International Economic Law and Policy Blog

Todd Tucker on the DS510 Panel Ruling

Todd Tucker of the Roosevelt Institute is not happy with yesterday's WTO panel ruling against various U.S. states' local content requirements in the renewable energy sector. I responded on the Cato blog here, but I want to add a bit more in response to some of his tweets today. And just to warn everyone, I'm going to be a bit flippant about it. (Todd is a friend, and I hope he doesn't take this too personally. Guess I'll find out!)

Here's what he said on twitter:

Yesterday's WTO decision against 7 US states' renewable energy programs offers both challenges and opportunities to the Green New Deal. My latest in @washingtonpost @monkeycageblog washingtonpost.com/politics/2019/…

One way I've floated to get around this impasse: 1. Fill the WTO's judicial vacancies with environmental lawyers. 2. Suspend current WTO rules for 10 years. 3. Create a different set of rules for nations that enact a Green New Deal... papers.ssrn.com/sol3/papers.cf…

4. Eliminate tariffs between those countries. 6. Embargo countries that don't. 7. Have a repurposed Green WTO enforce the new rules, granting standing to citizens to flag noncompliance. 8. Eventually, noncompliance leads to trade penalties.

Let me go through his suggestions one by one.

Fill the WTO's judicial vacancies with environmental lawyers.

Sounds great! I would love to get some environmental lawyers over there to strike down local content requirements that violate WTO rules and undermine environmental protection.

Suspend current WTO rules for 10 years.

No thank you.

Create a different set of rules for nations that enact a Green New Deal

Let's come back to this when Todd figures out a plan for the Democrats to win the U.S. Senate and the Green New Deal has a chance (although probably a pretty small one even then).

Eliminate tariffs between those countries.

I like this one. Can't we just make this the centerpiece and put the rest of it aside?

Embargo countries that don't. 

Oh, man, we were doing so well. Why did Todd have to go and ruin things?

Have a repurposed Green WTO enforce the new rules, granting standing to citizens to flag noncompliance.

Todd's long-standing critique of ISDS morphed into ISDS-envy, and now he wants to use the concept for non-economic issues.

Eventually, noncompliance leads to trade penalties

I'll abandon the flippancy here, and just note that if some countries want other countries to do more to protect the environment, there are probably positive measures (e.g. financial aid) that would help more than trade penalties.

The Democratic Candidates Debate Trade (A Tiny Bit)

In the debate on Wednesday involving 10 of the 20 Democratic candidates, trade barely came up. Given how much activity, shall we say, there has been on trade under the Trump administration, that was a bit of a surprise. Last night, though, in the debate involving the other 10 candidates, there was a question on trade:

HOLT: We're going to turn -- we're going to turn to the issue of trade now, if we can. Last night, we asked the candidates on this stage to name the greatest geopolitical threat facing the U.S. Four of them mentioned China. U.S. businesses say China steals our intellectual property and party leaders on both sides accuse China of manipulating their currency to keep the cost of goods artificially low.

I want to ask this to Senator Bennet, to start off with. How would you stand up to China?

That's not a terrible question, but it's not a great one, in the sense that it's easy to come up with an answer that sounds substantive without saying much of anything. Here's what the candidates who got a chance to answer said:

BENNET: Well, I think that, first of all, the biggest -- the biggest threat to our national security right now is Russia, not China. And, second, on China, we've got -- because of what they've done with our election.

In China, I think the president has been right to push back on China, but has done it in completely the wrong way. We should mobilize the entire rest of the world, who all have a shared interest in pushing back on China's mercantilist trade policies, and I think we can do that.

...

HOLT: Mr. Yang, let me bring you in on this, on the issue of China. You have expressed a lot of concerns about technology and taking jobs. Are you worried about China? And if so, how would you stand up against it?

YANG: Well, I just want to agree that I think Russia is our greatest geopolitical threat, because they have been hacking our democracy successfully and they've been laughing their asses off about it for the last couple of years. So we should focus on that before we start worrying about other threats.

Now, China, they do pirate our intellectual property. It's a massive problem. But the tariffs and the trade war are just punishing businesses and producers and workers on both sides.

I met with a farmer in Iowa who said he spent six years building up a buying relationship in China that’s now disappeared and gone forever. And the beneficiaries have not been American workers or people in China. It’s been Southeast Asia and other producers that have then stepped into the void. So we need to crack down on Chinese malfeasance in the trade relationship, but the tariffs and the trade war are the wrong way to go.

HOLT: All right, Mayor Buttigieg...

HOLT: How would you -- how would you stand up against China?

BUTTIGIEG: I mean, first of all, we've got to recognize that the China challenge really is a serious one. This is not something to dismiss or wave away. And if you look at what China is doing, they're using technology for the perfection of dictatorship.

But their fundamental economic model isn't going to change because of some tariffs. I live in the industrial Midwest. Folks who aren't in the shadow of a factory are somewhere near a soy field where I live. And manufacturers, and especially soy farmers, are hurting.

Tariffs are taxes. And Americans are going to pay on average $800 more a year because of these tariffs. Meanwhile, China is investing so that they could soon be able to run circles around us in artificial intelligence. And this president is fixated on the China relationship as if all that mattered was the export balance on dishwashers. We've got a much bigger issue on our hands.

But at a moment when their authoritarian model is being held up as an alternative to ours because ours looks so chaotic compared to theirs right now because of our internal divisions, the biggest thing we've got to do is invest in our own domestic competitiveness. If we disinvest...

HOLT: All right, Mayor, thank you.

BUTTIGIEG: ... in our own infrastructure, education, we are never going to be able to compete. And if we really want to be an alternative, a democratic alternative, we actually have to demonstrate that we care about democratic values at home and around the world.

Those answers are fine, but fairly superficial. It was easy to answer this question with generalities. I'm glad the candidates don't like tariffs, but I'm not sure exactly what they would do instead with regard to China.

I wish we could get more specific questions on trade, such as: Would you maintain the tariffs that the Trump administration has imposed on steel and aluminum imports under Section 232? With which countries, if any, would you negotiate new trade agreements first? Should there be any provisions on biologic drugs in the USMCA? Should Congress take back some of the power it has delegated to the executive branch on trade?

Guest Post: The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?

This is a guest post from Markus Wagner of the University of Wollongong:

It is very unlikely that the ongoing G-20 summit will resolve the political dispute between China and the US over their bilateral trade relationship and the dispute over the future direction of the international trading system. But it at least appears that - while almost everyone pays lip service to WTO reform - there is a growing consensus that the WTO's "rules-based system" (such as it is) is worth preserving (even if the G20 Ministerial Statement on Trade and Digital Economy was non-committal on the issue of dispute settlement reform, apparently due to US opposition). 

The uncertainty surrounding the future of the WTO Appellate Body has given rise to wide-ranging discussions about reforms among the WTO membership, as well as in academia and civil society. These range from modifying the operation / text of the DSU rules or the Working Procedures for the Appellate Body (see e.g. here and here), to a whole-sale outsourcing of appeals to an extra-WTO mechanism.  

 

Some of these suggestions from academia are reflected in more recent reform proposals put forth by  various WTO groupings (see e.g. here and here). These suggestions were in direct response to US criticism of the operation of the Appellate Body, which had raised complaints over (1) individuals who are no longer formally members of the AB continuing to adjudicate disputes; (2) non-adherence to the 90-day deadline for issuing AB reports; (3) the use of obiter dicta in AB reports; (4) the AB’s misapplication of the standard of review; and (5) the AB taking the view that its reports have precedential effect. The reform proposals were subsequently rebuked by the US, stating on the record that “[w]ith respect to the proposal advanced by the EU, China, and India, it is hard to see how it in any way responds to the concerns raised by the US, as some have alleged”. 

 

Given the far greater concerns over the future of international trade governance - pitting the market-oriented existing system against a more state-centric system championed by China - the potential disappearance of the AB could well be nothing more than collateral damage in larger fight playing out between the US and China. 

 

This leaves in grave doubt not only the Appellate Body (whose jurisprudence may well live on, at least for some time, through reference in future WTO panel and PTA tribunal decisions), but with it - at least potentially - the WTO's dispute settlement function. In a forthcoming article (titled "The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?"), I show the developments that have led to the current state of affairs. While the current discussions about reforming WTO dispute settlement are welcome (and reforms are necessary), WTO members willing to preserve a modified version of the current system face two obstacles: (1) the clock is ticking towards 10 December 2019 when two further AB members are stepping down, reducing the number of AB members to less than the number required for an AB division; and (2) a US administration that has sown doubts about its calls for reform having been made in good faith. If they were, there would be more constructive engagement. All indications point in the opposite direction, namely a desire to return to a power-based system à la GATT. 

The Origins of the "Cogent Reasons" Approach to the Precedential Value of Appellate Body Reports

The United States has made it clear that it objects to the Appellate Body's view that a panel must follow a prior Appellate Body interpretation unless the panel has “cogent reasons” for departing from that interpretation. One of the longer U.S. explanations of its position is here. This is a key passage:

59. More fundamentally, however, the Appellate Body’s statement concerning “cogent reasons” in US – Stainless Steel (Mexico) is profoundly flawed in several respects. These include:

(1) a failure to properly appreciate the functions of panels and the Appellate Body within the WTO dispute settlement system;

(2) an erroneous interpretation of Article 3.2 of the DSU that does not reflect the text of that provision;

(3) a reliance on reports that do not support a “cogent reasons” approach;

(4) a misunderstanding (or misstatement) of why parties cite prior reports;

(5) inappropriate and incomplete analogies to other international adjudicative fora; and

(6) incorrect assumptions concerning the existence of a hierarchical structure that does not reflect the limited task assigned to the Appellate Body in the DSU.

I was curious about the origins of the "cogent reasons" approach in the US – Stainless Steel (Mexico) case, so with the help of current Cato intern Francisco Campos, I put together this timeline (some original footnotes are included, some are not). Let me know if we have missed anything important.

The issue of the precedential value of Appellate Body reports was a crucial one before the panel, so let's start with the discussion there. In the executive summary of its first written submission (Annex A-1, p. A-3), Mexico stated:

7. Mexico argues that there is an expectation that panels will respect prior Appellate Body rulings on the same issues, which is derived from Article 3.2 of the DSU which expressly requires panels to promote the systemic values of "security and predictability" in "the multilateral trading system". Mexico points to the Panel decision in US – Zeroing (EC), recognizing this expectation, in which it is stated that "although previous Appellate Body decisions are not strictly speaking binding on panels, there clearly is a legitimate expectation that panels will follow such decisions in subsequent cases raising issues that the Appellate Body has expressly addressed". Mexico notes that the Appellate Body has further supported this principle in, among other cases, US – Oil Country Tubular Goods Sunset Reviews, wherein the Appellate Body stated that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".

In its first written submission, the United States argued the following on this point in response:

5. …the Appellate Body has adopted an interpretation of the AD Agreement that includes a general prohibition of zeroing. … Mexico’s claims in this dispute rely entirely on that conclusion in these Appellate Body reports. The United States respectfully disagrees with the reasoning in these Appellate Body reports… Accordingly, the United States requests that this Panel refrain from adopting Mexico’s interpretation.

…

23. Article 11 of the DSU requires panels to make an objective assessment of the matter before it, including an objective assessment of the facts and the applicability of and conformity with the relevant covered agreements. The Appellate Body has explained that the matter includes both the facts of the case (and the specific measures at issue in particular) and the legal claims raised.²⁷ [footnote omitted] Articles 3.2 and 19.2 of the DSU contain the fundamental principle that the findings and recommendations of a panel or the Appellate Body, and the recommendations and rulings of the DSB, cannot add to or diminish the rights and obligations provided in the covered agreements.

24. …While prior adopted panel and Appellate Body reports create legitimate expectations among WTO Members²⁹ [citing Japan – Alcohol Taxes (AB), par. 14], the Panel in this dispute is not bound to follow the reasoning set forth in any Appellate Body report. …

25. …The appellate Body itself has stated that its reports are not binding on panels³⁰ [citing US – Softwood Lumber Dumping (AB), para. 111]….

…

28. Additionally, Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization confers the authority to adopt interpretations of the covered agreements exclusively upon the Ministerial Conference and the General Council.³⁵ [citing Japan – Alcohol Taxes (AB), p. 13]. Therefore, while the dispute settlement system serves to resolve a particular dispute, and to clarify agreement provisions in the context of doing so, neither panels nor the Appellate Body can adopt authoritative interpretations that are binding with respect to another dispute.

In its third party submission, the European Communities then offered the following thoughts, including the first reference I see to "cogent reasons":

IV. PRECEDENTIAL VALUE OF THESE APPELLATE BODY FINDINGS

A. Introduction

99. The European Communities notes that in their submissions before WTO panels and the Appellate Body parties often cite Appellate Body reports in support of their arguments. In its first written submission in this case Mexico makes abundant reference to previous panel and Appellate Body reports regarding zeroing. In addition, it must be noted that the Appellate Body itself regularly cites its own previous decisions in support of its findings and conclusions. The reports discussed under heading III are no exception: in its findings on the issues raised, the Appellate Body frequently invokes earlier decisions.

100. This may seem slightly perplexing as the conventional wisdom is that there is no stare decisis in the WTO dispute settlement system, and that panel and Appellate Body reports are considered binding only on the parties to the dispute in question.

...

104. … all legal systems have in common a serious interest in the continuity of their jurisprudence. Whether as a matter of doctrine or practice, a high value is placed on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Secondly, decisions rendered by the hierarchical superior court or tribunal are, in all legal systems, followed by subsidiary courts or tribunals. …

…

122.Formal rejection of the doctrine of stare decisis should not be confused with the interest that all legal systems have in maintaining continuity in jurisprudence.

123. Whether as a matter of doctrine or practice, all legal systems place a high value on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Departures from previous decisions are carefully considered and require the identification of cogent reasons for doing so.

124. In cases where courts, in particular those dealing with international law, are not formally bound by their previous decisions, they will nevertheless consider themselves bound by the (international) law as authoritatively expressed in a decision.

…

142. It must be remembered too that in most two-tier dispute settlement systems, lower courts and higher courts have different tasks. At a risk of oversimplification: the tasks of a lower court or tribunal is usually centred around fact-finding and dealing with the merits of the cases, whereas higher bodies have often much narrower tasks, centred around settling issues of law.

143. Further, a statement that a decision of a hierarchically higher body is binding on a lower body, will normally be confined to the legal principles involved, the ratio decidendi. Still, the ratio decidendi cannot be distinguished merely because the facts to which it is applied are different.

144. This is not to say that in dealing with the merits of a particular dispute or case, there would be no scope whatsoever for lower bodies to develop the jurisprudence. However, in keeping with the universally recognised principles set out above, departures from decisions taken by higher courts on issues of law must be carefully considered. There must be cogent reasons for a lower court or tribunal to depart from the legal positions taken by hierarchically superior courts. If the lower court or tribunal deviates from what the higher court has considered as the correct legal position its decision runs the risk of being struck down. This will be especially the case when the higher court has, through a series of decisions, endeavoured to create a consistent body of jurisprudence on a particular issue. A lower body may express a reasoned disagreement on legal principles with the higher body, but this will ultimately be for the consideration of the higher body.

…

163. The Appellate Body's rulings must, in the view of the European Communities, be regarded as commanding particular authority for panels. This is despite the fact that there is no formal doctrine of stare decisis in the WTO dispute settlement system, and notwithstanding the fact that, according to the Article 17.14 DSU, (adopted) Appellate Body reports only bind parties to the dispute at issue.

…

169. In line with what has been set out above, the European Communities acknowledges that there can be no absolute bar for panels to depart from Appellate Body decisions. However, such departures must be carefully thought through and must be based on cogent reasons. Nonetheless, the need for security and predictability does mean, in the European Communities' submission, that should a panel wish to depart from previous rulings this should be carefully considered and based on (cogent) reasons. This is especially the case when the rulings and recommendations are contained in reports which have been adopted by the DSB.

...

173. In the interest of ensuring security and predictability to the multilateral trading system, this Panel should follow the reasoning and findings contained in these Appellate Body reports.

174. Should this Panel wish to depart from previous Appellate Body findings, the European Communities submits that this should be carefully considered. The Panel would have to identify cogent reasons for why it proposes to take a different direction.

Thus, it looks like it was the European Communities (now the European Union) who introduced the notion of "cogent reasons" into the discussion of the role of past cases as precedent.

In its opening statement at the first panel meeting, the United States offered the following thoughts, and in doing so used the term "cogent reasons," noting that it had "provided cogent reasons why the findings and reasoning" in the cited cases were "seriously flawed":

4. …the Appellate Body itself has stated that its reports are not binding on panels. Prior panel and Appellate Body reports should be taken into account only to the extent that the reasoning contained in them is persuasive. In our first written submissions, we have provided cogent reasons why the findings and reasoning of the Appellate Body in US – Zeroing (Japan) and US – Zeroing (EC) are seriously flawed...

5. The security and predictability referred to in Article 3.2 is provided by a dispute settlement system that does not add to or diminish the rights and obligations of WTO Members. … In other words, a panel is not permitted to follow a prior panel or Appellate Body report in the name of “security and predictability” where that prior report has “added to or diminished rights and obligations.”

With all this in mind, the Panel then decided not to follow the Appellate Body's reasoning on the point in question:

7.102 We recall that we are not, strictly speaking, bound by previous Appellate Body or panel decisions that have addressed the same issue, i.e. simple zeroing in periodic reviews, which is before us in these proceedings. There is no provision in the DSU that requires WTO panels to follow the findings of previous panels or the Appellate Body on the same issues brought before them. In principle, a panel or Appellate Body decision only binds the parties to the relevant dispute. Certain provisions of the DSU, in our view, support this proposition. According to Article 19.2 of the DSU, for example, "[i]n accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements". In the same vein, Article 3.2 of the DSU provides that "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements".

7.103 We also note, however, the Appellate Body's pronouncement, in Japan – Alcoholic Beverages II , regarding the impact of adopted panel reports for future panels dealing with similar issues. The Appellate Body opined:

"Adopted panel reports are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute. In short, their character and their legal status have not been changed by the coming into force of the WTO Agreement."[footnote omitted, emphasis in original]

7.104 The above excerpt indicates that, although adopted panel reports only bind the parties to the dispute that they concern, the Appellate Body expects future panels to take them into account to the extent that the issues before them are similar to those addressed by previous panels. In US – Shrimp (Article 21.5 – Malaysia), the Appellate Body reiterated its findings in Japan – Alcoholic Beverages II and held that the same analysis applies to adopted Appellate Body reports.⁷⁸ [footnote omitted] The Appellate Body clearly stated that the panel in the implementation proceedings under Article 21.5 of the DSU in US – Shrimp (Article 21.5 – Malaysia) did not err in following the interpretative guidance provided by the Appellate Body in the original proceedings. To the contrary, the Appellate Body expected the panel to do so. More recently in US – Oil Country Tubular Goods Sunset Reviews, the Appellate Body opined that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".⁸⁰ [footnote omitted]

7.105 This indicates that even though the DSU does not require WTO panels to follow adopted panel or Appellate Body reports, the Appellate Body de facto expects them to do so to the extent that the legal issues addressed are similar. …

7.106 After a careful consideration of the matters discussed above, we have decided that we have no option but to respectfully disagree with the line of reasoning developed by the Appellate Body regarding the WTO-consistency of simple zeroing in periodic reviews. …

On appeal, Mexico argued that the Panel erred by the not following the Appellate Body's reasoning:

19. Finally, Mexico argues that the Panel acted inconsistently with Article 11 of the DSU by refusing to follow Appellate Body reports adopted by the DSB that address identical issues with respect to the same party—the United States. More specifically, Mexico asserts that, by making findings and reaching conclusions that are "identical" to those that have already been rejected or reversed by previous Appellate Body reports adopted by the DSB, the Panel has failed to comply with its duty under Article 11 of the DSU to assist the DSB in discharging its responsibilities under the DSU

In response, the United States argued the following in its appellee's submission:

10. If the new “zeroing” prohibition identified by the Appellate Body has no basis in the text of Article VI or the AD Agreement, and if it was never agreed to by the WTO Members in the Uruguay Round, it raises fundamental and deeply troubling questions about the Appellate Body’s role within the WTO system and the source of its authority to impose new non-textual obligations on WTO Members. Equally disturbing is the Appellate Body’s apparent refusal to address in any meaningful way the questions that have been raised regarding the various rationales it has put forward as a justification for its prohibition on zeroing. If these concerns cannot be satisfactorily resolved, they put the credibility of the WTO dispute settlement system at risk.

11. The United States fully recognizes that the reversal by any judicial body of an earlier ruling is a serious matter, and that it is not something to be done lightly. However, even in common law systems, where the doctrine of stare decisis applies, rulings can be overturned in exceptional circumstances.⁹ The United States firmly believes that this dispute presents such a circumstance.”

[Note 9: Stare decisis, of course, does not apply in WTO dispute settlement proceedings. Japan – Alcohol (AB), p. 14 (rejecting the application of “aim and effect” test adopted by earlier GATT 1947 panel to Article III of GATT 1994). Accordingly, there is even more flexibility to depart from an earlier finding if the Appellate Body concludes that a mistake was made. In contrast, Mexico’s proposed approach, which would treat DSB rulings as fully binding and definitive, even in a situation where experts have openly and cogently disagreed, would only undermine the legitimacy of the system and this Body’s credibility.]

…

132. Mexico accepts that Appellate Body reports are not binding, but then converts an “expectation” into a requirement for panels such that a failure to meet this expectation becomes a breach by the panel of its duties Article 11 of the DSU. Furthermore, Mexico’s approach is that a panel is required to follow findings in different disputes even where the panel considers that those findings would not be in conformity with the agreed text of a covered agreement. Accordingly, Mexico would have this non-textual “expectation” override the explicit requirement in the DSU that panel and Appellate Body reports can neither add to nor diminish Members’ rights and obligations under the covered agreements.

And in its third participant written submission, the European Communities argued as follows:

30. The single most important issue in relation to the subject-matter of precedent that arises from the Panel’s report is the question of the extent to which panels are obliged to follow rulings of the Appellate Body on questions of law and legal interpretations.

…

37. The central questions that now lie before the Appellate Body are: whether it can be said that there is in the DSU a hierarchy between the Appellate Body and panels and whether panels are obliged to follow Appellate Body rulings on questions of law.

…

43. The EC has no doubt that if this Panel’s views would be accepted, the WTO dispute settlement system would be seriously impaired, and perhaps even eventually more or less grind to a halt for all practical purposes. The Panel's position amounts to an open invitation to parties to re-litigate every single legal issue arising in a particular dispute. The US appears to believe that Panels would be forced to examine the Appellate Body’s jurisprudence on every possible legal question afresh and would, moreover, be obliged to justify their decision (i.e., whether to follow or not) in each case in relation to each legal issue.

…

50. A further question that arises in relation to this particular Panel proceeding is on what grounds a panel may express its disagreement with a particular ruling of the Appellate Body on a legal question. As explained by the EC in its submissions before the Panel, a rule whereby panels follow the Appellate Body on legal questions does not prevent an adjudicatory system from developing its case law and departing from earlier decisions in cases where there are cogent reasons for doing so³⁷ [citing EC third party written submission, paras 141 to 144].

51. However, the need for such departures must be thoroughly justified. Departures cannot be founded on a mere doubt about the correctness of a previous decision. Nor could they be justified on the sole basis of a disagreement by the hierarchically lower body with the reasoning of the hierarchically higher body.

52. In the present case the Panel has not demonstrated any cogent reasons for departing from the Appellate Body’s settled jurisprudence in relation to the legal issues and legal interpretations relating to the practice of zeroing. On the contrary, all the Panel has done is re-iterated the reasoning which the Appellate Body has examined and rejected, in many cases.

53. The Panel has not even engaged in an exercise of trying to 'distinguish' this case from earlier rulings of the Appellate Body. The EC acknowledges though that this would have been a futile exercise because there is no doubt that the legal questions that this Panel had to deal with are the same as those before the Appellate Body in other zeroing cases.

54. In addition, if the Panel’s views were to be accepted, the Appellate Body itself would have to reverse its earlier rulings on the legal issues and legal interpretations relating to the zeroing practice at issue in this case. The personal opinions held by particular panelists do not amount to cogent reasons for the Appellate Body to reverse the existing jurisprudence.

Here, the European Communities emphasizes again the role of "cogent reasons" in determining whether the Appellate Body's reasoning in past cases should be followed.

And finally, of course, the Appellate Body went with the "cogent reasons" standard in its conclusions on this issue:

160. Dispute settlement practice demonstrates that WTO Members attach significance to reasoning provided in previous panel and Appellate Body reports. Adopted panel and Appellate Body reports are often cited by parties in support of legal arguments in dispute settlement proceedings, and are relied upon by panels and the Appellate Body in subsequent disputes. In addition, when enacting or modifying laws and national regulations pertaining to international trade matters, WTO Members take into account the legal interpretation of the covered agreements developed in adopted panel and Appellate Body reports. Thus, the legal interpretation embodied in adopted panel and Appellate Body reports becomes part and parcel of the acquis of the WTO dispute settlement system. Ensuring "security and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.³¹³ [footnote omitted]

Where does all this leave us? In one sense, it leaves us in a messy situation, with the United States objecting to the "cogent reasons" standard but leaving it unclear what exactly it wants instead (unclear to me, anyway -- would it accept the proposed language set out here?). But in another sense, it leaves us with an opportunity now for governments to clarify what they think the role of precedent should be. Now that everyone has had many years of experience with the "cogent reasons" standard, what do they think of it? Does it need some adjustments, or does it work pretty well as is?

NAFTA vs. USMCA vs. Something Else

Here is a comment from Ambassador Lighthizer in response to a question from Congressman Panetta at last week's House Ways and Means Committee hearing (starts at 3:23:09), on the choice between NAFTA or USMCA:

I think we have clearly made an enormous, probably enormous, improvement in this bill, and I just, every time I talk to I know you and others, I always think to myself at some point you’re gonna have to decide whether there’s this horrible agreement that you think is so bad that you’ve campaigned against it since you were in high school, although I wasn’t in high school, you were in high school, and/or this improvement. I keep saying to myself, you know, you can at some point, you gotta say okay fine we’re just gonna get rid of the uncertainty we’re gonna just vote for the improvement and not say, “ah, but we could even make it better and better and better,” so that’s a little bit of venting and frustration on your time.

Lighthizer's answer here suggests that members of Congress face a choice between the original NAFTA and the USMCA. But it seems to me that Congressional Democrats might see a third option: A revised NAFTA negotiated by a future Democratic president. I would imagine that once the Democrats get settled on a presidential nominee, they will be pretty fired up and expecting to win the 2020 election. With that in mind, would they prefer to vote for a trade deal negotiated by Trump, a vote they will have to defend for the rest of their careers? Or would they rather put all of this on hold until after the election, after which the Democratic president can negotiate a deal that is more to their liking?

China NME case suspended

Since no one else has raised it yet on this blog, I'll note that the WTO Panel hearing China's case against the EU regarding the use of a non-market economy methodology in anti-dumping cases suspended its work on 14 June (DS516/13). Such suspensions come at the request of the complainant, and the proceeding must be reactivated within a year or the panel's authority will lapse.

Despite confidentiality obligations, press reports cite "trade officials" for the proposition that China decided to seek suspension because the results of the interim report were highly unfavorable to China. 

It would be interesting to know more about China's motivations, and how it will now proceed. Is this suspension temporary, or will China allow the panel's authority to lapse? Will China continue to litigate this issue in the WTO - either with a new case against the EU's replacement legal regime on market distortions, or a challenge to the NME methodology of another Member - or will they treat this matter as one for bilateral resolution?  If they choose to revive this proceeding, will they do so before the (seemingly likely) paralysis of the Appellate Body? 

It would also be interesting to know the EU's position on the suspension. The notice of suspension states that "[t]he [EU] commented on China's request, asking the Panel to take a number of considerations into account when deciding whether to grant China's request."  This is remarkably uninformative, and while the EU's substantive submissions in DS516 are available on the EU Commission website, procedural submissions such as its comments on China's suspension request are not.  

 

Congress Asks Lighthizer About the Sunset Clause

I have been suggesting that Congress should clarify its role in the decision required under the USMCA's sunset clause on whether to extend the agreement, and Congressman Steven Horsford came through for me at yesterday's House Ways and Means Committee hearing (starts at 3:37:50). Here's what he asked:

Rep. Horsford: “… And finally, I’m concerned about the sunset clause and the fact that it has some automatic renewal provisions that could go around Congressional authority and approval.”

I understood this to mean that Congressman Horsford was interested in the role Congress would play in the USMCA extension decision. But Lighthizer's answer seems to take the question in a different direction:

Amb. Lighthizer: “… And then on the issue of sunset, I guess I didn’t quite understand the point. We have a sunset provision in here. Most trade agreements, for reasons that don’t make any sense to me, are eternal and this one is temporal, although it’s complicated how it works. So, if there is any usurpation of Congressional prerogatives in trade agreements, it would be, I would suggest, in all the others and less in this one.”

Horsford tried to clarify by adding this:

Rep. Horsford: “So if I could Mr. Chairman, just to clarify, you will come back for approval with any sunset clause. It doesn’t take the Congressional oversight accountability or approval process."

Lighthizer's further response seems to insist they are on the same page:

Amb. Lighthizer: “There’ll be no coming back – that’s how trade agreements work. It’s kind of a crazy thing, but they kind of become, that they’re just eternal. We just pass these things and then they go on forever and ever and ever. What this one does is it has a process, which as you know, that every six years you’ll have a review and see if whether or not this is something you want to extend, and if it isn’t then it will expire in a certain period of time after. But this is, I would suggest, that this is like an extremely important idea, exactly consistent with where you’re coming from. And it’s an innovative way to do exactly what you want to do. And I want to sit and talk to you about it because I think this is right in your sweet spot."

But I'm really not sure they are talking about the same thing. Lighthizer is focused on the sunset clause's requirement of an affirmative decision to extend the agreement, which he sees as a positive; Horsford is thinking about the role of Congress in this decision.

I'll close by repeating what I've said before: "[W]hich U.S. government branch gets to decide on whether the agreement should be extended as part of this review? What is the role of Congress here? Congress has ceded a lot of power to the President on trade over the years, and if it allows this provision to stay in, it better make sure that it has a full say on whether to confirm that the United States wishes to extend the new NAFTA deal as part of the review." I hope Congressman Horsford and others keep pressing Lighthizer on this behind the scenes, and use the USMCA implementing legislation to give Congress a say in the decision on whether to extend (one approach would be that the decision will be in favor of extension unless both Congress and the President agree not to extend).

USTR Lighthizer Comments on NAFTA/USMCA State-State DS Panel Blocking

This is from an exchange between Senator Carper and U.S. Trade Representative Lighthizer at a Senate Finance Committee hearing today (starts at 2:03:07):

Senator Carper: “My second question revolves around USMCA dispute settlement. The state-to-state dispute settlement system in the new NAFTA continues to allow for panel blocking – as I understand it, the main reason a dispute settlement panel hasn’t been established, since maybe the early 2000s. The Trans-Pacific Partnership made changes, I believe, to fix panel blocking, but these improvements were not included in the new NAFTA. From the Statement of Administrative Action the administration sent to Congress, it appears that the White House plans to use Section 301 tariffs to unilaterally enforce USMCA provisions when a dispute occurs. I would just ask if you could explain to us briefly why using Section 301, which will very likely invite retaliation from Canada and Mexico is preferable to a binding dispute system that does not allow panel blocking?”

Amb. Lighthizer: “Well, thank you Senator. First of all, I would point out the obvious, and that is that panel blocking is permitted under the current NAFTA as well as under USMCA. So anyone objectively looking at distinguishing between the two and deciding to vote against the second because of -- there’s an improvement in the first -- couldn’t find that. So, what we did is we kept the current provision. Now, why did we keep… Let me say first of all you’re right that there hasn’t been any in a while, in this context. The reason for that is that people have tended to go to the WTO to enforce those rights and there’s been a number of WTO cases. So second, why did we not make that change? Our view is that we can enforce our laws in the rare circumstance where there was a blockage by using our unilateral law and the 301. 301 says you should go the international organization or the agreement for enforcement if there is a violation of a trade agreement, or the WTO in this case. If the other side blocks, the position you would take is that thus you’ve exhausted your remedies and therefore you could legally use 301. So that’s, like, the nature of it.

And why did we do that? Number one, we think it will be very rarely used. But in a situation where, for example, someone challenged the trade laws of the United States and made some argument about that, about the viability of the trade laws, you want to be in a position where you can preserve your rights. But this is something I am perfectly happy to work with members on and see where members draw their line. It was clearly a U.S. ask, it wasn’t an ask from the other side. The other side since they had signed up for TPP, presumably they would be happy to go along with it.”

This is the longest statement I've heard from Lighthizer on the issue of NAFTA/USMCA panel blocking. It provides some interesting details that help clarify USTR's position:

- Lighthizer acknowledges that panel blocking is permitted under USMCA. (Previously he said this: "The text of Chapter 31 of the United States – Mexico – Canada Agreement (USMCA) is not meant to allow panel blocking.")

- Lighthizer wants to maintain panel blocking in case U.S. "trade laws" are challenged. What kind of trade laws does he have in mind? Trade remedies? There aren't many USMCA rules that would apply here. (Is he thinking about NAFTA Chapter 19/USMCA Chapter 10 here? No panels have been blocked in that context as far as I know). Section 232 actions? These are obvious violations, but the security exception would apply. I hope someone follows up with him about what particular challenges he is worried about.

- Maintaining the ability to block panels was a "U.S. ask." (We know that already -- see p. 3 here, where Mexico's lead negotiator explains that Mexico made proposals to fix the NAFTA flaws.)

- Lighthizer is willing to talk to Congress about adjusting this.

My suggestion for members of Congress who want to make sure USMCA is enforceable -- for trade, labor, or other obligations -- is to go to Lighthizer and demand that the USMCA dispute settlement provisions be fixed, so that panel blocking is no longer allowed. Inu and I made suggestions in this regard in response to a different Congressional hearing that took place recently: https://object.cato.org/sites/cato.org/files/pubs/pdf/lester-manak-public-letter-june-4-2019.pdf.

ADDED: This issue came up again at a House Ways and Means Committee hearing the next day (starts at 2:46:30):

Rep. Boyle: “So that’s a perfect segue into a conversation on enforcement, because when I was first elected to the state legislature over a decade ago, I thought I had an agreement with someone and a wise, 30-year veteran let me know there's a difference between a promise and an agreement, and that difference is the extent to which it can be enforced. So specifically on enforcement, could you explain why the administration seems to still be skeptical about having a binding dispute settlement mechanism?”

Amb. Lighthizer: “So I would say first of all I want to just say what I said many times, just very briefly: I want to work this out, I want to do it quickly, I think I can do it in an afternoon with the group that the speaker has identified. So, we believe the thing has to be enforceable for sure, so what you’re talking about is panel blocking. All right, so the question is: do you want to have the right in a rare circumstance where someone challenges something of particular importance to you, not on a regular basis, but it’s particularly important to you, do you want to have the right to block that panel if you have another way to still enforce your own rights. That’s where we were trying to find that balance. So the question is: what’s the risk that, for example, you’re going to have a problem with a challenge to the trade laws. We have a challenge of the trade laws under the WTO. The trade laws are fundamental to all these workers that we’re all talking about getting laws against unfair trade and the question is do you… that’s the balance that I’m trying to strike here, but I want to work it out with the members. I want members to be happy. If members say, “no, I don’t care about that balance,” then I’ll consider that."

With regard to "panel blocking," the term means just what it sounds like it does: The party complained against can block a panel from being appointed, and therefore any enforcement action is stopped. Lighthizer keeps making reference to "the trade laws," probably meaning AD/CVD or similar laws, which are sensitive issues for the administration. For Mexico, labor might be a sensitive issue; for Canada, agriculture might be sensitive. For members of Congress looking for the proper balance here, the question is whether they want to make certain that these sensitive areas are enforceable against Canada and Mexico. I don't know for sure whether Canada or Mexico would block a panel. But the United States blocked a NAFTA panel in the past, and with Lighthizer indicating that it might do so again for "the trade laws," it wouldn't be too shocking if Canada and Mexico did so as well. The bottom line is that if members of Congress want certainty that USMCA obligations can be enforced against Canada and Mexico, they should push for changes to the USMCA so that panel blocking does not take place.

Call for Proposals: International Economic Law And Security Interests Conference

From the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law:

Call for Proposals – International Economic Law and Security Interests – ACIL-ESIL Amsterdam Conference

On 14-15 November 2019, the Amsterdam Center for International Law and the International Economic Law Interest Group of the European Society of International Law will host at the University of Amsterdam a Conference on International Economic Law and Security Interests. Besides a roundtable on adjudicating the security exception, the Conference will deal with the main areas of the topic over three axes: International Law and Security, including the history and interpretation of the security exception; Security Interests and International Economic Law, addressing the relationship between security interests and the legal regimes governing trade and investment; and Emerging Security Issues, to discuss issues such as cybersecurity, food security and energy security.

Proposals addressing issues falling within the scope of the Conference’s theme, including abstracts of no more than 500 words and the speaker’s details, or inquiries regarding the conference, should be sent to [email protected]. The deadline for the submission of proposals is 31 July 2019. The organizers consider publishing papers presented at the conference either as a special issue in a leading journal or as an edited volume published by a leading academic publisher. In the selection of proposals, preference will be given to speakers interested in producing a paper.

India, safeguards and developing Member status

These days, when issues of justiciability or unilateralism arise, the security exception in Article XXI of GATT 1994 comes immediately to mind. However, these issues can arise in very different contexts, such as safeguards.

The Agreement on Safeguards exempts small suppliers of a product from developing Members from safeguard measures, but as throughout the WTO system it does not define developing Member. Most developing countries consider that developing status is based upon self-selection, and is thus not subject to dispute settlement, but this view certainly is not shared by the United States.  

When the United States imposed safeguard measures on solar cells in January 2018, it exempted India as a small developing supplier. In May of this year, however, President Trump suspended India's status as a GSP beneficiary, on the grounds that India does not provide US exporters with fair access to its markets. In the same proclamation, the United States removed India from the list of developing Members benefiting from the small supplier exemption in respect to the solar cells safeguard (and to another safeguard measure on large residential washers).

It appears from the Proclamation that the United States now conflates GSP beneficiary status with developing Member status, and considers that India is no longer a developing country.  Should India disagree, it could challenge the US decision in dispute settlement, and we would then learn whether the WTO DS system is prepared to rule whether or not a Member is a developing country.  

From the US perspective, India might not be the ideal candidate for a test case.  While the developing country status of Singapore, Korea or China may be debatable, India's GDP per capita is only slightly above $2000. That is by far the lowest among G20 countries, and is one thirtieth that of the United States and one fifth that of China.

 

      

Joe Biden on Tariffs and Trump's Trade Strategy

This is from a speech today by Democratic presidential candidate Joe Biden:

America's farmers have been crushed by his tariff war with China.

 

No one knows that better than Iowa.

 

He thinks he's being tough.

 

Well, it's easy to be tough when someone else is feeling the pain.

 

How many farmers across this state and across this nation have had to face the prospect of losing their business, of losing their farm because of Trump's tariffs?

 

How many have had to stare at the ceiling at night wondering how they're going to make it?

 

How many sleepless nights do you think Trump has had over what he's doing to America's farmers?

 

Here's the answer: Just as many as he had when he stiffed the construction workers and electricians and plumbers who built his hotels and casinos. Zero.

 

And how about manufacturing? Trump's tariffs and trade wars are hitting a lot of American manufacturing -- especially the American automobile industry -- Choking it to within an inch of its life.

 

One of my proudest moments in the White House was when President Obama and I led the rescue of the American auto industry.

 

We knew what it meant to the millions of jobs in the auto companies and the supply chain.

 

We also knew what it meant to the pride of the nation.

 

Now I'm watching Trump destroy the industry President Obama and I helped save.

 

Do you think he just backed off his tariff threat with Mexico because he got some tough new deal? Maybe there's some secret development yet to be revealed — But based on what we know, it seems more like old wine in new bottles.

 

And the truth is he's scared -- his economic folks told him his tough talk was about to cost to him Michigan and Ohio and Iowa.

 

But don't kid yourself -- another bad news story -- and he'll be back with tariffs to change the subject. And the people who will get hurt are just pawns in his game.

 

Trump doesn't get the basics.

 

He thinks his tariffs are being paid by China. Any beginning econ student at Iowa or Iowa State could tell you that the American people are paying his tariffs. The cashiers at Target see what's going on -- they know more about economics than Trump.

 

And let me take one additional moment to talk about this — because it's important, and I don't want anyone to misunderstand what I mean.

 

We are in a competition with China.

 

We need to get tough with China.

 

They are a serious challenge to us, and in some areas a real threat.

 

And every single step that Donald Trump is taking is only exacerbating the challenge.

 

While Trump is tweeting, China is making massive investments in technologies of the future.

 

While Trump is name-calling, China is building roads, bridges, and high-speed rail.

 

While Trump is pursuing a damaging and erratic trade war, without any real strategy, China is positioning itself to lead the world in renewable energy.

 

While Trump is attacking our friends, China is pressing its advantage all over the world.

 

So you bet I'm worried about China — if we keep following Trump's path.

 

...

 

So when it comes to taking on China, First, let's invest in ourselves — that's why I've proposed a historic initiative in scientific research, cutting-edge infrastructure, and a modern workforce that will help American workers and entrepreneurs compete and win.

 

Second, let's build a united front of allies to challenge China's abusive behavior. Trump is attacking the very partners we need with us to deal with China. We need to rally more than half the world's economy to hold China to account for their cheating. And get a chorus of voices speaking out on China's repression.

 

Third, let's tighten up our defenses so that American companies don't have to keep giving away technology to China, or having it stolen. In the Obama-Biden administration, we got China to curb its cyber-theft -- it's gotten worse under Trump.

 

Finally, let's find areas to cooperate where it's in our interest. We got the Chinese to agree for the first time to limit their carbon pollution. There's a lot more we can do on climate change, and nuclear weapons, and other issues where our interests converge.

 

But time and time again, on issue after issue, Trump makes the wrong choices. He is motivated by the wrong thing.

I didn't hear it delivered live, but this seems like a passionate rant. But as I asked with the post about Pete Buttigieg, what exactly would Biden's trade policy look like? Would it be the TPP/TTIP again, or has he learned some lessons from those battles and has some adjustments to make?

Pete Buttigieg on Tariffs and Trump's Trade Strategy

This is from Democratic presidential candidate Pete Buttigieg at a recent town hall event:

The San Joaquin Valley helps feed not just America, but the world. The products that are grown here are world-class and yet what we’re finding is because of a short-sighted, I can’t even call it a strategy, I can’t even call it a policy, it’s a pattern, it’s a pattern of poking people in the eye to see what will happen. But when you don’t have — look — I completely get the idea if China is doing something unfair, I get the idea of standing up to them. If there are trade deals that are not benefitting us enough, I get the idea of adjusting them to make sure that it’s fairer trade, but that’s not what we’re seeing right now. What we’re seeing right now is basically politically motivated gamesmanship and it’s coming down on your back.

It’s hurting farmers. It’s hurting workers. It’s hurting consumers. I wonder how many consumers are aware that that the projection is we all on average will pay 800 bucks more a year starting now because of these tariffs, and by the way, a tariff is a tax, so if you ever believe the Republicans don’t raise taxes, that’s what they’re doing right now.

The Democratic candidates are all lining up against Trump's trade policy, but what trade policy are they for? What exactly does it mean to Buttigieg to adjust trade deals to make sure trade is fairer?

Call for Submissions: Trade, Law and Development

This is from the Board of Editors at Trade, Law and Development:

The Board of Editors of Trade, Law and Development is pleased to invite original, unpublished manuscripts for publication in the Winter ’19 Issue of the Journal (Vol. 11, No. 2) in the form of Articles, Notes, Comments and Book Reviews.

Manuscripts received by September 30, 2019 pertaining to any area within the purview of international economic law will be received for publication in the Winter ’19 issue.

Manuscripts may be submitted via e-mail or ExpressO. For further information about the journal please click here. For submission guidelines, please click here.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com. See the full call for submissions here. 

Abraham Lincoln on the Tariff

Some of you may have come across this purported quote from Abraham Lincoln before:

"I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money."

According to economist and professor Frank Taussig, however, it's all just a myth. See his explanation of the origins of the myth here.

Guest Post: Linking international trade to climate action and sustainability

This is a guest post from Rafael Leal-Arcas of Queen Mary University of London:

London will celebrate in July 2019 the first-ever London climate action week:

https://www.e3g.org/news/media-room/mayor-confirms-london-climate-week-in-2019

Linking climate change to international trade has been a topic of academic debate in recent times. In that vein, I have just finished a new book that uses the international trading system as a possible solution to climate change and, ultimately, sustainability: SOLUTIONS FOR SUSTAINABILITY: HOW THE INTERNATIONAL TRADE, ENERGY, AND CLIMATE CHANGE REGIMES CAN HELP, Springer, 2019; ISBN: 978-3-030-23932-9.

Here is a summary of my latest book:

‘This book explores links and synergies between international trade and two of the most urgent challenges of the 21st century: achieving sustainable energy (i.e., energy that is affordable, secure, and clean) and mitigating climate change. It takes the unique approach of not only examining how international trade can help achieve energy and climate goals, but also the impact of emerging tools and technologies such as smart grids and demand response, and the potential role and impact of citizens and prosumers. The book analyzes energy- and trade-related regulations in a range of jurisdictions to assess how conducive the regulation is towards achieving sustainable energy, and identifies gaps and overlaps in the existing legal framework.’

For further details about my book, please visit: https://www.springer.com/gp/book/9783030239329#aboutBook

Should WTO Dispute Settlement Require The Appellate Body To Discuss All Appealed Issues?

I recently read something about the U.S. Judiciary Act of 1925 (the "Judges' Bill"). Here's an explanation:

The so-called Judges' Bill of 1925 fundamentally redefined the Supreme Court's role within the federal judiciary by repealing much of the mandatory jurisdiction of the Court. The act preserved an automatic right of appeal to the Supreme Court in a few types of cases, but in other areas cases would come to the Court only when the justices granted a writ of certiorari in response to a petition from a party in a case before a lower court. ... 

That made me wonder what everyone -- and by that I mean the United States, other WTO Members, and everyone else -- would think of limiting the right of appeal by giving the Appellate Body more discretion over what issues to hear. DSU Articles 17.12 and 17.13 say this:

12. The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.

13. The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel.

But what if these provisions said something like this instead: "The Appellate Body shall address as appropriate the issues raised in accordance with paragraph 6 during the appellate proceeding. In this regard, the Appellate Body may uphold the panel's legal findings and conclusions without further elaboration, or it may modify or reverse those legal findings and conclusions."

In a sense, this change would give the Appellate Body more power, because it could decide which issues to elaborate. But in another sense, it would be giving the Appellate Body the power to limit its own power, by reducing the number of issues it discusses. Importantly, this could lessen the Appellate Body's workload and make it easier to complete appeals within 90 days.

Industrial Policy as a Tool of U.S. Foreign Policy

This is from Jennifer Harris and Todd Tucker in Politico:

President Donald Trump’s threat to levy tariffs on Mexico has triggered a political war in Washington, and not the usual partisan kind. Some Republicans are girding to fight their own president, rightly finding it absurd that he would take out his frustrations over immigration by increasing the cost of trade. As Sen. James Lankford (R-Okla.) told Politico, the White House "is trying to use tariffs to solve every problem but HIV and climate change." Trump supporters like Sen. Marco Rubio (R-Fla.), meanwhile, don’t see many options. “[W]hat alternative do my GOP colleagues have,” he tweeted, “to get Mexico to secure its southern border… & act on intel we provide on human traffickers?”

Much as it pains their colleagues—and as hard as it is for Washington to process this—Trump and his backers have a real point. Not about his immigration policies, which are part of a harmful cultural war and stand a real chance of inflicting long-term damage on the American economy. But the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

For that, the blame lies with Democratic and Republican administrations alike, including Trump’s predecessor Barack Obama, who collectively have let US economic policy shrink in ambition—a battle fought on a narrower and narrower field, leaving us with so few weapons that tariffs have become the most useful last resort.

A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners. In that universe, Mexico’s own immigration enforcement might be part of a much wider package of goals negotiated between the two nations, one that creates strong incentives for Mexico to comply, without hurting American consumers and companies the way tariffs would.

This fuller agenda, which some experts call economic statecraft, has been the norm for much of the country’s history. But unlike America's competitors, the United States has largely shelved this kind of economic thinking. President Obama, for instance, pitched the Trans-Pacific Partnership (TPP) trade agreement as a way to ensure that America, rather than China, would write the rules of the global economy. But under the hood, it was never a very compelling economic argument for the United States: The rules that China negotiates in its own trade deals overlapped considerably with the American proposal, meaning that the TPP was more a matter of diplomatic gamesmanship than a real plan to advance workers here at home.

There are two aspects to their argument: domestic and international. As they put it: "A nation as powerful as the United States would traditionally be expected to have a fully developed economic and industrial policy, one that integrates incentives and priorities on the domestic front with carrots and sticks for foreign partners."

With regard to the domestic aspects, they argue for industrial policy rather than neoliberalism:

For the last few decades, policymakers have embraced neoliberalism, a broadly open-market political philosophy whose effects have been to redirect more power toward the economically powerful and marginalize the economic majority. Things may be changing. Leading academics, public intellectuals on both the right and the left, and even the IMF are calling for a return to a robust domestic industrial policy.

I have two reactions to this. First, I would say that, in fact, industrial policy may be more likely to "redirect more power toward the economically powerful and marginalizes the economic majority." Industrial policy means lots of subsidies for big business. Some of that will trickle down, of course, but just as agricultural producers like farm subsidies, manufacturers and other businesses like industrial policy. And second, from what I can tell, rather than some major shift taking place, arguments for free markets vs. industrial policy are about the same as they have always been. The perception on the left that free markets dominated the 1990s is way off base. Harris and Tucker talk about the "the heyday of the global free-market consensus," but I can assure you that, as someone in the free market camp, there was never a time when I thought, "Wow, we are really winning the policy debate!" It was an uphill struggle, and any victory was outweighed by two defeats. At one point, farm subsidies were supposedly being phased out, but they quickly and quietly came right back. And anyway, there have always been U.S. policies that can be classified as industrial policy (e.g., military spending). It might not be the precise industrial policy that some people want, but that's how things tend to go. The ingenious policy innovation you just came up with is not going to be implemented as you hoped. Interest groups of various sorts will get involved and turn it into something else.

But nobody is ever going to convince anyone to change his/her mind on the value of industrial policy as a domestic matter, and I want to focus here instead on the idea of "economic statecraft," or using "carrots and sticks for foreign partners," or to put it more bluntly "using American economic power to boss other countries around." To me, this seems like a strange thing for progressives to want, but I confess that I'm a little unclear on who the progressives are (and for that matter, who the neoliberals are).

First off, I think we could really use some empirical assessment of whether "economic statecraft" is effective in achieving its goals, in both the short- and long-terms. Maybe it does accomplish some things, like restricting asylum seekers from getting to the United States, in the short-term. On the other hand, in the long-term maybe it pushes the countries we are trying to influence into alliances with other countries. I'd like to see some studies of all this before we assume it is effective, as Harris and Tucker seem to.

Second, advocates of this approach to foreign policy need to take into account that they are not always going to be in power. For those on the left who want to use U.S. economic power to do "good things," keep in mind that the specific government action that triggered the Harris/Tucker article was Trump's use of tariffs to get Mexico to take actions to restrict migration. Harris and Tucker are careful to point out that Trump's immigration policies are part of a "harmful cultural war" and they certainly don't support that sort of thing. On the other hand, they do seem to support the general concept of using U.S. economic power to coerce our trading partners:

the Administration’s use of tariffs to push its foreign-policy goals is not as irrational as Trump’s enemies make it seem. It shouldn’t be this way, but in 2019, if the United States wants to fix some of the big policy arguments it has with its trading partners, it has left little leverage besides the blunt tool of tariffs.

The problem is, if you endorse the principle behind this sort of "economic statecraft," you kind of have to take some responsibility for whatever comes out of it. You can't just say, we want economic statecraft but only the good kind. Once the principle has been established, it can be used for anything, and you know that in advance. I recognize that Harris and Tucker want President Warren/Sanders/or somebody to have this power for some progressive thing, but that also means President Trump has the power for some non-progressive thing. Given the way such power will actually be used, it's worth considering whether it would be better if the U.S. government simply didn't exercise this power, or exercised it a lot less.

Finally, it is also worth pointing out that it may be possible to accomplish these things without bullying other countries at all. For example, if we wanted Mexico to be able to handle migrants from Central America better, which Mexico probably wants as well, we could spend some of our own money to help them. That's closer to being a carrot than a stick, although maybe it's not even a carrot, but rather just the right thing to do. By contrast, Harris and Tucker seem like they are just looking for big sticks. They refer to "fixing some of the big policy arguments [the United States] has with its trading partners," but that sounds like a euphemism for what I think they really mean, which is using U.S. power to coerce other countries into doing what we want.

That's not to say that nobody should ever try to influence anything that goes on in other countries. But when you are considering the possibility of doing so, it's worth thinking carefully about what would be effective and appropriate. Sometimes just setting a good example may be the best approach.

The EU's Interim Appeal Arbitration Proposal

Tom Miles provided a link the EU's Interim Appeal Arbitration proposal in the comments, and Steve referred to it in the last post. A searchable PDF version is here. Overall I think it is a good temporary solution and could work pretty well. Some noteworthy elements:

- "under the interim appeal arbitration procedure, appeals will be heard by former members of the Appellate Body, serving as arbitrators pursuant to Article 25 of the DSU. Three persons will serve on any one case. They will be selected by the Director-General from the pool of available former members of the Appellate Body."

- "The parties agree to abide by the arbitration award, which shall be final. Pursuant to Article 25.3 of the DSU, the award shall be notified to, but not adopted by, the DSB and to the Council or Committee of any relevant agreement."

- "The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat after the suspension of the panel proceedings referred to in paragraph 7 takes effect, and no later than 10 days after that date. The Notice of Appeal shall include the final panel report in the official languages of the WTO." 

- "Under the interim appeal arbitration procedure [WTO Member] and the European Union intend to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU including an appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat."

It will be interesting to see how other governments react to the proposal. Perhaps there will be some refinements as others weigh in. We may see a dual approach, where some parties agree not to appeal and other parties agree to use this Interim Appeal Arbitration procedure.

Comments on The EU's Proposal for Article 25 Arbitration

Steve Charnovitz

6 June 2019

This is a follow-up to my earlier post "The WTO Appellate Body Crisis - A Critique of the EU's Article 25 Proposal."  See <https://ielp.worldtradelaw.net/2019/06/the-wto-appellate-body-crisis-a-critique-of-the-eus-article-25-proposal.html>.

Thanks to Tom Miles for posting the Draft 5.16.19 document that the EU has circulated to the WTO for an Interim Appeal Arbitration Agreement based on DSU Article 25.

The draft agreement would be entered into bilaterally by the EU and another WTO member to agree to resort to arbitration under DSU Article 25 for appeals of final WTO panel reports in the event that the Appellate Body is not operational.  The appeal to the arbitral panel would be instead of Appellate Body review.  The EU paper contemplates using the Director-General (DG) to appoint three former Appellate Body members to hear the appeal and to use the Appellate Body Secretariat for administrative and legal support.  Such duties for the DG and the Appellate Body Secretariat are not contemplated in the DSU, but seem reasonable to me. 

Although the EU has shown creativity with its CETA Investment Court, I am less impressed with the idea of an ad hoc appellate tribunal composed of retired appellators. Using former Appellate Body judges is not the same thing as having an Appellate Body with collegiality to hand down decisions.  I am not aware of any precedent for replacing an appellate tribunal with ADR of retired judges.  I think this idea devalues the idea of an appellate jurisdiction.  I don't see why the second panel of three arbitrators should be viewed as more authoritative than the first panel.  I am not aware that the EU currently offers an ADR fast track to its European Court of Justice. I would not want to see the Appellate Body permanently replaced by ad hoc ADR, or for that matter an ad hoc judicial machine learning apparatus in the event that three retired Appellate Body members were not available.  

Elizabeth Warren's "Plan for Economic Patriotism"

Elizabeth Warren just released "A Plan For Economic Patriotism." Here's how it starts:

I come from a patriotic family. All three of my brothers joined the military. And I’m deeply grateful for the opportunities America has given me. But the giant “American” corporations who control our economy don’t seem to feel the same way. They certainly don’t act like it.

Sure, these companies wave the flag — but they have no loyalty or allegiance to America. Levi’s is an iconic American brand, but the company operates only 2% of its factories here. Dixon Ticonderoga — maker of the famous №2 pencil — has “moved almost all of its pencil production to Mexico and China.” And General Electric recently shut down an industrial engine factory in Wisconsin and shipped the jobs to Canada. The list goes on and on.

U-S-A! U-S-A!

Sorry, I got caught up in the patriotic fervor.

So will this nationalist, anti-corporate rhetoric pull any Trump/Sanders voters over to her? I'm skeptical that it will, but we'll see how it plays out. (Tucker Carlson liked it, which is telling, although ultimately he seemed to conclude that it was not enough to get him in the Warren camp).

And will No. 2 pencils be made in the good ol' US of A again? I'm skeptical of that too, but I think the SATs will survive this.

In terms of the substance, she put forward in this piece a number of proposals related to manufacturing, and it sounds like maybe some more specific trade proposals are coming. While Trump emphasizes that the foreigners are cheating us, Warren seems to look admiringly at the industrial policy of other countries and wants to copy it. I'll come back to that some other time. For now, I wanted to focus on an institutional point she made:

• Consolidating existing government programs that affect job creation into a new agency with the sole responsibility to create and defend quality, sustainable American jobs. The new Department — the Department of Economic Development — will replace the Commerce Department, subsume other agencies like the Small Business Administration and the Patent and Trademark Office, and include research and development programs, worker training programs, and export and trade authorities like the Office of the U.S. Trade Representative. The new Department will have a single goal: creating and defending good American jobs.

...

... there are some government agencies that undermine sustainable American jobs. For example, the Office of the United States Trade Representative — whose mission is to negotiate trade deals on behalf of America — is captured by the interests of corporate executives and lobbyists. Its actions across Administrations demonstrate a deep ideological opposition to anything that might put the interests of American workers above the interests of multinational corporations or Wall Street.

I don't doubt that the U.S. government is, to a great extent, captured by special interests -- corporate, labor union, various NGOs, lobbyists in general. But on what basis would someone say that USTR is more captured than others? And why would her Department of Economic Development be any different? If you are going to expand the role of government and have it spend more money, as she suggests in the piece, it's inevitable that the role of interest groups and lobbyists is going to increase. She spends a lot of the piece trying to sound anti-corporate, but I think that many big businesses are going to be pretty happy to have the federal government throwing more money around. This, for example, sounds like a special interest bonanza:

Our international competitors like China, Germany, and Japan develop concrete plans for promoting domestic industry and then make serious investments to achieve their goals. China’s Made in China 2025 plan aims to dominate advanced manufacturing in the coming decades using various incentives and “hundreds of billions of euros” in subsidies. Germany and Japan have also developed plans that identify long-term goals for domestic production and put real money behind achieving them.

This is a pretty straightforward idea. But outside of the defense context, the United States has nothing remotely like it.

Does Congress Care about Delegating More Power Over Trade to the Executive Branch Through the USMCA Sunset Clause?

Inside US Trade has a copy of the draft Statement of Administration Action for the USMCA here. One thing that jumped out at me was that there was no mention of the sunset clause, i.e., Article 34.7: Review and Term Extension. That provision states in part:

1. This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term, in accordance with the procedures set forth in paragraphs 2 through 6.

2. On the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a “joint review” of the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions. Each Party may provide recommendations for the Commission to take action at least one month before the Commission’s joint review meeting takes place.

3. As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and consider extension of this Agreement term no later than at the end of the next six- year period.

4. If, as part of a six-year review, a Party does not confirm its wish to extend the term of the Agreement for another 16-year period, the Commission shall meet to conduct a joint review every year for the remainder of the term of the Agreement. If one or more Parties did not confirm their desire to extend the Agreement for another 16-year term at the conclusion of a given joint review, at any time between the conclusion of that review and expiry of the Agreement, the Parties may automatically extend the term of the Agreement for another 16 years by confirming in writing, through their respective head of government, their wish to extend the Agreement for another 16-year period.

Under this provision, each "Party" (i.e., the governments of Canada, Mexico and the United States) can decide whether to continue the agreement. But the domestic process for such a decision is not set out. If Congress wants to make sure it has a role in that process, it needs to make this clear in the implementing legislation and the SAA now. Here's what I said about this last year:

... [Congress] better weigh in on how [the sunset clause] is supposed to operate in the U.S. political system. The agreement references "the Parties," but does not make clear who within each Party has the responsibility here. Paragraph 3 states that "each Party shall confirm, in writing, through its head of government," but that's just who notifies, as opposed to who decides the question. So which U.S. government branch gets to decide on whether the agreement should be extended as part of this review? What is the role of Congress here? Congress has ceded a lot of power to the President on trade over the years, and if it allows this provision to stay in, it better make sure that it has a full say on whether to confirm that the United States wishes to extend the new NAFTA deal as part of the review.

The U.S. and China Are Talking about What Went Wrong in the U.S.-China Trade Talks

China has now put out a White Paper on the "China-U.S. Economic and Trade Consultations." Bloomberg has the English translation here. This is one passage::

The US government accusation of Chinese backtracking is totally groundless. It is common practice for both sides to make new proposals for adjustments to the text and language in ongoing consultations. In the previous more than ten rounds of negotiations, the US administration kept changing its demands. It is reckless to accuse China of “backtracking” while the talks are still under way. Historical experience has proved that any attempt to force a deal through tactics such as smears, undermining and maximum pressure will only spoil the cooperative relationship. Historic opportunities will be missed.

And now here is a response from the U.S. government:

U.S. Trade Representative and the U.S. Department of Treasury today released the following statement in response to the “White Paper” issued by China on June 2, 2019

...

It is important to note that the impetus for the discussions was China’s long history of unfair trade practices.  Our negotiating positions have been consistent throughout these talks, and China back-pedaled on important elements of what the parties had agreed to.  One such position was the need for enforceability, a position necessitated by China’s history of making commitments that it fails to keep.  But our insistence on detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty.  Rather, the issues discussed are common to trade agreements and are necessary to address the systemic issues that have contributed to persistent and unsustainable trade deficits. 

There haven't been any substantive leaks here, so it's not at all clear to me what's really going on behind the scenes. Based on the above statement, though, maybe (although maybe not) we can get a vague sense of one aspect of it.

As I've written about before, the Trump administration seems to be pushing the idea of unilateral decisions about compliance with any U.S.-China trade agreement, and unilateral tariffs as a way to enforce the decisions about non-compliance. I'm not convinced that this approach would work as an enforcement tool, but the administration seems pretty attached to the idea. (If it were me, I would rely on neutral adjudication like that used at the WTO and in FTAs, because it works fairly well. But they are in charge and I'm not.)

I can imagine (but I'm not at all sure and I have no information on this) that the Trump trade folks proposed the unilateral enforcement idea to their Chinese counterparts, who perhaps seemed open to it and then brought it back to the leadership in Beijing. At this stage, maybe there was an assumption that the leadership would approve it. But the leadership rejected the idea, either because they objected to the general principle, or because they didn't like how it was being implemented in this instance.

Or maybe that's not what's going on here at all and I'm misreading this. Regardless of whether a deal is ever reached, I hope that some day we find out a bit more about what exactly was under discussion here related to enforcement and how the conversation about the proposals played out.

Kamala Harris on the Proposed Tariffs on Mexico

Here is presidential candidate Kamala Harris being interviewed by Telemundo’s Julio Vaqueiro, talking about Trump's proposed tariffs on Mexican imports to deal with immigration issues:

Vaqueiro: “President Trump just yesterday said that he is going put some tariffs on all Mexican imports, until Mexico stops illegal immigration from Central America. What’s your take on that?”

Harris: “I have a couple of thoughts. One is that this President continues to push forward what I call the Trump trade tax. This is about taxing American consumers. People are going to have to pay more for washing machines, pay more for clothing, pay more for shampoo. When we look at the trade policy he is conducting in terms of China, now with Mexico, it’s going to result in people here paying billions of dollars more a year for consumer products.”

“It is also about an ongoing policy by this administration and Trump to vilify immigrants and to not deal with the real issue, which is that we cannot continue to have policies that are about vilifying people and rejecting those who are fleeing harm. We are creating human rights abuses in a way that this is occurring and it has to stop.”

Vaqueiro: “So how would you describe this approach of using trade to reduce immigration?”

Harris: “I think it’s foolish. I think it’s foolish. And the reality of it is this: We have families who are fleeing the murder capitals of the world in Central America, traveling through the country of Mexico, often paying coyotes to do so. Facing unknown peril. When a mother puts her child in the hands of a stranger to transport them through another country with unknown peril—the only reason mothers are doing that is knowing that if the child stays where they are they face greater harm. But what is this president saying when they arrive here? He says, ‘Go back to where you came from’. (…)”

I suspect that many of the Democratic presidential candidates are agonizing over how to deal with trade issues. With Trump being such an economic nationalist, and polls showing Democratic voters being more pro-trade these days, there will be a temptation to move the party towards free trade. But at the same time, there is important labor union support up for grabs. It's difficult for some of the candidates to figure out how to manage that. These tariffs on Mexican imports were probably an easy call, but still, I thought it was interesting that Harris is using the term "Trump trade tax." It seems like perhaps she is positioning herself, on this issue at least, as the moderate-friendly alternative to Sanders and Warren.

The WTO Appellate Body Crisis: A Critique of the EU's Article 25 Proposal

Steve Charnovitz

2 June 2019

Recent reports indicate that the EU is proposing to use Article 25 of the WTO's Dispute Settlement Understanding (DSU) to provide a temporary solution to the ongoing crisis in the Appellate Body of not having enough appellators to adjudicate appeals and to render panel reports adoptable (see World Trade Online," EU Moving forward with WTO Appellate Body backup plan", 31 May 2019). Although I have not yet seen any EU paper, the urgency of the matter provides a good reason to begin an analysis of pros and cons of this backup plan.  

The crisis in the Appellate Body is that its judicial bench is now down to only three appellators and two of those terms will end in December 2019.  With fewer than three appellators, the Appellate Body will not be able to decide appeals.  Furthermore, under DSU Article 16.4, any panel decision under appeal is not eligible for automatic adoption until the "completion of the appeal." Thus, without the possibility of appeal, any defendant in a WTO case can block the adoption of a panel report merely by appealing "into the void".  Without adoptability of panel reports, the predictability and security provided by the DSU will disappear. 

The reason why four of the seven seats on the Appellate Body remain unfilled is that the WTO Dispute Settlement Body (DSB) has failed in its duty under DSU Article 17.2 to fill vacancies "as they arise."  The cause of this failure is that since 2017, the United States has been blocking the appointment process.  The blocking of appointments was not invented by the Trump Administration -- the prior art came in the blocking of an appellator reappointment by the Obama Administration -- but the Trump Administration perfected the heinous art through the more destructive goal of attacking the tribunal itself rather than just particular judges.  See Steve Charnovitz, "How American Rejectionism Undermines International Economic Law," Trade, Law and Development, Winter 2018.  

Beginning in 2017, the looming danger of a halt in the adoptability on WTO panel reports led to numerous proposals being offered to address this predicament. My own proposal, published in this blog on 3 November 2017, would have headed off the problem by having the Appellate Body change its rules so as to declare ex ante that whenever the Appellate Body bench fell below five judges, then for any appealed case, the "completion of the appeal" would occur on the same day that the appeal was filed.  Unfortunately, the Appellate Body did not adopt my solution for reasons that have not been publicly disclosed.  Ironically, at a time when the Appellate Body is regularly criticized for "activism," the failure of the Appellate Body to adopt a DSU defense measure is an example of its inactivism.  Given the procedural situation in 2017, only the Appellate Body had the power to clear the way for future panel report adoptions even in the worst-case scenario of the number of appellators falling to zero.  In my view, the Appellate Body had the last clear chance (and perhaps the duty) to enable the WTO to avoid the worst aspects of the current predicament.  To quote Professor Peter Van den Bossche in his recent address to the DSB, "History will not judge kindly those responsible for the collapse of the WTO dispute settlement system."

With the calendar advancing to June 2019, the EU proposal is to utilize DSU Article 25.  Under DSU Article 25, WTO governments can employ arbitration as an alternative to DSU Article 6 panels.  Such arbitration requires "mutual agreement of the parties" and DSU Article 25.3 states that parties "shall agree to abide by the arbitration award."  Should a party not abide by the award, Article 25.4 provides for enforcement through the regular techniques of compliance review by an appealable panel report and determination of any SCOO (i.e., a suspension of concessions or other obligations) through arbitration. 

As a solution to being able to achieve finality in WTO disputes, Article 25 arbitration does not offer any advantages over regular DSU panels.  The Article 25 approach works only if there is ex ante agreement of the litigants to use the parallel track. But if litigants can mutually agree to arbitration without appeal, then the same litigants could also mutually agree to enter into a procedural agreement not to appeal the Article 6 panel report and the Article 21 compliance panel report.  Staying within the normal panel process offers considerable advantages over ad hoc arbitration as there are already broadly accepted Working Procedures and thus no need to reinvent them for each arbitration.  Staying within the regular panel process also provides a proven path for adjudicating and enforcing compliance which is absent in Article 25. (While it is true that if governments abide by an arbitration award there would not be any need for enforcement, it is similarly true that if governments followed WTO rules, then would not be any need for dispute settlement.)

The only advantage offered by Article 25 is to employ it in a way that makes improvements on regular WTO dispute settlement.  Specifically, under Article 25, litigants could agree ex ante that the arbitrator may award monetary damages should violation of WTO rules be found and that the monetary award would be rendered in a manner so as to make it eligible for enforcement in domestic courts under the New York Convention (including its defenses).  The use of monetary awards and domestic enforceability is not available in DSU panels, and so experimenting with Article 25 in that way would provide value added.

At this point, the best path forward for WTO members that support the rule of law is to sign on to a Non-Appeal Pact (NAP) in advance so as to agree reciprocally not to appeal WTO panel reports during the ongoing crisis.  If most of the active DSU litigants were to sign this Pact, the ongoing crisis could be mitigated considerably for cooperating countries.  (Obviously this Pact cannot resuscitate the Appellate Body; even my own plan of 2017 recognized that there was no back door rescue for the Appellate Body itself.)

To give concreteness to this idea, here is language that has been suggested for such a NAP:

WTO Membership No-Appeal Pact (NAP)

Recognizing that as of 11 December 2019, the Appellate Body of the World Trade Organization (WTO) may no longer have the minimum required number of members to commence an appeal, and

Being desirous to maintain, even in such situation, rule-based WTO dispute settlement and the adoption of WTO dispute settlement reports by the WTO Dispute Settlement Body (DSB) pursuant to the rule of negative consensus as set out in Articles 16.4 and 17.14 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),  

We agree:

1. To refrain from appealing a panel report in a dispute where all of the other parties in the dispute are signatories to this No-Appeal Pact;
2. That this Pact will go into operation on the date that the number of Appellate Body members falls below three and will end on the date that the number of Appellate Body members rises above four; and
3. That this Pact is an informal understanding of representatives of the Members and does not alter the rights and obligations of the Members.

Signatories: