International Economic Law and Policy Blog

The First DSU Article 25 Appeal

Last week, I said this in a post:

In the DS583 case, Turkey - Pharmaceutical Products, a communication from the Panel indicates that the Panel had issued its final report to the parties on November 11, 2021, with circulation to the Members (and public) scheduled to take place "as soon as its translation into French and Spanish was finalized, and that translation was expected to be finalized in mid-January 2022."

In the DS595 case, EU - Certain Steel Products, a communication from the Panel says that the panel report "was scheduled to be circulated on 21 December 2021."

In late December 2021, however, both disputes were suspended under DSU Article 12.12.

Then, as noted, on March 22, 2022, Turkey and the EU notified Article 25 procedures in both disputes. Both sets of procedures include the following language:

5. The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 30 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect. The Notice of Appeal shall include the final panel report in the working languages of the WTO. The Notice of Appeal shall be simultaneously notified to the other party or parties and to the third parties in the panel proceedings. Rules 20-23 of the Working Procedures for Appellate Review shall apply mutatis mutandis.

The parties agree that, because the present panel proceedings have already been suspended, the time limit for the filing of a Notice of Appeal shall be no later than 30 days from the date on which this agreement is notified to the DSB.

I'm not totally sure what's about to happen here, and we'll find out for certain 30 days from March 22, but my sense is that notices of appeal are not coming, and the disputes will remain in permanent suspension. But the specific details of the documents are difficult to parse, and it's possible I've misunderstood what the parties are doing here. We'll find out soon enough.

Looks like I was wrong about DS583 (at least)! Turkey's DSU Article 25 notice of appeal in DS583, with the panel report attached, was posted on the WTO website today and is here. It starts this way:

Pursuant to paragraph 5 of the Arbitration Agreement, Turkey hereby notifies the Dispute Settlement Body of its decision to initiate an arbitration under Article 25 of the DSU to decide an appeal with regard to certain issues of law and legal interpretation covered in the Panel Report in the dispute Turkey – Certain Measures concerning the Production, Importation and Marketing of Pharmaceutical Products.

Pursuant to paragraph 5 of the Arbitration Agreement and Rule 20 of the Working Procedures for Appellate Review, Turkey simultaneously files this Notice of Appeal and its Appellant Submission with the European Union and the third parties in the panel proceedings and with the WTO Secretariat. The Notice of Appeal includes the final report of the Panel in the working languages of the WTO.

The Article 25 procedures in the case are here.

This should be interesting. We are in uncharted territory.

What Does Bob Lighthizer Think of the Trump Administration's Trade Policy?

On his TV show, former Trump administration official Larry Kudlow was talking to Trump's U.S. Trade Representative Bob Lighthizer about various trade issues, including whether Lighthizer thought the Trump administration's China trade policy was successful. Not surprisingly, Lighthizer thought this policy was quite good, even coming close to being historically great and Churchillian. Here was the exchange:

Kudlow: Was the US-China Phase One trade deal a success or a failure? ...

Lighthizer: ... So I'll take a half a step back. Was the President's China policy a success? I think it was a success. Probably the greatest success of his presidency, or at least arguably. I think it was the most impactful and successful policy of a modern American president.

And here's why I say that. You have to start with the proposition that China is an existential threat to the United States. They do not like us. They want to be the leader of the world. They do everything they can to hurt America. So you start with that. Then you go back and you think, where were we six years ago? People didn't understand that. Trump understood, but people did not understand that. And he basically changed the way the United States thinks about that, and in truth, the world, because everyone now understands that issue. ...

Kudlow: ... Trump rang the warning bell, big time. And that's really what you're referring to.

Lighhtizer: He convinced the world that we have a conflict. Think of it as a little bit like, and I don't want to draw too far on this analogy, but a little bit like the 30s with Winston Churchill, it's a little bit like that. ... he's now, the world's in a different spot. We understand we have a problem.

Now, to get to your specific question, was the Phase One deal a success? First of all, it was successful in helping to convince the world of the most important thing you need to know, that we have an existential threat, if you're on the West, if you're an American. So in that sense, it was a success.

Let's go back and look at the individual parts of it, because there's a lot of confusion about this. People say, was the agreement about buying stuff? No, that was a very small part of it. So the most important single part of that agreement was we kept the tariffs in place. The tariffs were very important, they reduced the trade deficit, which they did. They took away the advantage that was unfair, that China had as a result of its unfair practices and subsidies. So the most important single part of that was the tariffs are still in place, and they're still doing the right things. And if President Biden gets rid of them, in my judgment, that will be a betrayal of the American people. ...

...

Let me spend one more second on the trade deal. All right, so the trade deficits, I mean, the trade tariffs stay, and that's the most important part. The second part, there was systemic changes. This is Phase One I'm still talking about, and they did most of those. The third part, and we can talk about that, they introduced and changed the laws that they said they would, agriculture, a variety of other things. Now it wasn't perfect, but it was pretty good. On the purchases side, they were less successful, the agreement was less successful. Now, there were interventions, there was COVID. There were a lot of reasons, but that's not an excuse. But most importantly, the thing's enforceable, and if they're not following the agreement, we should raise tariffs to retaliate.

Kudlow: Forced transfer of technology?

Lighthizer: So the forced transfer of technologies, they have stopped it as a matter of policy. Whether it stops in practice is something that a USTR or an administration should take a case to the Chinese if they find the case. And if they do, retaliate against it.

Putting trade aside for a moment, what I'll always remember about Trump's China policy was that he appears to have endorsed, or at least not objected to, China's treatment of the Uighurs and the Hong Kong crackdown. It would be interesting to see the counterfactual with a U.S. president who cared about these issues and pressed Xi Jinping on them, but we'll never know what would have happened. 

On trade, I had the following reactions to Lighthizer's points.

First of all, it sounds like Lighthizer thinks China mostly complied with the substantive obligations in the Phase One agreement, which is an intriguing position for a China hawk to take, as most people with that perspective say that China doesn't comply with its agreements. (With regard to the cause of China's compliance, I'm not sure that the Chinese actions here went beyond what it was already planning to do on most of these issues, but I'm happy to hear from any China experts out there on this point.)

Second, Lighthizer emphasizes that the Phase One agreement is enforceable, but this opinion is not widely shared (and it's definitely not my view). Without some kind of independent arbitration mechanism that can provide a neutral ruling on complaints, all the U.S. can do is threaten tariffs when it is upset about something, which is what it can already do -- and which it did -- under Section 301.

Third, Lighthizer says the most the important thing the agreement did was to keep the tariffs in place. But without the agreement, the tariffs would still have been in place, so I'm not sure the agreement adds anything here.

Obviously, it's natural for people to want to promote a positive version of their legacy, so we can't really expect anything else from a Kudlow-Lighthizer exchange on this issue. What will be interesting is to see the legacy that develops when we've had more time to reflect, and when some of the key players are no longer active in the field and more people feel comfortable expressing a view.

Event: Sustainable Finance in European Jurisdictions

This is from the Ferenc Mádl Institute of Comparative Law:

Sustainable Finance in European Jurisdictions

April 29 @ 09:00 - April 30 @ 14:30

The necessary path to a carbon-free economy will only be achievable with a fundamental transformation of essential sectors. Above all, there is a need to channel private capital into sustainable enterprises. The acceptance of this epoch-making project depends on the coherence of the legal framework to be created. So far, there are mainly regulations that can be summarized under the catchword “sustainable finance”, they concern shareholder governance, fund governance and product governance issues.

The aim of the Conference „Sustainable Finance in European Jurisdictions” is to investigate the implementation of this regulatory program from a comparative law perspective in order to uncover inconsistencies and, if necessary, to identify any need for action on the part of the European and the national legislators.

The conference will be organized in a hybrid format at the Hungarian Academy of Sciences in Budapest and on Zoom. Please see the detailed schedule below.

Attending the conference is provided for free courtesy of the organizers, however it is tied to prior registration both for online and in person participants.

Those interested are able to register by filling out the following registration form:  https://forms.gle/FYzRULREac4Dzsjq9

Registration is open until April 28. Online participants will receive an email with the Zoom link a few hours before the start of the conference.

Please refer any questions to Bálint Kovács via email: [email protected].

The event is organized by the Ferenc Mádl Institute of Comparative Law, Justus Liebig University Giessen and Vienna University of Economics and Business (WU).

Friend-shoring

Friend-shoring.

Secretary Yellen’s remarks of April 13, 2022 spoke of “friend-shoring” – a commitment to work with countries that “have strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system.”

Friend-shoring is not new. A 2021 White House Report on “supply chain resilience” forecast resiliency strategies for semiconductors, large capacity batteries, critical minerals, and pharmaceuticals. To develop resiliency, the United States must “deepen” its economic ties with friendly, “like-minded” countries and develop “open” plurilateral agreements to foster “high standards with respect to labor, the environment, privacy protections, [and] digital [services].” For the White House, making “friends” is necessary due to the realization that it has become “increasingly difficult to separate economic issues from broader considerations of national interest, including national security.” Preserving globalization entails trust of geopolitical partners. Edward Alden describes how the White House presents “America First” 2.0 – an upgrade from the Trump administration that establishes “friendly relations” in trade and investment between Washington, Brussels, and Tokyo.

The implication is that in the globalized economy, the United States has “unfriended” China. The underlying logic of “friend-shoring” is that friends shall not harm United States national security interests. China’s trade and investment practices are seen to do exactly that: “unfairly damage” U.S. economic security. The United States’ consideration of friend-shoring may disqualify other countries’ efforts to develop equally resilient supply chains. Other countries risk the label of “unfriendly” based on their political and economic choices, making the discourse even more about the “bipolarity in the world”, thereby complicating more substantial consideration of the sustainability of globalization altogether.

Two elements build the supply chain resilience for the United States. First, is the effort to “modernize” trade multilateralism for free but secure trade. Considering one is the exception of the other (and nothing is free), this is already a puzzle. Second, the modernized trading system must be built not from multilateralism but “a network of plurilateral trade arrangements” that address topics especially important to the United States. This could be a reference to the ongoing work of the WTO, but there is no added detail to know whether the United States will seek to develop its policies through preferential trade or not. If the ambition is preferential, then Desiree LeClercq cautions that the United States needs to be careful about how to inject international rights law into trade agreements.

In contemplating a “new Bretton Woods” it also bears consideration how international institutions entangle aspirations of friendship and international trade. The post-WW2 International Trade Organization (not, in fact, negotiated at Bretton Woods) sought to universalize the commitment to friendship among its fifty or so signatories. In his memoirs, Secretary of State Cordell Hull remarks that “fair and friendly relations” were the opposite of “the injurious results and dangerous possibilities of economic warfare.” (1948: 82). The language of friendship was cited in preambles or primary provisions of many post-WW2 bilateral treaties of amity to set the right tone for the governance of trade and navigation. As Gerry Simpson aptly observes “international law is already a law of friendship albeit a thin friendship of merely living together.” A deeper and more problematic use of the language of friendship, Simpson observes, “is there to beef up the ethical underpinnings of empire.” (2021: 167). Thus, it is simplistic to suggest “friendship” automatically connotes an evenness of competitive opportunities between contracting states, or equality of economic relations. In many cases, these post-WW2 treaties were not signed by equal partners at all – for example, the US-Ethiopia treaty of amity and economic relations, entered into force October 8, 1953 (4 UST 2134).

The United States’ seeming rejection of a “bipolar” global economy raises questions – is the United States seeking unipolarity, or multi-polarity? A return to Bretton Woods speaks to a time of unipolar power, for the United States. What about other countries seeking development? Is the problem that the rules failed in our ability to achieve equal competition across borders, or that we are at different positions on global threats? Who decides which governments earn greater policy space? Is the United States suggesting a world government? Why not consider how institutions can help the United States compete with China, such as reforming rules on state-owned enterprises and industrial policies?

Perhaps this is not about unwinding bipolar centres of economic power but strengthening the US pole. Is the United States seeking to develop (or perhaps regain) control over the globalized economy by competing with China’s Belt and Road Initiative with its own “friendly” version? What happens if the European Union’s economic power outpaces the United States? Will the friendly relationship sour? As Hugh Grant’s Prime Minister told Billy Bob Thornton’s US President in Love Actually: the word relationship covers all manner of sins.

 

Two Recent Developments in DSU Article 25 Arbitration Arrangements

Are we getting closer to the day when DSU Article 25 arbitration is used for WTO dispute settlement appeals, either through the MPIA or outside of it? I have a theory that a successful use of this alternative appeal mechanism could create the incentive for Appellate Body reform, but that's very speculative. And anyway, I'm not sure how close we are to actual Article 25 usage.

Nevertheless, there are two recent developments in this area worth noting.

First, the panel report in the Costa - Rica Avocados dispute (DS524) was circulated last week. On this dispute, let me first reiterate a point I've made before: This report is 474 pages long, which makes me wonder whether the SPS Agreement is the best way to adjudicate these disputes. Could we get to the same result more quickly using basic GATT provisions such as GATT Articles I, III, XI and XX? The issues would be the same, but with fewer legal provisions to parse, it might all go more quickly.

But turning back to DSU Article 25, Costa Rica and Mexico are both parties to the MPIA and had agreed to use the MPIA for appeals in this dispute. But under the procedures they agreed to, an appeal would have had to come prior to circulation of the panel report, so the normal circulation of the report indicates that the parties decided not to appeal. I think the next dispute to keep an eye on for a possible MPIA Article 25 appeal is Colombia - AD Duties on Frozen Fries (DS591).

The second development relates to the DS583 and DS595 disputes between the EU and Turkey. Turkey is not a party to the MPIA, but in both cases the EU and Turkey agreed on March 22, 2022 to Article 25 procedures for appeals (DS583 and DS595). I confess that I'm having a little trouble following what exactly the parties did here.

In the DS583 case, Turkey - Pharmaceutical Products, a communication from the Panel indicates that the Panel had issued its final report to the parties on November 11, 2021, with circulation to the Members (and public) scheduled to take place "as soon as its translation into French and Spanish was finalized, and that translation was expected to be finalized in mid-January 2022."

In the DS595 case, EU - Certain Steel Products, a communication from the Panel says that the panel report "was scheduled to be circulated on 21 December 2021."

In late December 2021, however, both disputes were suspended under DSU Article 12.12.

Then, as noted, on March 22, 2022, Turkey and the EU notified Article 25 procedures in both disputes. Both sets of procedures include the following language:

5. The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 30 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect. The Notice of Appeal shall include the final panel report in the working languages of the WTO. The Notice of Appeal shall be simultaneously notified to the other party or parties and to the third parties in the panel proceedings. Rules 20-23 of the Working Procedures for Appellate Review shall apply mutatis mutandis.

The parties agree that, because the present panel proceedings have already been suspended, the time limit for the filing of a Notice of Appeal shall be no later than 30 days from the date on which this agreement is notified to the DSB.

I'm not totally sure what's about to happen here, and we'll find out for certain 30 days from March 22, but my sense is that notices of appeal are not coming, and the disputes will remain in permanent suspension. But the specific details of the documents are difficult to parse, and it's possible I've misunderstood what the parties are doing here. We'll find out soon enough.

Some Questions about the U.S. Law Suspending Normal Trade Relations Treatment with Russia and Belarus

On Thursday, both the House and the Senate voted to pass the "Suspending Normal Trade Relations with Russia and Belarus Act" (HR 7108), and President Biden signed it into law on Friday.

It looks to me, but correct me if I've missed something in the fine print, as though the normal trade relations provisions of the version of the bill that became law are the same as those in the earlier version I described here. The key language on raising tariffs on Russia and Belarus is as follows:

SEC. 3. SUSPENSION OF NORMAL TRADE RELATIONS WITH THE RUSSIAN FEDERATION AND THE REPUBLIC OF BELARUS.

(a) NONDISCRIMINATORY TARIFF TREATMENT.—Notwithstanding any other provision of law, beginning on the day after the date of the enactment of this Act, the rates of duty set forth in column 2 of the Harmonized Tariff Schedule of the United States shall apply to all products of the Russian Federation and of the Republic of Belarus.

(b) AUTHORITY TO PROCLAIM INCREASED COLUMN 2 RATES—

(1) IN GENERAL.—The President may proclaim increases in the rates of duty applicable to products of the Russian Federation or the Republic of Belarus, above the rates set forth in column 2 of the Harmonized Tariff Schedule of the United States.

(2) PRIOR CONSULTATION.—The President shall, not later than 5 calendar days before issuing any proclamation under paragraph (1), consult with the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate regarding the basis for and anticipated impact of the proposed increases to rates of duty described in paragraph (1).

(3) TERMINATION.—The authority to issue proclamations under this subsection shall terminate on January 1, 2024.

Section 4 then has a long and detailed set of provisions on resuming application of the lower column 1 duty rates and restoring normal trade relations if Russia/Belarus withdraws forces/ceases hostilities, poses no immediate threat to NATO allies/partners, and "recognizes the right of the people of Ukraine to independently and freely choose their own government." 

And Section 5 addresses some WTO issues:

SEC. 5. COOPERATION AND ACCOUNTABILITY AT THE WORLD TRADE ORGANIZATION.

The United States Trade Representative shall use the voice and influence of the United States at the WTO to—

(1) condemn the recent aggression in Ukraine;

(2) encourage other WTO members to suspend trade concessions to the Russian Federation and the Republic of Belarus;

(3) consider further steps with the view to suspend the Russian Federation’s participation in the WTO; and

(4) seek to halt the accession process of the Republic of Belarus at the WTO and cease accession-related work.

This all raises a few questions for me:

- My understanding, based on Ed Gresser's work, is that tariffs on the main products that the U.S. imports from Russia will not rise very much when the column 2 rates are applied to them. To maximize the impact of withdrawing normal trade relations, will President Biden use the power set out in Section 3(b) of the legislation to increase tariffs on these products above the column 2 rates?

- If the war ends, what political circumstances would allow for the restoration of normal tariff treatment for Russia and Belarus? To illustrate this point, what circumstances would demonstrate that Russia "poses no immediate military threat of aggression to any North Atlantic Treaty Organization member"? Peace would be great, but my sense is that peace alone might not be sufficient for Congress to want to grant normal trade relations, permanent or otherwise, to Russia and Belarus again.  

- What "further steps with the view to suspending Russia's participation in the WTO" will be taken? I'm not sure there is much chance of this suspension happening, because many WTO Members would object, but nevertheless I'm interested in seeing what people come up with here.

Katherine Tai on the Critics

This is from a Katherine Tai interview with Bloomberg TV anchor Haslinda Amin:

Amin: You've been criticized for your trade policy, some say that it lacks ambition, some say you've not done enough to bring cost down for American companies. What do you make of those criticisms and what can you do to allay some of those concerns?

Tai: Well, I think that for the people who are criticizing our trade policy, it is either because they are not hearing us when we describe what our objectives are, which is to bring a new approach to trade that ensures that trade policy can be and is a force for good. And I think that some of the other critics are impatient. So what I would say is, we are very much focused on the vision for trade, and the vision for America's leadership in trade and global economics, that is focused on ensuring that trade is a tool for moving us into a better world.

I think patience is important, and it does take a while to get people in place and come up with a strategy. It all seems very easy from the outside, but trying to take into account all the interest groups and the various people with opinions must be overwhelming. USTR career staff, officials at other agencies, congressional staff and members of Congress, pro-trade interest groups, trade skeptic interest groups, etc. all have views here, and they somehow need to be synthesized. And then trying to apply a combination of your own view and these other views to the wide range of long-standing and Trumpian trade actions out there is complicated, to say the least.

But eventually, there does need to be some clarity on an administration's trade policy vision, and I think we have it in some areas but perhaps not yet in others.

I think one of Tai's big ideas is to pull back on the fights with the EU, and I see some clarity in this area. While China has been the focus of recent trade concerns coming from the U.S., trade fights with the EU have been around longer and many have lingered on. I get the sense from some people in the U.S. trade policy world that they are madder at the EU than they are at China. Tai seems determined to tone down many areas of U.S.-EU conflict, and in my view that is a positive development. We have to set priorities, and even many of those who are most critical of the EU would probably acknowledge that there are bigger issues with China than with the EU (despite what the interest groups pushing particular EU issues might say).

Another area of clarity is with the idea of market access achieved through new trade agreements. Here, I think Tai has been very clear that the Biden administration will not be pursuing this. In her testimony to the House Ways and Means Committee last week, she said:

... when we talk about market access in trade speak, generally what we are talking about is tariff liberalization, tariff reductions, and it is true that we are not talking about tariff reductions in the context of the Indo-Pacific Economic Framework. ... We're actually living in a pretty tariff liberalized world as it is. That's not to say that there aren't further gains that could be made or more tariffs that could be brought down, but we're in a pretty fluid world for the movement of goods. The concern that we've run into, over the course of this version of globalization is, especially here in the US, a real concern about the offshoring and the erosion of our jobs and our industries.

I would say it's pretty clear from this statement that traditional market access in the form of tariff liberalization through trade agreements is not something Tai wants to pursue. Instead, the focus will be on issues like labor and the environment through less enforceable instruments such as the Indo-Pacific Economic Framework.

On this issue, I think the critics are actually hearing the Biden administration very clearly, but simply disagree with the objectives that have been stated. In terms of what would make trade policy a "force for good," many people, including me, think that when you balance out the benefits and costs, trade liberalization is a force for good. Protectionism, by contrast, is a force for bad when you do that same balancing. You can impose dispersed costs on everyone for the benefit of a favored few, but you really shouldn't. 

To the extent Tai is doing some political calculations here, I suspect one of her concerns is that traditional trade agreements are political losers for Democrats right now. My own view is that rather than abandon trade agreements entirely, we should come up with a better approach to them, including both the substance involved and the choice of negotiating partners. I think there is a package that could work politically, although it would mean standing up to some interest groups, and that won't be easy. One thing I'd really like to see is how much tariff liberalization the U.S. could get from foreign governments if it focused trade negotiations on that instead of issues such as labor, the environment, and IP protection.

In contrast to these areas of clarity, I think the Biden administration's trade policy vision still needs to be fleshed out in a few areas. Two big ones are WTO dispute settlement and China.

On WTO dispute settlement, as I've said before, I think there are a number of packages of reforms to restore the Appellate Body that are politically achievable. The administration just needs to settle on something and make the case for it to other WTO Members, in order to get the negotiations started.

As for China, while Tai has stated that the administration has not given up on changing China's trade practices, nevertheless there does seem to be a shift in priorities here. In a hearing at the Senate Finance Committee last week, Tai said:

... it is high time for us to turn the page on the old playbook with respect to China. That old playbook had us focused exclusively on changing China's behavior. We must now expand our work to include a strategy to vigorously defend our values and economic interests.

Along the same lines, she said:

... it is the time to turn the page on the old playbook, which focused exclusively on pressuring China and seeking China to change its ways or ... pressing China for compliance. We are not giving up on pressing China on compliance or on changing its ways. And yes, all tools remain on the table with respect to dispute settlement and enforcement. But my main point is that that's not the only thing we can do now and we have to expand our strategy to include developing the tools that we need to defend the interests of our economy.

In terms of defending values and economic interests, if trade remedies falls into this category, it seems to me we have been doing a lot of that for a long time. It looks like new rules on imports of forced labor are now getting thrown into that mix as well, and I guess the industrial policy-type actions people are pushing in Congress are also part of that category. But I worry that pressing China for change could get lost in this new mix, which is a shame. In my view, a lot could be achieved in this regard through the WTO dispute process (if restored, as noted above). China is unlikely to take seriously unilateral demands from the United States (this was clear before the recent Section 301 actions, but is even more so now), but it does seem to respond positively to rulings from neutral international trade adjudicators. Political scientists and China experts can debate why exactly that is the case, but it seems to be true, so why not take advantage of it?