International Economic Law and Policy Blog

The Frozen Fries Appeal: Permissible Interpretations under AD Agreement Article 17.6(ii)

When the Colombia - Frozen Fries MPIA appeal started up, I noted that "most of the issues are pretty basic anti-dumping ones, but there is a possibility of an important systemic issue coming up," as "[t]he panel report gets into the issue of the AD Agreement Article 17.6(ii) legal standard of review a bit."

Recall that the Article 17.6(ii) legal standard of review states:

the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

My sense is that many people find the "more than one permissible interpretation" language in the second sentence to be confusing. It clearly suggests that there may be multiple permissible interpretations, but when exactly are there multiple permissible interpretations? Treaty language is often unclear, and parties put forward competing interpretations, but how do we determine if there are multiple permissible interpretations in a given interpretive exercise?

The EU has now posted its written submission and oral statement at the hearing in the Frozen Fries appeal. In its written submission, it offers the following argument about the application of 17.6(ii):

19. The European Union disagrees with Colombia’s suggestion that the application of the legal standard under Article 17.6(ii) of the Anti-Dumping Agreement requires a panel to determine whether there are two or more permissible interpretations of a legal provision. In most cases, the conscientious application of the rules of treaty interpretation in Articles 31 and 32 of the Vienna Convention yields a single interpretation of the provision in question. It is only in cases where the application of those rules leads to two or more interpretations of the same provision of the Anti-Dumping Agreement that the second sentence of Article 17.6(ii) applies.

20. In those cases where the application of the rules of treaty interpretation in Articles 31 and 32 lead to two or more interpretations of the same provision of the Anti-Dumping Agreement, however, the European Union considers that the application of the second sentence of Article 17.6(ii) should not require a panel to choose between mutually contradictory interpretations, as Colombia seems to assume. The permissible interpretations are only those falling within a range that fits harmoniously with the terms, context, and object and purpose of the treaty. As stressed by the Appellate Body:

“the second sentence [of Article 17.6(ii)] allows for the possibility that the application of the rules of the Vienna Convention may give rise to an interpretative range and, if it does, an interpretation falling within that range is permissible and must be given effect by holding the measure to be in conformity with the covered agreement. The function of the second sentence is thus to give effect to the interpretative range rather than to require the interpreter to pursue further the interpretative exercise to the point where only one interpretation within that range may prevail. […] the enterprise of interpretation is intended to ascertain the proper meaning of a provision; one that fits harmoniously with the terms, context, and object and purpose of the treaty. The purpose of such an exercise is therefore to narrow the range of interpretations, not to generate conflicting, competing interpretations.”

21. The Panel in this dispute correctly applied the legal standard under Article 17.6(ii), whose starting point is the requirement in the first sentence to interpret the relevant provisions of the Anti-Dumping Agreement in accordance with customary rules of interpretation of public international law. Contrary to Colombia’s contentions, the legal standard under Article 17.6(ii) does not consist primarily of applying the second sentence and examining whether the authority’s determination rests on a permissible interpretation.

It is not clear whether the MPIA arbitrators in this appeal will address the Article 17.6(ii) "permissible interpretation" standard. Note that the EU argues: "The European Union must stress that Colombia’s Notice of Appeal contains no reference whatsoever to a claim of error in the interpretation or application of Article 17.6(ii) of the Anti-Dumping Agreement. Therefore, it is clear that the issue of the Panel's interpretation or compliance with Article 17.6(ii) of the Anti-Dumping Agreement is not properly before the Arbitrators in this appeal." Thus, there appears to be a procedural way out of weighing in on this difficult issue if the arbitrators want to take it.

However, if they were to address this issue, one possible approach to Article 17.6(ii) would be the following. The EU doesn't set forth its view of the specific circumstances in which there may be more than one permissible interpretation, but its reference to Articles 31 and 32 of the Vienna Convention on the Law of Treaties is helpful. Recall that Article 32 of the Vienna Convention says:  

Article 32: Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure; or

(b) leads to a result which is manifestly absurd or unreasonable.

Based on this provision, we know that there can be situations where the Article 31 treaty interpretation process "leaves the meaning ambiguous or obscure." Perhaps, then, adjudicators who are interpreting Article 17.6(ii) could use this language to inform the meaning of "permissible interpretation." In this regard, if the Article 31 interpretation process on its own "leaves the meaning ambiguous or obscure," there could be a presumption -- either rebuttable or irrebuttable -- that multiple permissible interpretations exist. In practice, what this could mean is that where there is a high enough degree of uncertainty about the meaning of a particular provision after going through the Article 31 interpretive process, the adjudicator could find that the meaning is "ambiguous or obscure," and that there are multiple permissible interpretations of the provisions within the meaning of Article 17.6(ii). It might take a few instances of applying this standard to get a sense of when the meaning of a term or phrase or provision is "ambiguous or obscure," but over time I think we would get some clarity. 

Let me make two quick additional points.

First, in theory the Article 32 interpretive process could resolve the ambiguity or obscurity, but based on what I've seen with recourse to Article 32, that is unlikely in practice.

And second, the "leads to a result which is manifestly absurd or unreasonable" language could also be used in the same way, but to me that standard seems a little harder to demonstrate.

Guest Post: Does Economic Interdependence Yield a Peace Dividend?

This is a guest post from Michael Trebilcock, Emeritus University Professor of Law and Economics, University of Toronto

An almost timeless debate going back to philosophers in Greek and Roman times surrounds the issue of whether increased economic interdependence between and among states in the form of cross-border trade and investment, apart from its putative mutual economic benefits, also yields an enduring peace dividend. The ancients were divided on this issue, with the preponderant view generally sceptical of economic interdependence on the grounds that the coarse manners and material values of foreign merchants risked compromising the morals and civic virtues of their domestic citizens. However, even at this time there were dissenting voices. For example, the Greek philosopher Plutarch argued that resources of various kinds were unevenly distributed across the world in order to facilitate peaceful interactions among all the citizens of the world. This view was taken up by Stoic philosophers early in the first millennium, in part relying on notions of the universal brotherhood of mankind[1].

Similarly, some philosophers and legal theorists in the middle to late Middle Ages, including Immanuel Kant, Hugo Grotius, Montesquieu, and John Stuart Mill, all argued in one vein or another that increased economic interdependence yielded a form of positive cosmopolitanism that softened the hard edges of nationalism and reduced the risk of military conflict among nations. In this vein, at a time of rapidly increasing international trade and investment, a famous book by Norman Angell, The Great Illusion[2], published just before World War I, argued that wars of occupation were likely to entail horrendous human and material costs compared to mutually beneficial trade among neighbouring states. Yet World War I broke out shortly after the publication of his book, raising enduring doubts about the peace dividend from increased economic interdependence, and raising in turn the possibility that causation ran in the opposite direction-from peace, however achieved, to trade – e.g. the rise of Germany and Japan as major trading nations  post-World War II[3].

The interwar years, and particularly the Great Depression, were marked by a retreat from economic interdependence, exemplified by competitive currency devaluations and reciprocal trade restrictions eg the US Smoot-Hawley tariff, that almost certainly exacerbated the Great Depression. Another world war quickly followed, with catastrophic consequences for all its participants. However, emerging from the ashes of World War II, many countries around the world committed themselves to a “Never Again” strategy in the form of various commitments to multilateralism. On the economic front, the Bretton Woods Agreement of 1944 between the US and Britain led shortly thereafter to the formation of the General Agreement on Tariffs and Trade (the GATT, and as of 1995 the World Trade Organization), where all countries would trade with each other under a common set of ground rules, with some dispensations for developing countries adopted in the ensuing two decades, and the creation of the International Monetary Fund and the World Bank. On the broader political front, the aftermath of the war quickly led to the creation of the United Nations and its various agencies and the Universal Declaration of Human Rights in 1948, followed almost three decades  later by its human rights covenants. While a regional agreement, the emergence of the European Community in the early post-war years was also widely conceived of as a peace treaty as well as an economic treaty, where increased cross-border trade, investment and movement of people would cement the peace.

These various manifestations of multilateralism, or least broad regionalism, were widely seen as a common commitment to adherence to a basic set of common ground rules governing economic and political relationships among states. The outbreak of the Cold War between the Soviet Union and the US and its allies, with the UN Security Council largely crippled by the veto rights of its permanent members, severely compromised adherence to such a set of commitments, although international trade and investment grew at rapid rates among many other countries. The collapse of the Soviet Union in the early 1990s precipitated a renewed spirit of optimism that the world was finally converging on a common set of broad economic and political ground-rules. This spirit of optimism is reflected in widely read fin de siècle books such as Francis Fukuyama, The End of History[4], which portrayed the world as converging on a form of liberal democratic capitalism, and Thomas Friedman, The Lexus and the Olive Tree and The World is Flat[5] who popularized venerable notions of the universal economy subscribed to by some ancient and medieval philosophers in his Golden Arches thesis-that countries with many McDonald and similar universal franchises are unlikely ever to go to war with each other. Other scholars such as Amartya Sen[6], Kwame Anthony Appiah[7], and Peter Singer[8], both in their scholarship and in their personal life trajectories seek to demonstrate that relatively free movement of goods, services, capital, technology, people and ideas across borders yields a desirable form of cosmopolitanism that softens the sharp edges of nationalism and its potential for military conflict. Many commentators argued in the early years of the current century that economic liberalization in the case of China (and probably Russia) would over time also lead to political liberalization, thus mitigating the risk of future military conflict, in part reflected in the accession of China (2001) and later Russia (2012) to the WTO, on the theory often attributed originally to Kant in his book, Perpetual Peace, that democracies rarely go to war with each other. But we now turn to the contemporary context.

Russia has invaded Ukraine and threatened the possibility of nuclear conflict, and in the context of Western economic sanctions and counter- sanctions by Russia, threatened to cut off or reduce oil and gas and food supplies to Europe and other countries (despite the fact that Russia and Ukraine had many Golden Arches and similar Western franchises). China, in turn, has become increasingly authoritarian and nationalistic and has precipitated equally antagonistic reactions from some of its principal trading partners, in particular the US, entailing trade sanctions and counter sanctions, while the US during the Trump administration more generally retreated from its international commitments, such as withdrawing from the Paris Climate Change Agreement in 2015, the World Health Organization, the Transpacific Partnership Agreement, and the dispute settlement body of the World Trade Organization (along with restrictive immigration policies). While some of these decisions have been reversed by the current Biden administration, it has also imposed new trade restrictions on exports of semiconductors and similar electronic inputs to China and has not agreed to reinstate the dispute settlement body of the WTO or to rejoin the Transpacific Partnership Agreement. Trade policy via trade sanctions has increasingly been “weaponized”.  

Currently, there is much talk in Western government circles of “friend-shoring”-trading only with our political friends- which is likely to exacerbate trends evident from the early 1990s towards the fragmentation of the international trading regime into a proliferation of regional or preferential trade agreements, reinforced by the proliferation of nationalist or populist political movements in many countries around the world in recent years (including Britain’s Brexit decision to leave the EU in 2016).  “Make America Great Again” and “Take Back Control” find analogues in many such movements. This fragmentation and weakening of commitments to multilateralism more generally does not augur well for the prospects of global cooperation on such existential threats as pandemics, climate change, and nuclear conflict[9]. All these contemporary developments put in question the thesis that increased economic interdependence yields peace and related non-economic benefits for the world and augurs a depressingly bleak geo-political future, unless the early optimism that accompanied the creation of the major post-war multilateral or broad plurilateral institutions[10] can be rekindled. The Friedman Golden Arches thesis, and its more general cosmopolitan antecedents, that trade yields peace has never been under more serious challenge. The “Never Again” adage faces a perilous future.

 

[1] Douglas Irwin, Against the Tide: An Intellectual History of Free Trade, (Princeton University Press, 1990).

[2] Norman Angell, The Great Illusion, (G. P. Putnam’s Sons, 1980).

[3] Mancur Olson, The Rise and Decline of Nations (1982).

[4] Francis Fukuyama, The End of History and the Last Man, (1992).

[5] Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (2000); Friedman, The World Is Flat: A Brief History of the Twenty-first Century (2007).

[6] Amartya Sen, Identity and Violence: The Illusion of Destiny (2013); Home in the World: A Memoir (2022).

[7] Kwame Anthony Appiah, Cosmopolitanism: Ethics in a World of Strangers (2010); The Lies That Bind: Rethinking Identity (2018).

[8] Peter Singer, One World Now: The Ethics of Globalization, (2016).

[9] See Martin Wolf, “Geopolitics Is the Biggest Threat to Globalization”, Financial Times November 2, 2022, Raghuram Rajan, “Deglobalization is a Climate Threat”, Project Syndicate November 20, 2022.

[10] Wolf op cit; John Plender, “Why Trade couldn’t buy peace” Financial Times September 23, 2022.

 

Three reasons why a WTO Agreement on Investment Facilitation for Development is important, by Karl P. Sauvant

Three reasons why a WTO Agreement on Investment Facilitation for Development is important

by

Karl P. Sauvant*

After several years of preparatory discussions, negotiations on an Investment Facilitation for Development (IFD) Agreement were formally launched in September 2020. They are open-ended plurilateral negotiations, but they aim at a multilaterally applied agreement in accordance with the most-favored-nation principle. Driven by developing countries,[1] the negotiations are scheduled to be concluded by the end of this year (2022). This would indeed be very desirable, given the urgent need to increase investment to help advance the Sustainable Development Goals, the first of which is ending poverty.  

The negotiations focus entirely on a range of specific, practical measures across all sectors covering the whole investment lifecycle. They are meant to help increase foreign direct investment (FDI) flows. Specifically, the negotiations seek to “improve the transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention.”[2] Explicitly, the negotiations exclude issues related to market access, investment protection and investor-state dispute settlement.[3] While the text of the Agreement as it stood in November 2022 is not publicly available, its main elements are listed in the box accompanying this article, and it has been described in a relatively recent publication.[4] 

 

Box. Proposed Disciplines on IFD  Consolidated Text ('Easter Text')

Preamble

Section I: Scope and General Principles

- Scope of application; exclusion of market access, investment protection and ISDS; - Firewall provision (aimed at insulating the Agreement from investment agreements); - Most-favoured-nation (MFN)/non-discrimination

Section II: Transparency of Investment Measures

- Publication of measures and relevant information (including online publication) - Publication of proposed/draft measures and opportunity for comments - Single information portals - WTO notification

Section III: Streamlining and Speeding up Administrative Procedures

- General principles for authorization procedures - Processing of applications, acceptance of authenticated copies; authorization fees; submission of applications online - Independence of competent authorities - Appeal or review

Section IV: Focal Points, Domestic Regulatory Coherence and Cross-border Cooperation

- Focal points for assisting investors and persons seeking to invest - Promoting domestic regulatory coherence - Domestic supplier databases - Cross-border cooperation on investment facilitation

Section V: Special and Differential Treatment for Developing and Least-developed country (LDC) Members

- General principles on SD&T - Notification and implementation based on categorization of provisions  - Technical assistance and support for capacity building

Section VI: Sustainable Investment

- Responsible business conduct (RBC) - Measures against corruption

Section VII: Institutional arrangements and final provisions

- WTO IFD Committee - Exceptions - Dispute settlement

Source: WTO, Investment Facilitation for Development in the WTO: Fact Sheet” (Geneva: WTO, Nov. 2021).

Against this background, this note focusses on three important reasons why an IFD Agreement is important for individual WTO Members and why, therefore, all Members should join the negotiations: it helps countries to retain and attract more and higher quality FDI flows; it constitutes a credible reform commitment device that sends a positive signal to international investors; and it provides for flexibility and technical assistance and capacity building to upgrade investment facilitation. The note ends on three positive externalities the conclusion of the Agreement would generate.

1. An IFD Agreement helps countries to retain and attract more and higher quality FDI flows…

The principal determinants that influence the locational decisions of international investors are (1) economic factors that allow investors to make a profit; particularly important are such factors as the size of the market, the quality of human resources and the quality of infrastructure. Assuming the economic FDI determinants are favorable and (2) the regulatory framework for FDI is enabling, (3) investment facilitation becomes important:[5] it would directly change one of the sets of FDI determinants (by making it easier for international investors to establish themselves in host countries) and therefore increase the likelihood of higher FDI flows.

It is precisely the objective of the IFD Agreement to facilitate FDI flows, with a view toward retaining FDI and increasing incoming FDI flows and benefiting from the tangible and intangible assets associated with such investment. Countries seek to retain and attract FDI to advance their sustainable economic development. That is the principal reason for which developing countries initiated the negotiations of this Agreement and are driving the negotiations.

To this effect, the IFD Agreement identifies a number of concrete, practical measures that governments can take to facilitate FDI flows, primarily by reducing transaction costs for international investors[6] and making the re-investment[7] and investment climate more welcoming. These measures (as prescribed in the initial mandate for the negotiations cited earlier) focus on increasing the transparency of the investment framework; streamlining and speeding up administrative procedures; and enhancing international cooperation, information sharing and the exchange of best practices.

In fact, the concrete investment facilitation measures identified under these headings amount to a mini-inventory[8] and benchmark of best investment facilitation practices. Investment facilitation does, indeed, reduce transaction costs for international investors and hence can help increase FDI flows, be they undertaken by host countries regarding inward FDI or home countries regarding outward FDI. Research[9] has shown that developing countries, and especially the least developed countries (LDCs) among them, will benefit from the implementation of host country investment facilitation measures.

Moreover, the exchange of experiences and peer-learning foreseen in the Investment Facilitation Committee to be established in the WTO will offer an additional global forum to identify suitable investment facilitation measures that can be implemented by WTO Members. Given the WTO’s convening power, it can be expected that the deliberations of that Committee will be influential.

It should be noted that any improvements regarding investment facilitation benefit international investors from all countries, regardless of whether they are headquartered in signatories of the eventual Agreement or, for that matter, are members of the WTO, and regardless of whether international investors are headquartered in developed or developing countries.[10]

Moreover, in a section entitled—remarkably—“sustainable investment”[11]—the Agreement provides for responsible business conduct in accordance with applicable international principles, standards and guidelines. Particularly important here are the United Nations Guiding Principles on Business and Human Rights, the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the OECD Guidelines for Multinational Enterprises. They deal (among other things) with issues of special importance to developing countries, including employment, the transfer and diffusion of technology, taxation the environment and human rights.

Thus, the IFD Agreement recognizes that the issue is not only that countries seek more FDI, but are particularly interested in higher quality FDI.[12] Advancing sustainable development with the help of sustainable FDI[13] is of special interest to developing countries. A strong provision on responsible business conduct in the Agreement is therefore particularly important. (This would be the first time that a responsible business conduct provision would be included in a WTO agreement.)

2. …while constituting a credible reform commitment device that sends a positive signal to international investors…

It goes without saying that many of the concrete and practical measures identified in the IFD Agreement can be implemented by governments unilaterally. Many have done this, but highly unevenly so, with developing countries lagging behind.[14] It could be argued, therefore, that governments do not need to join an international agreement for this purpose.[15]

However, signing up to a WTO Agreement implies a serious and credible long-term commitment on the part of governments to actually do what they commit themselves to doing, by anchoring this commitment in a shared international approach and making it subject to dispute settlement (binding therefore also the hands of future less reform-minded governments). By actively improving one set of the FDI determinants, they increase the likelihood that FDI flows will rise.  

Moreover, having signed up to such an IFD Agreement provides governments with a lever to deal with vested domestic interests that may be opposed (for whatever reasons) to, for instance, the streamlining of certain administrative requirements. In other words, the Agreement becomes a reform tool that helps FDI-competent authorities to move forward and undertake improvements in the domestic investment environment.  

And this, in turn, sends a positive signal to international investors that value stability, predictability and the efficient treatment of their investments, and it increases their confidence in a given investment location. Committing themselves in an international Agreement to certain actions gives signatories of the Agreement an advantage in the highly competitive world FDI market when seeking to attract such investment.

Conversely, governments that are not signatories of the IFD Agreement would not benefit from the effects of such a credible reform commitment device and would not be sending a positive signal to international investors. It could even be argued that, given the non-controversial nature of the obligations in this Agreement, choosing to stay out of it would send a negative signal to the international investment community regarding a country’s commitment to transparency, efficient governance and other measures facilitating FDI flows.

3. …and providing for flexibility and technical assistance and capacity building to implement reforms…

It is of course one thing for WTO Members to commit themselves to undertake certain reforms and implement various investment facilitation measures in order to benefit from the IFD Agreement. But it is another thing to actually do so, given the implementation burden involved—and this is a particularly challenging issue for developing countries and especially the LDCs among them.

One important reason is that implementing various reforms—for example, establishing an efficient domestic focal point in the form of a one-stop shop for foreign investors—is expensive (as we know, for example, from the implementation of the WTO’s Trade Facilitation Agreement).[16] At the same time, the budgets of investment promotion agencies (IPAs)—the single most important FDI-competent institutions most likely in charge of the implementation of the Agreement—is quite limited.

More specifically, IPAs’ annual budgets, on average, are US$21 million for upper-middle-income countries, US$5 million for lower-middle-income countries and US$2 million for low-income countries.[17] The budgets of sub-national IPAs are often below US$1 million or even below US$500,000. It is clear, therefore, that FDI-competent institutions in developing countries—and especially the LDCs—will need substantial technical assistance and capacity building to implement the Agreement and hence benefit from it.

The Agreement recognizes the need for flexibility and assistance by providing for special and differential treatment of developing countries. Specifically, and first of all, it allows signatories to self-designate the pace at which they implement the Agreement’s various provisions. This creates considerable flexibility in implementing the Agreement.

Beyond that, and importantly, as part of the self-designation process, Members can identify the measures whose implementation depends on the availability of technical assistance and capacity building. To determine the need for such assistance, the WTO Secretariat—together with other competent international organizations—has already begun to develop a self-assessment tool through which Members can identify their technical assistance and capacity building needs. Hopefully, this tool will be available soon, and the need assessments can begin, including to build an investment facilitation constituency in individual Members.

It is therefore important that WTO Members in a position to do so should, as soon as possible, make a firm commitment to make substantial funds available for the need assessments and the technical assistance and capacity building support required for the implementation of the Agreement.[18] Perhaps this could be done through an updated Joint Ministerial Statement, or a statement by key donor countries. Such a statement could commit donors to provide substantial technical assistance and capacity building to developing and least developed Members that commit themselves to the implementation of the Agreement. It could perhaps be facilitated by the Co-coordinators[19] of the negotiations process. This could be done at the end of this year, when the negotiators will presumably report about the progress achieved by then, or (at the latest) in time for the WTO’s next ministerial Conference in June 2023.

Naturally, technical assistance and capacity building are only available to signatories of the Agreement.

4. …and generating positive externalities.

Beyond these three principal reasons why an IFD Agreement is important for individual WTO Members and why, therefore, all Members should join the negotiations, there are also a number of what one could call positive externalities (in the sense that the benefits go beyond those reaped by individual Members) that the conclusion of this Agreement would have:

• Most importantly in these troubled and volatile times, concluding this Agreement would show that multilateralism works: it would show that governments—in this case, led by developing countries—can agree on issues of mutual interest.

• The Agreement will set the standards—and become the model and benchmark—for bilateral and regional stand-alone investment facilitation agreements that will be negotiated in the future. The negotiations of the first-ever such agreement were concluded in mid-November 2022,[20] and more are likely to follow. It will also become the standard for national investment facilitation efforts.

• Finally, if and when concluded, the IFD Agreement negotiations show that developing countries can actively and successfully use the WTO to develop new rules and advance their interests. If the outcome[21] takes the form of a plurilateral agreement, it would also strengthen the WTO’s negotiation function and, in this manner, contribute to the WTO reform process. It may help that, among the four Joint Ministerial Statements,[22] the one on investment facilitation for development has the most signatories (over 110, including 77 from developing countries, of which 20 LDCs). In other words, the investment facilitation for development negotiations are the most inclusive[23] ones among the Joint Ministerial Statements negotiations.

-----

By way of conclusion, let me reiterate the principal reasons why an IFD Agreement is important for individual WTO Members and why, therefore, all Members should join the negotiations. The driving—and urgent—need is to increase FDI flows to advance sustainable economic development. Assuming the economic FDI determinants are favorable and the regulatory framework for FDI is enabling, an IFD Agreement helps countries to retain and attract more and higher quality FDI flows; it constitutes a credible reform commitment device that sends a positive signal to international investors; and it will provide for flexibility and technical assistance and capacity building to upgrade investment facilitation. In addition, the Agreement—a plurilateral effort toward a multilateral outcome—would generate a number of positive externalities.

In these turbulent times, during which all countries face many challenges and seek to attract FDI in the highly competitive world FDI market in order to advance their development, developing countries in particular should take advantage of the opportunities that an IFD Agreement offers. Accordingly, all negotiators should show maximum flexibility during the remaining negotiations to arrive at a satisfactory Agreement. It would indeed be desirable if the negotiations were concluded as soon as possible, so that the process of integrating the Agreement into the WTO rulebook could begin, while WTO Members begin implementing what has been agreed upon (perhaps on the basis of a provisional-application decision). There is no room for delays, given the urgent need to increase investment to meet the Sustainable Development Goals. 

 

 

* Karl P. Sauvant ([email protected]) is Senior Fellow, Columbia Center on Sustainable Investment, a joint center of Columbia Law School and the Earth Institute, Columbia University. He wishes to thank Axel Berger, Hamid Mamdouh and Quan Zhao for helpful feedback on an earlier draft of this note.

[1] For the genesis of the negotiations, driving forces and the importance of the development dimension, see Evan Gabor, “Keeping “Development” in a Multilateral Framework on Investment Facilitation for Development”, Journal of World Investment and Trade, vol. 22 (2021), pp. 41-91.

[2] WTO, “Joint Ministerial Statement on Investment Facilitation for Development”, 13 Dec. 2017. It was supported by 70 WTO Members; by November 2022, that number had risen to over 110—more than two-thirds of the WTO’s membership.

[3] Ibid.

[4] See, Sofia Baliño and Nathalie Bernasconi-Osterwalder, “Investment Facilitation Talks Among WTO Members Transition to Negotiations, Adapt to Shifting Ministerial Timeline” in Lisa E. Sachs, Lise J. Johnson and Jesse Coleman, eds., Yearbook on International Investment Law and Policy 2020 (New York: OUP, 2022), ch. 6.

[5] UNCTAD, World Investment Report 1998: Trends and Determinants (Geneva: UNCTAD, 1998), ch. IV.

[6] The focus of the negotiations (and hence the Agreement) is on international investment flows. However, domestic investors would equally benefit from, e.g., increased transparency and streamlined processes. From a development perspective, this is even more important as the bulk of investment is undertaken by domestic firms.

[7] Reinvested earnings (a component of FDI flows) can be substantial. In 2021, e.g., they amounted (for a subset of countries for which data are available) to more than half of word FDI flows; see UNCTAD, World Investment Report 2022: International Tax Reforms and Sustainable Investment (Geneva: UNCTAD, 2022), p. 5.

[8] A fuller inventory can be found in Axel Berger, Yardenne Kagan and Karl P. Sauvant, eds. Investment Facilitation for Development: A Toolkit for Policymakers (Geneva: ITC, 2022), ch. 6.

[9] See, E. J. Balistreri and Z. Olekseyuk, “Economic Impacts of Investment Facilitation,” Working Paper Series 21-WP 615 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural Development, 2021).

[10] During 2019-2021, developing countries accounted for one-third of the world’s outward FDI; see, UNCTAD, World Investment Report 2022 (Geneva: UNCTAD, 2022), p. 210.

[11] See the discussion in Karl P. Sauvant, “How Would a Future WTO Agreement on Investment Facilitation for Development Encourage Sustainable FDI Flows, and How Could It Be Further Strengthened?”, in Kabir Duggal, Gustavo Vaughn, Elora Farias, Mateo Verdías, and Gino Rivas, eds., What Does It Mean to be “Pro Arbitration”? Reflections on George Bermann’s Legacy by Columbia Law School Community (forthcoming 2022), section II.

[12] See also the work of the OECD on “FDI Qualities Indicators: Measuring the Sustainable Development Impacts of Investment”.

[13] See, Karl P. Sauvant and Evan Gabor, “Facilitating Sustainable FDI for Sustainable Development in a WTO Investment Facilitation Framework: Four Concrete Proposals”, Journal of World Trade, vol. 55 (2021), pp. 261-286.

[14] See, Axel Berger, Ali Dadkhah and Zoryana Olekseyuk, “Quantifying Investment Facilitation at Country Level: Introducing a New Index” (Bonn: DIE, 2021), p. 10.

[15] This is a point made by, e.g., N. Jansen Calamita, “Multilateralizing Investment Facilitation at the WTO: Looking for the Added Value”, Journal of International Economic Law, vol. 23 (2020).

[16] According to one study: “the estimated total costs observed in 26 developing countries and LDCs to reach full implementation of the TFA range widely, from USD 136,000 to USD 15.4 million… In PNG [Papua New Guinea], for example, the National Trade Facilitation Committee recently estimated that the total cost of the activities to be undertaken over a period of five years to meet full compliance with the TFA, would amount approximately to USD 6.8 million, of which USD 1.4 million would accrue to the PNG government and the private sector, and USD 5.5 million which would be wholly, or partly financed by foreign donors.” See, Andras Lakatos, “Challenges for implementing the Trade Facilitation Agreement,” International Trade and Economics Series, 2016, pp. 5, 6. The establishment of a single window was the most expensive provision to implement, with costs depending on how many agencies needed to be connected and how sophisticated the system was.

[17] World Bank, “State of Investment Promotion Agencies: Evidence from WAIPA-WBG’s Joint Global Survey” (Washington, D.C.: WBG, n.d.). In a 2018 publication, it was noted that “in 2018, most of them [the IPAs surveyed]  had budgets up to US$1 million”; see, Armando Heilbron and Hania Kronfol, “Increasing the development impact of investment promotion agencies”, in World Bank, Global Investment Competitiveness Report 2019/2020 (Washington, D.C.: World Bank, 2020), p. 178.

[18] As one observer asserted: “In the absence of firm commitments by donors to fund and support technical assistance and capacity building, the benefit of a WTO Framework to these states [developing country Members] is far from clear.” See, N. Jansen Calamita, “Multilateralizing Investment Facilitation at the WTO: Looking for the Added Value”, Journal of International Economic Law, vol. 23 (2020), p. 16.

[19] Ambassador Sofia Boza (Chile) and Ambassador Jung Sung Park (Republic of Korea).

[20] See, “EU and Angola Conclude First-ever Sustainable Investment Facilitation Agreement”.

[21] For a discussion of how the Agreement can be incorporated into the WTO rulebook, see Hamid Mamdouh, "Legal Options for Integrating a New Investment Facilitation Agreement into the WTO Structure”, in Axel Berger, Yardenne Kagan and Karl P. Sauvant, eds, Investment Facilitation for Development: A Toolkit for Policymakers (Geneva: ITC, 2022), pp. 43-51.

[23] Mehmet Sait Akman et al., “Boosting G20 Cooperation for WTO Reform: Leveraging the Full Potential of Plurilateral Initiatives”, T20 Policy Brief, 2021, p. 11.

The ITC Report on Distributional Effects of US Trade and Trade Policy: What about Protectionism?

Last week, the U.S. International Trade Commission released its report on Distributional Effects of Trade and Trade Policy on U.S. Workers (Inv. No. 332-587). The report had been requested by USTR, as follows: 

under authority delegated by the President to the United States Trade Representative and pursuant to Section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)), I request that the Commission conduct a two-part investigation on the potential distributional effects of goods and services trade and trade policy on U.S. workers by skill, wage and salary level, gender, race/ethnicity, age, and income level, especially as they affect underrepresented and underserved communities.

One of the parts of the ITC's analysis that I was looking forward to was an examination of how protectionism may have an unequal effect on different groups in society. As I noted here:

If I were still at a think tank, I would make this a priority project, and dive in to trying to study the negative distributional effects of tariffs, Buy America procurement, the Jones Act and other protectionist policies in general, and the negative effects on under-represented and under-served communities in particular.

In the context of the rise of Trump, there has been lots of talk about the impact of trade on "working-class whites," and people from both sides of the political spectrum have been focusing on how they can get the support of non-college educated white men in swing states. With that in mind, what I was hoping to get a sense of from the ITC report is how specific examples of protectionism, and how protectionism more broadly, may have an impact on specific groups. For example, which groups benefitted the most from the Section 232 tariffs on steel and aluminum imports imposed by the Trump administration?

The ITC's report is a long one, and I have only skimmed through it. (For a thorough, and critical, response, take a look at poli sci prof Gary Winslett's detailed comments.) As I knew I wouldn't have time to read it from beginning to end, I thought I would at least do a CTRL-F search to see what they said about "protectionism." To my surprise, that term wasn't used at all in the report. While it was clear, based on the participants in the roundtables, the symposium, and the hearing that were part of the investigation, that trade liberalization would be up for a critique in this report, I was hoping there would be more time spent on the impact of protectionism.

I will note that there was some discussion in the report of the impact of tariffs, such as cites to the always excellent work of Ed Gresser. (See, e.g., p. 94 of the report: "[Gresser] indicated that multiple U.S. trade agreements do not include tariff cuts on low-priced clothes and shoes, negatively affecting low-income communities"). But I think a broader examination of the interest groups promoting protectionism and the practical impact of protectionism, including a breakdown tied to specific groups of people who are affected, would have been useful.

When I pointed this out on Twitter, one response I got was that the word "protectionism" has an unclear meaning. As someone who complains about certain trade terms having unclear meanings, I am always open to this kind of concern, but in this case I strongly disagree. In the trade policy context, my sense is that people on both sides of the free trade vs. protectionism argument have a pretty good sense of the meaning, which is something along the lines of: "Government policies/actions intended to give domestic industries an advantage over foreign competitors." (The Dictionary of Trade Policy Terms, 1998 edition, puts it this way: "A climate of economic policy formulation which sees merit in preventing the exposure of domestic producers to the rigours of the international market.") For what it's worth, self-avowed protectionists use the term themselves, and I don't think there is much doubt as to what they have in mind.

(There is one caveat to this, which is that there is a divide over whether protectionism is about intent or effect. I am on the intent side of this argument, and my view is that the effect side is really just using effect as a proxy for intent, but they disagree and I don't see this debate getting resolved any time soon. But I don't think the debate is as important as it sounds, because my sense is that we all mostly agree when it comes to which measures are covered by the term, even if we disagree on how to characterize why these measures are a problem.)

What Do the Midterm Elections Mean for U.S. Trade Policy?

Don't get too excited by the title of this post. The short answer to the question is, I don't know for sure, but probably not much. Nevertheless, I do have a couple thoughts here that may or may not be correct.

First, I suspect the Biden administration will look at the midterm results and think to themselves, "Our economic policy in general, and trade policy in particular, held up pretty well under voter scrutiny. Let's keep doing what we have been doing!"

My own view is that actually the midterm results were positive for Democrats for very different reasons than economic policy, most notably the Supreme Court's Dobbs ruling and the GOP putting forward some terrible candidates. But I can see why the Biden administration folks would come to the above-mentioned conclusion, and therefore I don't expect then to make big changes in trade policy. The IPEF, the TTC, etc. will go forward; the Section 301 tariffs will be reviewed as required by statute, but there will be no big changes to the U.S.-China trade relationship; and WTO reform will meander along.

Second, with regard to Congress, just focusing on the Senate races that could have a particular impact on trade, I think we are in about the same place we were before, or at least the place we knew we were going to be given the retirements of Senators Pat Toomey and Rob Portman.

Toomey was a strong free trader, and any replacement was likely to be more protectionist. I'm not sure there was going to be much of a voting difference between Fetterman and Oz on this issue, although Fetterman may be more of a true believer in economic nationalism than Oz.

Portman was knowledgeable about trade, and previously had negotiated trade deals, but he had been more protectionist in recent years. I don't think there would have been much difference between Vance and Ryan here.

In Arizona, Mark Kelly winning over America Firster Blake Masters is fortunate for trade.

Still outstanding is the Georgia runoff, where Raphael Warnock would probably be more pro-trade than Trump-backed Herschel Walker.

I'm not sure about the House at this point, partly because there are too many races to consider, and partly because the counting is not done yet.

Did I miss anything here? Probably! Feel free to point it out in the comments.

Guest Post: The EU’s Anti-Coercion Instrument: Balancing Ambiguity

This is a guest post from Mariana de Andrade, a post-doctoral researcher at the University of Milano-Biccoca and international sanctions and export control consultant for Studio Legal Padovan (Milan, Italy). The views expressed in this contribution are exclusively those of the author.

 

In December 2021, the European Commission submitted a proposal for an Anti-Coercion Instrument (ACI), a mechanism aimed at countering ‘economic coercion’ from third States against the interests of the European Union. The EU Commission has defined economic coercion as ‘a situation where a third country is seeking to pressure the Union or a Member State into making a particular policy choice by applying, or threatening to apply, measures affecting trade or investment against the Union or a Member State’. A notable example of the instances that motivated the EU to seek the adoption of an Anti-Coercion Instrument were the retaliatory measures imposed by China against Lithuania in response to the violations of the ‘One China principle’ by engaging in diplomatic relations with Taiwan.

The ACI foresees a mechanism through which the European Commission shall ascertain the existence of an ‘economic coercion’ by a third State, and in response take steps to counter and/or deter the coercion at stake. The reaction starts off through a formal request from the EU to the third State for it to cease the coercion. Where this request is not followed, the Commission shall then take ‘non-interventionist’ measures, in the terminology used by the proposal’s explanatory memorandum (i.e. international adjudication or other means of peaceful settlement of disputes). Where these measures do not lead to the cessation of the economic coercion, the Commission may adopt an ‘interventionist’ measure among those listed in Annex 1 to the ACI. Examples include: suspension of any tariff concessions and the imposition of new or increased customs duties; imposition of restrictions on the exportation of goods; suspension of applicable international obligations regarding trade in services; suspension of applicable international obligations with respect to trade-related aspects of intellectual property rights; suspension of applicable international obligations with respect to financial services.

This contribution examines the nature of the coercive measures addressed by the ACI, and if the EU response to coercion reflects ‘countermeasures’ within the sense of general international law. For clarity, this contribution refers to ‘countermeasures’ as measures violating international law, but whose wrongfulness is precluded because taken in response to a pre-existing violation of international law (according to the definition set forth by the Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA)), and to ‘Union response measures’ (as referred to by the proposal) as the measures taken by the EU to deter economic coercion under the ACI. It is unclear whether the EU is seeking to respond to coercive measures deemed to violate international law for breaching the principle of non-intervention (scholars have argued in this direction here and here), or more generally to counter political measures that do not necessarily violate international law while seeking to coerce the EU and its member States (the meaning of ‘economic coercion’ in the ACI has been examined here). This contribution submits that the ACI is obscure, that there is an underlying incoherence in what the ACI seeks to counter, leaving the legal nature of the ACI and the ‘Union response measures’ in a limbo.

Different commentators have pointed out the possible conflict between the ACI and the legal regime of the World Trade Organization (‘WTO’; see e.g. here, here), as many of the measures listed in Annex 1 are regulated under the umbrella of the multilateral trading system. The relationship between the ACI and the WTO falls outside the scope of the present contribution, but these considerations must be born in mind for a better understanding of the problems raised by the ACI.

The ACI is now under discussion before the European Parliament. On October 2022, Trade Committee Members of the European Parliament backed the project and a draft report was adopted by the Parliament, featuring some amendments and clarifications to the Commission’s original proposal. These are the two instruments analysed below.

 ‘Economic coercion’: an internationally wrongful act?

Central elements of the legislative proposal hint that the ‘coercive measures’ addressed by the ACI are by definition violations of international law. For example, the 11^th recital of the ACI proposed preamble states that ‘Coercion is prohibited under international law when a country deploys measures such as trade or investment restrictions in order to obtain from another country an action or inaction which that country is not internationally obliged to perform and which falls within its sovereignty, when the coercion reaches a certain qualitative or quantitative threshold, depending on both the ends pursued and the means deployed’. Additionally, the Parliament’s draft resolution proposes a recital invoking both the ARSIWA and the ‘Declaration on Principles of International Law concerning Friendly Relations and Cooperation among States in accordance with the Charter of the United Nations’ (UN General Assembly Resolution 2625 XXV/1970), recalling that the latter ‘states that no State may use or encourage the use of economic, political or any other type of measures to coerce another State in order to obtain from it the subordination of the exercise of its sovereign rights’. The recital moreover claims both instruments reflect customary law and are binding. It seems thus to imply that the coercion regulated by the ACI falls within the perimeter of those prohibited under international law.

In the same sense, in many ways, the ACI reproduces the dynamics set forth by general international law on State Responsibility, as codified by the ARSIWA. The ‘Union response measures’ proposed in ACI follow many of the substantive and procedural requirements in the law of countermeasures of the ARSIWA, such as the principle of proportionality and conditions where countermeasures should be lifted. One element worthy of note is the emphasis, especially in the Parliament’s draft, on the resort to ‘Union response measures’ as a means to seek reparation for the injury caused by the coercive action. Under general international law, reparation is due when there is a wrongful act. Indeed, according to the ARSIWA commentaries to countermeasures, these should be ‘taken against a State which is responsible for an internationally wrongful act in order to induce that State to comply with its obligations of cessation and reparation’. Therefore, imposing countermeasures to seek reparation implies the existence of a violation of international law.

More significantly, the ‘interventionist’ measures listed and available to the EU in case the ‘non-interventionist’ ones fail to succeed seem to offer a decisive clue to the inquiry. All measures listed by Annex 1 involve the suspension of EU’s international obligations, and therefore the violation of said obligations.

On the other hand, the drafting of the ACI, as well as the Parliament’s draft regulation, never explicitly qualify economic coercion as intrinsically prohibited. For this to be the case, the first step triggering the EU’s response should be to ascertain the violation of an international obligation; yet, nowhere does the ACI determines that the Commission should proceed in such manner. The very definition of economic coercion is open-ended. According to the proposed ACI, for a measure to qualify as ‘economic coercion’, the third State measure must (i) ‘interfere in the legitimate sovereign choices of the Union or a Member State by seeking to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State’ and (ii) ‘apply or threaten to apply measures affecting trade or investment’. The first limb of the definition potentially equates the coercive measure to a violation of international law since, as examined above, in other passages, the ACI submits that measures that interfere in the legitimate sovereign choices of the Union are a violation of the principle of non-intervention. Yet, the extent to which economic coercion may amount to a violation of the principle of non-intervention is unclear in international law (the ICJ’s Nicaragua decision is a landmark on this point). In any case, the proposed ACI, as well as the suggestions advanced by the European Parliament, do not explicitly state that economic coercive measures are by definition violations of international law.

The hints that there is an implied equivalence between economic coercion and a wrongful act are moreover put into question by ambiguous sections of the proposed instrument. Article 2(2) indicates that, to ascertain the existence of ‘economic coercion’, different aspects shall be taken into account, including ‘whether the third country is acting based on a legitimate concern that is internationally recognised’ (para (d)). While a coercive measure falling within the scope of this paragraph is not necessarily legal, the idea of a ‘legitimate concern that is internationally recognised’ can be viewed as incompatible with an internationally wrongful act. The drafting of Article 2(2) implies that this criterion is only one among others that shall be taken into consideration to determine the existence of economic coercion. The Parliament’s draft report, moreover, advances an amendment to this subparagraph: instead of legitimate concern, the Commission shall assess if the concern is ‘recognised as legitimate by international law and conventions’. Even if the measure under scrutiny has been taken based on a ‘legitimate concern that is internationally recognised’ (or even legal, in the terms of the Parliament’s drafting) this does not imply that the coercive character shall be refuted by the Commission.

Another illustration is the definition of ‘third-country action or measure’ in the Parliament’s draft resolution, that is ‘any type of action or measure, failure to act or threat thereof that is attributable to a third country’. ‘Failure to act’, conversely, is clearly defined as ‘failure by a third country to comply with its obligations under legally binding instruments of international law’. While the passive coercive measure amounts to a failure to comply with international obligations, the active coercive measure does not hinge on international obligations. As opposed to the explicit mention in the definition of ‘failure to comply’, the absence of a direct reference to a violation of international law in the definition of ‘action or measure’ can be interpreted as not requiring the existence of a wrongful act.

Conclusion

The above analysis leads to a conclusion that the proposed ACI is rather unclear with respect to the exact meaning and scope of the ‘coercive measures’ it sets to counter. Numerous elements in the ACI show the ambiguity in the proposed text; only some were analysed for illustrative purposes.

While the ACI relies on an open-ended definition of ‘economic coercion’ that may or may not amount to a violation of international law, the text foresees measures that, if deployed, would constitute violations of international obligations. These ‘Union response measures’ could only be justified (as lawful countermeasures) if the ‘economic coercion’ indeed amounts to an internationally wrongful act, because in breach of the principle of non-intervention. As noted by Raju, ‘the legality of any countermeasures adopted by the EU under the Draft Regulation hangs on the correctness of this assumption’. The author contends that not all coercive measures that do not violate specific international obligations are necessarily illegal.

I share his view, but I submit that the ACI does not assume the illegality of all economic coercive measures. In my view, the ACI deliberately leaves ambiguities as to whether economic coercion is automatically equated to a violation of international law. This ambiguity leaves wiggle room for the Commission to justify European responses as lawful ‘countermeasures’, even if the coercive act is within a grey area of legality under the principle of non-intervention.

At this stage, one must remark that another element that certainly influences the shape taken by the Commission’s proposal is the division of competences within the EU. The Commission’s competence in the field is restricted to the European Common Commercial Policy, whereas matters of foreign policy belong to the EU Council (EU Member States). Therefore, an instrument proposed by the Commission must be limited to the ambit of competence of the Common commercial policy. This limitation explains the ACI’s strange separation between economic coercive measures and responses, and political non-economic coercion and responses.

Arguably, the ACI’s lack of clarity on the nature of the economic coercion is the stem to other legal issues that have been raised by other commentators, such as the possible incompatibility between the ACI and WTO law. Although the EU argues otherwise, the ACI resembles the United States’ Section 301, which endows the US government with powers to take ‘all appropriate measures and feasible steps’ to counter ‘unjustifiable or unreasonable’ trade restrictions, ‘unjustifiable and unreasonable’ discriminatory acts or policies that restrict the United States commerce. In short, this piece of legislation allowed the United States to unilaterally determine the existence of ‘unjustifiable and unreasonable’ (why not coercive?) trade measures and act to counter this action. Section 301 was mostly deployed before the institution of the binding dispute settlement mechanism of the WTO. On a more general note, coercive measures, by their very nature, fall within the realm of foreign policy. Other contradictions in the ACI have been debated by commentators, but it seems that, perhaps, the ‘poisonous tree’ may be that the European Union is trying to regulate a field that is inherently political and thus naturally subject to discretion.

Russia Was a Market Economy, Now It's Not

The U.S. Commerce Department recently made a decision to classify Russia as a non-market economy, after last year finding that it was a market economy. I have posted the executive summary of the Commerce memo below (the full memo is 101 pages!).

When reading through the Commerce reasoning, it strikes me that maybe having just two all or nothing categories -- market economy and non-market economy -- misses some nuance here. Should there be multiple categories? Could there be a neutral body that assigns a rating based on degree of market orientation?

Also, could governments agree to WTO rules that guide national decision-making on which countries are non-market economies?

I suspect the answers to both are that it is not politically possible, but I see potential value in both.

************************************************

Executive Summary of Commerce Department Memo on "Reconsideration of Russia’s Status as a Market Economy Country"

The Department of Commerce (Commerce) finds that the market-oriented economic reforms that have unfolded in the Russian Federation (Russia) since Commerce’s 2021 Review of Russia’s Status as a Market Economy Country (2021 Review) have notably and significantly backtracked. At the time of the 2021 Review, which captured economic developments that unfolded between 2002 and 2021, the growth in Russian government involvement in its economy brought the country close to the threshold of non-market economy (NME) status pursuant to the standard statutory criteria. Russia’s market-oriented economic reforms have backtracked even further since the publication of the 2021 Review, however. Accordingly, Commerce finds that Russia can no longer be considered a market economy (ME) country and should therefore be reclassified as an NME country for purposes of U.S. antidumping duty (AD) law.

Commerce’s new designation of Russia as an NME country is based on evidence of expanding government activity that has both widened and deepened its impact on the domestic market. As prices and costs in Russia are no longer predictably set by free-forming supply and demand factors, the accompanying economic distortions render any cost or sales information that Commerce could use for AD investigations unrepresentative of market-determined outcomes. Despite the backtracking in certain areas of economic reform, Commerce’s 2021 Review ultimately found that Russia should remain an ME country for purposes of U.S. AD law. This was justified by the fact that the backtracking of reforms at the time was at least partially offset by some market-oriented measures, such as the lifting of currency convertibility restrictions and the general improvements Russia made with respect to foreign investment conditions.

Following the publication of the 2021 Review and the launch of Russia’s war in Ukraine, Russia’s prior liberalization initiatives on currency convertibility and foreign investment have notably reversed course. Moreover, the backtracking of some economic reforms identified by Commerce in 2021 have continued unabated. This backtracking has included a demonstrable aggrandizement in government control over the economy; an increase in government control over prices; a deterioration in rights associated with freedom of information; and the ability of workers to bargain freely with management for wages. When considered in totality, the developments that have unfolded since the publication of the 2021 Review have indicated that the Government of Russia (GOR) has increased its control and influence over Russia’s economy. As such, Commerce now determines that for purposes of U.S. AD law, Russia should no longer be considered an ME country.

With regard to the first of the six statutory conditions that Commerce uses to assess market economy status for purposes of U.S. AD law (hereafter referred to as “Factor One”), Commerce determines that, since the 2021 Review, the Russian ruble has no longer been freely convertible. Since 2021, the GOR has implemented numerous capital controls and currency conversion requirements (e.g., the requirement that purchases of natural gas exports to certain countries be ruble-denominated) and intervened in the foreign exchange markets. All these measures have had the effect of stimulating demand for the ruble, which has in turn appreciated the value of the Russian currency. The appreciated currency helps the GOR maximize its earnings on Russia’s top exports, oil and gas, as these commodities are primarily owned by Russian state-invested enterprises (SIEs). As such, the earnings the SIEs receive on energy exports that are associated with an appreciated currency have a direct and substantive effect on the GOR’s fiscal revenues, which is especially important now given Russia’s military incursion into Ukraine. 

While it is true that governments of market economies, including the United States, have intervened in foreign exchange rate markets to influence the value of their currencies, such measures are very rare and typically reserved for stabilizing economic conditions following external economic shocks. Moreover, the intensity and combination of measures the GOR has taken to influence the value of its currency (e.g., foreign reserve intervention, surges in interest rates, and the requirement that gas exports be ruble-denominated for certain countries), has been dramatic and possibly unprecedented. These measures were taken following the sudden fall in the ruble’s value, when fleeing foreign investment from Russia after its invasion into Ukraine put downward pressure on the currency. To stem the effects of a depreciating currency, the GOR introduced the above-mentioned capital controls. These measures initially offset the effects of currency depreciation, but ultimately overcompensated for them as the ruble is now traded above its pre-war levels.

With regard to Factor Two, since the publication of the 2021 Review, Russia’s Labor Code has been amended to allow the GOR to set terms and conditions (e.g., required overtime) of public and private sector workers. This provision indicates that the GOR has increased its legal ability to control the labor market on a firm-specific basis and has therefore constrained the ability of workers to bargain freely with management regarding wages. Concerning developments in the economy, Commerce has not yet observed notable developments that would influence the ability of workers to bargain freely for wages in Russia since the 2021 Review was published.

With respect to Factor Three, the extent to which joint ventures and foreign investments are permitted in Russia, Commerce has observed a marked worsening of conditions since the 2021 Review. Specifically, since that time, the GOR has codified restrictions on company investments from countries deemed “unfriendly” by the GOR and has prohibited the sale of Russian company shares through depository receipts. In addition to formally restricting foreign investment, the GOR has also implemented laws which have deterred foreign investment, including a law that has legalized intellectual property theft of inventions from “unfriendly countries.” As a result, many foreign-owned companies have left Russia since its 2022 invasion into Ukraine, either permanently or temporarily. While some of the largest reductions in FDI have been in the energy sector, others have been derived from autos, aviation, big tech, consulting, finance, food and beverage, hospitality, industrial production, manufacturing, and other sectors.

Concerning Factor Four, the GOR has a high degree of ownership and control in the Russian economy. Since the publication of the 2021 Review, the GOR has drafted a law allowing for government expropriation and nationalization of foreign enterprises that left Russia, and these practices have already materialized. Moreover, the GOR continues to use SIEs to pursue economic and political objectives. For example, the GOR requires Gazprom, a Russian SIE, to stem natural gas supplies to countries that refuse to comply with the GOR’s mandates on ruble-denominated payments. In addition, the choice the GOR has made to launch and sustain its war against Ukraine, despite domestic firm-level concerns about effects on their global outreach, is suggestive that the economic priorities of the private sector are subservient to the GOR’s political objectives.

It should be noted that the extent of government ownership and control within the Russian economy at the time of the 2021 Review were significant and did not weigh favorably in Commerce’s analysis of market conditions at the time. In 2021, Commerce determined that the size and growth of the state sector since the 2002 Review hindered Russian economic growth and opportunities, and represented signs of an encroaching GOR footprint in economic activity that warranted continual monitoring by Commerce.

With respect to Factor Five, evidence suggests that the extent of government control over price setting in Russia has continued to grow since the 2021 Review. This is exemplified by the dichotomy between export and domestic natural gas prices, which the Russian government is known to influence. In addition, the GOR has directed steel companies to lower domestic steel prices.

The growing GOR influence over prices and resource allocation on its domestic market was of central concern to Commerce in its 2021 Review. As highlighted in that memorandum, Commerce found that state ownership in the banking sector was not only high in Russia but growing. Specifically, Commerce found that government-owned banking sector assets as a share of total banking sector assets grew from an estimated 35 to 40 percent range in 2002 to nearly 75 percent as of 2020. Given the special role of the banking sector and its effect on lending and borrowing conditions that help allocate resources, this large and growing increase in government ownership in the banking sector had noteworthy economy-wide ripple effects.

The increasing role of GOR industrial policy and strategic planning was another important source of concern that Commerce identified in its 2021 Review. With respect to such issues, market-determined outcomes had begun to give way to government interests, including those associated with GOR support for certain “winner” firms at its discretion. While some price liberalization measures did transpire in the natural gas, electricity, and rail cargo transportation industries, the same areas of the economy were also subject to a greater degree of government price controls. Such GOR practices remain important to this analysis since the pricing decisions of goods and services in upstream industries affect market conditions across a wide variety of sectors in the Russian economy.

Concerning Factor Six, Commerce has found that all elements addressed in the 2021 Review, including corruption, the rule of law (including intellectual property right protection), and freedom of information have continued to worsen in Russia. Quantitative measurements published by the World Bank, Transparency International, and the World Justice Project indicate that corruption and the rule of law have deteriorated since the period evaluated in the 2021 Review. Moreover, new legislation has worsened protection against intellectual property right theft in Russia as it relates to patented inventions from “unfriendly” countries. A current draft law, if passed, will legalize the expropriation and nationalization of foreign firms that have left Russia. Finally, Russia was expelled from the Council of Europe for its violation of the council’s principles of rule of law connected to its aggression against Ukraine.

Since the 2021 Review, rights associated with freedom of information have also markedly deteriorated. Recently, the GOR has passed laws which criminalize independent journalism in Russia for reporting information that contradicts the government’s version of events. Independent reporting on Russia’s invasion of Ukraine is punishable by up to fifteen years in prison. Market economic conditions are ultimately dependent upon the free and unrestrained access to information. As such, deteriorating access to such information in Russia is impeding market actors from making informed decisions.

Given the deteriorating market conditions since the 2021 Review summarized above and
described in the body of this memorandum, Commerce determines that Russia has continued to backtrack on its reform efforts, in some areas more than others. While offsetting measures helped Russia maintain ME status in the last review conducted by Commerce, the discontinuation of those offsetting measures, coupled with exacerbating government influence over its economy, have all been factored into Commerce’s new determination that Russia should be considered an NME country for purposes of U.S. AD law. 

2022 ANZSIL International Economic Law Interest Group Workshop

Next week, the 2022 ANZSIL International Economic Law Interest Group Workshop will be held via Zoom. The full program is here. You can register to attend here.

Check the times carefully. It runs from 18 November 2022 at 9am (AEDT)/11am (NZ time) to 2:30pm (AEDT)/4:30pm (NZ time), but that will be 17 November in the evening U.S. east coast time. I'm checking these times very carefully because I'll be speaking about "The US Challenge to China's Role in the World Trading System." Lots of other good speakers on the program too!

Webinar: “ASEAN and the Reform of Investor-State Dispute Settlement: Global Challenges and Regional Options,” 29 November 2022, 5pm (SGT)

This is from the Centre for International Law at the National University of Singapore:

The Centre for International Law of the National University of Singapore cordially invites you to attend a virtual book launch and conference under the theme “ASEAN and the Reform of Investor-State Dispute Settlement: Global Challenges and Regional Options.” The event will bring together academics and government representatives from selected ASEAN and ASEAN-plus countries to share their views on ISDS reform from an ASEAN perspective as well as on the present and potential future of the UNCITRAL ISDS reform process on the whole. The starting point for the discussion would be the recently published book ASEAN and the Reform of Investor-State Dispute Settlement: Global Challenges and Regional Options (Edward Elgar, 2022), co-authored by N. Jansen Calamita and Charalampos Giannakopoulos.

Please see the detailed programme here. 

You may register your attendance directly here.

Date and place: 29 November 2022, on the Zoom platform

Time: 5-7:30pm (SGT) / 9-11:30 am (GMT) / 10am-12:30pm (CET).

Assistant USTR Speaks about WTO Reform

At a symposium today hosted by the Yeutter Institute, Andrea Durkin (Assistant U.S. Trade Representative, WTO and Multilateral Affairs) said the following about U.S. views and efforts on WTO reform (I don't have any comments on what she said, just thought people might be interested):

So how do we plan to go about reform, in a practical sense. I want to be cautious in how I describe and label outcomes that we would, we would say are reform outcomes, because we're not looking for a package for ministers to bless per se. Our approach is actually to reform by doing, to reform with intention as we go along. That said, we are thinking about approaches to improve each of the core functions of the WTO. That is monitoring and implementation of agreements, negotiations, and the enforcement of rights and obligations. So let me take each of those briefly in turn.

On the monitoring side, this is the day to day work of the WTO. And here, we and other members are conducting reviews for how to make improvements in each of the standing committees, whether it's renovating agendas to make room for more practical technical work, or changing the committee structure themselves. These are standing bodies and committees that are an underperforming but vital asset of the WTO. It is the day to day work. Some committees like those handling notifications of technical regulations are functioning pretty well. They're processing more notifications, more member comments than ever before. They have newly implemented an e-ping online system. I don't know if you've heard about the e-ping system. But it is a way of, when governments notify new regulatory measures -- typically in the past, they would only notify other governments and then we would notify stakeholders -- now through this e-ping system, you as stakeholders in the system can receive those notifications directly. And that has improved transparency a thousandfold by pushing information about draft regulations directly to you as the users of the system. However, in other committees, such as on industrial subsidies and state trading enterprises, notifications are at an all time low. You can say in general that agreements have failed to restrain China's use of subsidies due to its substantive limitations in the agreements. But China's failure to observe the most basic WTO transparency obligations inhibit further discussions that are necessary to further close those gaps in the rules. And China is not the only large economy that's failing to offer Members transparency about their measures. So we have to restore these norms of behavior if we're to build a foundation for new agreements and their implementation.

So that brings me then to the negotiation function. With respect to the negotiation function, we are increasingly confronted with new trade practices, new technologies that are not covered by existing WTO rules. Ecommerce is a good example of that. WTO members also struggle to address unfair trade practices by non market economies. And just as with reforming the committees, there isn't going to be one single solution to solve these problems. We need more flexibility in our approach to crafting new disciplines. In particular, there are a number of what we call Joint Statement initiatives, or JSIs, that were launched in 2017 that are pointing us in the direction of more flexible negotiation approaches. Give you some examples. Last December, 67 WTO members, accounting for over 90% of global services trade, reached an agreement setting out common parameters for services related domestic regulation. I know that sounds very, very humdrum, it's regulation, but it does set out a set of commitments that are calculated to save businesses on a day to day basis as much as 150 billion every year in reduced trade costs. That's an important development. Another important JSI covers e-commerce. 87 members of the WTO are now part of this negotiation on e-commerce provisions have been largely completed actually in the area of e-signatures, that means you can sign legal electronic documents. E-authentication, to present protect the identity of users in e-commerce transactions. It covers consumer protections, open government data, spam and other areas. It also covers paperless trading and digitization of customs procedures and that is a major new frontier, a really important development in global trade.

These two topics alone speak to an important principle for this administration. Ambassador Tai has consistently espoused making trade policy worker-centric. And in the WTO context, this means making good on our commitment in the preamble of the Marrakech agreement that established the WTO to raise living standards and ensure full employment. The JSI on services will unlock new opportunities in the services sector where job growth is strong. The e-commerce JSI will promote the diffusion of digital technologies which can enable broader participation in global value chains by reducing cost and information asymmetries and can lower compliance costs, particularly for small and medium enterprises. And just as the WTO Trade Facilitation Agreement that entered into force in 2017 offered innovations as it introduced the idea of multispeed implementation, these JSIs offer another path for negotiating new agreements. The JSIs are essentially what we call plurilaterals. They don't involve all WTO Members. And that's by Members choice, but they are nonetheless an avenue for rebuilding trust by enabling agreements among interested WTO Members. And as I've said, they're a means for pursuing results that are broadly relevant to a wide range of stakeholders even in those members that are not part of those JSIs.
JSIs are not the only way forward but by pursuing more approaches, and more flexible approaches, we can reform the way we work to tackle forward looking trade challenges.

Agriculture is another area where we need a fresh start to the negotiations. We have to let go of what has not worked in the past. And that is a tall order as I listened to delegations in Geneva, clinging to old positions. And in this new negotiating environment, it has to be said that large economies can no longer be given a pass from new commitments using self proclaimed development status, which allows them to essentially circumvent responsibility, even in sectors where that member might have a globally dominant market share.

So I'll come back to what I hinted at earlier. There are important decisions that were taken at MC12 that I think preview approaches ahead that can be successful. For example, some of the decisions, at least two of them taken an MC12, feature to an opt out by members such as China. What do I mean by that? What I mean is you have an opportunity in the context of an agreement itself to forge a commitment on which Members take on which obligations. There are no blanket exemptions except maybe for least developed economies, meaning China opted out of an exemption. So that is an important development. It's a preview of ways that we can move ahead in the negotiations. In the past the dynamic was to paint with too broad a brush equating the market power of a China with the market power of a Cameroon.

Let me touch on the last piece of the WTO's core functioning, which is dispute settlement. There's been a lot of attention given to the dispute settlement function of the WTO. As you know, there have been long standing, bipartisan concerns with the way that the dispute settlement function has functioned. And in some cases, decisions by the Appellate Body have harmed the ability of the United States and other market economies to respond to non market distortions that directly harm US workers and businesses. A central feature of reform will be to revitalize the agency of WTO members themselves in pursuing and securing acceptable resolutions and ensuring that the WTO dispute settlement system does not impose new obligations or take away existing rights in a way that was not agreed to directly by the Members.

To advance discussions on dispute settlement reform, the United States throughout this entire year has convened discussions in Geneva to seek out common ground on how we do reform for dispute settlement. The process has enabled us to hear from Members who have not felt heard on this topic in the past, and the discussions have elicited several themes pertinent to reform, such as accessibility of the system by developing country members. And so the discussions will continue in Geneva around those themes. So we're moving ahead.

Arguments about GATT Exceptions in Relation to Non-GATT Goods Agreements in the DS597 Dispute

Last year, I wrote about a U.S. argument in the U.S. - Rules of Origin (DS597) case that "the essential security exception of Article XXI of the GATT 1994 applies to the multilateral agreements on trade in goods, including the Agreement on Rules of Origin." One thing that interests me about this issue is the possibility of extending the argument from GATT Article XXI to Article XX, and from the Agreement on Rules of Origin to other Annex 1A agreements. Will the DS597 dispute tell us anything about, say, applying Article XX as a defense to claims of violations of the SCM Agreement? I'm curious about the U.S. view on this, given the recent subsidies it has announced in relation to clean energy vehicle production.

I haven't gone through on every word of the U.S. submissions in the DS597 dispute, but I did see a couple other comments from them on the issue of applying Article XXI outside the context of the GATT. First, as set out in the U.S. response to the panel's questions after the first substantive panel meeting, the panel had asked:

Should the Panel, in your view, in its analysis on the availability, or not, of Article XXI(b) to the claims at issue in this dispute follow the analytical approach applied by the Appellate Body, in for example China – Rare Earths (paragraphs 5.61-5.62 and 5.74), and by previous panels referred to by some third parties (European Union6, Singapore7 and Switzerland8)? If not, do you consider this approach legally incorrect? In your response, please indicate whether there are any relevant differences between Article XX and Article XXI of the GATT 1994 for applying such an analytical approach, in determining the applicability of Article XXI of the GATT 1994 to non-GATT provisions.

The U.S. replied as follows:

110. The United States understands the references to the report in China – Rare Earths (AB) and previous reports identified in third party submissions to include reports that have addressed applicability of Article XX to non-GATT instruments.54 The United States set forth the proper application of the customary rules of treaty interpretation with respect to the applicability of Article XXI(b) to the Agreement on Rules of Origin and the TBT Agreement in its First Written Submission. In particular, the text of the Agreement on Rules of Origin and the TBT Agreement (including their textual links to the GATT 1994), in their context – which includes the structure of the WTO Agreement – and in light of their object and purpose establishes that Article XXI(b) applies to each agreement.

111. In this regard, the United States considers that previous reports, in analyzing the applicability of GATT Article XX to a non-GATT agreement, correctly recognized that lack of explicit incorporation of an exception is not dispositive – notwithstanding that GATT Article XX begins with the clause “[n]othing in this Agreement”. Instead, those reports analyzed the question of applicability on a case-by-case basis.55 The China – Rare Earths (AB) report also specifically noted that this analysis must take account of the structure of the WTO Agreement: “The analysis must also take into account the overall architecture of the WTO system as a single package of rights and obligations and any other relevant interpretative elements, and must be applied to the circumstances of each dispute, including the measure at issue and the nature of the alleged violation.”56

112. That said, Article XX is different from Article XXI in key respects, and the Panel’s analysis should account for those differences. First, in Article XXI(b), the operative language regarding the relationship between the measure and the objective is in the chapeau – “any action which it considers necessary for the protection of its essential security interests”. As the United States has explained, the requirement for applicability of Article XXI(b) is that the Member taking the action must consider that action necessary for the protection of its essential security interests.

113. In Article XX, the subparagraphs themselves contain the operative language regarding the relationship between the measure taken and the Member’s objective (for example, “necessary to”, “relating to”, or “essential to” the relevant objective), and none of the Article XX subparagraphs use the phrase “which it considers” to introduce the word that establishes that relationship. That is, the subparagraphs of Article XX indicate on what basis a Member may avail itself of the exception – for example, when the measure at issue is “necessary to protect public morals”. In addition, the chapeau of Article XX includes an additional non-discrimination requirement. Under this structure, then, a Member: 1) may take a measure that is necessary to protect public morals, for example, but only if 2) that measure does not arbitrarily or unjustifiably discriminate or constitute a disguised restriction on trade. These two substantive obligations in the text led the Appellate Body to its statement that the “structure and logic of Article XX” suggests a two-step analysis. The “structure and logic” of Article XXI is fundamentally different. By its terms, Article XXI(b) does not permit a panel to substitute its judgment for that of a WTO Member as to whether an action is necessary for that Member to protect its essential security interests. 

114. Moreover, with respect to the structure of the WTO Agreement, as explained in the U.S. First Written Submission, the essential security exception applies to each of Annexes 1A, 1B, and 1C to the WTO Agreement.57 The security exceptions in each of Annexes 1B (GATS) and 1C (TRIPS) mirror the security exception in Annex 1A (GATT).58 That is, when Uruguay Round negotiators included new areas or updated disciplines under the single undertaking, such as services or intellectual property rights – or rules of origin or technical barriers to trade – they extended the security exception to those commitments, and maintained the same self-judging approach.

115. In contrast, the “general exceptions” provision of Annex 1B (GATS Article XIV) includes a number of textual differences compared to the general exceptions of Annex 1A (that is, Article XX of the GATT 1994). For example, Article XIV of the GATS includes specific language on exceptions to the GATS provisions on MFN and national treatment,59 and does not include language similar to that found in Article XX(c), (e), (f), (g), (h), (i), or (j). Annex 1C (TRIPS) does not include a “general exceptions” provision.

116. As explained above, and in the U.S. First Written Submission, the textual differences between Articles XX and XXI themselves, as well as the differences in the structure of the WTO Agreement with respect to these exceptions, are relevant context for the Panel’s analysis of the applicability of Article XXI(b) to the claims at issue in this dispute. 

Then in its second written submission, the U.S. said: 

114. First, Hong Kong, China, attempts to dismiss the relevance of the structure of the WTO Agreement as context by mischaracterizing the U.S. explanation regarding applicability as simply an argument that the Agreement on Rules of Origin and TBT Agreement “relate in some way to trade in goods.”140 The U.S. explanation, however, does not rely solely on the fact that these agreements all relate to goods, but rather on the single undertaking structure established by the text of the WTO Agreement, and consideration of the structure of a treaty as context is provided for in the customary rules of treaty interpretation.

115. As the United States explained in its First Written Submission, the Marrakesh Agreement is an umbrella, establishing among other things that all of the agreements in its annexes are a single undertaking.141 The core multilateral substantive obligations are contained in Annex 1: Annex 1A consists of the Multilateral Agreements on Trade in Goods, including the GATT 1994, the Agreement on Rules of Origin, and the TBT Agreement; Annex 1B includes the GATS; and Annex 1C includes the TRIPS Agreement. The inclusion of the GATT 1994, the Agreement on Rules of Origin, and the TBT Agreement in a single annex is therefore a legal structure, not merely a function of those agreements each “relating in some way to trade in goods” as misstated by Hong Kong, China.

116. The customary rules of treaty interpretation provide for taking into account the structure of the treaty as context, as the United States explained in the first videoconference with the Panel.142 Some commentary has even noted that the “systemic structure of a treaty is . . . of equal importance to the ordinary linguistic meaning of the words used. . . .”143 The United States observes further that past panel and Appellate Body reports have taken the structure of the WTO Agreement into account as context.144 As cited by the Panel in Question 21, the report in China – Rare Earths (AB) noted that “due account [be] taken of the overall architecture of the WTO system as a single package of rights and obligations” when interpreting individual provisions of the multilateral trade agreements.145 Although Hong Kong, China, cites to the same phrase in its opening statement and response to the Panel’s questions as part of its arguments,146 it attempts to dismiss the relevance of the structure of the WTO Agreement as simply the equivalent of saying that the Annex 1A agreements “relate in some way to trade in goods”. As a result, Hong Kong, China, does not undertake any consideration of the structure (or “overall architecture of the WTO system”) as part of its interpretative approach.

117. In contrast, the United States has set forth an interpretation that accounts for the structure of the WTO Agreement. Treaty interpretation is a holistic examination;147 examining the structure of the WTO Agreement as a whole is a starting point for establishing that the essential security exception applies to the covered agreements at issue.148

118. As the United States has explained, the structure of the WTO Agreement in no way suggests that Members considered essential security a concern for the disciplines of the Annex 1B and 1C agreements with respect to services and intellectual property, respectively, but not a concern for the Annex 1A agreements with respect to goods. Nor does logic suggest any reason that essential security should be less of a concern for trade in goods than for trade in services or intellectual property. To the contrary, when the parties decided to extend disciplines to new areas – services, and intellectual property – the new agreements contain the essential security exception. The structure of the WTO Agreement – and logic – suggest that the GATT 1947/1994 essential security exception likewise applies to the new agreements on trade in goods contained in Article 1A.149

119. Therefore, the structure of the WTO Agreement does not support a finding that the essential security exception necessarily only applies to those Annex 1A agreements that expressly incorporate it, as Hong Kong, China, suggests. The United States illustrated the absurdity of such a finding in a hypothetical in its First Written Submission and in its opening statement at the first videoconference.150

120. In addition, Hong Kong, China, errs in suggesting that the analysis of applicability of the essential security exception under Article XXI must be identical to that of applicability of Article XX.151 Hong Kong, China, bases its assertion only on the inclusion of “Nothing in this Agreement” in both exceptions. However, this overlooks textual differences between Articles XX and XXI themselves, as well as differences in the structure of the WTO Agreement with respect to those exceptions. As the United States explained in its response to Question 21 and in the U.S. First Written Submission, those differences are relevant context for the Panel’s analysis of the applicability of Article XXI(b) to the claims at issue in this dispute.152

It may be unlikely that the panel will make any broad pronouncements on the issue of Article XXI vs. Article XX here. This dispute is contentious enough in relation to the core issues in dispute.

Nevertheless, the broader issue of GATT exceptions for non-GATT goods agreements seems of great importance for the likely upcoming debates about how subsidies for environmental purposes are considered under WTO rules. Ideally, governments would sit down and hash out clear rules in this area. Perhaps more realistically, though, the existing rules will have to be applied, and disputes will arise over whether particular measures are consistent with those rules. I can imagine that Article XX will be invoked as a defense in this context, based on the argument that it applies beyond the GATT, and then we will see the issue debated directly. (I can also imagine that Article XXI will be invoked, but that seems like a less constructive approach).

The latest update I see from the WTO panel is that it expects to issue its final report to the parties in the last quarter of 2022. We'll see if that happens or if there is a further delay (and if it does happen, there will be a bit more time before circulation).