As a Christmas gift of sorts, the UK and EU gave us their new trade agreement yesterday (still needs to undergo a legal scrub I think). There is a long section on creating a "level playing field." Here is a key bit of the part relating to "rebalancing" in response to measures that upset the level playing field:
TITLE XI: LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT
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Chapter nine: Horizontal and institutional provisions
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Article 9.4: Rebalancing
1. The Parties recognise the right of each Party to determine its future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control, in a manner consistent with each Party’s international commitments, including those under this Agreement. At the same time, the Parties acknowledge that significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement.
2. If material impacts on trade or investment between the Parties are arising as a result of significant divergences between the Parties in the areas referred to in paragraph 1, either Party may take appropriate rebalancing measures to address the situation. Such measures shall be restricted with respect to their scope and duration to what is strictly necessary and proportionate in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement. A Party’s assessment of these impacts shall be based on reliable evidence and not merely on conjecture or remote possibility.
3. The following procedures shall apply to rebalancing measures taken under paragraph 2:
(a) The concerned Party shall, without delay, notify the other Party through the Partnership Council of the rebalancing measures it intends to take, providing all relevant information. The Parties shall immediately enter into consultations. Consultations shall be deemed concluded within 14 days from the date of delivery of the notification, unless they are jointly concluded before that time limit.
(b) If no mutually acceptable solution is found, the concerned Party may adopt rebalancing measures no sooner than five days from the conclusion of the consultations, unless the notified Party requests within the same five day period, in accordance with Article INST.14(2) [Arbitration procedure]64, the establishment of an arbitration tribunal by means of a written request delivered to the other Party in order for the arbitration tribunal to decide whether the notified rebalancing measures are consistent with paragraph 2 of this Article.
(c) The arbitration tribunal shall deliver its final ruling within 30 days from its establishment. If the arbitration tribunal does not deliver its final ruling within that time period, the concerned Party may adopt the rebalancing measures no sooner than three days after the expiry of that 30 day time period. In that case, the other Party may take countermeasures proportionate to the adopted rebalancing measures until the arbitration tribunal delivers its ruling. Priority shall be given to such countermeasures as will least disturb the functioning of this Agreement. Point (a) shall apply mutatis mutandis to such countermeasures, which may be adopted no sooner than three days after the conclusion of consultations.
(d) If the arbitration tribunal has found the rebalancing measures to be consistent with paragraph 2, the concerned Party may adopt the rebalancing measures as notified to the other Party.
(e) If the arbitration tribunal has found the rebalancing measures to be inconsistent with paragraph 2, the concerned Party shall, within three days from the delivery of the ruling, notify the complaining Party of the measures65 it intends to adopt to comply with the ruling of the arbitration tribunal. Articles INST.23(2) [Compliance review], INST.24 [Temporary remedies]66 and INST.25 [Review of any measure taken to comply after the adoption of temporary remedies] shall apply mutatis mutandis, if the complaining Party considers that the notified measures are not in compliance with the ruling of the arbitration tribunal. The procedures under Articles INST.23(2) [Compliance review], INST.24 [Temporary measures] and INST.25 [Review of any measure taken to comply after the adoption of temporary remedies] shall have no suspensive effect on the application of the notified measures pursuant to this paragraph.
(f) If rebalancing measures were adopted prior to the arbitration ruling in accordance with point (c), any countermeasures adopted pursuant to that point shall be withdrawn immediately, and in no case later than five days, after delivery of the ruling of the arbitration tribunal.
(g) A Party shall not invoke the WTO Agreement or any other international agreement to preclude the other Party from taking measures pursuant to paragraphs 2 and 3, including when those measures consist of suspension of obligations under this Agreement.
(h) If the notified Party does not submit a request pursuant to point (b) within the time period laid down therein, that Party may without having prior recourse to consultations in accordance with Article INST.13 [Consultations] initiate the arbitration procedure referred to in Article INST.14 [Arbitration procedure]. An arbitration tribunal shall treat the issue as a case of urgency for the purpose of Article INST.19 [Urgent proceedings].
This is a pretty big innovation and it will take a while to fully digest what has been done here. Here are a few quick thoughts:
- Paragraph 2 says that "A Party’s assessment of these impacts shall be based on reliable evidence and not merely on conjecture or remote possibility." In theory, a government could make this assessment on somewhat of an ad hoc basis, with a decision made by the executive branch that the evidence is sufficient in a particular case. However, if the government wants its decision to withstand the scrutiny of an arbitration tribunal, it will probably have to establish detailed procedures and run a quasi-judicial proceeding on these issues. I can imagine that both the UK and EU will designate some agency for this task, perhaps adapting existing trade remedies procedures for use here.
- There are a lot of substantive provisions to flesh out in order to determine how hard it will be to prove that the playing field is not "level" somehow: The scope of the covered policies (which is defined elsewhere in the text); what are "material impacts on trade or investment"; what will the "arising as a result of" causation standard look like; what are "significant divergences"; and how will the "strictly necessary and proportionate" standard be applied.
- In some ways, this seems like a powerful new trade remedy that will expand on the domain of anti-dumping, countervailing duties, and safeguards. But with LPF remedies, neutral arbitrators will be able to look at the measures before they go into effect. That could seriously limit their use.
- It's important to note that these provisions cover investment as well as trade. That could be a significant expansion in their scope.
- Will this approach be copied by others? I can see how U.S. progressives would be tempted to adopt it. Also, the EU may try to work this into its other PTAs. Will other countries go along? Many countries would probably raise objections.
- Paragraph (g) says "A Party shall not invoke the WTO Agreement or any other international agreement to preclude the other Party from taking measures pursuant to paragraphs 2 and 3, including when those measures consist of suspension of obligations under this Agreement." But will other affected WTO Members raise WTO complaints? Let's say a U.S. company is sending inputs to a factory it owns in Germany, and the UK imposes rebalancing measures that affect products from the German factory. Could the U.S. bring a WTO complaint against the UK measures?
- Overall, I think it was a mistake to go down this road, but it seems like we are going, and now we'll just have to see where it leads us. Will it take off like investment arbitration did, with the provisions copied and an eventual litigation explosion? Or will it turn out that governments do not actually use the covered policies to distort trade and investment in the way that some people fear, and these provisions will not end up being used much?
