International Economic Law and Policy Blog

The Meaning of Economic (In)Security.

I posted a new working paper drawn from years of archival research that disrupts contentions that Cold War-era trade institutions fail to offer stability or predictability in the global economy due to advanced economies’ economic security strategies. The history is rich and exciting, and a future post may offer a summation of my redescription of the making of the postwar global economic order and its early tests with the elevated tensions between the Soviet bloc and Western free-market countries. Such historical analyses show a delicate sensitivity to state insecurities with trade multilateralism and reveal how such interferences were core to this system, not acts of violation or evidence of its impotence.

But I want to stick to the present. The WTO need not face its death just because governments are reimagining global economic integration. Instead, policymakers should move away from questions about the reviewability of the security exceptions and break down questions of self-sufficiency, conservation, and defeating foreign economic competitors within the multilateral trading system.

Economic security may be the paper that covers rock. It is far broader, abandoning any notion that economics and security are antinomies. Nor does it demand governments dwell on legal assessments between what is a rule and what is an exception in WTO terms. In the face of rising unilateral trade actions, the WTO defined ‘economic security’ as ‘resilience’ and ‘the ability of a system, including households, firms, and governments, to prevent and prepare for, cope with, and recover from shocks.’ The emphasis on prevention and preparation collapses notions of wartime, peacetime, or the transition period in between. No longer compartmentalised by ‘exceptional’ times, economic security stretches how security interacts with trade policy. States that refer to economic security emphasise ongoing evaluation and management of economic action in the highly integrated global economy, whether it is firms’ market power, technology transfers through foreign investments, or even classic efficiency gains from trade. The legal consequences of sustained economic security trade actions for the multilateral trading system remain unknown. However, any member may challenge the legality of ongoing strategies based on benefits being ‘nullified or impaired.’

I have developed a conceptual framework for economic security based on my historical assessment. I divide economic security into four buckets: two short-term and two long-term categories.

Short-term (ST): urgent, temporary responses to known threats that do not seek to alter existing markets.	Long-term (LT): preparedness and potential of unforeseen contingency; responses suggest governments do not take market structure as given.
ST1: Re-arming Trade restrictions related to ‘hardcore’ military interests, such as arms, ammunition, and implements of war.	LT1: Self-sufficiency Trade restrictions to develop the resiliency of a domestic economy. Lt1A: Domestic productivity (inward) Lt1B: Trade diversification; Multiple supply sources (outward)
ST2: Insecure Supply Trade restrictions related to an urgent event that demands a temporary workaround to address essential short-supply issues.	LT2: Breaking and Re-making Markets. Trade restrictions to weaken/slow economic opponents or to prevent a state (or its firms) from dominating the design, production, distribution, or trade of critical materials. LT2 measures aim to break and structure global markets, requiring future planning that can engage LT1 and ST2 measures to rebuild market structures or supply chains.

Some buckets fit neatly within existing institutional structures and rules. However, one bucket does not. Long-term economic security strategies of members that resolve to break and remake global markets are – at the roots – about members reacting to another member’s success within the globalised economy. Rather than complain to reverse restrictions, amend arbitrary or unjustifiably discriminatory practices, or countervail unfair trade practices, this long-term strategy focuses on powerful members remaking the markets that drastically reduce that member’s capacity. Underlying this bucket is the idea that long-standing economic competitiveness justifies severing supply chains – a deliberate, permanent choice to eliminate MFN treatment to another member. Members further pull these long-term actions outside the conventional ‘legal’ world into ‘non-law’ purgatory to escape an MFN violation. I use the word choice of purgatory deliberately, signalling a gap in WTO institutions. Within the paper, I identify these actions as LT2.

Members need not respond to a present threat when invoking economic security within this LT2 bucket. Governments emphasise the potential for unforeseen contingencies and speak to government anticipation of circumstances giving rise to economic security concerns. It speaks to state intervention for broad preparedness and potential, tethered to states’ dynamic views of economic security. Some explanations are the monopolisation of strategic markets or their contribution to excess global capacity, which impairs other states’ markets. Governments may push this further to assert that another state has a monopoly on production due to the exploitative activities of a dominant firm. As an example, the United States’ sweeping measures to bolster its competitiveness with China follow a political logic that views China as a ‘challenge to the international order’ and a significant threat to international rights and the goal of advancing democracy globally. Beyond the obligation to invoke security according to a member’s good faith obligations, there is nothing within WTO rules and institutions to effectively manage actions that thrust WTO commitments into purgatory. As LT2 strains the MFN principle, its crucial WTO members supplement the gap with other norms and principles to structure their actions and coordinate trade within the global economy. In other words, simply raising security exceptions leaves too much government policy as ‘untouchable.’

Within the paper, I detail an early experiment with international government coordination on the short supply of critical materials. Within the bounds of infant institutions for the multilateral trading system, the ‘free world’ economies used the Korean invasion in 1950 to drive what one official described as a temporary, urgent ‘super-government cartel’ for critical supply chains. Inbuilt into the newly established global economic order was an inherent contradiction regarding the permissiveness of state interferences in producing and trading goods. Rather than break the MFN norm and exist in violation of the GATT, the US-led ‘free world’ controlled the supply of materials informally, collectively, and under the principle of equitable allocation. A shared interest in critical materials for defence facilitated this contradiction, giving states a temporary legal foothold in the loosely held-together rules-based trading system. Equitable allocation would develop a double meaning for “free world” economic policymaking: it promised these countries a voice on distribution and interlocked production to US military preparedness. Although the GATT would reconstitute a global economy rooted in international legal structures, informal structures embedded within US military demands divided the global economy, too.

Where does this leave us? For one, WTO members can reimagine the idea of equitable allocation as the contrary force to equality of treatment (already captured within the existing WTO agreements). One pathway I found convincing was the work of green economy collaboration by Emma Aisbett and her co-authors that emphasise mutuality and conservation to dictate the contours of state intervention – a dramatic reorientation from US militarism.

At first glance, it might seem the notion of equitable allocation is alarmingly unhelpful (and if one looks over the bridge to the investment law world, there are many precedents to support issues with equitable treatment). However, I argue that international norms ground institutions and there is an apparent absence of norms settling relations when one speaks of LT2. Consider it this way: current dispute settlement reports where one member has invoked GATT Article XXI reveal only one key finding – the relations between the members must be near or at complete breakdown. There is, thus, nothing to help members come back from deterioration. Ungoverned, LT2 actions may only encourage governments to act alone and deny economic globalisation.  If WTO members reimagine globalisation, as perhaps towards global public goods and mitigating climate change, they must have the legal infrastructure to do so.

I’ll be brief here, but another potential pathway is to evolve the economic underpinnings of the multilateral trading system and establish dynamic, collective governance on materials that speak to the global challenges many members need to prioritise (in addition to their domestic interests!). To shift LT2 actions away from unilateral actions focusing on abuse and coercive practices, members may coordinate on select materials or goods they conclude no single member may dominate global capacities. An involved new form of governance entails negotiating new schedules and submitting to warning mechanisms that effectively let WTO members prepare for and manage supply chain dominance (as they define it). This entails significant reimagining of transparency and notification requirements and greater demands for providing reasons for, among other things, domestic capacity targets and purchasing powers on a rolling basis.

Many developing countries understand economic integration as vital to their economic security because of the role of trade in reducing extreme poverty and inequality. Even if the economic security strategies do not threaten the foundations of the system, efforts to shift multilateral trade governance to a new agenda set by industrialised economy members’ economic security strategies fail to address what Sylvia Ostry described as developing countries' ‘unfinished business of past negotiations.’ Just as there is a concern among advanced economies that existing legal structures are blind to the risks of economic integration, unilateral actions in response to these risks threaten developing countries’ growth capabilities, with risks of fractured global value chains and increased trade costs, particularly in agriculture and services. In this sense, the normative power of economic security strategies chokes the deliberative functions of the WTO.

The WTO remains an important forum for all governments to connect and deliberate on the supply of goods and services. Yet, WTO members must take great care in recommending ‘better’ management as the solution without a robust and clear articulation of the problem. Focusing on a solution to chase a problem fails to match the institutional form to the problem institutions are meant to address. Members must first articulate what domestic economic security policies aim to do, what (and whom) they protect, and what international coordination should achieve.

Journal of International Economic Law New Issue (26:2) Available Now: Contents

The Journal of International Economic Law is pleased to announce its new issue (Vol. 26, Issue 2), now available on the Journal website.

This issue features the following articles:

• Trade Agreements and Sustainability: Exploring the Potential of Global Value Chain (GVC) Obligations by James Harrison
• Supporting the Transition to Climate-Neutral Production: An Evaluation Under the Agreement on Subsidies and Countervailing Measures by Roland Ismer, Harro van Asselt, Jennifer Haverkamp, Michael Mehling, Karsten Neuhoff, Alice Pirlot
• Risk, Reward, and Resilience Framework: Integrative Policy Making in a Complex World by Anthea Roberts
• Managing Externalities in the WTO: The Agreement On Fisheries Subsidies by Bernard M Hoekman, Petros C Mavroidis, Sunayana Sasmal
• A Climate Change Carve-Out for Investment Treaties by Joshua Paine and Elizabeth Sheargold
• From Bananas to Large Civil Aircraft: An On-Going Quest for Value-Added in the Computation of Countermeasures at the WTO by Marc-Antione Couet
• The Use of Trade Coercion and China’s Model of ‘Passive-Aggressive Legalism’ by Ben Czapnik and Bryan Mercurio
• The WTO and Vaccine Supply Chain Resilience during a Pandemic by Chad P Bown
• Blockchain and its Applications: A Conceptual Legal Primer by Ross P Buckley, Anton N Didenko, Mia Trzecinski

It also features the following book reviews:

• Preserving the Crown Jewel, Stratos Pahis reviewing The WTO Dispute Settlement System: How, Why and Where? by Petros Mavroidis
• Review, R V Anuradha reviewing Emerging Powers and the World Trading System: The Past, Present and Future of International Economic Law by Gregory Shaffer

Don’t miss these great articles and reviews!

Call for Submissions for the 2023 JIEL Junior Faculty Forum

The Journal of International Economic Law is delighted to announce the third annual JIEL Junior Faculty Forum. The JIEL JFF brings together early career scholars (including junior faculty, visiting assistant professors, PhD candidates, post-doctoral fellows, etc.) working in the field of international economic law. The purpose is to allow scholars to present their work before an audience of peers and experts and receive feedback from senior scholars. In addition, at least one piece will receive an offer of publication to appear in the 27^th volume of the Journal of International Economic Law—the leading publication in the field.

Rules and Format

We welcome applications from early career scholars teaching in law faculties or other schools such as in economics, political science, history or international relations. The Forum invites submissions covering a wide range of international economic law topics – trade, investment, finance, tax, labor, intellectual property, data, and other topics reflective of the broad nature of the field. Scholars who have previously presented at the JIEL JFF are not eligible to apply.

At the JIEL JFF, up to eight successful applicants will present their work; for each paper, a senior scholar will provide a response followed by general discussion by the entire Forum. The intention is to create a process of sustained exchange and feedback that can help to improve the piece.

Interested applicants should submit a brief description of the unpublished/unsubmitted project (up to 800 words) in a Microsoft Word document as well as a CV in PDF by 11:59pm EDT, Friday, July 14, 2023. The Word document description should be single spaced and should not include any identifying information as each submission will be reviewed without attribution.  The file name of the Word document should be the first few words of the title of your abstract.  The application form and upload links are available here: https://forms.gle/TWVBd7BM52BCGSZ96.

Applicants should be prepared to comply with the following schedule following the July 14 deadline:

Selection and Notification by July 31, 2023.

Draft Papers (up to 12,500 words) circulated by September 4, 2023.

Forum held via Zoom on September 15 & 16, 2023.  (The JIEL JFF is held in virtual format.  The panel times are adjusted to accommodate as many time zones as possible.)

For any questions regarding the submission or selection process, please email [email protected].

Editors-in-Chief of JIEL

Professors Kathleen Claussen, Sergio Puig, and Michael Waibel

Fit for Whose Purpose?: How Panelists Interpret Labor Rights in Trade, and What That Tells Us about the Trade/Labor Relationship

While many of us were celebrating the holidays with family, an important law review article dropped silently and inconspicuously into the fray. That article, Fit for Purpose: The Extent and Enforcement of International Trade Agreement Labor Obligations After Guatemala – Labor Obligations Decision, was written by Professor Kevin Banks, who served as a panelist on the controversial US-Guatemala labor case under the Dominican Republic-Central America – United States Free Trade Agreement (“CAFTA-DR”).

The article is a stiff-upper-lipped rejoinder to the panel report’s symphony of criticism. Some of that criticism accused the panelists of ignoring the fundamental principles of the International Labor Organization (ILO) rights that were incorporated into the CAFTA-DR. Rather than bow to that criticism, Professor Banks leans in, attempts to justify the report’s myriad flaws, and confirms that these panel decisions are as much about their authors as they are about the facts.

Referencing the panel’s interpretive reasoning concerning the Agreement’s “in a manner affecting trade” language, Professor Banks asserts that the report “stands to influence how dispute settlement panels interpret the similarly worded obligations in many other trade agreements,” including U.S. and Canadian trade agreements. His defense of and insight into the panel’s decision-making thus warrant our attention.

This post will not do the complexities of the specific legal arguments involved in that case justice, nor is that my intention. Instead, I hope to shed light on a broader question: Whether trade agreements that incorporate external, multilateral instruments such as the ILO’s 1998 Declaration should outsource the interpretation of those instruments to panelists selected by governments. This question is particularly salient when the instruments in question regulate social rights. The selected panelists will not necessarily be familiar with those instruments or, in Banks’ case, their familiarity will be obscured by interpretive devices that undermine the very rights that the trade agreements claim to protect. The result, particularly as these labor cases continue to metastasize under various trade agreements with different panelists, will be a legal pluralism that confuses rights, objectives, and incorporated instruments, to the detriment of predictability and legitimacy.

The Guatemala – Labor Obligations Decision

On June 14, 2017, the arbitral panel established under the CAFTA-DR issued its nearly 300-page final report entitled In the Matter of Guatemala – Issues Relating to the Obligations Under 16.2.1(a) of the CAFTA-DR.

Plenty of experts have written about that report, so I will not go into detail here. Suffice it to note that the case centered on the CAFTA-DR labor chapter, found in Chapter Sixteen of the Agreement, which begins by reaffirming the Parties’

“obligations as members of the International Labor Organization (ILO) and their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-Up (1998) (ILO Declaration).”

Art. 16.2.1(a), entitled “Enforcement of Labor Laws,” stipulates

“A Party shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties, after the date of entry into force of this Agreement.”

The case arose from a 2008 complaint filed by the AFL-CIO and Guatemalan trade unions alleging that Guatemala failed to enforce its labor laws effectively under the CAFTA-DR labor chapter. The complaint took nine years to percolate through the U.S. government’s procedures, the Agreement's dispute settlement procedures, and ultimately to a final panel report. The panelists ruled in favor of Guatemala, despite evidence of pervasive abuses of workers’ rights in trade sectors in Guatemala in violation of “an obligation enunciated in the ILO’s Declaration …and grounded in the ILO Constitution….”

The panel found that Guatemala had violated its commitments under the labor chapter to “respect, promote and realize” the ILO’s fundamental rights. Yet, it also found that the United States failed to satisfy its burden of proving that those labor infractions had been carried out “in a manner affecting trade” with the United States.

The panel focused on the fact that “labor laws, like other regulations, tend in their ordinary operation to impose administrative costs on employers.” A trade party could establish a failure to effectively enforce another party’s labor laws through a sustained or recurring course of action of inaction “in a manner affecting trade” if that action or inaction demonstrably “confer[red] some competitive advantage on an employer or employers engaged in trade between the Parties…”. Noting that this was a “question of fact,” the panel found that the United States had failed to show “that the enterprise or enterprises in question export to CAFTA-DR Parties in competitive markets or compete with imports from CAFTA-DR Parties” and that those effects were “sufficient to confer some competitive advantage on such an enterprise or such enterprises….” 

The Backlash

Labor and trade experts, rare bedfellows, seem to agree that the CAFTA-DR labor decision was wrongly decided. In their critical report of the decision and its processes, entitled Wrong Turn for Workers’ Rights, labor advocates Lance Compa, Jeff Vogt, and Eric Gottweild point out that two of the three panelists were international trade and dispute resolution experts who frequently represented corporations, while Professor Banks was the sole labor law expert. Maybe he was outnumbered?

Noting that the panelists relied on 38 trade disputes and not on labor disputes, and on WTO reports while discounting ILO reports, the authors speculate that “the imbalance of trade and labor backgrounds of panel members contributed to the decision [that was] clearly based on a narrow, trade-oriented analysis divorced from labor law practice – particularly in a developing country like Guatemala.” They also note that no single person representing the trade unions who had filed the complaint or the workers themselves was allowed to speak at the hearing.

Rejecting the panel’s interpretation of “a manner affecting trade,” the authors argue that the panel was distracted by the missing “costs” associated with labor infractions rather than focusing on the “higher importance” of labor laws and labor provisions – which is “protecting workers’ exercise of fundamental rights.”

Through a trade lens, Kathleen Claussen argues that traditional dispute settlement frameworks are ill-equipped to deal with “trade-plus” commitments like labor rights. She points out that disagreements over the purpose of labor commitments led to a “cacophony of rationales and basic principles.” Even objectively, “there are also procedural or evidentiary elements that make labor commitments more challenging to illustrate than traditional trade areas such as tariffs or subsidies.”

Professor Banks’ Response

Banks quickly proves that he was not an outnumbered labor voice. Instead, he dismisses the scholarly criticism for failing to understand the purposes of labor provisions “and what they imply about the extent of obligations.” He argues that the CAFTA-DR panel imposed a workable evidentiary burden, requiring “proof of competitive advantage” but not “data drawn from employer records” as alleged. The United States could have satisfied that burden by providing “credible, but approximate, information regarding how many workers were affected by that failure, in what way, for how long, and on the basis of reasonable inferences regarding effects on employers, in the light of the ordinary operation of labor law and/or the ordinarily expected consequences of unremedied labor law violations.”

Focusing on interpretive matters more generally, Banks argues that “where a clear statement of purpose is lacking, one’s interpretation of the extent of obligations supports inferences about why those obligations exist.” Given the ubiquity of labor chapters, and the use of the ILO’s instruments and rights to define the relevant trade commitments, Banks summarizes how the panel viewed its role in defining those obligations:

 “It follows that a convincing account of extent of obligations will often rest on a convincing account of purposes, that changes to or clarifications of extent of obligations imply changes to or clarifications of purposes, and that a construction of extent of obligations that does not correspond to stated purposes, or vice versa, should be resisted unless agreement text makes it clear that none other is possible.”

Addressing the panel’s consideration of those purposes and obligations, Banks argues that the panel interpreted the phrase “manner affecting trade…in light of the context and purposes of the Article 16.2.1(a) obligation within the CAFTA-DR, and the purposes of the agreement itself.”

Banks recalls that the panel read Art. 16.2.1(a) in conjunction with Art. 16.1 (which references the ILO) together with other “objectives of the Agreement” that promoted “conditions of fair competition in the free trade area….” The panel interpreted “fair” conditions of competition to be affected “when international competition operated to transmit incentives that tend to undermine efforts to recognize and protect labor rights through domestic law that the labor commitments under Chapter 16 centered on.” The panel thus “observed that treating a failure to enforce labor laws that conferred some competitive advantage in trade as ‘affecting trade’ was consistent with a coherent account of how Article 16.2.1(a) serves the objectives of the agreement, and with the focus of the Agreement’s objectives on trade.”

The panel’s finding, Banks insists, “did not preclude the possibility that other types of effects could be ‘in a manner affecting trade,’ in light of other potential Agreement or labor chapter purposes.” Banks then advances various arguments to address those “other" purposes.

First, Banks disputes suspicions that “other” purposes could be protectionist. He notes that plenty of legitimate trade provisions likewise afford an unfair competitive advantage in trade. Consequently, he reasons, it makes no sense to argue protectionism on the grounds of “labor obligations without an independent account of why they receive priority among the myriad of possible competitive advantages that could be harmonized in the interests of creating a level international playing field.” Noting that labor chapters regulate “vaguely defined claims,” he concludes that protectionists had “shown little enthusiasm for labor rights chapters as a response to their concerns.”

Second, Banks offers that trade agreements are not intended to “advance a social development agenda.” While conceding that the ILO’s mission includes “preventing destructive forms of international competition between nations,” Banks concludes that neither U.S. nor Canadian trade agreements pay attention to development agendas. If they did, “one would expect to find direct reference to them” as we do in EU trade agreements.

More broadly, Banks urges us to “turn to the role of labor norms themselves within international trade” to understand the purposes of labor chapters in trade agreements. He teaches us that labor and employment laws are understood “within many polities to embody strongly held social norms” that serve various conceptions of justice. Their regulation “protects socially valued interests that might otherwise be harmed…[and] norm-abiding businesses from losing out for being norm-abiding” and “prevents norm-breaking businesses from unjustly benefitting from the harms that they inflict.” In light of those values, “failures to provide for and effectively enforce internationally recognized labor rights can constitute breaches of fairness ground rules for economic competition.”

Finally, Banks reminds us that broader interpretations may have been possible had the United States’ allegation not been so narrowly focused on “the proven course of failure to enforce labor rights affected conditions of competition by influencing or making a material impression upon them.” Even so, he cautions that the United States’ legislative history will be unhelpful in trying to glean interpretivist meaning – the original intention was the result of hard-won political compromise, and ambitions have since shifted. He concludes by suggesting that if the phrase “in a manner affecting trade” raises more questions than it answers, future negotiators should drop it altogether.

A Few Reflections

Still with me?

I began this post by noting that my concern with the arbitral panel, and Professor Banks’ insight into the intention of the CAFTA-DR interpreters, has little to do with the panel report and more to do with the broader process of outsourcing the interpretation of the ILO’s labor rights to panelists under trade agreements. That process leaves workers incredibly vulnerable. The Guatemalan workers in the CAFTA-DR case were mistreated, were essentially ignored for nine years, and were left with nothing at the end. These decisions matter, particularly when panelists’ interpretations of the ILO’s rights in trade agreements serve to undermine those rights.

Contrary to Banks’ assertions, the panel could have interpreted the CAFTA-DR labor chapter to embody the ILO’s 1998 Declaration and its principles more purposively. If you will recall, in January 2021, a different arbitral panel released its final report interpreting similar labor provisions in a dispute under the EU –Korea Free Trade Agreement. I was equally unimpressed with that decision (maybe I am just insufferable). However, the contrast in the interpretive methodology between the two panels bears mention.

In examining the same language cited above in the CAFTA-DR, Art. 16(1), the EU-ROK panel emphasized that the incorporation of the ILO’s Declaration and rights “clearly indicate[s] that any obligation arising from the first sentence has been defined by the Parties to the full extent of their internationally accepted meaning.” Dismissing Korea’s reliance on the CAFTA-DR report, the panel found that “[t]he language of ‘fundamental rights’ in the context of the ILO Constitution and 1998 Declaration … exclude[s] the possibility that this domestic commitment to achieve or work towards these key international labour principles and rights exists only in relation to trade-related aspects of labour.”

Imagine that the CAFTA-DR panel, like the EU-ROK panel, had interpreted the express incorporation of the ILO Declaration similarly. Professor Banks’ arguments concerning the missing sustainable development framework or agenda would be moot. The ILO Declaration’s Preamble emphasizes its objective “to ensure that, in the context of a global strategy for economic and social development, economic and social policies are mutually reinforcing components in order to create broad-based sustainable development.” By expressly incorporating the “obligations as members of the International Labor Organization (ILO) and their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-Up (1998),” as the CAFTA-DR does, the Agreement arguably incorporates the Declaration’s “global strategy for economic and social development…”. And if the CAFTA-DR’s labor chapter incorporates the ILO Declaration in that manner, then evidence of Guatemala’s sustained violations of the ILO’s fundamental labor rights in trade sectors should have sufficed. Under that interpretation, the United States should have won its case.

A group of panelists under CAFTA-DR read the incorporation of the ILO Declaration incredibly restrictively, and a group of panelists under the EU-ROK read the incorporation of the ILO Declaration incredibly broadly. Either interpretation is, of course, permissible under these labor chapters. Professor Banks is no more correct than he is incorrect.

The ILO has a critical role to play here. It is best positioned to interpret its own standards and Declaration and identify the prevalence and impact of labor infractions in its member countries. I am currently exploring how to reinvigorate efforts within the ILO to create an authoritative labor tribunal under Art. 37(2) of its Constitution that could adjudicate these matters. However, even if the ILO establishes such a tribunal, States haven’t shown a willingness to give the ILO a formal role in their trade agreements, despite touting new “worker-centered” trade policies. Perhaps, if nothing else, the CAFTA-DR report is the canary in the coalmine, reminding even powerful governments like the United States of the unpredictability in the ubiquitous labor/trade relationship that they have created.

Tim Meyer on Exceptions and "Mixed Motives"

My friend Tim Meyer has a new paper entitled "A Political Theory of Legal Exceptions." Back before the pandemic, Tim and I and a few others submitted a proposal for a SIEL 2020 panel entitled "Making Space for Public Policy in International Economic Law Agreements: The Role of Obligations and Exceptions." That panel never happened, of course, and this paper of Tim's predates that proposal, but nevertheless it would have been an opportunity to discuss these things. With any luck, we'll all have that chance soon!

Talking about trade policy with Tim is always interesting because we seem to either strongly agree or strongly disagree on issues. This paper has a little of both. I'm not going to give a comprehensive summary of the paper in this post, so read the whole thing to get the full flavor of his argument. Instead, I'm going to pick out a few aspects to comment on.

First off, where we agree is that existing exceptions language in trade agreements, and the judicial standards derived from them, are sometimes too narrow. Here's how Tim describes a flexible approach he advocates:

An alternative approach within new trade agreements would borrow from the experience of investment treaties. In response to decisions that they perceived as overreaching, a number of states began including clarifications in the investment chapters of their trade agreements and standalone investment treaties. This language provides that “[n]on-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations . . .”

This language was adopted to clarify the meaning of rules prohibiting expropriation, but other countries have adopted the means-ends relationship – “designed and applied to”—to their general exceptions clauses. Specifically, they have modeled the scope of their general exceptions clauses on GATT article XX, but replaced “necessity” with “designed and applied to.” They have also retained the chapeau of Article XX and its nondiscriminatory requirement.

This approach dramatically improves the workability of general exceptions clauses. Unlike the necessity test, the “design and applied to” standard does not preclude the possibility that a measure had more than one motive. It merely requires that one purpose—as evidenced by the measure’s design and application—is a permissible regulatory objective. The original context of this language’s development further underlines this point. The “designed and applied to” standard was created to provide defendant states greater discretion in how they pursue legitimate regulatory objectives. This negotiating history further makes clear to treaty interpreters that multiple objectives should not be fatal to invoking an exception. By contrast, new exceptions clauses that mirror or incorporate by reference existing WTO exceptions risks codifying, in the eyes of future treaty interpreters, existing WTO case law on exceptions.

To be sure, states have adopted the non-discrimination requirement from the chapeau of GATT article XX even in those treaties that have discarded the necessity test. In recent cases like EU—Seals and Brazil—Tyres, the non-discrimination requirement has been the stumbling block to successfully invoking the exception. Modifying the language of GATT Article XX in new agreements could make clear that a Predominant Motive test applies to the non-discrimination test in the chapeau as well. Currently, that language provides that:

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 the same conditions prevail, or a disguised restriction on international trade . . .

The chapeau could be rewritten to codify a Predominant Motive test in the following way:

Subject to the requirement that arbitrary or unjustifiable discrimination between countries where the same conditions prevail is not the predominant objective of such measures . . .

This language makes two changes. First, it deletes the prohibition on “a disguised restriction on trade.” This language suggests that tribunals should look for hidden motives, a requirement that should be eliminated in favor of asking directly whether a legitimate objective constitutes the challenged measure’s primary motive. As the Channeling Paradigm suggests, multiple objectives is more likely the norm in policy making. Giving tribunals license to root out motives they deem “disguised” seems particularly unwise in the current context of fragility in international dispute resolution.

Second, this language makes clear that arbitrary or unjustifiable discrimination is only problematic if it is the predominant objective of discrimination among countries where like conditions prevail. This language preserves the fundamental nondiscrimination requirement of the chapeau. At the same time, though, it expands the discretion states have to choose among measures that might incidentally discriminate among countries.

In so doing, it will expand the margin of appreciation member states enjoy from second-guessing by dispute panels. Trade panels will still be able to strike down measures that are predominantly protectionist or discriminatory. But mixed motive measures that predominantly pursue permitted objectives will survive. That rebalancing between the right to regulate and the objectives of trade liberalization will bolster the legitimacy of trade law and its dispute settlement function at a time when such legitimacy is sorely needed.

I think Tim and I would end up in about the same place on these issues, although I might apply a slightly different standard. First of all, I would emphasize the relevant obligations a bit more, and perhaps distinguish between the exceptions being applied to certain obligations versus other obligations. For example, Article XX might look very different when applied to Article III than Article XI. In fact, you might not even need Article XX when Article III is involved, if you interpreted Article III in a certain way. But regardless, for each exception/obligation combination, what I would want to look at is a combination of the degree of discriminatory effect and the degree of discriminatory intent (mostly objective intent, but I wouldn't rule out subjective intent as a supporting element). In terms of the intent, I like the "predominant motive" framing. I just want to make sure that effect is not ignored.

Anyway, I basically agree with Tim here, although what I said in the previous paragraph may obscure that a bit. What I think we agree on is that the fundamental inquiry that should be undertaken -- either in the obligations or the exceptions -- is whether the measure is protectionist. Under the current standards, it's not always clear to me that's the inquiry being carried out, and I worry that non-protectionist measures will be found in violation as a result.

Shifting to the bigger picture, Tim sets out three theories of trade law exceptions. The first two are the conventional ones, and the third is something he came up with:

Despite the variety of exceptions within trade law, this Part argues that there is a conventional wisdom regarding exceptions. I distill that conventional wisdom into two approaches to exceptions: what I refer to as the Policy Space Theory and the Safety Valve Theory. Under the Policy Space Theory, governments invoke exceptions to accommodate objectives from policy domains other than trade policy, such as to fulfill domestic social or environmental objectives. An unlawful trade measures might be justified, for instance, as necessary in order to take aggressive measures to combat climate change.

The Safety Valve Theory, by contrast, holds that governments invoke exceptions to defuse political pressure that trade liberalization itself creates. This pressure typically comes from domestic groups that are harmed by competition from imports. Exceptions for measures that target unfair trade practices, for instance, allow states to reintroduce some protection into the trading system in order to reduce attacks on the trading system as a whole from these interests.

...

I ... introduce the Channeling Paradigm. The intuition behind the Channeling Paradigm is that a certain amount of domestic political pressure for protection from foreign economic activity will remain in any political system. That pressure will seek an outlet, which exceptions provide. Those interested in increasing barriers to foreign economic activity will therefore seek to form political coalitions in favor of policies that both create protection and serve some other objective authorized by the exception. The availability of international legal exceptions, in other words, channels domestic political pressure for otherwise impermissible objectives into policies that plausibly fit within the exceptions. As a result, “exceptional” trade cases are very likely to involve government policies that have mixed motives. A trade jurisprudence that does not have greater tolerance for governments’ mixed motives is one for which governments themselves are likely to have little tolerance.

His explanations of the first two theories make sense to me. But with the third theory, the disagreements may be starting. Tim argues the following:

The basic idea behind the Channeling Paradigm is that exceptions incentivize explicit or implicit bargaining among domestic interest groups. Groups with different potentially trade restrictive policy objectives, such as an environmental group and a domestic import-competing industry, will unite around a single policy that plausibly fits within an exception. Such policies will be more likely to be enacted domestically and stand a better chance of an international tribunal finding that the measure falls within an exception. ...

Here are some questions I have: Do trade exceptions really play much of a role in how domestic politics is carried out? Are the exceptions doing much "channeling"? Wouldn't all this be happening in domestic politics even if trade agreements didn't exist? I can certainly imagine that domestic actors would cite to the trade agreement exceptions as they formulate their positions, as people will always cite to things that support their argument. But I'm not sure the political results would be any different if those exceptions did not exist. It's a question of cause and effect, and I'm just not sure the exceptions are causing anything.

Also, when this does happen in domestic politics, couldn't it lead to a tainting of the non-trade policies? A measure's objectives seem a bit less pure when special interests lobbying for protection from competitors join the team.

Next up, there is the classic disagreement I have with Tim: Doesn't this bargaining among interest groups end up leading to less effective implementation of the non-trade policy at issue? It may be true that local content requirements help with the political task of generating support for clean energy subsidies, but they also put in place policies that undermine the impact of the subsidies in pushing people towards clean energy. 

And finally, there is a disagreement over the economic literature about the impact of trade liberalization. Tim says:

Even the reduction in tariffs achieved through free trade agreements like NAFTA and the dramatic expansion of the WTO in the decades after the end of the Cold War had significant domestic economic effects. These agreements allowed multinational companies to disaggregate their supply chains across countries, moving jobs offshore. While the globalization of supply chains had beneficial effects for companies, and led to job growth in some communities within the United States, it also led to significant and long-lasting economic turmoil in communities in which jobs were shipped offshore.

I agree that trade liberalization is disruptive because it changes the economic status quo. But don't we all agree that we as a (both national and global) society are better off overall with NAFTA and the modest liberalization under the WTO due to that disruption? And that we would be worse off overall if the higher tariffs were still in place? Even taking into account the job losses in some regions, on balance we as Americans (and not insignificantly, poor people outside the United States) are better off. And when I say "we," I don't mean companies, some of whom were helped and some of whom were hurt by all this. I mean ordinary Americans, including those with the least economic security. Yes, we could have kept some tariffs in place and perhaps particular jobs would have been preserved, at least for a little while. But when you take into account the economic harm caused by those tariffs (job losses in other places, higher prices for basic goods), joining these trade agreements was still the right policy. Keeping the tariffs would have been economically harmful to a lot of vulnerable people.

I feel like what we need is more analysis of the disruptive impact of long-standing and newly imposed tariffs, including an examination of who in particular is harmed by them. That would be a useful way to reframe the discussion. People are always putting trade liberalization on trial, and I think we need to put tariffs and other forms of protectionism on trial a bit more. The Trump administration's various unconventional tariffs have been helpful in providing opportunities to measure the impact of tariffs, but there is probably more work to do here.

Announcing a new paper on International Expositions Law

I would like to announce the availability of my new research paper on international expositions law. The title of this paper is Steve Charnovitz, "Why the International Exhibitions Bureau Should Choose Minneapolis for Global Expo 2023."  The Bureau of International Expositions (BIE) will be making this important decision in November 2017.  The working paper explains how the United States recently strengthened its bid by a remarkably rapid bipartisan action by the US Congress and Trump Administration to rejoin the BIE which the United States had quit in 2002. This paper also reviews the legislative history of US membership in the BIE treaty going back to 1968 and provides a brief overview of the role of the BIE in supervising world's fairs and expos going back to 1928. The BIE is an unusual treaty in having its own customs regime and in making decisions by a majority vote. The paper describes the three competing bids for the expo by Argentina, Poland, and the United States, and discusses the political and legal factors that may be in play in choosing the winning proposal. The paper explains why the bid by Minneapolis/United States is the superior proposal because of the salience and definiteness of its proposed theme of "Healthy People, Healthy Planet." The paper can be downloaded from SSRN at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3053623.

Indian Journal of International Economic Law: Call for Papers

The Indian Journal of International Economic Law (IJIEL) is a law journal published by National Law School of India University, Bangalore (NLSIU) under the patronage of the Indian government sponsored chair on WTO Law. The Journal is oriented towards publishing academic work that considers the legal issues in the field of international economic law from a comparative perspective and/or the perspective of the developing world. The IJIEL accepts academic submissions in the form of articles, notes, comments or book reviews. IJIEL is now inviting submissions for Volume 8(1) and 8(2).

Volume 8(1):

Continuing with the past tradition, Volume 8(1) will be a general edition dealing with a host of legal issues in the field of international economic law, which includes multidisciplinary research concerning the WTO, trade laws at various levels of government, financial institutions, regulatory subjects such as taxation and competition policy, various services sectors such as banking and brokerage, linkages to human rights and cultural problems and international commercial arbitration.

Volume 8(2):

This year, considering the contemporary relevance of the Trans Pacific Partnership, IJIEL is coming up with a special issue on the “Implications of the Trans-Pacific Partnership”. The Trans-Pacific Partnership is expected to reshape business practices and trade law regime across the world. We have already received a very enthusiastic response for this issue and hope the student community would also want to contribute to the scholarship on this contemporary topic.

IJIEL is now accepting submissions for both the issues under the following categories:

1.  Articles (5000 to 12000 words) must deal with a theme of interest or importance comprehensively and are expected to show an extensive coverage of existing literature and a high level of analysis.               
2. Essays for the Law in Focus section (3000 to 5000 words) must concisely analyse contemporary legislations, landmark treaties or other specific issues in international economic law of a contemporary nature.
3. Case Notes, Legislative Comments and Book/Article Reviews (2000 to 7000 words).

The Editorial Board invites submissions for Volume No.8(1) and 8(2) of 2016. The Journal follows a rolling submissions policy and the deadline for the forthcoming volume is 25th March, 2016. Please send in your queries or submissions to [email protected].

"Sovereignty, Supremacy and Subsidiarity"

As the WTO Members try to make some new international law through the Doha Round, and Congress questions the role of Appellate Body rulings, this new book asks the time timely question "how should the authority to make and interpret international law be allocated among states, international organizations and tribunals":

The Shifting Allocation of Authority in International Law: Considering Sovereignty, Supremacy and Subsidiarity

Edited by Tomer Broude and Yuval Shany

International law is fragmented and complex, and at the same time increasingly capable of shaping reality in areas as diverse as human rights, trade and investment, and environmental law. The increased influences of international law and its growing institutionalization and judicialization invites reconsideration of the question how should the authority to make and interpret international law be allocated among states, international organizations and tribunals, or in other words, "who should decide what" in a system that formally lacks a central authority? This is not only a juridical question, but one that lies at the very heart of the political legitimacy of international law as a system of governance, defining the relationship between those who create the law and those who are governed by it in a globalizing world.

In this book, leading international legal scholars address a broad range of theoretical and practical aspects of the question of allocation of authority in international law and debate the feasibility of three alternative paradigms for international organization: Sovereignty, Supremacy and Subsidiarity. The various contributions transcend technical solutions to what is in essence a problem of international constitutional dimensions. They deal, inter alia, with the structure of the international legal system and the tenacity of sovereignty as one of its foundations, assess the role of supremacy in inter-judicial relations, and draw lessons from the experience of the European Union in applying the principle of subsidiarity.

This volume will be of great interest to scholars and practitioners of international law alike.

Call for Papers: Georgetown Journal of International Law

A Call for Papers:

The Georgetown Journal of International Law, the affiliated journal of the U.S. Court of International Trade, is soliciting articles for its third annual publication of the International Trade Review.

We welcome submissions that cover current developments in international trade law. Articles may include issues concerning the U.S. Court of International Trade, the U.S. Court of Appeals for the Federal Circuit, the U.S. Department of Commerce, the U.S. International Trade Commission, regional and bilateral trade agreements, and the WTO.

To receive priority consideration, articles should be submitted by August 15, 2008 to the Georgetown Article Management System, available via http://www.law.georgetown.edu/AMSAuthor

Authors may also submit manuscripts though e-mail in Microsoft Word format to [email protected]. All manuscripts should be cited according to the 18th edition of the Bluebook, double-spaced, and include an abstract and the author's CV.

New Paper on Development and Human Rights under WTO law

Here's a new paper from Gillian Moon of University of New South Wales, entitled "The WTO-Minus Strategy: Development and human rights under WTO law."  The abstract:

International trade law, human rights law and development studies share the common objective of promoting higher standards of living in the poorer countries of the world. Human rights and development scholars have been critical of the law of the World Trade Organisation (WTO), as implementing a development strategy which dominates and constrains the development strategy options of developing countries but which perceives development only in a narrow, economic sense. In this paper, the different theoretical underpinnings of international trade law and international human rights law are described and compared and their differing conceptions of development are examined from the perspective of the broader development discourse. The package of rights and obligations of developing countries under WTO law (the ‘WTO-Minus strategy’) is also described and examples of significant constraints placed by this package on the development strategy options open to developing countries regarding trade in goods are examined from the perspectives of the broader development discourse and international human rights norms. The capacity of the WTO to incorporate new and multidisciplinary knowledge about development is considered.