International Economic Law and Policy Blog

Ro Khanna Wants To Reconsider WTO Rules Relating To China, Still Worried about Trade Deficit

This is something from a recent speech by Congressman Ro Khanna (D-CA):

The US needs to work with our allies to pursue a broad WTO dispute case against the PRC. One hurdle is that the current Dispute Settlement process cannot litigate in key China-related areas that are not adequately covered by WTO rules. New rules must be negotiated.

For starters, the WTO must reconsider its “specificity” policy. 

Under the current rules, the WTO allows countries like China, to support state-owned enterprises and provide wide-spread subsidies to its economy. The WTO should stop letting its members do this. 

We must also be open to suspending China’s permanent normal trade relations (NTR) with the US which was previously called the most favored nation status.

Prior to joining the WTO, US law required China’s NTR status to be renewed annually. This status is a privilege, and the US should decide this status annually—as we once did. If China does not support a constructive rebalancing of our economic relationship, we should eliminate or suspend this status. 

First of all, I like the idea of working with allies to bring a broad WTO dispute case against China, and this is basically what I've argued for in the past. I'd probably prefer lots of smaller cases, but that's a minor quibble.

However, I think Khanna misunderstands the situation to some extent when he says "the current Dispute Settlement process cannot litigate in key China-related areas that are not adequately covered by WTO rules." He doesn't spell it out in great detail, but when he mentions "specificity," he is probably thinking here about the use of domestic CVDs against China, and how the rules in the SCM Agreement may limit the use of CVDs, in particular as a result of certain Appellate Body rulings. But if the question is what policies are covered by WTO rules, it's important to consider the potential for WTO complaints against China, rather than focusing so much on domestic CVDs imposed on China (with the CVDs themselves later challenged at the WTO). Direct complaints against China at the WTO are likely to be more effective than CVDs at addressing China's practices and policies, because the ruling would come from a neutral tribunal rather than from another government.

So what cases to bring? There are lots of possibilities, but as I've mentioned before, one of the broadest obligations that China has agreed to in the area of state-owned enterprises is in para. 46 of its accession Working Party report (made binding by the Accession Protocol):

46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.

How would this very broad obligation be applied to the recent behavior and actions of China with respect to its SOEs? Only one way to find out!

Of course, for such a complaint to have an impact, we need the Biden administration to engage on finding a solution to the Appellate Body appointment crisis. Perhaps the prospect of a complaint against China would convince Khanna to push for this?

As for using PNTR suspension as leverage here, that wouldn't be my choice of approach, but putting that aside, my guess is that the effectiveness depends on what kind of "constructive rebalancing of [the] economic relationship" Khanna has in mind. As discussed below, I don't think that focusing on the trade balance here makes sense. But if Khanna or others could point to specific changes they wanted in Chinese policies and practices, using the right kind of leverage (e.g., a successful WTO complaint) might be possible.

Khanna also expresses concern about the trade deficit:

A new economic patriotism must be front and center in our diplomacy with China. In our bilateral negotiations, we should set a target to reduce the trade deficit with China every year until it’s de minim[i]s.

To rebalance the trade deficit with China, we need to create a National Development Council to provide federal financing for our critical factories. I wrote a bill with Marco Rubio that would do just that. Rebalancing trade also requires properly investing the 280 billion dollars in the Chips and Science Act which I also co-authored. And it requires new chips acts for many industries. Let’s have a CHIPS act for aluminum, for steel, for paper, for microelectronics, for advanced auto parts and for climate technologies. To succeed, we’ll need expedited permitting for national projects, conditional on companies paying a prevailing wage, meeting environmental standards, and not engaging in stock buy backs. 

For the reasons set out here and here, I think Khanna's focus on the trade deficit is misguided. If he wants to bring the trade deficit down, the answer is in macroeconomic policies such as savings rates and the value of the dollar. Khanna wants to talk about manufacturing in this context, but whether to subsidize U.S. manufacturing is an issue that should be debated independently of the trade deficit, because shifting the U.S. economy away from other sectors and towards manufacturing is not likely to have much of an impact on the trade deficit. I realize that in the political discourse, the words "trade deficit" tend to get people's attention, but I hope that the people using these words will eventually recognize that in terms of the substance of the issue, the existence and size of the U.S. trade deficit is driven by factors outside of trade or industrial policy.

Katherine Tai on Protectionism, Free Trade, and Industrial Policy

At a recent press conference, U.S. Trade Rep. Katherine Tai offered a few thoughts on U.S. industrial policy. 

First, in response to a question about how she would evaluate the criticism that the Inflation Reduction Act constitutes protectionism, Tai said the following (39:35 of the video):

I generally don't like to use the term protectionism because I think it creates a false dichotomy, that there are certain things are protectionist, and then I think, on the other side, it's free trade. ... So that assumes that there are only these two categories -- something that is protectionist and something that is free trade.

In fact, if you look at the policies around the world, I think it is a much more of a spectrum. If you look at the Inflation Reduction Act, it does have and reflect a much more open embrace by the United States today of the idea of an industrial policy. But it reflects also a very specific American approach to industrial policy, which is not a planned economy, but how you can use more tools to create the incentives in the marketplace to create the outcomes that you want. And in the case of the Inflation Reduction Act, more innovation and adaptation to clean energy technologies.

In the traditional conversation around industrial policy, it has been closely associated with this concept of protectionism, that you only advance industrial policy to benefit yourself. I think that even if you're looking at the electric vehicle provisions in the Inflation Reduction Act, you see baked into it this acknowledgement that it is not just for the United States, that ... it reflects a recognition that there are supply chains that involve the collaboration of multiple countries and economies. And so that's why we have negotiated the critical minerals agreement with Japan to bring in parts of the Japanese electric vehicle battery supply chain into these benefits. And ultimately what I really want to drive home is, the reason why this is not, as you describe it, all for us is that we recognize that in order to realize that clean energy future that I think all of us want, it is something that we are going to need to do with others.

Later, Tai was asked this question (49:06 of the video):

[This question is] about the new global order and basically the outcome you want by the new kind of ... industrial policy in the United States. Looking at it from a European and some Asian perspective, it seems, yes, there is a will to redefine industrial policy. There's a will to redefine supply chains, but with a very US-centered, very West-centered direction. There are complaints especially on the semiconductor side that the IRA, if you want to get some subsidies, ... it restricts companies' investment in other countries, for example. So how do you deal with these issues with ... your strong partners that you want that are investing billions of dollars in the United States, and that are now facing restrictions on their own business? And I also have to think whether they want to apply ... for subsidies or not.

Tai responded as follows:

So I tried to get at this in my earlier answer, but this gives me an opportunity to be more clear, and I've spoken about this quite a bit recently, which is, our vision for an industrial policy is really ... a corrective measure. It does reflect that there's a correction that needs to be made, for instance, in clean energy technology, that there needs to be an infusion of energy, if you will, incentive to create the innovations that are going to be required. But in other areas, we as the United States have experienced deindustrialization over the past decades in several areas. You will also see some of our policies go to that correction of reinvigorating in certain areas.

What I would say is this, in very clear terms. Our industrial policy is one that has to work with trade policy. So our vision is for an industrial policy that is collaborative, that can be complementary, where we can be talking to each other about the kinds of investments that need to be made, and how we can ensure that we're de-conflicting. We're not all trying to reinvent the wheel at the same time. And this is something that's quite relevant in the conversations between the US and the EU, for instance, where we both have our own Chips Acts. And I guess I will not resist the temptation to say that for many of the countries who have practiced industrial policies in the past, and even in the present, that complementary piece, that piece that works with trade policy is not always present there. And so I do want to draw attention to the fact that as we correct for imbalances, places where markets have fallen down, we are doing it with a vision that the world and our partners have to come with us.

Tai referred to a "spectrum," and I'm going to focus on that concept here.

Let's start with the terms "protectionism" and "free trade." As I've said several times before, in my view, protectionism and free trade are two of the clearest and most useful terms in the trade discourse. Many other terms are vague, but these two have a widely understood meaning, although of course there are debates about certain aspects, especially for "free trade." As a result, I try to push back against any push back against using these terms (if you can follow that!). Having said that, I agree with Tai that there is a spectrum here. There are degrees of protectionism and degrees of free trade, and for practical purposes, the policy question is where we want to fall on the spectrum.

Turning now to industrial policy, Tai says that the IRA "reflects also a very specific American approach to industrial policy, which is not a planned economy." I agree that the U.S. does not have a planned economy. However, keeping with the idea of having a spectrum of policy, I think the IRA shifts the U.S. a bit on the spectrum in the direction of a planned economy. As Tai puts it, "you can use more tools to create the incentives in the marketplace to create the outcomes that you want." Well, that involves some planning, even if only a limited amount.

Also on industrial policy, Tai offers a contrast between a U.S. industrial policy that focuses on the U.S., on the one hand, and a U.S. industrial policy that works with (at least some) others, on the other hand. Here I would say that recent U.S. industrial policy legislation such as the IRA also represents a point on a spectrum. In this regard, it's worth noting that Congress perhaps intended a more U.S.-focused industrial policy, whereas the Biden administration -- for example with its interpretation of "free trade agreement" to include special agreements on critical minerals that don't free much trade -- is shifting the policy along the spectrum towards an industrial policy that takes into account our relationships with allies, so there is now a bit more working with others. I would note here that an even more collaborative industrial policy would work with allies in drawing up the policy, rather than trying to adjust the policy to respond to their concerns after the fact. I would also note that the idea of working with some countries but not others limits the degree to which the policy is "collaborative" and "complementary."

For Better or Worse, We Have Another Chance to Evaluate Industrial Policy

Over on the Baker Institute website, I have a piece entitled "Will the Biden Administration’s Industrial Policy Experiment Succeed?" You won't be surprised to hear that I am skeptical that the administration's industrial policy moves will be good for the U.S. economy overall, for the following reasons:

-- past industrial policy efforts have generally not gone very well

-- regulatory capture is hard to avoid

-- corporations play governments off each other to get subsidies for the investments they already plan to make

-- subsidies shift financial resources from one sector to another, so if we are doing more of one thing, we are doing less of some other thing

-- domestic industrial policy leads to international trade conflict

-- wealthy countries can afford more subsidies, putting economic development in poor countries at risk

-- if every country followed this approach, it would lead to a terribly inefficient global economy

-- some of the efforts to get the U.S. to manufacture more seem to reflect nostalgia for the 1950s, but based on what I know about that era, I don't think we should be trying to go back there, and anyway those were special circumstances that couldn't be replicated now

Regardless of all that, we seem to be going ahead with various industrial policy initiatives, which leads me to conclude the piece with these points:

If we are going to do industrial policy, there are better and worse approaches. For example, subsidies that go directly to consumers (e.g., tax breaks for buying an electric vehicle) are better than subsidies to specific producers, as producers are highly skilled at regulatory capture. Thus, if fighting climate change is the goal, then a “light touch” industrial policy that favors the clean energy vehicle sector as a whole — by subsidizing purchases of its products rather than giving subsidies directly to individual auto manufacturers — makes the most sense.

For a mix of reasons, the Biden administration is going forward with many of the initiatives it labels as industrial policy. As noted, studies of past efforts show serious flaws in these policies, but it is all being tried again, so there will now be a chance to do some new assessments. What we need is an objective evaluation of these efforts. How well are the policies achieving their stated objectives? Are there unanticipated effects?

Industrial policy is being put to the test. Let’s use this opportunity to give it another thorough evaluation.

Could Chinese Integration into the World Trading System Have Led To Democracy, Free Enterprise, and Human Rights?

In recent years, I've seen a number of people trying to make the case that the conventional wisdom on trade with China in the late 1990s was wrong. Here is a version of the argument from James Hohmann of the Washington Post: 

The Washington consensus at the dawn of this century that unfettered trade would propel China toward democracy, free enterprise and human rights turned out to be wrong.

This blog post addresses several aspects of the issue: How much trade liberalization was there, why didn't China change more in the direction people hoped, and what to do now.

How much trade liberalization was there?

As I have said before here on this blog, we don't have anything close to "unfettered trade" (with China or anyone else), and this has been the case since well before the Trump administration's various protectionist measures. As just one example, Chinese products in particular have been hit hard by anti-dumping duties on a wide range of products. So, there are clearly plenty of "fetters" still in place.

Also, in terms of the liberalization that occurred when China joined the WTO, it's worth noting that Chinese tariffs and other barriers were lowered significantly, but the U.S. and other countries didn't have to do much in this regard. Thus, the liberalization process was fairly one-sided. On the other hand, it is true that U.S. trade with China became more stable after permanent normal trade relations was granted, and that did have an impact on the views of U.S. and other non-Chinese companies about investing in China.

To sum up on this point, rather than a sudden onset of "unfettered trade" with China at the beginning of the 2000s, maybe the better description of what happened is that China liberalized its own import regime quite a bit, and, in addition, China's ability to export to the U.S. and other countries became more stable and secure.

Why didn't China change the way people hoped?

But perhaps that's all a bit nitpicky (although I do think an accurate characterization of these events is important), and the bigger point raised by the Hohmann statement is this: However we characterize Chinese trade liberalization, why didn't that bring democracy, free enterprise, and human rights to China? 

I confess that I wasn't paying much attention to China at the time. I was focused on WTO disputes, and was waiting until China got into some of those. But if I had thought about China much in the late 1990s and early 2000s, I certainly would have hoped to see progress there towards democracy, free enterprise, and human rights after its WTO accession. South Korea joined the GATT in 1967 and subsequently transitioned from an authoritarian state to a democratic capitalist state (I'm not suggesting cause and effect here, but one did follow the other after a period of time), so couldn't something similar happen in China? 

But every country is different, and I would not have expected that South Korea's experience could be easily replicated in China. China would have to follow its own path, and given the very different geopolitics of China and South Korea, that path was likely to be quite different.

When China joined the WTO in 2001, that might have been the moment to test out the possibilities for promoting democracy, free enterprise, and human rights in China. And it seems like many U.S. foreign policy officials were very focused on China in the summer of 2001. It's hard to say how that focus would have manifested itself, but pressure in the areas of democracy, free enterprise, and human rights was certainly possible.

But something got in the way. After 9/11, the U.S. foreign policy focus shifted to the Middle East. As part of that shift, the U.S. needed China's support, or at least non-objection, to U.S. actions in the War on Terror. As a result, I think it's fair to say that the U.S. did not press China on issues of democracy, free enterprise, and human rights during this period as much as it otherwise would have. It's difficult to quantify just how much pressing was going on, but certainly it was less than if the War on Terror had not been taking place.

With that as background, I think the statement that "[t]he Washington consensus at the dawn of this century that unfettered trade would propel China toward democracy, free enterprise and human rights turned out to be wrong" is a bit misleading in a couple ways.

First, I'm not sure there was a "consensus" -- Washington or otherwise -- about what the ultimate result would be here. Rather than a widespread belief that trade "would propel" China, it was more of a hope that trade could help contribute in some degree to these outcomes, in the way it had with other countries. But there was not much certainty about any of this. People wanted to see China move in that direction, and an agreement under which China would liberalize trade, and increase interactions with people in capitalist democracies more generally, seemed like a good way to make progress. It certainly made more logical sense than an approach of trying to isolate China.

Sorting through what every expert said at the time is beyond the scope of this blog post, but President Clinton made a long and well-known speech on the issue in March 2000, intended in part to convince Congress to pass the Permanent Normal Trade Relations for China statute. Read the whole thing, but here are some key points from it:

the path that China takes to the future is a choice China will make. We cannot control that choice; we can only influence it. But we must recognize that we do have complete control over what we do. We can work to pull China in the right direction, or we can turn our backs and almost certainly push it in the wrong direction.

The W.T.O. agreement will move China in the right direction. It will advance the goals America has worked for in China for the past three decades.

...

If Congress passes P.N.T.R., we reap these rewards. If Congress rejects it, our competitors reap these rewards. Again, we must understand the consequences of saying no. If we don't sell our products to China, someone else will step into the breach, and we'll spend the next 20 years wondering why in the wide world we handed over the benefits we negotiated to other people.

...

But most of the critics of the China W.T.O. agreement do not seriously question its economic benefits. They're more likely to say things like this: China is a growing threat to Taiwan and its neighbors; we shouldn't strengthen it. Or, China violates labor rights and human rights; we shouldn't reward it. Or, China is a dangerous proliferator; we shouldn't empower it. These concerns are valid, but the conclusion of those who raise them as an argument against China W.T.O. isn't.

China is a one-party state that does not tolerate opposition. It does deny citizens fundamental rights of free speech and religious expression. It does defend its interests in the world, and sometimes in ways that are dramatically at odds from our own. But the question is not whether we approve or disapprove of China's practices. The question is, what's the smartest thing to do to improve these practices?

I believe the choice between economic rights and human rights, between economic security and national security, is a false one.

Membership in the W.T.O., of course, will not create a free society in China overnight or guarantee that China will play by global rules. But over time, I believe it will move China faster and further in the right direction, and certainly will do that more than rejection would.

Balancing out all of his various statements, it seems to me that he was hopeful but realistic about the possibilities here. He wasn't arguing that letting China into the WTO would guarantee positive results, but rather it was the best chance. Would democracy, free enterprise, and human rights be in a better state today if China had not joined? It's hard to imagine they would be.

And second, as noted above, I don't think the policy was properly tested, in the sense that "propel[ling] China toward democracy, free enterprise and human rights" was not a priority for the U.S. after 9/11. For example, when China joined the WTO in December 2001, that would have been a good moment to press the extensive commitments that China made. But that seems to have happened less than one might have expected, with some key obligations related to state-owned enterprises (e.g. para. 46 of the accession Working Party report) mostly ignored as far as I can tell (but if someone has details on how they were raised at the WTO or bilaterally, I'd love to hear more).

To be clear, I don't know how much could have been achieved if these issues had been a U.S. priority. But regardless, my sense is that the perception in China was that the U.S. wasn't focused on these issues, and as a result China wasn't feeling much external pressure to make changes.

What could be done now?

But what's done is done, and now we are at a different point in history. Are there things that the U.S. government could do today that would push China in the direction of democracy, free enterprise and human rights? Maybe. It's difficult to influence any government in this way, and with a major power like China it is particularly difficult. But I do think it is possible to have some influence in relation to these issues in China, with one big caveat: It would have to be done across the board for all countries, rather than only be applied to China. If we are friendly and accommodating with some authoritarian states, calling for democracy, free enterprise, and human rights in others is unlikely to be effective.

Also, it would have to be done in a careful, diplomatic way. Public criticism will often backfire, and economic sanctions don't have a great track record either.

And finally, the best way to have an impact on these issues -- in China or elsewhere -- is probably through leading by example, by setting high standards at home. I think we can all agree that there are problems with democracy and human rights in the U.S. (although people disagree on what exactly those problems are!), and making an effort to improve those could be helpful in our international dealings.

All of this makes inducing changes in China a serious challenge. However, I think that if expectations are set at a reasonable level, it is possible that something could be achieved. One major hurdle is that criticism of China here in the U.S. often seems to be about scoring domestic political points, rather than thinking about what words or actions by the U.S. government or its officials might actually lead to changes in China. There are not enough conversations in the U.S. political world about how the Chinese government or people are thinking about the various issues related to democracy, free enterprise and human rights, and, taking that thinking into account, what might be an effective way for the U.S. government to address these issues.

China and Japan Agree To Use MPIA for DS601 Dispute

In a post last month after Japan joined the MPIA, I said:

Why is Japan making this announcement right now? Hard to say for sure, and there could be a number of things going on, but as Dmitry Grozoubinski pointed out to me, the ongoing panel hearing Japan's complaint in China - AD Measures on Stainless Steel (DS601) has said that it "expects to issue its final report to the parties by the first quarter of 2023." It's definitely worth keeping an eye on developments in that case. No doubt Japan would like to avoid China appealing into the void if it loses, and joining the MPIA now could be a way to prevent that.

Following up on that, earlier this week Japan and China notified the DSB that they have agreed to Procedures for Arbitration under Article 25 in the DS601 dispute to handle any appeal. The panel in DS601 recently updated its schedule to say that it "now expects to issue its final report to the parties in May 2023." It seems like we are headed towards a panel report being issued soon and an MPIA appeal coming after that, although a settlement is always a possibility.

Katherine Tai on Interpreting the Essential Security Exception

Yesterday, Ambassador Katherine Tai gave the Wenger Lecture at American University's Washington College of Law. She took some audience questions afterwards, and I used the opportunity to ask her about the U.S. position on the essential security exception at the WTO. I realized there is only so much she can say publicly about issues such as this one, and I tried as hard as I could in the few seconds after I decided to ask the question to come up with a way to phrase it so that she might actually be able to answer it. Here's what I came up with:

I had a question about the national security exception at the WTO. So there have been two recent WTO panel rulings that US measures were not justified under the national security exception. You expressed some displeasure with those rulings. And as I understand it, the US is going to propose an authoritative interpretation -- I think that's been said [publicly] -- of GATT Article XXI. And I don't mean to press you too far, I know you can't tell me everything I'd want to know, but I was wondering if you could talk a little bit about when a proposal might be forthcoming here, if it hasn't already happened in Geneva, and maybe just the broad outlines of what the US proposal, what the US thinking is about what the appropriate interpretation of GATT Article XXI.

She started her answer this way:

Simon, I feel like your question is a bit of a trojan horse in referring people to your blog. ... I hope your traffic increases exponentially because of this engagement.

Busted! I've blogged about her remarks enough by now that she was well aware that whatever she said was going to end up on the blog. My Katherine Tai tag has a lot of posts in it! Her comment got a good laugh, by the way.

(For the record, I no longer have a good way to track blog traffic. There used to be a free service that did this, but it went out of business a few years ago. So unless there's so much web traffic that the site crashes, I probably won't notice anything.)

Turning to the substance, here's what she said:

To your question about when, I might pass your question on to our WTO Ambassador, Ambassador Maria Pagan. She's on the ground in Geneva ... . 

In terms of what, I think that you will see, although I have seen your blog as well, and I know that you are very familiar with how we think about this, how we have argued it, and frankly, our position on the essential security exception has been very, very consistent over ... almost 80 years of our participation in the GATT and the WTO.

I guess what I would say, to elaborate a little bit more, is, back in those early days of [the GATT] being a community of countries and economies with many, many shared values, I actually think that our interpretation was the interpretation shared by GATT members. And that over time -- and I think this goes to some of our concerns about the WTO dispute settlement system, and how the WTO evolved -- we are deeply uncomfortable with the World Trade Organization ... reaching so far into sovereign decisions that we make that relate to essential security, national security. And this is a conversation that I would have with Secretary Blinken, which is, do you want me representing all of your decision-making at a hearing in Geneva to try to justify the judgments that have been made here around essential security. ...

I think that there is a real concern around the credibility of ... the WTO when it strays so far outside of the trade lane. We have worked very, very hard over many years to keep trade and economics separate from national security. And I think that in many ways you want to ensure that those lines don't get crossed in a way that undermines the missions and, frankly, the opportunities that there still are for an institution like the WTO. ...

I'm very interested to see the proposed Article XXI interpretation the U.S. comes up with. I think I have a sense of the general U.S. position here (essential security exceptions are self-judging, and parties should bring non-violation nullification or impairment claims against measures for which essential security is invoked), but how exactly will the U.S. word its proposed interpretation? How do you articulate all this in an interpretation of the existing text? And with regard to the non-violation remedy, as I've said before, I'm skeptical that it can, in its current form, provide an effective remedy here. What I'm interested in, then, is whether the U.S. just relies on existing WTO jurisprudence on the non-violation remedy, or instead whether it articulates a different approach that might offer a more effective remedy.

Guest Post: Give me a cell and I will feed the world: Synthetic Biology in the UK Precision Breeding Act 2023

This is a guest post from Dr Mariela de Amstalden

Last month, the UK Genetic Technology (Precision Breeding) Act [PBA] received royal assent. This act establishes a novel framework in the UK for the release and marketing of, and risk assessments relating to, precision bred plants and animals, including derived food and feed. While UK press coverage of these developments has been largely limited to the misleading headlines about gene-editing of pets, the passing of the PBA is important on at least two main accounts. It provides a legal framework for novel products that were previously caught in regulatory ambiguity, because regulations in force predated the new biotechnologies, while also offering a robust indication of future regulatory preferences post-Brexit in highly regulated sectors, all the while we await for changes to retained EU law to be adopted. I share a few thoughts below.

Food Tech as the New Normal: Is Precision Breeding a Genetic Modification (GM)?

Precision breeding refers, in essence, to the ability to use gene editing technology to make targeted changes to the genetic code of organisms, similar to traditional breeding techniques, but much faster than the latter. This type is genetic technology is seen as essential to ensure food security in the UK (recall the 2023 winter food shortages), while positioning England at the forefront of global agri-innovations. More specifically, genetic editing for precision breeding entails the use of specialised enzymes to edit genes at specific points in a given genome or DNA sequence -adding, removing or replacing them with precision. At present, this can be done with the use of technologies like CRISPR and TALEN.

Genetic editing is not the same as genetic modification. This qualification is important, because genetic modification entails a difference in the process and in the outcome: in the process because genes derived from unrelated species are introduced into an organism’s genome, and in the outcome because this introduction confers novel characteristics that could have not occurred naturally in that organism. In simpler words, gene-editing does not involve transgenics – genes movement between species. In the absence of other, non-technological forms of addressing the relentless effects of climate change on our food systems, gene-editing provides an alternative to ensure the resilience of crops, thus contributing to the stabilisation of global food markets, with price fluctuations having real impact on the lives of millions of people and their ability to access safe, sustainable and nutritious foods.

Interestingly, there are no labelling requirements for precision breeding products under this act, raising questions about consumer protection and potentially misleading (or absent) information in the front of pack labels. Equally, potential for global trade-distorting effects appear to be unmitigated at present, as unlabelled gene-edited foods would not be, in principle, granted market access in WTO member states with more stringent labelling requirements for such foods - as it is the case in the EU for the time being. The rationale from refraining to require specific labels is partly an attempt to address the ‘pacing problem’ and partly an exercise of anticipatory policy-making. More precisely, the UK government considers that precision breeding is a rapidly evolving technology with equally advanced industry practices that requires a flexible regulatory framework to be responsive, effective, accessible and transparent.

Animals by Design, Ethics and Global Trade

Significantly, the new act also provides a legal basis for the gene-editing of farming animals in England, although it is subject to a favourable vote in Westminster: MPs need to satisfy themselves that there is no animal suffering in the application of the technique. The use of animal welfare as a standard to scrutinise the legality of a parliamentary act, while not new, is certainly a welcome development in the broader discussion of animal sentience and their legal standing within constitutional frameworks.

Ethical considerations need to be paid attention to, and different points of view engaged with, if this act is not to suffer the dreadful public relations example of early days in the transatlantic GMO wars. A careful risk communication strategy, coupled with robust consultatory, iterative mechanisms will be required to ensure public trust in governmental action, and to foster public acceptance of the new products if the intention is for these novel foods to display their potential benefits. Indeed, there is an impending need to avoid the disastrously long legal battle that unfolded in Geneva in times past, when genetically modified organisms (GMOs) produced in the US have been prevented from accessing EU markets, in a calculated gesture of non-compliance with WTO law. The ban continues to date. A 2018 joint statement issued by some WTO members with regulations that allow for gene-editing crops and animals, including Argentina, Brazil, Colombia, Canada, Australia and the US, indicates a willingness to pre-empt future legal challenges and ‘avoid arbitrary and unjustifiable distinctions’ between precision and conventional breeding techniques.

Closer to home, as a matter of free movement of goods within the UK, there would be no barriers impeding the transit of gene-edited products from England into Wales, Scotland and Northern Ireland – where precision breeding techniques for agriculture are still banned. Questions have been raised about consultation (or lack thereof) with devolved governments while preparing the bill, potentially jeopardising the legitimacy, or at least public acceptance, of the new products across the UK. Another layer of complexity is added by the Northern Ireland Protocol and the recent Windsor Framework, de facto requiring foodstuffs to comply with both EU and UK rules.

De-coupling from the EU in three [A]cts: Anticipatory Laws for Uncertain Futures

The new act breaks away from continental European ways, by appearing to prompt a regulatory alignment with the US, which in recent years has decided not to label gene-edited agricultural products. This is in stark contrast with regulatory frameworks in place across the EU, affirmed by a not uncontroversial ECJ decision in 25 July 2018 (Case C-528/16) that gene-edited crops ought to be treated as genetically modified organisms (GMOs). More specifically, the court was concerned with the ability of gene-editing to produce the same effects as transgenesis, and to generate those at a rate ‘out of all proportion’ to those resulting from conventional breeding techniques. Latest prevailing scientific opinions in the EU, presented in a 2021 European Commission study, confirmed that gene-editing as a new genomic technique falls within the EU GMO regulatory regime. Crucially however, this study cautioned that technological developments are advancing at pace, and that the current EU GMO regime is not fit for purpose, particularly as it applies to some of the most recent techniques like CRISPR. The acknowledgement of novel forms of regulatory oversight gained traction, and the Commission is expected to propose a new regulation for plants produced by certain new genomic techniques in the second quarter of 2023.

Back in England, and in a novel regulatory twist, the PBA is performing anticipatory, progressive risk governance by also foreseeing its application to technological methods similar to CRISPR and TALEN that may arise in the future. The new legal standard for future gene-editing technologies is rather lenient, demanding only similarity in the end result (i.e. consumer facing product) in that there must be no difference between a variety that could have been naturally produced, but which would have taken much longer under traditional breeding methods. In doing so, the PBA is engaging in and deploying an iteration of the doctrine of substantive equivalence for the assessment of food safety. Widely used in Canada and the US, this doctrine operates on a presumption of safety that focuses on the product, in contrast to the precautionary principle embraced in the EU, which primarily focuses on the process.

Relegating the precautionary principle to days past in favour of substantive equivalence is significant. This might very well be a watershed moment, whereby a post-Brexit UK moves towards regulatory instrumentalization as a tool to operationalise ambitious plans to promote innovation and incentivise the economy. This sends a clear signal that regulatory alignment with the EU is passé, embarking on a new trajectory that prioritises future-proof governance of sustainable, if disruptive technologies. In this way, the UK is choosing to embark on a high-risk, high-gain strategy that can prove successful, provided it has sufficiently robust safeguard mechanisms in place to mitigate the spill-over effects of regulatory divergence, and their inevitable geopolitical ramifications. Through this lens then, the UK is de-coupling from the EU in three distinct [A]cts: it is evidently asserting its regulatory autonomy, by contesting old, seemingly unfit for purpose EU paradigms for good (food) regulation, while breaking ground on novel anticipatory laws for uncertain futures. These thought-provoking developments merit further study, and build the basis of upcoming work on cellular agriculture law (Edinburgh University Press 2024).

Future-proof, agile laws like the PBA might well be precisely what the UK agri-food and innovation sectors require to catapult effective climate change mitigation strategies, ensure resilient food systems and conserve public trust (and public health) as we start to transition towards a post-Anthropocene era of circular bioeconomies. Perhaps even post-Brexit clouds can have silver linings, after all.

Rethinking World Trade 2023 Event at Georgetown Law

The Center on Inclusive Trade and Development (CITD) at Georgetown Law will be hosting a conference on "Rethinking World Trade 2023," Thursday, April 13th (8:30-5:00 p.m.). Space permitting, people can attend in person, but you can also register for the virtual option. You can register here.

The full program is here. Here's the flier for the event:

 

 

Toward a More Open ICJ Advisory Process

Toward A More Open ICJ Advisory Process

Steve Charnovitz

2 April 2023

In a recent action, the United Nations General Assembly (A/77/L.58) requested an Advisory Opinion of the International Court of Justice (ICJ) on the obligation of States in respect of climate change.  This is an important issue for many international organizations including the World Trade Organization (WTO) which, in recent years, has aspired to get more engaged in actively addressing climate change challenges.  I hope that the ICJ (under its Art. 66.2 authority) will be open to inviting statements from intergovernmental organizations.

Although the Permanent Court of International Justice (PCIJ), in its earliest years, was not embarrassed about providing input opportunities for international nongovernmental organizations (NGOs), the ICJ has not been as inclusive in its Advisory Opinion proceedings. Of course, the vast expansion of international NGOs over the past century makes the question of nonstate participation much more difficult than it was in 1922 when the International Federation of Trades Unions delivered a statement to the PCIJ during its proceeding regarding the legal competence of the International Labour Organization (ILO).

Back in 2004, the ICJ did take an important step toward more inclusivity through its Practice Direction XII which provides a process for handling written statements (in Advisory Opinion cases) from international NGOs. Under this process, "Written statements and/or documents submitted by international non-governmental organizations will be placed in a designated location in the Peace Palace" so that States and intergovernmental organizations presenting written and oral statements can more easily refer to them.  Such NGO documents, however, are "not to be considered as part of the case file."

While it may be too progressive to provide for such NGO statements to be included in the case file, the ICJ could improve upon the accessibility to such NGO statements by the international community by making such documents readily available through the internet.  One can anticipate that international business NGOs might want to submit statements in the same manner as international environmental NGOs and individual organizations may wish to look at the statements of other organizations.

In the most recent ICJ Advisory proceeding touching on the environment (the Nuclear Weapons case 28 years ago), there were about 28 States that submitted a written statement. For the climate change proceeding, many more States would likely want to participate and might want to draw upon the analytical contributions from economic and social actors.

Although an advisory opinion about climate change will be looking at the past as well as the future, the interests of future generations are paramount.  While states and international organizations can represent future generations, a greater diversity of views, on the key legal questions, would help the Court render a better decision.

 

Katherine Tai on "Traditional Fully Liberalizing Trade Agreements" and Non-Market Policies and Practices

Here's an exchange between Rep. Darin LaHood (R-IL) and Ambassador Katherine Tai at a House Ways and Means Committee hearing (2:10:46 of the video) on Friday, March 24:

Rep. LaHood:

Ambassador Tai, great to have you here and thanks for being with us. As you know, Ambassador Tai, trade policy is incredibly important to me and my district and my constituents. I represent a heavy agricultural district and a manufacturing district whose jobs and economic successes rely on market access around the world and opportunities to send our great American products all across the globe. Knowing that, I don't think it should be a surprise to anyone here that I've been incredibly frustrated that another year has passed without kind of a proactive substantive policy on trade and progress on enforceable trade agreements from the Biden administration.

I know you, Ambassador Tai, were in the Senate yesterday, or maybe the day before, before the Senate Finance Committee, and I know there was frustration over there. There was a Politico article yesterday that said, "Ambassador Tai plays defense as Senate rips into trade agenda." In that article, it says Senators on both sides of the aisle criticized Ambassador Tai for not initiating trade agreements with foreign partners, opting instead for frameworks that lack the same market access provisions and enforcement mechanisms as traditional pacts. And you know, we've talked about this a little bit before Ambassador Tai, but as we sit here today, two years into this job, we don't have an FTA with the UK. We don't have a free trade agreement with Kenya. We don't have an FTA with Taiwan. We have no request to Congress for TPA. We continually allow China to take advantage of our IP at the WTO, and we have this issue with allowing Europe to set the playing field on digital to the disadvantage of US businesses and workers.

So those are just a few things that I think express my collective frustration and others, and as a member of the trade subcommittee, and I'm also a member of the new Select Committee on China, which has raised awareness in a bipartisan way that what we see every day in the Indo Pacific region is the growing threats of China. And considering that, having really an insufficient trade engagement in that region, I believe is unacceptable. And I know you mentioned IPEF, and as I look at IPEF today, I believe the framework is actually getting weaker. Just take the digital pillar as an example. USTR has chosen to engage in a framework that lacks tangible policy and avoids Congressional consultation or approval. And I'm open to hearing your views on that. And I worry that we are not countering or providing a strong enough alternative to the growing pressure of non-market economies. Instead of increasing US leadership in the Indo Pacific region, countering China's influence and leaning in on opportunities like digital trade to set global rules and standards that would put countries like China at a disadvantage, we are missing an opportunity to use trade as an offensive tool.

And so I mentioned those things again, as we look at every conversation as part of the Select Committee on China, when we talk to our like-minded allies in the Indo Pacific region, whether it's Japan, whether it's South Korea, whether it's Australia, is they're craving our leadership economically. And I just, I guess, express my frustration and my concerns about two years in and we've not made any progress on these things. So with that, I'd love to hear your your specific ideas or comments on IPEF, and whether it [provides] real economic and substantive alternatives to China's pressure in the Indo Pacific region.

Here was (part of) Tai's response:

It's good to see you, Mr. LaHood. And let me let me say a couple things before I get to your specific question on IPEF. I hear your frustrations. And I think that in your frustrations, I'd like to make two points.

One is, you are seeing a key part of our trade agenda, which is that it is not the traditional trade agenda. And that is out of a recognition that a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, that a lot of these have roots in a traditional trade approach that have brought us to where we are today.

So yes, we are not pursuing traditional fully liberalizing trade agreements, because we see those as part of the problem that we are trying to correct for. So your frustrations are affirming that yes, we are not pursuing the traditional trade agenda.

But what I would like to point out to you, and I'd be delighted to spend more time with you as well, is to have you see those things that we are doing that we are putting forward a trade agenda to try to correct for exactly some of those challenges that you have highlighted, especially with respect to non-market economic policies and practices that have really made the playing field extremely tilted, and that we're going to have to adapt to respond to for as long as those practices are there.

I have a couple thoughts here in reaction.

First, let me start off with the nitpicky, as I often do. Tai said "a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, ... have roots in a traditional trade approach that have brought us to where we are today." When I first read this, I was puzzled by how the prior U.S. trade approach could have led to Russia's invasion of Ukraine. But then I remembered that Tai has brought up Russia before, stating the point about Russia in a different way:

The other aspect of this is, the assumption that countries that trade with each other do not go to war with each other. Nothing could be clearer than Russia's invasion of Ukraine, that that was not a market based, economically rational decision. And that even countries that trade together -- and this has probably always been the case, go back to World War I and further -- even countries that rely on each other for their prosperity are at some points motivated to ignore all of that and nevertheless to go to war. Russia's invasion, Vladimir Putin's decision to invade Ukraine, shrank the pie for Russia, shrank the pie for Ukraine. And I think that not being a business economist like the rest of you, I feel pretty confident in saying that that decision is shrinking the pie for everyone.

And also this:

The ... second set of disruptions around COVID, the pandemic and our supply chain disruptions. And the third set are more recent, and Russia's invasion of Ukraine, which according to our earlier theory about more trade leads to more peace and prosperity is something that simply should not have happened. One WTO member, on this basis, on this theory, should never have been incentivized to aggressively act out and invade another WTO Member.

As I understand it, she was saying in these previous quotes that Russia joining the WTO did not prevent war. My reaction to that point was that expecting WTO accession to prevent any and all war between WTO Members is more than can be hoped for from the WTO, although as a general matter I do think good trade relations reduces the risk of war.

Second, I'm not sure how many "traditional fully liberalizing trade agreements" the U.S. has entered into. NAFTA/USMCA comes the closest to being "fully liberalizing," I think, but even that had exceptions from the basic anti-protectionism goals (e.g., there were some TRQs, anti-dumping duties were still allowed and used regularly, and USMCA tightened rules of origin for autos), and it also has non-liberalizing provisions such as strong IP protection, labor rights, etc. Turning to the WTO, there is still so much more liberalizing to do that I think it's hard to characterize it as a "fully liberalizing" trade agreement. But regardless of whether too much "defensive" liberalization caused problems in the U.S. economy, what I see from U.S. trade policy over the past couple decades is that U.S. "offensive" demands for trade liberalization from our trading partners kept falling as a priority. Instead of a focus on liberalization, other policies -- IP protection, ISDS, labor rights, and the environment, among others -- were elevated to become major emphases in U.S. trade negotiations. We can only ask for so much, and if we are asking for these things, it means we are asking for less liberalization (or as LaHood put it, "market access around the world and opportunities to send our great American products all across the globe"). What this leaves me wondering is, how would things have gone if the U.S. had focused its demands on getting our trading partners to liberalize more? What kinds of new economic opportunities would we have had for U.S. producers if high tariffs and protectionist regulations by foreign governments had been more of a priority? And what impact would it have had on the attitudes of U.S. politicians towards trade if a wider range of U.S. businesses were significant exporters?

And third, with regard to non-market economic policies and practices, focusing on China's policies and practices, I think it would be useful to examine the options here as to what could have been done then and what could be done now.

As to what could have been done then, it's certainly true that the U.S. could have decided not to support China's WTO accession. But I'm not sure that would have put import-competing U.S. producers in much better of a position, for several (admittedly speculative) reasons: 1) China's economic rise started long before WTO accession was completed and would likely have continued even without WTO accession; 2) other countries would likely have signed bilateral or regional trade deals with China if China had not been admitted into the WTO; and 3) the biggest impact of China not joining the WTO is that its economy would have been much more closed to foreign products and services. I can easily imagine that if the U.S. had blocked China from joining the WTO, there would have been widespread criticism today about how that decision caused major disruptions to the U.S. economy as there was no effective way to combat Chinese non-market policies and practices.

As to what could be done now, based on the evidence I've seen, my sense is that when it comes to China in particular, but more broadly as well, unilateral measures such as AD/CVD or Section 301 aren't going to induce many changes to a government's non-market policies and practices. (If someone has evidence to the contrary, I'd love to see it). Why don't these work? A big factor is that trading partners look at these as protectionist measures that do not reflect a good faith pursuit of a change to their practices, with U.S. industries just looking for new reasons to keep their foreign competitors out of the market.

So on this issue, I'm not sure that anything the Biden administration is doing -- continuing the Section 301 tariffs and traditional AD/CVD practices, but also talking with allies about things like a possible global steel and aluminum deal or anything related to the IPEF -- will have much of an impact on China's non-market policies and practices. If someone thinks they will, feel free to walk me through how that has worked or would work, but I'm skeptical.

By contrast, what I think would work best on China's non-market policies and practices is a series of WTO complaints (assuming that the WTO dispute settlement system is restored), relying on the many and varied WTO obligations that address non-market practices. The U.S. (and others, but my understanding is that it was mainly the U.S.) negotiated some broad and unique obligations that apply to China. I think it's worth trying to enforce them. Will that change every problematic Chinese policy or practice? Definitely not. But even where it does not, it can lead to a multilateral endorsement of rebalancing that will avoid damaging trade wars and perhaps lay the foundation for long-term changes in certain Chinese policies and practices.