At a WITA event yesterday, former USTR official Wendy Cutler had a conversation with U.S. Trade Rep. Katherine Tai about various trade issues. One thing they touched upon was the enforceability of the IPEF. Here was their exchange:
Cutler:
How about enforcement and the IPEF? It's not a traditional trade agreement. I've seen comments from you and your staff that, ... maybe we shouldn't expect a traditional dispute settlement mechanism, but other creative thinking is being given to this. And in that vein, I've heard this term of maybe including a corporate accountability element into the IPEF. What does that mean?
Tai:
Look, I think that traditional mechanisms still do have their place. We're not going to invent the IPEF out of whole cloth. So what still makes sense, we will work from there.
You know, I think that part of the challenge for folks to wrap their minds around is, if you're not doing tariff reductions, usually a traditional dispute settlement mechanism at the very end of it, if you lose a case, if ... on the winning side, if you win a case, the right that you win is to suspend your concessions. At the WTO that often means, well, ... that you get to suspend your tariff concessions and you can lay down some tariffs. I think over the course of this negotiation, there will be concessions, there will be commitments that we make to each other. Those also if they make sense can be suspended through a traditional dispute settlement mechanism. Let's think that through and ... design something that makes sense.
But I did want to raise awareness around some of the ways in which our US trade practice is already pushing the envelope on the dispute system, as it's traditionally been framed. And it really goes to just the fundamental issue of, what is the point of a dispute settlement mechanism? Well, ... you could think about it as it's a forum for us to fight each other. But ultimately, when you take it to what the point of an agreement is, it's a way to ensure that what's been negotiated has meaning, that you can't just promise something, say that you are going to do something, and then go do something completely different. It's an accountability mechanism.
And if we look at our trade practice -- starting with the Peru Free Trade Agreement, which has this very built out, very detailed logging annex, that's tailored to the deforestation concerns in Peru when we passed that agreement, to the USMCA's rapid response mechanism, which is looking at creating a mechanism for ensuring compliance with Mexico's labor reform and labor laws -- you see this evolution of our dispute settlement mechanism that flows into more cooperative modes, and is looking at holding accountable not just the other country, but also what is happening within the economic ecosystem and whether or not the participants, whether they are logging companies, or facilities that have set up operations, or operating in Mexico, that they also are abiding by the requirements, and the expectations, of the agreement itself.
So again, just highlighting that in our own practice, we have started to evolve away from a traditional dispute settlement mechanism to thinking about new ways of holding the different participants in a trade agreement accountable for creating integrity in the promises that are made and in the vision that's incorporated into the agreement.
This all raises a number of questions for me.
First, what Tai is focusing on here with "pushing the envelope" seems to be enforcement of social policy issues such as environment and labor. What I wonder is, would the U.S. agree to these sorts of provisions if they were designed to hold the U.S. government, and U.S. actors, accountable in these areas? Climate change would be an example where perhaps some other countries would be pushing the U.S. to do more than has been done so far; and "right to work" laws in certain states have been raised by trading partners in the past. If this kind of enforcement is a good model in general, does the Biden administration think it is a good model to apply against the U.S.? Or is it only to be used against others?
Second, if this applies mostly to other countries and not the U.S., what exactly is the incentive of these other countries to sign up for the IPEF? What are they getting out of it? My best guess at this point as to what the Biden administration has in mind is private sector investment backed by U.S. government lending. But can they deliver that, and will it be enough?
And third, with regard to more traditional trade issues, would these types of enhanced accountability provisions apply, or would those issues utilize traditional DS? In the case of the IPEF, there may not be a lot of traditional trade obligations, but the digital trade rules might fall into this category. Would enforcement of digital trade rules involve this new kind of accountability, or will there be traditional DS here instead? And if there will be traditional DS, is that something Congress will need to sign off on, given that U.S. laws will now be subject to international adjudication/enforceable dispute settlement?
