, the anticipated time-frame for its notification, and any elements of a partial notification that a Member can produce to limit any delay in transparency;

(b)  paragraph 1(b) by the relevant deadline or has failed to provide any prior required notification is encouraged to submit to the relevant committee by [x date] and by [x date] of each subsequent year an explanation for the delay, the anticipated time-frame for its notification, and any elements of a partial notification that a Member can produce to limit any delay in transparency; and

(c)  paragraph (1a) as far as ad hoc notifications are concerned, the Member shall follow current practice under G/AG/2 .

9.  A developing country Member encountering difficulties to fulfil notification obligations or the information required under paragraph 8 is encouraged to request assistance and support for capacity building from the Secretariat, either in the form of WTO trade-related technical assistance or as ad hoc-assistance for a particular notification. The Secretariat shall advise Members on the most appropriate assistance available.

10.  Each developing country Member is encouraged to submit to the relevant committee and to the Working Group by [x date] and by [x date] of each subsequent year information on those notifications under the agreements listed in paragraph 1 that it has not submitted due to a lack of capacity, including information on the assistance and support for capacity building that the Member requires in order to submit complete notifications.

11.  If a Member fails to provide a complete notification within one year of the deadline set out in paragraph 8(a) or (b), the Member may request that the Secretariat assist the Member in researching the matter and, in full consultation with the relevant Member, and only with the approval of that Member, provide a notification on its behalf.

12.  For an agreement listed in paragraph 1, if a Member fails to provide a complete notification within one year of the deadline set out in paragraph 8(a) or (b) and that Member has not requested assistance from the Secretariat identified in paragraph 9 or if such assistance is requested but the Member has not cooperated with the Secretariat, the following administrative measures shall apply to that Member: 

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

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

(ii)  questions posed by the Member to another Member during a Trade Policy Review need not be answered;

(iii)  the Member will be assessed a supplement of [x][5] percent on its normal assessed contribution to the WTO budget, to be effective in the following biennial budget cycle;

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

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

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

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

(ii)  representatives of the Member will be called upon in WTO formal meetings after all other Members have taken the floor, and before any observers; and

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

(c)  The administrative measures identified in paragraph 12(a) and 12(b) shall not apply to Members that have submitted information on the assistance and support for capacity building that the Member requires, as set out in paragraph 10.

... 

Here are some questions and comments that come to mind:

1) How big a problem is this? Which countries would be affected most? If this is all about China, how hard will it be for China to comply? Is it likely to do so? My Cato colleague Huan Zhu translated a Chinese news report about this issue as follows:

The Ministry of Commerce held a press conference today. A reporter asked: On April 6, the United States stated before the WTO that the first local government subsidy notification that China submitted to the WTO is incomplete, and there are many export subsidy programs in violation of the WTO SCM Agreement. For instance, China did not report its local subsidies for steel, aluminum and fisheries. What is MOFCOM's response?

Sun Jiwen, Spokesperson for the Ministry of Commerce, responded that Chinese government has held the transparency of its trade policy to be of great importance since its accession to the WTO. In July 2016, the Chinese government, in accordance with relevant rules, submitted the notification of local subsidies from 2001 to 2014, covering 100 local subsidy programs in 19 provinces and 3 cities under separate state planning. China has fulfilled its obligations in good faith, and has received positive feedback from other WTO Members.

Sun Jiwen pointed out that WTO Members would determine the content and scope of the subsidy notification based on their own understanding of the relevant rules. Because of the different understandings, Members would have different views on the thoroughness of the notification. In addition, in order to effectively fulfill its transparency obligation, China has included the export subsidies that were granted, but have been abolished or terminated, in the notification of local subsidies to the WTO. 

2) SCM Agreement Article 25.2 says: "Members shall notify any subsidy as defined in paragraph 1 of Article 1, which is specific
within the meaning of Article 2, granted or maintained within their territories." If there is evidence that some subsidies are not being properly notified, why haven't there been disputes initiated over this?

3) What actual impact does all of this have on trade? And how does its impact compare to other things WTO Members might do, such as liberalizing trade in services or committing to reduce agriculture subsidies?

4) Will this group of countries be able to get the rest of the membership on board with their approach?

5) This seems like an expansion of the role of the Secretariat.  

Additional Implications of the Appellate Body Taking Longer Than 90 Days

The Appellate Body's approach of taking longer than 90 days to issue its reports, without first getting consent from the participants in the dispute, is one issue that has given rise to the U.S. actions relating to appointment of Appellate Body Members. Apparently, this approach (along with similar actions taken by panels) may also have more narrow interpretive implications. This is from the Morocco - Hot-Rolled Steel panel report circulated on Wednesday:

7.70. The MDCCE initiated the underlying investigation on 21 January 2013, and concluded it on 12 August 2014, that is, 18 months and 22 days after initiation.99 Turkey claims that the MDCCE acted inconsistently with Article 5.10 of the Anti-Dumping Agreement because the MDCCE failed to conclude the underlying investigation within the 18-month maximum time limit permissible under that provision, having exceeded that time limit by 22 days.100 Morocco does not dispute that the MDCCE exceeded the 18-month deadline for the conclusion of an anti-dumping investigation set out in Article 5.10, but contends that Article 5.10 should be interpreted flexibly and should not be understood as establishing a rigid 18-month deadline.101

7.71. We must therefore evaluate whether, in concluding the underlying investigation 22 days after the maximum permissible time limit of 18 months under Article 5.10, the MDCCE acted inconsistently with that provision.

7.72. We note that Article 5.10 states that investigations shall "in no case" be concluded in more than 18 months. The words "in no case" make it clear that an investigating authority may not, in any case, conclude its investigation in more than 18 months, and therefore, allow for no exceptions in adherence to this time limit. Further, we note that our reading of Article 5.10 is consistent with that of the Appellate Body and past panels. The Appellate Body has indicated that the time limits for concluding investigations set out in Article 5.10 are "mandated" under the Anti-Dumping Agreement, while a previous panel has found that these time limits are "strict".102 In particular, one past panel considered that Article 11.11 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement), which carries an obligation regarding conclusion of subsidies investigations that is identical to the one pertaining to anti-dumping investigations in Article 5.10 of the Anti-Dumping Agreement, does not permit prolonging the 18-month time limit under any circumstances.103

7.73. Morocco however, draws our attention to language used in certain "other contexts" of the WTO Agreements which is similar to that in Article 5.10 of the Anti-Dumping Agreement.104 Morocco contends, in particular, that the language on deadlines for concluding appellate proceedings in Articles 17.5 of the DSU, and panel proceedings in Articles 12.8 and 12.9 of the DSU, is similar to that in Article 5.10, and yet the Appellate Body and panels have "interpreted" those DSU provisions so as to allow them to exceed those deadlines.105 Morocco argues that the same flexibility with which the time frames for concluding Appellate Body and panel proceedings have been interpreted, must apply to interpreting the time frame under Article 5.10. Turkey contends, in response, that Articles 17.5, 12.8, and 12.9 of the DSU carry obligations which are different from those in Article 5.10, and are therefore irrelevant for interpreting Article 5.10. Turkey, agreeing with the European Union's views, argues that the DSU provisions in question impose deadlines on the WTO bodies, rather than on individual WTO Members, with a view to contributing to the prompt resolution of disputes. Article 5.10, in contrast, imposes obligations on investigating authorities to protect the rights of other Members' exporters.106 Morocco dismisses these differences as being "artificial", contending that WTO disputes too are initiated to secure the rights of exporters, and like anti-dumping investigations, involve competing interests and are subject to similar due process considerations.107

7.74. We consider that the DSU provisions that Morocco cites cannot serve as context for interpreting Article 5.10 of the Anti-Dumping Agreement. Morocco, notably, itself refers to these DSU provisions as appearing in "other contexts" of the WTO Agreements.108 In particular, we agree with Turkey and the European Union that the DSU provisions in question impose deadlines on the WTO bodies, rather than on individual WTO Members, with a view to contributing to the prompt
resolution of disputes, whereas Article 5.10 imposes obligations on investigating authorities to protect the rights of other Members' exporters. As Turkey argues, the conduct of the WTO dispute settlement proceedings, including the time frame for concluding them, is subject to the supervision of the DSB.109 The conduct of national anti-dumping investigations, in contrast, is not. We agree with Turkey that, in such a situation, it cannot be envisaged that investigating authorities conducting anti-dumping investigations would be permitted to "unilaterally deprive exporters of their rights".110 Interpreting the 18-month time limit in Article 5.10 as a flexible time limit, as Morocco considers the Panel should do, would mean that an investigating authority could, in principle, indefinitely delay an investigation, leaving exporters, whose commercial decisions depend on the outcome of the investigation, without any recourse in WTO law. We consider that such an interpretation is inconceivable under Article 5.10. The text of that provision leaves no room for flexibility in the strict obligation to adhere to the 18-month time limit and, in so doing, preserves predictability for the interested parties in an investigation. We therefore reject Morocco's argument for interpreting the time limit under Article 5.10, in light of the DSU provisions, which operate in an altogether different context.

7.75. Moreover, although Morocco asks us to interpret Article 5.10 in light of the DSU provisions, it is, effectively, asking us to do so in view of WTO dispute settlement practice. Morocco refers not to any formal interpretation of these provisions by the Appellate Body or panels, but to cases where the Appellate Body and the panels have exceeded the time limits set out in the relevant DSU provisions.111 In our view, there is no case for importing into the adherence of the time limit under Article 5.10 flexibility from WTO dispute settlement practice, which as stated above, is subject to
DSB supervision.

That was a clever and creative argument by Morocco, but I suspect the Appellate Body will agree with the panel's conclusion here.