International Economic Law and Policy Blog

Another Thing Spiking in 2022 America: Harm to the WTO

Friends of the World Trade Organization (WTO) experienced some distress during the US government’s 2017-2020 cycle.  They did not expect American disrespect for the WTO and its rules to reach a new, much-higher watermark in the current cycle.  But that has occurred.  Responsive commentary has been curiously low-volume so far, perhaps because of “outrage fatigue” and perhaps because the latest U.S. affront to the WTO is in the form of an environmental measure.  Some additional volume is appropriate, because American harm to the WTO enterprise has spiked with the enactment of an electric vehicle (EV) provision in the 2022 budget reconciliation bill known as the Inflation Reduction Act (IRA).

Sitting alongside other EV-related provisions in IRA is one that makes generous purchase subsidies, aimed at promoting transition from gas-powered to electric vehicles, available only in respect of EVs assembled in North America.  This incentive is delivered through the tax system rather than at point-of-sale as in the case of the 2009 “Cash for Clunkers” program, but it changes a vehicle’s effective purchase price on a dollar-for-dollar basis.

This measure is quite explicitly WTO-inconsistent.  It violates National Treatment (GATT Art. III) as it accords to imported EVs treatment less favorable than that accorded to like domestically-assembled EVs.  It violates MFN (GATT Art. I) as it accords to EVs assembled in the territory of other WTO Members treatment less favorable than that accorded to EVs assembled in Canada/Mexico.  And in regard to the WTO’s subsidy rules, it makes access to a consumption subsidy contingent on the purchaser choosing a domestically-assembled rather than imported EV; this is one of two types of subsidies that WTO rules categorically prohibit.

US officials may believe that these discriminatory aspects were necessary politically, in order to get an EV incentive passed.  That argument may get some (limited) traction in the court of public opinion, but it will be useless in the event of a legal challenge if the United States seeks to justify its GATT breaches by invoking GATT Art. XX.  Compressing the analysis quite a bit, the core problem is that the nationality-based element makes this measure a less, not more, potent consumer incentive for transitioning to EVs.  It therefore interferes with, rather than being essential to, the articulated US objective of spurring transition.  So even if the EV measure could be provisionally justified under one of the GATT Art. XX indents (not guaranteed), it would plainly fail the test imposed by the GATT Art. XX chapeau.  The nationality-based trade-restrictive element is not only unnecessary; alternative measures lacking this element would contribute more strongly to meeting the claimed objective.

These WTO legal considerations were and are well-known to the officials who worked on the IRA in the administration and on Capitol Hill.  They did not blunder into a WTO breach.  During prior U.S. government cycles, enactment of such a provision would have been hugely improbable.  Chairs, Ranking Minority Members and Committee Staff at the Senate Finance and House Ways & Means committees have always regarded it as their obligation to call out, and try to purge, any WTO-inconsistent elements of pending legislation long before the time of floor consideration.  When WTO-inconsistent proposals have somehow worked their way into bills that cleared one or both chambers, that fact has ordinarily been considered to justify a veto threat or a veto.  As a result, it has long been possible to proudly observe that the United States does not knowingly and intentionally put new WTO-breaching legislation into effect.  It might sound mundane, not a proper subject for giving out medals, but this is in fact one of the key ways that international trade agreements deliver value over time to the countries that have negotiated and approved them.  The agreements act as a filter on new measures and help to ensure that applied trade policies at the national level generally evolve in a liberal, rather than illiberal, direction.

That didn’t happen here.  The EV provisions in question were largely authored by Majority committee staff in consultation with administration officials.  The filters not only didn’t filter; they wrote the bill.

You don’t have to feel any particular way about climate change, or about government leadership in promoting an EV transition, to appreciate that this is significant.

No national public conversation has ever occurred in America about carbon control and the WTO.  In the commentariat, some have long insisted that WTO rules were incompatible with timely/effective carbon control action, and would have to be either rewritten or simply breached.  Others have contended that it makes sense to discover how much effective action we can achieve WTO-consistently, and negotiate internationally for additional “policy space” only if events prove that to be necessary.  One could imagine a US administration using its convening and bully pulpit powers to turn that academic debate into something larger and more accessible … with a view to achieving at least more predictability and ideally some level of public understanding and acceptance.

Again, that didn’t happen here.  If Congress even momentarily considered WTO-consistent EV incentives, it left no record of that consideration.  The same is true of the administration.  The result was a knowing, explicit, legislated breach of the WTO’s most central non-discrimination obligations.

Could this really be worse than what happened during the USG’s last cycle?  Let’s compare.  Apart from periodic Presidential insults and tweeted ad hominem attacks, WTO supporters had three main grievances.

The US administration implemented Section 232 import relief on steel/aluminum and when challenged at the WTO invoked a GATT Art. XXI defense; many saw the latter as a clearly unacceptable stretch of the national security exception.  The US administration also asserted that access to the GATT Art. XXI defense is self-judging; while this stance reflected longstanding conventional wisdom, at least in the United States, some WTO supporters saw actually articulating it before a panel as an “anti-WTO” thing to do.  Comment:  With the “self-judging” argument having been rejected in a separate WTO case, the US 232 measures may be held ineligible for a GATT Art. XXI defense.  How the United States responds in that scenario could have systemic implications.  The acts already taken – applying 232 measures, invoking GATT Art. XXI, and contending that a GATT Art. XXI claim is non-justiciable – are not especially harmful to the WTO itself and do not reflect a high level of disrespect for the Organization’s rules.  Also, this whole endeavor was a purely administrative action by the United States, attracting much more opposition than support on Capitol Hill.  (And it has been left in place, which by now means affirmatively embraced, by the current US administration.)

The US administration implemented Section 301 tariffs on products from China, consciously exceeding tariff bindings (hence breaching WTO rules) with respect to products of that country.  Comment:  I look at this as taking a bilateral fight out to the parking lot, with the result (among other things) that there ought to be less damage to breakable furnishings inside the building.  It is unfortunate that things have deteriorated so significantly, but there was not a particularly WTO-friendly path for this confrontation to follow.  The US-China trade relationship is effectively no longer WTO-based.  The possibility that would happen to a particular bilateral relationship has always existed – see the Uruguay Round Statement of Administrative Action on Section 301(b) – and indeed is baked into the WTO treaty structure which recognizes that any Member can breach particular obligations and accept WTO-authorized countermeasures of equivalent commercial effect.  No country would have joined a WTO which did not, or purported not to, allow such tactics.  The US administration did not contend that its actions were WTO-consistent, and therefore did not express disrespect for (any or all of) the WTO’s substantive rules.  Also, and again, this whole endeavor was and remains a purely administrative action.

The US administration stopped joining consensus on approval of new appointments to the WTO Appellate Body (AB), eventually rendering that WTO organ non-operational.  Comment:  The harm to the WTO itself associated with shuttering the appellate part of dispute settlement is unknowable at this point.  Dispute settlement continues, and formal adoption of panel reports continues though not universally.  Negotiations and committee work also continue.  If you think the principal virtue of the WTO involves legal-norm-articulation and rule-of-law bolstering – in other words, if you look at things through a lawyer’s prism – you might see what has happened as hugely undermining.  If you are more concerned with practical matters such as the balance of concessions, the propagation of best practices through WTO committee processes, etc., then you might not miss the appellate level of dispute settlement much at all.  My own view is that far more damage to the WTO enterprise was authored by the WTO adjudicators engaging in over-reach for 25 years than by the reaction that over-reach predictably generated.  Additionally, as the rules involved here are purely procedural, what the United States has done cannot be seen as an attack on the Organization’s core substantive disciplines.  Indeed, the USG’s chosen tactic was to use a procedural rule (the consensus requirement) and therefore amounts to “painting within the lines” even if in an unexpected and infuriating manner.  Lastly, and like the other two cited examples, this hiatus on AB approvals was and remains a purely administrative US action.

My purpose here is not to try to get inside anyone’s head and, for example, compare one US President’s actual quantum of respect for the WTO (and its rules) with another’s.  Rather, the point is that objectively, the US government as a whole has now inflicted more damage on the WTO in the current cycle.  Public comment so far (scant as noted above) has tended to focus on the combination, i.e., the fact that the current USG has both embraced the WTO-disrespecting actions of the prior one and enacted the EV provision.  They see this as signaling that parochialism in US trade policy is not temporary and that statements of American dedication to multilateralism cannot be relied upon.

I think this account, accurate enough in its punch-line, understates the EV provision’s significance.  Yes, disrespect for international obligations was already above historical norms, but the EV provision represents what Bridge players call a jump-shift.  Unlike prior US actions, it is a body-blow to the WTO for many reasons but two especially:  (1) because it was consciously enacted by the USG’s two political branches acting in concert, and (2) because it so clearly signals that the USG does not consider WTO-consistency as a relevant filter when new policy and legislation are being developed.  Nothing we might do (or might have done) administratively in regard to AB appointments, or in regard to a particular bilateral trade relationship, or in regard to “national security”-based trade restrictions in a couple of sectors, could be as systemically impactful.

That the offending measure is an environmental one should not make WTO supporters (among whom I count myself) any less concerned.  The WTO rules pertinent to behind-the-border measures apply to – and codify guardrails for – environmental just as much as other types of measures.  Environmentally-themed protectionism is not necessarily more virtuous than other sorts of protectionism.  Most important, WTO-indifference displayed in one context cannot easily be limited to that context; it broadcasts a wider message.  A WTO whose core substantive rules a major founding Member displays no compunction about explicitly violating, in enacting new legislation, is a WTO with little potential to deliver value by shaping national behavior.

WTO flouting of course has never been an exclusively American pastime, and just during the time period being discussed there have been some priceless non-US examples.  In a world where the United States can get blamed for just about anything regardless of its actual degree of responsibility, one hears charges that the national officials involved were simply walking through a door that America had swung open.  If you subscribe to that narrative, then you should be especially worried because with the EV provision we have now quadrupled the width of that open door.

DSU Article 25 Arbitration: A Long-Term Solution for the Appellate Body Crisis?

To date, proposals for the reform of WTO dispute settlement have focused on institutional improvements of the AB, as represented by the Walker proposal, or possible replacement of the two-tier adjudication with one-tier adjudication by a standing body of full-time panelists, as suggested by Hoekman and Marvroidis (“To AB or Not to AB: Dispute Settlement in WTO Reform” 23 JIEL 703 (2020)). But the successful use of Article 25 arbitration for appellate review in Turkey–Pharmaceutical Products has raised a third possibility: instead of serving merely as a stop-gap measure, Article 25 arbitration could be structured for WTO appellate review on a permanent basis. Significantly, this third possibility appears to have the explicit support of the United States. As reported in this Blog, the US said: “If a Member supports dispute settlement reform, then a bilateral arrangement presents a unique opportunity to explore alternative approaches.” This positive attitude of the US is in stark contrast with its general silence on other reform proposals.

Compared to the other two proposals, Article 25 arbitration has some potential advantages. First, it may bring WTO appellate review back closer to its original design. As is well known, the Uruguay Round negotiators established an appellate review mechanism to ensure that “fundamentally flawed” panel reports would not be adopted automatically under the negative consensus rule of the DSU. With this goal in mind, the negotiators did not expect that recourse to appellate review would be frequent. But subsequent WTO practice has proven otherwise. Because appeal is part of the compulsory adjudication, the losing party at the panel stage would be tempted to exhaust available remedies. The expectation that a panel decision would be subject to the scrutiny of the AB led to a tendency toward overlitigation, resulting in substantial delays in dispute settlement. In contrast with the compulsory adjudication by the AB, Article 25 arbitration is voluntary and consensual in nature. In a system of voluntary dispute settlement, parties respond to incentives different from those in a system of compulsory adjudication. They are more likely to settle differences through negotiation than litigating every issue before the tribunal. Consequently, under DSU Article 25, resort to appellate review may become less frequent and resolution of disputes more expeditious.

Second, Article 25 arbitration is inherently more flexible than a standing AB. Such institutional flexibility is needed to ensure that major legal errors be corrected rather than cemented into WTO jurisprudence. Judges are fallible humans and must be allowed to make mistakes. The key is for the system to have a mechanism to correct mistakes. Unfortunately, such a mechanism does not exist at the WTO. In theory, the Members may overrule the AB by adopting an authoritative interpretation of WTO provisions (per WTO Agreement IX:2). But in practice, this is unlikely ever to happen. As a result, the task of rectifying mistakes fell onto the AB itself. However, for whatever reason, the AB in its 25-year existence never acknowledged making any error, let alone providing self-correction. Instead, the AB insisted on treating its rulings as de facto precedent. Such insistence may have eroded the flexibility necessary to maintain a balance between law and political constituencies of the system. In contrast with the standing appellate body, Article 25 arbitration will be conducted by arbitrators on an ad hoc basis. The arbitrators will not have the same power and authority as the AB. Consequently, it would be possible for one panel of arbitrators to disagree with another on the same issue, or for a WTO panel in a subsequent case to disagree with the appeal arbitrators in a prior case. While such disagreement might create some inconsistencies in case law, over time the better reasoning could emerge and be accepted as the proper precedent.

Thirdly, compared to the other proposals, adopting Article 25 proceedings for appellate review would require fewer changes to the existing system. Substantively, all that would be required for amending the DSU would be to delete the single provision on the Appellate Body (Article 17), while the panel proceedings and the negative consensus rule on the adoption of panel reports would all be kept intact. Technically, it would be necessary also to delete all other references to the Appellate Body in the DSU, and to adjust Article 16.4 (the adoption of panel reports) so as to clarify that “appeal” would be available via Article 25. This adjustment could be made by adding a simple footnote to Article 16.4, so the provision would read as follows:

4. Within 60 days after the date of circulation of a panel report to the Members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal* or the DSB decides by consensus not to adopt the report. If a party has notified its decision to appeal*, the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal*. This adoption procedure is without prejudice to the right of Members to express their views on a panel report.

            * The appeal of a panel report may be made via arbitration under DSU Article 25.

With this amendment, it would not matter whether a particular Member, such as the United States, would choose ever to use Article 25 arbitration itself, since any panel report not submitted to appeal arbitration would be automatically adopted by the DSB. Given the minimum changes required to amend the DSU, it could be easier for the 164 Members to reach consensus, which is a legal requisite for any DSU amendment (per Article X:8 of the WTO Agreement).

On the whole, Article 25 arbitration seems a possible compromise between the reinstitution of the AB, which the US has resisted, and a new system of one-tier adjudication by permanent panelists, which may not satisfy many other Members. There are, however, major institutional issues to be addressed. One is the pool of potential arbitrators. In principle, the disputing parties have control over the selection of arbitrators. In Turkey-Pharmaceuticals, the parties decided that the three arbitrators should be picked through a random selection from a list of former AB members and ten MPIA arbitrators. If Article 25 appeal arbitration were to become “institutionalized”, how should the pool of arbitrators be determined? Another issue is the role of the WTO Secretariat. In Turkey­–Pharmaceuticals, the arbitrators were apparently assisted by the Secretariat, but presumably not by the same staff that had assisted the Panel in this case. Recall that the MPIA participants requested that the WTO provide separate secretarial support to the MPIA arbitrators so as to ensure the quality and independence of the proceedings, but the US opposed that request as it perceived the MPIA to be an attempt to create a substitute AB. Again, if Article 25 appeal arbitration were to become “institutionalized”, how should the arbitrators be assisted by the WTO Secretariat? In this regard, the analysis and suggestions by Joost and his coauthor in their recent AJIL article deserve special attention.

MPIA Update: Another Article 25 Arbitration Appeal Likely Coming Soon, New Dispute Sees Procedures Agreed

There are two new developments with the MPIA.

First, Australia and China have agreed "to enter into arbitration under Article 25 of the DSU to decide any appeal from any final panel report as issued to the parties in dispute Australia – Anti-Dumping and Countervailing Duty Measures on Certain Products from China (DS603)." That dispute is a long way from a panel report, though, with the panel just having been composed on September 5.

Second, it looks like another DSU Article 25 appeal arbitration might be coming soon. On September 16, the panel in Colombia - Anti-Dumping Duties on Frozen Fries from Belgium, Germany and the Netherlands (DS591) issued a communication in which it indicated that the final report had been issued to the parties on August 29. The panel said that on September 12, it received a communication from Colombia requesting the Panel to suspend its work in the dispute in accordance with Article 12.12 of the DSU, in order to facilitate arbitration under the Agreed Arbitration Procedures. Upon receipt of this request, on September 13 the Panel instructed the WTO's Dispute Settlement Registry to "transmit immediately the original English language version of the final Panel Report … to the pool of arbitrators." (The pool of arbitrators is here.) The Spanish and French translations were transmitted on September 16, and on that date the Panel granted the request to suspend the panel proceedings.

Under the Agreed Arbitration Procedures, "[t]he arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 20 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect." So, unless there is a settlement here, it seems as though we will see a notice of appeal filed in the coming weeks. And, of course, "the Notice of Appeal shall include the final panel report in the working languages of the WTO," which is when we in the general public get to see the report.

This dispute will be an interesting test of how DSU Article 25 arbitration appeals handle trade remedy disputes. Trade remedies are a sensitive area, and one of the main issues that led to U.S. objections to the Appellate Body. How much deference will the MPIA arbitrators give to the panel and to domestic anti-dumping authorities? That is something many people, including U.S. government officials, will be watching closely.

And the dispute will also be interesting because it's the first MPIA appeal. The Turkey - Pharmaceutical Products DSU Article 25 arbitration appeal was an ad hoc appeal arbitration because Turkey is not a party to the MPIA, but the Frozen Fries dispute will be a full-fledged MPIA case. The Agreed Procedures in the case say that selection of the MPIA arbitrators will take place as follows:

The selection from the pool of arbitrators will be done on the basis of the same principles and methods that apply to form a division of the Appellate Body under Article 17.1 of the DSU and Rule 6(2) of the Working Procedures for Appellate Review, including the principle of rotation.⁴

⁴ However, at the request of a party to a dispute, any member of the pool of arbitrators who is not a national of a participating Member shall be excluded from the selection process. Two nationals of the same Member shall not serve on the same case.

(As far as I can tell, neither element of the footnote applies here.)

Rule 6(2) of the Working Procedures for Appellate Review says:

The Members constituting a division shall be selected on the basis of rotation, while taking into account the principles of random selection, unpredictability and opportunity for all Members to serve regardless of their national origin.

Which 3 of the 10 arbitrators in the pool will make it through the random selection process? My understanding is that everyone in the pool has been working hard to prepare for the possibility of being put to work, and they should soon have an opportunity to show us what the MPIA can do.

Enforcing the IPEF: Unilateralism and Incentives vs. Adjudication

This is from an Inside US Trade article from last week:

Members of the Indo-Pacific Economic Framework for Prosperity agree on a need to pursue binding commitments, ministers told Inside U.S. Trade last week, but those commitments likely will differ from those in other trade arrangements as countries consider self-enforcing and incentive-based rules.

Philippine Trade and Industry Vice Minister Ceferino Rodolfo is one of the proponents of an incentive-based approach rather than the punitive system enshrined in traditional trade agreements. Rodolfo told Inside U.S. Trade that "binding commitments" could mean IPEF-compliant countries are the ones allowed to participate in regional supply chains. Conversely, countries that aren't living up to IPEF provisions would be left out.

I would like to hear more details about all this, but if I understand what is being suggested in the article, I see some problems with this approach, as follows.

When you are dealing with tariffs, it is often very clear whether a particular government measure is in violation of a trade agreement. There may be some instances where there are questions about customs classification or something similar, but most of the time, compliance with the obligations is easy to judge: Either the tariff exceeds the bound rate or it does not.

By contrast, with obligations that are based on substantive legal principles and their various exceptions, compliance can be difficult to determine. In most cases where compliance questions arise, the parties will disagree about whether the measure is in compliance. In these circumstances, adjudication is helpful in making a definitive determination that everyone can accept.

IPEF won't have any tariff reductions. Instead, it will focus on substantive obligations that apply to domestic laws, regulations, and practices. As a result, there are likely to be disagreements about whether particular domestic measures are in compliance with IPEF, and without adjudication it is going to be a challenge to determine whether compliance exists.

If I understand the IUST quotes above, the current vision for IPEF is that determinations of compliance are going to be unilateral. Thus, if the U.S. is concerned about the actions of one of the other IPEF parties, the U.S. would on its own make a determination about whether the other party is in compliance. The U.S. would then use "regional supply chains" as the incentive to enforce its judgment. That is, having determined that the other party was not in compliance, the U.S. would not let that country participate in a particular supply chain initiative it was developing. I'm not completely sure what that would mean, but what it could mean, to take an example, is that if there were U.S. government financing being offered for the production of a raw material or product in an electric vehicle supply chain, producers from that other party would not be eligible for the financing.

Could this approach work? It depends what we mean by "work." 

Would it provide a short-term incentive to comply with U.S. demands related to IPEF compliance? I see how it could. If the carrots being offered are attractive enough, there would be an incentive to comply. But over the long-term, how will other parties feel about these sorts of unilateral judgments and demands, which will have an impact on their domestic policies that are affected by the substantive obligations of IPEF (e.g. the domestic regulation of digital policy or environmental policy or labor policy)? They might not like it very much.

And does this approach work for everyone? It comes across as unequal and imbalanced, as it is likely to be enforced by the United States but not by others. It's hard to see, for example, Australia and Japan using this kind of enforcement against each other.

As a result, I'm not sure how durable this kind of approach to enforcement would be. While other parties may be saying positive things now about the theoretical idea of such a mechanism, would they like it being applied to them in specific cases of enforcement? Maybe not. On the other hand, whether any of these obligations would actually be enforced seems very far off at this point; and perhaps people are not expecting an aggressive use of such an enforcement mechanism. 

If the idea here is that if other countries just join the IPEF club they can get access to regional supply chain initiatives, I see how this vision of IPEF can get off the ground. I'm just not sure how enforcement of the club rules will go if it turns out people are interpreting the obligations differently.

CfP: A deep dive into the legal world of Trade and the Environment

This call for papers comes from the co-editors of The quest for a Greener tomorrow! A deep dive into the legal world of Trade and the Environment:

This book project seeks articles, essays, research papers, legislative comments or case commentaries from interested participants on the following potential sub-themes, -

• The historical trade and environment debate: Is environment on the trade table justified?
• Environmental provisions in the new trade agreements: Are potential questions for the future sufficiently addressed?
• Multilateral Environmental Agreements and Free Trade Agreements: where does the answer lie?
• Developing economies and environmental protection: Better policy models for adequately addressing climate concerns
• Island nations at risk from climate change: questions of responsibility
• The WTO and Sustainable Development Goals (SDGs)

The word limit for a full paper along with an abstract is 3000 – 5000 words (excluding footnotes) submitted in MS Word Format. Articles upto 5000 words (excluding footnotes) would also be considered. Legislative comments or case commentaries up to 3000 words may also be considered.

For full details, please see the call for papers here. 

For further queries, the co-editors can be contacted, -

Dr. Ankit Awasthi Assistant Professor, Hidayatullah National Law University, Raipur, India. Email: [email protected] Mobile: 7355235075

Ms. Stuti Toshi HNLU (2011-2016); MILE, World Trade Institute (2016-17) Senior Research Fellow (legal) deputed to work with the TBT/SPS/TRIPS Desk, Trade Policy Division, Department of Commerce, Ministry of Commerce and Industry, Government of India; from the Centre for WTO Studies, Indian Institute of Foreign Trade. Email: [email protected]

China Trade Monitor Post on Banned Fish Products and USMCA

China Trade Monitor is subscriber-only, but our recent post entitled "China-Mexico Trade in Banned Fish Products under Discussion in USMCA" has a tuna-dolphin/shrimp-turtle feel to it and thus may have broad appeal, so I thought I'd open it up to everyone. Here's the intro:

Illegal fishing has led to trafficking in products of an endangered fish, with consequences for an endangered porpoise that swims near it. The trade in these products has been from Mexico to China, with the United States sometimes in the middle, and Mexican, Chinese, and American officials have been talking to each other about the issue in various fora. The latest developments involve two processes under provisions of the United States-Mexico-Canada (USMCA) trade agreement.

Read the whole post here.

The Latest Effort To Clarify FET and Indirect Expropriation

Over at Investment Arbitration Reporter, Damien Charlotin has a piece about a draft text developed by Germany and the European Commission to clarify the interpretation of the obligations on fair and equitable treatment and indirect expropriation in CETA.

The draft text document is characterized as a "Draft Decision of the CETA Joint Committee." For now, I don't see this draft decision anywhere other than behind IAReporter's paywall, so I don't feel like I should post the whole document here. But here's one example of language that would be added through the draft decision:

c) For greater certainty, a measure or series of measures constitute “manifest arbitrariness” in the meaning of the Article 8.10.2(c) if:

- it does not contain the reasons on which it is based;
- it is patently not founded on reason or fact;
- it is based on unreasonable discretion, prejudice or personal preference; or
- it is taken in wilful disregard of due process and proper procedure.

This latest effort to clarify these obligations gives me a feeling of déjà vu. Back in 2014, I did a post about a leaked CETA text in which I said: "With each attempt to clarify the 'minimum standard of treatment' in investment obligations, the scope becomes less clear to me." I have the same feeling this time. For instance, what exactly do they have in mind with "personal preference"? Doesn't personal preference play a pretty big role in the formulation of government measures, at least on the legislative side?

The primary response to complaints about the broad scope of FET and indirect expropriation has been to add words that are intended to clarify the scope. But as noted above, these added words often raise new questions about the scope. What I think might be more helpful is if drafters provided examples of government measures and actions that they believe should be covered by the provision. What's a real world example of the problem they are trying to address here? When I've raised this question in the past, investment law experts have pointed to specific ISDS cases, but my question is directed at the drafters. What specifically are they concerned about here?

Law prof Ben Heath has his usual good Twitter thread on these issues here.

Katherine Tai on Policy Space and Sovereignty

This is something U.S. Trade Rep. Katherine Tai said at a Carnegie Endowment for International Peace event last week:

There often is a tension between how international trade rules interact with our own domestic policies and regulations. International trade rules tend to discipline what countries can do and there's a natural friction point with domestic policymaking. For Democrats, we talk about this often as the need to preserve and retain policy space when we are negotiating trade rules to ensure that trade rules are not unduly taking away the jurisdiction for domestic policymakers, especially in a democracy. For Republicans, you often hear concerns around sovereignty and how sovereignty interacts with international trade rules. And you unpack those sovereignty concerns, they end up being very, very similar.

In my view, the core trade principle of nationality-based non-discrimination doesn't constrain policy space or sovereignty very much, and if we stick to that, there is not much friction with domestic policy-making. The friction mainly arises from trade rules that go beyond nationality-based non-discrimination. Here are a few examples:

-- intellectual property protection

-- fair and equitable treatment / indirect expropriation in investment protection rules, enforceable through ISDS

-- SPS rules that require a scientific basis for domestic regulations

-- certain digital trade rules

-- labor rights protections

-- environmental protection

These kinds of rules in trade agreements come from a number of places, but the U.S. is certainly a leading source. In terms of U.S. politics, Republicans push for some of these rules, Democrats push for others. And of course the compromise is that just about everything is included (we shift back and forth about which are being pushed hardest at any given moment).

So perhaps the message someone needs to take to the folks who are upset about the intrusion of trade rules on domestic policy space and sovereignty is: This is the policy you asked for. Now, some of those complaining are people who voted against trade agreements, so they are not responsible. But there are others I can think of who seem to want trade rules that infringe on other countries' policy space or sovereignty but not on American policy space or sovereignty. One example may be farm state legislators who want trade rules that can stop foreign governments from adopting specific food safety regulations, but then get upset when those rules interfere with their ability to legislate.

Do Appeals Have To Go into the "Void"?

Reading over some DSU provisions again, I wonder if there is an argument that appeals need not go into the "void" in the absence of the Appellate Body, at least not permanently.

DSU Article 16.4 says: "If a party has notified its decision to appeal, the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal." Thus, a decision to appeal delays the adoption of a panel report until the appeal has been completed.

And Article 17.5 says: "In no case shall the [appellate] proceedings exceed 90 days." In other words, the delay in adoption is expected to be a brief one.

It is worth noting here that Article 16.4 doesn't say, "the report by the panel shall not be considered for adoption by the DSB until after an Appellate Body report has been circulated." Rather, it refers to "completion of the appeal": After the appeal has been completed, the panel report report shall be considered for adoption. So, a notice of appeal starts the delay in adoption, and completion of the appeal ends the delay.

Importantly, Article 17.5 puts a time limit on appeals: 90 days is the maximum. Of course, sometimes appeals do go longer (and this is one issue the U.S. has been complaining about), but the parties in a particular dispute should be able to prevent this. If there are good reasons for an extension, the parties will go along with a delay, but I would think that in most circumstances, either party could insist that the report be circulated within 90 days. The WTO is a member-driven organization after all.

Taking into account both of these provisions, when 90 days have elapsed since the notice of appeal, if both parties have not agreed to an extension in the time period, it seems to me there is an argument that the appeal proceedings are completed, whether or not an Appellate Body report has been circulated (and whether or not an Appellate Body even exists).

As a result, instead of letting a dispute go into the "void" when a Member appeals in the absence of the Appellate Body, perhaps the other Member who is a party to the dispute could just put the panel report on the DSB agenda for adoption after the 90 day appellate period is over, based on the view that the appeal has been completed. This approach would eliminate (void?) the void.

In support of this argument, we could add context such as Article 3.10, which says: "... if a dispute arises, all Members will engage in these procedures in good faith in an effort to resolve the dispute." Is appealing into the void really "good faith"?

And we could question whether there can even be an appeal in circumstances when there is nobody to hear the appeal.

Is this interpretation of the DSU a bit of a stretch? Maybe. But under the current interpretation, Members can appeal panel reports to an Appellate Body that doesn't exist, thereby preventing a final decision in a dispute for ... well, for a long time so far. To me, interpreting the DSU in a way that allows a void to open up and swallow most of WTO dispute settlement is just as much of a stretch, if not more.

UDPATE:

In a comment to this post, someone pointed out that something along these lines happened in the Morocco - Exercise Books case. Maybe I missed that entirely, or maybe I just forgot about it. Either way, here's a brief rundown from the DSB minutes.

August 30, 2021 - Tunisia raises Article 17.5

7.2. ... Tunisia recalled that on 27 July 2021, the Panel had circulated its report to WTO Members, the conclusions of which confirmed the basis for Tunisia's claims under Articles 2.2, 2.2.2, 2.4, 3.1, 3.2, 3.4, 3.5 and 5.3 of the Anti-Dumping Agreement. The following day, Morocco had notified its decision to appeal under Article 16.4 of the DSU in a Notice of Appeal circulated in document WT/DS578/5. Morocco did not, however, provide an appellant's submission "on the same day as the date of the filing of the Notice of Appeal", contrary to Rule 21(1) of the Working Procedures for Appellate Review. In response, Tunisia, which would have liked Morocco to comply with the conclusions of the Panel Report, was obliged to submit a letter on 16 August 2021, stating that it was not in a position to respond to Morocco's arguments, as Morocco had not provided its appellant's submission within the required time-frame. Tunisia was entitled, pursuant to Article 16.4 of the DSU, to request the adoption of the Panel Report in this dispute in accordance with the negative consensus rule. Furthermore, in Tunisia's view, this right might be suspended should Morocco decide to appeal. In that case, the Panel Report shall be adopted after "completion of the appeal", as set out in Article 16.4 of the DSU. For that reason, Tunisia was not requesting at the present meeting that the DSB adopt the Panel Report in this dispute. However, the suspension of Tunisia's right to request the adoption of the Panel Report was not boundless. In particular, Article 17.5 of the DSU provided for a general time-frame of 60 days for completion of the appeal, and the last sentence stated that "[i]n no case" shall the appeal proceedings "exceed 90 days". Therefore, and in light of Tunisia's reading of Article 17.5, the "completion of the appeal" referred to in Article 16.4 could not exceed 90 days from notification of the decision to appeal. It followed, therefore, that the suspension of the right to request the adoption of the Panel Report had to be lifted 91 days after the date of formal notification of appeal. From that point forward, either party should be entitled to request the adoption of the Panel Report in accordance with the negative consensus rule. Morocco had notified its decision to appeal on 28 July 2021, such that the 91st day would fall on 27 October 2021. Therefore, Tunisia would be able to request that the DSB adopt the Panel Report at its meeting on 29 November 2021. Nevertheless, Tunisia, which had spared no effort in seeking the conclusion of this case, intended, before 29 November 2021, to exhaust all available means to resolve this dispute. In order to do so, Tunisia hoped that the Chair would agree to convene a meeting with the parties as soon as possible with a view to reaching an agreement under his leadership, either on the merits of the dispute or on an ad hoc appeal procedure. Tunisia hoped that his prompt involvement would be very useful in reaching common ground in this dispute

September 27, 2021 - Morocco responds, EU weighs in

Morocco:

7.2. ... Once a Notice of Appeal was filed with the DSB, the adoption of the panel report was automatically suspended, pursuant to Article 16.4 of the DSU. The DSB could no longer consider such a report for adoption until after the completion of the appeal. Therefore, until such time as the Appellate Body circulated its report, adoption of the Panel Report depended neither on Tunisia nor on the DSB, including the Chair of the DSB. For that reason, the request made by Tunisia for the Chair of the DSB to become involve could not be justified, since the DSB Chair had no jurisdiction over this report. Contrary to Tunisia's claim, there was no provision regarding the automatic adoption of a panel report if the deadline for completion of an appeal under the DSU had expired. Moreover, the DSB Chair did not have the right to place such a panel report for adoption on the DSB Agenda. In Morocco's view, Tunisia's statement demonstrated a subjective and extraneous reading of the DSU provisions. If Tunisia's interpretations were accurate, the Appellate Body deadlock would not in any way have affected the functioning of the WTO dispute settlement system since panel reports would have been automatically adopted 90 days after the date of filing of the Notice of Appeal. This would be irrespective of whether such reports were reviewed by the Appellate Body. Morocco had not violated Rule 21(1) of the Working Procedures for Appellate Review since it had not filed a written submission. That would be done in accordance with the Appellate Body's working procedures once the Appellate Body became operational. The Panel Report was subject to an appellate review. Pursuant to Article 16.4 of the DSU, the Report shall not be considered for adoption until after completion of the appeal. Thus, consideration by the DSB of a report whereby an appeal had not been completed would be a clear violation of Article 16.4 of the DSU. Consequently, the report in question was outside the purview of the DSB and the DSB Chair. Tunisia's proposed reading of the provisions of the DSU had serious systemic implications for the rights and obligations of the parties to this dispute. Morocco was and remained ready to settle this dispute with Tunisia through bilateral consultations, but was opposed to the proposed mediation by the DSB Chair. As Morocco had indicated on several occasions and most recently to Tunisia, technical consultations at the bilateral level would allow both parties to resolve the substantive issues in this dispute.

EU:

7.6. The European Union also noted that the parties had expressed certain views on the effect of the passage of 90 days without an Appellate Body report in this case. The European Union wished to underscore that Article 16.4 of DSU was clear: "… the report by the panel shall not be considered for adoption by the DSB until after completion of the appeal". While Article 17.5 of the DSU provided for certain time-frames for appellate proceedings, it attached no procedural consequences to the fact that those time-frames were exceeded. Consequently, there was no basis in the DSU for the assertion that a panel report that was under appeal could be adopted by the DSB after the expiry of the 90-day period following the notice of appeal. This was all the more so in the exceptional circumstances where the Appellate Body was unable to function. Indeed, the lack of at least three Appellate Body members was not a legal bar to a Member exercising its right to an appeal, and this was the right of any WTO Member under the DSU. ...

Further discussions took place at the DSB meetings of October 26, 2021, November 29, 2021, December 20, 2021, and January 25, 2022. At the January 25 meeting, Tunisia's statement refers to this positive outcome:

At the present meeting, Tunisia was pleased to inform delegations that on 12 January 2022 the Moroccan trade authorities had sent a proposal, through diplomatic channels via the Capitals, for revision of the dumping margins and review of the assessment of injury and causation, based on the Panel's recommendations. The proposal, which included a recalculation of anti-dumping margins imposed on Tunisian exporters of exercise books, had been received at the end of the previous week by the Tunisian Ministry of Trade and Export Development and was under consideration by its relevant departments. The Tunisian trade authorities wished to thank their Moroccan counterparts and considered this revision to be a constructive basis for the continuation of the consultations. He noted that the Moroccan authorities were continuing their analysis of compliance with the other Panel findings, in particular those relating to injury and causation. Therefore, Tunisia welcomed the intensified level of collaboration with its Moroccan colleagues, and wished to thank the Chair of the DSB, whose good offices and involvement continued to assist the parties to arrive at a mutually acceptable arrangement as quickly as possible.

With regard to the DSU interpretation that was the subject of this post, I do see the flaws in interpreting Article 17.5 in the way I argued for. But I also think this interpretation is less flawed than one in which appeals go into the void.

Tenure Track IEL Job at Fletcher

The Fletcher School is seeking a professor of international economic law.  Posted here:  http://apply.interfolio.com/112725  

Description

The Fletcher School of Law and Diplomacy, a leading graduate school of international relations, seeks to fill a full-time faculty position in international economic law at the assistant professor level. The study of international economic and business relations is central to the Fletcher School’s mission, and intersects with many of the School’s other academic and disciplinary strengths. 

The successful candidate will be responsible for teaching, research, and graduate student research supervision, and will engage in service to The Fletcher School as well as to the broader community. The Fletcher School’s faculty is multi-disciplinary, with a focus on preparing tomorrow’s leaders with a global perspective. The successful candidate should be prepared and eager to participate in this School-wide interdisciplinary dialogue. The School undertakes research and prepares master’s and doctoral students to use the latest legal, political, economic, business, and other analytical tools, to generate pragmatic policies and make decisions that will successfully shape global events.  In addition to its flagship Master’s in Law & Diplomacy (MALD) and Master’s in Global Affairs (MGA), the Fletcher School also offers a Master’s in International Law (LLM), a Master’s in International Business (MIB) and a PhD.  

Qualifications

The candidate should have excellent expertise and research capabilities in international economic and business law, particularly with respect to international trade, international investment, and international monetary matters. Teaching experience in this field is desirable, but not required. In addition, the ability to teach courses in international legal aspects of governance, sustainability and environmental justice, technology, cybersecurity, or development would be an added benefit.  Relevant professional experience is desirable, whether in government, international organizations, business, non-governmental organizations, or academia. A J.D. or equivalent law degree is required. 

Application Instructions

Candidates should submit a cover letter, a research statement, and teaching statement, including concrete descriptions of plans for research as well as their particular interest in the position at The Fletcher School, a curriculum vitae, a list of at least three references, and any previous student evaluations.  The search committee will begin reviewing applications on October 1, 2022, and will continue reviewing until the position is filled.