International Economic Law and Policy Blog

Digital Trade Fights: The Case of Korea

In recent years, the U.S. has expressed concerns about digital trade regulation in a number of other countries, with the focus tending to be on the the EU due to its large market and active regulatory efforts (although it sounds like USTR and the European Commission are getting along at the moment). South Korea has emerged as a recent target though, with several op-eds arguing that Korean regulation could hurt U.S. companies and help China. I was talking to my friend Haeyoon Kim about this, and it turns out the Korean tech market is a bit unique because of its strong domestic players. With the EU, the allegation is that European regulators are going after U.S. tech companies; in South Korea, any tech regulation is likely to hit Korean companies hard as well. This intrigued me enough that I decided to move beyond my usual focus on specific digital trade agreement obligations and exceptions and write a piece with Haeyoon about the broader tech regulatory fight as it relates to U.S. concerns with South Korean regulation, titled "Digital Trade Wars: What U.S. Policymakers Need To Understand about South Korea’s Tech Regulation." Here's an excerpt:

In the past few years, US tech companies and their advocates have leveled strong criticisms against digital regulation around the world. While the European Union (EU) has been the main target, proposed regulation in other countries has also raised concerns. Recently, there has been a push from a range of Washington, DC policy voices, including several former Trump administration officials, against South Korea’s proposed digital regulations. While it is true that the Platform Competition Promotion Act (PCPA), initiated by the South Korean Fair Trade Commission (KFTC), could impact major US tech companies operating in the country, the digital platform ecosystem in South Korea differs from that of Europe and many other places: South Korea features its own domestic competitors, and it is these local companies that may bear the brunt of the impact from any regulation. Indeed, the PCPA is now colloquially referred to as the “Nekao (Naver + Kakao) Regulation Law,” underscoring its potential impact on two major South Korean tech companies. In crafting a response to any South Korean regulation, US policymakers and advocates need to be aware of the uniqueness of the Korean digital market.

...

Understanding the South Korean Digital Market

What many of the arguments coming from the United States overlook is the distinctive nature of the South Korean digital landscape, where domestic tech companies are prominent. While US tech companies are the worldwide leaders in search, video-sharing, social media, and e-commerce platforms, the dynamics vary in each foreign market, and in a few countries, including South Korea, there are powerful homegrown competitors.

South Korea boasts robust online platforms, featuring domestic versions of nearly every online service, ranging from food delivery to banking. For example, South Korea’s domestic tech giant, Naver, has long dominated the nation’s online search market, accounting for 59.25 percent as of February 19, 2024, standing out as a rare case globally of a market not dominated by Google. Another example, Kakao, which runs a popular messenger app, Kakao Talk, has over 48.5 million active users (4Q 2023 data) out of a population of 50 million. The ride hailing service it also provides, Kakao T, holds a dominant position as the market leader, with a share of over 90 percent.

At the same time, it is important to acknowledge that there are major US tech companies – such as Google and Meta – who are big players in the South Korean digital market, which is why US policymakers are raising this issue. Chinese tech companies, especially e-commerce platforms, like Temu operated by Pinduoduo and AliExpress by Alibaba, are rapidly penetrating the market, but the overall South Korean digital platform ecosystem today remains predominantly influenced by Korean and American tech companies. However, while there are foreign players, it is crucial to recognize the significant role played by South Korean tech companies, outside of the traditional chaebols, in shaping discussions around regulation in the country. This dynamic has implications for how Americans should view and approach these regulatory developments.

South Korea vs. the EU

Unlike the EU, which crafted the DMA with foreign big tech companies in mind, the concerns arising in Seoul regarding the implications of the PCPA on the competitiveness of local platforms are significant. Indeed, while the proposed Act is expected to address both domestic and foreign companies, given the nature of the South Korean digital market, it is possible that the regulations will be enforced mainly against domestic ones, which could allow foreign companies to gain a competitive advantage in the market.

Data Flows Obligations and Exceptions in the EU - New Zealand FTA

There's a new FTA digital chapter to analyze, with the EU-New Zealand FTA coming into force soon. Let's take a look at the data flows provisions, with the EU-Japan text in the back of our minds as a comparison.

The EU-NZ digital trade chapter is here. Early on it has a right to regulate provision:

ARTICLE 12.3

Right to regulate

The Parties reaffirm each Party's right to regulate within their territories to achieve legitimate policy objectives, such as the protection of human, animal or plant life or health, social services, public education, safety, the environment, including climate change, public morals, social or consumer protection, animal welfare, privacy and data protection, the promotion and protection of cultural diversity, and, in the case of New Zealand, the promotion or protection of the rights, interests, duties and responsibilities of Māori.

While this provision can't be invoked as an exception, I can imagine it will be invoked as context for the interpretation of other provisions, and could have some impact that way.

Moving to the data flows obligation, this provision says:

ARTICLE 12.4

Cross-border data flows

1. The Parties are committed to ensuring cross-border data flows to facilitate trade in the digital economy and recognise that each Party may have its own regulatory requirements in this regard.

2. To that end, a Party shall not restrict cross-border data flows taking place between the Parties in the context of an activity that is within the scope of this Chapter, by:

(a) requiring the use of computing facilities or network elements in its territory for data 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 data in its territory;

(c) prohibiting storage or processing of data in the territory of the other Party; or

(d) making the cross-border transfer of data contingent upon the use of computing facilities or network elements in its territory or upon localisation requirements in its territory.

3. For greater certainty, the Parties understand that nothing in this Article prevents the Parties from adopting or maintaining measures in accordance with Article 25.1 (General exceptions) to achieve the public policy objectives referred to therein, which, for the purposes of this Article, shall be interpreted, where relevant, in a manner that takes into account the evolutionary nature of the digital technologies. The preceding sentence does not affect the application of other exceptions in this Agreement to this Article.

...

It's interesting to compare this obligation to the EU - Japan cross-border data flows language. One key difference is the reference in paragraph 3 of the EU-NZ obligation to the Article 25.1 general exceptions, something that is not found in the EU-Japan text. Of course, the Article 25.1 exception would apply even without paragraph 3, but there it is anyway, "for greater certainty." One thing it does add is a clear statement that any interpretation must "take into account the evolutionary nature of the digital technologies," which probably would have been taken into account anyway, but I guess you never know for sure.

Another difference is that the EU-Japan text has an exception that is specific to the data flows obligation, whereas the EU-NZ text does not. Instead, the EU-NZ text relies on the exceptions chapter for defenses that the measures are based on public policy objectives. In this regard, paragraph 1 of the aforementioned Article 25.1 says that the GATT Article XX exceptions apply to the digital trade chapter (along with other chapters):

1. For the purposes of Chapter 2 (National treatment and market access for goods), Chapter 4 (Customs and trade facilitation), Section B (Investment liberalisation) of Chapter 10 (Trade in services and investment), Chapter 12 (Digital trade), Chapter 13 (Energy and raw materials) and Chapter 17 (State-owned enterprises), Article XX of GATT 1994 and its interpretative Notes and Supplementary Provisions are incorporated into and made part of this Agreement, mutatis mutandis.

Paragraph 2 of Article 25.1 then sets out what seems like a similar standalone exception:

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 investment or trade in services, nothing in Chapter 10 (Trade in services and investment), Chapter 11 (Capital movements, payments and transfers), Chapter 12 (Digital trade), Chapter 13 (Energy and raw materials) and Chapter 17 (State-owned enterprises) shall be construed to prevent the adoption or enforcement by either Party of measures:

(a) necessary to protect public security or public morals or to maintain public order;1
(b) necessary to protect human, animal or plant life or health;
(c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement 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;
(iii) safety.

^{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.}

Paragraph 1 focuses on trade in goods and paragraph 2 focuses on "investment and trade in services," but it seems like both exceptions would apply in the context of digital trade.

Also of relevance is that Article 25.2 provides a security exception and Article 25.6 provides a Treaty of Waitangi exception. (Related  to the Treaty of Waitangi, Article 12.1, paragraph 2 says the digital chapter does not apply to: "(c) measures adopted or maintained by New Zealand that it deems necessary to protect or promote Māori rights, interests, duties and responsibilities1 in respect of matters covered by this Chapter, including in fulfilment of New Zealand's obligations under te Tiriti o Waitangi / the Treaty of Waitangi, provided that such measures are not used as a means of arbitrary or unjustified discrimination against persons of the other Party or a disguised restriction on trade enabled by electronic means. Chapter 26 (Dispute settlement) does not apply to the interpretation of te Tiriti o Waitangi / the Treaty of Waitangi, including as to the nature of the rights and obligations arising under it.")

A question all of this leaves me with is the following: How much are all the variations in data flows obligations and exceptions language going to matter if we ever get to international adjudication of digital trade regulations? Maybe not that much, because they use roughly the same language. However, it will certainly give parties a lot of material with which to argue for their preferred interpretation of a particular agreement.

ADDED:

In the comments, Lori Wallach points me to Article 12.5 on protection of personal data and privacy, which I had missed:

Protection of personal data and privacy

1. Each Party recognises that the protection of personal data and privacy is a fundamental right and that high standards in this regard contribute to enhancing consumer confidence and trust in digital trade.

2. Each Party may adopt or maintain measures it deems appropriate to ensure the protection of personal data and privacy, including through the adoption and application of rules for the cross-border transfer of personal data. Nothing in this Agreement shall affect the protection of personal data and privacy afforded by the Parties' respective measures.

3. Each Party shall inform the other Party about any measures referred to in paragraph 2 that it adopts or maintains.

4. Each Party shall publish information on the protection of personal data and privacy that it provides to users of digital trade, including:

(a) how individuals can pursue a remedy for a breach of protection of personal data or privacy arising from digital trade; and

(b) guidance and other information regarding compliance of businesses with applicable legal requirements protecting personal data and privacy.

Paragraph 2 is an interesting provision. It seems like it falls somewhere in between a typical exception and the "right to regulate" provision I noted above. I'm not quite sure how it would be interpreted and applied.

ANOTHER ADDITION:

Let me elaborate a bit more on my confusion about this provision, and why at first glance it didn't strike me as a typical exception.

For one thing, exceptions are often labeled as exceptions in the title of the provision. It seems to me that if you want to make clear that you are creating an exception, you should label it that way.

Of course, an exception doesn't have to be labeled as an exception. But if it is not labeled, it would be useful to tie it to the obligation for which it is an exception in a clear way. For example, the exception could be in the same article as the obligation, and then be tied textually with wording such as "nothing in this article shall prevent a party from taking a measure to ... "

Even that is not strictly necessary, but still it would be helpful to have a tie between the supposed exception and the obligation. Here, paragraph 2 says "[e]ach Party may adopt or maintain measures it deems appropriate to ensure the protection of personal data and privacy, including through the adoption and application of rules for the cross-border transfer of personal data." That language does have a tie to the cross-border data flows obligations of Article 12.4, so that is an element in favor of Article 12.5 being an exception.

I would have liked to see some "nothing in this agreement shall prevent" language though. Instead, Article 12.5, paragraph 2, sentence 1 talks about what a party "may" do. That seems a bit softer to me. Sentence 2 is also interesting in this regard: "Nothing in this Agreement shall affect the protection of personal data and privacy afforded by the Parties' respective measures." That's a variation on the traditional "nothing in this agreement shall prevent"-style language, and also seems a bit softer to me. What does it mean to say the agreement shall not "affect" these things?

I'd be very curious if there are similarly worded provisions in other international agreements, and how they were interpreted. I took a quick glance around the internet, but didn't see anything. At this point, my view on whether this is an exception, self-judging or not, is ... I guess so? But given its unique wording, I have some uncertainty about its scope.

New U.S. AD/CVD Regulations Will Take Into Account Weak Property, IP, Human Rights, Labor, Environmental Protections

In a Proposed Rule issued last year, the U.S. Commerce Department said it would take into account "nonexistent, weak, or ineffective property (including intellectual property), human rights, labor, and environmental protections" in various ways as part of its anti-dumping/countervailing duty calculations (surrogate value selection, § 351.408; particular market situation, § 351.416; adequacy of remuneration for provision of goods or services, § 351.511). Commerce explained its thinking as follows:

Government inaction and failure to enforce property (including intellectual property), human rights, labor, and environmental protections lowers the cost of production for firms in their jurisdiction. This is because such firms are not paying a ‘‘cost of compliance’’ for which firms operating in other jurisdictions are responsible to meet regulatory standards. The economics literature explains this in terms of externalities and public goods, identifying the fact that firms base their decisions almost exclusively on direct cost and profitability considerations, largely ignoring the indirect societal costs of their production decisions.

For example, foreign government environmental laws, policies, and standards might be weak, ineffective, or even nonexistent, allowing producers to dump toxic waste into the local water supply, or spew corrosive smog into nearby neighborhoods, which may enable producers to produce merchandise at costs lower than would be possible if the environmental laws were in place and effectively enforced. In other words, if a government does not require companies to mitigate the environmental impact of production, either through investing resources to avoid or minimize the environmental impacts, or by paying compensation for such impacts, their costs of production will be lower. Of course, with lower costs, the foreign producers would also be able to take those cost savings and ‘‘race to the bottom’’—charging their purchasers lower prices for their merchandise than their foreign competitors would be able to charge, all else being equal.

In another example, failure by foreign governments to implement or enforce labor and human rights protection laws would allow for unsafe and unhealthy working conditions, slave or forced labor, child labor, and even human trafficking. This would allow companies to avoid paying costs associated with preventing or mitigating such adverse labor and human rights impacts and thereby reduce their costs of production.

Similarly, if a producer incorporates certain technology into its production of merchandise which is subject to patent protections in the foreign country or abroad, but the foreign government does not act to enforce the intellectual property rights of the patent owner, absent the need to pay usage or licensing fees, the producer might enjoy a windfall not available to international competitors who, by law, are required to honor the rights of the patent owner and pay such fees. Put another way, companies would be able to use the knowledge others create without the high fixed costs of creating that knowledge themselves, or without paying the creator of the knowledge for its use, allowing the foreign producers to enjoy lower costs of production than they would if the intellectual property rights were properly enforced. Again, with lower and distorted production costs, the foreign producer in that scenario would be able to charge its customers less, all else being equal, than producers from countries in which intellectual property rights are respected and enforced. 

Likewise, an unrelated entity might forcefully take over a company’s factory or inventory in violation of the producer’s property and real property rights, while the national government takes no action to prevent such usurpation. The result of such a forced transfer of managerial control could result in the price of the producer’s merchandise being lowered to unprofitable levels.

These examples of foreign government inaction could result in costs and prices that are unreasonably suppressed and create an unlevel playing field between producers and suppliers in countries in which governments provide weak, ineffective, or nonexistent property (including intellectual property), human rights, labor, and environmental protections, and producers and suppliers in countries in which the governments provide and enforce such protections. When such standards are not enforced, the lack of enforcement does more than merely lower firms’ production costs. Lower production costs can enable firms to lower prices for their products, which enable these firms to gain market share to the disadvantage of foreign competitors, including U.S. businesses, who pay such costs of compliance. For this reason, we propose to make certain modifications to the AD/CVD regulations to address this concern.

(footnotes omitted)

The Final Rule was published today. The discussion of the WTO consistency of these proposed rule changes is interesting. Commerce noted that:

Some commenters expressed concerns that Commerce’s consideration of the impact of foreign government inaction on costs or prices incorporates concepts not embodied in the relevant WTO agreements and allows Commerce to manipulate its trade remedy laws in an effort to force property (including intellectual property), human rights, labor, and environmental standards on other WTO members. They commented that the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (AD Agreement) does not permit such considerations, pointing to a dispute Panel decision in European Union-Antidumping Measures on Biodiesel from Argentina, in which the dispute Panel concluded that a dumping analysis is not intended to cover certain distortions arising out of government actions or circumstances.74 They also suggested that other international and WTO agreements cover such matters satisfactorily.

74 See Report of the Panel, European Union – Anti-Dumping Measures on Biodiesel from Argentina, WT/DS473/R, (May 23, 2016) (European Union-Antidumping Measures on Biodiesel from Argentina), at para. 7.240.

Commerce's response to these comments was:

Commerce’s AD statute and regulations are in full compliance with the United States’ WTO obligations. Commerce is permitted under U.S. law and the AD Agreement to consider factors that may objectively distort costs of production. There is no obligation for WTO members enshrined in any of the WTO Agreements to ignore price or cost distortions caused by another government’s decision to ignore or permit a company to pollute, use slave labor, or discriminate in violation of a country’s own laws, or in absence of laws altogether, and therefore, benefit from cheaper production costs. As we indicated above, Commerce is codifying its consideration of the appropriate surrogate values, benchmark prices, or input cost in an PMS analysis. These considerations are not intended to impose any standards on any country.

Indeed, in the context of a surrogate value (which involves using values from other countries for a non-market economy analysis) and less than adequate remuneration analysis (which involves using prices from other countries to determine an appropriate benchmark value), the rejection of certain surrogates or benchmarks will have no bearing on the countries from which those prices or costs originate in any way. Thus, it is hard to see how such an analysis could ‘‘punish’’ the source countries, as stated by some in their comments. Further, for both a surrogate value and PMS analysis, Commerce’s analysis under §§ 351.408 and 351.416 will normally be limited only to ‘‘significant’’ inputs, reflecting that Commerce’s analysis will be a targeted analysis focused only on certain alleged ‘‘weak, ineffective, or nonexistent’’ protections and their impact on certain costs of production, and no more.

Finally, we disagree that other WTO Agreements address Commerce’s concerns in this regard in any way. These modifications to the trade remedy regulations address distortions in costs or prices caused by weak, ineffective, or nonexistent protections, and other WTO Agreements do not address such cost or price distortions.

These issues could show up in a future WTO complaint, and that will certainly be something to look out for. But in the short term I am more interested in how this will play out in U.S. agency decisions and domestic court appeals. Evaluating property, IP, human rights, labor, and environmental protections in this way seems like a challenge, and U.S. courts (and perhaps USMCA binational panels too) could be asked to scrutinize whatever Commerce does here as it considers these issues in specific investigations and reviews. Also worth noting is that the petitioners' bar has an opportunity to get creative with all this, and Commerce will be reacting to what is put before it by the domestic industry lawyers.

Guest Post: EFTA-India TEPA: Breaking New Ground

This is a guest post by Rohan, a PhD student at the Graduate Institute

India and the EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland) signed a comprehensive Trade and Economic Partnership Agreement (TEPA) on 10th March, 2024 after a long process of negotiations that started in 2008. Notably, two disciplines in the agreement, relating to Trade and Sustainable Development (TSD) and Investment Promotion, contain novel provisions that stand out as a break from the past and merit attention. TEPA provides an excellent example of a ‘package treaty’ that legally binds commitments on issues such as labour standards and employment with trade obligations. Such an arrangement can create leverage for governments to support their policy response to domestic challenges and may establish a new framework for future north-south collaboration. 

Labour Provisions under the TSD chapter

The commitments linked to labour standards in the TSD chapter are a first for India. None of India’s past trade agreements contained any obligation linked to labour standards. India has historically opposed the linking of non-trade issues such as labour and environment with trade agreements, both at multilateral and bilateral levels. Past trade agreements with neighbouring Asian countries were largely limited to mutual access to markets through tariff rationalisation, and discussions around labour standards were off the table. In this sense, the inclusion of labour provisions marks a departure from the past and sets a new normal, in so far as commitments linked to labour standards in future trade agreements (currently under negotiation) with other advanced economies such as the EU, UK, and Australia are concerned.

From a plain reading of labour-related provisions, it appears that the current design of the TSD chapter does little in terms of India’s obligations to make a meaningful impact vis-a-vis labour standards on the ground. The parties are free to decide their own levels of protection under Article 11.2, which is likely to raise several eyebrows in light of India’s alleged weak record of labour enforcement. Article 11.1(3) clarifies that the agreement does not in any way intend to impose labour standards of one party over another. Finally, the provisions under the TSD chapter are non-enforceable as the parties do not have recourse to binding dispute settlement, under Article 11.11. In addition to these provisions, a safety valve in the form of security exceptions (first of its kind) under Article 11.10 may possibly justify deviation from obligations linked to labour standards.

The EU, Australia, and the UK are currently also negotiating trade agreements with India.The substance of the EFTA-India TEPA TSD chapter is likely to serve as a useful threshold in negotiations on labour commitments. It will be particularly interesting to see how the EU negotiates the TSD chapter with India, given that the EU and India, on the question of subjecting labour and environment-related obligations to binding dispute settlement, currently stand at opposite ends.

Despite the built-in flexibilities, which provide India a decent space to wriggle out of its commitments under the chapter, the EFTA-India TEPA provisions may be viewed with a more pragmatic lens. This is a forward-looking step from India, against its past stated position to de-link non-trade issues, such as labour and environment, with trade agreements. It is important to emphasise here that India has a decent record at the ILO in terms of ratification of core labour standards. However, India’s reluctance concerning binding commitments stems from implementation and enforcement challenges on the ground, primarily on account of an overwhelmingly large informal labour market (almost 90 percent of the workforce) that hinders the government’s ability to effectively regulate labour standards. To address some of these challenges, India has made rapid strides toward reforming its domestic labour laws. The greater hurdle, however, is posed by resistance to the actual implementation of new laws by different states (sub-federal entities) under the constitutional scheme on account of various reasons, including political considerations.

Investment Promotion and Job Creation

The much talked about chapter on Investment Promotion contains a foreign direct investment (FDI) commitment (Article 7.1.3(a)) worth $100 billion in India by EFTA countries spread over a period of 15 years ($50 billion in the first 10 years followed by remaining $50 billion in next 5 years). The commitment also entails the creation of 1 million jobs in the said period (Article 7.1.3 (b)). A plain reading of the text indicates that these commitments (termed as ‘shared objectives’ in the treaty text) are not binding but a best endeavour clause. Two significant features, however, lend uniqueness to the investment commitments under TEPA.

First, the obligations in terms of the magnitude of FDI and the creation of new jobs have been laid down in specific terms and in a time-bound manner, with the caveat that the job creation should be directly linked to the FDI (Article 7.1.3 (b)). Second, and more importantly, the recipient country i.e. India can rebalance the concessions extended to the defaulting partner by withdrawing tariff concessions (after duly following a consultation process) in case of non-fulfilment of shared objectives (Article 7.8). Even if the shared objectives have been worded as a best endeavour clause, when read together with the rebalancing provision, they appear to create an enforceable obligation by conditioning market access by EFTA countries on investment commitments and job creation in India.

It may be important to highlight here that the onus to fulfil investment and job-related commitments lies with private entities in EFTA countries. It is not clear how private players can be burdened with an obligation to achieve investment and employment targets, as it may depend on a number of variables including the extent of facilitation, investment climate, etc. in India during the relevant period.

Why EFTA-India TEPA has broader implications for future FTAs?

Conventionally, trade agreements are expected to generate aggregate welfare gains through liberalisation, whereas domestic fallouts and spill-overs are expected to be addressed by governments through flanking policies that operate domestically independent of trade agreements. However, due to lack of political will, resource constraints, policy inefficiencies, etc., too often, domestic policies fail to address such spill-overs, and the expected gains from trade fail to materialise even after trade liberalisation.

A ‘package treaty’ can be understood as a type of trade agreement that enables countries to mutually agree on flanking policies that address domestic spill-overs such as those relating to labour rights, environment, labour adjustment, etc. through legally binding commitments within the treaty itself.^[1] In this sense, a package treaty differs from other arrangements where trading partners either establish non-binding cooperation or institutional mechanisms (eg. best endeavour clauses within trade agreements) to address certain domestic challenges (eg. capacity-building provisions in EFTA-Indonesia CEPA ) or extend unilateral financial assistance to support domestic efforts (eg. USMCA funds to assist Mexico).

TEPA, as an example of a package treaty, introduces mutually agreed and legally binding commitments on member countries. By linking domestic investment with tariff concessions and creating binding obligations on EFTA countries, TEPA establishes time-bound investment targets in India without waiting for gains from trade, in terms of investments, to ‘trickle-down’. Further, job-creation targets (linked to investment) as part of treaty obligations are a first of its kind (by creating positive obligations) that would flank India’s domestic efforts to address the problem of unemployment, given its large and young labour force. By packaging such commitments as part of a trade agreement, it thus becomes easier for the Indian government to overcome domestic opposition to trade liberalisation by highlighting the employment and investment potential of the agreement in real and quantifiable terms. 

TEPA also commits India to adhere to ILO’s fundamental conventions under the TSD chapter. Commitment under an international treaty to enforce labour standards can create leverage for the central (federal) government in India to overcome domestic resistance by the stakeholders, build consensus internally amongst non-conforming states (sub-federal entities) and expedite the pace of much-needed reform of labour laws. In addition, legal obligation through a treaty to strengthen labour rights strengthens India’s domestic efforts to address the concerns of a large informal labour force. 

EFTA-India TEPA paving the way for North-South collaboration?

The TEPA template underscores the significance of package treaties as a means to create binding obligations through the agreement itself to address a range of domestic challenges that may impede the capacity of countries, especially developing economies, to realise their trade potential. Developing economies can identify specific sectors with high growth or employment potential and extend market access after creating binding obligations for trading partners to invest in technology, skill development, training, etc. in those sectors.

For instance, developing economies may allow tariff reductions in the agricultural sector by committing their trading partner in the treaty to invest in productivity-enhancing technologies, sustainable farming, logistics, storage, etc. Such a ‘tech-for-tariff’ arrangement is already being explored (although in the early stages) in the India-Australia FTA. Developing countries often hesitate to liberalise trade in certain sectors and may even abstain from joining a trade agreement, anticipating job losses in the short run (due to import competition) leading to a domestic backlash. The TEPA template could allow these countries to liberalise trade in such ‘sensitive’ sectors by committing their trading partner to provide adjustment-related assistance.

While the above discussion highlights the extent and potential of north-south collaboration through package treaties, it could be argued that the possibility of successfully negotiating such an agreement tilts heavily in favour of developing countries with large markets, as a bargaining chip to extract concessions from their trading partners, when compared to smaller countries and LDCs which do not enjoy similar clout or advantage. This argument may have some merit and the outcomes will be known only in due course, but the TEPA template does underscore the importance of exploring complementarities to identify respective areas (or specific sectors) of interest and subsequently, find innovative ways to collaborate and commit in mutually beneficial ways. In this sense, issues relating to the development of green technology, climate finance, investment in environment-friendly goods, regulation of labour standards, etc. concern developing and developed countries alike, and certainly call for greater ingenuity in the design of future trade agreements to address the same.

 

^[1] For more on this see Pauwelyn, Joost & Sieber-Gasser, Charlotte, Addressing Negative Effects of Trade Liberalization: Unilateral and Mutually Agreed Flanking Policies, World Trade Review, forthcoming Summer 2024.

Is Section 301 the Right Remedy for Chinese Shipbuilding Subsidies?

In the Section 301 petition recently filed by a group of unions, the petitioners argued that "Section 301 provides an appropriate mechanism for addressing China’s policies in the maritime, logistics, and shipbuilding sector." They offer three reasons for this:

First, traditional trade remedies are not available to address China’s unfair trade practices in this area, as the vast majority of ships produced in China are used in international commerce, and never imported into the United States. Second, the statute gives the United States Trade Representative (“USTR”) the power not only to impose tariffs, but also to impose fees and other restrictions, as well as take all other appropriate and feasible action within the power of the President. Third, Congress explicitly recognized that, by definition, support for the construction of foreign vessels used in international trade burdens or restricts U.S. commerce and thus is a proper target for action under Section 301.

I want to focus on the first reason, which is that "traditional trade remedies are not available." I agree that these remedies are not going to be of much use here because of the limited Chinese imports, but as I argued recently, even if there were lots of Chinese imports, there are better remedies available if your goal is "to address China’s unfair trade practices." Countervailing duties involve unilateral judgments that aren't likely to change the behavior of the government providing the subsidies, which limits the impact they will have. By contrast, in an Article 5 "adverse effects" complaint at the WTO, you could get a ruling that would be seen as objective and therefore would be more likely to have an impact on the Chinese practices. (Obviously I'm not going to offer a guarantee of Chinese compliance here; I'm just talking about probabilities.)

Recall that Article 5 provides for complaints against subsidies that cause the following adverse effects:

Article 5: Adverse Effects

No Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members, i.e.:

(a) injury to the domestic industry of another Member¹¹;

(b) nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 1994¹²;

(c) serious prejudice to the interests of another Member.¹³

_{----------------------------------------------------------------------------------------}

_{11The term "injury to the domestic industry" is used here in the same sense as it is used in Part V.
12The term "nullification or impairment" is used in this Agreement in the same sense as it is used in the relevant provisions of GATT 1994, and the existence of such nullification or impairment shall be established in accordance with the practice of application of these provisions.
13The term "serious prejudice to the interests of another Member" is used in this Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT 1994, and includes threat of serious prejudice.}

Importantly, with Article 5, the WTO remedy can be broader than just imposing tariffs on the subsidized imports, as would happen with CVDs. This gives the complaining government a greater ability to induce changes to the subsidy measures.

In addition, to quote a friend of mine, "CVDs can deal with one destination market only, namely that of the CVD imposing country. Adverse effects can be established additionally in the market of the subsidising country and the markets of other countries, i.e. every market where the products compete."

It doesn't feel like USTR is in the mood to bring WTO complaints these days, but nevertheless I think that if the goal is to induce a change in China's practices, this option is worth considering. (And for what it's worth, the petition does mention this explicitly as a goal when discussing the possible remedies, with one remedy being: "(1) a fee on vessels built in China that dock at U.S. ports to offset China’s unfair practices and create an incentive to eliminate those practices.")

Katherine Tai on Online Business Models and Digital Regulation

U.S. Trade Rep. Katherine Tai spoke recently at a SeedAI event and had some interesting things to say about both online business models and digital trade regulation. 

I'll start with a quote that reflects what she has said many times about sorting out domestic digital regulation before the U.S. negotiates these issues internationally:

It is my strong feeling as the trade representative that we have to exercise, and certainly from the trade perspective, an amount of executive restraint to let our legislators, our policymakers, to let our democracy decide what are the American values that are going to prevail in this moment of technology evolution that's defining not just how our economy works, but how our very society is going to evolve. At this point in time, trade needs to know its place. And that's not to say we should sit on our hands and watch the world go by. That means that we need to be actively engaging with all of the other policymakers, plugging ourselves in, listening, communicating with debates domestically, to be able to position ourselves for success.

I see her point here, but on the other hand, other governments are negotiating these issues internationally, and it seems like it would be valuable for the U.S. to be part of those conversations. It may be a while before U.S. policymakers resolve these issues domestically (and honestly, that may never happen!), and in the meantime I would think that whatever administration is in power would want to try to shape the international conversation.

Next up, she raises something that is near and dear to my heart, which is how to build online business models that work for both companies and consumers:

The issue of the business models of our technology companies, of the distributors and platforms and hosts for content creation and content distribution is, I think, creating some real questions around what interests this business model is serving. So, a business model oriented towards clicks, a business model based on what is now popularly understood and discussed as surveillance capitalism, is all about a business model that is generating profit based on data, the movement of data, the aggregation of data and what you do with people's data. I think that what is really interesting for me is to see how that business model is coming into contact and conflict with the business model of traditional media. And I'll just share with you, from our parochial vantage point of being USTR, recently just a week and a half ago, we were in Abu Dhabi for the 13th Ministerial Conference of the World Trade Organization. And we wanted to stay in good contact with the beat reporters who were going to Abu Dhabi with us, and as we were reaching out to the different outlets we were discovering so many of our beat reporters who have been laid off just in the past couple months, who were not available to come with us, and reading about what's happening at the LA Times, The Washington Post, The Wall Street Journal. There is a moment of comeuppance for the traditional media business model. So why am I tracking all of this? Because this relates directly to the impacts from what we might negotiate right now or what we need to negotiate in the future.

As someone who runs two online businesses, let me say that a model based on selling users' data is not something I would want to be a part of. You can't avoid collecting some data, in order to give users access, provide them with usage stats that they want, etc. But I'm not comfortable with selling data for profit, and I wish there were less of that generally on the internet. I understand that this model gives a lot of people access to information for which they don't have to make any direct payment, so there is value in it, but nevertheless I would like to see more companies explore approaches that avoid reliance on selling data. I appreciate Tai's comments on this issue, and it might be useful if there were a tech specialist of some sort in the Biden administration (or a future administration) who would focus on this issue and promote this message. I don't think they necessarily have to regulate here, but they can use the bully pulpit to get the message out.

Speaking of regulation, there was this question from the audience about the EU's Digital Markets Act:

Small businesses, as you're mentioning, in the app economy, they depend on tech platforms for several things, including access to a global market. In 2023 there was a report of foreign trade barriers and USTR identified the DMA, which took effect last week, as a potential barrier. There are some potential concerns about how the DMA could degrade platform services that a lot of small businesses in the US, small tech companies, depend on, including privacy and security. But I was just wondering as you prepare for the upcoming TTC meetings, if you intend to raise some of these concerns with European counterparts?

And here was Tai's response:

It's true that this was in the 2023 report as a potential barrier. And that does reflect our traditional approach to trade, which is to look at regulatory activities from other countries and just see how they might impact American company interests. I think that the DMA is a really, really good example of the cusp of change, and the cusp of increased nuance that we're bringing, especially to digital economy issues. When we're talking about the platforms, yes, I know a lot of small businesses have told me that the platforms are creating the entry point for them to connect with the global economy. And that's a wonderful thing. That's something that we should celebrate, because it is about opening up more opportunities, especially for the small and the medium companies. Here's the issue. Shouldn't we have more platforms then? Right? Shouldn't we have more opportunities like that? And I think the DMA's approach is to look at some of these platforms and to look at their role as what they call gatekeepers.

But as we're connecting the trade conversation with the competition and anti-monopoly conversation, the other way I might frame that is, some of these platforms serving as the holders of choke points, right? Being a platform like that, yes, when you're operating in the best possible terms, you're creating opportunities. But when there aren't enough of those types of platforms, what that means is those platforms have a lot of power to determine when and how those opportunities can be accessed by the smalls and the mediums. So that's an aspect of our trade policy that is in formation right now, which is to not rely on our old instincts of, well, what's the nationality of your company, and whose side I should be fighting on. Right now, the question that we're looking at is, what's the pro-democracy, pro-competition, pro-worker angle, and it is shifting the conversation that we're having.

I appreciate what the EU is trying to achieve here, but I'm not sure how helpful the DMA will be. My sense is that the EU's GDPR led to a lot of commercial and non-commercial sites forcing you to select your cookie setting every time you go to the site, and in my view that has been a huge negative. Will the DMA be any better at providing people with a good experience on the internet and on apps? We'll see how things play out. I tend to think improvements here are mostly up to us as consumers. If most people are willing to spend their time on "free" platforms, giving companies their data so they can sell it for profit, well, that's what the digital landscape will look like. Alternatively, we could put in the effort to do things like follow websites using their RSS feeds, switch to the emerging federated social media platforms, and pay for the services of companies that do not base their business model on selling user data. (And yes, I have a financial interest in people taking this approach, but beyond that I think it would make for a better online world!)

Did NAFTA Push White Male Social Conservatives to the Republican Party?

This is the abstract of a new paper titled "Local Economic and Political Effects of Trade Deals: Evidence from NAFTA", which argues that many "white, less educated voters left the Democratic Party" due to NAFTA:

Why have white, less-educated voters left the Democratic Party? We highlight the role of the 1994 North American Free Trade Agreement (NAFTA). In event-study analysis, we demonstrate that counties whose 1990 employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses after its implementation. Voters in these counties (and protectionist voters regardless of geography) turned away from the party of President Clinton, who promoted the agreement. This shift is larger for whites (especially men and those without a college degree) and social conservatives, suggesting that racial identity and social-issue positions mediate reactions to economic policies.

I don't have access to the paper at that link, but an earlier ungated version is here. The abstract of the earlier version says:

Why have white, less educated voters left the Democratic Party over the past few decades? Scholars have proposed ethnocentrism, social issues and deindustrialization as potential answers. We highlight the role played by the 1994 North American Free Trade Agreement (NAFTA). In event-study analysis, we demonstrate that counties whose 1990 employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses relative to other counties. These losses begin in the mid-1990s and are only modestly offset by transfer programs. While exposed counties historically voted Democratic, in the mid-1990s they turn away from the party of the president (Bill Clinton) who ushered in the agreement and by 2000 vote majority Republican in House elections. Employing a variety of micro-data sources, including 1992-1994 respondent-level panel data, we show that protectionist views predict movement toward the GOP in the years that NAFTA is debated and implemented. This shift among protectionist respondents is larger for whites (especially men and those without a college degree) and those with conservative social views, suggesting an interactive effect whereby racial identity and social issue positions mediate reactions to economic policies.

One problem with this story is that Republicans were more responsible for NAFTA than were Democrats. NAFTA was mainly negotiated by the Bush administration. Then when Clinton was elected, he got behind it and added labor and environmental provisions to the deal, with the aim of making it more acceptable to unions and progressive groups (and causing some free traders to abandon their support). While Clinton and Al Gore were the public face of NAFTA passage, it's clear that Republican politicians were more supportive than Democrats were. In the House, the Republicans voted 132-43 for NAFTA, whereas Democrats voted 156-102 against. And in the Senate, the Republicans voted 34-10 for NAFTA, whereas Democrats voted 28-27 against.

So why would the passage of NAFTA steer voters towards Republicans? The Republican presidential candidates after Clinton's time in office were trade liberalizing people such as George W. Bush and John McCain. Why would the previously Democratic voters annoyed with Clinton's NAFTA support shift to a Republican party led by these free traders? Why wouldn't the passage of NAFTA steer voters towards protectionist Democrats, of which there were and are plenty? At the local level, in the districts that were affected by increased trade with Mexico, I suspect that the Democratic politicians were just as strongly, if not more so, against NAFTA than their Republican opponents were. I'd love to see some case studies of this though: What were the candidates in these districts saying about trade and NAFTA?

Perhaps the authors would say that Clinton's prominence in promoting NAFTA's passage made people think the Democrats were more supportive of free trade, even though this was clearly not the case. Or maybe they would just say something more general like "voter ignorance." Regardless, I think any analysis of the impact of NAFTA on voting patterns of affected districts needs to grapple with this issue a bit.

Obviously, there's no way to evaluate the counterfactual in which there is no NAFTA, to see how voting patterns would have evolved in its absence. But my instinct has always been (and polling tends to confirm this), that trade policy doesn't have much of an impact on voting, and it's the other factors mentioned that are a better explanation of the shift in party preferences. It's my sense that the Democrats became more socially liberal in important ways during the period in question, and that's probably a key factor in the shift in political preferences of social conservatives.

Guest Post: Back from the WTO MC13 – A brief report and some remarks from four scholars who were in Abu Dhabi

This is a guest post by several people from the Research Chair on New Challenges of Economic Globalization, Laval University, Quebec City, Canada: Carla Gomez, Ph.D. Researcher; Antoine Comont, Ph.D. Researcher; Van Anh Ly, Ph.D., Deputy Director of the Research Chair on New Challenges of Economic Globalization; Richard Ouellet, Full Professor of International Law, Faculty of Law and Graduate School of International Studies; Holder of the Research Chair on New Challenges of Economic Globalization.

The 13^th Ministerial Conference of the World Trade Organization (WTO) took place two weeks ago in Abu Dhabi and delivered timid results. Despite all the hard work of the Organization and its DG Ngozi Okongo-Iweala, Members failed to reach agreements on most of the topics on the agenda. As the AFP justly phrased in a press article dated 1^st March 2024, there was a “failure on the major issues of fisheries and agriculture, and a half-hearted rescue of the electronic moratorium, plunging the organization into the unknown”. While the results of this conference are indeed less significant than the DG’s “cautious optimism” at the beginning of last week suggested, some advances remain noteworthy, and the side events organized in parallel with the negotiations testified to the growing interest both of civil society in the organization and of the organization in the new challenges of this century. As representatives of the Research Chair on New Challenges of Economic Globalization, we were in Abu Dhabi and attended the MC13 with the status of an NGO. We share here the fruits of our observations and reflections on the Conference.

Mixed results from the negotiations

Accession of two new Members – First, it is noteworthy that the organization welcomed two new Members at the start of the ministerial conference. The ministers approved the accession of the Comoros and Timor-Leste to the WTO.

New commitments on services domestic regulation – The importance of services in the globalization process having been recognized by the WTO and its Members, the latter were able to agree on new disciplines concerning services domestic regulation and the facilitation of its regulatory procedures. As the WTO noted in a news item dated 1^st March 2024, this aims at making “the regulatory environment more conducive to business and can help particularly micro, small and medium-sized enterprises as well as women entrepreneur”, making it the first commitment in a WTO agreement to improve gender equality in trade-induced services procedures. The 72 Members supporting the new disciplines have consequently strengthened multilateral rules on trade in services.

Continuation of the moratorium on e-commerce – Members agreed to maintain the moratorium on e-commerce, despite the fact that not everyone wanted it, and agreed on a program of work on the issue. The Ministerial decision points out that Members commit to “re-invigorate the work under the Work Programme on Electronic Commerce” and “instruct the General Council to hold periodic reviews on the Work Programme”. It also refers to the continuation of current practice “of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference or 31 March 2026, whichever is earlier”.  

Ongoing work on the fisheries subsidies – The results might be disappointing regarding fisheries subsidies but there are some positive evolutions. At MC12, Members had made an Agreement on Fisheries Subsidies (Fish 1) to counter illegal fishing and related harmful subsidies. To enter into force, this agreement requires two-thirds of WTO Members to ratify it, requiring 110 Members’ approvals. By the end of MC13,71 WTO Members were willing to implement it. The WTO noted that “ten WTO Members - Brunei Darussalam, Chad, Malaysia, Norway, the Philippines, Rwanda, Saudi Arabia, South Africa, Togo, and Türkiye - deposited their instruments of acceptance of the Fisheries Agreement, […] putting the historic agreement for ocean sustainability on track for entry into force at a record pace”. And while “Fish 1” is underway, a second draft (Fish 2) was due to be concluded at MC13 on issues that could not be adopted in Fish 1 – mainly related to overfishing –, but no agreement was reached. Nevertheless, the DG noted that MC13 had led to a breakthrough in negotiations on the issue of fisheries subsidies and that the way had been paved for MC14 on that crucial issue for environment, the oceans and the lives of people dependent on marine resources.

Renewal of the moratorium on Trade-Related aspects of Intellectual Property Rights – At MC13, Members agreed not to initiate complaints under the TRIPS Agreement while the TRIPS Council further examines the “scope and modalities for complaints” as set out in the “TRIPS Non-Violation and Situation Complaints” Decision of 17 June 2022. There was no consensus on the question of renewing the TRIPS waiver adopted at MC12, although Members agreed on the importance of working on the issue.

Ongoing discussions on the dispute settlement reform – The dispute settlement mechanisms issue might be WTO’s long-lasting deadlock. At a time when the United States is still blocking the renewal of WTO appellate body’s members in the dispute settlement mechanism - rendering the mechanism partially inoperative since 2019 - the situation seems to be stalling. No compromise has been reached. It should be remembered that the objective of having a functional DSB in 2024 was set at the MC12 in Geneva in 2022. Even though we are only at the start of 2024, the imminent approach of the US elections is making the way out of the crisis more complex by the day. The USTR and the current administration will have less and less leeway to put an end to a crisis endorsed by Donald Trump, who happens to be the only Republican in the presidential race... Of course, alternative solutions have been proposed by some Members, who are now turning to the plurilateral arbitration route of the MPIA to settle their disputes at the appeal stage; the others appealing into the void. However, Members are not abandoning the mechanism while not agreeing on solutions: some disputes are still referred to WTO panels, and Members have committed to continuing negotiations to reach a mutually satisfactory solution “by 2024” and restore a “fully and well-functioning dispute settlement system accessible to all Members”. A Special Meeting of the General Council document has been circulated on that subject on 16 February 2024 stating that “the dispute settlement system is a vitally important element of the WTO system, and its reform is a top priority for Members”. The annex of this document is taken from the report made by Marco Molina of Guatemala, Facilitator for the dispute settlement negotiations. This text is the basis for the current negotiations, reviewing the first instance procedure and covering everything but the appeal phase. As it is stated in the document, it is considered that the “discussions on appeal or review mechanism are not intended to single-handedly resolve all the interests and concerns identified by Members”. Thus, even though the reform of the appeal phase remains a big concern, “Members should continue reviewing each chapter, ensuring that all their interests and concerns are addressed”. It therefore appears that the entire dispute settlement mechanism is subject to potential reform. To be more specific, the annex especially sets out “alternative dispute resolution procedures and arbitration” with recourse to good offices or mediation, goes back on panel proceedings with defined time limits, specifies the rules on compliance and sets out “guidelines for adjudicators”, including elements on treaty interpretation. For the appeal phase (as well as for the entry into force and transitional provisions), it states that the work is in progress.  

Lack of convergence on agricultural issues – The agricultural question was the subject of intense discussions at MC13. As we mentioned in an earlier post here on 21^st February 2024, negotiations on agriculture were a priority for a vast majority of WTO Members and in a way a prerequisite for smooth negotiations in general. Despite the importance attached to the agricultural issue, no consensus was reached. There were deep disagreements around the issue of public stockholding (PSH) to ensure food security. Many Indian NGOs representing Indian farmers have made their voices heard on the critical aspect of their current situation. There was, however, a draft text on agriculture dated February 16 which proposed two solutions regarding the PSH issue at point 28: the adoption of a “permanent solution” or the continuation and the intensification of negotiations on that matter while extending PSH “to all developing country Members”. Substantive outcomes on other issues related to agriculture have generally been postponed to MC14. In a Statement on the reform of the multilateral rules on agricultural trade dated February 27, 14 Members were already insisting on the work yet to be done up to MC14 on agricultural issues. Despite these meagre results, the DG noted that while MC12 had failed to obtain a text, and although there are many challenges including disagreements and postponements, there was one at MC13 that is paving the way for further work to be done.

Ongoing discussions around the Investment Facilitation for Development Agreement – 123 WTO Members have agreed on a IFD Agreement. A joint Ministerial Declaration was circulated on February 25 and revised on February 29 in which some Members “welcome and encourage all WTO Members to support and consider joining the IFD Agreement and, in this context, we will further intensify our outreach efforts with the entire WTO Membership”. The Members thus arrived in Abu Dhabi with a firm text, essentially driven by developing countries. All that was needed was to formally adopt the agreement, and India opposed the consensus, even though it regularly intends to act as the voice of the global South. It is regrettable to arrive with a turnkey agreement and leave with nothing. This is even more unfortunate given that the agreement is a plurilateral one, and therefore membership is optional.  

About the central question of development – Development has been a major issue of MC13. In the Ministerial Declaration, it has been stated that Members “reiterate the centrality of the development dimension in the work of the WTO” and “recognise that the full integration of developing Members, including least-developed countries (LDCs)”. In the Ministerial Declaration, it has been stated that Members “recognise the particular vulnerability and special needs of LDCs” and thus “underscore that their interests should be given due priority for them to secure meaningful integration into the multilateral trading system”. In a Declaration on the precise, effective, and operational implementation of the special and differential treatment provisions of the SPS Agreement, Members highlighted the need to improve or make more precise some aspects of the current S&DT regime by instructing “officials to continue to work” on related issues. Members thus focus on this issue both in their statements and in the work objectives set for MC14. In the Ministerial Declaration, they also stressed the importance of “women’s economic empowerment and women’s participation in trade” as well as “the important role that Micro, Small and Medium-sized Enterprises (MSMEs) play in economic growth, sustainable development, and poverty reduction in all WTO Members”. Despite this, there is still a lot of development work to be done. In a G90 Ministerial Declaration, the G90 Members expressed the view that while work had been done regarding S&DT and developing countries, it is still “regrettable that [G90’s] longstanding requests have not received the same attention as other negotiating areas and that the discussions towards proposed outcomes on these critical issues are not directly aligned with our requests over the last twenty years”.

Interests developed through side events: women, sustainability and technologies

Besides the negotiations, some side events took place and highlighted some of the core issues dealing with trade that are currently at stake.

The emphasis on environment – Many of the events that took place dealt with the issue of environment and trade. There was the Trade and Sustainability Hub organized by the International Institute for Sustainable Development (IISD) which welcomed the Coalition of Trade Ministers on Climate; the Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade (DPP), the Trade and Environmental Sustainability Structured Discussion, the Fossil Fuel Subsidy Reform (FFSR) or the Trade and Environmental Sustainability Structured Discussion (TESSD) which also presented their environmental initiatives. As Jean-Marie Paugam outlined in a WTO blog post, “thirty years after the WTO's creation, new global environmental challenges of an unprecedented magnitude have intensified, with climate change, biodiversity losses and pollution topping the list” but the “WTO can be used further as a platform to foster trade cooperation for the environment, in a flexible manner, taking into account different members’ appetite, development needs, levels of ambition, and expectations for a just green transition”.

The growing consideration of women and trade – The question of the role of women’s better integration into trade relations was also highlighted through the various sides events that took place last week. Besides the mentions in the Ministerial Declaration about the importance of integrating women into trade, a WTO-ITS High-Level Event on Women and Trade was held and led to the launch of the Women Exporters in the Digital economy fund (WEIDE) on February 25. The IISD Trade and Sustainability Hub also addressed the issue of social sustainability, with some discussions focusing on the role of women into trade.

On the road to digitalization and technologies – Many discussions also emphasized the role of digitalization and the benefits that the digitalization of commerce could bring to the better integration of women and MSMEs within it. The TradeTech Forum, held by the World Economic Forum, also dealt with the question of digitalization and technologies. It made a parallel between the current evolution of world trade and the emergence of new technologies facilitating trade such as artificial intelligence or new ways to use technologies to facilitate trade.

What to expect now? Looking forward to MC14

Although the MC13 led to modest results, the conference testified to the continuing interest of Members in the smooth functioning of the organization, as they renewed their commitment to exchange views on issues that did not find solutions at MC13 and set out in the ministerial declaration to “a forward-looking, reform agenda for the organization”, the WTO noted. As the DG said: “We have worked hard this week. We have achieved some important things and we have not managed to complete others. Nevertheless, we moved those pieces of work in an important way. At the same time, we have delivered some milestone achievements for the WTO and laid the groundwork for more”.

A few consequent observations can be made. First, there seems to be an emerging divide between the fervent defenders of consensus and certain commentators insisting on the shortcomings of this decision-making method in a forum with 166 members. However, the multilateral functioning of the organization seems to be moving towards plurilateralism by default to achieve results. Most of these results were not achieved at MC13. In our assessment, the principle of consensus, a cornerstone of the WTO system, has become a hindrance to the organization’s progress on new initiatives. As noted by one of the authors of this post, Prof.  Richard Ouellet, in the aforementioned AFP article, “if we can speak of a crisis, it’s because the consensus, which has been the cement of this organization, has turned into the mud in which it is bogged down”. The remedy may lie in a radical reform of the consensus principle in decision-making. Yet, is such a reform feasible? It poses a significant challenge for the WTO in today’s turbulent world of conflicting interests. Be that as it may, optimism is still the order of the day, since MC13 seemed, based on the documents circulated, to be a sort of primer for MC14 on certain issues. The future of the organization thus depends on the way things work out until and at MC14. Interestingly, however, it now seems doubtful that MC14 will take place in Yaoundé. The final Ministerial Declaration and the closing speech of the Chair of MC13 H.E. Dr. Thani bin Ahmed Al Zeyoudi were not too clear on this. One can imagine that the absence in Abu Dhabi of Cameroun’s Trade Minister, who was supposed to be the Vice Chair of MC13, raised some questions.   

Until then, Members still “resolve to preserve and strengthen the ability of the multilateral trading system, with the WTO at its core, to provide meaningful impetus to respond to current trade challenges, take advantage of available opportunities, and ensure the WTO’s proper functioning”. As the DG noted in her closing speech, referring to Winston Churchill, “success is not final, failure is not fatal: it is the courage to continue that counts”.

Let Them Eat Cake? Reflections on the Labor Provisions in the New India-EFTA Agreement

I’ve never understood the expression: they want to have their cake and eat it too. Who on this planet wants to hold onto a piece of cake and not eat it?!? I was at a birthday party this weekend, and my 5-year-old asked me to hold his plate of delicious cookies ‘n cream cake while he played. It had Oreos in it. He came back ten minutes later and asked for it. I could only hand him a plate holding some crumbs and say, “I have a confession.”

I’m getting somewhere with this cake metaphor, I promise.

This Sunday, 10 March 2024, the Member States of the European Free Trade Association (EFTA) and the Republic of India signed a comprehensive Trade and Economic Partnership Agreement (TEPA). India has long been a notable and respectable trade adversary, at least in the United States, refusing to cave to global pressure to sign hundreds of trade deals that will surely flood its markets and extract its resources. All eyes have been on the TEPA negotiations, therefore, to see whether India would use the TEPA to show the United States and the European Union (EU) that it could satisfy some of their trade demands – which include commitments to international labor rights – without actually ceding its regulatory autonomy. The overarching question, therefore, is whether India can have its cake and eat it too.

India’s performance in the TEPA negotiations does not disappoint.

I’ll let others weigh in on the TEPA’s non-labor topics, but I wanted to review the TEPA labor provisions. I focus on those provisions both because labor is my specialty (please do not ask me about government procurement) and because it has become a hot topic in the United States and EU – both of which have been in trade talks with India.

Substantively, the agreement follows the EU model agreement (but not procedurally; see below).

Article 11.6 commits:

(1) The Parties, in accordance with their obligations as members of the ILO and the ILO Declaration on Fundamental Principles and Rights at Work, commit to respect, promote and realise, in good faith, the fundamental principles and rights at work embodied in the fundamental ILO Conventions, namely:

(a) freedom of association and the effective recognition of the right to collective bargaining; 

(b) the elimination of all forms of forced or compulsory labour; 

(c) the effective abolition of child labour; 

(d) the elimination of discrimination in respect of employment and occupation; and

(e)  a safe and healthy working environment.

(2)  The Parties affirm their commitment to effectively implement in their laws and practices the ILO Conventions which they have respectively ratified. The Parties will make efforts towards ratifying the fundamental ILO Conventions in a promotional and flexible manner without time limits and according to the ILO Declaration on Social Justice for a Fair Globalization of 2008.

This section anchors commitments to concrete instruments that workers, employers, and governments negotiated at the ILO, backed with interpretive jurisprudence that affords the parties and observers concrete data against which to weigh implementation. It is a far cry from the nebulous, non-binding-turned-binding ILO Declaration, which the United States uses to benchmark commitments to international labor standards in its trade agreements.

This section is also an example of how trade partners have modified their labor text to include occupational safety and health – a new “fundamental” labor standard recently added to the ILO’s repertoire and, hence, traditional trade and labor language.

India’s acceptance of this language suggests it may be meeting the demands of the European Union, its on-again, off-again trade courter. The European Union has long required its trade counterparts to agree to commitments to the ILO Conventions (check) and to strive or make efforts to ratify the fundamental conventions it hasn’t yet ratified (check). The language goes beyond U.S. demands to respect the non-binding ILO Declaration. Two birds, one TEPA stone.

Back to cake.

India has long proven immune to global pressure to relinquish its markets and regulatory autonomy. The TEPA is no different. Despite committing to the ILO’s fundamental conventions, the parties include several provisions ensuring that the real labor standards they are obligated to under the trade agreement are…the ones they already have in place.

Article 11.1(3) first clarifies that the parties aren’t trying to form a labor standards club.

Accordingly, the Parties emphasise that it is their aim to strengthen their trade relations and cooperation in ways that promote sustainable development, and it is not their intention in this Chapter to harmonise the labour or environment standards of the Parties.

Next, under a self-explanatory section called Right to Regulate and Upholding Levels of Protection, under Article 11.2, the parties make sure they have the right to decide their own levels of protection:

Recognising the right of each Party, in a manner consistent with the provisions of this Chapter, to set its domestic sustainable development policies and priorities, to establish its own levels of labour and environmental protection, and to adopt or modify accordingly its relevant laws and policies, each Party shall seek to ensure that its laws, policies and practices provide for and encourage achieving sustainable development objectives.

That provision, dear readers, may cause a bit of a stir in the international labor law community. While many of us are more than a little uncomfortable with the United States going Commando on Mexican auto facilities to enforce international standards, our distaste for enforcement driven by economically advantaged state actors may dissipate when considering India’s weak labor protections. The country has ongoing problems with bonded and forced labor, including concerning children, among other issues.

Indeed, if the EFTA tries to push India into changing its labor rights approach under the agreement, under Article 11.2, the TEPA gives India cause to call foul:

3. The Parties stress that environmental and labour measures shall not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties or a disguised restriction on trade.

At the end of the day, however, these provisions – good, bad, and neutral – mean little for the parties’ trade relations. While the EU has undertaken recent changes to subject commitments regarding labor and the environment to binding dispute settlement, the TEPA takes a step back.

Article 11.11

Non-Application of Dispute Settlement

No Party shall have recourse to Chapter 12 (Dispute Settlement) for any matter arising under this chapter. 

To conclude, India and the EFTA likely got what they wanted. They entered into a trade agreement to facilitate trade and cooperation and gestured towards sustainable development to assuage domestic and international pressure – all while committing to do little more than maintain their laws and talk through concerns. So long as the enforcement of international standards, the product of negotiations on the ILO’s neutral platform, is outsourced to governments armed with their own interests and interpretations, countries like India are on notice to defend themselves by watering down sustainability commitments and excluding those commitments from binding dispute settlement. And, I have a confession. I don’t blame them.

Mexico Invokes Public Morals, Exhaustible Natural Resources, Indigenous Peoples Exceptions in GE Corn USMCA Dispute

Mexico's initial written submission in the GE Corn USMCA dispute was recently posted. The English public version is here. There's a lot in there and I'm not going to go through it all in this post. I just thought it was worth noting quickly the exceptions that Mexico invoked. 

Recall that the U.S. claims were under the SPS chapter (Chapter 9) and Article 2.11. In addition to arguing that there were no violations of these provisions, Mexico invoked several exceptions in response (note that I'm only providing below brief excepts of the arguments).

First, Mexico invoked USMCA Article 32.1.1, which applies the GATT Article XX exceptions to a number of USMCA chapters, including the SPS one (interestingly, the conventional wisdom is that the GATT Article XX exceptions would not apply to the WTO SPS Agreement):

486. Mexico's position is that none of these measures are inconsistent with Mexico's obligations under the USMCA. However, if the Panel determines that any of the measures are inconsistent with any provision of Article 9.6 or Article 2.11 of the USMCA, Mexico contends that such inconsistencies are justified under Article 32.1.1 of the USMCA.

487. Article 32.1.1. of the USMCA provides in relevant part as follows: “For the purposes of Chapter 2 (National Treatment and Market Access for Goods), [...] [and] Chapter 9 (Sanitary and Phytosanitary Measures), [...] Article XX of the GATT 1994 and its interpretative notes are incorporated into and made part of this Agreement , mutatis mutandis”.

Specifically, Mexico invoked Articles XX(a) and XX(g):

1. Arguendo, the “End-Use Limitation” and the “Gradual Substitution” are necessary measures to protect native corn, the milpa, the biocultural wealth and the gastronomic heritage of Mexico under the terms of Article XX (a) of GATT 1994

...

496. WTO panels have determined that the following types of policies pertain to public morals: preventing gambling by children and adolescents and protecting pathological gamblers (US -Gambling); restricting prohibited content in cultural goods, such as violence or pornographic content, as well as protecting traditional Chinese culture and values (China - Publications and Audiovisual Products); protecting animal welfare (EC - Seal products); combating money laundering (Colombia - Textiles); reducing the “digital divide” within society and promoting social inclusion (Brazil - Taxation); and Halal protection (Indonesia - Import Licensing Regimes). The general nature of Mexico's policy is certainly similar to those noted above. In particular, the protection of native corn varieties is similar to the protection of animal welfare in the context of agricultural products.

...

2. Arguendo, the “End-Use Limitation” and the “Gradual Substitution” are measures relating to the conservation of the biodiversity and genetic integrity of native corn varieties as “exhaustible natural resources” within the meaning of Article XX (g) of GATT 1994

...

506. The measures at issue relate to the conservation of a natural resource, namely Mexico’s native varietals and landraces of corn and maize, including their biodiversity and genetic integrity. This biodiversity encompasses the natural genetic and phenotypic diversity of the many unique varietals and landraces cultivated in Mexico. It has been developed through generations of traditional Mexican agriculture in different biomes and habitats throughout the country, resulting in a robust genetic diversity and a range of colours, flavours, and other characteristics important to Mexican culture, traditions, and gastronomic heritage.

507. This natural resource is exhaustible because Mexico’s native corn, including its natural biodiversity and genetic integrity, is under threat of loss and possibly extinction as evidenced through the transgenic contamination of native corn in Mexico. The conservation objective is one of the “main purpose[s]” of the measures at issue, and it is expressly stated the 2023 Decree. The people of Mexico take the conservation of this natural resource extremely seriously, and this is demonstrated by the current class action lawsuit that has resulted in a moratorium on the cultivation of GM corn crops in Mexico.

Finally, Mexico invoked Article 32.5 on indigenous peoples:

L. Arguendo, the “End-Use Limitation” and the “Gradual Substitution” are necessary measures to comply with the legal obligations for Mexican farming communities in terms of Article 32.5 of the USMCA.

527. Alternatively, assuming without conceding that the measures identified by the United States are in violation of the USMCA, they would be exempted under Article 32.5 of the USMCA.

528. Specifically, this provision states the following:

Provided that such measures are not used as a means of arbitrary or unjustified discrimination against persons of the other Parties or as a disguised restriction on trade in goods, services, and investment, this Agreement does not preclude a Party from adopting or maintaining a measure it deems necessary to fulfill its legal obligations to indigenous peoples. [Emphasis added]

529. From the reading of this provision, it is clear that a measure may be exempted when: i) it is not used as a means of arbitrary or unjustified discrimination against persons of the other Parties to the USMCA, or as a disguised restriction on trade in goods, services or investment; and ii) it is adopted or maintained because it is considered necessary to comply with any of the legal obligations established for a Party with respect to indigenous peoples.

530. Specifically, Mexico considers that the provisions in the 2023 Decree, including the measures at issue in this dispute, are necessary to comply with Mexico’s legal obligations to indigenous people in Mexico under Article 2 of the Constitution, Mexico’s Federal Law for the Protection of the Cultural Heritage of Indigenous and Afro-Mexican Peoples and Communities, Article 21 of the Pact of San José (as interpreted by the Inter-American Court of Human Rights), and ILO Convention 169 on Indigenous and Tribal Peoples in Independent Countries. 

ADDED:

I thought it was worth mentioning that the indigenous peoples exception uses "deems necessary," so presumably it's more like the security exception than the general exceptions. This raises the question of how the U.S. will react to someone using this kind of exception against it. Will the U.S. try to distinguish the security and indigenous exceptions somehow? On what basis? "Deems" pretty much means "considers". Mexico says: "it is an internal and exclusive analysis of that Party, so it is sufficient that, in the opinion of the Party and not of the others, the measure maintained or adopted is necessary." Kind of sounds like "self-judging".

ANOTHER ADDITION:

As Jesse Kreier points out in the comments, the "arbitrary or unjustified discrimination / disguised restriction on trade" part does not seem to be subject to the "deems necessary" language, so even if "deems necessary" is self-judging, there are parts of the provision that are not self-judging.

Resolving the Biden Administration's Internal Debate on International Digital Rules, and Reengaging in Negotiations

I've already made these points for the trade policy crowd, but I have now tried to make my pitch on a way forward for the Biden administration on international digital trade rules slightly more accessible (i.e., without so many blockquotes of international legal texts!). Below are some excerpts from a piece I just wrote for the Baker Institute entitled "Biden Should Reengage on International Digital Trade Rules." It starts this way:

In recent months, the Biden administration has made some people unhappy on international digital trade rules. Certain members of Congress and business groups are particularly upset. The Office of the United States Trade Representative (USTR), led by Katherine Tai, has been the main target of the criticism, thanks to its decision to step back from positions (including on data flows and nondiscrimination against digital products) long held by the U.S. government and reverse course in ongoing negotiations at the World Trade Organization (WTO). USTR took a similar approach to these issues in the Indo-Pacific Economic Framework (IPEF) talks.

Tai has offered some valid reasons for her approach, including that it is extremely difficult to negotiate international agreements when U.S. domestic policy in the area is unsettled. But if the administration wants to influence a conversation that will otherwise take place without the U.S., it should develop its positions and reengage with international negotiations. The state of the domestic regulatory debate may be unsettled, but there are ways of crafting international rules that provide flexibility for whatever domestic policy emerges.

The key compromise here -- which I'm hoping both sides can get behind -- is that to get an acceptable balance between obligations and exceptions on issues such as data flows, "arbitrary or unjustifiable discrimination" stays in but "necessity" is dropped:

Recent digital trade agreements have included broad obligations that prevent domestic restrictions on these data flows. But the political reality is that there will be some restrictions for various reasons, and the agreements tend to have exceptions that allow restrictions when they are based on legitimate public policy goals, such as protecting consumer privacy. The challenge is to calibrate the language of the exceptions so that they allow regulations that are genuinely about privacy, but cannot be used to justify measures that constitute disguised protectionism. The key to getting the right balance is to rely on language providing that the regulation must not constitute “arbitrary or unjustifiable discrimination between countries where like conditions prevail.”

Under this language, as long as a government avoids nationality-based discrimination in its regulations, and is not using regulation as a disguised means of protectionism, the regulation will be permitted under the agreement. By contrast, language that says any restrictions on data transfers must not be “greater than are necessary to achieve its objective” goes much further and leads to concerns about international rules overly constraining domestic regulation. It is these “necessity” tests that have been a main target of civil society critics at the GATT/WTO, and they should be avoided here.

I also suggest that we could delay the enforcement provisions:

An additional way to assuage concerns about international rules in this area is to provide a phase-in period for the rules to be subject to enforcement. Rather than having litigation be available right from the start, international agreements on digital trade could rely at first on a committee that meets regularly to discuss the domestic regulations being developed, through which governments can get a sense of how the international principles they establish might apply to real world regulations. An adjudication mechanism could take effect in a couple years, after governments gained a better sense of what they were signing on to.

And here's the conclusion:

It is understandable that the Biden administration is wary of this issue, as they have stakeholders, including members of Congress, who are pushing them not to agree to international rules that might constrain domestic regulation in any way. But the international discussions will take place regardless of whether the U.S. participates or not. Other governments are pushing ahead with rules, and they do not appear to feel constrained in adopting domestic regulations in this area. An approach involving exceptions language that learns from the GATT/WTO experience could reassure the Biden administration, as this would allow it to shape the international discussion while still maintaining the policy space for eventual domestic regulation of digital trade.

There's some recent reporting on these issues that makes it sound like the issue has gotten very contentious, so I'm not that hopeful here, but nevertheless I think a compromise along these lines might make sense.

Katherine Tai on USMCA Dispute Settlement and the USMCA Six Year Review

At a Brookings event yesterday, Josh Meltzer of Brookings had some interesting exchanges with U.S. Trade Rep. Katherine Tai on USMCA dispute settlement and the USMCA six year review. Here's the one on dispute settlement:

Meltzer: What I'd like to do is ask you a question about how you see [USMCA] dispute settlement, at the state-to-state level, working at the moment, anything you might want to say about any of the specific disputes as well?

Tai: Sure. So I want to really reinforce something for folks in terms of understanding the trade agreement. An enforcement mechanism is important ... for making real the commitments and the obligations and responsibilities, right. But you have to understand that in a trade agreement, it is essentially a contract between sovereigns. And so a dispute settlement system within a trade agreement has to balance the rendering of a decision and conclusions from a legal process with the fact of the sovereignty that's retained by the parties to the agreement. And so whether it's in the USMCA, any of our other trade agreements, or at the WTO, the dispute settlement process is something that gives you a right at the end to take away something from your trading partner. It's not supposed to be a punishment, although you can see it as a punishment. But the theory behind the way we do dispute settlement in trade agreements between sovereigns is, your right to suspend a concession, to take back something that you had promised under the trade agreement, is intended to be an inducement to finding a solution, compliance or an accommodation. Whatever is going to work at the political level between the sovereigns, right. So it is never meant to be something that you can shove down the throat of the other side because that's just not the way that international agreements between sovereign countries work.

So under the NAFTA, I think that there were four cases that were brought until we collectively broke the system. So it was important in the USMCA to revive a functioning dispute settlement system. But when you get to the end of the system, and we see this in the examples that you've given, at the end, the question is always going to be, do you have enough, have you changed the leverage composition, to get to the political solution that you need. And in the case of dairy, the answer is no. That despite two cases that we have brought, and the expectation under the agreement that American dairy farmers and producers would have more access to the Canadian market, we still do not have that access. And frankly we're not the only ones. It turns out that Canada has been sued under the CPTPP by New Zealand around the same set of policies with the same result.

So there what I would say is we have a political conundrum. Despite the best efforts of our dispute settlement system, we've still not been able to crack the political nut there. That is something for us to continue to work on and think through. How do we address that concern that we have with Canada?

So I want to put the dispute settlement system into that context. It is really important to have those systems be able to work but we also have to understand what we're trying to accomplish.

In the auto rules context, I want to pick up a couple additional historical contextual data points. Recall that the USMCA, the NAFTA was renegotiated into the USMCA, and I think that the three parties concluded the first iteration of USMCA at the end of 2018. Then came the second renegotiation of the USMCA that was driven by the Trump administration needing to get it through the Congress, and that Trump administration-congressional Democrat renegotiation of the USMCA. That happened over the course of 2019. The House voted on a broad bipartisan basis. 385 members voting for it happened on I believe is December 19 of 2019. It passed through the Senate at the end of January in 2020. I give you these dates because what I want to emphasize is, by the time that USMCA enters into force, it is July 1 of 2020 and the pandemic has happened. And that was the first indication we had that the world that we had renegotiated the USMCA for was in the process of fundamentally changing again. In the meantime, since July 1 of 2022, today, March of 2024, the other aspect of what we've seen is an acceleration in countries', including US, Canada and Mexico, motivation to act on the climate crisis and the urgency around counterbalancing the market's failure to activate the kinds of clean energy technology boosts that we're going to need to respond to the climate crisis. ... the pandemic and I would say the Clean Energy Transition necessities have fundamentally changed the equation around multiple aspects of this trade relationship, but with a special focus on autos.

So I think that the conversation within the USMCA on autos has to be something larger than what has happened in this dispute. This dispute is important, those rules of origin and our lack of agreement on what those rules of origin mean, is an important component. But with an eye towards 2026, ... the third challenge is the Chinese overcapacity challenge on EVs. How are we as these three countries going to reassert our interest in each other's success, reassert our stakes in this supply chain to to keep pace with the changes and the pressures that are affecting all three of us at the same time.

So the dispute settlement system, an incredibly important component, but I want to put it in the context of leading us to a political solution, and then that political solution needing to address the changes that are happening even as we speak to our most modernized and most updated trade arrangement.

At the beginning of her response, I think Tai offers a good explanation of the political realities of how trade dispute settlement works. Some U.S. critics of trade agreements seem to think that rulings by WTO panels and the Appellate Body, and by FTA panels, can "strike down" U.S. laws and in that way they undermine U.S. sovereignty. Tai's explanation shows that this is not the case (to be clear, I'm not saying she was trying to rebut that argument, but I think she does so in a helpful way). There are political realities here, which is why the EU still bans hormone-treated beef.

With regard to more recent realities, in the dairy case, the U.S. won the first complaint it brought, but has not followed up with a suspension of benefits to induce compliance. It later brought another complaint, but the panel hearing that complaint found no violation. With regard to New Zealand's CPTPP case, the panel found a violation, and we will find out soon how hard New Zealand wants to press Canada for compliance, and what strategy it chooses to do so.

As for the future of the autos dispute, I think that depends a lot on who wins the U.S. presidential election. If it's Trump, I think it's safe to assume that clean energy and EVs will be much less of a concern in U.S. policy, and the more traditional concerns about auto rules of origin will take precedence again.

Here was the second exchange, focusing on the USMCA review process:

Meltzer: I want to pick up, you mentioned the review in 2026. Obviously, we've framed the report thinking about the review in 2026. There's going to be elections here, in Canada, [and] in Mexico as well between now and then. But to the extent that you've given this thought, how do you see the joint review mechanism? What would you think it should be trying to accomplish? How do you think about the importance of renewing USMCA?

Tai: This review mechanism when it was first proposed was tremendously controversial. So the amount of time it took for you to explain how the mechanism works is a reflection of a compromise that had to be reached in order to land a review mechanism at all. I think that the first iteration of this proposal was at the five year mark, you come together, you either pledge, this is working, we're going to continue, or the agreement stops. And so this very complex, it happens at the six year mark, if you don't have agreement, you have 10 years for it to peter out, if it renews it's another X number of years. It's a negotiated outcome. But I think the most important piece is, as you rightly focused on, it is an inflection point for essentially a reevaluation of how the agreement is working.

I think that the disputes and the disputes outcomes need to be a part of this, to the extent that we're not able to resolve the disputes using the dispute settlement system itself only.

The other piece of it is going to have to be, how has the world changed since the pandemic? [How] is the clean tech revolution and the climate crisis affecting this arrangement between the three countries? And then also the China piece cannot be ... overstated ... . It is going to be, and it already is, a really important element of tension and concern that is coming up in this very intimate trade relationship that we have between three countries. We are now contending with the fact that there are other players that are every day impacting how we relate to each other and how we compete globally.

So there's a lot for us to work on working towards 2026, and it's the type of thing where we can't just wake up on January 1, 2026, and say, well, now what are we doing, which is why I think that this series of reports that you are putting out, this conversation that I am participating in, that you are hosting, is so incredibly important. We have to be tracking everything along the way so that we're prepared for that moment.

One question that you posed, which was how do we take up this review in 2026 without fundamentally destabilizing the relationship? I think that that's absolutely valid and important, but I do also want to caution, you do not want that review to happen in a way that all three parties come to the conversation too comfortable. The whole point is to maintain a certain level of discomfort, which may involve a certain level of uncertainty, to keep the parties motivated to do the really hard thing, which is to continue to reevaluate our trade policies and our programs to ensure that they're really responding to the changes that are happening around us. These changes, they are on multiple levels. They're happening really, really fast. And if we don't stay motivated to respond, then we are going to lose. And so that review mechanism is important. It is important for us to come to that conversation responsibly. But we also have to be honest, and we also have to understand that that discomfort is actually a feature, not a bug.

I don't have high hopes for this review, given the nature and structure of the process. On the U.S. side, I think we will see some heavy lobbying by interest groups, and then that lobbying will get mixed in with the ideology of whoever is president at that point. What will come out is some U.S. demands, and no doubt some of these demands will make Canada and Mexico uncomfortable. Perhaps Canada and Mexico will put forward demands that make the U.S. uncomfortable too. To me, this does not seem like a great way to make trade policy, but it's where we ended up and we'll see how it goes. Will there be significant changes to the text? Will the parties find resolutions to some existing disputes? Will China, as Tai hints at, become the biggest issue to deal with here? (For what it's worth, my main suggestion for the review is to rethink the review process!)

Conversations at WTO Ministerial Side Events: Subsidy Races and Trade Remedies

As part of the WTO Ministerial Conference last week, there were some side events going on. I was watching one called "Business Forum at MC13" and came across some interesting discussion of subsidy races and trade remedies.

The question that kicked off the subsidy race discussion was about the government help going to the semiconductor industry around the world, asking basically, if there is a subsidy race going on, don't all the subsidies cancel each other out to an extent. John Neuffer, President and CEO of the Semiconductor Industry Association (SIA), responded as follows:

I'll just speak for the US chip industry. So our federal government was not in the subsidy race for decades. As a result, 1990, US manufactured about 40% of the world's chips, 37%. And now it's about 10 or 12%. And the overriding reason for that is that it's 25 to 50% more expensive to build a fab or a semiconductor manufacturing facility in the US than it is in other countries, depending on which country you're comparing it to. And the biggest reason for that is that other countries, other competitors around the world, were in the subsidies race, and we were standing on the start line looking down the field, kind of scratching our navels saying what's going on here.

So while some call this a race to the bottom, at least now we're in the race as a country, because if the status quo continued, we would be even in further decline with our manufacturing on shore. So we're not trying to -- our government, I won't speak for the government -- but I'll just say, we're not trying to bring it all on shore, that's insane. We want more robust supply chains around the world that support our industry. We just need to reduce our vulnerability. So that's what's going on. And the harsh political reality is that as long as our competitors around the world are providing subsidies, our federal government needs to do it as well.

Now if everyone can agree to knock it off and say let's be done with that, then that's okay. But we got to get on some kind of level playing field. And that's what we were not in the US enjoying, and that's why the Chips and Science Act is so important.

I feel like there's a decent, although perhaps not perfect, steroids analogy here. The first person to take steroids gets an advantage over his/her competitors (while also causing long-term health damage of course). Then others jump in and start taking steroids in order to catch up with the first mover, and in the end, they are all back to where they started in terms of competitiveness, but at a significant cost. Along the same lines, if everyone is giving subsidies, who wins here? Neuffer suggested that perhaps everyone could agree to "knock off" the chips subsidies. Is that possible? Would that put us in the best place in terms of fair competition and an amount of U.S. production that would make people feel secure?

If everyone doesn't knock it off, what kinds of trade frictions will result? That leads me to the next item, which was Brazilian Foreign Trade Secretary Tatiana Prazeres talking about possible trade remedy responses to subsidies:

Another issue that I think is relevant, I mean, the elephant's been in the room and we need to talk about it, is the participation of the state in the economy. So the African group, for example, has put forward a proposal about policy space. There's a lot of talk about green subsidies. So for a country like Brazil, who wants to pursue an industrial policy, who wants to "new industrialize" if you want, the challenges are many, right. So if we see a subsidy race that is going on at the global level, for a country like Brazil that does not have the deep pockets of other countries, the challenge is how do you deal with that? There's a lot of conversation about this, green subsidies, subsidies race, etc. But for countries who don't have the same resources, what I fear is that we'll see a race towards trade remedies. And I'm in charge of trade remedies in Brazil, and I can tell you, it's coming. The wave is coming. Very often private sector comes to us, saying look at what country X is doing, economy Y is doing, etc., and what are you doing, right? And it's been very challenging to deal with the current economic circumstances, current views on trade policy, on industrial policy, on the role of the state in the economy, and we need to have a serious conversation about that in the WTO. Also taking into account different levels of development. I don't know the end result of this conversation, but we just cannot pretend it's not there.

These statements leave me with two questions.

First, what is the expectation or hope of subsidy supporters with regard to the use of trade remedies as a response to subsidies? I've asked this in various places, but for the most part have not gotten a clear answer.

Second, for those on the progressive left in the U.S. who have been pushing for this subsidy race, I'm curious what their view is of the impact on developing countries. So far I haven't heard concerns about this acknowledged by the progressives who have a say in making these policies, although some progressives who are on the outside do seem worried.

The Role of WTO Case Law in a USMCA RRLM Proceeding

Here is an interesting exchange from last week's hearing in the USMCA San Martín mine labor dispute about the role of WTO case law in interpreting the USMCA provisions at issue:

Panelist: Mexico raised the question that the United States has not provided any legal authorities for its positions. Would the United States like to respond to that?

U.S.: In this case, the legal arguments that we're making relate to the interpretation of the USMCA and the provisions of the rapid response mechanism. To interpret those, the panel should look at the text, in context, in light of the object and purpose. There aren't cases on these issues and looking to the text is what we've relied on for purposes of supporting interpretations. So we didn't provide legal treatises or articles, if that's what they're referring to, because we didn't think it was necessary to do so.

Panelist: What weight should we give then to the jurisprudence that's been provided by Mexico IMMSA [Industrial Minera de México, S.A.], if any?

U.S.: Under the Vienna Convention, where the meaning of a treaty isn't clear from the text and context, the panel can look to distinguished jurists, I think is how they are referred to. So the opinions in other adjudicatory bodies, to the extent that they speak to issues that might be relevant to the proceedings, if the panel finds them useful or persuasive, the panel can look to those sources. They certainly aren't binding on the panel.

And in this case, because these provisions are unique, the WTO cases, for example, that IMMSA refers to are not persuasive. In fact, IMMSA gives in its brief many examples of potential like products that it suggests would not be considered like that, in my experience at the WTO, absolutely would be considered like. ... they don't speak directly to these issues. I don't think the panel needs to evaluate those in order to make its determination on what things would be in competition. ... They aren't binding on the panel. ...

When we are talking about the role of past cases as precedent, I feel like we are often talking about the degree of persuasiveness. That degree may vary depending on factors such as which adjudication body is the source of the prior case, or whether it's from a higher court or the same level court. It's difficult to come up with language that captures the nuances of persuasiveness though. It's easy to say "no binding precedent," but defining persuasiveness is a challenge.