International Economic Law and Policy Blog

Forced Technology Transfer Provisions in the CAI and the US-China Phase One Deal

It's interesting to compare the forced technology transfer provisions of the EU-China Comprehensive Agreement on Investment (CAI) and the US-China Phase One trade agreement. Here are the CAI provisions:

Article 3
Performance Requirements

1. Neither Party may, in connection with the establishment or the operation of all enterprises in its territory, impose or enforce any requirement or enforce any commitment or undertaking:

...

(f) to transfer technology, a production process, or other proprietary knowledge to a natural person or an enterprise in its territory;

...

2. Neither Party may condition the receipt or continued receipt of an advantage, in connection with the establishment or operation of all enterprises in its territory, on compliance with any requirement:

...

(f) to transfer technology, a production process or other proprietary knowledge to a natural person or an enterprise in its territory.

...

3. Neither Party shall directly or indirectly require, force, pressure or otherwise interfere with the transfer or licensing of technology between natural persons and enterprises of a Party and those of the other Party. Such transfer or licencing of technology shall be based on market terms that are voluntary and reflect mutual agreement.

And here are the Phase One deal provisions:

Article 2.1: General Obligations
...
2. Any transfer or licensing of technology between persons of a Party and those of the other Party must be based on market terms that are voluntary and reflect mutual agreement.

...

Article 2.2: Market Access

Neither Party shall require or pressure persons of the other Party to transfer technology to its persons in relation to acquisitions, joint ventures, or other investment transactions.

...

Article 2.3: Administrative and Licensing Requirements and Processes

1. Neither Party shall adopt or maintain administrative and licensing requirements and processes that require or pressure technology transfer from persons of the other Party to its persons.

2. Neither Party shall require or pressure, formally or informally, persons of the other Party to transfer technology to its persons as a condition for, inter alia:

(a) approving any administrative or licensing requirements;

(b) operating in the jurisdiction of the Party or otherwise having access to the Party’s market; or

(c) receiving or continuing to receive any advantages conferred by the Party.

3. Neither Party shall require or pressure, formally or informally, persons of the other Party to use or favor technology that is owned by or licensed to its persons as a condition for, inter alia:

(a) approving any administrative or licensing requirements;

(b) operating in the jurisdiction of the Party, or otherwise having access to the Party’s market; or

(c) receiving or continuing to receive any advantages conferred by the Party.

How do these two sets of provisions compare? Both are more extensive than what is currently in para. 7(3) of China's accession protocol. In terms of which new set is stronger, there are a lot of nuances here, but I'm struck by the words "indirectly" and "otherwise interfere with" in Article 3, para. 3 of the CAI. To me, those look like they could lead to fairly broad interpretations of the government actions covered. I can imagine that the Biden administration would want something similar in any future negotiation with China.

SIEL Call for Papers and Panels: Rethinking Global Economic Governance

This is from the SIEL:

The Seventh Biennial Global Conference of the Society of International Economic Law (SIEL) will take place as a virtual conference in collaboration with Bocconi University, Milan / Italy, on 8-10 July 2021.

I. Conference Content

Even prior to the onset of the COVID-19 pandemic, international economic relations were at an inflection point. The rules and institutions that have governed international economic law (IEL) since the end of World War II are increasingly questioned at the national, regional and global level. The future, or even survival, of core institutions is seriously questioned and multiple proposals for reform of international trade, investment and financial law and governance have been tabled.

The 2021 SIEL Global Conference invites participants to reflect on the question to what extent the existing rules and institutions of international economic governance are capable of meeting the challenges of the 21^st century. The Conference is open to academics, practitioners and government officials to present their views on these challenges and the ways to address them. The Conference Organizing Committee encourages the submission of proposals for papers and panels on topics of interest in all fields of international economic law. Without excluding proposals on other topics, the Committee would welcome in particular proposals for papers and panels on:

• The COVID-19 pandemic and its impact on international economic law and policy (trade, investment, finance, intellectual property)
• The role of international economic law and policy in addressing climate change and achieving the UN sustainable development goals
• The future of systems for a rules-based resolution of international trade and investment disputes and the design of new types of remedy for breach of obligations
• New forms of and formats for successful trade and investment negotiations (e.g. EU and UK FTAs, documents relating to the Belt and Road Intitative)
• The impact of regional economic integration (e.g. RCEP, AfCFTA, USMCA, and EU FTAs) and disintegration (e.g. Brexit) on international economic law and policy
• The digitalisation of trade and finance, and the need for innovative international regulation regarding inter alia digital currencies and payments
• Intellectual property and artificial intelligence
• New rules on industrial subsidies and the activities of state-owned enterprises
• Special and differential treatment and the issue of developing country status in international economic institutions
• Trade and gender
• Trade, investment and corporate responsibility along the supply chain.

We invite proposals that fall within the following categories:

1. Individual paper or poster proposals. While not excluding proposals on other topics, preference will be given to paper or poster proposals on the topics listed above. Paper or poster proposals must not exceed 400 words. Only one proposal per person is allowed.
2. Panel proposals. While not excluding proposals on other topics, preference will be given to panel proposals on the topics listed above. Suggested panelists must have agreed to participate in the Conference. Should one or more panelists be unable to participate, the Conference Organizing Committee reserves the right to substitute for the(se) panelist(s), or to merge panels, should a significant number of panelists not be able to participate. Panel proposals, including short bios of the panelists, must not exceed 800 words.

In making a choice between the paper, poster and panel proposals submitted, the Conference Organizing Committee will want to give an opportunity to early career scholars and practitioners as well as to scholars and practitioners of parts of the world often under-represented at international conferences, to make their voices heard.

The Conference will have plenary and concurrent panels. Each panel will be moderated and commentators may be invited to react to the papers presented. We ask that each paper and panel proposal be accompanied by a set of guiding questions (1-2 for paper proposals and 3-4 for panel proposals) and an indication for the target audience the proposal is trying tor each. Given that participants will be in different time zones, we will make every effort to accommodate suitable times throughout the days of the conference.

II. Submission Procedure and Instructions

Paper, poster and panel proposals must be submitted by 22 February 2021 (midnight GMT) via the dedicated web-form, available at https://forms.gle/4xYYqttWft1NigLM9.

In evaluating proposals, please note that priority will be given to unpublished papers/posters and works in progress. We generally do not permit individuals to serve on multiple panels. If you submit a paper proposal and are also listed in a panel proposal, we will consider both proposals, but reserve the right to choose which proposal is the better fit for the overall composition of the Conference programme. Every proposal will be reviewed by at least two members of the Conference Organizing Committee on a double-blind and confidential basis. The Conference Organizing Committee anticipates announcing the results of this call for paper, poster and panel proposals by 22 March 2021.

Conference papers will be made available to conference participants prior to the conference. Accepted papers (from paper and panel proposals) must be submitted by 15 June 2021, in order to ensure the dissemination of papers among conference attendees. Papers from the previous conferences were published online as part of a working paper series on SSRN’s Legal Scholarship Network.

III. Conference Fees

The fees for this online conference will be kept as low as possible.

IV. Enquiries

Please submit enquiries to [email protected].

 

The Labor Provisions in the EU-China Comprehensive Agreement on Investment

The EU has published a number of parts of the text of the EU-China Comprehensive Agreement on Investment (CAI) here. The "Investment and Sustainable Development" section is here. This is the substantive language on labor rights:

Sub-Section 3 – Investment and Labour

Article 1: Right to regulate

The Parties recognise the right of each Party to determine its sustainable development policies and priorities, to establish its own levels of domestic labour and environmental protection, and to adopt or modify its relevant laws and policies accordingly, consistently with its multilateral commitments in the fields of labour1 and environment.

Article 2: Levels of protection

1. Each Party shall strive to ensure that its laws and policies provide for and encourage high levels of labour protection and shall strive to continue to improve those laws and policies and their underlying levels of protection.

2. The Parties recognise that it is inappropriate to encourage investment by weakening or reducing the levels of protection afforded in domestic labour laws.

3. A Party shall not waive or derogate from, or offer to waive or derogate from, its labour laws as an encouragement for the establishment, acquisition, expansion or retention of an investment or an investor in its territory.

4. A Party shall not, through a sustained or recurring course of action or inaction, fail to effectively enforce its labour laws, as an encouragement for investment.

5. The Parties recognize that with respect to the enforcement of labour laws, a Party is in compliance with paragraph 4 if a course of action or inaction results from a good faith decision regarding the allocation of resources in accordance with its priorities for enforcement of its labour laws.

6. The Parties recognise that the violation of fundamental principles and rights at work cannot be invoked or otherwise used as a legitimate comparative advantage and that labour standards cannot be used for protectionist purposes. A Party shall not apply domestic labour laws in a manner that would constitute a disguised restriction of investment or an unjustified discrimination between investors and investments of the Parties.

Article 3: Dialogue and cooperation on investment-related labour issues

The Parties agree to dialogue and cooperate as appropriate on investment-related labour issues of mutual interest arising under this Section in a manner complementary to the efforts under existing bilateral and multilateral mechanisms.

Article 4 […]

1. Each Party, in accordance with its obligations assumed as a member of the International Labor Organization (“ILO”), and its commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, shall respect, promote and realize, in good faith and in accordance with the ILO Constitution, the principles concerning the fundamental rights which are the subject of the fundamental ILO Conventions.

2. Each Party is, in accordance with the commitments of the members of the ILO and the 2019 ILO Centenary Declaration for the Future of Work, committed to effectively implement the ILO Conventions it has ratified and work towards the ratification of the ILO fundamental Conventions. In particular, in this regard, each Party shall make continued and sustained efforts on its own initiative to pursue ratification of the fundamental ILO Conventions No 29 and 105, if it has not yet ratified them. The Parties will also consider the ratification of the other Conventions that are classified as "up to date" by the ILO.

Article 5: Investment favouring decent work

In accordance with their commitment to enhance the contribution of investment to the goal of sustainable development, including its labour aspects, the Parties agree to promote investment policies which further the objectives of the Decent Work Agenda, in accordance with the 2008 ILO Declaration on Social Justice for a Fair Globalisation, and the 2019 ILO Centenary Declaration for the Future of Work, including a human-centred approach to the future of work, adequate minimum wages, social protection and safety and health at work.

At first glance, it seems to me that Article 4 is the most important provision here, as it applies international law principles directly to each parties' domestic labor rights policies and practices. I'm not an expert on the ILO rules or China's labor practices, but as I read this, it seems to provide a broad avenue for the EU to raise the issue of the consistency of China's actions with international rules. But I am eager to hear more from labor experts on this part.

The Article 2 provisions seem weaker to me, although I can see how they could also be the basis of some interesting claims.

Importantly, there is a dispute settlement mechanism that applies to all this. Sub-section 4 has a "Mechanism to Address Differences," with consultations and a panel process that looks pretty similar to what we see in the normal FTA state-state dispute settlement context. (I'll be interested to see how the process for establishing lists of potential panelists goes, as that was a problem under the NAFTA.)

Not surprisingly, there is no possibility for trade sanctions to enforce compliance with panel reports. Instead, Article 4.7 states: "The Parties shall consult within 30 days after the issuance of the final report of the Panel of Experts, and discuss measures to address the matter, based on the report. The agreed outcome shall be made publicly available, unless otherwise mutually decided. The Parties may receive views on the implementation of the measures through the mechanism referred to under [Article 3, Sub-section 1, Section IV]." 

My initial take on these provisions is that I'm very surprised that China agreed to them, given what we hear about labor practices in China. It looks like there are real substantive labor obligations here and they can be applied by a neutral international panel, with a good deal of transparency. I would not have thought China would be willing to have its labor practices scrutinized in this way, even without the possibility of trade sanctions. The fact-finding alone could be enough to seriously embarrass China.

The CAI's political prospects look shaky right now in terms of approval by the European Parliament, but if it does go into effect, EU complaints about Chinese labor practices are going to be interesting to watch. And even if it doesn't go into effect, I can imagine that some other countries who negotiate trade or investment deals with China will now demand something similar. To take an obvious example, as the Biden administration tries to sort out what to do with the Phase 1 deal, it may draw inspiration from these provisions.

Two Upcoming Online Events: The WTO Panel Process, and U.S. Trade Policy in the Biden Administration

I'll be the moderator for two online events next week, one hosted by ASIL/IIEL on the WTO panel process, and the other hosted by SIEL on U.S. trade policy under the Biden administration. Here are the details and links:

ASIL/IIEL - Rethinking the WTO Panel Process

Registration for ASIL Int'l Econ. L. Interest Group & Georgetown IIEL Event: Rethinking the WTO Panel Process

Tuesday, January 26, 9am-10:30am ET

Moderator:
Simon Lester, Associate Director, Center for Trade Policy Studies, Cato Institute

Speakers:
Ignacio Garcia Bercero, Director for Strategy and Multilateral Trade Policy, DG Trade, European Commission

Kholofelo Kugler, Counsel, Advisory Centre on WTO Law

Johann Human, former Director of WTO Rules Division

Joost Pauwelyn, Professor of International Law, Graduate Institute of International and Development Studies & Murase Visiting Professor of Law, Georgetown University Law Centre

Dr Jan Yves Remy, Deputy Director of the Shridath Ramphal Trade Centre, UWI

 

Register here.

SIEL - US Trade Policy Under the Biden Administration

6th SIEL Conversation

The aim of SIEL Conversations is to bring together authors and commentators to give talks that are idea-focused so as to foster learning and inspiration, and provoke conversations that matter. Each SIEL Conversation will last approximately one hour and will include commentary from the speakers, with questions from the public.

Title: US Trade Policy Under the Biden Administration: What to Expect or Hope For?

Moderator: Simon Lester, Associate Director, Center for Trade Policy Studies, Cato Institute

Speakers:

• Ambassador Ujal Singh Bhatia 
• Ana Swanson, Correspondent, Trade and International Economics, The New York Times
• Desirée LeClercq, Assistant Professor, Cornell University School of Industrial Labor Relations
• Alan Beattie, Senior Trade Writer, Financial Times

Date:  The event is scheduled for Thursday 28^th January 2021 at the following times and more information can be found here:

• 8 am Washington D.C. time
• 2 pm Brussels time
• 4 pm St Petersburg time
• 6:30 pm New Delhi time
• 9 pm Beijing time
• 10 pm Seoul time

Registration form: https://forms.gle/fHGPWBGvFESLhR2t6

Join us if you can!

The Trump/Lighthizer Legacy on Trade

With the Trump administration now finished, we are in the period where people will be spinning Trump's time in office into the narrative they want to create. On trade policy, Trump's U.S. Trade Representative Robert Lighthizer spent some of his final weeks in office trying to create a favorable narrative with the talks and interviews he gave. At an event last month with the Confederation of Indian Industry, he said the following (starts at 1:25:34):

"I think the China awakening will last. I'm very hopeful that changing the direction of trade policy, or the objective towards workers, will also last.

I think the President got elected on this issue. And he ran on it. And it was interesting, the other side, Biden didn't really run against our views at all. It was very interesting. And so, it's an enduring part of the Trump legacy."

He offered a similar perspective to the BBC: 

• "what we tried to do was reorient the purpose of international trade more towards working people in the United States"; "I think that the Democrats as well as the Republicans realise that we needed to shift the paradigm on trade more in the direction of working people in the United States"; "The real question is, 'What's the objective?', and the objective can't just be efficiency, the objective has to also be working men and women"; "We want strong communities in the United States. And if that means that T-shirts cost another nickel, then T-shirts will cost another nickel"
• "And that we needed to recognise that China is a real problem for our system, and that we had a very, very unbalanced relationship and we can't go back to where it was."
• "I wouldn't really say that we started a lot of trade wars. I don't think that's accurate. ... where would you really say we started a trade war?"

And perhaps with the most detail, at the Milken Institute he responded to questions such as: "as you think back to the Trump administration's four years, what are the lessons learned?", and "What are things that people can take away, to compare these four years, say, to prior presidential administrations?":

• "I would say, to me the two most important things are, one, we have reoriented the purpose of trade policy, more towards working men and women, and farmers, and what's good for them, and less away from the notion of global corporations, long supply lines, outsourcing, and efficiency."
• "The number two thing is [Trump] showed that there is a major issue with China. … this president realized that [the trade system] needed to be reset .. in terms of realizing that we have to deal with China as the biggest growing economy in the world, and a very different system. Not a capitalist system."
• "In the 90s there was this notion, which turned out to be a foolish notion, but there was this notion that well if you just draw China in and deal with China, China will become like America, right. … Just a common view in the Clinton administration, that if they trade they'll become democratic."
• "I have always been an economic nationalist in the sense that I always wanted a strong US economy, I wanted a strong manufacturing economy, I wanted good services jobs."
• "And then we put in place as part of that [at the WTO], we put in place this dispute settlement process. What you've noticed since then in going forward is no more negotiations. So we have a negotiating body that has now become like a court. And it was never intended to be that way. … So what has tended to happen is people are not negotiating. And they're just litigating."

Lighthizer's spin on the legacy of Trump's trade policy raises a number of questions:

• Did Biden run against Trump's trade policy?
• Did the Trump administration start any trade wars?
• How did U.S. trade policy change with regard to China under the Trump administration?
• Is U.S. trade policy now more oriented towards workers?
• Did Trump get elected on the issue of trade?
• What is the relationship between WTO dispute settlement, on the one hand, and WTO negotiations, on the other?
• What is "economic nationalism"?

Let's go through these one by one. The first two are the easiest.

Did Biden Run Against Trump's Trade Policy?

Yes, Biden ran against Trump's trade policy. One example is this speech. Some choice quotes from the speech are: "Trump's tariffs and trade wars are hitting a lot of American manufacturing -- especially the American automobile industry -- choking it to within an inch of its life"; "Trump doesn't get the basics. He thinks his tariffs are being paid by China. Any beginning econ student at Iowa or Iowa State could tell you that the American people are paying his tariffs"; "Trump is attacking the very partners we need with us to deal with China. We need to rally more than half the world's economy to hold China to account for their cheating. And get a chorus of voices speaking out on China's repression."

While I don't think trade policy plays that big a role for most U.S. voters, to the extent that Biden talked about trade policy, he clearly indicated that he would not be following Trump's approach. That's not to say he'll be a free trader, but he will diverge considerably from what Trump did.

Did the Trump Administration Start Any Trade Wars?

Yes, the Trump administration started trade wars! We could quibble over whether specific actions constituted a trade war, and who started particular trade wars, but no one has any doubt that the Section 232 tariffs and quotas on steel and aluminum were trade wars started by the Trump administration. The steel and aluminum tariffs were of questionable legality, favored special interests over the economic welfare of the country as a whole, and led to retaliation from trading partners. 

How Did Trump Change U.S. Trade Policy Towards China (and Was That Change Effective)?

With regard to China, I think the legacy of the Trump administration is a lack of focus and many missed opportunities. Keep in mind that China was high on the U.S. trade agenda even before Trump, as the Obama administration used the TPP (and the TTIP), at least in part, to counter China's rise and keep it in check. You can question whether that was the right approach, but certainly the Obama administration was pressing hard to work closely with allies and to "write the rules instead of letting China write them," as Obama and his trade policy team often said. The Trump administration talked a lot about China, but at the end of it all got just about as much as the Obama administration did with TPP/TTIP. There's a "phase one" deal in effect, but outside of a few sectors/issues here and there, it doesn't seem to have changed much in terms of China's trade practices; and there are now lots of additional tariffs in place, on both sides. Basically, if the goal was to induce China to liberalize, we went backwards. Now, maybe this was all part of a longer-term strategy, and the ultimate goal really was to use the tariffs to change China's practices. However, when you have a President who calls himself a "tariff man," it's also possible that the tariffs themselves were the main goal, and inducing change in China was a secondary consideration.

As for the notion that trade with China would make it more democratic, this Bill Clinton speech I linked to a while back is helpful in understanding the thinking at that time. Lighthizer puts this straw man out there: "there was this notion that well if you just draw China in and deal with China, China will become like America." However, Clinton's speech clearly says something very different.

Did the Trump Administration Reorient Trade Policy Towards Workers?

On the issue of workers, the Trump administration's trade policy was clearly intended to help certain U.S. companies in particular industries, such as steel and aluminum. To a great extent, then, this trade policy was about enriching particular corporations. Now, there are workers at those corporations, so I can see how you would spin things to say that the policies were designed to help the workers rather than the CEOs and shareholders. But there are many more workers in other industries who were hurt by the steel and aluminum tariffs, so on balance the case for these policies helping workers is pretty weak. And his argument about efficiency is too simplistic. Yes, you can maintain an inefficient system for a while by imposing costs on the masses for the short-term benefit of a few well-connected corporations. That kind of approach works only until it collapses though. At a certain point, it just becomes too expensive to prop up the inefficient companies.

On labor rights, the USMCA famously has some innovative new provisions that could promote worker's rights in Mexico, but those were pushed by Congressional Democrats. Perhaps the appropriate narrative on this point is that the Trump administration acquiesced to the demands of Democrats on issues related to workers. When you put it that way, it seems less compelling in terms of the Trump administration's legacy.

Did Trade Policy Help Trump in Elections?

As to the role of trade policy in elections, Trump did talk a lot about trade during both his presidential campaigns. In the 2016 election, Trump got beaten pretty handily by Hillary Clinton in the popular vote, but was able to win the electoral college. Then, after four years of implementing his trade policy, and giving voters a chance to see what that trade policy looked like in practice, Trump got trounced by Joe Biden in both the popular vote and electoral college. So, putting aside the merits of the policies, they don't look quite so helpful politically.

As I said above, I don't think trade policy plays that big a role in U.S. politics. Most people's views on trade policy are not that strongly held. But if you want to judge protectionist trade policy on the standard of how it fares in elections, it doesn't look all that successful.

What is the relationship of dispute settlement and negotiations at the WTO?

As I explained here, the Trump administration's view seems to be that governments have been unwilling to negotiate at the WTO because they could more easily litigate and get what they wanted that way, without having to offer concessions. That shifted the WTO from a negotiating forum to a litigation forum, with the U.S. paying the price as it lost cases brought against it. 

I think this view completely mischaracterizes the reasons for the failure of WTO negotiations in recent years. As I see it, the main reason for this failure is the unwillingness of certain governments to make concessions. People often point to countries such as India and Brazil, and that's fair. But I would also point at the U.S., the EU, Japan, and other developed countries. The developed countries may look at the current set of rules and say, we have made the biggest commitments (e.g. on bound tariff levels), and now it's time for the developing countries to do more. It's up to them to make concessions. But the developing countries look at issues such as IP protection (e.g. long copyright and patent terms) and think, we gave way too much already, and now it's time to rebalance things towards us. And I think the developing countries have a point here. As I see it, the result of all this is, until all major trading countries are willing to give something, the negotiations are going to mostly remain stalled. Importantly, the negotiations being stuck has nothing to do with the ability to litigate. Yes, at the margins, governments can bring cases against the U.S. and win some minor victories. And the U.S. can do the same against other governments (although the Trump administration didn't make much use of this ability). But issues related to litigation tend to be narrow and are not the cause of any broad negotiating failures.

What Is Economic Nationalism Anyway?

Finally, there was this: "I have always been an economic nationalist in the sense that I always wanted a strong US economy, I wanted a strong manufacturing economy, I wanted good services jobs." OK, but if the standard is "wanting a strong US economy," we are all economic nationalists. The real issue here is whether ratcheting up protectionist policies to levels not seen in decades is good for the U.S. economy. We all saw the harms to specific U.S. companies and their workers, especially manufacturers who make use of imported inputs. Trump's policies reaffirmed that economic nationalism in the sense of high levels of protectionism and unilateralism is bad for the domestic economy as a whole.

So What Is the Trump/Lighthizer Legacy on Trade?

What is the Trump/Lighthizer legacy on trade? Maybe it is this: For the foreseeable future, the Trump administration's trade policy will provide everyone a long list of examples of things not to do. Tariffs being wildly overused as negotiating threats; tariffs outside the normal legal processes; tariffs that lead to trade wars; tariffs that undermine international trade agreements; and unilateralism on trade policy in general. All of it had the expected negative results. None of it had the benefits that were promised.

The reality of the trading system that existed pre-Trump is that it did not come close to full free trade. Rather, a major part of the system was a carefully negotiated balance of modest constraints on tariffs and other protectionism. Trade was liberalized a bit, but there was plenty of protectionism still allowed. Interest groups certainly put their policy preferences in the mix at times, but probably less so than they would in a system without the international constraints. The Trump administration tried to move away from that, with an ideological approach based on higher tariffs and unilateralism, and designing trade policy largely for the benefit of a few favored industries.

So what now? The path ahead is a bit unclear, but in my view just about everything the Trump administration pushed over the last four years should be avoided. When people study trends in U.S. trade policy, they should go from Clinton to Bush to Obama to Biden, with the four year period under Trump characterized as just a weird anomaly. Normally, trade policy tries to take into account all of the various domestic interest groups and to promote good relationships with foreign nations. We took a break from that approach during the Trump administration, but hopefully we can get back to it now.

Americans on the WTO Indicative List of Panelists

Back in April of 2017, I said this:

while the indicative list of panelists does not have much correlation to people who actually serve as panelists, a former intern of mine named Christina Woo put together this cool table of Americans on the indicative list since the GATT era. The Obama administration never appointed anyone, and the list has kind of been frozen in time. Will the Trump administration take a look at this?

Looking at the latest version of the WTO's indicative list of panelists (the roster), there have been no changes. I know the Biden administration is likely to spend a lot of its WTO dispute settlement energy on the Appellate Body, but is it possible they would also think about updating the Americans on the panelist roster?

Also, for WorldTradeLaw.net subscribers, we now have data on whether panelists on completed panels were on the roster. Where the panelists were appointed by the DG, 140 were on the roster, whereas 307 were not on the roster. Where the panelists were agreed by the parties, 57 were on the roster, whereas 153 were not on the roster.

Trade Policy and Race/Ethnicity

There was some Twitter discussion last week of a new paper from Global Trade Watch called "Trade Discrimination: The Disproportionate, Underreported Damage to U.S. Black and Latino Workers From U.S. Trade Policies." I can see how it would be useful to study the impact of U.S. trade policy, and of economic policy more generally, on the economic well-being of different ethnic groups. Unfortunately, I don't think the report does a very good job with the issue. It seems to me that it mostly just takes the traditional trade critic approach (e.g., "U.S. Bureau of Labor Statistics’ data show that during the NAFTA-WTO-China PNTR era, over 60,000 U.S. factories have closed"), and then adds in an ethnicity/race component to the analysis of the lost jobs. This approach misses a lot.

First of all, I've seen many critiques of the factory/job loss numbers, and it seems to me that some critics are accepting the headline numbers on faith without doing any analysis to make sure those numbers are accurate. 

Second, a lot of other things have been going on in the economy from 1994 (when NAFTA went into force) to today, and there are other reasons for factory closures/job losses over this period (technological advances being the main one). I'm not sure how you can write a paper about manufacturing job losses and not mention that.

Third, there were also job gains during that period, and surely that should be taken into account. Identifying the job losses over a period without talking about job gains is a big oversight and paints a misleading picture of what has been happening in the economy.

Fourth, there are economic benefits to consumers from lowering tariffs, which means there are benefits for all Americans, and in particular this helps Americans with lower incomes. If you are serious about assessing the impact of trade liberalization, you should make some effort to take this into account.

And finally, even if your focus is on the well-being of Americans, it's at least worth noting the benefits of trade to people in other countries.

If the Global Trade Watch paper comes up short, what should others do with this issue instead? If I were an economist and had the skills to do this kind of work, I would break the analysis down into sub-categories, because "trade policy" covers a lot of ground. To this end, I would look at the impact of tariff liberalization, tariff imposition, intellectual property protection, regulatory standards, investment protection, etc. For example, what was the impact of Trump's tariffs (and the resulting trade wars) on different ethnic groups, in terms of their ability to consume and in terms of employment in manufacturing or other sectors?

None of this will be easy of course, and it's probably too much to do it all at once in a single paper. But this is the kind of objective research that would be useful for a discussion of U.S. trade policy and race.

As a final point, the authors seem to want to disassociate themselves from Trump. For instance, they say:

Donald Trump hijacked progressives’ critique of corporate globalization and job offshoring, but reframed it into a narrative of resentment with racialized appeals to white working-class voters.

But did he hijack it? Trump has been offering his critique of U.S. trade policy/trade agreements for decades, as have Global Trade Watch and various other critics. There has always been some overlap between his critique and the Global Trade Watch critique. In addition to having similar concerns about offshoring, Global Trade Watch continues to be very focused on the trade deficit, just as Trump is.

Of course, there are some differences as well. Trump bashes foreign countries for cheating us, and U.S. negotiators for doing a bad job. Global Trade Watch focuses more on corporate influence. And with progressives, it's important to note that there are a range of views within the group of people who consider themselves critics of the existing system. (Some progressives are more supportive of it.) 

Regardless of how we should think about the relationship between the views of Trump and those of progressive critics of the trade regime, we are now about to move forward. Trump will soon be out of office, and it's possible these critics will have some say in what the Biden administration should do. So what exactly do these progressives want? The report states that:

what already is well documented is that Trump did not deliver his promises to working-class people. Instead of stopping trade-related job loss and offshoring, during the Trump administration 311,427 American jobs have been government-certified as lost to trade, with 202,543 explicitly listed as offshored.

Trump's approach to stopping offshoring involved lots of tariffs and trade wars. What specifically does Global Trade Watch suggest as an alternative? If they are concerned about the impact of trade policy on various groups, as their report suggests, I hope they will consider why tariffs and trade wars led to the negative results they noted under the Trump administration.

FTA safeguard exclusion clauses . Do they bite?

In a recent post discussing the NAFTA/USMCA provision relating to conditional exclusion of FTA partners from global safeguards under the WTO, I stated that "this type of exclusion is unique to a handful of US FTAs". Count on Amy Porges to catch me in a gross error.  Amy pointed me to an excellent 2013 paper written by former WTO colleagues mapping numerous such RTA provisions. Of the 232 FTAs surveyed in that paper, no fewer than 62, or roughly 25%, had some type of provision relating to the possible exclusion of an RTA partner from WTO global safeguards.      

Despite the large numbers, I found myself pondering how much real-world impact these provisions (outside NAFTA/USMCA) have had. I suspect the answer is not much, for the following reasons.

First, many of the countries whose FTAs contain exclusion clauses rarely if ever use safeguards. For example, no EFTA country has imposed a safeguard measure since 1995. The same is true for Australia, New Zealand and Singapore, whose FTAs, according to the paper, were, as of 2013, the only ones with automatic exclusion clauses. Other users of such clauses, such as Canada, scarcely use them. There appear to be few such FTA provisions involving the leading safeguards users (India, Indonesia and Turkey). It seems that, outside the United States, the more frequent the user, the less likely it has been to accept such constraints. 

Second, the WTO Agreement on Safeguards Article 9.1 requires that small developing country users (less than 3% of imports) be excluded from safeguard measures. It seems likely that many of the smaller countries whose FTAs contain such provisions would be excluded from a safeguard measure on this basis irrespective of any FTA provision. And larger suppliers who exceeded these thresholds might not qualify for exclusion where the FTA exclusion hinges upon the suppliers’ small import share and limited (or no) contribution to the serious injury.

Third, only two of the FTAs examined involve automatic exclusion, while in all remaining FTAs exclusion is conditioned upon small import shares and/or limited (or no) contribution to the serious injury. Of this latter group, 26 of the 60 seem to involve discretionary exclusion (“may” rather than “shall”), even where the relevant conditions for exclusion are met. Interesting to note that more recent US FTAs, such as KORUS,  have such general, discretionary language (a Party "may" exclude if the imports are not a "substantial cause" of serious injury). Query how likely a country is to actually exclude in such circumstances, but language I found in an Indian safeguard determination on “single mode optical fibre" (p. 63)  suggests that India, at least doe not give the language much weight.  . 

All this said, there may be situations, outside US FTAs, where such exclusion provisions have actually changed the scope of safeguards measures. If anybody out there is reading this blog, and knows of such situations, I’d love to hear about it!

US Solar Safeguard: How much discretion is too much?

Yesterday Canada requested consultations under USMCA regarding the “imposition and ongoing application” to Canada of the US safeguard measure on solar measures. Canada argues that the application of the safeguard to Canada violates the US obligation to exclude USMCA Parties from the scope of the safeguard unless imports from that Party account for a “substantial share of total imports” and “contribute importantly” to the serious injury (USMCA Art. 10.2). It further argues that the US breached its obligations to entrust serious injury determinations to a “competent investigation authority” and to not modify negative injury determinations, except by judicial/administrative review (Art. 10.3).

This case is interesting on many levels. I am a dabbler, and have no involvement in this matter, so I may have missed many relevant considerations and misunderstood what is happening. But my quick thoughts, for what they are worth.

First, this safeguard was imposed back in January 2018, in the NAFTA era. Canada requested consultations at that time, but apparently received no response. Presumably they are now taking advantage of the new and improved DS provisions of the USMCA. This does however potentially raise issues of temporal application, since the USMCA did not exist when the measure was imposed. Hence the reference to “continuing application? While the WTO Agreement contained transitional provisions governing the application of its disciplines to existing measures, I am not aware of any comparable provisions in the USMCA. But the experts may know more.

Substantively, exclusion is an interesting issue. Essentially, USMCA, like NAFTA, requires the exclusion of FTA partners from a safeguard unless the volume of imports is substantial and the contribution to injury is important. This type of exclusion is unique to a handful of US FTAs (note, for example, that there is no such provision in the new EU/UK TCA). Of course, safeguard measures are in principle applied on an MFN basis, and whether such an exclusion is permitted by the WTO is unresolved. While the US-Line Pipe Panel found such an exclusion permissible, the AB resolved the issue on narrower grounds and declared the Panel’s ruling “moot” and without legal effect. WT/DS2020/AB/R, para 199. So Canada is alleging that the US is breaching a USMCA obligation the WTO-consistency of which has never been definitively established.

NAFTA/USMCA require exclusion where the relevant conditions are not met (USMCA Article 10.2), and set out indicative criteria (is the Party among the top-five suppliers, is the rate of growth of imports from the Party lower than the growth rate of total imports?). Unfortunately for Canada, although the USITC found that Canadian imports did not meet the criteria and should be excluded, US implementing legislation provides that the President makes the final “determination”. Here, the President’s Proclamation simply reversed the USITC’s findings, without explanation, and the CAFC has found that course of action to be within the President’s discretion under US law.

Fortunately for Canada, USMCA itself addresses this issue. Or does it? Article 10.3 says that each Party “shall entrust determinations of serious injury” to a competent investigating authority, subject only to judicial review, and that “negative injury determinations” shall not be subject to modification”, except by such review. Thus, the USITC decides, and a negative finding cannot be reversed by the President. But does the determination regarding “serious injury” encompass also the findings regarding import volumes/contribution for exclusion? I am no expert, but that looks far from clear to me. Assuming that the USMCA DS process actually works, time will tell.

Whether or not US actions here are found to violate USMCA, the Trump Administration’s approach is bad governance in action. The extent of Presidential discretion to arbitrarily disregard the reasoned findings of an investigative body, without fear of judicial review, is troubling at the least. I doubt American exporters would be happy if Revenue Canada found that a US exporter was not dumping, and the Prime Minister without reasoning simply reversed the finding. Discretion is based on trust. And the lawless arbitrariness of the current Administration has shown that such trust is not always warranted.

Guest Post from the European Commission: Candidates for adjudicators in EU trade agreements

This is from Colin Brown of the European Commission:

Candidates for adjudicators in EU trade agreements

On 18 December 2020 the European Commission and the EU’s Member States initiated a call for candidates to be appointed as adjudicators in EU trade agreements. The aim is to establish a pool of highly qualified individuals from which to draw persons to act as adjudicators in particular state-to-state dispute settlement proceedings or to appoint them to rosters of adjudicators (which is the fall-back option for state-to-state dispute settlement in EU agreements where there is no agreement between the Parties on adjudicators for a particular dispute). The EU is seeking both 3^rd country nationals to act as chairpersons and persons with the nationality of an EU Member State. This initial call covers arbitrators for State-to-state dispute settlement and for panellists in trade and sustainable development disputes. A call will be made at a later date for adjudicators for investor-state disputes. 

Applications can be made either to the European Commission or to Member State authorities and should be submitted before 23:00 Brussels time on 1^st February 2021. Applications will be screened by Member States and/or a Selection Panel (which the Commission has just established) to ensure that candidates have both the expertise and the required high ethical standards to act as adjudicators. The Commission will also shortly proceed to seek candidates for the Selection Panel. Once candidates have been screened they will be placed in a pool, and the Commission will draw from that pool to appoint adjudicators in specific disputes or to propose nominees for rosters under specific agreements. For more information on the process, including how to apply see: https://trade.ec.europa.eu/doclib/press/index.cfm?id=2224

This initiative is taken to ensure that the EU’s bilateral dispute settlement mechanisms, when needed, operate as effectively as possible. It also provides the Commission the chance to address the lack of gender balance in its practice to date. At the same time as initiating the call, the Commission adhered to the Equal Representation in Arbitration Pledge (http://www.arbitrationpledge.com/ ) as regards its dispute settlement activities in the field of trade and investment.

Jake Sullivan on the Biden Administration's Trade Policy Towards China and Towards Allies

Joe Biden's choice for National Security Adviser is Jake Sullivan. Sullivan was on Fareed Zakaria's TV show yesterday, and they had the following exchange:

ZAKARIA: ... Jake, one of the things that Joe Biden said on the campaign trail often and forcefully was that Donald Trump's trade wars with China had not worked, that it had imposed huge costs on American consumers, there was an ad, I recall, that aired in which he pointed out, you know, manufacturing is in recession, farmers are paying the price, the whole thing has not worked, and that we've lost.

And yet the Biden administration, Joe Biden says he will not reverse those tariffs. So explain to me, if you have a bad policy that didn't work, why would you continue it?

SULLIVAN: Well, the fundamental shortcoming of the Trump administration's trade strategy was that it was a go-it-alone strategy. It was taking on China as the United States by itself without allies and partners that comprise up to 60 percent of the global economy. And frankly, worse than go it alone, it was also open two and three front trade wars by picking fights with those very allies and partners that we would want on our side.

So what President-elect Biden wants to do is have a period where he can consult with our partners and allies in Europe and Asia and elsewhere to talk about how together we can bring leverage to bear on China to change its most problematic trade abuses, including dumping, including illegal subsidies for state-owned enterprises, including forced labor and environmental practices that hurt American workers and farmers and businesses.

He hasn't had the opportunity to do that during the transition because of the one-president-at-a-time principle. We're not engaging with foreign officials while President Trump is still in office. So we need that opportunity to consult. That will give us the chance to develop a common strategy with allies and partners to exercise the kind of clear-eyed leverage-based approach to bring China to the table and get them to alter or amend their most problematic trade practices that harm the American economy.

ZAKARIA: You talk about allies in Europe and Asia, but yet they seem to be going along and cutting their own deals with China. "The New York Times" points out that you tweeted essentially hinting to the European Union that they should hold off on this huge China-European Union Investment Treaty until you guys got a chance to consult with them. In fact, they accelerated and have already signed it.

Asian allies, 50-nation countries signed up with China for this Regional Comprehensive Economic Treaty. I mean, it feels as though the world is moving ahead, forging these trade alliances, and the country that used to do that, the United States, is sitting at the back of the bus putting up tariff barriers and walls. And again it seems like Joe Biden is not really changing that course.

SULLIVAN: Well, but, Fareed, that's not a repudiation of Joe Biden's approach. That's a repudiation of Donald Trump's approach. That is the wages of four years of alienating our allies and of refusing to work with them on these issues, and that's true. Both in the Asia-Pacific and in Europe.

And so when Joe Biden takes office on January 20th, and sits down in consultation out of mutual respect with key like-minded economies that as I said collectively comprise almost 60 percent of the world's economy, we are confident that we can develop a common agenda on issues where we share deep concerns about China.

And it's not just on trade. It's on technology. It's on human rights. It's on military aggression. And so our proposition, which we will begin testing when we take office, because, of course, we are not in office yet, is that that will put us in a stronger position to be able to deal with China effectively, in a clear-eyed way and in a way that ultimately delivers the kind of results that have entirely escaped the Trump administration over the last four years.

ZAKARIA: There is a domestic political reality about the China -- about China policy, which is that the Republican Party or certain key Republicans have clearly decided that they are going to attack you relentlessly from the right and claim that whatever you do is some kind of soft on China policy, is appeasement.

When the Democratic Party has faced those kinds of attacks from the right in the past, it is often gone along with a kind of, you know, me-too hawkishness that hasn't ended up so well. I'm thinking about the Johnson administration terrified that it would be attacked from the right, that it was going to lose Vietnam to communism. I'm thinking about the Iraq war when a whole number of Democrats, including Joe Biden, were clearly worried about being outflanked on the right by the Republicans.

Is this a real and present danger in China policy now? Are you -- do you have the room to maneuver and create a sensible China policy without worrying that it is going to be excoriated by Republicans?

SULLIVAN: This is the -- one of the many benefits of having somebody with the experience and the judgment and, frankly, the relationships on Capitol Hill that President-elect Joe Biden has. He knows his mind on China and he is going to carry forward a strategy not based on politics and not based on being pushed around by domestic constituencies, but based on the American national interest.

It's a clear-eyed strategy. It's a strategy that recognizes that China is a serious strategic competitor to the United States, that they act in ways that are at odds with our interests in many ways, including in the trade realm that we were talking about before, but others, too. It is also a strategy that recognizes that there are areas where we will work with China when it's in our interest to do so on issues such as climate change. And so Joe Biden is going to work hard to invest in our sources of strength here at home so that we can more effectively compete with China on technology and economics and innovation.

More effectively invest in our alliances so that we're building up leverage to be able to shape China's choices going forward and to be present in international institutions so that it's the United States and our partners and not China who is calling the shots at the key tables on issues ranging from nuclear proliferation to international economics.

The Trump administration walking away from those tables has given China a golden opportunity to advance its agenda in the world. So this is the approach that we intend to take. It's an approach rooted in a clear assessment of the challenge we face, a clear assessment of America's national interests, and what our sources of strength are that we can bring to bear in this competition.

ZAKARIA: And just, finally, and returning to the top, are you going to then waive or reverse the tariffs on our European allies and on Canada, for example?

SULLIVAN: Well, this comes back to the point I was making earlier about not having had the chance to consult with them, to work them. Our goal is to go out right away and sit down not just on the question of China, but to work out the economic differences that we have so that we can end the multifront trade war that the Trump administration started. And we intend to do that work right out of the gate in the early days and weeks of the administration.

Sullivan was very careful in how he answered some of Zakaria's direct questions. He did not promise to get rid of the Section 301 tariffs on China, instead focusing on improving trade relations with allies as a way to approach issues with China. He also did not promise to get rid of the Section 232 tariffs on allies, instead just saying he would "work out the economic differences that we have." And he did not complain about the EU-China investment agreement when prompted (even though he tweeted concerns about it recently), blaming these developments on Trump instead.

For me, the big question here is how the Biden administration approaches trade relations with the EU. The Section 232 steel and aluminum tariffs are, to some extent, an easy issue. Repealing them would be good economics and good for relations with the EU. (On the other hand, the domestic politics of this are challenging). But "the economic differences" with the EU are broader than this. Among other things, the Trump administration could soon impose Section 301 tariffs in response to France's digital services tax; there is tariff retaliation in effect from both sides in the Airbus-Boeing dispute; and there are, as always, U.S. concerns about EU food regulation. There is plenty of opportunity for deal-making, but these issues will be difficult to resolve.