International Economic Law and Policy Blog

Guest Post: Appointing Appellate Body Members by Majority – A Draft Article IX:2 Interpretation

This is a guest post from law professor Geraldo Vidigal (see also my totally unscientific twitter poll related to this issue):

With the Biden administration having continued the previous administration’s stance of blocking all appointments to the Appellate Body, the issue of the appointment members by majority is back on the agenda. Even if negotiators are unlikely to fundamentally change the dynamics of the WTO by proceeding to decisions-making by majority, an interesting legal question arises: could the Ministerial Conference or the General Council appoint Appellate Body Members by majority even is this were politically feasible?

Henry Gao and I have discussed the matter in this blog in the past, and have now published comprehensive academic articles defending our respective positions.

I must say I have changed my mind slightly on the matter since first looking into the relevant provisions. While I still believe that, under the most logical interpretation of the WTO Agreements, the Ministerial Conference and the General Council should be bound by the same rules as the Dispute Settlement Body (DSB) when appointing persons to the Appellate Body (i.e., consensus), I have since concluded that there is scope for interpretation. In other words, there is scope for an arrangement that both fits the text of the Agreement Establishing the WTO (AEWTO) and the Dispute Settlement Understanding (DSU) and allows the Ministerial Conference and General Council to appoint persons to the Appellate Body by majority, exercising their authority under Article IV of the AEWTO.

This interpretation is due to the fact that the Ministerial Conference has “the authority to take decisions on all matters under any of the Multilateral Trade Agreements … in accordance with the specific requirements for decision-making in this Agreement and in the relevant Multilateral Trade Agreement”. Under Article 2.4 of the DSU, the DSB is required to make all of its decisions by consensus, including the appointment of persons to the Appellate Body under DSU Article 17.1. The DSU is a multilateral trade agreement. Therefore, the most logical interpretation of the relevant arrangement is that the Ministerial Conference and the General Council may make appointments to the Appellate Body but must respect the requirements for decision-making that apply to the DSB’s own decisions on the matter.

Upon considering the matter further, however, I now see scope for the following interpretation: “specific requirements” in Article IV:1 are requirements that apply specifically to the decision being made. Article 2.4 is a general requirement applicable to all decisions of the DSB under the DSU. Other previsions of the DSU specifically require certain decisions to be made by consensus (6.1, 16.4, 17.14, 22.6, 22.7). Article 17.1 does not set out any such specific requirement. As a result, the consensus requirement applies generally to decisions of the DSB, but there are no specific requirements applicable to decisions to appoint persons to the Appellate Body. As a consequence, the Ministerial Conference and the General Council would be able to appoint persons to the Appellate Body under their own authority under Article IV:1, subject solely to the requirements for decision-making under AEWTO Article IX:1, which allows majority decisions in case a decision cannot be made consensus.

Given the significance of this interpretation to the WTO’s institutional architecture and the likely dispute that there would be over it, I do not see how it should be adopted implicitly – would it then be legitimated by an Appellate Body whose very composition has its legality disputed? As a result, if WTO Members were willing to appoint persons to the Appellate Body by majority (which, I emphasize, I do not believe they ever will), I believe they could only do that by preceding the appointments with an interpretation explicitly adopted for this purpose, employing their “exclusive authority” to do so under AEWTO Article IX:2. While I would recommend Members to adopt this interpretation by consensus, especially in order to avoid disputes over the limitation in the final sentence of Article IX:2 (“This paragraph shall not be used in a manner that would undermine the amendment provisions in Article X.”), the interpretation I propose is a logical interpretation of the relevant legal provisions, not an amendment of these provisions. As a result, it could be adopted by a three-fourths majority, as Article IX:2 explicitly permits.

To make the intellectual exercise more interesting, I have drafted a possible Article IX:2 interpretation that would achieve this purpose. While I do not see that politically WTO Members would ever appoint persons to the Appellate Body by majority, as a matter of legal architecture the existence of this possibility may affect negotiation dynamics, giving future holdout Members the prospect – even if politically unlikely – of a majority decision. And this prospect may turn out to be necessary, now that all WTO Members know that all they need to do to dismantle the WTO dispute settlement system is to persistently object to the appointment of persons to the Appellate Body.

*

Interpretation of Article IV:1 of the Agreement Establishing the World Trade Organization

1. We recognize the challenges the Dispute Settlement Body (DSB) has been facing, over the past five years, in reaching consensus over the appointment of persons to the Appellate Body. As a result of these challenges, the DSB has been unable to fulfil its obligation under Article 17.2 of the Dispute Settlement Understanding (DSU) to fill vacancies in the Appellate Body as they arise.
2. We reaffirm our commitment to preserving the principles and to furthering the objectives underlying the multilateral trading system, including the security and predictability of the multilateral trading system. We also reaffirm our commitment to the continuation of the practice of decision-making by consensus whenever a decision can be arrived at by consensus.
3. We recognize that there are divergent interpretations concerning the requirements applicable to decisions of the Ministerial Conference and the General Council, acting under Article IV of the Agreement Establishing the World Trade Organization.
4. Accordingly, we exercise the authority, conferred on us by Article IX:2 of the Agreement Establishing the World Trade Organization, to adopt interpretations of this Agreement and of the Multilateral Trade Agreements, and thus interpret Article IV:1 of the Agreement Establishing the World Trade Organization as follows:

1. 1. The expression “in accordance with the specific requirements for decision-making in this Agreement and in the relevant Multilateral Trade Agreement” in Article IV:1 of the Agreement Establishing the World Trade Organization refers to requirements that apply specifically to the adoption of the decision being made.
   2. Requirements that apply generally to all the decisions of an organ are not specific requirements for decision-making and do not affect the requirements for decision-making applicable to the Ministerial Conference and the General Council when making decisions under the authority conferred on them by Article IV:1 of the Agreement Establishing the World Trade Organization.
   3. For greater clarity, when appointing persons to the Appellate Body under Article 17.1 of the Dispute Settlement Understanding, the Dispute Settlement Body is bound by its general decision-making rules, including by Article 2.4 of the Dispute Settlement Understanding, which requires all decisions made by the Dispute Settlement Body provided for in the Dispute Settlement Understanding to be made by consensus.
   4. Contrary to other provisions of the Dispute Settlement Understanding, its Article 17.1 does not establish specific requirements for the appointment of persons to the Appellate Body.
   5. Pursuant to the interpretation adopted in paragraph (a) above, the Ministerial Conference and the General Council may therefore exercise their authority under Article IV of the Agreement Establishing the World Trade Organization to appoint persons to the Appellate Body of the World Trade Organization, subject solely to the requirements for decision-making applicable to their decisions under the Agreement Establishing the World Trade Organization, and in particular to the requirements set out in its Article IX.

5. We stress that the Ministerial Conference and the General Council should not lightly exercise their authority to make decisions primarily assigned to other organs of the World Trade Organization. Only where a decision cannot be arrived at by the relevant organ following genuine and prolonged good faith negotiations should the Ministerial Conference or the General Council exercise their authority under Article IV of the Agreement Establishing the World Trade Organization in matters primarily entrusted to decision-making by other organs of the World Trade Organization.

Guest Post: Proof that WTO subsidy rules are out-of-date in the climate change age

This is a guest post from trade lawyer Bixuan Wu of the Hiways law firm:

Last December, the US Commerce Department ruled that, under the EU's Emission Trading System, extra free allowances received by EU producers with high carbon leakage risks constituted a countervailable subsidy. Soon after the DOC’s final determination, Jesse Kreier wrote a post here which I missed. My attention was drawn to this case by the EU’s 39^th Annual Report on trade remedies.

At first glance, and by intuition, I thought the DOC’s decision was legally sound. Anyway, under the EU ETS, producers on the “carbon leakage list” indeed receive a favorable treatment by receiving more free allowances than unlisted producers, thus may emit more CO2 with no costs. But I, with a petitioner’s habitual thinking, overlooked the financial contribution factor which is usually the easiest to prove. If my understanding of the EU ETS is correct, emitters that run out of free emission allowances don’t buy allowances from the government. Instead, they buy from other companies subject to the ETS. Thus, as the EU has made clear in its briefs, in the case of free allowances, there was no revenue forgone because there was no revenue “otherwise due” in the first place.

The DOC certainly understood how the EU ETS worked but was determined to establish a financial contribution anyway. It repeatedly asserted that without additional free allowances, companies would have to purchase allowances either from the government or from another private party with allowances to sell. This statement is pivotal to the finding but is half-false. Similarly misleading is the DOC’s analogy between free allowances and favorable tax treatments.

The decision is interesting because it shows existing WTO subsidy rules need to be reformed to address new problems of the climate change age. In essence, the EU favored listed companies over unlisted ones by granting more free allowances to the former, not at the expense of its own pocket (revenue), but rather at the expense of climate mitigation. This is a situation that the drafters of ASCM did not envisage.

Also interesting is that free allowances is one of the two approaches to remedy carbon leakage. The other is a Carbon Border Adjustment Mechanism (CBAM). I wonder if the DOC has considered the ramification of its decision – if the EU’s free allowance is a countervailable subsidy, then the EU’s proposed CBAM is more legitimate. Isn’t it?

A Sixth Agreement To Use the MPIA

I previously noted the five 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 sixth dispute, China - Canola Seed from Canada (DS589), which is the second one involving China. The agreed procedures in the case are here. The panel was established on July 26, 2021, and has not yet been composed, so it would be a while until it is ready to be appealed.

We're not seeing any progress in resolving the Appellate Body crisis, which makes it more likely that the MPIA is used for appeals at some point.

RCEP's Airtight Data Localization Security Exception

Security exceptions in international economic law agreements tend to be more expansive than other exceptions, but over on Twitter Geraldo Vidigal pointed out recently that the RCEP security exception for data localization measures has an element that seems to go further than usual, giving any government that invokes the exception complete and total discretion to do whatever it wants in this area. Here's what the obligation and security exception say:

Article 12.14: Location of Computing Facilities

2. No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that Party’s territory.¹¹

3. Nothing in this Article shall prevent a Party from adopting or maintaining:

...

(b) any measure that it considers necessary for the protection of its essential security interests. Such measures shall not be disputed by other Parties.

The language that differentiates it from most security exceptions is "Such measures shall not be disputed by other Parties." If I understand that correctly, and as Geraldo suggested on Twitter, where one party has said it considers a measure  to be "necessary for the protection of its essential security interests," other RCEP parties cannot even raise an argument about this, either in bilateral discussions or in a formal complaint. Any disputes about such measures are off the table completely. That's quite a broad security exception! (Although it is only for a limited category of measures, of course -- the RCEP general security exceptions are drafted in a more traditional way).

Geraldo seemed to think that maybe the idea came from India, but I can see how it might catch on with a couple of other governments. That would be a mistake, in my view. But it's something to keep an eye out for nonetheless.

Call for Venues for the SIEL Biennial Global Conference in 2023

From the SIEL:

The Society of International Economic Law (SIEL) is seeking a suitable venue and institutional host for the Eighth Biennial SIEL Global Conference, to be held in July 2023. The Call for Venues is open to all institutions (including consortia or collaborations of institutions) active in the field of international economic law. We expect that the Eighth Biennial SIEL Global Conference will be held in a hybrid format with the possibility of turning to fully online should health restrictions not permit holding the conference in a hybrid format. More information can be found at:

https://www.sielnet.org/8th-biennial-siel-global-conference-2023-call-for-venues/

Guest Post: The CPTPP/TPP-11, the UK and China

This is a guest post from law professor Jaime Tijmes

Trans-Pacific Partnership (TPP) negotiations concluded in October 2015.[1]  United States President Obama heralded the TPP as a renegotiation of NAFTA:

…TPP representing a renegotiation of NAFTA… (available at https://web.archive.org/web/20191217063334/https://ustr.gov/tpp/)

As President Obama has made clear, past trade deals—including the North American Free Trade Agreement, or NAFTA—haven’t always lived up to the hype. That’s why he has called for renegotiating NAFTA to better address labor and environmental issues. Because TPP includes Canada and Mexico and improves substantially on NAFTA’s shortcomings, it delivers on that promise. TPP learns from past trade agreements, including NAFTA, by upgrading existing standards and setting new high standards that reflect today’s economic realities. (https://ustr.gov/sites/default/files/TPP-Upgrading-the-North-American-Free-Trade-Agreement-NAFTA-Fact-Sheet.pdf)

It seems fair to say that the implicit purpose of TPP was answering a real or perceived increase in China’s influence in the Asia Pacific, as part of the Obama Administration’s East Asian foreign policy[2] (“Pivot to Asia”).

Very soon after US President Trump took office, the US informed that it did not intend to become a party to the TPP.[3]  Instead of pursuing the TPP, the Trump Administration chose to renegotiate NAFTA, which eventually became the United States-Mexico-Canada Agreement (USMCA).  Due to the US decision not to pursue the TPP, the remaining 11 TPP parties signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, also known as TPP-11), which in essence incorporates most TPP provisions by reference pursuant to art. 1 CPTPP.

The CPTPP entered into force regarding Australia, Canada, Japan, Mexico, New Zealand and Singapore on 30 December 2018. It has taken over two years for the CPTPP to enter into force regarding Peru on 21 September 2021.[4]  Entry into force is still pending regarding the remaining four parties: Brunei Darussalam, Chile, Malaysia, and Viet Nam.  Thus, it seems fair to say that the CPTPP has resulted less attractive than originally envisaged.  A few days ago, for instance, Chile expressed its interest in joining AANZFTA (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, Viet Nam and the Philippines; and New Zealand and Australia);[5]  so far, it is unclear if this means that the Chilean Government is tacitly giving up CPTPP due to domestic political pressures.

It was somewhat startling when the UK applied for accession pursuant to art. 5 CPTPP on 30 January 2021[6], that is, almost exactly a year after Brexit on 31 January 2020.  So far, the CPTPP Commission has commenced the accession process and has established an Accession Working Group.[7]

On 16 September 2021, China applied for CPTPP membership.[8]  However, it seems doubtful if China’s application will be fruitful.  CPTPP parties would have to reach consensus for allowing China to join.  But that the main hurdle lies elsewhere: in the USMCA.  Art. 32.10 USMCA provides that a USMCA party that intends to commence free trade agreement negotiations with a non-market country, shall inform the other parties at least 3 months prior to commencing negotiations (article 32.10.2).  Before signing the agreement, the party shall provide the other parties with an opportunity to review the full text of the agreement (article 32.10.4).  Entry by a party into a free trade agreement with a non-market country will allow the other parties to terminate the USMCA on six months’ notice (article 32.10.5, analogously to a withdrawal pursuant to article 34.6), enter into negotiations (article 32.10.7) and eventually replace it with a bilateral agreement (article 32.10.5) based on the text of the USMCA (article 32.10.6).  Quite obviously, these rules aim at China.  Since the CPTPP entered into force on 30 December 2018 regarding Canada and Mexico[9], article 32.10 USMCA will be applicable to China’s request to join the CPTPP.  It seems unlikely that Canada and Mexico would chose the CPTPP with China if it means terminating, renegotiating or replacing the USMCA.  Thus, China’s accession to the CPPTP will at the end of the day most probably hinge on the US.

The Chinese Government is most certainly aware of this.  At first glance, China’s application for CPTPP membership may have been a surprising move considering the TPP implicit purpose of deterring China.  Yet it makes sense: irrespective of the application’s result, and precisely because of the TPP’s implicit purpose, China’s application for CPTPP membership looks like a political move to underscore US passivity and lack of leadership, while also possibly putting a wedge between USMCA parties.  Canadian and Mexican trade flows are notably more concentrated on the USA than the other way around; therefore, it would arguably make sense for Canada and Mexico to liberalize their trade with China.

Finally, UK and China applications to join the CPTPP may invigorate the political pressure on Brunei Darussalam, Chile, Malaysia, and Viet Nam regarding the CPTPP’s entry into force.  It may also assuage (right-wing and left-wing) anti-globalization critics: after all, if the UK and the China (two States that supposedly promote national sovereignty) want to join the CPTPP, it can’t be that bad, after all.

 

[1] http://www.sice.oas.org/tpd/tpp/tpp_e.asp

[2] https://obamawhitehouse.archives.gov/the-press-office/2015/11/16/fact-sheet-advancing-rebalance-asia-and-pacific

[3] https://ustr.gov/sites/default/files/files/Press/Releases/1-30-17%20USTR%20Letter%20to%20TPP%20Depositary.pdf

[4] http://www.sice.oas.org/tpd/tpp/tpp_e.asp

[5] https://www.subrei.gob.cl/sala-de-prensa/noticias/detalle-noticias/2021/09/15/ministros-de-asean-australia-y-nueva-zelanda-dan-la-bienvenida-al-interés-de-chile-de-incorporarse-al-aanzfta

[6] https://www.gov.uk/government/news/uk-applies-to-join-huge-pacific-free-trade-area-cptpp

[7] https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/decision_cptpp_uk_request-decision_ptpgp_ru.aspx?lang=eng

[8] http://www.mofcom.gov.cn/article/news/202109/20210903199707.shtml

[9] http://www.sice.oas.org/Trade/TPP/CPTPP/English/CPTPP_Index_e.asp

The Eco Oro Minerals v. Colombia Award: More Evidence that MST/FET Can't Be Salvaged

Over on Twitter, lots of people are talking about the recent investment arbitration award in Eco Oro Minerals v. Colombia. (For Investment Arbitrator Reporter subscribers, a summary of the tribunal's reasoning is here.)

I've followed some of the Twitter discussion, but haven't read the whole award. For now, let me just make two quick points about some specific aspects of the award.

First, here are some key passages from the Tribunal majority's finding of violation of MST/FET:

805. A majority of the Tribunal finds that Colombia’s actions, including its failure finally to delimit the Santurbán Páramo in circumstances where Eco Oro was advised that no environmental licenses could be issued for mining projects in the vicinity of the Santurbán Páramo until the new delineation had been completed and the failure to give Eco Oro an extension to submit its PTO, comprise conduct that failed to provide Eco Oro with a stable and predictable regulatory environment.

...

821. Whilst the bar is a high one and the Tribunal does not expect that Colombia should have elevated unconditionally Eco Oro’s interests above its obligation to protect the páramo, equally Colombia should have ensured that its various arms took the necessary steps to comply with Colombia’s constitutional obligation to protect the páramo such that they acted in parallel and in a coordinated manner with respect to Concession 3452. It should be reminded that, for purposes of attribution, “[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.”837 It is clear from the above review of Colombia’s actions, viewed as a whole, that Colombia’s approach to the delimitation of the Santurbán Páramo was one of arbitrary vacillation and inaction which inflicted damage on Eco Oro without serving any apparent legitimate purpose. Colombia was not willing to address and manage the widely disparate interests of those impacted by where the boundary of the Santurbán Páramo was drawn; it found itself torn between the competing interests of protecting the páramo and obtaining much needed royalties. It has failed to act coherently, consistently or definitively in its management of the Santurbán Páramo and in so doing has infringed a sense of fairness, equity and reasonableness and indeed has shown a flagrant disregard for the basic principles of fairness. This is more than just inconsistency or inadequacy by Colombia and its officials. Colombia has not accorded Eco Oro’s investment treatment in accordance with the customary international law minimum standard of treatment of aliens, including the obligation to provide fair and equitable treatment, and the Tribunal therefore finds by a majority that Colombia is in breach of article 805 of the FTA.

My take on MST/FET jurisprudence has always been that the approach of many tribunals to this obligation is not rooted in the reality of how governments operate. If you take standards such as "stable and predictable regulatory environment" seriously, such a wide range of government actions, perhaps even a majority of them, would violate these obligations that the whole system doesn't make any sense. Now, if you could narrow MST/FET down to some extremely egregious actions that only occur rarely and we all agree are unacceptable, maybe it would work. But there's no language I've ever seen proposed that would come close to doing this. In practice, the various options with MST/FET language involve varying degrees of vagueness and overbreadth.

Second, after finding a violation of MST/FET, the tribunal majority found that the existence of an environmental exception does not prevent compensation from being awarded for the violation. The exception, Article 2201(3), says:

(3) For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investment or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:

(a) To protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal or plant life and health;
(b) To ensure compliance with laws and regulations that are not inconsistent with this Agreement; or
(c) For the conservation of living or non-living exhaustible natural resources.

That seems like a fairly clear and normal IEL exception, but the Tribunal took away its force by allowing claims for compensation even if the exception is satisfied, as follows:

828. The Preamble to the FTA details, inter alia, that its object and purpose is to ensure a predictable commercial framework for business planning and investment in a manner that is consistent with environmental protection and conservation.841 Canada accepts that “the Parties [to the FTA] did not view their investment obligations as being at odds with the protection of [….] their environment and human rights obligations.”842 and that “trade and environment policies are mutually supportive […]”.843 In determining the ordinary meaning of Article 2201(3) it is therefore necessary to understand, as has been held by the Tribunal, that neither environmental protection nor investment protection is subservient to the other, they must co-exist in a mutually beneficial manner.

829. In the context of the FTA’s object and purpose, the Tribunal construes Article 2201(3) as being permissive, ensuring a Party is not prohibited from adopting or enforcing a measure to protect human, animal or plant life and health, provided that such measures are not arbitrary or unjustifiably discriminatory between investment or between investors or a disguised restriction on international trade or investment. Such a construction is consistent with the FTA’s objective of environmental protection: by prohibiting an investor from applying for restitution pursuant to Article 834(2)(b), the State is not precluded from adopting or enforcing the measure in question. Equally, however, there is no provision in Article 2201(3) permitting such action to be taken without the payment of compensation. Given that the FTA is equally supportive of investment protection, had it been the intention of the Contracting Parties that a measure could be taken pursuant to Article 2201(3) without any liability for compensation, the Article would have been drafted in similar terms as Annex 811(2)(b), namely making explicit that the taking of such a measure would not give rise to any right to seek compensation under Chapter Eight. In this regard, it is of note that there is no reference in Article 2201(3) to claims for breaches of the FTA. Indeed, given that the Contracting Parties drafted other provisions, such as Annex 811(2)(b), to include an express stipulation as to the circumstances in which a measure is not to constitute a treaty breach, it is simply not credible that the Contracting Parties left such an important provision of nonliability to be implied when considering the operation of Article 2201(3).

830. The Tribunal therefore construes Article 2201(3) such that whilst a State may adopt or enforce a measure pursuant to the stated objectives in Article 2201(3) without finding itself in breach of the FTA, this does not prevent an investor claiming under Chapter Eight that such a measure entitles it to the payment of compensation.

That conclusion is eye-popping, to say the least.

Putting these two findings together confirms my strongly held opinion that there is nothing that can be done to salvage MST/FET provisions. Revisions to the wording of the obligation do very little; and adding in exceptions does very little. The only solution I see is to remove MST/FET from international investment obligations entirely. (While some people might suggest investment courts are the answer here, I'm not sure they would help.)

Can Domestic Disputes Over Who Is the Legitimate Government of a Country Be Addressed at the WTO?

What happens if governments raise concerns at the WTO over whether a particular government is a legitimate one? Here is the U.S. statement at the March 26 DSB meeting as summarized in the official minutes:

1.2. The representative of the United States said that, pursuant to Rule 6 of the Rules of Procedure for Meetings of the General Council, as agreed by the DSB, the United States proposed an amendment to the proposed Agenda. The United States proposed to remove item 4, referred to as "Request for the Establishment of a Panel by Venezuela." The United States said that item 4 of the proposed agenda contained an item that had been submitted by purported representatives of the government of Venezuela. This was not the case. The purported representatives of the Government of Venezuela attempted to place a similar item on the Agenda of the DSB meeting in March 2019. At that time, the US position was that the item had not been requested by the legitimate government of Venezuela and therefore could not be placed on the Agenda. The basis for the US position was straightforward: the United States – along with more than 50 other WTO Members – did not recognize the Maduro regime as legitimate. Instead, the United States recognized Juan Guaidó as the legitimate President of Venezuela. In the two years since the Maduro regime's last attempt to add its request to the DSB agenda, the US position had not changed. Now, the United States – as well as many other WTO Members – continued to not recognize the legitimacy of the Maduro regime. For that reason, the United States said that it must object to the adoption of a proposed agenda that included item 4, because that item had been requested, not on behalf of the legitimate government of Venezuela, but by individuals acting on behalf of the illegitimate Maduro regime. Those representatives did not have the right to place an item on the agenda of a DSB meeting on behalf of the government of Venezuela. The United States instead proposed that the DSB amend the proposed Agenda to remove item 4, such that the Agenda would contain only those items properly requested to be included by Members of the WTO. The United States invited all Members to join in adopting an amended Agenda.

Venezuela obviously disagreed:

1.4. The representative of Venezuela said that in response to the question posed by the Chairman, Venezuela deeply regretted that it was, unfortunately, under the obligation to respond to the statement made by United States, which, under the influence of intolerance and repeating unusual and somewhat fragile arguments about the alleged legitimacy of Venezuela's Government, sought to paralyze the work of this important Body. It was reprehensible and inappropriate that one delegation sought to multi-lateralize its bilateral position and impose its confrontational agenda in a forum that had been established to settle disputes in an impartial and objective manner, in accordance with legal rules. Venezuela regretted that the United States had decided to block the Agenda of the present meeting, in response to the legitimate right of Venezuela to include on the Agenda of the present meeting the request for the establishment of a panel, submitted by Venezuela and contained in document WT/DS574/2/Rev.1, which had been circulated on 16 March 2021. Venezuela had a sense of déjà vu, since it had tried to include its panel request pertaining to this matter in 2019, with the same response from the United States. Venezuela believed, perhaps naively, that the new US government would open the door to respectful dialogue and ensure observance of public international law. Venezuela saw that this was not the case and that the words and actions continued to lack consistency.

...

In terms of how other governments reacted, some took the U.S. side:

1.10. The representative of Peru said that Peru supported the US objection regarding the inclusion of item 4 on the proposed Agenda by the Maduro regime of Venezuela.

1.11. The representative of Brazil said that, in Brazil's, view the representatives of the Maduro regime did not have the legitimacy to speak on behalf of Venezuela at the WTO. Therefore, those representatives could not request the establishment of a panel in the DSB. Brazil hoped that every effort would be made to avoid paralysis of the regular work of the DSB. Brazil supported the amendment proposed by the United States to the Agenda of this meeting.

1.12. The representative of Colombia said that Colombia echoed and supported the concerns expressed by the United States. Colombia also supported the US proposal to amend the proposed Agenda by removing item 4. In Colombia's view only those items that had been properly requested to be placed on the Agenda should remain thereon.

The EU, probably suppressing a big grin, suggested that the U.S. could invoke the security exceptions:

1.13. The representative of the European Union said that, if the EU understood correctly, the United States was not ready to accept the panel request by Venezuela as being valid, as it was submitted by a government which the United States no longer recognized as the legitimate government representing Venezuela. In that case, the European Union would have expected the United States to rely on the security exceptions under Article XXI of the GATT 1994 and Article XIV bis of the GATS to justify any departures from basic GATT and GATS provisions that may exist with regard to the measures taken against Venezuela. The EU noted that the US measures at issue appeared justified by the security exceptions, so the challenge at issue could not, in any event, succeed. All that being said, the EU had to react for systemic reasons and express its concern at the prospect of the DSB being prevented from proceeding with the present meeting with all the items on the proposed Agenda simply because that Agenda could not be adopted. There was a long-standing and widely recognised principle that DSB Agendas could not be blocked to the extent that they included items governed by negative consensus. That included first panel requests (governed by consensus), since they were a necessary precondition to second panel requests. That principle was of utmost importance because the binding nature of WTO dispute settlement rested on it. That said, the EU expected that the meeting be suspended, as a result of the US objection to the adoption of the proposed Agenda. That would allow the Chairperson and the WTO Members directly involved to consult in an effort to find a solution. The EU hoped that these efforts would rapidly yield a solution, so that the meeting could proceed to enable the DSB to discharge its important duties with which it was entrusted.

Cuba than took Venezuela's side:

1.14. The representative of Cuba said that Cuba recognized the legitimately elected government in Venezuela of Nicolás Maduro as well as the legitimate right of the delegation led by its Ambassador to request that this item be included on the proposed Agenda of the present meeting. Cuba said that Members should consider who was trying to paralyse the work of the DSB regarding this matter.

As did Russia:

1.15. The representative of the Russian Federation stated that the Russian Federation wished to refer to its previous statement made at the DSB meeting on 26 April 2019 in support of the legitimate delegates of the government of Venezuela and wished to reiterate its principal position that the WTO was not an appropriate forum for political discussions. The Russian Federation was greatly concerned with the disruption of the normal functioning of the DSB due to political controversies between WTO Members, especially under the present challenging times for the dispute settlement system caused by the Appellate Body crisis. The Russian Federation expressed its hope for the quick resolution of this matter on mutually acceptable terms.

By the next meeting, Venezuela had agreed to remove its panel request from the agenda.

I don't know how these kinds of issues should be resolved, but I know some people who are interested, so I thought I'd call attention to it here.

The Possibility of Another Section 301 Investigation on Chinese Trade Practices

At the end of the day on Friday, there were a number of news reports about the Biden administration considering a new Section 301 investigation on China, this time focusing on subsidies. Here's Bloomberg:

The Biden administration is weighing a new [Section 301] investigation into Chinese subsidies and their damage to the U.S. economy as a way to pressure Beijing on trade, people familiar with the matter said.

Top Biden economic advisers, including U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo, are meeting Friday afternoon to discuss the potential probe, the people said. 

Here's the FT:

A move to open a new investigation into unfair trade practices by China would follow the Biden administration’s growing frustration that Beijing has not fundamentally shifted away from its heavy use of industrial subsidies to prop up strategically important sectors in recent years.

And here's the WSJ:

Administration officials are considering launching an investigation into Chinese subsidies under Section 301 of the U.S. trade law, which could lead to new tariffs, according to people familiar with their plans. The White House is also looking to team up with the European Union, Japan and other allies in Asia, and rally support within the World Trade Organization to take on Chinese subsidies.

Upon hearing these reports, my first thought was that it would be crazy for the Biden administration to take the same approach to Chinese trade practices as the Trump administration did. If you want China to change its practices, a unilateral effort involving tariffs that violate WTO rules is extremely unlikely to accomplish this. Now, maybe you don't expect change, and just want to balance out the Chinese subsidies with U.S. tariffs. (Countervailing duties already take care of that to some extent.) But if you are hoping for change, more Section 301 tariffs seem like the wrong approach. It's difficult to disentangle all the various things that happened with Trump's trade policies, but I think it would be pretty hard to make the case that Trump's Section 301 tariffs led to meaningful liberalization of Chinese trade practices.

At the same time, figuring out what to do instead is complicated. It's easy enough to say, as I and other often do, that working with allies, and going through the WTO, is the better approach. But certainly neither one of those things will be simple. Nevertheless, I think it's the best option, and I was heartened to see the WSJ piece seem to mention this as a possibility being considered by the Biden administration. When the Trump administration started up the Section 301 process, I wasn't completely sure where they were going with it. It turned out they were going towards tariffs, of course. But the Biden administration might not be going in the same direction with a Section 301 investigation.

One thing a Section 301 investigation does is buy the administration a little time to figure out exactly how to proceed. And it could, in theory, be used as a basis for organizing a multilateral effort. If that's the idea, then I can see how a Section 301 investigation makes sense. I doubt USTR really needs to do much investigating at this point. I assume they have been gathering evidence for years. But they can write it all up nicely in a report, and in the meantime coordinate with allies on the best approach.

Introducing China Trade Monitor

As many of you know, I left Cato as of July 1. Since then, I've been working with my former Cato colleague Huan Zhu to set up a news/analysis website on China trade issues. It's called China Trade Monitor and you can see it here: www.chinatrademonitor.com. 

We will cover a wide range of issues related to trade, investment, and economic relations with China more broadly: Traditional trade policy issues,  “trade and …” issues, and issues that have implications for trade, such as national security, human rights and competition policy/antitrust. Some of the main topics include: trade agreements, negotiations, and disputes; trade remedies; domestic legislation, regulation, and litigation; digital trade; investment; intellectual property; environment; and labor rights.

We've been writing regularly for the site for the past few weeks, and there are more than a hundred posts up there for people to check out.

For the next few weeks at least, we will do this for free. At a certain point, we will have to start charging, of course, but in the meantime enjoy the free service and let us know what you think! We would love to get people's feedback. We are still making tweaks to the design, and still thinking about the precise scope of the content, and it would be great to hear from people on these issues. 

(And to answer a question I've gotten, WorldTradeLaw.net and this blog will continue as is! I'm basically just switching out my Cato work for this new website.)

ANZSIL International Economic Law Interest Group Workshop

From the ANZSIL International Economic Law Interest Group:

The Co-Chairs of ANZSIL’s International Economic Law Interest Group, Dilan Thampapillai and Chris Riffel, are pleased to present the programme of this year’s workshop. The workshop on Monday, 6 Sept, will be via Zoom and non-presenting attendants can register with Dilan ([email protected]). The keynote address by Andrew Mitchell will be on indigenous data sovereignty and the electronic commerce chapter of the CPTTP.

The full program is here.

Some Quick Reactions to the WTO Panel Report on U.S. - Safeguards on Photovoltaic Products

The WTO panel report on U.S. - Safeguards on Photovoltaic Products was circulated today. Here are a few reactions based on a very quick read of the report.

First, it seems like kind of a big deal that a safeguard measure, and in particular a U.S. safeguard measure, was found not to be in violation of WTO rules. I've heard a number of people say that WTO jurisprudence in this area is so strict that it's impossible to impose a safeguard measure consistently with the rules. But now it has been done, so the rules may not be as constraining as was thought. (Previously, a WTO panel and the Appellate Body upheld a U.S. safeguard measure on tires under the now expired China-specific safeguard rules, but those provisions are easier to satisfy.) Perhaps this decision will have some impact on the views of some of the people in the U.S. who have been critical of WTO dispute settlement.

Second, based on my quick read, it seems to me that a big reason for the finding of no violation on the important issue of "unforeseen developments" was USTR's decision (a big thank you to whomever at USTR was behind this!) to ask the ITC to do a supplemental report on this issue, and the panel's decision to take that report into account. Back in January 2018, I said the following about this issue:

I wonder what a WTO panel and the AB will think of the fact that none of this showed up in the original ITC report, and, relatedly, what they will make of the USTR request that generated this reasoning in a subsequent report. My guess is that as long as they find the reasoning acceptable, they will forgive its omission from the original report, ...

My instincts seem to have been correct (but again, it was a very quick read!).

Third, this panel kept referring to "DSB reports." For example, in para. 7.18 it said:

As we agree with the findings in the previous DSB reports noted above, we will assess China's claims concerning the three elements in the first clause of Article XIX:1(a) of the GATT 1994 accordingly.

I don't think "DSB reports" is a normal thing for panels to say (and a quick search seemed to confirm that), and I wondered if this was part of the panel's attempt to reframe reliance on past reports, in two ways: 1) there would be no references to the "Appellate Body"; and 2) the panel expressed agreement with past reports, rather than a more deferential reliance on them.

And finally, I wonder how China will react to all of this. It could appeal the report into the void, in order to maintain some uncertainty about these issues. On the other hand, it would be a show of good faith to let the report be adopted and simply move on. That wouldn't solve the bigger issues surrounding China's participation in the WTO, but a gesture of this sort could help move things in a positive direction.

ADDED: I want to add something about the USTR request that the ITC do a supplemental report on the issue of unforeseen developments. I had forgotten that such a request was also made in the U.S. - Steel Safeguards case back in the early 2000s, as Jesse pointed out in the comments to this post. See paras. 10.119-135 of that panel report. I have not looked at the two ITC supplementary reports in the Steel Safeguards and Photovoltaic Safeguards cases to see how they compare and whether any differences might have contributed to the different results in these two panels' findings.

SECOND ADDITION: I've uploaded the ITC's supplemental report on unforeseen developments in the photovoltaic safeguards case here.

The Solar Safeguards Panel Report - Some First Reactions

The newly-released Panel Report in US – Solar Safeguard (WT/DS562/R) is of course notable in that, for the first time, a global safeguard measure challenged in WTO dispute settlement has fully survived panel review. A longstanding practice of imposing standards so high that they could never be satisfied has perhaps been breached. Maybe if this type of standard had been applied earlier, and safeguards had been reasonably available as the parties to the Uruguay Round negotiations anticipated, we would not be plagued with the effectively unbounded Section 232 measures applied by the Trump Administration?

The Report is however notable in other ways. The first thing that struck me was its style. It is a relatively short report by WTO standards, almost readable. The report’s legal analysis tends to focus on treaty text, rather than prior decisions, and avoids lengthy quotations from Appellate Body decisions. Where it does refer to prior decisions, it refers to “previous DSB reports”, not differentiating between adopted AB and panel reports, and tends to drop the references to those reports to footnotes. And when referring to such decisions, the Report carefully notes that the panel “agrees” with the findings, rather than simply treating them as a source of law in themselves.

Substantively, the Report’s approach to “unforeseen developments” and “the effect of WTO obligations” is also interesting. Regarding the latter point, it is enough that the Member “identifies a WTO obligation that would have prevented it from raising tariffs on the product at issue” (para. 7.52). Regarding the former, the Panel accepted the proposition that “China’s industrial policies, five-year plans and other government support programs” were a development that could not have been foreseen by US negotiators (para. 7.26). Although the Panel did not specifically reference this, the US had argued that WTO Members had “committed to open, market-oriented policies” (para. 7.24).

These comments just skim the surface of the Report. I’d be very interested to hear the reaction of other readers ….

USMCA State-State DS Is Keeping Busy

Panel composition in a second USMCA dispute, on U.S. - Solar Safeguards, was recently announced (the first USCMA dispute panel to be composed was discussed here). The panelists are:

• Mario Matus, Chair, by agreement of the disputing Parties
• Jennifer Hillman, Appointed by Canada, the complaining Party
• Donald M. McRae, Appointed by the United States, the responding Party

All three have extensive experience with WTO dispute settlement: Matus and McRae both have five WTO panel reports to their name; and Hillman was on the Appellate Body.

The panel request in the case is here.