International Economic Law and Policy Blog

Appealing Into the Void in DS533

A document from the United States that is labelled as a "notification of an appeal" in the DS533 softwood lumber case has been circulated at the WTO. In that document, the United States does not list any specific points of appeal, and says:

At this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with Canada so the parties may determine the way forward in this dispute.

It's interesting to compare this document with the previous U.S. "appeal into the void" in the DS436 compliance proceeding, which said:

At this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with India so the parties may determine the way forward in this dispute, including whether the matters at issue may be resolved at this stage or to consider alternatives to the appellate process.

For whatever reason, "alternatives to the appellate process" are not explicitly mentioned in the DS533 notification.

The U.S. decision to appeal was discussed at Monday's DSB meeting. Canada said it was "surprised" by the U.S. action here:

• In a statement at the last DSB meeting, the United States stated that, despite the ongoing Appellate Body impasse, the dispute settlement system still worked.
  The United States’ behaviour in this dispute and in previous disputes contradicts its statement.
• We recall that all WTO Members, including the United States, agreed to the Dispute Settlement Understanding. It provides that, when a panel report is issued, it can be either adopted or appealed. When there is an appeal, the Appellate Body must issue a report in that appeal. In either case, the Dispute Settlement Body will be in a position to adopt recommendations if violations have been found. In the event that the respondent does not bring its measures into compliance with its WTO obligations, a complainant may adopt counter-measures.
• In this dispute, in the absence of a functioning Appellate Body, Canada offered to the United States to enter into an appeal-arbitration agreement that would have allowed the United States to seek review of the Panel Report if it so wished. Having refused that offer, Canada would have hoped that the United States would have allowed the adoption of the Panel report and implemented its recommendations and rulings as soon as possible.
• By appealing this Panel Report to an Appellate Body that it made non-functional through its blockage of AB member appointments, the United States is compounding the unfair treatment accorded to Canadian softwood lumber producers. An appeal, in the current circumstances, has the effect of denying Canada its right, under the Dispute Settlement Understanding, to prompt settlement of this dispute.
• Canada was surprised that the United States has appealed given the stated position of the US Trade Representative that there is no need for an Appellate Body. 
• In the interests of a clear and predictable settlement of our differences, rather than compounding the uncertainty created by the effective suspension of the appellate body, Canada calls upon the United States to accept the decision of the panel and fully implement the recommendations of the Panel in this dispute.
• More broadly, Canada is deeply concerned by the United States’ actions which frustrate the proper functioning of the dispute settlement system.
• The United States’ behaviour significantly reduces the security and predictability that we collectively value in international trade.

The U.S. had this to say:

• The United States will, at the appropriate time, fully explain the errors in the panel report. As stated in our notification to the DSB of the U.S. decision to appeal, we are open to discussions with Canada on the way forward in this dispute.
• The suggestion that the United States has appealed simply to delay this dispute settlement proceeding is utterly without foundation.
• The DSU provides Members the right of appeal, and the United States has availed itself of that right.
• The DSU also establishes rules governing the conduct of appeals, and for years the Appellate Body has failed to abide by those rules.
• The Appellate Body’s failure to follow the agreed rules has undermined confidence in the World Trade Organization. It is difficult to maintain support for a rules-based trading system in which the adjudicator does not itself follow the rules.
• The United States remains resolute in its view that Members need to resolve that issue as a priority. But the United States will continue to insist that WTO rules be followed by the WTO dispute settlement system, and will continue our efforts and our discussions with Members and with the Chair to seek a solution on these important issues.
• The United States has always been a strong supporter of a rules-based international trading system and remains so now.

So Canada says it "offered to the United States to enter into an appeal-arbitration agreement that would have allowed the United States to seek review of the Panel Report if it so wished," but the U.S. "refused that offer." The U.S. says it is "open to discussions with Canada on the way forward in this dispute."

I have this sense that many things in the trade policy world are on hold until the November 3 presidential election. We'll see who wins that and then everyone will have a better sense of the possibilities. If I'm right about that, this view may apply to DS533 as well.

Giorgio Sacerdoti Letter to the WSJ in Response to Lighthizer's Op-Ed

Giorgio Sacerdoti sent along the following letter he wrote in response to the Lighthizer WSJ op-ed from last month:

Letter to the Editor, Wall Street Journal

Milan, 29 August 2020

Dear Mr Lemmer,

It was refreshing for all those who believe in the advantages of a multilateral rule-based trading system to read in USTR Robert Lighthizer’s Op-Ed published by the WSJ on 20 August a defense of multilateralism and equal treatment for all trading nations in accordance with the most-favored-nation standard enshrined in the WTO. Especially since in recent years the US has preferred to resort to bilateral deals, at times obtained under the threat by the US to resort to unilateral restrictive measures against imports of dubious WTO-consistency.

The lack of any meaningful new multilateral agreements at the WTO in the last 20 years cannot however be attributed to the case law of the Appellate Body that, according to Mr. Lighthizer, would incentivize countries to resort to litigation rather than negotiate. Adjudication of cases involving contentious rules cannot be a substitute to negotiating new provisions or amendments to existing rules, including when a country considers that the Appellate Body’s interpretation does not correspond to what it believes had been agreed in original negotiations (such as the US in respect of its unique “zeroing” practice in anti-dumping investigations).

Contrary to Mr. Lighthizer’s opinion, the Appellate Body has more than once revised in favor of the US first-level panels’ decisions, such as in the “Gambling” case, where the panel had found a host of US domestic regulations contrary to the GATS while the Appellate Body, on appeal by the US against Antigua, limited the conflict to a minor instance. Same in the well-known “Shrimps-Turtle” case.

Similarly, Mr.Lighthizer’s proposal to  “rethink totally” the WTO’s dispute settlement system, replacing "the current two-tier system with a single stage akin to commercial arbitration”, with recourse to a kind of ad hoc appeal panel ”to allow the WTO membership to set aside erroneous panel opinions in exceptional cases” would leave traders and member countries worst off. The current consistency of interpretation, inherent to a continuous case-law from a professional unanimously selected standing appellate body, would get lost. Differential treatment of the same issue in different cases by different panels (say once between China and the EU and next time by a different panel between the US and India) would become possible. Exactly to avoid these shortcomings, that would belie the equal treatment principle advocated by Mr. Lighthizer, the panel system of the GATT was completed with an appellate review stage as an integral feature of the WTO in the Uruguay Round negotiations finalized in 1994.

Countries are of course free to resort to conciliation and alternative compensation to settle their trade disputes instead of pursuing litigation. This is already provided under the current rules and could be incentivized. The US itself has resorted successfully to these solutions: in the Hormones case to negotiate market openings for its beef export to the EU. Similarly to resolve a dispute with Indonesia, when the US offered  additional access for its products into the US market, instead of readmitting clove-flavored cigarettes in the US in compliance with the unfavorable outcome of the dispute.

Sincerely yours

Prof. Giorgio Sacerdoti

Emeritus professor of International Trade Law, Bocconi University, Milan, Italy

Former member of the WTO Appellate Body (2001-2009), chairman (2006-2007)

International Trade Law Norms and the Ethics of Covid-19 Vaccine Distribution

International Trade Law Norms and the Ethics of Covid-19 Vaccine Distribution

Steve Charnovitz

21 September 2020

One of the enduring contributions of international trade law is the idea that developing countries, especially the least developed countries, should receive affirmative action from the trading system.  According to the WTO Secretariat, “The WTO Agreements contain special provisions which give developing countries special rights ….”  In addition, these “special and differential” (S&D) provisions require “all WTO members to safeguard the trade interests of developing countries” and to “increase trading opportunity for developing countries.”  Unfortunately, the WTO has not been highly effective in implementing such affirmative action.  Still, this S&D norm retains a central role in WTO ideology. 

Although affirmative action in support of developing countries is not a basic principle of international law, one does see it modestly reflected in international health law and international labor law.  For example, the 1946 Constitution of the World Health Organization (WHO) notes in its Preamble that “Unequal development in different countries in the promotion of health and control of disease, especially communicable disease, is a common danger.”  The revised 1946 Constitution of the International Labour Organization (ILO) calls for “effective international and national action … to promote the economic and social advancement of the less developed regions of the world….”

In my 10 May 2020 paper “The Field of International Pandemic Law” (https://ielp.worldtradelaw.net/2020/05/the-field-of-international-pandemic-law.html), I did not address the ethics of how governments should distribute Covid-19 vaccines.  Now that vaccines are being produced and tested, there should be a robust discussion of the appropriate international principles to guide distribution of vaccines and enabling of global health opportunities.  Given that a viral pandemic is a quintessential global problem, there is a need for international legal norms, rather than merely national policies in each country, to solve that problem.

Drawing from the S&D principles of world trade law, one could postulate that there should be global affirmative action in the distribution of effective Covid-19 vaccines.  This might mean that, in allocating vaccines, countries should be prioritized starting with the countries at the bottom end of the income-per-capita scale.  In other words, the benefits of the vaccine arguably should be given first to societies that are most impoverished and distributed last to societies enjoying the highest incomes.  Such an imperative would seem especially apt now in an era of increasing attention to patterns of inequality and to “rights” to health. 

In my view, while there is a moral reason to distribute vaccines in a poverty-sensitive way, there is also a pragmatic reason.  If the vaccines will only be distributed in the rich countries after being distributed in the poor countries, then the rich countries will have a very strong incentive to carry out worldwide distribution.  On the other hand, if the vaccines are distributed first in the high-income countries, those countries might not follow through effectively in delivering vaccines to poor countries.  To be sure, rich countries would directly benefit from achieving mass Covid-19 immunity in poor countries.  Nevertheless, over the years, I have observed that governmental commitments to help developing countries, even when justified by logic and sound economics, are often neglected in subsequent years.

Global governance requires a mix of the best of nationalism and internationalism.  While each problem is different, the more a problem crosses borders, the more that international principles of law are probably needed.  Without any shared principles, the leading vaccine-producing nations may pursue a strategy of vaccine nationalism. 

Such me-first policies will be supplemented to some extent with national health programs that provide funding to foreign health programs and enhanced funding for the WHO.  And governmental programs in public health will be carried out alongside valuable nongovernmental efforts boosted by global foundations and pharmaceutical companies.  Taken as a whole, such decentralized efforts to distribute vaccines may be the best that our current world community can achieve in 2021-22. 

Still, I would like to see more attention by policymakers to norms for the fairest way to distribute a scarce good such as a Covid-19 vaccine.  Effective vaccine distribution to each person provides positive externalities for global communities, including the possible eventual achievement of a “global public good” of Covid-19 immunity. 

What Would Biden Do About China's Trade Practices?

This is from a CNN Town Hall last week:

GARRY HARTMAN, BUSINESSMAN:

 Vice President Biden, Cheetah Chassis is located in Berwick, Pennsylvania, where we produce intermodal container chassis. We're a small family-owned business that is facing unfair trade container chassis imports from, we'll call, a massive state-owned entity in China.

The products are under - currently under Section 301, but the Chinese have found a way to undermine the relief of the tariff. So, as President, how would you address China's unfair trade policies?

BIDEN:

I would make it clear, just so we did in our Administration, that when they use state - state-owned enterprises, which is what they're doing, state-owned enterprises, to undercut the price that they can charge, to be able to come and compete with American manufacturing, that they in fact would be denied that opportunity.

I would also make it clear that when you, in fact, it's got to be - if any of that is being purchased by any government agency, that it will not - we will not purchase anything that is not made in America, including - including the downriver line of what has to be done, all the parts.

You can't do what he's doing now. You can't do where he's given a tax break to companies that, in fact, go overseas, bring their - and then import the product back into the United States of America, even though their headquarters is here, the chain, though, you go overseas, and they bring it back in cheaper, than you being able to produce it.

And so, I'm going to make sure that it's made in America. I believe and I mean that. We all - we've been talking about this policy for a 100 years. We've never fully done it. We can and must do it now.

That answer doesn't explain things very clearly. Most readers of this blog can guess what he meant, but would the average voter watching the town hall understand it? Do they understand Trump's statements on these issues any better? Should politicians try to explain AD/CVD, safeguards, China-specific safeguards, Section 337, Section 301, WTO complaints, etc. when answering these questions from the public? They would have to learn the distinctions themselves first, of course.

Webinar — Investment Protection under the New NAFTA: Problems and Prospects

If you are not webinar'd out at this point, and if you can remember the USMCA, which seems like ages ago, here are the details on a Webinar I'll be participating in this Thursday with the Baker Institute at Rice University:

At this webinar — the second in the series on the United States-Mexico-Canada Agreement (USMCA) — experts will discuss the implications of eliminating investor-state dispute settlement between the United States and Canada and significantly reducing its scope for U.S. investors in Mexico. They will also attempt to provide preliminary responses to the question, “Will weaker investment protection result in less foreign investment in Mexico and Canada, and greater investment in the United States?”

This event is part of a series of five webinars on the USMCA, co-sponsored by the Center for the United States and Mexico and Haynes and Boone, LLP. Each webinar in the series will feature outstanding experts from the United States, Mexico and Canada and will provide viewers with up-to-date information on the progress, successes and challenges of putting the USMCA’s provisions into practice. Additional support for this webinar was provided by Transnational Dispute Management. Follow @BakerCtrUSMEX on Twitter and join the conversation online with #BakerMexico.

AGENDA

11:00 a.m. — Presentation
11:30 a.m. — Q&A

REGISTRATION

This webinar is free, but registration is required. Please click here to register. If you are unable to attend, a recording will be available on this webpage following the event.

FEATURED SPEAKERS

Céline Lévesque 
Professor of Law, University of Ottawa; President, Canadian Council on International Law 

Simon Lester
Associate Director, Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies

Hugo Perezcano
Attorney and International Trade Consultant; Former Lead Counsel for Mexico in Investor-State Dispute Settlement Cases under NAFTA

MODERATOR 

George Y. Gonzalez
Partner, Haynes and Boone LLP

The Elephant in the Room: The Missing Claim in DS543

The outcome of the Panel decision in the case of Section 301 Tariffs against China (DS543) is unsurprising - few would have expected that the United States could successfully invoke the public moral exception under GATT XX(a) to justify its Section 301 tariffs. But the Panel Report does contain some surprises. One is technical: The Panel skipped a critical step in the necessity analysis - whether there were less trade-restrictive alternatives available that could achieve the same policy objective. The Panel cited China’s refusal to put forward possible alternatives as the reason for skipping the step–a major departure from the existing WTO/GATT jurisprudence.

But a bigger surprise is the absence of any discussion on China’s claim under DSU Article 23. In its request for the establishment of a panel (DS543/7), China articulated three legal bases for its complaint: GATT I:1, GATT II:1; and DSU 23. The request states: “The measures at issue appear to be inconsistent with the United States obligations under the following provisions of the GATT 1994 and DSU:

            …

3. Article 23.1, and Article 23.2 (a), (b), and (c) of the DSU, because the United States fails to follow the required procedures and conditions set out in Article 23.1 and Article 23.2(a), (b) and (c). Specifically, when seeking the redress of the violation of obligations or other nullification or impairment of benefits under the covered agreements of WTO agreements or an impediment to the attainment of any objective of the covered agreements of WTO agreements, the United States fails to seek recourse to dispute settlement mechanism under the DSU to determine whether China's certain acts, policies, or practices identified in the Section 301 report violated a covered agreement. Instead, the United States unilaterally imposes the additional tariffs on certain imported products originated in China, which are identified in measures 1 and 2 above, based on the findings and/or determinations made in the Section 301 report.

This claim, however, is not mentioned in the Panel Report. Apparently, China dropped the claim during the Panel proceedings. But I cannot find amendment to China’s original complaint. And there is no explanation in the Panel Report about this significant change in the case.

As we all know, the unilateral nature of the Section 301 tariffs is the real issue in this case. US Section 301 actions in the 1980-90’s led to the creation of DSU Article 23, which strictly prohibits any unilateral retaliatory measure without DSB authorization. This discipline was an historic achievement of the world trading system. DSU Article 23, however, only regulates unilateral retaliation against measures covered by the WTO agreements. This limitation has become the new challenge of the day.

Just as in the 1980-90’s, the United States is resorting to unilateral trade measures to punish its trading partners for practices that are not (adequately) covered by existing trade agreements. The Section 301 tariffs were supposed to counter three types of China’s unfair practices: forced technology transfer, state-assisted acquisitions of tech-rich US firms, and cybertheft of American IP. While the latter two types are not covered by the WTO agreements, forced technology transfer is at least partially addressed by China’s Accession Protocol. If the Panel had had the opportunity to address China’s original claim under DSU Article 23, it could at least have clarified the extent to which Article 23 applies to the Section 301 tariffs and thereby highlighted the deficiency in the existing system.

In addition to the missing Article 23 claim, the Panel decision in DS543 is also shadowed by China’s violation of Article 23 in its response to the Section 301 tariffs. While pursuing this WTO case, China simultaneously imposed tit-for-tat retaliatory tariffs on US products. Compared to the first round of the Section 301 tariffs, which would not violate Article 23 to the extent they address issues not covered by the WTO agreements, China’s retaliatory tariffs from the outset and in their entirety violated DSU Article 23, as well as GATT Articles I and II. Unfortunately, the United States, apparently out of strategic calculation, has not brought a WTO case against China on these retaliatory tariffs. (The Panel seems to lament this fact. See the concluding comments of the Panel Report, para. 9.3) Instead, the United States counter-retaliated by imposing more Section 301 tariffs, eventually covering most of the Chinese imports. The US counter-retaliation only begot more Chinese retaliatory tariffs. And the Phase-One agreement reached in January 2020 merely halted further escalation of the tariff war.

In the end, the rule-based WTO system may be the most significant casualty, as the system has proven to be completely impotent in preventing the largest trade war in history. Against this background, the Panel decision in DS543 seems woefully inadequate (Worse yet, it may have set a bad precedent in GATT jurisprudence on the necessity test). As for China, the legal victory rings hollow, since it has already taken matters in its own hands in disregard of WTO law and has been suffering the political and economic consequences of the trade war ever since.

An important question for WTO Members is this: Can the multilateral system be improved so as to prevent similar unfortunate episodes in the future? I have addressed this question in a recent paper and would welcome comments from readers.

Panel Report on Section 301 Tariffs Against China (DS543)

The panel report in United States - Tariff Measures on Certain Goods from China (DS543) was circulated today. There are some big picture issues related to the dispute (e.g., will the U.S. appeal it into the void?), but I want to focus on an obscure interpretive point related to the necessity test under certain Article XX sub-provisions. The panel offered the following reasoning in this regard:

7.112. In the following sections, we will therefore assess (i) whether the United States has raised a public morals objective within the meaning of Article XX(a) of the GATT 1994; (ii) whether the measures are designed to protect the public morals objective as invoked by the United States; and (iii) whether the measures are necessary to protect this objective. Each step of this analysis will allow us to continue our assessment towards an overall conclusion whether the challenged measures are "necessary to protect public morals" within the meaning of Article XX(a) of the GATT 1994.

...

7.151. In the present case, the Panel does not consider that the "design test", if there is one, is an undemanding task to perform. Having said this, the Panel is not convinced that, in the absolute, the imposition of additional duties would always be incapable of protecting public morals or would never be incapable of protecting public morals. In the circumstances of this case, the Panel finds it difficult to assess at any general level whether the measures at issue are "designed" to protect public morals and is therefore not convinced that the intermediate step of such a design test is helpful for its analysis. The more detailed design aspects and consequential understanding of measures may only become apparent once an analysis of the necessity of the measures is advanced further. In this regard the Panel agrees with the Appellate Body that it must not structure its analysis of the "design" step in such a way as to lead it to truncate its investigation prematurely and thereby foreclose consideration of crucial aspects of the "necessity" analysis.

7.152. The Panel recalls its preference for a holistic approach to determining whether the measures at issue are "necessary to protect public morals" within the meaning of Article XX(a). In the process of this holistic analysis, the Panel considers that whether an appropriate nexus exists between the products subject to the additional duties and the public morals objective as invoked by the United States pertains rather to the assessment of the line or balance between the trade-restrictive measures that are acceptable as necessary to protect public morals, and those that are not. For this reason, the Panel will address the parties' (and third parties') arguments related to the nexus between the products subject to additional duties and the public morals objective as invoked by the United States, in the context of the necessity analysis.

(emphasis added)

It always seemed strange to me to have a less demanding "design" element followed later by a more demanding "necessary" element. Could a measure ever be "necessary" for a public policy purpose but not "designed" for that purpose? That's hard to imagine. Either the measure is "necessary" for a particular policy purpose, in which case it is justified under the sub-provision; or it is not "necessary," in which case it is not justified. An intermediate finding that the measure is "designed" for the purpose in question doesn't add much, in my view. If the panel was thinking along these lines, which I think it might have been, this reasoning is taking us in the right direction.

If Everything Is Industrial Policy, Is Anything Industrial Policy?

Law professor Ganesh Sitaraman has a piece arguing in favor of an industrial policy for the United States. He laments that "[o]ver time, industrial policy ultimately became the Lord Voldemort of economics, so evil and dangerous that it must not be named," and he wants to make it safe to talk about industrial policy again. To this end, he notes that "the United States has always had one," and sets out what he describes as four American industrial policy "traditions," as follows:

1. "the Franklinian tradition in industrial policy emphasizes what comes before industrial production: knowledge and infrastructure. In this tradition, the public directs industrial-policy priorities in these arenas and the government provides them, either directly or through a regulated monopoly." Two examples are: "Land Grant Colleges Acts in the 19th century" and "the Franklinian-style post office."

2. "Hamilton is widely (and rightly) considered the founder of American industrial policy. In his Report on Manufactures, Hamilton outlined a system that included tariffs, subsidies, and investments"; "In his report advocating for the creation of a national bank, Hamilton also hoped to expand the national debt, extend more legal tender, and develop America’s fledgling financial system"; "The oft-decried 'military-industrial complex' was the Cold War heir to the Hamiltonian tradition."

3. "regulated competition is perhaps best associated with anti-monopolist and Supreme Court Justice Louis Brandeis, but it has its roots in Madisonian political economy. The Madisonian tradition sees the route to economic success as requiring competitive markets, but it holds that there must be an active government regulating and channeling market activity to ensure a fragmented and separated industrial ecosystem"; "the Madisonian tradition found expression in the anti-monopoly movement and in regulatory policies based on the principle of separating functions."

4. "The Jacksonian tradition in industrial policy differs from the other three traditions in that it opposes the development of a coherent federal strategy or system of industrial policy in favor of decentralization to the states and privately directed activities"; "For the last 40 years, American industrial policy has largely followed the Jacksonian approach. ... Deregulation, privatization, trade liberalization, and austerity all caution against government action." 

I disagree with various aspects of his four categories, but what I want to focus on here is the idea that these are all part of something called "industrial policy." What exactly is industrial policy? At one point, Sitaraman offers what I would have thought of as the traditional definition: "They want policymakers to encourage domestic production in specific sectors, a practice known as industrial policy." Later, though, he provides a much broader view of the term: "any public policy that shapes or structures a sector of the economy is an industrial policy." The problem I see is that, under that definition, and if all of his four traditions constitute industrial policy, then just about everything is industrial policy. If I propose the multilateral elimination of tariffs, is that industrial policy? I wouldn't have thought so, but when you characterize things so broadly, perhaps it is. How about school choice and charter schools? If this "shapes or structures a sector of the economy," which it clearly does, then that's covered too. How about occupational licensing? Or copyright terms? Or restrictions on abortion providers? Or gun regulations? Or limits on inter-state provision of medical services? Under his broader view, there's a pretty good case that these are all part of industrial policy.

If everything is industrial policy, however, I wonder if anything is really industrial policy. If you make the scope of industrial policy so broad, at a certain point you are really just discussing economic policy (or even just domestic policy more generally, or possibly even just policy of any sort). And if industrial policy is really just economic policy, then perhaps we should be talking about economic policy, rather than spending time trying to recharacterize it as "industrial policy."

It seems like his push for saying "industrial policy" is about finding a good marketing term for these ideas, and he believes that "industrial policy" could serve this purpose. But if you just want to talk about economic policy, and are trying to argue for particular policies, there's no need to put the term "industrial policy" out there. It may actually confuse more than it enlightens.

In my view, the key to all of this is not really the terminology. I can see how catchy slogans are useful (although I think people may overemphasize the importance sometimes), but just saying "industrial policy" doesn't really get us anywhere. What specifically are industrial policy advocates proposing? Tell us the details and then we can debate it.

Joe Biden on NAFTA/China/Trade in General

This is from an interview with CNN's Jake Tapper that aired yesterday:

TAPPER: Don't you think that one of the reasons why President Trump has been able to appeal to the blue-collar workers that you talk about is because of his message on trade?

And that message is, Washington, D.C., and Wall Street have sold you out, the trade deals have been about helping them, helping their bottom line, helping politicians, but not about you?

And he pointed to NAFTA, which you supported. He pointed to most favored nation status for China, which you supported. There are other factors too, of course, automation.

BIDEN: Yes.

TAPPER: But the idea, the pitch that too many of these trade deals screwed you.

BIDEN: And then look what he did.

Look what his tax cut did, the multibillion-dollar, trillion-dollar tax cut that went mainly to the very wealthy and to corporate America. What did it do? They got a reward for offshoring jobs. They got a reward for taking.

So, you had 7,000 jobs right off the bat go abroad. America -- these are contracts that the federal government gives to contractors to do things for the federal government or for the community.

And what happens? They get a break if they go abroad. Their taxes get cut.

That why I was out here today talking about two things. One, if you're going to offshore jobs with federal contracts, offshore jobs, you're going to get a 10 percent penalty for those jobs you send overseas, because what happens?

You send it overseas, because there's a supplier that makes the product cheaper. You bring it back. You get a benefit, a tax break for it.

And where does it go? It doesn't go to the employees, by the way, even when it occurs. It goes into the pockets of the CEOs and/or to buy back their stock, to raise the value of their stock.

And so what I'm insisting on -- and I will get it passed -- that is a 10 percent surtax on you, if you ship, for every job you ship overseas, for anything that comes back, and, secondly, making sure that, if you invest in America, you refurbish a plant, you build a new plant here, we will provide you a 10 percent advance on the cost of doing that, encourage people to come back and build here in America, because we've had this buy America provision, America first provision, buy America, for over almost 100 years.

It's never been -- it's never been moved. And we -- now we have the highest trade deficit we've had in modern history.

TAPPER: So, you asked, and what did he do after he got elected?

And you brought up the tax bill. Something else he did is, he renegotiated NAFTA.

BIDEN: He did.

TAPPER: He renegotiated NAFTA.

Now, when you ran for president, and when Barack Obama ran for president, you both said you would renegotiate NAFTA. You didn't. He did. Nancy Pelosi said that the USMCA, which President Trump signed into law, is a -- quote -- "victory for America's workers."

Does he deserve credit for that?

BIDEN: No, I think -- remember, he didn't -- he wasn't the one that pushed that particular one that passed.

The House amended the bill, amended the bill, so he couldn't...

TAPPER: He signed it.

BIDEN: No, that was a big deal, though.

Here's what he -- they amended. He was giving pharma a way out, giving them a gigantic break, just like he's doing now with pharma. If you -- they are building plants overseas and getting tax breaks for it. That's what it was about with him.

TAPPER: All right.

BIDEN: And they said, no, no, we're not going to do that. We're not going to...

TAPPER: But he renegotiated NAFTA, and you didn't, is the point. I mean...

BIDEN: Because we had a Republican Congress that wouldn't go along with us renegotiating it.

TAPPER: But doesn't he deserve some credit for that?

It's better. The USMCA is better than NAFTA.

BIDEN: It is better than NAFTA, but look what the overall trade policy has done, even with NAFTA.

We now have this gigantic deficit in trade with Mexico, not because NAFTA wasn't made better, because his overall trade policy and how he deals with it made everything worse.

TAPPER: I guess my only point is, I'm a blue-collar guy sitting in Macomb County, Michigan, if I were that person.

BIDEN: Yes.

TAPPER: And I'm sitting here listening to your pitch, and I'm thinking, I like what he has to say, but he's part of the establishment that's been selling my jobs down the river. He supported NAFTA. He supported most favored nation status for China.

And Trump did renegotiate NAFTA, and Obama and Biden didn't.

BIDEN: Well, I will tell you what we did do. We inherited the greatest recession short of the Depression. The president put me in charge of that to do something about it.

In the process of that, I was the one who was given responsibility to make sure General Motors and Chrysler didn't go bankrupt. And so we made sure they didn't, brought 80,000 jobs here to Michigan and to the automobile industry; 80,000 good-paying jobs came back. He's lost 50,000 of those jobs since he's been president.

The fact of the matter is, NAFTA was not a deal that was sold. When Bush said they were going to have enforcement mechanisms in NAFTA, they didn't do it. That's why, after it passed, and he did not insist on that, I was against NAFTA and we tried to begin to change it, because it didn't keep the deal that was made. There was not -- the enforcement mechanisms were abandoned.

And so -- but, look, here's what else he's doing. We're talking about trade -- what has he done with trade to give -- to create more jobs in the United States? What's happened with his trade policy?

Look what he's done with China. It's a disgrace. What he's done, he's allowed the -- corporate America to be able to make money by continuing to export American jobs. It's not made in America. Make it in another place.

For example, those -- those carry bags that the military are using, they're supposed to be made -- and they are being deployed -- made in America. They're made in China. They're made in China. He doesn't do anything about any of that.

TAPPER: Let me ask you about China, because, in 2011, when you were vice president, you said -- quote -- "It is in our self-interest that China continue to prosper."

A lot of people think that allowing China into the World Trade Organization, which you supported, extending most favored nation status to China, which you supported, that those steps allowed China to take advantage of the United States by using our own open trade deals against us.

BIDEN: No.

TAPPER: Do you think, in retrospect, that you were naive about China?

BIDEN: No.

Here's the thing. In the context of that, we wanted China to grow. We don't want to have a war with China.

I said to Xi Jinping when I was -- I -- you may remember, the president wanted me to spend time with him as vice president. He was going to be president. And he couldn't do it. So I traveled around the world with him.

He asked. He said: "Why do you keep saying you're a Pacific power?"

I said: "Because we are. We are a Pacific power. and if we weren't, you would not have been able to have any stability at all."

It's in our interest that China be stable. It's not in our interest for China to take advantage of us, not in our interest to take advantage.

So, what has Trump done? He's poked his finger in the eye of all our friends and allies, and he's embraced every autocrat in the world.

And it's now -- we make up 15 percent of the world's economy -- 25 percent of the world's economy, and we have lost all our friends. We've lost all our friends.

The way to keep China in line is to make two things clear. One, we're going to insist -- we're going to play by international rules. So, when Xi Jinping said to me, we're going to make sure we have these air identification zones you can't fly through, I said, no, no that's not true. They are in international airspace. He said, what are you going to do about it? I said, we're going to fly through it.

So, we flew our bombers through it, flew our jets through it -- through it. Same way with what we did in terms of taking a significant portion of the Navy, 60 percent, and getting it into Asia to make sure they could not control those sea lanes, which they were doing.

What has Trump done? He's done nothing about it. He's done nothing about it. And what has he done with regard to our friends like Japan and other -- and South Korea? He's made some cockamamie deal to his good friend, sending love letters to Kim Jung-un.

I mean, what in God's -- I mean, to Kim in South -- I mean, in North Korea. What in God's name is that all about? He gave him legitimacy.

We had firm, firm constraints on what they could buy and what they could sell in their economies. He's blown it. He's giving them so much credibility. They're closer to a nuclear weapon than they were before. He did the same thing in Iran.

I mean, this America first has made America alone.

Of course, Biden could have said something like, "Actually, we did renegotiate NAFTA through the TPP, which Mexico and Canada are part of." But he probably thinks mentioning TPP could hurt him politically, so he is staying away from it.

He's right about USMCA being influenced by House Democrats. He may need to refine his talking points a bit to make that more coherent and clear, and explain what he thinks the flaws were with NAFTA and how USMCA fixed them. But arguing that USMCA is good because of Democratic input seems like a safe political strategy.

On China, his main message seems to be that America going it alone here is a bad idea. That also seems like a safe political strategy.

More generally, Biden has been back and forth on trade agreements, voting for some but not for others. He could probably play that up a bit, arguing that he is not ideological on trade, although it's not clear to me on the face of things why he voted for particular trade agreements and against others.

How will any of this play to actual voters? Who knows! I'm not convinced that many people care strongly enough about trade for it to make much of a difference. Both candidates use "Buy America"-type rhetoric and I doubt this issue will be the deciding factor in how people vote. But Trump loves the issue, so it's going to keep coming up regardless.

Rethinking ISDS: Australia vs. UNCITRAL

Back in May, UNCITRAL published a Note by the Secretariat on "Resources to implement the work programme with respect to investor-State dispute settlement (ISDS) reform." I was surprised to read this part:

24. Under the current pattern of meetings, Working Group III meets twice a year for a one-week session with four days dedicated to substantive discussion and one day dedicated to the adoption of the report. Table 6 estimates that a total of 80 days of conference resources would be required by Working Group III to address all the reform solutions and to complete the ISDS Project. This thus translates into 20 sessions of the Working Group over a period of 10 years beginning 2021, with the expected finalization by the Commission in 2031. For each session, the Secretariat would be preparing an average of 2 working papers, which is similar to the document resources utilized until now.

10 years? That's a lot of time. How much of value will come out of this process? And how much will the process cost?

More importantly, it seems to me that this project ignores, or at least minimizes, one of the main criticisms of ISDS: ISDS has little to no impact on encouraging foreign investment. The UNCITRAL project isn't giving much attention to this issue, and instead is focusing on more technical points that, even if tweaked, would keep the core of the current system in place. Here are the issues they are considering (Table 6 of the Note):

• Code of conduct
• Multilateral advisory centre
• Third-party funding
• Stand-alone review or appellate mechanism
• Standing multilateral body or mechanism
• Selection and appointment of ISDS tribunal members
• Dispute prevention/mitigation and ADR
• Treaty interpretation by States
• Security of costs
• Means to address frivolous claims
• Multiple proceedings including counterclaims
• Reflective loss/share holder claims
• Multilateral instrument on ISDS reform
• Damages

These are all very interesting and important issues, but if you are serious about the effort to reform ISDS, I think you need to consider more fundamental issues as well. In this regard, "terminate all the investment treaties" should be a reform avenue to be studied. I vaguely recall that issues of this sort made a brief appearance at one point in the process, but it seems to me that they were not taken very seriously by most participants.

In contrast to that, take a look at what Australia DFAT is doing in terms of reviewing its BITs:

Review and reform of Australia's BITs can aim to influence the interpretation of key obligations and introduce modern safeguards.  A single approach may not suit all situations; a range of options exists, and could be deployed depending on individual circumstances. These options include:

• full renegotiation of a BIT
• amendment of a BIT
• negotiation and adoption of a Joint Interpretative Note
• adoption of a Unilateral Interpretive Note
• termination of a BIT
• continuation of a BIT
• replacement of a BIT with an FTA chapter that may or may not include ISDS.

This list is not intended to be exhaustive; there may be other options available.
A range of safeguards and modern provisions could be included in a revised BIT or FTA investment chapter. Examples from Australia's modern FTA practice include:

• reiteration of the Government's right to regulate
• exclusion of ISDS claims against public health measures, including tobacco control measures, the Pharmaceutical Benefits Scheme and Medicare
• exclusion of ISDS claims that are frivolous or manifestly without merit;
• enabling a case to be blocked by an investor without substantial business activities in Australia
• preventing abuse of process by allowing claims to be dismissed at a preliminary stage
• limiting forum shopping
• providing detailed rules on ethics and conflict of interest of arbitrators.

Whether or not Australia would be able to pursue a particular option will also be dependent on the bilateral treaty partner. Moreover, different bilateral treaty partners may warrant different approaches. Submissions may wish to consider the possible relevance of factors specific to each BIT and each bilateral investment relationship, which could include:

• the nature of the foreign investment relationship (including the quantum and directional flow of the foreign investment);
• the dominant type of foreign investment (foreign direct investment or portfolio investment);
• the legal risk associated with each BIT, taking account of specific provisions and the bilateral investment relationship;
• the views of the bilateral treaty partner regarding full re-negotiation, amendment, continuation or termination of the specific BIT.

Questions for consideration

• In your view, are the existing BITs of benefit to Australian investors operating in these overseas markets? Please comment on their utility.
• In your view, does the existence of a BIT impact on the flow of foreign direct investment and /or portfolio investment? Please comment, if possible, both generally and with reference to specific existing BITs.
• Do you have concerns about Australia's existing BITs? If so, please comment on any specific provisions of concern.
• If Australia took the approach of re-negotiating at least some of the existing BITs, do you have views on which clauses should be included in a renegotiated agreement?
• In your view, would any concerns you have about any of Australia's existing BITs warrant termination of one or more BITs? Please comment, as relevant, both generally and with reference to specific existing BITs.
• There are various models and approaches that different countries take in relation to international investment agreements. For instance, some models are concerned with investment facilitation rather than dispute resolution. In your view, is there a particular approach that is suited to meeting the interests of Australian industry and business?
• In light of the various policy options available, what approach do you consider should be taken? Please comment, if possible, both generally and with reference to specific existing BITs.

These are very good questions and a much broader review than what UNCITRAL is doing. Based on the Australia/UNCITRAL comparison, it seems to me that a serious consideration of the merits of ISDS and the full range of reform options may be more likely at the domestic level.

Is Lighthizer a Protectionist?

Someone asked him that question at a recent event and here's what he said (starts around 45:30)

Q: “Are you a protectionist?”

A: “Well, you see, that’s interesting. So, what actually does that mean? That’s why when I started out I sort of said, and gave you, the history. The idea of the protectionist, originally the idea was, that you have a certain tariff, whatever that is, and that’s the tariff you need to support your government. And then, if you want to add tariffs on top, take care of a specific industry, then that would be a protectionist tariff. That was kind of the debate, and people would come in and say, ‘no, no, no, we want tariffs, but not protectionist tariffs’. And there were abuses in that, because people would use political power and this and that, and defend various industries, some of which deserved defending and some of which didn’t. But if you ask – I mean, the term has become sort of pejorative now – if you asked every Republican president from Abraham Lincoln until probably up to Eisenhower, ‘are you a protectionist?’ they would say, ‘yes, I am protectionist’. In other words, they ran for election, in part – there were a lot of other things going on, wars and all kinds of things – but they ran in part on this American system that I mentioned before, the American system. They ran saying we’re going to develop jobs and work for American people, middle-class people, and we’re going to do it using one of the tools – tariffs. Was that a protectionist? I don’t know. I’m certainly not a free trader, and so if the opposite of free trader is protectionist, then I am a protectionist. But for me it’s more complicated than that. But no one would accuse me of being a free trader, and that I can guarantee ‘em.”

I think there's a continuum here, and even Lighthizer would not want to keep out all imports. It might be difficult to elicit the specific degree of protectionism someone supports, but maybe asking something like, "Can you give some examples of sectors where you support tariffs, and what tariff levels you would prefer?" Or: "In what sectors would your raise tariffs above existing levels?"

In general terms, though, if the question is, "Do you think tariffs can be used to limit imports and thereby make the U.S. economy better off?", then I think it is fair to say he thinks the answer is yes in many cases, and in that sense he is a protectionist. The comments are open if he wants to weigh in himself!

Webinar on Transnational Subsidies

There has been substantial discussion of transnational subsidies on the pages of this blog over the past few months. Now, the Indian Institute of Foreign Trade is organizing a Webinar on the topic, entitled "Cross-border Subsidies and the WTO" on 9 September from 5:30 to 7:30 pm India Standard Time. That is, I believe, 8:00 am on the US east coast and 2:00 pm in Continental Europe.  The flyer is attached here:  Download Flyer_Webinar_Cross border subsidies. If you are interested in joining, the event will be on Microsoft Teams and you can join it by clicking on this link.

Questions About the MPIA and Article 25 Appeal Arbitration

I have a short Cato paper out today on the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). I am excited about the prospects for the MPIA, but I do have some questions, including the following:

What approach will the MPIA take regarding the interpretation of core WTO principles such as the nondiscrimination obligation and public policy exceptions? How often will the MPIA appeal process be used? What kind of legal culture will develop around it, including the approach of the arbitrators and of the litigants themselves? How much deference will the MPIA show toward politically sensitive domestic laws and regulations? How much deference will the MPIA show toward the findings and reasoning of WTO panels? Will the MPIA avoid novel and controversial issues that are put before it or take them on?

This happened too late to make it into the paper, but here's another question: Can the MPIA serve as a template for appeal arbitration beyond the MPIA parties? The EU has just appealed the DS494 panel report "into the void," but perhaps they have filled that void with the following:

In commencing this appeal, in accordance with Article 16(4) of the DSU and Rule 20(1) of the Working Procedures for Appellate Review, the European Union is aware that, as a matter of fact, temporarily, there are currently an insufficient number of Appellate Body Members to constitute a division due to the obstruction of appointments by the United States. In these circumstances, the European Union stands ready, as it will always stand ready, to move, together with the Russian Federation, to final resolution of the dispute in appeal proceedings pursuant to Article 25 of the DSU, on a reciprocal basis, based on the Multiparty Interim Arrangement (MPIA) and an arbitration agreement as set forth in the standard agreed default procedures contained in Annex 1 of the MPIA.

How will Russia (which is not a party to the MPIA) respond to this? As the complainant in the dispute, there is certainly an incentive to go ahead with the arbitration rather than just let the appealed panel report sit out there.

And finally on the subject of appeals, the last Appellate Body annual report (for now anyway) is available here.