International Economic Law and Policy Blog

Trade, Executive Agreements and US Law: Invitation to Trouble?

It may not be a new idea, but recent developments remind me how the status of US trade agreements as executive agreements, and the consequent (lack of a) role for them in US domestic law, has hindered the United States’ ability to comply with its international obligations, and generated unnecessary disputes that have undermined US public support for trade agreements.

First example, the USMCA trucking safeguard. The USMCA allows limitations where necessary to address “material harm” to US truckers, with material harm defined as “a significant loss in the share of the US market for long-haul truck services”. But US implementing legislation defines “material harm” as “a significant loss in the share of the United States market or relevant sub-market for cross-border long-haul trucking services”. In effect, Congress redefined the domestic industry in a way that facilitates affirmative findings. When Mexico objected to implementing regulations as inconsistent with the USMCA, the US ITC responded in effect that it must follow US law, not the USMCA. Should we be surprised that Mexico is now threatening to bring a dispute settlement case? 

Second example, expedited reviews in countervailing duty investigations. The SCM Agreement requires that Members provide for expedited reviews of CV actions, the URAA’s Statement of Administrative Action recognizes that requirement, and Commerce (apparently noting an oversight) issued regulations providing for them. Recently, however, the Court of International Trade has ruled that Commerce lacked the legal authority to issue such regulations, as the URAA does not specifically provide for them, thus leaving the United States in flagrante delicto in respect of this clear WTO requirement. 

Third example, non-market economy status for Russia in US anti-dumping investigations. The United States granted Russia market economy status back in 2002, before Russia acceded to the WTO, and nothing in the Russian Protocol of Accession envisions differential treatment for Russia in AD investigations. However, Commerce recently initiated an AD investigation on Urea from Russia, and is considering whether Russia should be treated as a non-market economy under US law.  Although the closing date for public comment has not yet arrived, I predict with confidence that the WTO-consistency of an NME designation for Russia will be raised, and that Commerce will respond that it is bound by US law, not the WTO Agreement.

My point is not that the courts and agencies have got it wrong (indeed, the URAA is quite clear about the relationship between the WTO Agreement and US law), but that a system where the US’ international obligations are in effect legally irrelevant in interpreting US law (the Charming Betsy doctrine notwithstanding) places the US Government in a position where it has little, if any, ability to adjust its behavior to take into account international norms. Not surprisingly, the outcome is frequent dispute settlement challenges, lost cases, and difficulty implementing when we lose. In short, the United States is unable to engage in dispute avoidance, or to comply when avoidance fails. Those frequent cases, and losses, in turn have undermined public confidence in international rules.

The Place of China in U.S. Foreign Policy After 9/11 and China's WTO Accession

Former State Department official Evan Feigenbaum was recently part of an oral history project on the George W. Bush presidency. I found his comments on that administration's initial focus on China in foreign policy but subsequent shift to the Middle East after 9/11 very interesting. I have been wondering for a while now how the U.S.-China relationship would have evolved if the U.S. government didn't react the way it did to 9/11. Instead of the Bush administration trying to convince China to work with the United States on terrorism and related issues, perhaps the U.S.-China relationship would have been front and center in U.S. foreign policy, and would have been more confrontational as well. China was in the process of completing its accession to the WTO, and that was bound to (and did) have a significant impact on the U.S.-China economic relationship, but confronting China about those sorts of issues, and other ones, quickly became less of a priority. The whole transcript is a good read, but I'll quote some key portions here:

Evan Feigenbaum:

... when the Bush administration came in, there were people in the administration at senior levels for whom China was just front and center. It wasn't an organizing principle of American foreign policy, but it had a role that was analogous to the role that China plays in that today. There were people who already saw it as an increasingly central strategic challenge to the United States, to American foreign policy.

But terrorism was always in the background. I remember sometime in the spring being at a Council on Foreign Relations event in New York with Steve Hadley. Steve was Condi Rice's Deputy National Security Advisor. There was a cocktail hour either before or after he spoke. I wandered over to Steve, and we started yakking, and I said, "So how's it going?" And he said in passing something like, "You'd be amazed how much terrorism stuff comes across my desk." This was well before 9/11, but already, when they were back after eight years of the [William J.] Clinton administration, and I remember thinking, Wow, that's interesting. Steve was already struck by that intensity of focus on counterterrorism.

The EP-3 incident was pretty central in not just hardening views on China but in defining battle lines that became relevant later on among seniors in the administration. You remember the way the U.S. got out of that, and China got out of that, was through a tortured diplomatic process. I wasn't in the government at this point, but it's kind of a tortured diplomatic process, where the Chinese wouldn't even answer the phone initially, and then Colin Powell and his team found a way to express "regret" but without making any sort of apology for something for which, frankly, the U.S. didn't think it had any reason to apologize.

It was handled diplomatically, but there were clearly people in the administration who wanted to take a much sharper-edged approach, both to the resolution of that and to China more generally. Coming out of EP-3 it was pretty clear to people, both inside and on the outside, to anybody who was paying attention, that there was going to be a big fight on China in terms of how big a challenge China was, and how to organize the American response to it. I wouldn't say the lines of debate were clean, but, broadly speaking, there was a perception that there was a more diplomatic approach to China associated with Powell, and then there was a harder-edged approach associated with [Donald H.] Rumsfeld and Vice President [Richard B.] Cheney. That was the context into which I was hired.

I don't remember who it was that said this to me. It may have been Larry Wilkerson, who at that point was sitting on the Policy Planning Staff but later became Powell's chief of staff and had a lot of Army history with Powell from when he had been Chairman of the Joint Chiefs. It was somebody that was close to Secretary Powell. And this person basically said to me something like, "Just remember why we hired you—you're going to help punch out Rumsfeld's guys on China."

But by October, when I was finally in the State Department, American foreign policy had moved away from all that, to terrorism and dealing with al-Qaeda in the first instance, but then Afghanistan in the second, because of course the response was President Bush's decision to deal with the Taliban and al-Qaeda in Afghanistan.

I came at the very end of September or early October, and at that point—First, the whole orientation of American foreign policy had changed. But two other things are relevant. The first was that my boss, Richard Haass, was dual-hatted. He was Director of Policy Planning, but he also had another hat as the coordinator for American policy on Afghanistan.

Richard was coordinating Afghanistan policy, but he was short-staffed because he was director of the planning staff, and the planning staff couldn't have had more than 12 to 15 people on it. So literally everybody on the planning staff was drafted into Afghanistan duty, so the Latin America guy was doing Afghanistan, and the Africa person was doing Afghanistan, and I was doing Afghanistan. But I was doing Afghanistan differently than the Latin America person, because China at least shared a border with Afghanistan. [laughs]

The second thing that was relevant was that China was a member of something called the Six Plus Two [Six Plus Two Group on Afghanistan], which was a contact group that included the six neighboring countries of Afghanistan. China, Iran, Pakistan, Turkmenistan, Uzbekistan, and Tajikistan were the six neighbors, so there was a process going called the Six Plus Two, which meant that China was intrinsically part of the Afghan discussion.

What I'm saying is, people began to start thinking about how to work with China on the Afghanistan issue against a backdrop where American foreign policy had shifted to focusing on something other than China.

And this was something that really redefined the lines of debate. Instead of having a classic Cold War-like balance-of-power debate about how to deal with China as a challenge to American power, the orientation in foreign policy shifted to terrorism-The War on Terrorism and Afghanistan in the first instance, but in the second, the potential to coordinate with China because it had an intrinsic role in that as a neighboring country.

People began trying to figure out how to work with China in that context: First, could China be worked with in that context? Second, if so, how? And third, how much did we want to get in their face and challenge the Chinese to step up to the plate? I was not just drafted onto Afghan duty; I had the ability, sitting on the planning staff, to try to push for leveraging the Afghanistan issue as a way to try to challenge the Chinese to step up on an issue that was not a classic one in the U.S.-China relationship, and was also not just one of those classic balance-of-power, "Chinese versus American power," issues in East Asia either, like Taiwan or the South China Sea.

That was the beginning of what I would characterize as a much more globally oriented approach to Chinese power. And that's important, because people now, in 2020, think of China as a global player, and everybody's talking about things like China's infrastructure initiatives, or China in Africa. Nobody thought of China that way in the early 2000s. But by default, because of 9/11 and what happened around terrorism and Afghanistan, you could already see the Bush administration not just foreshadowing the debate about China in the world that came later but, even before people perceived that China had stepped up to a global role, China was already being pushed into a global role.

If you want, we can talk about what happened on Afghanistan with China specifically, but 9/11 was important, because it didn't just shift the orientation of American foreign policy and make China more peripheral and less central to those debates in Washington; it also created the opportunity, and a set of issues, that the United States could leverage to try to push China differently through a very nontraditional set of issues.

The U.S. hadn't worked with China on continental Eurasia or on Afghanistan, really, since the Soviet invasion, so it was a shift in American foreign policy, but one that also created a lever to look at China very differently.

And I would argue to you that the Policy Planning Staff was ground zero for that, not least because Richard had that Afghan hat, and because Powell and Rich Armitage were interested in it.

...

Riley

Evan, I want to go back and ask you a question about the state of play within the administration. You had indicated, particularly after the airplane incident, that there was a sort of division there between the more military approach as opposed to the more diplomatic approach, which mainly follows the Defense/State divide, but you didn't mention Condi Rice in that particular point that you were making. What I'm trying to do is hear from you, as somebody who was on the inside, about your perception of what Condi perceived her job to be at this time. Then does that have particular implications for waiting on this divide and how the President is seeing things as he's developing the administration's policy toward China.

Feigenbaum

My impression is that, again, 9/11 and Afghanistan, and then later Iraq, were the central issues in American foreign policy. China began to become more peripheral, even by the fall of 2001. So it was neither an organizing principle nor the central foreign policy challenge the U.S. was facing, whereas in the spring of 2001, before I got there, it was much more front and center, and there were lines of orientation that were a little bit different. My impression by the time I got in was that the main differences of view around how to deal with China, and what kind of challenge China was, largely followed the Powell/Rumsfeld divide.

But to be candid, I think the President was the key force there, because the President, at least on China—His instincts always struck me, both anecdotally and as an outside observer—"outside" in the sense that I wasn't in meetings with the President on China at the top level—as much closer to Powell's on what China meant to the United States, on how China could be challenged or not.

There were probably three reasons for that. One was that President Bush had direct experience with China from when his mom and dad had been in Beijing. George Herbert Walker Bush had been the Director of the Liaison Office in Beijing back in the [Gerald R.] Ford administration, and I think President George W. Bush had visited there. So it was one of the places in the world that he'd been to, and had some firsthand experience with. If you'd seen China in the 1970s, and then you saw China in the early 2000s, it was a transformed place.

China, just by accident, happened to be the host of the APEC meeting, the Asia-Pacific Economic Cooperation meeting, in the fall of 2001. It was in Shanghai, the APEC summit, and President Bush went to APEC. I always thought to myself, if you'd been to China in the 1970s and you hadn't been back until the fall of 2001, and then you suddenly landed there and saw what China had become, it would have to strike you that China was a different kind of place. That firsthand experience that the President had was probably relevant.

Second, not knowing how he and his father might have talked about China—His father, of course, had a longtime interest in China, was wise about it, had deep experience and a lot of strongly held views about it. It's unknowable how much of an influence that may have been, but I have to believe that he and his dad talked a lot about China, so that presumably shaped his views in some ways, whereas on other issues many people have argued that the Bush 43 administration was very different, strategically or ideologically, from the 41 administration. On China, I think you can make the case for more consistency with the classic American approach to China.

Then third, because it wasn't the central issue in American foreign policy at that point, and people were looking at China differently than they are today, it was less of a food fight than you saw on other issues, like Iraq, for example. And Condi was running that process.

The most telling thing, I think, on the NSC in that period was that the National Security Strategy that the Bush administration issued in its first term had a very interesting chapter on great power competition. The Policy Planning Staff, as I recall, had done the first draft of the National Security Strategy, and when it went over to the NSC, as I recall, Condi didn't like it and she just tossed it. She had Phil Zelikow essentially rewrite it. [laughter] Philip tossed out our handiwork, rewrote the whole thing, and what came out, if you look at the first of the Bush National Security Strategies, was a chapter on relations among the great powers that essentially said, we're at a disruptive moment in global history in which, for the first time, the great powers have the opportunity to compete in peace rather than just prepare for war.

I think it was the penultimate chapter of that National Security Strategy. It postulated a possibility of greater convergence among the great powers than had existed historically. It was not a naive chapter; it didn't say that great power competition was going to go away. It talked about competition. But it said, "Compete in peace rather than prepare for war." And of course that was Condi's document, because the planning staff one was tossed, and Condi and Philip—It was their vision.

That was broadly consistent with the orientation that we had at State when I talked about challenging China to step up to a more global role. But Condi did have a kind of edgy view on China, I think, on some things.

...

Perry

This is coming from my position as a complete layperson in this field. Someone who would've been doing something similar to what you were doing as a policy planner in China, up to the highest levels in China, at this time when things were changing about how the United States policy was looking at China as this global player, and wanting them to be a global player, What does China want at this point? Not just some of these smaller strategic things about their domestic terrorism, or as they see it, opposition to the regime, but what do they want the big picture to be like for them in the world?

Feigenbaum

To be honest, when the U.S. started pushing them on the global thing, I don't think they got it, and they didn't get it until—It gets much more interesting in the second term, for reasons that we can get into later, but we're still in the first term.

At that point in the first term the Chinese, in the first instance, were slow to appreciate, in my view, the opportunities they had as a result of the shift in American focus away from them and onto something else. That's interesting, because we tend to think of the Chinese as these Sun Zi-reading, Go-playing strategic masters, but I thought they were very slow to realize the opportunities they had as a result of the U.S. focusing on something else.

Perry

And why was that?

Feigenbaum

They didn't really get it. First of all—This is true even today, when China's much more globally oriented and is much more assertive globally, but particularly 20 years ago—their priorities—first, second, third, fourth, and fifth—have been largely domestic.

If you're the General Secretary of the Chinese Communist Party, the first five things you think about when you wake up in the morning are largely domestic: first, how to keep the Chinese Communist Party in power; second, how to grow the economy at a requisite percentage to keep the country stable and keep yourself in power, because that's the basic social contract between the Party and the public—you stay out of organized politics and we'll give you opportunities to get rich; third, how to create the ten to eleven million new jobs a year that they need to keep the public satisfied; fourth, how to deal with a demographic time bomb, where the country's getting old before it's getting rich; and, fifth, how to deal with a growth model that's energy-intensive but energy-inefficient and extremely environmentally unfriendly. The last one matters to the Party politically because the number one source of social protest in China, other than land seizures for real estate deals by local officials, is environmental protest.

So their priority agenda has largely been domestic, and it's focused on the Party keeping a lid on protests and threats to their power at home. Because of that, they were not assertive globally at that point in time, except in their Asian neighborhood and on the issues that had been their core security interests. Those were the things where they had irredentist or revisionist territorial claims: Taiwan, South China Sea, East China Sea. Then, there was their growing economic role in the world, and then their traditional great power relationships with the United States, Japan, India, and so on.

So that's interesting because, number one, the U.S. is pushing them in this first Bush term on this global stuff, but it's really not part of their worldview at that point.

Plus they don't get it initially, which is also interesting, because they got it earlier. For example, if you go back to the [Henry A.] Kissinger conversations with the Chinese and the Nixon administration, Kissinger had a much more global conversation with China than the United States was having with them in the Clinton and in the Bush 43 first term, simply because China was thought of in the context of U.S.-Soviet competition and the Cold War, which was a global competition. So at that point in the 1970s, the U.S. and the Chinese were talking about things like Cubans in Angola, and [Jonas M.] Savimbi in Southwest Africa. When the Soviets invaded Afghanistan, there was a U.S.-China angle to that.

That was a much more global conversation. But by the time Clinton and Bush 43 roll around—Remember, it's post-Tiananmen Square also, so there'd been a big disruption in U.S.-China relations—the conversation is really much narrower.

One of the reasons I was pushing Powell so hard through the speeches and through leveraging the Afghan issue to say the word "global" every time he said the word "China" was that the U.S. and China didn't see eye to eye on any of those neighborhood issues, like Taiwan, South China Sea, East China Sea. So if you wanted to put U.S.-China relations onto a more stable footing, where you were challenging China and getting in their face to move the relationship in a more salutary direction, you needed China to step up and do things that would be productive on a different set of issues, on global and functional issues that might be less difficult for the U.S.-China relationship.

There wasn't much positive in China's posture around its periphery in East Asia. The U.S. and China didn't have anything positive around Taiwan. They didn't see eye to eye. The Chinese hated American policy. We hated their policy. The U.S. had made a big arms sale to Taiwan in the first year of the Bush 43 administration, had ripped off the Band-Aid and made a big arms sale. The Chinese didn't like that, obviously.

So the more global conversation was the only way to challenge them—and make this thing more positive, potentially—but it didn't get a lot of traction with China until the second Bush term, because the Chinese didn't see the world that way.

So, like I said, look at Afghanistan: First, they made the contribution bilaterally, and then it was only when we pushed them that they stepped up more multilaterally. But it was still much more modest, the contribution they made.

After the U.S. invaded Iraq, quite apart from the UN Security Council piece, which had been about getting the Chinese on board with Resolution 1441, former Secretary [James Addison] Jim Baker was brought back as Special Envoy on Iraqi debt relief. Among the places he coordinated with was China, and he pushed the Chinese to forgive the Iraqi debt that the new government in Baghdad inherited from Saddam Hussein. It was somewhere north of $1 billion and Baker had some good meetings with the top leader, Hu Jintao, and the premier, Wen Jiabao, who told him they'd maybe do it on "humanitarian" grounds, but also said they'd look seriously at some reconstruction funding. Those were the kinds of issues where the Chinese were being pushed on a much more global agenda.

To your point: Our counterparts in China—the policy planners in the Foreign Ministry, and then, presumably, the policy planners elsewhere in the system, including in the security services—were disproportionately focused either on the foreign policy elements of their domestic agenda or on the classic set of U.S.-China and East Asia security issues.

I do think American pressure had some role in getting them to think about how to match their framework a bit better to where their power and capacity were already headed at that point. I'll give you another example from later on—from very early in the second term, but with momentum from the first term. The U.S. and China set up a bilateral Global Issues Forum, where Paula Dobriansky, the Under Secretary for Global Affairs, would pull in a big interagency group to do public health, and especially clean energy coordination, with her counterpart, Shen Guofang, an Assistant Minister of Foreign Affairs, who would convene Chinese functional agencies all together on their side. The discussion involved challenging China frontally to step up on global problems where they actually had some real capacity to contribute to a solution. One example was malaria, because China had most of the global supply of a plant called artemisinin that was a critical ingredient in antimalarial drugs, so there was a big push on them to deal with supply bottlenecks and step up on antimalarials in a way that tried to push them into being more of a joint problem solver on a global challenge where results could then be measured. Does that make sense?

Economic Sanctions, Nuclear Proliferation and Regional Stability: Whither Iran & the Biden Administration?

From its earliest days, restoring the Iran nuclear deal has been a priority of the Biden Administration. A signal foreign policy accomplishment of former US President Barack Obama, the deal involved Iran agreeing to concrete verifiable steps to constrain those aspects of its nuclear energy program feared by the West to be directed towards nuclear weapons capacity; in return, the UN Security Council sanctions regime was lifted, and accordingly so were some US and EU economic sanctions. 

The JCPOA (Joint Comprehensive Plan of Action) was one of the many parts of Obama's legacy that Donald Trump was determined to destroy.  Trump reinstated sanctions contrary to the JCPOA, despite the view of the International Atomic Energy Agency (IAEA) and the other partners including the EU Russia and China that Iran was in substantial compliance.  Indeed Trump went furhter, adopting a so-called maximum pressure strategy against Iran, not only reinstating sanctions lifted through the JCPOA but adding others. 

Iran's response to these developments was, not surprisingly, to break out of the limits in the JCPOA, though it did so only gradually and cautiously at first (the EU especially counseling restraint even though it was strongly opposedi to Trump's move).  Eventually, Iran proved dramatically successful in advancing toward the capacity to produce weapons-grade nuclear fuel. That Trump's moves produced the exact opposite effect than intended, considerably advancing Iran's path toward a bomb, reinforced the Biden Administration's determination to dedicate considerable resources to a set of negotiations with the JCPOA partners in Vienna, towards a deal that would be a bridge toward the restoration of the stability of the original JCPOA. But the technical issues of rolling back Iran's nuclear advances and the complexity 0f untangling the US sanctions regime from the Trump era policy of maximum pressure resulted in a slow often cumbersome though never entirely stymied process in Vienna. 

This challenge was at times rendered even more delicate by virtue of certain positions among Iran's leaders suggesting the US must  pay for the distrust it created by the Trump Administration not honoring commitments entered into by Obama, atoning for promise-breaking.  Another disruptive factor was Israel's (until recently never publically admitted-or denied) efforts at attacking Iran's nuclear program, including by assassination of a prominent Iranian nuclear scientist, and remote-controlled damage to Iranian nuclear facilities. 

Then came the Iranian Presidential election and the (albeit hardly surprising) victory of a conservative hardliner, Raisi, in fact the groomed successor of Rouhani.  Iran experts are probably right to discern some hardening is entailed in this political transition (the polished diplomat Zarif who was a critical interlocutor of the Obama Administration as Iran's foreign minister, is now out, for instance).  But the recent spotlight on the internal Iranian politics of the nuclear deal has revealed what was already apparent to many experts: the Iranian leadership is not chomping at the bit to get back to the JCPOA, much less to move toward some kind of broader rapprochement with the US or the West.   To be sure, there has been no explicit  repudiation of the Vienna talks, including the decisions made on technical matters in those meeting rooms.  But there is a coolness in the air, more noticed now than before the election.   

Earlier this week, Biden's special envoy for Iran, Rob Malley, gave his assessment of the current state of play in a new interview.  A seasoned diplomat and regional expert, Malley offered the following prognosis: 

We made substantial progress in the six rounds of [Vienna] talks, but we hadn’t closed all the gaps. And if Iran comes back with a more hard-line position, it’s going to be very difficult to close because we hadn’t closed before, even under the preceding government. So our hope remains that Iran will come back with a realistic position. 

As Malley hints, Iran's way of killing the deal would be coming back to Washington and asking for unrealistic new concessions.  That could include, for example, demanding that the US lift sanctions that can only be fully removed through Congressional action (an unlikely possibiility given that there are enough Iran hawk Democrats in the Senate to kill any such move). Iran has also hinted that, given the behavior of the Trump Administration, it wants some guarantees that a new US President would not reneg on a revived JCPOA.  As a legal matter it is not clear how that could be done, other than Congress somehow tying the hands of a future Administration through legislation.  Asking for a treaty confirmed by a 2/3rds vote of the US Senate (what the Constitution requires) would be delusional-or, more pertinently, an obvious way to kill any deal.

So what is the Biden Administration to do?  One got the impression that for many months the Administration was more worried about pushback from domestic political quarters and sabotage efforts by Israel's Netanyahu (now out of office, of course) than the possibility of cold feet in Tehran. But there is a larger context that explains Tehran's less than full enthusiasm, and it isn't even about the recent elections or gains by hardliners in the inner circles of power.

First, the removal of sanctions under the original JCPOA did not bring the kinds of economic benefits that Iranians might have been led to expect from a deal putting a strong brake on the country's nuclear programme.  There are several reasons for this.  One is that many non-nuclear sanctions remained, as well as secondary sanctions, which led major foreign firms to be cautious about plunging back into Iran. Even with the nuclear sanctions lifted, firms and their counsel rightly worried about residual liability under measures still in place.  A second reason, but one of considerable importance for the calculations of Iran's rulers, is that Iran's economy is in shambles, quite apart from the impact of sanctions.  In fact, the removal of the nuclear sanctions made more evident the failure of domestic economic governance and the desperate need for industrial renewal.   Despite the regime's public posture of indignation, Trump's unilateral dismanting of the JCPOA actually turned out to be pretty good for the Iranian leadership.  The demonic US could once again take the blame for strangling Iran's economy, taking off pressure for painful domestic economic reform.  Then Iran discovered how quickly it could break out of the JCPOA and advance its nuclear ambitions, once its leaders decided to follow that course of action. And  (as already noted) Iran also witnessed how little Israeli sabotage attempts could set it back.  At the same time, Iran was becoming increasingly adept at cryptocurrency transactions to avoid some of the sanctions, and China stepped in with an ambitious cooperation deal, a convenient route to plugging the holes in the sinking ship of Iran's industrial economy.   Once the context is articulated in this way, it becomes understandable that a straightforward restoration of the JCPOA would not command universal enthusiasm in Tehran these days.       

So what is the Biden Administration to do?  The most obvious move would be to attempt improving the US offer on sanctions lifting.  It is unclear that the Administration's current offers as reflected in the sanctions talks in Vienna represent the maximum possible under the political and legal constraints discussed above.  Some sweeteners might be possible.  This could be combined with efforts to have the European Union re-emphasize the importance it attaches to the restoration of the JCPOA.  The EU is an important trading partner of Iran and even if the EU kept its sanctions lifted despite Trump, finding of way of doing business that obviated the long arm of the previous US Administration's sanctions policy proved illusive.  An effort to establish a payment mechanism (INSTEX) that would clear transactions outside of US-linked financial institutions never got off the ground, for example.  It has been proposed that a restored JCPOA would be accompanied by specific guarantees to firms that transactions would not risk liability under remaining sanctions.  Cryptocurrency deals and countertrade with Russia, and cooperation with China, are only a partial answer to Iran's continuing need for foreign trade and investment to prop up even its current low level of domestic economic sustainability.   China and Russia have interests in allowing their own economic activities with Iran to occur with less need to circumvent sanctions regimes (the  notorious legal troubles that Huawei executive Meng Wanzhou faces are connected to allegations of misleading a financial institution about dealings with Iran, for example).   And China and Russia probably have a strategic interest in some level of contaiment of Iran's nuclear ambitions.  In sum, the US should present itself less as the ardent suitor of the JCPOA and encourage others to make more emphatically clear the importance they attach to a deal.   

Learning to Live with an Iranian Bomb

Most importantly, though, the Administration must prepare for the scenario that there will be no deal, and make clear its approach and doctrine in facing the possibility that Iran, in a relatively short period of time, will break through to the point that it has the capacity to build a nuclear bomb.  Avoiding this needed step by saying the US will never let Iran get a nuclear weapon is to place rhetoric over reality.   One scenario would be for the US to acquiesce to Israel unilaterally attacking Iran's nuclear facilities.  However, Israel neither has the ordnance nor the delivery means (even if it got the ordnance) to cripple Iran's nuclear facilities, which are in the main heavily fortified.   Its shadow activities, as discussed above, havenot significantly retarded Iran's advances, and indeed have been a provocation to accelerating them.   Israel risks massive retaliation from any direct strike on Iran, a strike that, to reiterate, would not be crippling and most likely would only produce a setback, perhaps of a couple months, in Iran's operations.

This leaves a possibility that by any measure is, and should be, unthinkable for the Biden Administration, which is US participation in an attack on Iranian nuclear assets, using Multiple Ordnance Penatrator (MOP) weapons dropped from a B-2  bomber.    Such a step would equate to an all out war with Iran.  It is also not clear how effective it would be: both the bombs and the aircraft have required updates and their performance  is far from sure.  In any case, the Biden doctrine commits to US from disentangling itself from wars not plunging into new advenures. 

Compared to the costs and risks to the United States of an open war with Iran, learning to live with an Iranian nuclear capacity is surely the better option.  Nuclear proliferation is dangerous and ought not to be encouraged, to be sure.  But as the late Admiral Scowcroft pointed out there are means to engage even those powers like India and Pakistan that remain outside of  the non-proliferation regime on the security and safety of their nuclear arsenals.  Iran going nuclear may not make much difference in terms of regional stability, if measures such as the ongoing Iran-Saudi rapprochement are strongly encouraged and incentivized by the US and other powers.  At the same time, the United States has some real leverage over Israel, and can and should do more to discourage provocations to Iran in the form of attempts to sabotage its nuclear program. Such provocations, as can be seen by the albeit internationally illegal)mischief Iran does in reprisal (including apparently attacks on merchant ships) is a cause of instability that can be minimized by avoiding the provocations.  Part of the problem in the past was Israel's refusal to admit or deny these operations, leaving the US with the awkward job of supporting any criticism through revealing its own intelligence.  But in a recent New York Times interview the new Israeli Prime Minister Naftali Bennett has now openly admitted and endorsed the "clandestine" operations as an overt policy.  Once outed as an admitted policy, this approach can be more explicitlyquestioned by the US Administration. 

Beware of (What You Are Supposed to) Wish For 

Most of the alarmism about Iran's nuclear ambitions refers to the concept of "breakout"-but this notion tends to hide a nuance, which is nevertheless of enormous importance.  There is still a big step between having the capacity to fuel nuclear weapons and building and deploying them.  Iran consistently denies that it is seeking nuclear weapons.  Such denials are met with derisory laughter by US and Israeli hawks  (Of course, Israel's policy of not declaring its own nuclear arsenal has long been tolerated by the US and others).  But perhaps Iran's leaders really haven't thought their way through to an actual strategy of nuclear deployment, as opposed to the possible leverage from having the capacity for nuclear weapons.   There are many imponderables here.  What would Iran's doctrine for use of such weapons be, and how would it affect the behavior of other powers? Already, Iran's security and intelligence services have proven susceptible to breaches and infiltration.  These risks are even more alarming on the scenario of Iran becoming a nuclear power.  Differences of view on Iran's nuclear strategy, and who has control of the weapons, may well divide elements within the Iranian regime.  What would be the role of the Revolutionary Guards?   

There are many reasons why Iran may not want to take the leap between having nuclear capacity and building a bomb.  But once such capacity is acquired, there are surely some elements in the regime that will press for a bomb, especially if Israel continues its provocations unrestrained by the United States, or if the Saudi-Iran rapprochement falls through, for instance. Iran could be pushed into building nuclear weapons out of a fear of appearing weak if it exercises restraint despite the fully achieved capacity to have a nuclear arsenal. 

So today Iran's leaders should ask themselves if they really want to face, if not the abyss, at least the many unknowns, both in terms of internal and foreign politics, of becoming a nuclear power.  A restored JCPOA, especially with somewhat greater US ambition on sanctions relief and a commitment by Europe to help Iran rebuild its economy, would allow Tehran to postpone that thorny, possibly destablizing decision process-and to do so with honor and advantage. 

President Raisi, Vienna waits for you.     

Entries for the 2022 Hart SIEL-HART Prize in International Economic Law open in September 2021

This is from Hart and SIEL:

ABOUT THE PRIZE

The SIEL–Hart Prize is awarded every 2 years to an outstanding unpublished manuscript by an early career scholar in the field of International Economic Law and is sponsored by the Society of International Economic Law and Hart Publishing.

WHAT CAN I WIN?

The winner of the SIEL–Hart Prize will receive a contract for publication within the Hart series Studies in International Trade and Investment Law; a £250 Hart book voucher; a SIEL bursary of up to £750 to cover travel and accommodation expenses to, and waiver of the registration fee for, the next SIEL Global Conference.

HOW TO ENTER

Entries for the 2022 edition of the Prize will be accepted from 1st September 2021 to 1st December 2021.

Visit https://www.bloomsbury.com/uk/discover/superpages/hart/siel-hart-prize-in-international-economic-law/ to find out more and for information on how to enter.

A Possible Fifth MPIA Case

I previously noted the four WTO disputes where agreed procedures between the parties for using the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) have been circulated (as well as an agreement to use Article 25 arbitration outside the context of the MPIA). There is now a fifth dispute, China - AD/CVD Measures on Barley from Australia (DS598). The agreed procedures in the case are here. The panel was established on May 28, 2021, and has not yet been composed, so it would be a while until it is ready to be appealed.

Guest Post: New Book on Climate Clubs and International Trade and Investment Law

This is a guest post from law professor Rafael Leal-Arcas

Climate Clubs for a Sustainable Future: The role of international trade and investment law (Kluwer Law International, 2021), by Rafael Leal-Arcas (Queen Mary University of London).

We know the science of climate change; we know the economics of climate change; we also know the law of climate change. However, we do not know how countries may come together to cooperate on climate change mitigation. One way of doing so successfully is by putting together the climate regime with the international trading system via the creation of climate clubs, namely the coalition of the willing. This new book aims to explain that, by building climate clubs and making use of the international trading and investment system, we can reach a better future for all.

This book is divided into an introduction, six chapters, and a conclusion. Chapter 1 explains the main concepts and typological considerations regarding climate clubs. Chapter 2 provides a comprehensive examination of the greatest threat humanity faces today: climate change. It does so by looking at the legal, political, institutional, regulatory, and economic angles of climate change from the perspective of major emitters and the most relevant actors in the mitigation of climate change. This chapter offers a fresh understanding of the international trading system as a way to reach a prosperous, modern, and sustainable society that will help decarbonize the economy effectively. This chapter offers new ideas on the creation of a climate club linked to the international trade regime as an effective way to mitigate climate change. How should policies, regulations, laws, and agreements change to get us there? What incentives will be necessary to get there effectively? What has failed and why? We conclude that innovation and clean technology will be among the key elements of this equation, without which we will miss the goal, given that innovation is a major part of dealing with climate change. This chapter also investigates the potential role of international trade in reducing fossil-fuel consumption. The use of fossil fuels contributes to climate change, so there is no excuse for continued inaction. We argue that, in light of the lack of international consensus on how to effectively tackle climate change, an upstream carbon tax with reinvestment supported by border tax adjustments should be enacted unilaterally by the biggest emitters of greenhouse gases to reduce fossil-fuel consumption and incentivize global carbon abatement.

Chapter 3 explores emission units as a linkage in climate clubs in the hope of making a remarkable difference in climate change mitigation. It analyzes emission units trading in the context of regional trade agreements as a novel, promising, and effective way to mitigate climate change. It then examines Article XX of the General Agreement on Tariffs and Trade (GATT) as a potential and encouraging remedy for the development of climate clubs. Specifically, it explores the scope of application of Article XX and investigates to what extent it can be applied to climate concerns. It then provides an analysis of climate-club measures according to the jurisprudence of the WTO on GATT Article XX.

In Chapter 4, we argue that international trade law may be the solution to decarbonize the economy and invest in renewable energy, but there must be effective measures agreed by the international community. That would require agreeing on preferential trade agreements (PTAs) with environmental and sustainable development chapters on a unilateral, bilateral, or plurilateral basis, as multilateral agreements have proven to be increasingly difficult to negotiate. This chapter will assess the feasibility of including such chapters through an analysis of existing environmental and climate change-content in recent PTAs. Equally, recent developments in newer bilateral investment treaties (BITs) show that there is a positive shift toward explicit inclusion of sustainable development issues into their wording (e.g. states’ right to adopt sustainable development-oriented regulation). Reference to sustainable development issues may appear in different parts of a BIT, e.g., as a general objective of the treaty in a preamble, as a separate obligation of the state parties or investors, or as an exception to the substantive protection standards, such as prohibition of unlawful indirect expropriation.

Chapter 5 explores three case studies of “clubs” related to climate change, energy, and environmental protection to reach sustainability more effectively: the Generalized Systems of Preferences (GSP), trading energy in the Arab world, and EU-Russia energy trade relations.

Chapter 6 links international trade, climate change, investment and a prosperous future. We argue that a transformative, integrated, and holistic approach to sustainability is necessary to reach a prosperous future for all. With growing inequality in the world, demographic change, rapid technological development, and 40% of the world’s population with no access to digital technology, access to digital technology for all and, ultimately, having a prosperous future are a must today. Doing so will give a voice to the voiceless. For that, governments, companies, and transnational institutions should invest as much as possible to make it happen and provide solutions that are rules-based, inclusive, innovative, disruptive, and simple. We the citizens should push for this human right to materialize. That way, everyone will benefit and no one will fall behind. Access to energy, mitigating climate change, and benefiting from international trade and investment all can be achieved thanks to technological advancement. These global challenges are complex, interconnected, multidimensional, interdependent, and multicausal. This chapter also explores the role citizens can play in shaping sustainable trade. Sustainability constitutes a principal concern for various regimes that, because of their nature, are in constant interaction with climate change.

How Did the U.S. Set Tariffs When Unconstrained by Trade Agreements?

Here's an excerpt from a very interesting new paper by Doug Irwin and Anson Soderbery:

What objective is a government trying to achieve in setting import tariffs? ... what factors would drive government behavior in the absence of such agreements when countries have complete autonomy in setting tariff rates? It could be for purely domestic reasons, partly based on social welfare and partly based on industry influence, as in the Grossman and Helpman (1994) "protection for sale" model. Or it could be the desire to impose optimal tariffs that maximize the national advantage through terms-of-trade manipulation. It is difficult to answer this question because the existence of cooperative trade agreements in recent decades does not allow us to observe unconstrained, non-cooperative trade policies by major countries such as the United States that might have both a terms-of-trade motive for tariffs and also be susceptible to producer and consumer interests. ...

This paper seeks to shed light on non-cooperative tariff setting in a large country by looking at the United States in a unique historical period when its tariff policy was unconstrained by international agreements and was therefore set purely for domestic reasons, not in multilateral negotiations. We focus on the late 1920s and early 1930s, around the time of the Smoot-Hawley tariff of 1930, a period when tariffs were the only major instrument of trade policy (import quotas were not yet employed) and industry lobbying was fairly transparent as revealed in the Congressional hearings on the tariff schedule. At the same time, as the world’s largest economy, the United States was likely to have had market power vis-a-vis imports and therefore may have benefited from an optimal tariff in the absence of retaliation. The availability of highly detailed import data allows us to estimate trade elasticities at what today would be considered the 4-digit level. Thus, in this historical period when the U.S. policymakers (members of Congress) had complete discretion in setting tariffs, we can examine whether tariffs were set on the basis of market power (trade elasticities) or domestic political factors (industry lobbying) and to determine the relative weights placed on both.

... We find that the median (inverse) export supply elasticity implies a median optimal tariff of 14 percent and that there is a weak but positive relationship between the implied optimal and actual applied tariff. In Section 4 we introduce lobbying and find that these political-economy determinants of tariffs slightly dominate the terms of trade factors in explaining the pattern of tariffs across goods. We also decompose the applied tariffs into lobbying and terms of trade components, suggesting that about half of the tariff level is due to firm lobbying with the remainder split between worker lobbies and terms-of-trade factors.

Over on Twitter, I asked Doug this question: "In cases where the tariff was an optimal one, do you think that was more a result of skilled calculation or dumb luck?" His response was: "Knowing what I know about the political process, luck! US didn't impose tariffs on coffee, silk, etc where arguably there would have been a terms of trade gain because there was no industry lobbying for tariffs."

Guest Post: New Book on Energy in International Trade Law

This is a guest post post from Anna Marhold, Assistant Professor at Leiden Law School

Energy in International Trade Law: Concepts, Regulation and Changing Markets (Cambridge University Press 2021) by Anna Marhold (Leiden Law School)

Against the backdrop of energy markets that have radically changed in recent decades, this book offers an in-depth study of energy regulation in international trade law.

The relevance of multilateral energy trading rules was for a long time overlooked, downplayed and underestimated. One explanation for this may be that for many years energy was almost exclusively traded by international, vertically integrated and often state-owned companies. However, energy trade is no longer confined to oil tankers transporting barrels from the Gulf; it now extends to, inter alia, wind turbines and solar panels. The last three decades have indeed brought revolutionary advancements in renewable and clean energy. The clean energy transition has been accompanied by increasing regulation, which in turn has triggered disputes in the context of the World Trade Organization (WTO). And this rise in international trade disputes relating to both renewable and non-renewable energy has led to a growing awareness of the importance of regulating international trade in energy. Moreover, an increasing number of major energy producing, exporting and transporting countries are joining the WTO, acceding to the Energy Charter Treaty (ECT) and/or concluding preferential trade agreements (PTAs) that include provisions relevant to energy.

In Part I, through a thorough discussion of the concepts, history and law of various legal frameworks applicable to international energy trade, the books seeks to clarify what we mean by ‘energy’ in the context of international trade rules:

Chapter 1 discusses energy as a concept that has transformed over time and explains how the rules of international trade law are relevant to the energy sector, paying particular attention to the challenges of decarbonization, decentralization and energy security. Chapter 2 examines the treatment of energy from the inception of the General Agreement on Tariffs and Trade (GATT) in 1947 to the present time. Chapter 3 continues by discussing the current legal framework of the WTO, providing an overview of WTO agreements relevant to energy. It is here that we expose some challenges – such as export restrictions and fossil fuel subsidies in the energy sector in the light of international trade law – which will be further elaborated upon in Part II of the book. Chapter 4 enquires into energy commitments beyond the WTO, namely in the ECT and in selected PTAs. By means of a comparative study, the chapter scrutinizes the nexus between the WTO and the ECT. It looks at the interplay between these international treaty regimes, including their overlap and potential conflict.

Part II of the book then addresses the relationship between the existing rules and the huge challenges faced by energy markets today – notably, their decentralization and decarbonization – in the light of the ongoing quest for energy security. Through several case studies, it will demonstrate that current international rules are often unable to meet the challenges faced by today’s changing energy markets:

Chapter 5 introduces the second part of the book and considers the challenge of decentralizing energy markets. It lays bare the difficulties WTO law has with respect to strategic, unevenly distributed natural resources and cartels maintained by states. It does so by taking the practices of the world’s best-known energy cartel, the Organization of Petroleum Exporting Countries (OPEC), as an example. It additionally looks at decentralization policies put in place by the European Union (EU) and how international trade rules enable or constrain such policies (by studying the panel report in DS476 EU-Energy Package). Chapter 6 examines the challenge of decarbonizing energy markets by looking at the treatment of environmentally harmful fossil fuel subsidies under WTO law. Lastly, Chapter 7 sheds light on the growing relevance of energy security in international trade law, including its use as a defence in WTO dispute settlement. By way of conclusion, Chapter 8 considers some policy options for enhanced energy governance at the institutional level.

Without a doubt, the multilateral trading system is undergoing a deep crisis. Energy is by no means the only subject in need of revision within the global trading system but is certainly a topic that, given today’s changing markets, can no longer be overlooked.