International Economic Law and Policy Blog

Non-Violation Claims Against National Security Measures

This is from the U.S. third party oral statement in the United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade Related Aspects of Intellectual Property Rights (DS526) dispute:

III. Negotiating History Of GATT 1994 Article XXI(b)

12. The negotiating history of these essential security provisions confirms that (1) essential security matters are within the judgment of the acting government, and (2) a non-violation, nullification or impairment claim – as opposed to a claimed breach of underlying obligations – is the appropriate redress for a Member affected by an essential security action. The United States also described these points in its written submission.¹⁴

14 See Third Party Submission of the United States in United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade-Related Aspects of Intellectual Property Rights (DS526), paras. 14 to 27; U.S. First Written Submission, United States – Certain Measures on Steel and Aluminum Products (India) (DS547), Section III.A.3 (Exhibit USA-1)

I didn't see the cited third party written submission on the USTR website, but the U.S. point is clear from the oral statement: The non-violation nullification or impairment remedy is the correct avenue for challenging measures for which "essential security" has been invoked.

But how effective would it be to bring such claims? Nicolas Lamp has been arguing that non-violation claims are the right strategy in these situations. However, in a blog comment on one of his posts, I questioned how enforceable non-violation claims are. If enforcement of such claims is weak, this option would be less appealing.

In a new paper, Nicolas has now laid out in detail his argument for the strong enforceability of successful non-violation claims, as follows (footnotes omitted):

1. Non-Violation Complaints Would Be Faster to Adjudicate

The major advantage of non-violation complaints over violation complaints is that they should be much faster to adjudicate. This advantage is particularly significant in the context of the trade wars, where WTO Members attach great importance to their ability to react to other Member’s measures without delay. Non-violation complaints have three time-saving features. First, while the panel has to examine the legality of the measure, that examination is bound to be less involved than would be the case if the issue was contested between the parties. Second, the non-confrontational nature of a non-violation complaint means that appeals might be avoided altogether – an advantage whose significance will be magnified once appeals become the functional equivalent of vetoes in December 2019. And third, a non-violation claim would allow the complainant to skip several procedural steps in order to receive an authorization to rebalance. Specifically, a successful non-violation claim would proceed as follows:

Panel Proceedings

A panel would determine that the case concerns a measure that does not violate the GATT 1994 (because it is saved by the security exception), but that nevertheless nullifies or impairs benefits accruing to other WTO Members under the GATT 1994. As a result, the panel would recommend that the responding Member make a “mutually satisfactory adjustment”.

Art. 21.3(c) Arbitration on Reasonable Period of Time and Level of Nullification or Impairment

Once the panel report is adopted by the DSB, the parties can agree on a “reasonable period of time” for the responding Member to implement that recommendation. If the parties disagree about the time required to make the adjustment, any party can resort to arbitration under DSU Art. 21.3(c). For non-violation complaints, the Art. 21.3(c) arbitrator can also be asked by either party to make a “determination of the level of benefits which have been nullified or impaired”.  In violation cases, such a determination is usually only made in an Art. 22.6 arbitration after the conclusion of compliance proceedings under Art. 21.5. Once the parties know the amount of nullification or impairment of benefits – either because they have reached agreement or as a result of the Art. 21.3(c) arbitration – three scenarios are possible:

“Mutually Satisfactory Adjustment”

 The responding Member implements the DSB’s recommendation by offering compensation that the respondent accepts as a “mutually satisfactory adjustment”. Presumably, the complainant will only be satisfied by compensatory market access opportunities that are equivalent to the amount of nullification or impairment.

Art. 21.5 Proceedings on Existence of “Mutually Satisfactory Adjustment”

If the respondent offers compensation, but the parties disagree on whether this compensation is “mutually satisfactory”, they could resort to Art. 21.5 proceedings and ask a panel to rule on the “existence” of a “mutually satisfactory adjustment” (which would be a measure “taken to comply” with the DSB’s rulings and recommendations within the meaning of Art. 21.5). Presumably, the panel would simply compare the amount of compensation offered by the respondent to the amount of nullification or impairment to determine whether the compensation is “mutually satisfactory”, which would make these proceedings much quicker than compliance proceedings in a violation dispute.

Rebalancing under Art. 22

 If the respondent has offered no compensation or the compliance panel has found that the compensation on offer does not constitute a “mutually satisfactory adjustment”, the complainant can request authorization to suspend concessions in the amount of the nullification or impairment under DSU Art. 22, on the ground that the respondent has failed to “otherwise comply with the recommendations and rulings” of the DSB.  In a violation proceeding, the respondent could object both to the level and form of the proposed retaliation and resort to arbitration under Art. 22.6 regarding these matters; in a non-violation case, the level of nullification or impairment, which is “equivalent” to the level of retaliation, has already been authoritatively determined by the Art. 21.3(c) arbitrator. As a result, a potential Art. 22.6 arbitration would be much more limited in scope and only concern the form of retaliation.

The rules governing the form of retaliation are the same in violation and non-violation proceedings. The language of these rules – the complainant first has to seek to suspend concessions in sectors in which panels or the Appellate Body have found “a violation or other nullification or impairment”  – demonstrates conclusively that the drafters of the DSU intended the rebalancing procedures in Art. 22 to apply to both violation and non-violation complaints.

The application of Art. 22 to non-violation claims is further confirmed by the rules governing the termination of retaliation in Art. 22.8. These rules stipulate that concessions shall only be suspended until WTO-inconsistent measures have been removed, “or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached”. This language further suggests that a respondent in a non-violation proceeding is not dependent on the whims of the complainant in proposing a “mutually satisfactory” solution: if the respondent offers compensation at the level of nullification or impairment, such compensation would presumably constitute “a solution to the nullification or impairment of benefits” within the meaning of Art. 22.8 and hence oblige the complainant to terminate the retaliation, even if it does not regard the solution as “mutually satisfactory”.

I confess that this is a stronger argument than I was anticipating, and perhaps my long-held conception of the non-violation remedy as a weak one may not be as well established as I thought. Nevertheless, I think I see a couple flaws in Nicolas' argument. I'll explain them here, and I'm curious what others think of all this, because I don't recall much public discussion of this point. The key issue is, if you win a non-violation claim, can you suspend concessions under Article 22 if the nullification or impairment is not remedied?

First off, let me set out the relevant DSU provisions. Here are Article 19.1, Article 21.5 and Articles 22.1, 22.2, and 22.8, which together show how enforcement works for violation complaints:

Article 19.1:

Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement.  In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations.

Article 21.5:

Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it. When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report.

Article 22: Compensation and the Suspension of Concessions

1. Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within a reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements.

2. If the Member concerned fails to bring the measure found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter into negotiations with any party having invoked the dispute settlement procedures, with a view to developing mutually acceptable compensation. If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.

...

8. The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. In accordance with paragraph 6 of Article 21, the DSB shall continue to keep under surveillance the implementation of adopted recommendations or rulings, including those cases where compensation has been provided or concessions or other obligations have been suspended but the recommendations to bring a measure into conformity with the covered agreements have not been implemented.

Under these provisions, when there is a violation complaint, the panel/Appellate Body will recommend that the Member "bring the measure into conformity" pursuant to Article 19.1. Subsequently, Article 21.5 can be used to review whether this has occurred, and Article 22 can be used for compensation or suspension if conformity has not been achieved.

For non-violation complaints, there is a special provision, DSU Article 26.1, governing implementation. This provision states that the procedures of the DSU apply "subject to the following" in four sub-paragraphs of DSU Article 26.1:

1.Non-Violation Complaints of the Type Described in Paragraph 1(b) of Article XXIII of GATT 1994

Where the provisions of paragraph 1(b) of Article XXIII of GATT 1994 are applicable to a covered agreement, a panel or the Appellate Body may only make rulings and recommendations where a party to the dispute considers that any benefit accruing to it directly or indirectly under the relevant covered agreement is being nullified or impaired or the attainment of any objective of that Agreement is being impeded as a result of the application by a Member of any measure, whether or not it conflicts with the provisions of that Agreement. Where and to the extent that such party considers and a panel or the Appellate Body determines that a case concerns a measure that does not conflict with the provisions of a covered agreement to which the provisions of paragraph 1(b) of Article XXIII of GATT 1994 are applicable, the procedures in this Understanding shall apply, subject to the following:

(a) the complaining party shall present a detailed justification in support of any complaint relating to a measure which does not conflict with the relevant covered agreement;

(b) where a measure has been found to nullify or impair benefits under, or impede the attainment of objectives, of the relevant covered agreement without violation thereof, there is no obligation to withdraw the measure. However, in such cases, the panel or the Appellate Body shall recommend that the Member concerned make a mutually satisfactory adjustment;

(c) notwithstanding the provisions of Article 21, the arbitration provided for in paragraph 3 of Article 21, upon request of either party, may include a determination of the level of benefits which have been nullified or impaired, and may also suggest ways and means of reaching a mutually satisfactory adjustment; such suggestions shall not be binding upon the parties to the dispute;

(d) notwithstanding the provisions of paragraph 1 of Article 22, compensation may be part of a mutually satisfactory adjustment as final settlement of the dispute.

It's clear that Article 26.1 establishes a different process for how successful non-violation claims are to be enforced, as compared to how successful violation claims are enforced. My view has always been that Article 26.1(b) is the exclusive process governing enforcement of non-violation claims, with no Article 22 suspension available, and thus the remedy for non-violation claims is weak. What I hadn't anticipated was Nicolas' idea of tying the recommendation under DSU Article 26.1(b) to the ability to request an Article 21.5 panel and to then go to Article 22.2. (Maybe others have suggested this as well, but I don't recall it.) That makes his case stronger than I thought. However, I'm still not sure you can get an effective remedy with a non-violation claim. Here's how I see things.

In a violation complaint, by invoking Articles 21 and 22, a complaining party can get to a negotiation over "mutually acceptable compensation." If that compensation cannot be agreed, however, retaliation is permitted.

But for non-violation complaints, DSU Article 26.1 has a special set of rules on these issues, which are designed to take precedence over Articles 21 and 22. For a non-violation claim, then, it's not as simple as just going to Article 21 and then Article 22. When you take into account fully Article 26.1, Article 21 and Article 22 are not available for non-violation claims.

The most important provision in this regard is Article 26.1(b), which says that "the panel or the Appellate Body shall recommend that the Member concerned make a mutually satisfactory adjustment." Thus, instead of the mutually acceptable compensation set out in Article 22.2, Article 26.1 has its own version of this same idea. Specifically, it gives the responding party the responsibility to work towards a "mutually satisfactory adjustment." This term sounds similar to mutually acceptable compensation, but is broader, and under Article 26.1(b) includes compensation as one possibility.  

In essence, you do not go to Articles 21 and 22 for non-violation matters, because Article 26.1 sets out its own process for adjustment, including compensation. Article 26.1 incorporates and modifies elements of Articles 21 and 22, and the result is a separate process for implementation of successful non-violation complaints. Thus, rather than the DSU referring non-violation cases to Articles 21 and 22 for implementation, the special rules of Article 26.1 themselves govern any parts of the implementation process that they address.

For example, with a violation complaint, after proposing suspension under DSU Article 22.2, the level of nullification or impairment is determined by an arbitrator under Article 22.6 as part of the process of examining whether the level of suspension is equivalent to the level of nullification or impairment. By contrast, with a non-violation complaint, the level of benefits that have been nullified or impaired may be determined as part of the Article 21.3(c) arbitration process. Providing this option in Article 21.3(c) is consistent with the idea that Article 22 is not available for non-violation complaints.

Taking all of this into account, in my view, an Article 26.1(b) recommendation in a non-violation complaint cannot be enforced through the same process by which a violation complaint is enforced. The drafters established the Article 26.1(b) recommendation as an alternative to the Article 19.1/21.5/22 sequential process. Each process has its own logic and structure. For violation complaints, a recommendation to bring a measure into conformity is followed by review of any compliance measure under Article 21.5, and compensation/suspension if the measure is not brought into conformity. By contrast, for non-violation complaints, there is a recommendation to negotiate, and some non-binding suggestions for how to do so. But there is no possibility of utilizing the violation complaint procedures, which, as Article 22.1 makes clear, address "a recommendation to bring a measure into conformity with the covered agreements."

Let me make two additional points. First, Article 22.8 talks about a "solution to the nullification or impairment of benefits," which could be seen as referring to a non-violation claim. However, note that nullification or impairment generally exists in the case of violation claims (by presumption under Article 3.8), and given the other context, the reference in Article 22.8 appears to be about addressing the nullification or impairment without removing the measure. For comparison, Article 26.1(b) refers to nullification or impairment of benefits "without violation thereof."

And finally, it seems to me that the approach set out by Nicolas is unworkable because of the nature of the recommendation demanded by Article 26.1(b).  A requirement that the responding party put forward a "mutually satisfactory adjustment," rather than just a good faith offer, in response to the panel/Appellate Body recommendation is fundamentally impossible due to the nature of the obligation. For something to be "mutually satisfactory," there must be a negotiation between more than one party, and thus the responding party cannot satisfy the requirement on its own. It does not have control over the outcome, and thus cannot be held responsible for failure. The complaining party would effectively have a veto on the compensation being offered, as it can turn down any offer. It is not appropriate to give the complaining party such a degree of power over this process, through which it could use the threat of retaliation to extract a particular kind of compensation while rejecting suitable alternative compensation.

Guest Post: US Narrative on Trade Unilateralism: Insights from DS543

This is a guest post from Akhil Raina* & Mattijs Kempynck**

Introduction

Readers of this blog are all too aware of the many ways in which the United States (US) is rocking the multilateral trade boat: the Appellate Body (AB) is in crisis;  there’s an ongoing “trade war” with China; and the US supports[1] a dangerously broad interpretation of the ‘national security’ exception under GATT Art. XXI. In this post, we cull out an underlying theme in these actions – that of unilateralism. As the word itself should make it clear, unilateralism is the antithesis of the multilateral system established under the WTO.

Here, we analyse the US narrative as found in its first written submission (FWS) in the case of DS543, officially titled United States — Tariff Measures on Certain Goods from China. “Narrative” seems to have become a bit of a trade catch-phrase, especially after Nicolas Lamp’s work that explained three broad narratives when it came to understanding, or viewing, international trade.[2] In a somewhat similar fashion, we aim to observe the US’s stand on trade (disputes, negotiations etc.) as it can be discerned from its submissions. This is particularly relevant today, given that the US is giving off mixed signals regarding its engagement with the WTO dispute settlement system (DSS): while it continues to chokehold the AB, it also institutes (and defends itself in) new WTO cases.

DS543 was brought by China against recent tariff escalations initiated by the US, and is particularly interesting given the (for lack of a better word) innovative arguments put forward by the US in its defence. We will focus on two questions: what is the “matter” in a WTO dispute, and, following from this, what is (or can be) a “solution” to said dispute? The consequences, as we will explain, of the US narrative are significant – for China, for the rest of the Membership, and for the WTO DSS.

For background: in July and September 2018, without first approaching the WTO, the US levied additional duties on certain Chinese products, after conducting a Section 301 investigation and determining that Chinese intellectual property (IP) policies were harming US interests. In response, China requested for a WTO panel in December 2018 [3], and also retaliated to the tariff increase in kind. And aside from Prof. Julia Qin (who called the US FWS an “eye opening read”)[4] and Prof. Marc Bush (who called it a “really, really, really problematic case” that “needs to go away”)[5], not a lot of attention has been paid to the dispute.

Why is the dispute or the US FWS so special? Well, for one, the US’s key argument is as follows:

“By taking actions in their own sovereign interests, both parties have recognized that this matter does not involve the WTO and have settled the matter themselves. Accordingly, there is in fact no live dispute involving WTO rights and obligations. Therefore, in light of each party’s action settling the matter, the report of the Panel should “be confined” to a brief description reporting that the parties have reached their own resolution, as provided for in Article 12.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).”[6]

For clarity, DSU Art. 12.7 – in its last sentence – states: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.'' We will come to the meaning of “settlement/solution” in just a bit, but to be sure, what the US views as these “actions taken in sovereign interests” is clear from para 9 of its FWS:

“Fundamentally, both the United States and China have recognized that this matter is not a WTO issue: China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the United States has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies; and China has chosen to respond – not by addressing the legitimate concerns of the United States – but by adopting its own tariff measures in an attempt to pressure the United States to abandon its concerns, and thus in an effort to maintain its unfair policies indefinitely.”[7]

The US further provides that the two parties are “attempting to resolve these matters in inter-governmental, bilateral discussions at the highest levels.”[8] Fair enough: the US is entitled, as every other Member, to forward a particular legal point of view. And in order to see if this view is WTO-compatible – or even logical – we must break down the US’s understanding of “matter” and “solution”.

What’s the “matter”?

The subject-matter of a dispute determines many things. Primary out of these is the forum for adjudication. In the WTO system, a Member can approach the DSS if it seeks “the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements…”[9] Further (and importantly), the Members are required not to make a unilateral determination to the effect that such “violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding…”[10] (emphasis added). In other words, Members are required to submit their WTO disputes to the WTO DSS.

But the US, as clear from the excerpts above, does not consider DS543 to be a WTO dispute. Why? Because it claims that the “matter” of the dispute is not covered by WTO disciplines. In its words, DS543 is “a bilateral dispute between the United States and China concerning key economic issues not covered by existing WTO rules. In short, this dispute is fundamentally not about WTO rights and obligations.”[11] (emphasis original) In the US’s view: 

“A broader sense of the term “matter” would encompass the full situation: China’s aggressive industrial policies; China’s adoption of a range of unfair policies and practices aimed at stealing, coercing or otherwise unfairly acquiring key technologies of its trading partners; China’s unwillingness to address these legitimate concerns; and China’s unilateral retaliation on U.S. exports as a means to attempt to maintain its unfair policies in the face of U.S. efforts to address these longstanding problems...”[12]

Now, there are two main problems with this view-point.

First, according to WTO jurisprudence, the “matter” of a dispute comprises of the ‘measure at issue’, plus, the claims made by the complainant in support of a finding of violation/nullification of benefits. This specific view of “matter” runs contrary to the US's understanding of what the matter should be, and this view has been consistently upheld by the AB, from the 1998 ruling in Guatemala Cement – I (paras 70 – 73), to the very recent 2019 ruling in Ukraine – Ammonium Nitrate (para 7.15).[13] And this makes sense, since it is the complainant’s request for panel establishment that determines the ‘scope’ of the dispute.[14] So, it is actually China’s request for consultations – and more specifically, its claims of violations of GATT Arts. I and III (both wings of the non-discrimination principle) in its request for a panel – that determine whether the dispute is capable of resolution by the WTO or not. And on this point it bears note that nowhere in its FWS does the US contend that it did not act contrary to these provisions.

Second, as pointed out by the EU in its third party submission (TPS, para 17) - what the US is doing amounts to linking complaints and counter-complaints: something that is specifically prohibited by DSU Art. 3.10. What does this mean? Take the Mexico – Softdrinks case as an illustrative example. There, the jurisdiction of the WTO panel was sought to be avoided by invocation of the fact that a similar dispute was ongoing before a NAFTA panel. While the AB in that case stated that there may be instances where a panel’s jurisdiction could be voided on grounds of the existence of a “legal impediment” (the meaning of which it decided not to comment on),[15] the NAFTA dispute was in fact “distinct” (claims were not identical), and thus the WTO panel’s jurisdiction could not be avoided. In much the same way, simply because the US has reservations about Chinese actions, it cannot use that as a basis to prevent WTO adjudication of a distinct case brought by China. It is, of course, entitled to bring its own case against China for these improper actions (which it did with regards to technology licensing measures, in DS542). In this sense, the WTO panel’s jurisdiction is “compulsory and quasi-automatic”.[16] And as a last remark, keeping in mind that Art. 3.10 is also the cornerstone of good-faith in dispute settlement, the US’s behaviour might be at odds with the panel rulings stating that the provision disallows “inappropriate legal manoeuvers to avoid dispute settlement”.[17]

What’s the “solution”?

The other interesting issue that this situation produces is: what can be considered a “solution” under the DSU? It is well known (and well paraded by some) that even the DSU gives primacy to negotiated settlements to litigation. This is, to some extent, true: most WTO law aficionados are aware of the “clearly preferred” wording in DSU Art. 3.7. But what does the DSU actually say? Does it say what the US is implicitly arguing it does? Once again, to revisit the US positions – it claims that the dispute has been settled between the US and China,[18] and that “what is settled between the parties is that both parties have determined to act in accordance with their own sovereign interests, and that this matter does not involve any live issues regarding the interpretation and application of the WTO Agreement”.[19] 

First, these negotiated solutions have to be “mutually acceptable to the parties”.[20] Hence the phrase “mutually acceptable solutions” (MAS). There is no evidence that China subscribes to the US’s understanding of what a solution is, or that, in fact, the two parties have found such a “solution”.

Second, what can such a “solution” be, anyway? In order to avoid confusion it is useful to point out that the terms “solution”, “mutually agreed (or satisfactory) solution”, “settlement” or “resolution”^[21] are used fairly synonymously in the DSU:  for example Art. 12.7 says: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached”. (emphasis added)^[22] That being said, if one would want to categorize, the word “solution” should be used when the underlying trade barrier itself is resolved in a multilateral, erga omnes fashion, whereas the word settlement points more towards a bilateral, inter partes resolution of the dispute.^[23] Alternatively, one could understand “solution” to be the permanent state of legal peace, whereas a “settlement” would be a temporary ceasefire en route to final resolution. In any case, for the dispute at hand, it seems hardly reasonable to state that an ongoing tariff war (slated to, come holiday season in December, be elevated to non-tariff retaliation) can be understood as either a “settlement” or a “solution”.

Finally, and more systemically speaking, any such MAS has to be “consistent with [WTO] agreements and [shall] not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements”.[24] It need not be stated that a trade/tariff war is incompatible with this requirement. As such, the propensity of such MAS resulting in a WTO-minus result is well known: the aforementioned US – Upland Cotton is a glaring example. But this goes mostly unaddressed. Could more law be the solution? Could the Membership challenge such a WTO-minus solution in the WTO DSS to ensure compliance with WTO law? One of the main obstacles for such a challenge would be the definition of a measure at issue (“MAI”) under WTO law. The AB’s take in US-Corrosion Resistant Steel Sunset Review, namely that “in principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings” [25], gives us food for thought: could a MAS, as such, be attributable to a WTO Member, or does the mentioning of “a” WTO Member in the AB definition of an MAI precisely imply that bilateral acts as a MAS fall outside its scope? If the latter is true, would the domestic (US/Chinese) acts implementing the MAS fit within the definition of a MAI? Could the US and China be impleaded as “joint respondents” in the DSS? Would such a tactic allow a challenge of the MAS as such, or would tackling the domestic implementing acts still be only the way to go? [26] These are all relevant and important questions for the WTO Membership, as well as academia, to consider. Given space constraints, we will explore these further in a follow-up post soon. 

Consequences and conclusion

In conclusion, we would like to draw attention to geopolitics, and the other big player in this dispute – the EU – a player that is no stranger to unilateralism. The outcome of DS543, as pointed by Prof. Busch, is particularly relevant at a time when the incoming EU trade commissioner, Phil Hogan, is told by president-elect Ursula von der Leyen to “upgrad[e] the EU’s Enforcement Regulation to allow [them] to use sanctions when others adopt illegal measures and simultaneously block the WTO dispute settlement process” and to “gear up” for retaliation against the US (especially after the recent Boeing/Airbus retaliation rulings by the WTO).[27] Now while the EU is currently making more sense than the US, its own position on unilateralism was visible in the EC – Commercial Vessels case where it creatively argued in favour of working around the WTO DSS in certain cases. Thus the EU’s stand against the US has a bit of a “glass houses” problem. Further, this dispute will be closely watched by other countries, who may use the precedent as a ‘DIY-unilateralism’ guidebook. This is particularly problematic when the DSS is anyway reeling from an onslaught of ‘national security’ cases. Thus, an unwise decision by the WTO judiciary (or a failure to settle this dispute by the US) can lead to an arm’s race to the bottom, eventually leading to a 1930s kind of situation where retaliation and counter-retaliation become the new normal and the global economy plunges down the sink. In the words of Prof. Busch: “DSU Art. 23 is precious, and the global economy is fragile”.

Overall, the message emanating from the US FWS is that some issues are only going to be resolved through bilateral negotiation rather than multilateral adjudication. This is not a question of degree of effectiveness for the US: it seems that in its view certain issues cannot be resolved through adjudication. And while innovative unilateralism is being countered, to some extent, by innovative multilateral solutions (EU-Canada and EU –Norway interim AB solutions), the US FWS in DS 543 – as contrary to law and logic as it may be – is in line with what seems to be the US’s general position on trade dispute resolution: a desire to move backwards in time, to the GATT-era, where power politics, and not the law, determined who won, who lost, and to whom belonged the spoils of (trade) war.

***

* Marie S. Curie Fellow and PhD Candidate at the Leuven Centre for Global Governance Studies (GGS), KU Leuven. The author is a part of the Horizon 2020 ETN project, ‘Global India’.

** Blue Book Trainee, DG Trade, European Commission; LL.B. LL.M (KU Leuven). The views expressed are those of the author and do not reflect an official position of the European Commission.

[1] See, for example, US submissions in DS564: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS564%29.fin.%28public%29.pdf; DS556: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS556%29.fin.%28public%29.pdf etc.

[2] Nicolas Lamp, How Should We Think about the Winners and Losers from Globalization? Three Narratives and Their Implications for the Redesign of International Economic Agreements, Queen’s University Legal Research Paper No. 2018-102: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3290590.

[3] Request for the Establishment of a Panel by China, United States - Tariff Measures on Certain Goods from China, WT/DS543/7, 7 December 2018.

[4] https://ielp.worldtradelaw.net/2019/09/us-china-tariff-war-a-lesson-about-wto-law.html

[5] https://soundcloud.com/user-885686084/ep-29-unilateralism

[6] US FWS, para 10.

[7] US FWS, para 9.

[8] US FWS para 60.

[9] DSU Art. 23.1.

[10] DSU Art. 23.2 (a).

[11] US FWS, para 3.

[12] USFWS para 45; in the preceding para the US specifically rejects a more “narrow” view.

[13] See also panel report in Korea – Pneumatic Valves, para 7.19.

[14] See AB reports in Argentina – Import Measures, para 5.11, US – Carbon Steel, para 124, and US – Countervailing Measures (China), para 4.6.

[15] AB report, Mexico – Softdrinks, para 54. See also, panel report, Mexico – Softdrinks, paras 7.15 and 8.232.

[16] Gabrielle Marceau, The Primacy of the WTO Dispute Settlement System, Questions of International Law (2015).

[17] See panel reports in US – Upland Cotton (para 7.67) and EC – Fastners (China) (footnote 205).

[18] US FWS para 6.

[19] US FWS para 61.

[20] DSU Art. 3.7.

^[21] Ibid., §10.

^[22] See e.g. the text of Art. 12.7 DSU: Where a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.

^[23] This matter is rooted in the broader question surrounding the underlying purpose of WTO dispute settlement, in the words of John H. Jackson: ‘“what should be the fundamental objective of the [multilateral trading] system – to solve the instant dispute (by conciliation, obfuscation, power-threats, or otherwise), or to promote certain longer term systemic goals such as predictability and stability of interpretations of treaty text?” (John H. Jackson “Dispute Settlement and the WTO: Emerging Problems”, JIEL 1998, 331).

[24] DSU Art. 3.5.

[25] Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, §81.

[26] For further inspiration on how the US or China might defend themselves against a challenge of the MAS as such, see Turkey’s (in those circumstances unsuccessful) arguments in the Turkey-Textiles case, where it claimed Turkey and EC they could not be held individually accountable for acts collectively taken (Panel Report, Turkey-Textiles, §9.33).

[27] Mission letter from Ms. Van Der Leyen to Mr. Hogan, page 5, https://ec.europa.eu/commission/sites/beta-political/files/mission-letter-phil-hogan-2019_en.pdf

 

What Kinds of Measures Should Trade Agreements Target?

A group of scholars (including Rob Howse of this blog) has a new proposal for how to manage U.S.-China trade relations better. I may comment on the broader proposal at some point (and Rob may blog about it himself), but in the meantime, as I sometimes like to do, I'm going to pick out an obscure issue from the proposal and talk about it a bit. 

The proposal divides up the domestic policies governments might address through trade agreements into four "buckets." The first two buckets are most relevant to my point, so I'll just quote those:

In today's interdependent global economy, a broad assortment of divergent domestic policies (including policies that have not historically been regulated through WTO rules) can trigger calls to "rebalance" the structure of cross-border market access and trade barriers between countries. One approach to "rebalancing" is to escalate pressures for convergence. Our alternative to this approach is to assume that divergence will not necessarily disappear in the near future. We propose a framework that builds on that assumption and promotes, to the greatest extent possible, the benefits of international trade.

To operationalize our approach, we distinguish four categories ("Buckets") of policies.

Bucket 1 (The "Prohibited" Bucket): In this Bucket, Country A's actions or policies are likely to create significant distortions in global markets and can be presumed to entail global economic losses. It is appropriate that international norms prohibit actions or policies in this Bucket. "Beggar thy neighbor" policies¹ are canonical examples that fall under this Bucket. For example, country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness. Or country A may engage in discriminatory data policies that promote predatory pricing or rent extraction by national digital companies on foreign markets.

¹ Beggar-thy-neighbor policies are defined as ''policies that seek to increase domestic economic welfare at the expense of other countries' welfare" (Princeton Encyclopedia of the World Economy, emphasis added). Unlike other domestic policies that may entail negative repercussions across the border, they create domestic gains only to the extent that other nations lose. Further, they are globally negative-sum, because they create market inefficiencies (e.g., non-competitive conduct). Our proposed Bucket 1 would contain policies that are adopted with this express beggar-thy-neighbor purpose in mind. Our proposed Bucket 2 would contain policies that may have beggar-thy-neighbor effects but where those effects are not the first-order motivation for the policy

Bucket 2 (The "Bilateral Discussions and Adjustments" Bucket): In this Bucket, Country A's policies cause harm to country B without necessarily taking on a beggar-thy-neighbor character or entailing global economic losses. We put in this Bucket those policies for which a mutually beneficial bargain can be worked out between the two nations that entails the removal of the policies in question. This will typically occur when Country B's perceived losses from the policy exceed the perceived gains to Country A from sticking with the policies. For example, Country A may engage in industrial policies that Country B's producers consider unfair and harmful; Country B may prevail on Country A to remove or scale back these policies by offering an alternative economic benefit (e.g., a reduction of Country B's countervailing tariffs).

I'm particularly interested in one of the explanations they give of a "Beggar-thy-neighbor" policy: "country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness." If I understand correctly what they are saying, this explanation reflects the "protectionism" vs. "terms of trade manipulation" debate that I've blogged about before.

What I'm trying to sort out is what exactly they have in mind with this explanation, in particular what kinds of measures would be covered. For instance, the United States famously has a truck tariff of 25%. My question is, in the view of the authors, was that tariff imposed "with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness"? I wouldn't have thought so. Instead, I would have thought the purpose was to give U.S. producers an advantage over foreign competitors in the U.S. market, and therefore achieve oligopoly profits in that market, with little thought given to any impact on world markets. But do the authors think the "express purpose" was to "reap[] monopoly pricing gains on world markets undermining other countries' competitiveness"? If so, what is the basis for that conclusion? And if the truck tariff is not an example of a measure imposed with this purpose, what is a real world example of such a measure?

UNCITRAL and ISDS Reform: Visualising a Flexible Framework

By Anthea Roberts and Taylor St John

In UNCITRAL, states have broken through the impasse of the incrementalist and systemic reformer camps. They have all agreed that they want to pursue systemic reform, but they have different ideas about what that entails and what to prioritise. In broad terms, agreement seems to be coalescing around three main blocks of reforms: updating some of the procedural rules; enacting some sort of optional structural changes for dispute settlement; and creating a mechanism to support developing states with handling their treaties and disputes. Not every state is supportive of every proposal, but most seem open to pursuing all three in a (somewhat) simultaneous fashion.

That leaves an important question, which is starting to bubble up on the side lines of the negotiations: how might these different reforms fit together? Instead of treating the proposals as oppositional, could a flexible framework be developed that would allow multiple reforms to be developed over time in order to create a more holistic approach? What would this look like? What are the component parts or building blocks and how might they fit together?

In this blog series, we typically provide analytical frameworks for (1) understanding how the process is unfolding, including the politics of different camps and the sociology of different actors, and (2) predicting how the process is likely to evolve. In this blog, we are doing something a bit different. We are taking concerns that states have identified in the process and sketching a framework for understanding how they might be brought together. The framework we present below is not simply a descriptive synthesis of the discussions to date, but rather a way to look at the various options raised in their entirety — including how they overlap and relate to one another.

We are not predicting that this is what states will do; that is a choice for the states. However, like the state delegations, we have been searching for a conceptual framework to guide our thinking and sometimes a picture tells a thousand words. So, here are our initial thoughts on how to visualise a flexible framework for ISDS reform and how these more centralised reforms might operate within the wider more decentralised field. We welcome feedback from all actors on this conceptualisation and are open to revising and refining it.

1. Framework

We start with the observation by Chile, Israel, Japan, Mexico and Peru that the Working Group should develop a suite of reforms while giving states ‘maximum flexibility’ to allow states to ‘choose and adopt the best solution based on their specific needs and interests.’ However, while they focus on procedural reforms, we expand their suggestion to create a flexible framework into which all the types of reform under discussion can be docked and developed in a separate but integrated fashion. The Working Group has repeatedly stressed that states should be given the choice about what options they ultimately select. Therefore, choice or flexibility is fundamental: here we present an overall framework with the idea that individual states can pick and mix individual reforms.

This framework could be created in several different ways. In Vienna, states typically referenced two models: the Mauritius Convention and the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing (MLI). The Mauritius Convention was seen as a model for structural reforms, like establishing a standing mechanism, as early as 2016 in this CIDS working paper and is familiar to many officials working on investment. The MLI model is less familiar, but increasingly generating attention as a feasible way forward. Although both models are mentioned positively in the submissions of Chile, Israel, and Japan; Colombia; Ecuador; the European Union; and recent academic work, here we draw on Colombia’s submission, which explains the MLI and how it could apply in investment.

As Colombia notes, the novelty of the MLI is the flexibility it grants to parties. It allows each party to specify the tax treaties to which the Convention will apply. When two parties specify a mutual treaty, a ‘match’ occurs, and a new layer of rules then applies to that treaty. In this regard, the MLI is similar to the Mauritius Convention. The MLI has an additional feature that may prove useful: it enables states to opt-in block-by-block or piece-by-piece, rather than signing or not signing the entire Convention. This feature means that there can be matches between and within particular blocks of rules. If two states sign onto the framework and both opt for updating the procedural rules while only one accepts structural reforms, only the former would apply between them. Within the block of procedural reforms, if both end up accepting the code of conduct, but only one opts for a limitation on damages, only the former would apply to arbitrations under their treaties.

There could even be sub-matches: for instance, some states may choose strict regulation of third-party funding while other states choose disclosure only. In these topics, states may wish to define minimum standards or obligations, another feature of the MLI model. Minimum standards could provide useful additional flexibility for states on topics where their preferred reform options vary, but it is possible to agree on a common baseline.

2. Forum

We have placed a forum at the centre of the framework for a reason. As a radically decentralised system, states have never had a common hub in which they come together and talk about the system as a whole – what is working and what is not, what reforms should be considered, what negotiations might need to happen next, and what interpretive declarations should be adopted. Yet, as noted in our last blog, states waking up to the importance of a shared forum may be the most important thing that is happening in Working Group III and it is likely to have lasting effects. The importance of this sort of communing-and-sharing is being recognised in the context of discussions on an advisory centre, for instance, but it goes well beyond that.

Through the UNCITRAL process, states are growing accustomed to regular meetings at a centralised hub, which enables plenary discussions and side conversations that prompt them to focus on their roles as the principals of the system and how they might exert better oversight, both collectively and individually, over their treaties and obligations. In other words, we see these conversations as a step toward more action, inside and outside of UNCITRAL; there seems to be energy to keep meeting, to keep learning, and to keep reforming and we doubt that states will turn the tap off on this anytime soon. This energy from the UNCITRAL process is why we have put a permanent hub for deliberation or negotiation at the centre of the framework.

The UN Framework Convention on Climate Change might provide a good model. The UNFCCC is an umbrella, framework agreement that enjoys broad legitimacy because of its near universal membership (197 parties) and it creates a docking station for developing more specific agreements with more limited membership. The parties meet annually as a Conference of Parties to assess progress in dealing with climate change and can respond to new challenges as they arise. The meetings of the Conference of Parties have then become the staging ground for negotiating other reforms, like the Kyoto Protocol. The Meetings of the Parties of the Kyoto Protocol also meet during the Framework Conferences. Parties to the Convention that are not parties to the Protocol can observe Protocol-related meetings, but they play no role in the governance of the Protocol.

Something similar could be envisaged in the investment context that would provide a framework on investment policy more broadly, not just investment protection or dispute settlement. Each part of the flexible framework would have a different (though overlapping) set of treaty parties, though there would likely be a core group of states that are signed up to all or most parts. Thus, although the centre shows a general forum, the collective principals for each reform option will differ based on the membership of that particular part. States that have opted-in to a particular part of the treaty would then be the collective principal for that aspect of the framework. For instance, the collective principal for an appellate mechanism would comprise the states that are members of the appellate mechanism. This group of states might overlap but not be coextensive with the collective principal for an assistance mechanism. Only treaty parties to those mechanisms would have a vote in how they operated.

The image below shows our framework in more detail. We have depicted the central forum using overlapping Venn diagrams. For stylised purposes, we have started by using equally sized circles to which treaty parties for a particular part of the framework can be added. Of course, some parts of the framework are likely to have larger memberships than others, and the degree of crossover among different parts will change over time. Some aspects could be deemed ‘core’ or ‘minimum standards’ initially or later, if states wished, making them non-optional along with other parts that are opt-in. It is also possible that states could choose to nest some components, such as an optional court of first instance, within others, such as an appellate mechanism. We have models for this from other areas. For instance, the World Bank Group, which has five parts, each with different memberships, holds one set of Annual Meetings, during which each state attends the meetings for the parts it has joined. We depict this dynamism in the smaller images at the end of this blog, which show how the collective principals within the forum shift depending on the subject matter.

3. Instruments, Dispute Settlement and Support

To us, the types of reform that states are discussing seem to fit broadly under three headings: instruments, dispute settlement, and support. We unpack what reforms fit under each heading to a degree here, but the exact contours of the reforms under each element will likely evolve over time.

First, we have instruments that enable states to interpret, update and reform some of the procedural and substantive rules that apply to their treaties. Under this broad heading, we have included interpretive mechanisms, procedural rules, and substantive rules.

By interpretive mechanisms, we refer to instruments that enable states to adopt binding interpretations of their treaty obligations, which provide guidance to dispute settlement tribunals. In Vienna, several states mentioned interpretive committees in their recent treaty practice. As the EU set out in its submission, it might be important to create interpretive committees for older-style treaties that lack them and it would be good to have a place in which parties to a bilateral agreement could meet in order to ‘retain control over the interpretation of their agreement by being able to adopt binding interpretation.’ Therefore, we envision the ‘interpretive mechanisms’ space to be populated by multiple mechanisms: interpretive committees created by recent treaties, bilateral treaty partners who wish to issue a joint interpretation, or plurilateral opt-in interpretative statements.

Next we have procedural rules. Several states, including Australia and Peru, suggested the possibility of a multilateral instrument on procedural reforms in Vienna. We see this space in the figure as the home for codes of conduct, rules on third party funding, and other multilateral procedural rules generated by Working Group III. Procedural rules developed in other places could also be brought into this framework if states wished; for instance, preparatory work being done at the OECD on reflective loss could imported here as could some or all of the revised ICSID Rules. Heeding the calls of many states to avoid duplication, it may make sense to let groups of interested states, and interested institutions, spearhead the development of particular reform efforts. These efforts could be brought back into Working Group III or into a future forum and discussed in plenary before being docked into the framework for optional sign-on.

The third component within instruments is substantive rules. Although the initial mandate of Working Group III focuses on procedural rules, this procedure-substance division may be dissipating somewhat over time. Signs of this dissipation include Indonesia’s submissionnoting that ‘procedural law is inherently substantive and vice versa’ or Thailand’s observation that ‘substantive and procedural aspects of the ISDS system are often closely intertwined, and reforms in both areas can go hand-in-hand’ or Bahrain’s statement that ‘restricting consideration of ISDS reform to procedural aspects alone — without considering reform of substantive treaty protections — is a missed opportunity.’ Many issues, like damages, straddle the line between procedure and substance and are already on the Working Group’s agenda. South Africa’s submission and NGO submissions also call for consideration of substantive reforms. Other subtler signs of the dividing line fading somewhat include comments by actors in Vienna, like the European Union, that one of ‘the problem[s] we face is the stock of existing treaties.’ On substantive rules, Working Group III may wish to coordinate with or import work being done at UNCTAD, especially on revising the stock of existing treaties.

Second, we would have reforms concerning dispute settlement options. Here, we have listed multiple options, reflecting the various preferences of states. We start with domestic courts given that some states, like South Africa, are advocating using them to resolve investment disputes and others are seeking new rules on things like exhaustion of local remedies. Then we have alternative dispute resolution (ADR); we envision ADR broadly, to include all non-adjudicatory means of dispute prevention and settlement. This includes ombudsmen to help prevent and resolve disputes, mentioned in Brazil, Korea, and South Africa’s submissions. It also includes conciliation and mediation, which many states mention in their submissions, including China, European Union, Mali, and others. We also note the trend, for instance in Brazil’s treaties, toward thinking about all phases of investor-state interaction collectively, from promotion and facilitation onward to dispute settlement, and think these considerations could fit here. Next we move to state-state dispute settlement (SSDS) mentioned in Brazil and South Africa’s submissions, and also the European Union’s where they envision making an appellate mechanism potentially open to investor-state and state-to-state disputes.

Then we move to a standing mechanism, including both a court of first instance and an appellate tribunal. The appellate tribunal floats above both the court and ISDS in our image; this is to illustrate the open architecture approach we put forward that was subsequently picked up by the European Union. In an open architecture approach, an appellate tribunal can hear cases appealed from arbitration or from a court of first instance. For instance, China’s submission suggests that it may opt into an appellate tribunal and keep ISDS, which could be compatible with the EU option for a court of first instance and an appellate mechanism, if an open architecture approach were adopted. The appellate tribunal also floats in our image to show that while many states seem likely to opt into an appellate tribunal, not necessarily all states will do so, so it will have partial coverage.

One of the aims of depicting the dispute settlement options in this way is to create a framework for states thinking about what the different options are and how they should be linked. For instance, on a general level, would an appellate mechanism be able to take cases from an investment court, ISDS and state-to-state disputes? Should access to ISDS or an investment court be made contingent on the exhaustion of local remedies or prior resort to consultations, conciliation, or mediation? Once states have agreed upon general rules about how links between these options might be structured, individual states could make their own choices about which options they want to adopt.

Third, we have support mechanisms. There was a lot of discussion this time around about how best to support developing states to manage their treaties and disputes, as we detailed in the last blog. We have included here capacity building for states, advice and representation as key potential functions that a support mechanism could provide. In many ways, the UNCITRAL forum is already starting to function as a nascent support mechanism and it might make sense to develop the capacity-building element of this mechanism during the negotiations in order to assist states in navigating these reforms. After all, as Gabon reflected in Vienna, if states have a tool but cannot use it effectively, it is like they never had the tool in the first place.

4. Balancing Centralisation and Decentralisation

Any international regime must balance the pros and cons of centralisation and decentralisation. Centralisation may bring about greater consistency and efficiency, but might stifle innovation and make the system brittle and not resilient in the face of changing circumstances. Decentralisation may bring about greater dynamism and room for individual preferences, but it may foster inconsistency and make it harder to find ways to provide efficient solutions to widespread problems. System designers want efficiency and resilience, but often these two goals pull in different directions and the key is to find some balance between the two.

Interestingly, the balance between centralisation and decentralisation is shifting in both the trade and investment regimes. Previously the trade regime was largely centralised while investment was largely decentralised. Today both seem to be moving toward a more midway approach, though coming from different ends. We see movement in the trade context not only toward regional and bilateral free trade agreements, but also toward greater room for plurilateral agreements and dispute resolution mechanisms in the WTO. In investment, we see attempts to work out how to retrofit certain more centralising roles and institutions onto a decentralised system. It seems unlikely that reforms like an appellate mechanism or investment court would replace ISDS in total. Instead, we are likely to see a more fluid and plural coexistence of more centralised and decentralised options.

In outlining this vision of a more holistic framework for ISDS reforms, we are not starting from scratch nor are we trying to create a perfect single model. Instead, we are working with a well-developed, existing, decentralised landscape onto which we are trying to graft a flexible framework that permits dynamism and experimentation, enables common agreement but creates room for difference.

This framework does not remove contestation. On the contrary, we expect states to have vigorous disagreements on a macro level (e.g., about what reforms to pursue and in which order) and a micro level (e.g., about how to formulate particular procedural rules, whether to reform any of the substantive rules, and how to structure an open architecture permanent mechanism). We expect various international organisations to jostle over which one takes the lead on what, and different practitioners, NGOs and academics to contest whether the system is legitimate or illegitimate and whether the proposed reforms go too far or not far enough.

In the end, as masters of their treaties, states have the power to decide collectively what reforms to pursue, in what order and in what form. Individually, they will also have choice about which particular reform options to adopt. We offer this flexible framework as one way of conceptualising the choices that states are currently trying to navigate. But the choice in these issues ultimately lies with states in what is clearly, and deliberately, a government-led process.

 

Note: We would like to thank Karina Pelling at CartoGIS, ANU for helping us to develop these visualisations.

First published on EJIL: Talk!

Two Faces of (De-) Globalization

Two very different observations on (de-) globalization have caught our eyes lately. 

First of all, according to the most recent statistics provided by the Global Trade Alert (composed by Prof. Simon Evenett at St. Gallen), pro-trade and investment measures across borders have shown the biggest decline ever for the past seven years, while a sharp increase of protectionist measures have continued.

In contrast, the new Trade20 Index composed by Standard Charters has highlighted the great growth potential in emerging nations, such as Côte d’Ivoire, Kenya, Oman, Vietnam, Indonesia, Thailand, and the Philippines and Ireland, let alone India and China.  José Viñals, Group Chairman, Standard Chartered views that:

“The Trade20 index points towards the strong potential of a number of markets outside the China-US-Europe trade axis. With rising protectionism casting a shadow over the future of world trade, it is encouraging that many emerging markets are still improving their trade growth potential for the medium term, forging new regional trade deals to make this happen.”

Three questions may be in order.  First, do these contrasting developments tend to substantiate a thesis of the “Great Divergence”?  In other words, is there a persistent decline in growth potential in the West and an equally persistent surge in the Rest?  Second, what are legal and political implications of such divergence?  Will the populist backlash, and the consequent resistance to multilateralism, continue in the West?  If so, does the future of the WTO depend on those emerging nations?  Third, what about transnational businesses?  Will, or should, they play a more proactive role, through lobbying and campaigning, in defying protectionism, and shaping the future of global economic order?

UNCITRAL and ISDS Reform: In Sickness and In Health

By Anthea Roberts and Taylor St. John

UNCITRAL Working Group III met in Vienna last week to continue its discussions about how to reform investor-state dispute settlement (ISDS). In April 2019, the Working Group agreed that the ISDS system suffered from significant problems and required reform. In colloquial terms, the system was causing a variety of illnesses; states needed to diagnose the underlying causes and prescribe cures. This blog traces the debate dynamics as states considered different treatment plans to restore the system to health. In tomorrow’s blog, we provide a first conceptualisation of how these different treatments might be weaved together in a flexible framework.

Sickness: Causes and Cures

During Phases 1 and 2 of this process, it sometimes felt like states were complaining about having suffered from various illnesses arising from the system. These illnesses included very large awards, inconsistent decisions, frivolous cases, arbitrator conflicts and excessive fees. Different states at UNCITRAL had succumbed to different illnesses, but the general sentiment expressed was that the existing system had created unhealthy pathologies that needed treatment.

In Phase 3, states are recognising that that they are not only patients, they are also doctors. Some (powerful) states have long seen themselves as doctors, able to treat problems with available tools, while other states have either not seen themselves as doctors or not had access to the same tools. At UNCITRAL, there has been a clear shift: all states now recognise that they have individual and collective agency to reform the system. But they disagree on the best course of treatment.

Should the Working Group just treat specific illnesses? States adopting this approach favour non-structural reforms and coalesce around a multilateral instrument on procedural reforms, which they argue would provide significant and speedy fixes to the existing system.

Or do some recurrent illnesses have underlying structural causes, like contaminated water, that the Working Group should address to ensure ongoing health? States that start from this position are not necessarily opposed to procedural reforms, but believe structural change is also required. As Argentina put it, ‘if we’re looking for a long-term solution, we need to change the whole system.’

The key proxy battle between these two coalitions plays out in debates over time allocation. The EU and its allies seek to maintain an equal time allocation between structural and non-structural reforms, evidencing an openness to procedural reforms provided they don’t crowd out structural reforms. By contrast, while some states that advocate procedural reforms seem open to considering structural reforms too, a few seem intent on using a focus on procedural reforms to squeeze out time, or delay a focus, on structural reforms. For the latter, structural reforms are not a cure and might be worse than the original illness.

Not all states fit neatly into one of those two coalitions, however. Many states perceive fundamental problems with the system, yet are focused on specific procedural reforms. Several of these states have suffered from particular illnesses and enter the Working Group determined to cure those particular maladies. Therefore they prioritise treating their acute illness within the existing system, but also often display openness to structural reform. Other states openly support procedural and structural reforms, such as China.

There are fundamental differences among the doctors about the diagnosis and cure. Yet what appears to be emerging are simultaneous treatment plans: a multilateral instrument containing both procedural and structural reforms.

Coordination Power: From Group Therapy to Collective Action

This was the fifth time this group has met, and it shows: routines are developing, and various actors are growing more comfortable with their roles in the process.

Most noticeably, a growing number of countries attend and have started to participate vigorously. Many states are now sending officials with expertise from capital rather than relying on their local embassy officials. Some of these officials are now attending for the second or third time, and while they may have spent their first time learning the Working Group’s procedures and dynamics, now they come prepared to speak.

The result is purposeful, experience-based interventions from experts in the field. Some of these interventions, like the Dominican Republic’s when calling for a ban or strict regulation on third party funding, set out why the issue is important based on their experience and what reform solution they believe would address the issue. Others, like Guinea and Côte d’Ivoire’s interventions during discussions of an advisory centre, start by identifying priorities based on their experience, then offer their assistance or example statutes to the Secretariat to ensure their priorities are considered in the reports being prepared.

Having a room full of experts from capital plays out beyond the plenary debate too. Nigeria and Pakistan, both with expert delegations from capital, sit next to each other, and have lots to talk about since these Nigerian officials are grappling with a $9 billion enforcement decision from August (around 20% of Nigeria’s foreign exchange reserves), while these Pakistani officials are grappling with a nearly $6 billion award from July (around 85% of Pakistan’s foreign exchange reserves). Both delegations raised the issue of mega-awards and added damages to the Working Group’s agenda as a cross-cutting issue.

Regardless of how this widening of the agenda goes forward in the plenary, officials are making use of UNCITRAL to share experiences and form networks. Regional networks are becoming noticeable. Not regional blocks that operate with one voice in the plenary, but something more akin to regional learning networks. These are not diplomats recreating dynamics from other international bodies; these are officials from capital forging new relationships on the margins of Working Group III.

States waking up to the importance of a forum is a subtler, longer-term development, but it may be the most important thing happening in this Working Group. A hub where they meet regularly, learn from one another, and deliberate reform options opens up new possibilities for joint action and gives new impetus to domestic action. A hub focuses minds on potential problems in a forward-looking way and lets officials share strategies about how to make ISDS reform a priority when they return to capital. We expect that these conversations are steps toward more action, inside and outside of UNCITRAL, in the years ahead.

The value of learning networks and a shared forum is leading states to rethink the functions of an advisory centre. Many participants begin with the Advisory Centre on WTO Law (ACWL) as the model for an advisory centre related to investment law. Yet some of the states that have thought about an advisory centre in investment at length, like Benin, Guinea, and Thailand, have moved toward a new design with less emphasis on representation (filling gaps in state legal capacity as respondents) and more emphasis on coordination (treaty drafting advice, information sharing, training officials, organising exchanges of officials, and capacity building to avoid and handle disputes, features Jeremy Sharpe noted in his EJIL Talk! blog about going beyond the WTO model).

With more emphasis on coordination, the term ‘advisory centre’ started to give way to references to an ‘assistance mechanism’; similarly the term ‘beneficiary’ may be discarded for ‘participant’ or ‘member’, terms that reflect the desires of states to play more active roles managing their treaties and disputes, and reflect that the purpose of assistance or providing resources is to help them do so.

Although some states cast doubt on an assistance mechanism’s ability to actually solve their most important concerns, no states opposed it and a number of states, particularly those that had participated in the recent Intersessional in Conakry, came prepared to prioritise an assistance mechanism. On this issue, as on others, interventions from Francophone West African states were striking in their clarity and unity; the impact of the Conakry Intersessional was noticeable.

There seems to be agreement among the states or doctors that an assistance mechanism focused on broad capacity challenges (beyond the ACWL model) is an important part of any treatment plan.

Treatments We Can All Agree On?

Alongside states gaining comfort and establishing routines in the room, the Chair and Secretariat are also settling into their roles. After Monday was spent debating time allocation and the order in which issues would be discussed, the Chair deftly shifted the Working Group into a new gear. From Tuesday mid-morning onward, the Working Group discussed specific issues: first an advisory centre, then a code of conduct, and finally third party funding.

The Chair oriented these discussions toward a shared goal: giving instructions to the Secretariat. After the week, the Secretariat would prepare a paper for each issue that included a list of possible reform options and draft articles, the states just needed to direct the Secretariat about what should be in that paper.

On issues like a code of conduct, the diagnosis seems fairly straightforward. Indeed several states, like Ecuador, noted that they felt the room was close to consensus in terms of the broad principles of a code of conduct. Many states made clear that they sought binding rather than voluntary rules, disclosure on a continuous basis, sanctions or penalties for non-compliance, and a body or actor to enforce the code. A wider spectrum of views emerged on third party funding, from just disclosure to disclosure plus sanctions for non-disclosure plus security for costs plus a partial ban or strict regulation. Several states also noted that the range of concerns expressed in Working Group III go beyond the concerns that the ICSID rule revision is addressing. Although states’ views do range widely, the tone was productive: states were setting out their initial positions, knowing they were beginning an iterative process through which they would get increasingly specific and work out compromise text. Almost all states broadly agreed that third party funding is a currently ‘a regulatory vacuum’ and they would fill this vacuum with an agreement.

Not so fast, however, because even here we see proxy battles, especially between the EU and US, on timing or speed. Can a code of conduct for ad hoc arbitrators be discussed in parallel to a code of conduct for permanent adjudicators? After the US noted that a code of conduct for arbitrators was an area that is ripe for an early harvest, the EU made clear that they did not share the view that a code for arbitrators should go first and be followed by a code of conduct relating to a permanent body.

What do we learn from these discussions? We saw how states will generate the content that will fit into a multilateral instrument on procedure or structure. On each issue, a spectrum of views will be identified first, then draft text circulated, followed by increasingly detailed negotiations to determine where the final rules fall along that spectrum.

Just as states moved from generality toward specificity on non-structural reforms this time, they will move from generality toward specificity on structural reforms during their next meeting in January. They will discuss an appellate mechanism, a first instance court, and selection and appointment of arbitrators and adjudicators. Then during the following meeting in April, it is back to primarily non-structural reforms. Along the way, progress toward specific treatments will be made, but proxy battles between different camps will flare up occasionally.

Pragmatic Pluralism

This week we also got subtle reminders that many countries will likely end up participating in both a permanent body and ISDS because they prioritise maintaining close relationships with major actors like China, the EU, and the US that have different preferences. For example, when citing examples of recent treaties that could provide reference points for standards in a code of conduct, Canada, Mexico, and Singapore each diplomatically referenced the CPTPP and then one treaty with the EU. Many states are careful not to take sides, recognising that their future likely lies with several models.

This group of states is diverse, but broadly we can assume that the more a state anticipates signing others’ model treaties in the future, the stronger their interest in every type of reform likely to emerge from this process: reforms to treat specific illnesses within the current system, structural reforms to prevent future illnesses, and reforms to cope with the system no matter what happens. As we noted in 2017, this process is likely to end with a plural solution in which both models (ISDS and a court), and possibly others, exist.

Many states are pragmatic pluralists; they recognise that their ability to shape the system in general may be constrained, but also see that this process has created opportunities for them to achieve important objectives. They now face strategic and tactical questions: when and where do they have leverage and how can they exercise it? For instance, exhaustion of local remedies was raised by several states. Should states interested in exhaustion or counterclaims try to strike a deal in which these issues are addressed multilaterally, in exchange for providing support to a permanent body, some are asking themselves.

What we see concretely is that states are beginning to develop a clearer sense of the various reform tools that could be developed separately or combined in a framework agreement. Three component parts are emerging: procedural reforms that include a code of conduct, rules on third party funding, and other types of specific content; structural reforms, including an appellate body and a court of first instance; and support for capacity building and representation so that all states can better manage their treaties and disputes.

How might the states and the Secretariat bring these tools together in a flexible framework for moving forward? We consider this issue in the next blog.

First published on EJIL: Talk!

ISDS Reform: Working Group III Gets Down to Brass Tacks

Last week, multilateral efforts to reform investor-state dispute resolution (ISDS) entered a new phase, with substantive discussions of reform options beginning in earnest. As readers of this blog are aware, delegations from around a hundred States have been working multilaterally toward reforming ISDS in the United Nations Commission on International Trade Law (UNCITRAL), Working Group III (WGIII) over the last two years. This work began in earnest in WGIII’s 34^th Session in Vienna (2017), and has continued through biannual Sessions in Vienna and New York. From 2017–2018, Delegations registered substantial concerns with ISDS, relating to fragmented arbitral outcomes; the arbitrators charged with adjudicating disputes; matters of duration and cost; the lack of a framework to address multiple proceedings; and third-party funding (Phase 1). In Vienna last year, WGIII decided to work multilaterally to reform such concerns within UNCITRAL (Phase 2) – discussed further here. Last week proved to be a key hinge in the process. WGIII has now moved firmly into working on concrete reform options (Phase 3).

WGIII’s 37^th Session in New York this past Spring 2019 appeared as something of a lull in the process, but it culminated in a key compromise on working methods that preserved consensus for the time being. WGIII spent much of that week debating working procedures, ultimately adopting a compromise plan to divide working time between developing “structural reforms” (i.e. large scale institutional reform options like a standing investment court or a standalone appellate body), and “functional reforms” (i.e. specific targeted reforms on problematic aspects of ISDS, like the lack of code of conduct, the lack of a mechanism to address multiple claims and shareholder claims more generally, third party funding, and security for costs). But it deferred actually developing a concrete project schedule until the fall.

WGIII’s 38^th Session in Vienna last week marked the fruition of that compromise, and a transition into detailed discussions on reform options. Even before the Session, over forty-five governments submitted concrete proposals for specific reforms to ISDS, across nineteen submissions (here). These proposals were complemented by several Secretariat papers, submissions by observer delegations and concept papers on particular reform options by the Academic Forum on ISDS Reform (here). By the end of the first day, WGIII had worked out a concrete project schedule for its next several sessions, pursuant to its earlier compromise on apportioning time between structural and functional reform. Over the remaining three days, Delegations began debating specific reform options, starting with (i) a multilateral advisory center for ISDS disputes; (ii) a multilateral code of conduct for arbitrators; and (iii) reforms to third-party funding.

Project Schedule. At the outset, the Chair indicated that he would not let discussions on priorities drag on indeterminately. After some preliminary debate it became clear that States had (not unexpected) differences in where to start and how to prioritize. The main split was between those governments eager to start developing complex structural reforms, and those seeking to focus on targeted functional reforms (sometimes framed as an end-in-itself, and occasionally framed as potential “early harvests” on the way toward eventual structural reform). Ultimately the Chair brokered a consensus project schedule for the next three Sessions, hewing closely to the compromise reached in New York (requiring even time for structural and functional reform).

• For the duration of the 38^th Session, the Group would consider high level questions about reform options relating to (i) a multilateral advisory center; (ii) a code of conduct; and (iii) third party funding.
• For its 39^th Session (Vienna, January 2020), WGIII will turn to high level questions relating to the main structural reform options: (iv) a multilateral investment court; and (v) a standalone appellate mechanism. Thereafter WGIII will turn to the cross cutting question of (vi) arbitrator and adjudicator appointment.
• And in its 40^th Session (NYC, April 2020), WGIII will turn to reform options relating to (vii) dispute prevention, including mediation and alternative dispute resolution; (viii) State control over treaty interpretation; (ix) security for costs; (x) frivolous claims; (xi) multiple proceedings and shareholder claims for reflective loss; and (xii) counter claims. These important matters serve not only as standalone functional reforms, which might be incorporated into an omnibus multilateral convention on procedural reforms, but also as potential building blocks which might be incorporated into broader structural reforms. Moreover, these matters should not be seen as trivial. For example, as I and others have argued in our Academic Forum paper on Reforming Shareholder Claims in ISDS, reforming shareholder claims for reflective loss would have wide-ranging, positive systemic effects that go far toward addressing many of the Delegations’ concerns with ISDS.

The Chair largely sought to prioritize discussing the merits, structure, and trade-offs of these various reform options over these three Sessions. Though questions of form would certainly come up, the idea  to mostly defer discussing the form of reform down the line – i.e. whether the goal should be soft law, model treaty clauses, a multilateral convention on targeted procedural reforms, opt-in/opt-out mechanisms, and / or the development of full adjudicative institutions.

For the remainder of the session, WGIII at last turned to developing particular reform options. In doing so, it held to the above schedule, allocating a day each to the advisory center, code of conduct, and third party funding. In each case, the goal was to discuss objectives, concerns, and trade-offs at a high level, to give the Secretariat information about Delegations’ preferences as it turns to developing concrete reform options.

Multilateral Advisory Center. After a day’s discussion it was clear that most Delegations supported designing a multilateral advisory center as a reform option. The center would be modeled on the Advisory Center on WTO Law, with a view to providing capacity building services and legal advice to least developed and developing countries in relation to ISDS. WGIII requested that the Secretariat begin work on a spectrum of institutional design options relating to:

• Potential beneficiaries – as to which States should have access (least developed and developing States only, or also developed States who might pay for such services), and whether small and medium enterprises might have access for certain services.
• Services the Center might provide – including capacity building (e.g. legal advice on treaty interpretation, dispute prevention, risk assessment, and training in skills related to dispute settlement) and / or defense assistance for particular cases.
• Funding
• And options relating to structural design and core principles.

Code of Conduct. Here too there was substantial agreement about the desirability of developing a code of conduct, ideally in coordination with ICSID. As with the advisory center, the goal of these initial discussions was to provide the Secretariat with information and guidance toward developing a draft. WGIII requested that the Secretariat begin to develop a draft code with options relating to:

• Scope and application – the code should be binding and universal for all States that choose to adopt it, detailed but flexible, and applicable not only to arbitrators but also secretariats and staff.
• Content – drawing largely on the Secretariat paper 167, here, but with special emphasis on independence, including rules on double-hatting and issue conflict, integrity, efficiency, confidentiality, competence, and disclosure.
• And enforcement – requesting options for rules that are binding and enforceable, exploring possibilities for imposing material sanctions on violators (but without being overly draconian in ways that might, perversely, lead to underenforcement).

Third Party Funding. While a few Delegations suggested that banning third party funding might be appropriate, many were in favor of simply regulating the practice – largely through a disclosure regime. Several others resisted the notion of regulating third party funding at all. WGIII requested that the Secretariat work on options along a spectrum, from a simple ban to a range of regulatory regimes. In particular, the Working Group requested options relating to:

• The definition of third party funding – which can be relatively narrow (direct funding of claims for impecunious clients) or quite capacious (potentially ranging from complex claims financing arrangements to, in the extreme, even contingency fee arrangements).
• The types of required disclosures – the existence of third party funding, the identity of the funder, and/or aspects of the funding agreement.
• The tribunal’s general discretion to order disclosures.
• The nature of disclosures – e.g. total transparency or in camera review.
• And enforcement, which might intersect with the code of conduct (noting, here too, that sanctions may be desirable but overly draconian sanctions might be counter-productive).

Going forward, the goal seems to be to engage in similar high level discussions of each reform option on the project schedule over the next two Sessions, and to circle back to more concrete discussions on each topic seriatim. These things take time. But the process is now in full swing. The 38^th Session in Vienna should be remembered as a key pivot in the reform of ISDS. Working Group III is now fully down to brass tacks – engaged in the business of institutional design, cost-benefit analysis, and prioritization.

Do the U.S. and EU Have Different Visions for WTO Dispute Settlement and the Appellate Body?

This is from Inside US Trade:

The “why question,” according to two sources, is directed at the European Union. The EU has said it does not agree with the U.S. view on the Appellate Body but is willing to work with the U.S. to resolve the issue. The U.S. and EU have fundamentally different view about the function and nature of the Appellate Body. For the EU, an international court providing interpretations on law and precedential jurisprudence is an appropriate evolution for the Appellate Body, sources said. The U.S., however, is loath to surrender its sovereignty to an international body, especially one it argues was created in such a way to prevent that from happening.

The gap between the U.S. and the EU on the nature of the Appellate Body is unbridgeable, several sources said. Some believe the conversation the U.S. is seeking would not be useful because there are members -- particularly the EU -- that automatically disagree with the premise of the “why question.” Other sources suggest the conversation could be worth having, but say members first need more guidance on the U.S.’ ultimate goals.

I've heard a fair amount of talk recently about the different visions of the U.S. and the EU in relation to WTO dispute settlement and the Appellate Body, but I'm not convinced there is as much to it as people think. In my view, a lot of the distinction comes down to semantics. Are trade agreements contracts or are they governance through treaties (a distinction Lighthizer once drew)? Does the adjudication system involve courts or merely quasi-judicial bodies? Have we created a supra-national institution or just an international agreement? Should Appellate Body reports constitute "precedent" or should they have "persuasive value"?

Words do matter, but perhaps not always as much as it may seem. In reality, both the U.S. and the EU have areas where they worry about their sovereignty/domestic policy being infringed (e.g., for the EU, hormone-treated beef; and for the US, steel safeguard measure). And both the U.S. and the EU have areas where they push for expansive interpretations from courts/judicial bodies that will open up foreign markets by encroaching on domestic policy/sovereignty (e.g., for the U.S., hormone-treated beef; and for the EU, steel safeguard measure). As you can see from the examples I provided, this is kind of just two sides of the same coin.

There is a lot of agonizing about what words to use to describe the WTO dispute settlement system, and maybe they do matter a bit. But I don't think we should get too caught up in the labelling. The key is how the system operates. In my view, the basic operating vision supported by both the U.S. and the EU delegates about the same small amount of power to the dispute settlement system. It's certainly worth debating the specific parameters (deference in anti-dumping/margin of appreciation, scope of appeal, etc.) of the system, but the two sides really aren't that far apart in terms of how much power they want the system to have. Both sides want a flexible system that allows them to press offensive claims while avoiding politically sensitive defensive cases. In my view, that's what we have right now. If the current problems with the system result from finding the right words to describe it, we should be able to work that out.

It's also worth noting that neither the EU nor the U.S. is a single entity, as there are various views within each government. Perhaps it is the case that someone in the Commission has a very different vision than someone at USTR. But overall, I think everyone is more on the same page than they realize. Anyway, that's my impression from talking to the handful of people I know in each government. But maybe I haven't talked to enough people and things are much worse than I realize!

World Trade and Investment Law Reimagined: A Progressive Agenda for an Inclusive Globalization

This is from Chantal Thomas:

This is a late-breaking notice, but for those of you in the DC area, please come to the lunchtime discussion, this coming Monday October 21, of "World Trade and Investment Law Reimagined: A Progressive Agenda for an Inclusive Globalization," just out with Anthem Press (Alvaro Santos, Chantal Thomas, and Dave Trubek, eds.).

The discussion will take place at Georgetown Law Center, Gewirtz Student Center (12th floor), 120 F Street NW, from 12:30-2:15. Commentary on the book will be provided by Kathleen Claussen (University of Miami Law School), Simon Lester (Cato Institute), and Todd Tucker (Roosevelt Institute). Responses will be provided by two of the book’s editors, Alvaro Santos (Georgetown Law Center) and Chantal Thomas (Cornell Law School). Lunch will be provided.

For more information please contact Alvaro Santos ([email protected]) or Chantal Thomas ([email protected]).

More details here. You'll notice that I am one of the commentators. I will be making the case to the progressives in the room that additional constraints on protectionism should be a key part of a progressive agenda for a more inclusive globalization. We'll see how it goes.

Guest Post: A consensual “Quick-Fix” for the WTO Appellate Body is possible if there is the will!

This is a guest post from former Appellate Body Member Giorgio Sacerdoti: 

As we all realize, the WTO is heading towards the practical loss of the Appellate Body by 10 December 2019 due to the US blocking of the launching of the selection process to fill the vacancies. The “concerns” that have led the Trump Administration to this extreme step are well known. So are also the various proposals of reforms tabled by a number of WTO Members at the General Council in order to take into account these concerns with a view to improving, rather than hampering, the efficient operation of the Appellate Body.

The lack of engagement by the US has until now prevented any meaningful discussion in the merits. The issue of how procedurally any agreed change can be effected promptly has also been raised. I offer hereunder a proposal for a “Quick Fix”, addressing the main points raised by the US in a way that reflects also the thrust of the proposals tabled at the General Council (and by several academics). The key of my proposal is to resort to an authoritative (binding) interpretation of relevant provisions of the DSU under Article IX(2) of the WTO Agreement. The General Council should adopt this Decision by consensus, to come into effect as quid-pro-quo, and at the same time, of the launching of the selection process to fill the vacancies at the Appellate Body.

I have circulated this proposal to some key actors in past months without any reaction. It is now time that I offer it to all concerned, at least to show that a “Quick-Fix” is possible, if there is a will. As the say goes: “If there is a will, there is a way.”

Giorgio Sacerdoti, emeritus professor of international law, Bocconi University, Milan, Italy

Former chairman of the WTO Appellate Body

17 September 2019

 

Project of a

GENERAL COUNCIL’S “INTERPRETATION” OF CERTAIN DSU PROVISIONS UNDER ART.IX.2 OF THE WTO AGREEMENT

The GENERAL COUNCIL

• Mindful of its responsibilities under the Marrakesh Agreement Establishing the World Trade Organization [the WTO Agreement]
• Acknowledging the importance of the WTO dispute settlement system for the security and predictability of the multilateral trading system in the interest of all WTO Members
• Recognizing that after more than 20 years of successful operation reforms are necessary in order to enable the dispute settlement system to go on performing its functions in accordance with the provisions agreed in the Uruguay Round Agreement
• Noting the concerns expressed by some Members in this respect and the various proposals tabled by a number of WTO Members, individually and jointly, to address them
• Concerned that the protracted lack of consensus among WTO Members as to the filling of vacancies on the Appellate Body and the consequent looming inability of same to operate may deprive parties to a dispute of the right to appeal panel reports, paralyze the operation in accordance with the rules of the DSU of the dispute settlement function, prevent the prompt settlement of disputes, and compliance by WTO Members with recommendations or rulings of the DSB which is essential in order to ensure effective resolution of disputes to the benefit of all Members [Article 21(1) DSU]
• Determined to exercise its responsibilities and powers to resolve as a matter of urgency the above situation
• Being aware that under Article IV(2) and IX(2) of the WTO Agreement in the intervals between meetings of the Ministerial Conference it has the exclusive authority to adopt interpretations of the WTO Agreement and of the Multilateral Trade Agreements
• Considering that the adoption of an appropriate authoritative interpretation of the relevant provisions of the DSU is capable of resolving the most pressing difficulties that are currently and in the near future preventing the dispute settlement system from carrying out its functions, without prejudice for a more extensive review of relevant dispute settlement provisions of the DSU in conformity with the Decision on the Application and Review of the Understanding on Rules and Procedures Governing the Settlement of Disputes [DSU review]
• Mindful of the WTO practice and requirements for decision-making by consensus [Article IX(1) and footnote 3, Article X(3) of the WTO Agreement]

ADOPTS

by consensus the following authoritative interpretation of the DSU provisions referred to hereinafter, to enter into force and become applicable as soon as the DSB shall have filled all vacancies at the Appellate Body in accordance with Art. 17(1)(2) DSU

1. Expiration of the term in office of AB members – Article 17(1) DSU

The provision of Article 17(2) DSU that Appellate Body members serve for a four-year term shall be interpreted as not preventing an Appellate Body member, whose term is expiring while serving on a case, from completing its service in that case until the issuing of the Appellate Body report in such case, provided that the hearing in that case is scheduled to take place before the date of the expiration of that Appellate Body member term in office.

2. 90 days duration of appellate proceedings – Article 17(5) DSU. Confidentiality of Appellate Body proceedings – Article 17(10) DSU

In order to strive to meet the deadline of 90 days provided in the last sentence of Article 17(5) DSU, notwithstanding the increase in the number of the WTO Members and the number and complexity of panel reports being appealed as compared to the situation existing and envisaged at the time of the drafting of the DSU, Article 17 (10) DSU on confidentiality of appellate proceedings shall be interpreted as not preventing the time table of any appeal, to be drafted by the Appellate Body in consultation with the parties thereof, being made public through the Appellate Body Secretariat to the DSB.

When concomitant, partly simultaneous or successive appeals make it impossible for the Appellate Body to issue the relevant reports within 90 days, the time table of such appeals, to be drafted by the Appellate Body in consultation with the parties thereof, shall strive to minimize any unavoidable delay, and an appropriate explanation shall be provided to the DSB.

In such a situation, Article 17(5) DSU does not prevent the Appellate Body, in consultation with the parties to an appeal, to meet the 90-day deadline, when practicable, by issuing within that deadline its report to the parties in the language in which the proceedings were conducted, pending subsequent translation by the WTO Secretariat in the other official WTO languages for circulation of the report to Members.

3. Authority of previous adopted reports – Articles 11 and 17(4) DSU

The statement in Article 2(3) DSU that “The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system” does not imply that reports of panels or of the Appellate Body, once adopted by the DSB, constitute binding precedents for future cases. Accordingly, the duty for a panel in accordance with Article 11 to “make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements” shall be interpreted as requiring a panel to do so also when previously adopted panel or Appellate Body reports have ruled upon the same matter or the interpretation of the same provisions of the covered agreements at issue in the case before it. Such obligation in Article 11 shall be interpreted as not precluding a panel from ruling otherwise if the panel concludes objectively that not following the ruling in previous adopted reports is legally justified “in accordance with customary rules of interpretation of public international law” referred to in Article 2(3) DSU, while duly taking into account the reference to stability and predictability in the same article.

Similarly, Art. 17(14) DSU, according to which “The Appellate Body may uphold, modify or reverse the legal finding and conclusion of the panel” whose report has been appealed, does not preclude the Appellate Body from deciding on the legal findings appealed differently than in previous reports if the Appellate Body considers that this is legally justified.

4. Rulings not necessary to resolve a dispute – Article 17(12) DSU

The provision of Article 17(12) DSU that “The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate process”, namely “issues of law covered in the panel report and legal interpretations developed by the panel” shall be interpreted as not obliging the Appellate Body to address issues raised in appeal, whose resolution in light of its findings on other issues raised is not necessary to resolve the dispute “and achieving a satisfactory settlement of the matter in accordance with the rights and obligations” of the parties under the DSU and the covered agreements [Article 3 (4) DSU] 

5. Domestic law issues before the Appellate Body- Article 17(6) DSU

“Issues of law” in Article 17(6) DSU (“An appeal shall be limited to issues of law covered in the panel report and legal interpretation developed by the panel”) shall be interpreted as excluding issues of interpretation of domestic law, to be considered as issues of fact not subject to appellate review.

U.S. Comments on "Precedent," DSU Article 11, and AD Agreement Article 17.6(ii)

In the hope of pushing the substantive discussion related to the Appellate Body crisis forward, here is a brief response to a couple points the U.S. made at the General Council meeting yesterday.

First up, the U.S. says the following about the issue of "precedent":

On so-called “cogent reasons”, the Facilitator’s Report suggests that Members agree that “precedent” is not created through WTO dispute settlement. If this is so, then why did some WTO Members advocate for the Appellate Body to assert that its interpretations must be followed by panels absent unidentified cogent reasons?  And why then does the Appellate Body assert a precedential value for its reports like an authoritative interpretation that only WTO Members in the Ministerial Conference or General Council can give?

I've talked about this issue before, and I won't go through it all again, but let me just add this: If you look at the Appellate Body's reasoning on GATT Article III:4 over the years, it's pretty clear that the Appellate Body's view has evolved, and that it feels free not to follow its past reasoning. 

Next is DSU Article 11:

With respect to the issue of appellate review of questions of fact, we are concerned that the Appellate Body would say it is already abiding by the text in the Facilitator’s Report, especially since the Appellate Body has interpreted DSU Article 11 to convert questions of fact into questions of law, and we hear WTO Members expressing different views on the meaning of Article 11 of the DSU.

I would really like to see the U.S. make the case that DSU Article 11 should not be the basis of an appeal. That would be an interesting debate. If they are not willing to go that far, maybe they would endorse the strict standard set out in Hormones? (And speaking of not following past cases, the Appellate Body's application of Article 11 seems to have gone back and forth as well).

Finally, the U.S. said this about AD Agreement Article 17.6(ii):

With respect to the issue of overreach, it is clear that the Appellate Body would say that it already abides by the text of Article 17.6 of the Anti-Dumping Agreement and, in turn, the text in the Facilitator’s Report. The problem is that the Appellate Body has adopted an erroneous interpretation of Article 17.6 that renders it inutile.  We have not yet seen convergence on how to address this issue, or other instances in which the Appellate Body has departed from the plain text of other covered agreements.

On this provision, I had the following suggestion a while back for new text to clarify how this provision should work:

The redrafted Article 17.6(ii) text could look something like this:

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations. As an illustration of a situation where more than one permissible interpretation exists, if the panel concludes that the interpretive approach set out in Article 31 of the Vienna Convention on the Law of Treaties leaves the meaning of a provision ambiguous or obscure, there shall be a presumption that the provision admits of more than one permissible interpretation, and the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

I'm curious what the U.S. thinks of this idea.

The facilitator's report is here.

Some Unsolicited Advice for Warren's Trade Policy Team

One of the most notable things about Elizabeth Warren's trade policy plan is what she doesn't talk about. She doesn't talk about the WTO. She doesn't talk about "national security" tariffs. She doesn't have much to say about U.S.-China trade relations. The lack of detail is perhaps a sign that despite any misgivings free traders might have about what she does say about trade agreements, there would be room to improve on Trump's trade policy in a Warren administration. With that in mind, here are a few suggestions for Warren and her advisers as to what might make us pro-trade folks less critical. 

Let's start with the WTO. The Trump administration has raised three big issues: The role of the Appellate Body; the treatment of developing countries; and the inadequacy of the notifications provided by many countries. (There is also the ability of WTO rules to deal with China, but I'll address China issues separately.)

In my view, the issues related to developing countries and notifications are real and challenging, and it's worth continuing to pursue them. By contrast, the Trump administration's approach to the Appellate Body has been flawed and needs to be abandoned. The first step the Warren administration should take is to stop blocking appointments to the Appellate Body. That would demonstrate a good faith effort to participate in WTO affairs, and to support neutral adjudication procedures and the international rule of law (rather than unilateralism).

The second step would be to articulate a vision of how the Warren administration sees the role of the Appellate Body. It's not just the Trump administration political appointees who have had concerns about the Appellate Body. There are a wide range of U.S. actors who have been critical of some of the Appellate Body's decisions and behavior. The question is, what do they want the Appellate Body to be instead? They need to figure this out, articulate it clearly, and make the case for it to other WTO Members. For example, do they want to get rid of DSU Article 11 appeals? I don't think that's an unreasonable position. But if that is their position, they need to convince everyone else of the merits. A number of remarks from Trump administration officials have been along the lines of, "We need to go back to what we agreed in the DSU in 1995." But there are different interpretations of what was agreed, so spell out what you think the Appellate Body should be doing.

Now let's move to the Section 232 national security tariffs, which of course involves the WTO as well. The best option here is to repeal the steel and aluminum tariffs, and to explicitly rule out imposing tariffs on autos. There isn't a reasonable justification for these tariffs under the terms of the statute, and imposing them has caused serious trade conflict in the form of tariff wars and abuse of the GATT Article XXI security exception (as well as the safeguards provisions invoked in response). Repealing the Section 232 tariffs would be a great way to start working with our allies again, which will be relevant to the China issues discussed below.

It's worth noting that there are plenty of legal ways to impose tariffs (trade remedies, for example), so there is no need for Section 232 in this regard. Of course, someone might point out that certain WTO rulings have made using trade remedies more difficult. Here, I would go back to what I said about the role of the Appellate Body. If there are specific concerns (e.g., the Appellate Body's rulings on "unforeseen developments") the answer is to make the case to other Members for a particular alternative approach.

And then there's China. I never had much hope for Section 301 tariffs as an effective way to change China's behavior, but the Trump administration has some time left before the election, and we'll see how it goes. But if it hasn't worked by the time there is a President Warren, perhaps then we could consider an alternative. One possibility is something along the lines of what President Obama tried, which is to negotiate liberalization with others in order to force China to behave better. Obama's broad strategy made some sense, but in my view the execution was botched, in two ways. First, the TTIP expectations were unrealistic. And second, the domestic politics of TPP were handled badly, and as a result Congress did not ratify it.

But it's not hard to imagine a President Warren joining a version of the TPP (without ISDS, etc.) and negotiating a trade deal with the EU. She'll have to compromise on a bunch of the conditions she set out in her trade policy plan, but that's OK. It's my understanding that politicians sometimes do this sort of thing.

In addition, governments should bring a wide range of WTO complaints against China. China's accession protocol has some pretty broad obligations in it. In my view, it's worth testing them out in dispute settlement.

And then finally on China, if we want China to make significant structural changes to its economy, there needs to be a negotiation that offers China something as well. Otherwise, for political reasons, China simply won't be able to sign on. For example, given how potent normal anti-dumping rules are, it seems to me that trading off the extra bad treatment China gets in anti-dumping in exchange for some significant Chinese reforms would be worth it. But I know that's a sensitive issue, and I'm open to other possibilities.

A Critique of Warren's Trade Policy Plan

Back in July, I offered some quick thoughts on presidential candidate Elizabeth Warren's trade policy plan (entitled, "It's Time for a New Approach to Trade"). Now I'm going to offer a more detailed critique, and I'll follow with a post that puts forward some suggestions as to how she might calm the nerves of critics who see her ideas as pretty close to Trump's confrontational trade policies.

She leads off with this:

Last month, I released my economic patriotism agenda — my commitment to fundamentally changing the government’s approach to the economy so that we put the interests of American workers and families ahead of the interests of multinational corporations. I’ve already released my ideas for applying economic patriotism to manufacturing and to Wall Street. This is my plan for using economic patriotism to overhaul our approach to trade.

For decades, big multinational corporations have bought and lobbied their way into dictating America’s trade policy. Those big corporations have gotten rich but everyone else has paid the price. We’ve lost millions of jobs to outsourcing, depressed wages for American workers, accelerated climate change, and squeezed America’s family farmers. We’ve let China get away with the suppression of pay and labor rights, poor environmental protections, and years of currency manipulation. All to add some zeroes to the bottom lines of big corporations with no loyalty or allegiance to America.

We need to completely transform our approach to trade. America enters into trade negotiations with enormous leverage because America is the world’s most attractive market. As President, I won’t hand America’s leverage to big corporations to use for their own narrow purposes — I’ll use it to create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices, and raise living standards worldwide. We will engage in international trade — but on our terms and only when it benefits American families.

I probably shouldn't get too hung up on the spin in her introduction, but nevertheless I'm going to point out a few things: We've gained millions of jobs from foreign companies "outsourcing" their production to the United States; I would worry just as much about the negative impact of carbon emissions from inefficient manufacturing caused by protectionism; and trade agreements have opened foreign markets to "America's family farmers." More generally, she is concerned about the influence of big corporations on U.S. trade policy. Initially, as I read the history, taking some trade policy power away from Congress and giving it to the executive branch led to diminished influence from corporations, but over time I think it's fair to say that they regained their influence. At the same time, environmental and labor groups also gained influence, which is why there are environmental and labor chapters in trade agreements.

Now on to the substance. Here is her overall vision:

A New Approach to Trade

My plan is a new approach to trade — one that is different from both the Washington insider consensus that brought us decades of bad trade deals and from Donald Trump’s haphazard and ultimately corporate-friendly approach.

Unlike the insiders, I don’t think “free trade” deals that benefit big multinational corporations and international capital at the expense of American workers are good simply because they open up markets. Trade is good when it helps American workers and families — when it doesn’t, we need to change our approach. And unlike Trump, while I think tariffs are an important tool, they are not by themselves a long-term solution to our failed trade agenda and must be part of a broader strategy that this Administration clearly lacks.

To ensure that American families benefit from international trade in the decades to come, I want to invest in American workers and to use our leverage to force other countries to raise the bar on everything from labor and environmental standards to anti-corruption rules to access to medicine to tax enforcement. If we raise the world’s standards to our level and American workers have the chance to compete fairly, they will thrive — and millions of people around the world will be better off too.

Achieving this vision isn’t about tough talk or tweets. We must do the hard work of transforming every aspect of our current approach to trade: from our negotiating process to the negotiating objectives we pursue to the way we enforce agreements. That’s what I intend to do.

First of all, let me say that I'm not sure how "new" any of this is. To me, it seems like the same basic approach: Gathering the various insider interest groups and formulating a policy based on those views. The only change is a shift in which interest group views will be most influential.

Second, it would be nice if she and her advisers provided more detailed explanations as to how they would use tariffs. She says that "tariffs are an important tool," but a tool for what exactly? For negotiating leverage? For shielding domestic corporations from competition? How will they not be abused by special interests, as they have been throughout history? Clearly, tariffs are not going away any time soon, but I'm just trying to point out to the Warren folks that tariffs were a problem long before Trump, and they cannot easily be administered strategically and effectively.

As for the point about using "our leverage to force other countries to raise the bar on everything from labor and environmental standards to anti-corruption rules to access to medicine to tax enforcement," I'll come back to this later, but just to start things off here, let me ask a few questions: Can this work? Is it the right thing to do? Are there better ways to work with poor countries to improve their living standards than imposing financial penalties on them if they do not adopt the policies we demand? 

Now she talks a bit about process:

A Trade Negotiation Process that Reflects America’s Interests

Our current approach to negotiating trade agreements works great for the wealthy and the well-connected. The negotiating text is kept confidential from all but a small set of advisory groups comprised mostly of corporate executives and industry trade group representatives. Once those corporate interests are finished whispering in the ears of our negotiators, the completed text is released. Then, under the expedited “Fast Track” procedure Congress typically uses to approve trade agreements, our elected representatives must vote up or down on the agreement with no ability to propose and secure any changes to it. Meanwhile, the negotiators who constructed it often breeze through the revolving door to take jobs with the corporations whose interests underlie the deal.

This is undemocratic and obviously corrupt. In a Warren Administration, we will negotiate and approve trade agreements through a transparent process that offers the public a genuine chance to shape it:

• Trade negotiators will publicly disclose negotiating drafts and provide the public with an opportunity to comment. When federal agencies write new rules, they typically must publish a proposed version of the rule and permit the public to submit comments on it. I will adopt a similar approach for our trade deals. Prior to negotiations, our negotiators will publish a draft of their proposals in the Federal Register, let the public offer comments on the draft, and take those comments into consideration during negotiations. And then as talks proceed, they will publish drafts of the negotiating texts so the public can monitor the negotiations.
• Trade advisory committees will prioritize the views of workers and consumers. I will ensure that there are more representatives from labor, environmental, and consumer groups than from corporations and trade groups on every existing advisory committee. And I’ll expand the current list of advisory committees to create one for consumers, one for rural areas, and one for each region of the country, so that critical voices are at the table during negotiations.
• The US International Trade Commission will provide a regional analysis of the economic effects of a trade agreement. Trade agreements can hollow out communities and transform regional economies. Yet the report the ITC provides before Congress considers a trade agreement only includes a nationwide analysis of a trade deal’s economic impact. I will push for the agency to provide a region-by-region analysis so the public and Members of Congress can understand how an agreement is likely to affect the places they live and represent.
• The congressional approval process will offer more opportunities for the public and elected representatives to shape trade agreements. I will seek expedited congressional approval of trade agreements only when every regional advisory committee and the labor, consumer, and rural advisory committees unanimously certify that the agreement serves their interests. I will also expand the list of congressional committees that must review any agreement before it is eligible for expedited consideration.

Together, these changes will ensure that our negotiations reflect the views of American families, not corporate interests.

First off, her comparison of trade agreements with domestic regulations (and their notice and comment process) seems misguided to me. I would compare trade agreements to statutes, and there the process is very opaque. Trade agreement negotiations are probably a good deal more transparent in many cases. Regardless, I suppose you could have notice and comment for trade agreement texts. But if you include the detailed regulatory issues that she seems to want included, you might never see a trade agreement concluded.

As for putting more labor, environmental, and consumer groups on the advisory committees, that's fine, but my impression is that some of the groups out there are really just protectionist front groups who would never accept any trade liberalization, and if you give these folks a big say here, you might never get a trade agreement approved.

And finally, having the ITC do a regional analysis seems fine in theory (I'm not sure how difficult this will be in practice), but while we are expanding the ITC's role, I think they should do an analysis of any new tariffs. It would be helpful when deciding whether to impose tariffs to have a sense of all the people who would be adversely affected.

Now we get to the part about using U.S. economic power to influence developing countries:

Using Our Leverage to Demand More for American Families and to Raise the Global Standard of Living

While a better process will produce better agreements, we also must fundamentally shift the goals of our trade agenda so they are aligned with the interests of America’s families.

With certain important exceptions, we live in a low-tariff world. Modern trade agreements are less about the mutual reduction of tariffs and more about establishing regulatory standards for everything from worker rights to pollution to patent protections.

My approach to trade reflects that reality. For too long, we have entered into trade deals with countries with abysmal records on labor, environmental, and human rights issues. In exchange for concrete access to the American market, we get vague commitments to do better, which we then hardly enforce. The result is that millions of people in our trading-partner countries don’t gain the benefits of higher standards — and companies can easily pad their profits by shifting American jobs to countries where they can pay workers next to nothing and pollute the air and water freely.

That will end under my Administration. I am establishing a set of standards countries must meet as a precondition for any trade agreement with America. And I will renegotiate any agreements we have to ensure that our existing trade partners meet those standards as well.

My preconditions are that a country must:

• Recognize and enforce the core labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.
• Uphold internationally recognized human rights, as reported in the Department of State’s Country Reports on Human Rights, including the rights of indigenous people, migrant workers, and other vulnerable groups.
• Recognize and enforce religious freedom as reported in the State Department’s Country Reports.
• Comply with minimum standards of the Trafficking Victims Protection Act.
• Be a party to the Paris Climate agreement and have a national plan that has been independently verified to put the country on track to reduce its emissions consistent with the long-term emissions goals in that agreement.
• Eliminate all domestic fossil fuel subsidies.
• Ratify the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
• Comply with any tax treaty they have with the United States and participate in the OECD’s Base Erosion and Profit Shifting project to combat tax evasion and avoidance.
• Not appear on the Department of Treasury monitoring list of countries that merit attention for their currency practices.

A country should only be considered an acceptable partner if it meets these basic standards. Shamefully, America itself does not meet many of these labor and environmental standards today. I am committed to fixing that as President. And to help bring other countries up to these standards, I’ll revitalize our commitment to providing technical assistance to help countries improve.

I will also go beyond these minimum standards in key areas to promote the interests of American workers and families.

In my view, a good way to raise the global standard of living would be to encourage development by buying products from poor countries. But Warren has something else in mind: She wants to restrict trade until these countries bring their labor/environment/etc. standards up to our level. But is that even possible? Does the sequence have to go in the other direction, where first developing countries use trade as one element in their industrial economic growth, and then later they can raise their regulatory standards?

As to the specific conditions she would impose, with a lot of them, I think she is missing the point of trade agreements. There are a number of areas where she seems to be trying to carve out the ability to be protectionist:

Labor. I will ensure trade agreements protect Buy American and other programs designed to develop local industry, contain strong rule-of-origin standards to promote domestic manufacturing, protect worker pensions, promote equal pay for equal work for women, and prohibit violence against workers. Unlike previous trade deals agreements that have put labor standards in side agreements that are difficult to enforce, I will make labor standards central to any agreement.

Climate Change and the Environment. Climate change is real, it’s man-made, and we’re running out of time to address it. America should be leading this fight, but we have turned our backs on our responsibilities — with communities of color in the U.S. and developing countries bearing a disproportionate amount of the harm.

Trump is moving us in the wrong direction — withdrawing from the Paris Climate Accord, renegotiating NAFTA without even a mention of climate change, and handing special carve outs to oil and gas companies.

Beyond requiring implementation of the Paris Climate accord and the elimination of fossil fuel subsidies as preconditions for any trade agreement, I have already proposed a Green Marshall Plan to dedicate $100 billion to helping other countries purchase and deploy American-made clean energy technology.

But we must do more. I will push to secure a multilateral agreement to protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges. And because big corporations will move their production to the countries with the weakest greenhouse gas emissions standards — undermining global efforts to address climate change and penalizing countries that are doing their part — I will impose a border carbon adjustment so imported goods that these firms make using carbon-intensive processes are charged a fee to equalize the costs borne by companies playing by the rules.

Prescription Drugs. Last year, Americans spent more than $500 billion on prescription drugs. That’s a 50% increase since 2010. Nearly 3 in 10 Americans report not taking their medicine as directed because of costs. And yet, one of the core elements of America’s current trade agenda is guaranteeing pharmaceutical firms monopoly protections so they can avoid competition from generic drugs — driving up costs and reducing access to necessary medicine abroad, and undermining our efforts to reduce drug prices here at home. That’s exactly what the Trump Administration has done as part of their failed effort to renegotiate NAFTA.

While medical innovation is important, there is no link between extremely long exclusivity periods and pharmaceutical innovation. These are giveaways to drug companies, plain and simple, which allow them to maintain ludicrously high drug prices.

As President, I will fight to bring down the costs of prescription drugs here and around the world. I will never use America’s leverage to push another country to extend exclusivity periods for prescription drugs. I will support efforts to impose price controls on pharmaceuticals. And I will actively seek out opportunities to reduce exclusivity periods in our existing trade deals in exchange for securing other changes that will help America’s working families.

Agriculture. For decades, trade deals have squeezed family farmers, with Black farmers losing their land particularly quickly. Between the trade fights incited by Trump’s haphazard tariffs and a series of natural disasters, America’s farmers are now facing the worst crisis in almost 40 years. They are also facing unprecedented levels of uncertainty and instability. Trump’s tariffs have reduced crop prices, threatened farmers already operating on razor-thin margins, and opened up new non-American markets against which our farmers are now forced to compete. Like trade deals of the past, Trump’s NAFTA 2.0 is written to help giant multinational agribusinesses at the expense of family farms, and it will do nothing to solve the newly created market insecurity Trump’s tariffs have caused.

As President, I will fight for trade agreements that reward American farmers for their hard work by negotiating for fair prices for goods, breaking up the monopolies in grain trading and meat packing, and protecting domestic markets to create stability for America’s family farms. And I will impose Country-of-Origin Labeling rules to protect American producers and provide transparency to consumers.

Consumer protection. We must ensure that the food we eat is high-quality and safe. But our trade agreements have limited safety standards and the inspection of imported foods, while simultaneously enabling a new flood of food imports that overwhelm food safety inspectors. In my Administration, our trade pacts will require imported food to meet domestic food safety standards, including enhanced border inspection requirements.

As with imported food, our current trade deals require us to allow imports of other products and services that do not meet domestic safety and environmental standards. My trade agreements will ensure that imported products and services must meet the same standards as domestic products and services.

Antitrust. We are in an era of massive consolidation across many sectors of the economy. One of the reasons why is that we have a narrow, permissive approach to mergers that looks only at economic efficiency and consumer welfare instead of assessing the impact that a merger will have on competition itself.

In recent years, we have added this problematic standard into trade agreements and proposed it as the defining objective for competition policy in new and renegotiated agreements. Under my administration, we will not propose this standard in any new agreement, and we will work to renegotiate agreements to remove it.

A problem with a lot of the points she makes above is that she is arguing for economic nationalism, which is the main thing (in my view) trade agreements are intended to get rid of or limit. She mentions Buy America programs "designed to develop local industry"; strong rules of origin standards "to promote domestic manufacturing"; helping other countries purchase and use "American-made clean energy technology"; and using country of origin labelling to "protect American producers." If you follow this approach, others are likely to do so as well, which will lead to trade wars and inefficient production.

Speaking of trade wars and inefficient production, a multilateral agreement to "protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges" could also be a big problem. What would make more sense is a policy of subsidizing consumers of these products (rather than producers), which for the most part should not be in conflict with trade agreements.

There is also her usual criticism of pharmaceutical companies, which I'm fine with, but intellectual property protection is complicated. Is she really going to be against all of it? I suspect she will decide to compromise on these issues, and will seem a lot less like a warrior against big companies if she is president.

With regard to food safety, I've heard statements such as "our trade agreements have limited safety standards and the inspection of imported foods" before, but I'm not sure what they mean. I followed her link, but I am deeply skeptical that trade agreements would constrain the implementation of our safety and inspection standards. If anyone involved in these activities is concerned, I hereby volunteer my time to help navigate the trade obligations!

Finally, on antitrust, those provisions tend not to be enforceable in trade agreements, but regardless I'm fine with taking them out and dealing with international antitrust cooperation elsewhere.

She also wants to take ISDS out:

Delivering for American Families with Stronger Enforcement

Our approach to enforcing trade agreements drives down standards worldwide and undermines American families. We offer big corporations fast and powerful methods to enforce the provisions that benefit them but make it nearly impossible for Americans to enforce labor and environmental protections. Foreign governments only fear a challenge to strong rules that might hurt corporate bottom lines, not to weak rules that might not adequately protect workers, the environment, or public health.

I will entirely reorient our approach to enforcement so we drive standards up, not down. I’ll start by ending “Investor-State Dispute Settlement,” or ISDS, the favorable enforcement approach we offer corporations. Under ISDS, a company that believes that a new law violates some aspect of a trade agreement can skip the courts and challenge the law before an international panel of arbitrators. If the company wins, the panel can order that country’s taxpayers to pay out billions in damages — with no review by an actual court. What’s worse, the arbitration panels handing out these binding rulings are often made up of corporate lawyers whose day jobs are representing the very same companies that seek judgments before them.

Companies have used ISDS to undermine laws intended to benefit the public interest. A French company challenged Egypt when it increased the minimum wage. A Swedish company challenged Germany when it decided to cut back on nuclear power after the Fukushima disaster. These cases have real effects across the globe: an ISDS panel’s decision to hear a challenge that Philip Morris brought against Uruguay’s anti-smoking campaign prompted several other countries to abandon similar public health efforts.

As President, I will not include ISDS in any new agreement and will renegotiate existing agreements to remove ISDS from them.

No one will be surprised to hear that I'm on board with that. And just in case she wasn't thinking beyond procedural issues, I think it's worth considering the substantive obligations as well.

And she has an institutional innovation on labor/environment enforcement:

And I’ll strengthen our approach to enforcing labor and environmental standards. Unlike a corporation under ISDS, a labor union seeking to enforce labor standards can’t bring a claim on its own — it must convince the federal government to bring a claim on its behalf. Even in the face of overwhelming evidence, our government can refuse to act for diplomatic or other unrelated reasons.

As a result, the federal government has only pursued one such claim in the last 25 years. In that one case, the American government, AFL-CIO, and Guatemalan unions spent nine years trying to challenge the Guatemalan government for violating the labor chapter of one of our trade deals because Guatemalan workers were being murdered for trying to join a union. In the end, we lost because the trade agreement required a showing that the violations had affected trade.

I will replace this broken process by creating independent commissions — made up of experts in the area — to monitor potential violations, respond to complaints, and investigate claims. The commissions must review and investigate claims promptly so that claims don’t languish for years. If one of these commissions recommends that the United States bring a claim against another country, the United States will be required to do so, without exception.

I will also fix the problem that arose in the Guatemala case by pushing to remove language from our deals that require us to show that a violation of rights was “sustained or recurring” and “affecting trade or investment.” A violation is a violation, and I won’t let another case like Guatemala happen ever again.

I'm not sure what to make of the commissions. Would it be easier just to let the labor department decide whether to bring cases?

And is the USMCA fix to the language that was a problem in CAFTA sufficient?

Finally, she makes a few other points related to enforcement:

I will strengthen our enforcement approach in other ways as well:

• Under WTO rules, a country designated as a “non-market economy” can face more serious trade penalties. I will push for a new “non-sustainable economy” designation that would allow us to impose tougher penalties on countries with systematically poor labor and environmental practices. We cannot allow countries that treat their workers and the environment poorly to undercut American producers that do things the right way.
• I already have a plan to move the lead American trade negotiator — the Office of the United States Trade Representative — within my new Department of Economic Development. That will ensure that America’s trade policy supports our broader economic agenda of defending and creating good American jobs. I will also create a new labor and environment enforcement division at the USTR to more effectively enforce obligations, and embed a labor attache at U.S. embassies to monitor compliance with our labor standards.
• Unlike the current approach that lets our government ignore unfair trade practices, my administration will create automatic triggers to initiate investigations into unfair trade practices. If those investigations produce compelling evidence of a violation, the Department will impose trade remedies immediately until the offenders show they are no longer engaging in an unfair trade practice. These automatic triggers will also apply to violations of labor and environmental standards.
• Finally, when we impose duties to support particular domestic industries, I want to ensure that the money we collect actually goes to American workers, instead of being sucked up by executives and shareholders. I will fight to change our trade laws so that we review duties every six months and lift the duties if companies can’t demonstrate the benefits of the duties are going to their workers.

On these last points, I'm skeptical of the “non-sustainable economy” designation, but I want to hear more about it. "Non-market economy" status is a part of trade remedies. Would “non-sustainable economy” status be part of this as well? Or part of GSP? I'll just reiterate what I asked earlier, which is, are there better ways to work with poor countries to improve their living standards than imposing financial penalties on them if they do not adopt the policies we demand? 

The final two points seem like a trade-off. Automatic triggers for "unfair trade practices" seem unnecessary, as we are pretty aggressive already. But I'm fine with removing the duties if workers aren't beneftting.

So that's my critique of what she did say, and it must seem like I would melt down under a Warren presidency. On the other hand, there's a lot she did not say, which perhaps suggests there is room for rules-oriented, trade liberalization supporters like myself to find ways to support a Warren administration on trade policy. I'll talk about those possibilities in the next post.

Guest Post: Some Remarks on “Who writes the Rulings of the World Trade Organization? A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement”

This is a guest post by Pieter Jan Kuijper

 Some Remarks on

 “Who writes the Rulings of the World Trade Organization?

A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement”

By Joost Pauwelyn & Krzysztof J. Pelc[1]

The paper concentrates entirely on the role the WTO staff assisting panels and the Appellate Body (AB) in the preparation for and the drafting of panel and AB reports. It argues that the role of the staff in these tasks has become too important relative to that of the members of these (quasi-)judicial bodies. This has led to a number of “failings” in the panel and Appellate Body reports, which are at the root of many of the objections leveled by the US over the last two years against the functioning of AB. As is generally known, these US objections have been converted into an unwillingness to fill vacancies in the AB and will result in the AB’s probable destruction by year’s end. The authors also affirm that they do not want to express themselves on the merits of the US objections beyond signaling that other Members disagree strongly, thus taking these objections de facto as given.

The paper is interesting where it uses a new computerized technique of recognizing writing style as a means to identify the author(s) of panel and AB reports. One may well wonder, however, whether the conclusion that panel and AB staff wrote a large parts of these reports was not already known from interviews with and writings of staff, panel and AB members. Still, it is good to have a confirmation.

The paper falls short as far as its references to legal cultures of assistance to the highest courts are concerned. The only comparators are some international courts, mainly arbitration tribunals and the ICJ, and the US Supreme Court. Especially making this last court into the only national court that the WTO system is compared to is a recurrent, but still objectionable, error in WTO scholarship, especially in the US.[2] This makes the panels and the Appellate Body and their staffs seem exceptional, because they are different from the ICJ and the Supreme Court. It creates the impression that the paper caters primarily to an American audience and thus makes it less convincing to audiences elsewhere.

In many ways the panels and the AB show quite some parallels to the Cours de Cassation and the Highest Administrative Courts in civil law countries.[3] These systems use “precedent”, but not stare decisis, just like the AB and the panels. (In reality this so-called “precedent” is nothing more than consistency over time.) Nevertheless in these systems it is possible to force a change in the “precedent”, if the lower court properly distinguishes a new case from a “precedent” or shows clearly and convincingly that the “precedent” of the highest Court cannot, or no longer, withstand scrutiny. This is not that far from the standard that the Appellate Body laid down in its case law: “cogent reasons” - which therefore is not at all exceptional.

Judges in these systems are assisted not just by their courts’ registrar and his staff, but often also by research lawyers. All these people are civil servants (mostly on a permanent contract). Think about the staff of the Cours de Cassation and the staffs of the Conseils d’Etat in many European countries and countries inside and outside Europe that have been within their legal sphere of influence. Moreover these civil service assistants of the highest courts in civil law systems remain anonymous, just as in the case of the panels and the AB. So there is nothing strange or exceptional about this arrangement – an impression the authors create because they have not included the civil law countries in their research.

Obviously, the somewhat skewed power relations between full time staff and part time judges do not exist in those systems, because the (permanent) judges at that level are equally smart and have often more experience than their (civil servant) assistants. The power between judges and assistants is more equally balanced than in the AB and in Panels. But that demonstrates that there is another, and in my view better, alternative than clip the wings of the staff of panels and the AB, namely appoint AB Members on a full time basis with a serious salary. (By the way, I remember from the last phase of the Uruguay Round negotiations that this was seen as a possible outcome, if after a number of years the AB would have a serious docket.) In the same way panel members should be much better paid than is actually the case. That would attract a different caliber of person, create a good balance between “judges” and their professional staff, and lead to an even higher quality of reports.

The authors largely spare the Members of the WTO this solution[4], because we all know many of them will not like that, but it is no good reason to lay the brunt of the solution of this “problem” only on the Secretariat. That amounts to punishing the Secretariat because they are too good, whereas the real problem is that the “judges” may be not (or no longer) good enough and/or not capable or willing to spend the necessary time on the job, given the remuneration they are getting.

Another example of saddling the staff with the sins of the Members can be found in the discussion of panel selection. The dysfunction of the method of panel selection consists in the parties to a dispute being increasingly unhappy with proposals for panel members from the Secretariat and incapable of agreeing on panel composition, so that the Director-General of the WTO nowadays must appoint all or some panel members for a large number of panels. This is a problem that can largely be laid at the feet of the Member States, but the authors fail to note this. They argue that it leads to the Legal Affairs Division (LAD) staff appointing their “own” panels and from there, implicitly, the staff may well lead them into the temptation of “overreach.” They even suggest that it is regrettable that in such situations the panel members or the Member States have no control over the WTO staff, “let alone the power to terminate their contracts”(p. 23). Obviously the panel members have power over the staff that is assisting them, if only the State Members were appointing panel members who had the wish to use their authority over their panel’s staff (see above). As to terminating contracts, if a staff member really would have misbehaved, a Member State can complain to the Director-General and he would be duty bound to look into such a complaint.[5]

More generally, cassation systems as a comparator for the panels and the Appellate Body also serve as a better explanation for the way in which the AB has dealt with the line between law and fact. All these systems have come to the same conclusion as the AB: there comes a moment where it is obvious that the lower court has maltreated the facts in such a serious way that it stains, it infects the law of the lower court’s judgment. That is when facts become law and the cassation court must yet have the possibility to intervene. Moreover, cassation systems know no dissenting opinions. The AB does know them, but in the early years it was not encouraged, probably rightly so. Now it is making its way more and more into AB reports, only a serious alternative reasoning is still lacking. That might well have come in due time, if only the AB had been given this time.

A perspective that is also sorely lacking is what it means for a member of LAD or the AB Secretariat to be an international civil servant for the WTO and the duties which that brings. That means that you are loyal to the WTO and its objectives, one of these being high quality dispute settlement without any preference for any Member. Being such a civil servant means that you have to be worried about consistency between panels among themselves (something that I was constantly worried about when serving as LAD director in order to avoid the impression that like cases where not treated alike) and between the panels and the Appellate Body (for the obvious reason of hierarchy). It means that you have to be elaborate in explaining the reasons for a certain outcome of the report and that you want to err on the safe side in your reasoning so that the party that loses will fully understand why. These are not quaint habits of the Staff of LAD and of the AB, they are inherent in their duties, but they are also widely shared by panel and AB members in my experience. They cannot be declared to be a weakness of the system, like the authors do; to the contrary, they are an indispensable part of its strength.

Similarly, it must not be considered impossible that the same loyal staff members, convinced by particularly valid arguments of a party before the panel that he or she serves, and after discussion with the panel’s members, comes to the conviction that a “precedent” is not or no longer tenable and that it is in the best interest of the WTO and its dispute settlement system to change it. He/she then helps the panel write a report that is full of good arguments as to why the AB should change its case law on the matter. The authors seemingly consider this inherently impossible and believe that the average staff member is a mindless word pusher who will repeat the exact same formula from an earlier AB report without any necessity. One may well wonder how it was possible then for anti-dumping panels and the AB to differ for such a long time on the question of the fairness of the zeroing technique in calculating dumping margins. Moreover, one cannot say that the AB is not adaptable to new insights; the evolution of the tuna/dolphin case law is an example that comes to mind.

The presumption that the average staff member is, to the contrary, usually a conscientious and neutral person, was also the reason why during the Uruguay Round it was self-evident to the negotiators that they had to continue the GATT system of Secretariat involvement in assistance to panels and why there should be no individual law clerks in the AB. Better that the AB should be assisted by people who had to be professionally neutral and give advice in the interest of the WTO dispute settlement system than that every AB Member would bring an assistant from his own country, who in all likelihood would have the same legal background as his/her boss. This would mean that the influence of the legal systems of the (semi-) permanent members of the AB (US, EU, China) would become even more entrenched. Now the AB gets more of a chance to be influenced by e.g. Japanese and Latin-American legal styles as well, if the representatives of these legal systems do not sit on the AB. People from those systems may well be on the support staff, but can be counted on to be loyal to the WTO first.

It was noted at the beginning of this review how the authors wanted to keep their distance from the battle between the US and other WTO Members. However, it is impossible to take dispassionate scholarship that far. First, because the scholarship may be too narrow, as I tried to argue above. Taking into account that next to international law and common law, civil law also had considerable influence on WTO dispute settlement rules would have shown that many of these so-called “failings” have their roots in well-established principles of civil law systems. They are not quaint or tyrannical or plucked out of thin air. They have been tested in existing systems of law. If they are considered too “European”, let the Members negotiate about that, but let us not pretend that this is the consequence of too much influence of the secretariat. Second, if one makes that much abstraction from the realities of the conflict that is going on, one runs the risk, as I have tried to demonstrate above, that one blames the panel and AB staff for problems largely caused by the Member States themselves.  The authors thus create the impression, in the highly charged debate about the incipient disappearance of the Appellate Body, that they are planting a knife in the back of the WTO’s Legal Affairs Division staff and the Appellate Body Secretariat. That is neither what the people working there deserve, nor, I hope, what the authors intended.

 

P.J. Kuijper

Emeritus Professor of the Law of International (Economic) Organizations

University of Amsterdam.

 

[1] Available at SSRN: https://ssrn.com/abstract=3458872 or http://dx.doi.org/10.2139/ssrn.3458872

[2] “European” scholarship on the WTO is also Europe centered in many instances and seems to concentrate in particular on how the EU courts and the WTO ‘courts’ deal with those aspects substantive law, which are closely aligned in the two systems, since the EEC of 1958 originally borrowed, not to say copied, from for instance, the exceptions of Article XX GATT, and from Article III GATT on internal fiscal discrimination.

[3] It is common knowledge that the first drafts of the GATT dispute settlement rules were largely borrowed from the Swiss arbitration statute of the 1950’s.

[4] Actually the authors, at the end of their article and with little connection to the body of the text, also mention the possibility of nominating “stronger” judges as their last recommendation, but they persist in their belief that the support staff of panel even then needs to be curtailed. This is absolutely unnecessary in my view for reasons explained in the text.

[5] Which has the additional advantage that any sanctions against such a staff member could be tested before the Administrative Tribunal of the ILO, which also services WTO administrative cases.

The U.S.-Japan Trade Deal: Can a Political Agreement Liberalize Trade Without Institutions?

The U.S. - Japan trade deal was signed today. USTR provides the legal texts here. Based on the various fact sheets, it looks like the agreement contains a modest amount of tariff liberalization. Let's look briefly at what's in the deal, focusing on four questions: (1) How much liberalization is in there? (2) Is this deal legal under WTO rules? (3) What is the impact of doing a U.S. trade deal as an executive agreement without Congressional approval? And (4) without dispute settlement provisions, how will the agreement be enforced?

First, with regard to how much liberalization is in there, it is much less than a comprehensive FTA, as services, procurement, etc. are not covered by this deal. Also, from what I can gather so far from the fact sheets (but I'll look at this in more detail soon), even the goods liberalization is less than the TPP. Japan is lowering tariffs on some agricultural sectors (as it would have under the TPP, but slightly less in this deal), and the United States will lower tariffs on a few industrial products, as well as some agricultural products.

Related to this, when you talk about bilateral tariff reductions, there is always the question of determining the nationality of the traded products, using rules of origin. But it doesn't seem like this agreement sets out any such provisions. Are there default rules that apply? Will it have to be sorted out later through some sort of implementing regulation? [Correction: The rules of origin are in the annexes, here and here]

With regard to other tariffs, I thought there would be a promise by the United States not to use Section 232 to impose additional tariffs on imports of Japanese autos/auto parts, but I don't see that in the texts released today. The practical answer might be that if the Trump administration imposes these auto/auto parts tariffs, Japan will just withdraw from the agreement, pursuant to Article 10 ("Either Party may terminate this Agreement by providing written notice of termination to the other Party. The termination shall take effect four months after the date on which a Party has provided that written notice to the other Party, or on such other date as the Parties may decide.")

Lastly on liberalization, there is a separate digital trade agreement, which at first glance roughly mirrors the TPP and USMCA digital chapters (but please point out any important differences you see).  My sense is that nobody expects this part to have much impact on current Japanese or U.S. policy in this area, as these countries are in general agreement on the issues.

Second, there is the question of how an agreement with such limited coverage could be consistent with WTO rules. Would this deal qualify as an "interim agreement" under GATT Article XXIV? Article XXIV:5(c) says: "any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time." So far, I don't see "a plan and schedule" for a comprehensive FTA, but perhaps one is coming. (A fact sheet says only this: "The United States looks forward to further negotiations with Japan for a comprehensive agreement that addresses remaining tariff and non-tariff barriers and achieves fairer, more balanced trade.")

A related issue is, what will other governments think of all this? For all of the products at issue, there are likely to be producers in other countries who will be adversely affected by the U.S.-Japan tariff reductions. Will they be aggressive about enforcing WTO rules against both Japan and the United States? Or will they just be happy the Trump administration is liberalizing and too afraid to complain?

Third, what exactly is the significance of not having Congress sign off on this? One clear implication is that the president can withdraw from the agreement without getting the permission of Congress, which seems like a power President Trump would want, given his frequent threats to withdraw from this or that trade agreement. I can see why the Trump administration would prefer this type of short-term, political agreement.

This arrangement is also interesting in terms of the digital trade agreement. One could imagine that, for example, a future President Warren would want to regulate the tech sector in a way that infringes on these digital trade rules. Having this agreement as an executive agreement would be less constraining (not that I think the Trump administration had this in mind; I'm just saying that would be the impact).

And fourth, what we have here seems to be a bilateral agreement to reduce tariffs, but without all the usual governance chapters, such as a chapter on dispute settlement. In terms of disputes, from what I saw there is only this:

Article 6

No later than 30 days after a request by either Party, the Parties shall enter into consultations regarding any matter that might affect the operation or interpretation of this Agreement, with a view to arriving at a mutually satisfactory resolution of the matter within 60 days.

Without a full set of litigation, implementation, and compliance provisions, will any of these new legal obligations be enforceable? Perhaps the idea is that these tariff commitments are so narrow and clear that there are not likely to be any violations, so a full dispute settlement chapter is not necessary. Or perhaps the idea is to continue the push away from multilateral dispute settlement, and rely instead on negotiations and/or unilateral tariffs as the enforcement mechanism.

Clearly, there are still some open questions about this deal. My guess is that we will get some answers soon.

The historical references in the U.S. First Submission in United States-Certain Measures on Steel and Aluminum Products

The United States’ First Submission for United States-Certain Measures on Steel and Aluminum Products is out. Similar to its third-party submissions in the Russia-Traffic in Transit dispute, the United States argues the drafting history of the International Trade Organization (ITO) supports an understanding that Article XXI GATT is, and has always been meant to be, “explicitly” self-judging. The U.S. declares, “[t]his has been the consistently expressed view of the United States for more than 70 years.” (U.S. First Submission, para. 2). Elsewhere, I explain why the U.S. history on this subject is complicated, and not as consistent as suggested. The U.S. also offers a new argument since the Russia-Traffic in Transit dispute - that the makers of the exception believed the only appropriate recourse was non-violation nullification or impairment claims by those members affected by measures taken under the security exception.

This post is limited to consideration of a bulleted list of statements meant to confirm that the exception was purely self-judging (U.S. First Submission, para. 169):

* In a July 1947 meeting, the U.S. delegate observed that in situations such as times of war, “no one would question the need of a Member, or the right of a Member, to take action relating to its security interests and to determine for itself—which I think we cannot deny—what its security interests are.

* In the same meeting, the Chairman stated “in defence of the text,” that, when the ITO was in operation, “the atmosphere inside the ITO will be the only efficient guarantee against abuses” of the essential security exception. 211

* A November 1947 summary of the draft ITO charter states that the essential security exceptions would permit members to do “whatever they think necessary to protect their essential security interests relating to” the circumstances presented in that provision. 212

* In January 1948, a representative from India “expressed some doubt” about whether “the bona fides of an action allegedly coming within [the essential security exception] could be questioned.” 213

* Also in January 1948, the ITO charter negotiators declined to incorporate an explicit reference to nullification or impairment into the essential security provision. 214 As the United States noted at the time, a reference to nullification or impairment in the essential security provision was “unnecessary” in light of the existing text. 215

* Around the same time, a Working Party of ITO negotiators decided to retain the nonviolation provision based on their conclusions that essential security actions “would be entirely consistent with the Charter, but might nevertheless result in the nullification or impairment of benefits accruing to other Members,” and that “[s]uch other Members should, under those circumstances, have the right to bring the matter before the Organization, not on the ground that the measure taken was inconsistent with the Charter, but on the ground that the measure so taken effectively nullified benefits accruing to the complaining Member.”

The goal of this post is to expand and comment on the context of the historical references made by the U.S. I think the question now is whether it appears that the drafters of the ITO Charter/GATT believed that the availability of non-violation nullification or impairment claims meant the exception was never subject to review to determine whether an action was of the type mentioned in the security exception. Moving forward, with the language of the exception the same, but the WTO quite different from the intended ITO, do we – or should we – still think the same way? As Nicolas Lamp asks: Is the nullification or impairment of benefits what really matters?

First bullet:

This quote was later corrected in the verbatim report. When asked the meaning of the phrase “In time of war or other emergency in international relations,” John Leddy of the U.S. delegation replied that in time of war, “I think no one would question the need of a Member, or the right of a Member, to take action relating to its security interests in time of war and to determine for itself– which I think we cannot deny – what its security interests are.” The corrigendum to the verbatim report clarified a crucial caveat to Leddy’s words, which I underlined: “in time of war.” Moreover, Leddy emphasized “the limitation I think, is primarily in the time.” E/PC/T/A/PV/33/Corr.3.

Leddy continued: “As to the second provision, “or other emergency in international relations,” we had in mind particularly the situation which existed before the last war, before our own participation in the last war, which was not until the end of 1941.” He goes on to explain: “It is really a question of balance. We have got to have some exceptions. We cannot make it too tight, because we cannot prohibit measures which are needed purely for security reasons. On the other hand, we cannot make it so broad that, under the guise of security, countries will put on measures which really have a commercial purpose.” E/PC/T/A/PV/33 at 20.

It also bears mention that Leddy had explained that the U.S. negotiators “thought it well to draft provisions which would take care of real security interests and, at the same time, so far as we could, to limit the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstance.” E/PC/T/A/PV/Corr.3 [emphasis mine].

Second bullet:

Erik Colban, Chairman of the Committee, observed: “when the ITO is in operation I think the atmosphere inside the ITO will be the only efficient guarantee against abuses of the kind to which the Netherlands Delegate has drawn our attention.” E/PC/T/A/PV/33 at 21. The U.S. argues this reference meant the Members would “police each other’s use of the essential security through a culture of self-restraint.” (U.S. First Submission, para. 66). I will note that Colban’s remarks do not suggest non-reviewability. Drawing from Robert Hudec and Andrew Lang, the reference to “atmosphere” signals how the delegations recognized the need to embed diplomacy within the institution for the embryonic dispute settlement mechanism. However, “atmosphere” may not be an alternative to a review via the ITO dispute settlement procedure. Rather, the “atmosphere” was an assumed aspect of the structure that supported the formal process. I did not see it as a sign that the ITO bodies (the Executive Board or Conference of Members) could never review the legality of the measure.

Third bullet:

The informal summary of the draft ITO Charter (November 1947) certainly seems to accord significant deference to the Members to determine what they believe is “necessary” in taking security actions. I remain cautious that this single summary does not evidence that the exception is self-judging in nature and non-justiciable. A few pages before this quote, the summary explains that “the Preparatory Committee gave only a limited time to the study [of the Settlement of Differences – Interpretation chapter] and that a full re-examination by the World Trade Conference will be desirable.” Moreover, there is no specific exclusion of the general exception from the scope of the dispute settlement mechanism.  A final observation is that the summary was designed “for the non-technical reader” and “does not claim to deal with every aspect of every Article of this highly complex document.” E/Conf.2/Inf.8.

Fourth bullet:

In January 1948, the UK delegation submitted an amended draft security exception. Sub-committee I (Article 94) was composed to review it, and there were nine meetings held (eight meeting notes were found by the WTO library). In the fourth meeting, there was elaboration of the UK draft Article 94(2):

If any action taken by a Member under paragraph 1 of this Article nullifies or impairs any benefit accruing to another Member directly or indirectly the procedure set forth in Chapter VIII of this Charter shall apply and the Organization may authorize such other Member to suspend the application to the Member taking the action of such obligations or concessions under or pursuant to this Charter as the Conference deems appropriate; provided that where the action is taken under paragraph 1(d) of this Article the procedure set forth in Chapter VIII of this Charter shall not apply until the United Nations has made recommendations on or otherwise disposed of the matter.

The draft proposed stemmed from the UK desire to confirm applicability of the nullification or impairment procedure (then Articles 89, 90 of the Charter) to the security exception. Later in the discussion, the UK delegation explained it would be satisfied if “the applicability of Articles 89 and 90 [were] written into the record rather than incorporated in the actual text of Article 94.” The UK delegation also confirmed there was no desire to “exclude the ITO from participation in the ultimate solution of a matter after the United Nations had acted.”

The U.S. delegation offered a preliminary opinion that Article 94(2) was “unnecessary” because “the [language was] in effect [] a repetition of paragraph (b) of Article 89 [the dispute settlement procedure that would apply, regardless of whether or not a measure conflicts with the provisions of the ITO Charter].” There is no further confirmation from the U.S. that their comment on the UK draft confirmed or denied the possibility of review of security-related actions, whether as a violation or a non-violation of the Charter. The emphasis on “unnecessary” may not signal the exception was self-judging. The UK draft was just repetitive. This was not the first time the U.S. refused to tie a provision to the dispute resolution procedure; and the reason was the same as cited here: there was no need to repeat the dispute resolution procedure in every area of the Charter. E/Conf.2/C.6/W.60.

Fifth bullet:

In the same fourth meeting of Sub-Committee I (Article 94), the Indian representative “expressed some doubt” as to whether under the UK’s draft Article 94(2) “the bona fides of an action allegedly coming within Article 94 could be questioned and also whether such an action could be countered collectively by Members of the Organization or only by affected Members individually.” While agreeing to consider the text, the Indian delegation added that it was their understanding that the “intention” of the UK proposed draft was to confirm that “counteraction” was limited to “compensatory action” and not “punitive action.” Yet, it is unclear whether the Indian position was that there should be review of the security exception and the UK draft failed to guarantee that, or whether there the security exception should be purely self-judging in nature. E.Conf.2/C.6/W.60.

The next meeting only confirmed agreement to create a new provision from Article 94(1)(d) and (2) in a new Article “Relations with the United Nations,” and further discussion on measures brought before the United Nations as directly related to political matters.

There was also a bit more to the story in Sub-Committee I. In the first meeting, the Indian delegation had argued for the expansion of the exception to cover all “essential national interests.” E/Conf.2/c.6/w.26. The Indian delegation explained in the second committee meeting that the delegations should “reach some understanding on the applicability of Articles 89 and 90 [the dispute settlement procedure] to action represented as falling within Article 94.” The Indian delegation continued:

If such action is subject to the procedures of Articles 89 and 90 it would be open to other Members or to the Organization to inquire into the purpose for which the action was taken and, accordingly, to take or authorize counter action if at the time it appeared that the provisions of Article 94 were being abused. The knowledge of the possibility of such counter action would serve as a deterrent to any misuse of the exceptions.” E/Conf.2/c.6/w.32.

In the third meeting the committee accommodated the Indian delegations’ concerns for essential security interests and would suggest that another appropriate committee (tasked with reviewing the commercial policy chapter) consider an exception for actions “necessary for the maintenance of ‘public order or safety’ (this was for Article 43 of the draft Charter which later became Article XX of the GATT). E/Conf.2/c.6/w.40.

The report of the third meeting also provides that “some” delegations believed “that action taken under Article 94 could not be prevented, or questioned, under other articles, but that the effects of that action might be the subject of consultation or complaint, and that a member affected by such action might accordingly seek release from some corresponding obligations.” E/conf.2/c.6/w.40. The meeting closed without further comment, and this question was not picked up again in the materials I was able to review. Other committees did address the relationship between Article 89, 90 and 94, particularly two sub-committees tasked with reviewing the organization and dispute settlement provisions (Sub-Committee G of Committee VI (Organization) and Sub-Committee on Chapter VIII (Settlement of Differences – Interpretation, respectively). Sub-Committee G is the subject of the final bulleted statement.

Sixth bullet:

Sub-committee G of Committee VI (Organization) was tasked with considering the relationship between the draft Charter’s nullification or impairment procedure (Article 89) and the invocation of the security exception. E/Conf.2/C.6/W.30. The report confirmed the committee decision to retain Article 89(b), which permitted non-violation complaints of nullification or impairment. They reported the procedure “would apply to the situation of action taken by a Member[,] such as action pursuant to Article 94 of the Charter.” Sub-committee G confirmed that:

Such action, for example, in the interest of national security in time of war or other international emergency would be entirely consistent with the Charter, but might nevertheless result in the nullification or impairment of benefits accruing to other Members. Such other Members should, under those circumstances, have the right to bring the matter before the Organization, not on the ground that the measures taken was inconsistent with the Charter, but on the ground that the measure so taken effectively nullified benefits accruing to the complaining Member.

Like the other committee described above, sub-committee G focused on the “effects” of Members’ actions to explain recourse to the nullification or impairment procedure. However, the final report of Sub-committee G does not explicitly preclude review of the invocation of the exception.

On a final note, little attention has been paid to the fact that the New York draft Charter made clear that interpretation of the security-related exceptions (then Article 37(c), (d), (e), or (k) or of Article 59(2)) were justiciable. It was also in this limited instance where a Member could directly bring a dispute to the International Court of Justice, rather than first seek a ruling of the Executive Board. This reference was removed in the Geneva draft. However, this may not signal a change in heart. One reading of this is that the delegations had by then worked towards the nullification or impairment procedure, with the phrase “justiciable issue” now gone. (See Seymour Rubin, Judicial Review Problem in the International Trade Organization 63 Harv. L. Rev. 78, 90). A further clue as to why the Geneva text lacked explicit reference to the security-related exceptions within the disputes procedure can be found in a delegates’ meeting in Geneva in 1947. There, Leddy spoke on July 24, 2017 to respond to other delegations’ efforts to amend the security exception (Article 94) to confirm explicit access to the nullification or impairment procedure. Leddy confirmed that the nullification or impairment procedure automatically applied to the entire Charter, and did not require an “addition of a note emphasizing what is clear from the text.” E/PC/T/A/PV/33.Corr.3.

 

Ukraine-AD Measures on Ammonium Nitrate - Can below-cost input prices be rejected?

I just spent an hour looking at the Appellate Body's decision in this case, which relates to Ukraine's rejection of natural gas prices in Russia for the purpose of calculating exporters' costs of production. The Appellate Body upheld the Panel's ruling that Ukraine erred in rejecting "distorted" gas input prices.

This is highly arcane for the non-AD expert, but the issue is huge: If an investigating authority can reject "distorted" input prices, then it is looking at what an exporter's costs ought to be in a non-distorted market, rather than what those costs actually are in the market as it exists. In other words, such an approach is a potential alternative to the non-market economy methodologies whose continued WTO legality is unclear.

This material is dense, I did not read it thoroughly, and I may not have understood at all what the Appellate Body was saying. But several things struck me.

First, the Appellate Body (like the Panel) went out of its way to limit its actual ruling to the so-called "second condition" of Article 2.2.1.1., which allows an authority to reject a company's costs as reflected its books and records if they do not "reasonably reflect the costs...." 

Second, and as pure obiter dicta, the Appellate Body once again "did not exclude" that the word "normally" in the chapeau of Article 2.2.1.1 might allow the rejection of a company's costs as reflected in its books and records for reasons other than the two specifically identified in that Article (para. 6.87). So far, no big surprises, as previous decisions had also so suggested. This remains then a potential avenue for the defense of a "distortions" methodology.

Third, although the Panel seemed to say that the fact that inputs were provided at below cost was not a basis to reject them under Article 2.2.1.1, the Appellate went out of its way to emphasize aspects of the Panel's reasoning that related to a failure to demonstrate as a matter of fact that the exporters in question had purchased below-cost gas, and it was on this basis that the Appellate Body upheld the Panel (para. 6.103).

Finally, the Appellate Body criticized the Panel for suggesting that "records may not be rejected on the sole basis that input prices are set by the government below the cost of production" where the supplier and exporter are unrelated (para, 6.105). While the Appellate Body on its face is criticizing the Panel for distinguishing between sales involving related and unrelated input suppliers, it also recalls again the flexibility provided by the "normally" language in the chapeau of Article 2.2.1.1.

So my question: Is the Appellate Body signaling that input prices in a company's books and records may disregarded in calculating costs if they are provided at below the input supplier's cost of production, using the flexibility of the term " normally" in Article 2.2.1.1?  Or am I just hopelessly confused? Perhaps better brains than mine can sort this out?

  

  

  

A $7.5 Billion Ammunition from the WTO?

At long last, the Article 22.6 Report of the Arbitrator on the Boeing-Airbus dispute is out.  Note that this dispute concerns an original dispute in which the United States (on behalf of Boeing) sued the European Union for the latter’s subsidies on Airbus. Another report in a parallel case in which the EU (on behalf of Airbus) sued the United States for the latter’s subsidies on Boeing will be released in the near future.

This report reads like an accounting paper full of numbers and formulas. Obviously, the Arbitrator took great pains in computing the reasonable volume of Boeing’s lost sales (counterfactual deliveries).  Note that Boeing and Airbus constitute a near duopoly in the global market when it comes to a large civilian aircraft, which is the subject of this dispute. The Arbitrator held that:

6.458. In the light of the foregoing, we consider that the United States' assumption that Boeing would have replaced all of the A380 Impedance Deliveries with deliveries of an equal number of 747-8I aircraft within the 2011-2013 Reference Period is reasonable in the light of the adopted findings of this dispute, and the evidence and arguments offered by the parties. (…)

Then, the Arbitrator determined that:

9.1  (…) [T]he level of countermeasures "commensurate with the degree and nature of the adverse effects determined to exist" during the 2011-2013 Reference Period amounts to USD 7,496.623 million per annum.”

While there can be a number of issues, legal and political, around this decision, let me offer three observations of my own. First, whether or how much would the U.S. government eventually utilize this ammunition bestowed by the WTO?  U.S. tariffs hurt its own economy, and others’. Also, according to Bloomberg Law, Airbus buys about 40% of parts and components from the U.S. companies. Of course, the EU may also retaliate based on a future parallel WTO decision against the U.S. 

Second, if the U.S. does retaliate, this will be “legal” under the WTO system. Then, how about the current trade war against China? Will the WTO’s approval of the U.S. retaliation on the EU change the U.S. attitude toward the WTO? Or, will the U.S. government still try to have both ways, i.e., retaliation within and outside of the WTO?

Finally, would it be desirable for this kind of case to be adjudicated in the WTO? The late Robert Hudec might have thought that it is a “wrong case” for the WTO.

Question from the U.S.: Why has the Appellate Body felt free to depart from what Members agreed to?

This is from the U.S. statement at Monday's DSB meeting:

Indeed, for several months, both within the Informal Process and outside, the United States has actively sought engagement from Members on what we believe to be a fundamental issue. That is, how have we come to this point where the Appellate Body, a body established by Members to serve the Members, is disregarding the clear rules that were set by those same Members. In other words, Members need to engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to.

...

The United States continues to consider that the way forward is to understand and recognize the concerns that have been raised with the Appellate Body, and engage in a deeper discussion of why the Appellate Body has felt free to depart from what Members agreed to, so that appropriate solutions can be found.

I've mentioned this U.S. question before, as they keep raising it. I have not seen them answer it and I'm curious what their answer is. Here's a brief and partial answer from me.

I think there are several areas where you could make the case that the Appellate Body has "departed from the rules," in some sense of that phrase. With regard to procedural issues (such as going beyond 90 days for circulation or having AB Members serve beyond their term), it seems to me they were trying to come up with practical solutions to administrative difficulties they faced. As to substantive legal issues (such as treating the meaning of domestic law as a legal question), they simply got the interpretation wrong, as courts sometimes do.

I'm not sure what the U.S. is going for with this question, and I'll just say again that I'd really like to hear their own answer.

Guest Post: A Carbon Border Tax or A Climate Tariff?

This is a guest post from Reinhard Quick, Professor for International Economic Law, Saarland University, Dr. iur. (University of Mannheim), LL.M (University of Michigan)

The political guidelines for the next European Commission (2019-2024) are a victory for the proponents of the so-called "Border Carbon Adjustment" (BCA). The President-designate of the European Commission has declared that she “will introduce a Carbon Border Tax to avoid carbon leakage. This should be fully compliant with World Trade Organization rules. It will start with a number of selected sectors and be gradually extended”.

In formulating its proposal, the European Commission can rely on a considerable body of academic literature supporting the necessity, feasibility as well as WTO-compatibility of carbon border adjustment. These contributions discuss the complex legal, economic and environmental aspects of border tax adjustment and conclude that BCAs should be introduced because timely measures to protect the climate are needed.

In the following I will take issue with these arguments:

1. The concept of border tax adjustment (BTA) is unsuitable for BCAs

Uneven climate efforts between countries will lead to a relocation of production and investment from countries with ambitious climates policies to countries with less stringent requirements. In order to avoid the displacement of CO₂-emissions, i.e. ‘carbon leakage’, and to protect the competitiveness of domestic energy-intensive industries, it is proposed to have recourse to the GATT concept of border tax adjustment. The idea of BTA is appealing but carbon adjustment suffers from an environmental handicap. "Trade neutrality" is the basic concept for BTA: a domestic tax or a charge on products is levied on imports and reimbursed for exports. However, reimbursing a domestic carbon border tax on export is contrary to the environmental objective of the measure and even renders the strict domestic climate policies absurd. In fact, seeing the environmental illogicality of an export adjustment, most commentators suggest not to apply the BTA-concept to exports. In my opinion, such BCAs are not neutral; they are one-sided in so far as they only apply to imports and therefore pose a conceptual problem.

2. What is adjustable?

Border tax adjustment might be considered in case of a CO₂-tax which is levied both domestically and on imports, but even such a relatively straight-forward solution raises GATT-compatibility questions because of the non-inclusion of CO₂ in the final product. The issue, however, becomes even more complicated when the tax is levied at the border to compensate a domestic emissions trading system. GATT rules allow for the adjustment of direct and indirect taxes only when they are levied ‘on products’. Presumably, the carbon border tax will be presented as the import component of the domestic emissions trading scheme. Yet can emission trading, in a domestic content, be regarded as a ‘tax’ or ‘charge’ levied on products?

In principle, the cost of a general environmental legislation, i.e. the cost incurred in complying with typical environmental laws (e.g. water, air, soil, waste), cannot be offset at the border. The costs of these laws are not considered as charges levied directly on products, but as indirect costs incurred by a law-abiding application of the regulation which must be borne by the domestic industry. The ETS-regulation is not a typical product regulation rather a law limiting the greenhouse gas emissions of installations. It introduces a ‘cap and trade system’ by which a cap on the total amount of greenhouse gas emissions is set for each installation. Within the cap, companies "receive" or "buy" emission allowances which they can trade. The regulation combines the aspects of a typical environmental command-and-control regulation with a market instrument to limit greenhouse gas emissions. It is undisputable that the ETS-regulation has an indirect impact on the cost of production, but so do all the other typical environmental regulations. Is the fact that ETS-certificates have a “price” or can be attributed a “financial charge” sufficient to argue that they can be treated as an ‘indirect charge’ on a product and hence adjusted at the border? As any legislation leads to an indirect burden on products, regardless of whether it is environmental or social, so, where do we draw the line? In the case of emission trading there is also a special feature indicating that it should not be regarded as a product legislation: it is up to the owner of the installation to decide on how to comply with the cap, i.e. switching to cleaner technologies, buying more ETS-certificates or producing less. This means that the financial charge varies from installation to installation and thus from product to product and cannot be calculated in advance. In conclusion, if the ‘indirect cost on a product’ of a domestic measure cannot be established in advance such a measure seems unsuitable for an adjustment process.

To solve the problem, some commentators interpret in a creative way the concept of ‘indirect charge on a product’ under GATT Article III:2 or they revert to GATT Article III:4 considering the border carbon tax as the import facet of the ETS-regulation. I disagree with both solutions. In my view the GATT rules on non-discrimination are not applicable. In answering the question of whether the measure is a border measure, or an internal measure applied at the border, the Appellate Body looks at the ‘centre of gravity’ of the measure. Given the specific features of emission trading it seems questionable to treat the carbon border tax as the import facet of ETS; to me it rather looks as a border measure in breach of GATT Article II.

3. WTO compatibility - The hurdle of GATT Article XX

If the carbon border tax is found to be in violation with one of the GATT obligations (e.g. Article II), the EU could still try to justify it under the public policy exceptions of Article XX. The problem will not be so much to fit the ‘tax’ to one of the specific exceptions of subparagraphs (b) or (g). Yet the EU will have serious difficulties justifying it under the chapeau of Article XX. The way in which the carbon border tax will be applied risks being considered as an arbitrary and unjustifiable discrimination between countries where different conditions prevail. The Commission will have to distinguish between countries and these distinctions could lead to discrimination. It is unlikely that the ‘tax’ will only be applied against ‘climate offenders’, i.e.  those countries that are not parties to the Paris Agreement, rather it will probably also affect the signatories of the agreement.

As announced the system will start with some exposed sectors and will be extended to others. Most likely the Commission will establish a greenhouse gas emission benchmark for the specific products according to which the imports will be measured and eventually ‘taxed’ if the emissions are higher than the benchmark. This benchmark will correspond to the average of domestic greenhouse gas emissions of comparable products. Such a benchmark might be convenient from an administrative point of view, but it is by no means in line with the reality of the ETS regulation nor does it take into consideration the situation in the exporting country. At least, the Commission will have to led exporters to demonstrate that the greenhouse gas emissions of the specific product are below the benchmark. The practical application of a border carbon tax already seems rather complex thereby risking a finding of arbitrariness. 

Moreover, the question arises as to whether this ‘tax’ constitutes an inadmissible means of coercion for other WTO-members. The supporters of BCAs do not see them as ‘sanctions’ but rather as an ‘incentive’ to take similarly strict climate measures. In the Shrimps/turtle-case the Appellate Body has ruled that the imposition of a national regulation is inadmissible if it does not take national specificities into account – and here the Paris Agreement comes into play.  

The Paris Agreement allows for a heterogeneous and asymmetric implementation based on a "spirit of cooperation" and taking different national circumstances into account. The EU’s position to levy a carbon ‘tax’ upon importation is based on the idea that the specific climate protection policies of another country are not sufficient compared to EU policies. Yet, if the climate protection policies of an exporting country comply with the obligations of the Paris Agreement, it could be argued that, in wanting to levy the ‘tax’, the EU does not take the specific situation of that country into account. The exporting country has every freedom to regulate industrial greenhouse gas emissions of a product differently from the EU as long as it complies with Paris. Such compliance could therefore be used as a defense in the analysis of the “chapeau” of GATT Article XX. The carbon border ‘tax’ could be proven to be a protectionist measure rather than a measure to protect the climate.

4. Retaliation

Notwithstanding the significant hurdles many commentators consider BCAs as WTO-compatible, which is theoretically possible. However, I personally think that it is more likely that an EU carbon border tax would be considered WTO-incompatible. In order to verify the compatibility, WTO members would normally refer the case to WTO dispute settlement and wait for a final decision by the Appellate Body before taking any authorized countermeasures. Unfortunately, the good old days of WTO dispute settlement are over, and the WTO’s ‘crown jewel’ has lost its shine. In times of trade wars and unilateral impositions of additional tariffs, it is not exaggerated to assume that the countries affected by the EU’s measure would retaliate. The EU will have to analyze whether the introduction of a carbon border tax outweighs the risks of likely retaliatory action of its trading partners (USA, China, India, Saudi Arabia and Brazil, to name just a few). One wonders therefore whether the existing policy instruments to combat carbon leakage (e.g. free allocation of ETS certificates - although also potentially WTO-incompatible) are not preferable over tough and provocative border measures.   

A solution?

WTO-compatibility will be a tough nut to crack. Even the strong supporters of BCAs set conditions for such compatibility (e.g. the abolition of fossil fuel subsidies), which the EU will have great difficulties to implement politically. Saying it will not work is not acceptable as little as the wishful thinking that the carbon border tax will be made WTO-compatible.

There are solutions, however. In times of dwindling support for multilateralism it is daring to propose a multilateral solution which both increases climate protection and decreases the relocation of greenhouse gas emissions. The reason for a multilateral solution, however, lies in the rules of the WTO and of the Paris Agreement. The latter allows members to implement heterogeneous and asymmetric climate actions whilst the WTO considers it to be an unjustified discrimination if the specific conditions of the respective countries are not taken into account (Shrimps/turtle). Therefore, the signatories of the Paris Agreement should be the ones to set the criteria for BCAs.  These conditions can only be negotiated within the framework of the Paris Agreement and can then be enforced in the WTO with a waiver.

The multilateral path may also have many hurdles but is seems the only walkable way to justify BCAs and prevent retaliation. If the European Union and its Member States want to defend the multilateral approach, then they should try to find a multilateral solution and not immediately give way to unilateralism. Moreover, the EU could seek a simple fiscal solution to the problem: A two per cent increase of VAT coupled with the obligation to use this additional revenue exclusively for climate purposes could help to achieve climate goals without causing border tax adjustment problems. 

The SIEL–Hart Prize

This is from Hart Publishing:

SUBMISSIONS FOR THE SIEL-HART PRIZE IN INTERNATIONAL ECONOMIC LAW ARE NOW OPEN!

The SIEL–Hart Prize is awarded every two years to an outstanding unpublished manuscript by an early career scholar in the field of International Economic Law. The winner of the SIEL–Hart Prize will receive a contract for publication within the Hart series Studies in International Trade and Investment Law; a £250 Hart book voucher; a SIEL bursary of up to £750 to cover travel and accommodation expenses to, and waiver of the registration fee for, the 2020 SIEL Global Conference (to be held in Milan, July 2020). Full details about the prize can be found at https://www.bloomsburyprofessional.com/siel-hart-prize. Deadline for submissions is 1^st December 2019.