International Economic Law and Policy Blog

Chip Subsidies, Exports, and CVDs

Subsidies are a big part of the Biden administration's economic policy, with a variety of types available. Some go directly to producers, while others are in the form of tax credits for consumers on their purchases of goods. How much is being spent? For semiconductor subsidies, which as I understand it go to the producers, the White House says: "[t]he CHIPS and Science Act provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development."

As a small example of what they have in mind, in December the White House announced that "the U.S. Department of Commerce and BAE Systems Electronic Systems, a business unit of BAE Systems, Inc., have signed a non-binding preliminary memorandum of terms (PMT) to provide approximately $35 million in federal incentives under the CHIPS and Science Act to support the modernization of the company’s Microelectronics Center, a mature-node production facility in Nashua, New Hampshire. The project will replace aging tools and quadruple the production of chips necessary for critical defense programs including the F-35 fighter jet program."

Subsidies are not exactly new, with agriculture subsidies having been around for decades in various forms, and state/local location incentives and federal defense spending commonly used for certain manufacturing industries. But with more industries covered, and new forms of subsidies being offered, we are seeing an increase in U.S. government subsidies.

One thing I wonder about in relation to this rise is what U.S. subsidy supporters expect in terms of a foreign response. If goods benefitting from the subsidies are exported to countries with competing industries, I would think there is a strong possibility of CVD cases being brought against these exports. As a result, here are some questions I have: Do proponents of these subsidies worry about this? Do they think CVDs imposed by foreign governments are an appropriate response and they are fine with it? Or do they have plans to fight against it? Do they not anticipate an increase in exports? Or do they figure that most exports will go to places without a competing domestic industry so CVDs won't have much of an impact?

In the New Hampshire example noted above, Commerce Secretary Gina Raimondo said:  "America invented semiconductors. We used to lead the world in manufacturing them. ... Producing those chips at home is fundamental to our national and economic security." It's clear that the Biden administration wants more chips, and more advanced chips, produced in the U.S. But what's not clear to me is whether they expect these chips to mostly just supply U.S. defense needs (Raimondo said: "I am excited to be here for our first CHIPS announcement, which highlights how central semiconductors are to our national defense"), or whether these subsidized chips will be sold around the world.

Currently, there appears to be a significant amount of U.S. chip exports. The Semiconductor Industry Association says that: "The United States exported $61.1 billion in semiconductors in 2022 and maintains a consistent trade surplus in semiconductors." Those exports don't seem to have triggered a trade remedy response so far. (The Commerce Department's page with a list of foreign trade remedies imposed on U.S. producers is here.) Could that change with $52.7 billion given to companies in the sector?

Some Digital Trade Policy Proposals for the Biden Administration on Data Flow Obligations and Exceptions

Based on a couple recent meetings I was a part of, I thought it might be helpful to put together some specific proposals for digital trade provisions related to data flow obligations and exceptions, in the context of international economic agreements. The Biden administration appears to be having some internal disagreements on this issue, and maybe this could help -- or maybe not, who knows! Anyway, here goes.

As is probably clear from prior posts I've done on this subject, I have some concerns about the digital trade language that has been used in certain trade agreements, in particular on the exceptions. What I'm going to do in the first two sections here is look at a couple past examples of trade agreement data flow language on both obligations and exceptions, and then suggest a modified version for the exceptions. The last section is more of a general point that doesn't require much in the way of drafting suggestions.  

1. Substantive Obligations

Starting with the obligations on data flows, here are a couple examples of approaches taken in existing agreements or recent proposals:

USMCA

Article 19.11: Cross-Border Transfer of Information by Electronic Means

1. No Party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means if this activity is for the conduct of the business of a covered person.

DEPA

Article 4.3: Cross-Border Transfer of Information by Electronic Means

The Parties affirm their level of commitments relating to cross-border transfer of information by electronic means, in particular, but not exclusively:

1. The Parties recognise that each Party may have its own regulatory requirements concerning the transfer of information by electronic means.

2. Each Party shall allow the cross-border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person.

EU-Japan EPA proposed text

ARTICLE 8.81

Cross-border transfer of information by electronic means

1. The Parties are committed to ensuring the cross-border transfer of information by electronic means where this activity is for the conduct of the business of a covered person.

2. To that end, a Party shall not adopt or maintain measures which prohibit or restrict the cross-border transfer of information set out in paragraph 1 by:

(a) requiring the use of computing facilities or network elements in the territory of the Party for information processing, including by requiring the use of computing facilities or network elements that are certified or approved in the territory of the Party;
(b) requiring the localisation of information in the territory of the Party for storage or processing;
(c) prohibiting storage or processing of information in the territory of the other Party;
(d) making the cross-border transfer of information contingent upon use of computing facilities or network elements in the territory of the Party or upon localisation requirements in the territory of the Party;
(e) prohibiting the transfer of information into the territory of the Party; or
(f) requiring the approval of the Party prior to the transfer of information to the territory of the other Party.¹

___________________________________

^{1 For greater certainty, subparagraph 2(f) does not prevent a Party from:}

^{(a) subjecting the use of a specific transfer instrument or a particular cross-border transfer of information to approval on grounds relating to the protection of personal data and privacy, in compliance with paragraph 4;
(b) requiring the certification or conformity assessment of ICT products, services and processes, including Artificial Intelligence, before their commercialisation or use in its territory, to ensure compliance with laws and regulations consistent with this Agreement or for cybersecurity purposes, in compliance with paragraphs 3 and 4, and Articles 1.5, 8.3 and 8.65; or
(c) requiring that re-users of information protected by intellectual property rights or confidentiality obligations resulting from domestic laws and regulations consistent with this Agreement, respect such rights or obligations when transferring the information across borders, including with regard to access requests by courts and authorities of third countries, in compliance with Article 8.3.}

It's worth noting that the EU-Japan proposed text brings obligations related to location of computing facilities into the main data flow obligations, whereas USMCA and DEPA separate them into obligations that follow the general data flow obligation (DEPA then follows this obligation with a specific exception, whereas USMCA does not).

I don't have strong feelings about which approach to choose here. I guess I like that the EU-Japan proposed text is detailed and comprehensive. The use of such a detailed provision does run the risk of a panel overcomplicating things by interpreting the provision to death, but I think it may help identify more clearly the problems the drafters are trying to address. The key, however, is the exceptions, which I'll get to now.

2. Exceptions

My view of exceptions in the traditional trade agreement context is that the results have come out fine, in the sense that the governments that lost cases when invoking the exceptions generally deserved to lose. However, some of the reasoning related to particular terms has been hard to follow, in part because of the complexity of the terms themselves. Replicating these provisions in the context of a new policy area provides an opportunity to rethink the approach. Let's look at some exceptions provisions that have been used or proposed in the context of data flows:

USCMA:

Article 19.11: Cross-Border Transfer of Information by Electronic Means

...

2. This Article does not prevent a Party from adopting or maintaining a measure inconsistent with paragraph 1 that is necessary to achieve a legitimate public policy objective, provided that the measure:

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and

(b) does not impose restrictions on transfers of information greater than are necessary to achieve the objective.⁵

^{5 A measure does not meet the conditions of this paragraph if it accords different treatment to data transfers solely on the basis that they are cross-border in a manner that modifies the conditions of competition to the detriment of service suppliers of another Party.}

DEPA

Article 4.3: Cross-Border Transfer of Information by Electronic Means

...

3. Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with paragraph 2 to achieve a legitimate public policy objective, provided that the measure:

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and

(b) does not impose restrictions on transfers of information greater than are required to achieve the objective.

EU-Japan EPA proposed text

ARTICLE 8.81

Cross-border transfer of information by electronic means

...

3. Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with paragraphs 1 and 2 to achieve a legitimate public policy objective², provided that the measure:

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade; and
(b) does not impose restrictions on transfers of information that are greater than necessary to achieve the objective.³

4. Nothing in this Article shall prevent a Party from adopting or maintaining measures on the protection of personal data and privacy, including with respect to cross-border transfers of information, provided that the law of the Party provides for instruments enabling transfers under conditions of general application⁴ for the protection of the information transferred.

5. This Article does not apply to cross-border transfer of information held or processed by or on behalf of a Party.

-----------------

^{2 For the purpose of this Article, "legitimate public policy objective" shall be interpreted in an objective manner and shall enable the pursuit of objectives such as the protection of public security, public morals, or human, animal or plant life or health, or the maintenance of public order or other similar objectives of public interest, taking into account the evolving nature of digital technologies.
3 For greater certainty, this provision does not affect the interpretation of other exceptions in this Agreement and their application to this Article and the right of a Party to invoke any of them.
4 For greater certainty, in line with the horizontal nature of the protection of personal data and privacy, "conditions of general application" refer to conditions formulated in objective terms that apply horizontally to an unidentified number of economic operators and thus cover a range of situations and cases.}

In deciding on the right approach to exceptions here, taking into account the sensitivity of these regulatory issues, I would err on the side of providing a bit more flexibility here than we have sometimes seen in trade agreements, including the ones above. With this in mind, I suggest text that is along the following lines:

Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with the obligations above to achieve a legitimate public policy objective (including the protection of personal data or privacy, public security, public morals, human, animal or plant life or health, the maintenance of public order, or other similar objectives of public interest), provided that the measure is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail.

Here are the key changes in my text as compared to prior trade and/or digital trade exception provisions: No necessity test, but rather just a means-ends relationship between the measure and its objective; no disguised restriction on international trade element, because the arbitrary or unjustifiable discrimination element does everything you need; and a non-exhaustive list of policy objectives. Overall, this should provide a simpler and more flexible exception, leading to plenty of policy space for those worried that their domestic regulations will come into conflict with these international rules. Basically, as long as you avoid nationality-based discrimination in your regulations, you will be fine.

As an additional point, the exceptions above are all specific to the data flow obligations. I don't think it makes sense to have, as some agreements do, two sets of exceptions applying here, one that is specific to the data provisions and one that is a general exception that applies to all obligations. It's better to get the right balance in one exception, so either the general exception can be reworked or we can just rely on a specific exception for data flows.

3. Enforcement

The final issue here is enforcement. In a typical trade agreement, obligations are subject to dispute settlement. When a complaint is brought, a panel makes the decision on whether a challenged domestic measure is consistent with the obligations (taking into account any exceptions).

Should this same approach apply to digital trade issue such as data flow obligations and exceptions? Probably at some point, but this policy area is still a fairly new one. Do we want to see domestic digital regulations adjudicated in international dispute proceedings right away? I can imagine that we may want some time to better understand how the principles would apply here before the litigation starts. To that end, maybe it makes sense to first set up a committee under the agreement in question that can meet regularly to discuss the domestic regulations being developed, through which governments can get a sense of how the international principles above (and the rest of the digital trade agreement) might apply to real world regulations.

Thus, perhaps the text could just have a marker to revisit the issue of dispute settlement in three years or so to decide whether it should apply to digital trade rules, or dispute settlement could just take effect automatically for digital trade rules after three years. Eventually dispute settlement should apply, but maybe we don't need that sort of controversial litigation taking place on day one.

Book Release - The Future of Trade: A North American Perspective

This is from David Gantz and Tony Payan:

Our new book on trade law and policy, The Future of Trade: A North American Perspective, was published by Edward Elgar on December 15. For details, see here. 

"This critical book assesses the current trade policy challenges facing the US and offers a series of recommendations which, if implemented, have the potential to improve both US domestic trade policy and international/foreign policy. Focusing on the reform of the WTO, the implementation of the United States-Mexico-Canada Agreement and the continuing rivalry between the US and China, The Future of Trade crucially advances the ongoing dialogue between US governments and stakeholders."

David A. Gantz is the Will Clayton Fellow for Trade and International Economics, Baker Institute for Public Policy, Center for the United States and Mexico, Rice University and Samuel M. Fegtly Professor Emeritus, James E. Rogers College of Law, University of Arizona and Tony Payan is the Director, Center for the United States and Mexico, Baker Institute for Public Policy, Rice University, USA and Professor of Social Sciences, Universidad Autónoma de Ciudad Juárez, Mexico.

More on Trade Enforcement

In my last post, I said this about trade enforcement at the WTO and under the U.S.-China Phase One deal:

... if the U.S. wants to enforce the WTO agreements in relation to the foreign trade barriers it has identified to the same extent other governments -- such as those signing on to the MPIA -- are able to, it would be good to embrace the possible solutions [to the Appellate Body crisis]. Raising these issues in WTO committees can be helpful in a few cases, but sometimes you need to invoke formal dispute settlement to have an impact.

And what about China? The WTO is the best place to go for trade enforcement against China (broad obligations, formal adjudication mechanism), but if the U.S. doesn't want to enforce obligations at the WTO right now, there is also the Phase One deal. That agreement doesn't have an adjudication system, so I don't think it will be very effective, but it does at least have a mechanism to raise complaints. As far as I can tell based on public information, this mechanism has not been used, but it would be nice to hear more from USTR about any enforcement activity taking place under this agreement.

Related to these issues, I noticed these recommendations of the U.S. House Select Committee on Strategic Competition between the United States and the Chinese Communist Party in a report it issued on Tuesday:

6. Direct USTR to bring a comprehensive WTO dispute against the PRC’s subsidization, support for state-owned enterprises, and non-market economy policies and practices with a broad coalition of countries documenting how the PRC has undermined a world trading system “based upon open, market-oriented policies” and impaired the benefits that many Members expected to receive from expanded trade relations with the PRC.

7. Direct USTR to publish a full assessment of the PRC’s compliance with the “Phase One” agreement and remedies necessary to address any areas of non-compliance.

There are things I disagree with in this House report, but I think both of these recommendations are sensible. It has always seemed to me that this sort of WTO complaint (or complaints) against China is the right path forward to deal with the various concerns people have expressed over the years, and I don't find the objections I've heard to filing such a case -- difficulty gathering evidence, retaliation -- to be persuasive. (The report states that "[t]he PRC’s economic system is incompatible with the WTO," but until we've tried enforcing the broad obligations China agreed to when joining the WTO, I don't think we know the answer to whether China's economy can fit within the WTO system.)

On the assessment of the Phase One deal, as I noted in my earlier post, we don't have much information on what has been happening here, so publishing an assessment of this sort would be helpful.

Katherine Tai on Trade Enforcement

Last week, U.S. Trade Rep. Katherine Tai spoke at the Aspen Security Forum and had the following things to say about U.S. enforcement of trade agreements:

In terms of trade enforcement, in order for our trade agreements, and our trade arrangements, to have integrity, we have to hold our partners accountable for the promises that they have made to us and to our stakeholders and to their stakeholders too. So we take the enforcement agenda extremely seriously. It is a very high priority.

A couple aspects of this I want to highlight. One is with respect to the USMCA, which is the renewed NAFTA. Now that renegotiation caught a lot of headlines while it was being renegotiated, and it's really a very, very interesting articulation of the basis for a modern new US trade policy.

One of the most important aspects of the USMCA in terms of what it does that the NAFTA didn't do, it has much stronger labor and environmental standards. It has stronger enforcement mechanisms. And it has, in particular, a labor specific enforcement mechanism that we call the rapid response mechanism for short. This is a mechanism that allows the United States and Mexico to work together to reach and pierce the veil of state to state interaction to focus on specific facilities within Mexico that are not respecting Mexico's laws on labor justice or the USMCA's rules. And we have activated this mechanism, I think the current count is 16 times, 14 times at the behest of petitioners, twice on our own initiative.

And in every one of those cases that we have seen through to the end, we have won rights. We have won real benefits for workers in Mexico. Why this matters: democracy and the democratization of economic opportunity. When Mexican workers have the ability, as they should under their own law, to advocate for themselves for better working conditions and higher wages, we are evening the playing field for American workers and we think it is not an accident that right now about 90% of the cases that we have brought have been in the auto sector.

I'll give you one specific example. Early on in the first year, one of the first three cases that we brought was related to a GM facility in Silao Mexico. As a result of our work on that, in partnership with the Mexican government, the workers at that facility were able to win a new vote for a union. They voted in a truly independent union to represent them. They voted on a collective bargaining agreement that that union negotiated for them, that they saw before they voted to approve it, and they won better benefits. They won the first wage increase that they had had in years, a 10% wage increase, and in the second year, that went up another 10%.

These are real wins. But the most significant part of this, which I want more people to know about is, what we are doing in the USMCA is relevant to everybody who is interested in trade because we have flipped the narrative, the strong criticism of US trade policy on its head. For the first time ever, we are offering workers a mechanism for their own advocacy and empowerment through a trade agreement. Without this trade agreement, they wouldn't have this mechanism. And I think that this is one of the cornerstones of what we call the worker centered trade policy, which is to drive a trade policy that more Americans feel like is going to champion their interests.

On the other hand, we're also doing a lot for our farmers, as we always have. And within the USMCA context, without leaving that agreement, I'll say that we've taken very seriously our corn producers' concerns around the Mexican decree that will impact our trading relationship. And we initiated a dispute settlement case in the middle of this year. And we are litigating it out right now

I have a couple reactions here.

First, the rapid response labor mechanism is part of a trade agreement, but does it have to be? Why not have this be an international labor agreement negotiated and primarily enforced by labor departments? I understand the politics of how trade policy-adjacent issues such as intellectual property or labor rights made their way into trade agreements, but I think there is still room for thinking about the appropriate scope of trade policy and where IP, labor and other issues best fit into domestic and international governance.

Second, as to trade enforcement, Tai mentions one USMCA dispute going on right now, but what about the WTO? Here's a table of WTO complaints (i.e. consultations requests) filed by the United States by year:

Year	Number of Complaints Filed
2019	1
2018	8
2017	3
2016	3
2015	2
2014	1
2013	3
2012	5
2011	1
2010	4
2009	2
2008	3
2007	4
2006	3
2005	1
2004	4
2003	3
2002	4
2001	1
2000	8
1999	10
1998	10
1997	17
1996	17
1995	6

I didn't forget to add the data after 2019; there were just no complaints filed by the U.S. in these years. It's probably obvious to this blog's readers that the U.S. blockage of Appellate Body appointments plays a role here, and the absence of recent U.S. complaints is, at least in part, tied to that. But I've always thought there were a range of compromises that could satisfy the U.S. concerns about the Appellate Body, and if the U.S. wants to enforce the WTO agreements in relation to the foreign trade barriers it has identified to the same extent other governments -- such as those signing on to the MPIA -- are able to, it would be good to embrace the possible solutions. Raising these issues in WTO committees can be helpful in a few cases, but sometimes you need to invoke formal dispute settlement to have an impact.

And what about China? The WTO is the best place to go for trade enforcement against China (broad obligations, formal adjudication mechanism), but if the U.S. doesn't want to enforce obligations at the WTO right now, there is also the Phase One deal. That agreement doesn't have an adjudication system, so I don't think it will be very effective, but it does at least have a mechanism to raise complaints. As far as I can tell based on public information, this mechanism has not been used, but it would be nice to hear more from USTR about any enforcement activity taking place under this agreement.

Trade lawyer Devon Whittle had additional comments on Tai's remarks here.

The EU-Japan Approach to Data Flow Obligations and Exceptions

I've done several posts on digital trade provisions in which I set out the data flow obligations and the exceptions, and consider whether the drafters have struck a good balance in terms of promoting data flows while preserving regulatory space. A recent draft amendment to the existing EU-Japan Economic Partnership Agreement provides another example to assess.

If I'm understanding this all correctly, the existing EU-Japan Economic Partnership Agreement covers some e-commerce issues in Articles 8.70-81, but left the free flow of data for future work:

ARTICLE 8.81

Free flow of data

The Parties shall reassess within three years of the date of entry into force of this Agreement the need for inclusion of provisions on the free flow of data into this Agreement.

The parties seem to have done their reassessment, as last week the EU published a "Proposal for a COUNCIL DECISION on the conclusion, on behalf of the European Union, of the Protocol amending the Agreement between the European Union and Japan for an Economic Partnership regarding free flow of data." An Annex to that proposal contains the relevant legal text, which sets out the following obligations related to data flows:

ARTICLE 8.81

Cross-border transfer of information by electronic means

1. The Parties are committed to ensuring the cross-border transfer of information by electronic means where this activity is for the conduct of the business of a covered person.

2. To that end, a Party shall not adopt or maintain measures which prohibit or restrict the cross-border transfer of information set out in paragraph 1 by:

(a) requiring the use of computing facilities or network elements in the territory of the Party for information processing, including by requiring the use of computing facilities or network elements that are certified or approved in the territory of the Party;
(b) requiring the localisation of information in the territory of the Party for storage or processing;
(c) prohibiting storage or processing of information in the territory of the other Party;
(d) making the cross-border transfer of information contingent upon use of computing facilities or network elements in the territory of the Party or upon localisation requirements in the territory of the Party;
(e) prohibiting the transfer of information into the territory of the Party; or
(f) requiring the approval of the Party prior to the transfer of information to the territory of the other Party.¹

___________________________________

^{1 For greater certainty, subparagraph 2(f) does not prevent a Party from:}

^{(a) subjecting the use of a specific transfer instrument or a particular cross-border transfer of information to approval on grounds relating to the protection of personal data and privacy, in compliance with paragraph 4;
(b) requiring the certification or conformity assessment of ICT products, services and processes, including Artificial Intelligence, before their commercialisation or use in its territory, to ensure compliance with laws and regulations consistent with this Agreement or for cybersecurity purposes, in compliance with paragraphs 3 and 4, and Articles 1.5, 8.3 and 8.65; or
(c) requiring that re-users of information protected by intellectual property rights or confidentiality obligations resulting from domestic laws and regulations consistent with this Agreement, respect such rights or obligations when transferring the information across borders, including with regard to access requests by courts and authorities of third countries, in compliance with Article 8.3.}

Right after the obligations, the following exceptions are set out:

3. Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with paragraphs 1 and 2 to achieve a legitimate public policy objective², provided that the measure:

(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade; and
(b) does not impose restrictions on transfers of information that are greater than necessary to achieve the objective.³

4. Nothing in this Article shall prevent a Party from adopting or maintaining measures on the protection of personal data and privacy, including with respect to cross-border transfers of information, provided that the law of the Party provides for instruments enabling transfers under conditions of general application⁴ for the protection of the information transferred.

5. This Article does not apply to cross-border transfer of information held or processed by or on behalf of a Party.

-----------------

^{2 For the purpose of this Article, "legitimate public policy objective" shall be interpreted in an objective manner and shall enable the pursuit of objectives such as the protection of public security, public morals, or human, animal or plant life or health, or the maintenance of public order or other similar objectives of public interest, taking into account the evolving nature of digital technologies.
3 For greater certainty, this provision does not affect the interpretation of other exceptions in this Agreement and their application to this Article and the right of a Party to invoke any of them.
4 For greater certainty, in line with the horizontal nature of the protection of personal data and privacy, "conditions of general application" refer to conditions formulated in objective terms that apply horizontally to an unidentified number of economic operators and thus cover a range of situations and cases.}

Here are a few thoughts on all this.

First, I like that there is a non-exhaustive list of "legitimate public policy objectives" that are covered. Governments need some flexibility in this regard, and a broad, non-exhaustive approach works best here. A closed list that people have to work hard to fit policies into, as with GATT Article XX, is not ideal. (I find some of the wording of FN. 2 hard to follow, but I don't think it will have too much of an impact on the interpretive result, so I'm not going to worry too much about it.)

Second, I think the non-discrimination standard in paragraph 3(a), borrowed from the Article XX chapeau, is a useful way of rooting out disguised protectionism. (I'm not sure "disguised restriction on trade" is needed at this point though. It may be worth rethinking that, as "arbitrary or unjustifiable discrimination between countries where like conditions prevail" may do everything we need.)

Third, I'm skeptical of necessity tests such as the one in paragraph 3(b), as it seems to me that panels and the Appellate Body have struggled with interpreting and applying them.

Fourth, it's not totally clear to me why you need paragraph 4 in addition paragraph 3. I suppose it's just a specific application of the paragraph 3 exception in the context of policies related to personal data and privacy, with guidance on exactly how the drafters wants that analysis to be carried out, so I guess it's fine.

Fifth, if I'm reading this correctly, there are no general exceptions set out somewhere else in the agreement that apply in addition to the exceptions above, which I think is the right approach. Overlapping exceptions, with a specific one in the obligation itself and a general one somewhere else, can confuse things.

CORRECTION: I had to delete my fifth point, as trade lawyer Devon Whittle pointed me to a general exceptions provision that I had missed:

ARTICLE 8.3

General exceptions

...

2. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on establishment or trade in services, nothing in Sections B to F shall be construed as preventing a Party from adopting or enforcing measures which are:

(a) necessary to protect public security or public morals or to maintain public order;[FN 1]

(b) necessary to protect human, animal or plant life or health; [FN. 2]

(c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to:

(i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts;
(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; or
(iii) safety; or

(d) inconsistent with paragraphs 1 and 2 of Article 8.8 and paragraph 1 of Article 8.16 provided that the difference in treatment is aimed at ensuring the equitable or effective [FN. 3] imposition or collection of direct taxes in respect of economic activities, entrepreneurs, services or service suppliers of the other Party

---------------------------------------------

[FN. 1] The public security and public order exceptions may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.

[FN. 2] The Parties understand that the measures referred to in subparagraph (b) include environmental measures necessary to protect human, animal or plant life or health.

[FN. 3]  Measures that are aimed at ensuring the equitable or effective imposition or collection of direct taxes include measures taken by a Party under its taxation system which:

(a) apply to non-resident entrepreneurs and service suppliers in recognition of the fact that the tax obligation of non-residents is determined with respect to taxable items sourced or located in the Party's territory;

(b) apply to non-residents in order to ensure the imposition or collection of taxes in the Party's territory;

(c) apply to non-residents or residents in order to prevent the avoidance or evasion of taxes, including compliance measures;

(d) apply to consumers of services supplied in or from the territory of the other Party in order to ensure the imposition or collection of taxes on such consumers derived from sources in the Party's territory;

(e) distinguish entrepreneurs and service suppliers subject to tax on worldwide taxable items from other entrepreneurs and service suppliers, in recognition of the difference in the nature of the tax base between them; or

(f) determine, allocate or apportion income, profit, gain, loss, deduction or credit of resident persons or branches, or between related persons or branches of the same person, in order to safeguard the Party's tax base.

Tax terms or concepts in subparagraph 2(d), including this footnote, are determined according to tax definitions and concepts, or equivalent or similar definitions and concepts, under the domestic law of the Party taking the measure.

Chris Christie on Trump's China Trade Policies

There was another Republican primary debate last night, and finally there was a discussion of trade policy, albeit briefly. The issue was raised by former New Jersey Governor Chris Christie. Here's what he said:

And I will say this about what I heard from Nikki [Haley] earlier. She said that Donald Trump was good on trade.
He wasn't. And the proof that he wasn't good on trade with China is that all he did was impose tariffs, which raise the prices for every American. You want to know what has contributed to inflation in this country? Yes, it's more government spending. Yes, it's the fact that we're printing too much money. Absolutely. But it is also the increase in prices that were driven by Donald Trump's tariffs.

 

And one last thing. You can't say he was good on trade because he didn't ... change one Chinese policy in the process. He failed on it.

Did any Chinese trade policies change as a result of Trump's trade actions? (Putting aside China's retaliatory tariffs on U.S. products of course, which I assume is not the change anyone was looking for). The Phase One Deal does talk about some changes, but were these changes things China was planning to do anyway? Were Trump's actions the actual cause of any changes?

AD/CVD and Non-Market Policies and Practices

Someone asked me to speak to their organization about the problem of non-market policies and practices, and one of the points I was going to make was that while some people seem to think AD/CVD can be a useful tool to address at least a few of these policies and practices, the ability of AD/CVD to induce changes in these policies and practices is, as far as I can tell, close to zero. As I was thinking this point through, I came across the following quote from former U.S. Trade Rep. Robert Lighthizer in the latest issue of International Economy magazine:

In a series of decisions, the Appellate Body has struck down U.S. practices that are designed to control Chinese subsidies and illegal dumping. These cases have made it hard for the United States and other countries to counter industrial subsidies and other unfair actions.

Putting aside the characterization of the Appellate Body rulings and their impact on U.S. AD/CVD capabilities, his use of the words "control" and "counter" here may be helpful in understanding what might be effective against non-market policies and practices. I may be reading too much into his choice of words (to be honest, he might have just been trying to avoid repetition!), but "control" could be taken to mean a direct impact on the subsidies themselves and an inducement of a policy change, as opposed to a "counter" that only offsets the impact of the measure. With this distinction in mind, let's look at the issue of subsidies and dumping separately.

Starting with subsidies, these are generally considered to fall into the category of non-market policies and practices, although perhaps only certain kinds or amounts of subsidies would qualify. "Countervailing duties," kind of by definition, are a tool to counter those subsidies. But the question I have is, can they ever induce a change in the foreign government's subsidy policy or practices? My sense is that policy change almost never happens as a result of CVDs (but if there is any empirical research on this, or people have good anecdotes, I'd love to hear about it). Thus, if the goal is to induce the subsidizing government to stop the subsidies, which is what at least some people are hoping for I think, CVDs don't seem to have much impact. (One possible counterexample I can think of here is Canadian lumber, where I think the Canadians have tweaked their system a bit over the years, but even there the underlying dispute has not been resolved and the general program has continued.) On the other hand, if the goal is simply to "level the playing field," then CVDs can achieve this by imposing a tariff to restrict imports. 

As to dumping, there is an argument that dumping is caused by domestic protectionism or various other non-market policies and practices. However, identifying such policies and practices is not generally part of an anti-dumping investigation, so it's hard to see how anti-dumping could address these policies and practices effectively. There are some special provisions in the anti-dumping law of the EU and U.S. (and perhaps others) that target certain non-market economy behavior, and can lead to higher anti-dumping duties where it exists, but again my question would be, has this ever led to changes in the non-market policies and practices? I've never heard of that happening.

From what I can see, if the goal is to induce changes to non-market policies and practices, the best option, which has worked many times over the years, is filing WTO/FTA complaints directly against those policies and practices. A neutral international ruling seems to have more impact here than unilateral remedies such as AD/CVDs, although of course some of these policies and practices are just too sensitive in terms of domestic politics to change even with an international ruling.