International Economic Law and Policy Blog

Congressmen Blumenauer and Doggett Introduce Legislation To "End 'Favored Nation' Trade Relations with Russia, Bar Russia From WTO"

U.S. Representatives Earl Blumenauer and Lloyd Doggett are introducing legislation to "end Permanent Normal Trade Relations (PNTR) with the Russian Federation and to initiate a process to formally deny Russia access to the World Trade Organization (WTO), following its unprovoked invasion of Ukraine."

The legislation is here. Its main provisions are as follows:

SEC. 2. WITHDRAWAL OF NORMAL TRADE RELATIONS TREATMENT WITH THE RUSSIAN FEDERATION.

Notwithstanding the provisions of title I of the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (Public Law 112–208; 19 U.S.C. 2434 note) or any other provision of law, effective on the date of the enactment of this Act—

(1) normal trade relations treatment shall not apply pursuant to section 102 of that Act to the products of the Russian Federation; and

(2) normal trade relations treatment may thereafter be extended to the products of the Russian Federation only in accordance with the provisions of chapter 1 of title IV of the Trade Act of 1974 (19 U.S.C. 2431 et seq.), as in effect with respect to the products of the Russian Federation on the day before the effective date of the accession of the Russian Federation to the World Trade Organization.

SEC. 3. COOPERATION WITH UNITED STATES ALLIES AND PARTNERS.

(a) IN GENERAL.—The President shall encourage allies and partners of the United States—

(1) to consider taking similar actions such as the withdrawal of permanent normal trade relations treatment for products of the Russian Federation; and

(2) to condemn the Russian Federation’s recent aggression in Ukraine at the World Trade Organization (WTO).

(b) ACCOUNTABILITY AT THE WTO.—The President shall direct the U.S. Permanent Mission to the World Trade Organization to use the voice, vote, and influence of the United States at the WTO to seek the suspension of the Russian Federation’s membership in the WTO.

The domestic law aspect of this new legislation seems pretty straightforward. If this law is enacted, permanent normal trade relations for Russia will end and we will go back to a requirement of regular confirmation of Russia's normal trade relations status. Given Russia's invasion of Ukraine, it's safe to assume that normal trade relations would not be granted at least until that conflict is resolved.

The international part of the legislation is more complicated. It first says that the President shall "encourage allies and partners of the United States" to do two things: 1) do the equivalent of withdrawing permanent normal trade relations themselves; 2) condemn Russia's Ukraine aggression at the WTO.

The process for kicking Russia out of normal MFN treatment will depend on each country's domestic legal system. I wonder how many countries would be willing to do that. Possibly many, but certainly not all.

With regard to condemning Russia at the WTO, maybe a few countries will agree to this, but I can imagine many countries arguing that the WTO is not the right forum for this.

As to the last point about "seek the suspension" of Russia's WTO membership, I'm not sure exactly what they have in mind here. Former WTO Secretariat official Peter Ungphakorn tweeted about these issues yesterday, and I'm not sure I have anything more to add. I feel like this would be difficult to accomplish, and just focusing on the practical issue of excluding Russia from normal trade treatment would be the easier route.

One other point about Russia and the WTO is the impact of all this on ongoing disputes involving Russia. There are several of these, and two of them are just getting going: The EU requested consultations on Russian wood export measure in January (and just submitted a revised request); and a panel was just composed in the Russian Federation - Certain Measures Concerning Domestic and Foreign Products and Services (DS604) case brought by the EU. I assume these disputes will be put on hold.

The G7 on Trade: Some Hope for US Return to Binding Multilateral Dispute Settlement?

Judged by the recent past, the G7 meeting in the UK (with key US allies) was a resounding success. But then again, the Trump administration created a low bar. In 2019, there was no G7 communiqué for the first time—because of divisions on trade. And in 2020 there was no meeting—the US host “postponed” it until the year ran out.

Yet this year, there was a long communiqué, and it had a full section even entitled “Free and Fair Trade.” Once more, the G7 committed to championing “the rules-based multilateral system” that the previous US President so disparaged.

The G7 statement now calls “for the world’s leading democratic nations to unite behind a shared vision.” That vision is “to ensure the multilateral trading system is reformed, with a modernised rulebook and a reformed World Trade Organization (WTO) at its centre.”

This general commitment is followed by specific ones. The first stresses the need to make “progress” for the WTO’s next Ministerial Conference in November, with the hope of “a meaningful conclusion” of negotiations on fisheries subsidies. Meanwhile, subsidized fleets deplete the oceans of fish. The baseline for progress may be low, but engagement is critical.

The second expresses concern about “forced labour in global supply chains.” The statement does not call out China by name, possibly because of pushback from other G7 members, but it specifically mentions “the agricultural, solar, and garment sectors,” all of which involve production in Xinjiang.

The final paragraph commits to working together and “with the wider WTO membership” to address major issues that implicate China. Once more, China is not mentioned expressly, but the US clearly has China in its scope on “forced technology transfer, intellectual property theft, lowering of labour and environmental standards to gain competitive advantage, market-distorting actions of state owned enterprises, and harmful industrial subsidies,” and “transparency.” As I have argued elsewhere, singling out China by a so-called “alliance of democracies” is not just risky, but a mistake. The issues, however, are real.

Perhaps most interesting is the G7’s commitment to advance the “proper functioning of the WTO’s negotiating function and dispute settlement system” (emphasis added). This could have been worded more elegantly (“functioning” of a “function”?), but it is an advance.

Unstated is that there is tension—if not outright contradiction—between the G7 commitment to a “rules-based multilateral system” and the US neutering of WTO dispute settlement. Here the US remains alone among the G7 and the “broader membership.” The communiqué nonetheless offers hope here, signaling that the G7 aims to see WTO dispute settlement “function properly.”

On this front, the Biden administration’s strategy, it seems, is first to resolve disputes over the Trump tariffs imposed on G7 and other US allies, against which the allies retaliated. Resolving this dispute is politically tricky. The tariffs provide protection to the US steel industry, and that industry is in swing states that are critical for the 2022 election. The control of the US Senate and House are at stake. The Biden administration will thus proceed carefully, biding its time, consulting with labor union constituencies. Still, the two sides are making progress, agreeing to suspend new tariffs while they negotiate.

If the Biden administration can settle tariff disputes with its G7 allies, then maybe, just maybe, the US will be in a cleaner position to make concrete proposals to return to binding multilateral trade dispute settlement. Then the system might be “rule-based” once more.

Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine and author of Emerging Powers in the World Trading System: The Past and Future of International Economic Law, Cambridge University Press, July 2021.

A Historical Perspective on India‘s and South Africa’s Threat to Block the Implementation of the Joint Statement Initiatives in the WTO, and a Potential Way Forward

Late last week, India and South Africa circulated a paper on the “Legal Status of ‘Joint Statement Initiatives’ and their Negotiated Outcomes” that was widely perceived as a threat to block the implementation of the four Joint Statement Initiatives in the WTO (Peter Ungphakorn has described it as “pouring cold water” on the talks; Inside U.S. Trade’s Hannah Monicken characterized it as “throwing a wrench in the plans for the WTO to become a plurilateral forum”). The paper was bound to cause some frustration among long-suffering observers of WTO negotiations who had hoped that the confluence of a new DG, a new US administration, and a new EU trade strategy would create the momentum needed to bring these negotiations to a successful conclusion.

A historical perspective can shed light both on the merits of the paper and its limits. There are parallels – and crucial differences – to the conclusion of both the Tokyo Round and the Uruguay Round (unless otherwise indicated, references for the quotes reproduced in this post can be found in my article on the “The Club Approach to Multilateral Trade Lawmaking”).

The Tokyo Round Debate Redux …

As is widely known, the Tokyo Round concluded with the adoption of several plurilateral ‘codes’ that were negotiated among small subsets of GATT contracting parties. What is less well known is that the developing countries attempted to make the adoption of these codes subject to a consensus decision by the Trade Negotiations Committee, or at least the consent of a “large majority” of contracting parties. At a meeting of the Trade Negotiations Committee in July 1978, Yugoslavia, speaking “on behalf of the developing countries”, stated:  

At this stage we are requesting that a rule be established for the decision-making process in the [multilateral trade negotiation] according to which no adoption of a negotiating document would be accepted unless the large majority of participants declared themselves in favour of it. We cannot proceed on the basis that a group of a few countries may consider it appropriate for others to be kept out of arrangements if they are not in a position to accept their conceptual approach.

Like India and South Africa today, Yugoslavia was concerned that the code approach circumvented the amendment provisions of the GATT. Thus, Yugoslavia noted that “whenever amendments are made in the General Agreement, the CONTRACTING PARTIES have to approve them according to the existing rules.” The developing countries attempted to amend the final drafts of the codes to the effect that they “should enter into force when two thirds of the participants in the MTN have accepted them” – a threshold that mirrored the amendment provisions of the GATT. An alternative proposal advanced at the conclusion of the negotiations was that the codes should only be opened for acceptance “after being adopted by the Trade Negotiations Committee” – a decision that would have to be taken by consensus, as was GATT practice.

The developed countries, by contrast, took the view that the multilateral trade negotiation …

… was not a general diplomatic conference, that no agreement was being forced on any government but that on the other hand the Committee could not prevent a number of countries from entering into an agreement if they wished to, unless the provisions of the agreement were contrary to the GATT. 

They argued that subsets of members who wished to enter into the codes were free to do so as long as they “were not imposing anything on other governments but simply moving to higher levels of discipline”.

Why were developing countries upset about the codes, and do those reasons apply today? A first reason was a lack of transparency and inclusivity in the Tokyo Round negotiations. In many instances, developing countries were not part of the negotiations until the basic outlines of the codes had been hammered out by the US and the EC; in fact, in some cases (specifically, the codes on anti-dumping and civil aircraft) the developing countries didn’t even find out that codes were being negotiated until the final stages of the Round.

As far as I can tell, we are in a very different world today when it comes to the transparency of negotiations. It is perhaps an indication of how the trade regime has changed in this respect that India and South Africa do not raise concerns about transparency in their paper.

However, a second reason for the developing countries’ frustration in the Tokyo Round is still present today: if subsets of contracting parties are free to “go off to do business by themselves” (as Hudec memorably put it), the other contracting parties lose control of the agenda. In the Tokyo Round, the developed countries could focus on their priorities, and the developing countries had no leverage to force the developed countries to make concessions on those issues that were of most importance to them. This concern is echoed in India’s and South Africa’s paper, which highlights the “systemic implications” of the Joint Statement Initiatives, including that they

result in Members disregarding existing multilateral mandates arrived at through consensus in favour of matters without multilateral mandates

lead to the marginalization or exclusion of issues which are difficult but which remain critical for the multilateral trading system, such as agriculture, development, thereby undermining balance in agenda setting, negotiating processes and outcomes.

Both in the 1970s and today, there was and is a real frustration among some developing countries that plurilateral approaches allow their proponents to sideline the interests and priorities of developing countries (though it should be noted that many more developing countries are participating in the Joint Statement Initiatives than were involved in the code negotiations).

Finally, both the developing countries in the Tokyo Round and India and South Africa today were concerned not just about the negotiations at hand, but also about the precedential effect of a less-than-multilateral outcome of the negotiations. In 1979, Malaysia lamented that a “precedent” was being “set for various groups of countries to put up Agreements amongst themselves and to seek the umbrella of the [multilateral trade negotiation].” Similar, India and South Africa today warn against “creat[ing] a precedent for any group of Members to bring any issue into the WTO without the required consensus”.

… with a Twist

There is of course a crucial difference between the circumstances at the end of the Tokyo Round and the situation today: the legal default position has changed. In 1979, the developing countries were unable to prevent the adoption of the codes, because adding a consensus requirement for their adoption or a two-thirds majority requirement for their entry into force would have required a change to the codes. Today, by contrast, consensus for the addition of a new plurilateral agreement to Annex 4 of the Marrakesh Agreement is the legal default position. As India and South Africa correctly point out, a single WTO Member can even prevent the certification of other WTO Members’ schedules and hence frustrate the implementation of new plurilateral agreements through that route. In other words, the Marrakesh Agreement empowers developing countries to do exactly what they wished they could have done at the end of the Tokyo Round: to prevent subsets of WTO Members from concluding agreements among themselves within the framework of the multilateral trade regime. That does not mean, however, that India’s and South Africa’s position does not carry risks. And here the Uruguay Round potentially holds a lesson.  

A Lesson about Excessive Legalism from the Uruguay Round

Martti Koskenniemi once wrote that an “international lawyer is in part pleased, in part embarrassed when philosophers contemplating the international order put their hope in international law”. International trade lawyers might feel something similar when they see developing countries relying exclusively on legal rules to protect their interests. An anecdote from the Uruguay Round highlights the risks of excessive confidence in legal rules.

As is, again, well known, India was fundamentally opposed to the integration of substantive intellectual property rights into the multilateral trade regime for at least the first four years of the Uruguay Round. The 1988 mid-term ministerial in Montreal failed in part because India and other developing countries would not agree to continued negotiations on substantive intellectual property rights. How was this deadlock overcome? As the EC negotiators Hugo Paemen and Alexandra Bensch tell it (in their book From the GATT to the WTO, at 143), “the Community negotiator secretly told India and Brazil that the future agreement on TRIPs would not necessarily have to form part of the legal GATT texts. This represented a major concession …”. And here comes the money quote from Paemen and Bensch, which has stuck with me ever since I first read it (my highlights): “India, which tended to adopt a legalistic attitude in matters relating to the GATT, allowed itself to be persuaded.” The EC’s assurance was reflected in the following proviso in the document that recorded the mid-term compromise: “Ministers agree that the outcome of the negotiations is not prejudged and that these negotiations are without prejudice to the views of participants concerning the institutional aspects of the international implementation of the results of the negotiations in this area, which is to be decided pursuant to the final paragraph of the Punta del Este Declaration.” Clearly, India expected that the decision on the international implementation of the results would be taken by consensus, so that it would be free to decide whether to join the TRIPS Agreement or not.

However, it was not to be: once Richard Steinberg and his colleagues at USTR had come up with the ingenious device of creating a new treaty of which both a copied-and-pasted GATT and the TRIPS were an “integral part”, a refusal to join the TRIPS Agreement suddenly meant staying entirely outside of the multilateral trade regime; as a result, India’s leverage and ability to protect its own interests dissolved into thin air (for an account of the conclusion of the Uruguay Round that traces these dynamics in great detail, see pp. 165-181 of my Club Approach paper; for a different reading of these events, see Robert Wolfe’s JIEL article on the single undertaking).

Is the India-South Africa paper another example of a “legalistic attitude” that might give them and other developing countries a false sense of security? I can think of three reasons why that might be the case.

First, at some point the political pressure to concede may simply become overwhelming. Blocking a consensus is politically costly, even for the largest WTO Members: The US had to give up its resistance to the TRIPS waiver in 2003, and India had to concede on the Protocol of Amendment for the Trade Facilitation Agreement in 2014. In both cases, the WTO Member had the “right” to maintain their veto, but because their position was not perceived as substantively legitimate by the vast majority of the membership, it ultimately became too costly from a political standpoint. I suspect that India and South Africa will find themselves in a similar position if they try to block the adoption of the Joint Statement Initiatives: unless they articulate concrete substantive demands that could provide a basis for compromise (more on that below), their position will probably attract little sympathy, especially since they would be able to free ride on the commitments adopted by the participants of the Joint Statement Initiatives.

Second, I wonder whether India and South Africa overestimate WTO Members’ sense of urgency in seeing their schedules certified. Assuming that the proponents of the Joint Statement Initiatives decide to implement their new commitments by inscribing them into their schedules, and India and South Africa proceed to block the certification of those schedules, what would the proponents do? I think the most likely scenario is that they would simply treat the schedules as reflecting their obligations and act accordingly. Delays in the certification of schedules are not uncommon: for example, the EU’s revisions to its goods schedule after the 2004 expansion were not certified until 2017. During the GATT years, the contracting parties routinely observed commitments that were technically not in force (John Jackson notes in World Trade and the Law of GATT (at 217) that “It sometimes seems as if those parts of GATT that are not legally binding have a better record of compliance than those parts that are!” For theoretical background, see also Robert Wolfe’s pluralist account of the role of law in the trade regime). Of course, uncertified schedules would not provide the same legal certainty as certified schedules, but I doubt that the prospect of non-certification will dissuade the proponents of the Joint Statement Initiatives from pursuing that option. Blocking the certification of schedules is such an obscure tool that I cannot see it making a significant dent in the momentum of the Joint Statement Initiatives (such as it is).  

Finally, as others have pointed out and India and South Africa themselves highlight, the likely consequence of blocking the Joint Statement Initiatives in the WTO would be that they are implemented in the context of a preferential trade agreement. It is hard to see why it will be better for developing countries in the long run if these issues are addressed outside the WTO context than within it. If the issues are dealt with in the WTO, developing countries will be in a better position both procedurally and substantively: procedurally, because the participants in the Joint Statement Initiatives will presumably be subject to transparency obligations that they would not have if the agreements were addressed outside the WTO, and substantively because the non-participants would be able to receive the benefits of the Joint Statement Initiatives through MFN. Moreover, a failure of the Joint Statement Initiatives due to vetoes from non-participants would do even more damage to the WTO as a negotiating forum and will further accelerate the tendency to tackle new issues outside the WTO. Further weakening the WTO as a negotiating forum would undermine India’s and South Africa’s objective of reviving negotiations in areas of interest to them.

What Could Be a Way Forward?

Even if their position is not without risks, it is clear that India and South Africa have some leverage over the participants in the Joint Statement Initiatives. How could they use that leverage?

India’s and South Africa’s main objective appears to be to prod other WTO Members to re-engage in negotiations on issues that are of more interest to developing countries, such as agriculture, and to pursue negotiations on issues like services based on multilateral mandates. There are limited prospects that they will be able to employ their leverage to that end: there are complex reasons that those negotiations stalled, and the additional bargaining chip that India and South Africa now have will not be enough to overcome the deadlock. India has once before unsuccessfully attempted to use its blocking power to speed up negotiations on a substantively unrelated subject when it held up the adoption of the Protocol of Amendment for the Trade Facilitation Agreement with a demand to accelerate negotiations on public stockholding. There is no reason to expect that the dynamics will play out differently this time around.

A more promising option would be for India and South Africa to use their leverage to maximize the benefits of the Joint Statement Initiatives for non-participants. Bernhard Hoekman and Charles Sabel have proposed a “multilateral governance framework” for what they call open plurilateral agreements (OPA) (h/t Robert Wolfe), which includes the following principles:

1. Membership of an OPA is voluntary; WTO members that decide not to participate will not be pressured to join at a later date;
2. An OPA must be implemented on a nondiscriminatory basis, with benefits extending to non-signatories;
3. Openness to subsequent membership by WTO Members that did not join when an OPA was first agreed, and inclusion of a section laying out the requirements and procedures to be followed for accession by aspiring members;
4. Language stating that accession to an OPA cannot be on terms that are more stringent than those that applied to the incumbent parties, adjusted for any changes in substantive disciplines adopted by signatories over time;
5. An obligation to provide reasons to accession-seeking countries for decisions to reject membership applications;
6. A provision committing signatories to provide assistance to WTO members that are not in a position to satisfy the preconditions for membership in terms of applying the substantive provisions of the agreement but desire to do so;
7. Where feasible and in instances where capacities must be built for a country to meet OPA requirements, consideration be given to establish a stepwise schedule of compliance;
8. Provisions ensuring that nonparticipants have full information on the implementation and operation of the agreement. These should include:
   1. Compliance with WTO requirements pertaining to publication of information on measures covered by the OPA (along lines of Art. X GATT);
   2. Simple, robust notification requirements for OPA members regarding the implementation of the agreement, which could draw on recent proposals to develop augmented procedural guidelines for the operation of WTO bodies;
   3. Creation of a body to oversee implementation of the OPA that is open to observation by non-signatories, including mechanisms to engage stakeholders in an ongoing conversation about how the agreement is working and future needs;
   4. Annual reporting to the WTO General Council by the OPA on its activities;
   5. A mandate for the WTO Secretariat to assess the effects of implementing OPAs on the functioning of the trading system as part of the Director-General’s annual monitoring report of developments in the trading system.
9. Inclusion of consultation and conflict resolution procedures for non-signatories of OPAs in cases where they perceive that incumbents do not live up to the foregoing principles;
10. Provisions indicating whether the OPA envisages recourse to WTO dispute settlement mechanisms to enforce the agreement, and if so, specifying the standard of review as well as the criteria that will apply in the selection of arbitrators.

Again, there is a historical precedent for non-participants in plurilateral agreements using their leverage in this way: after the conclusion of the Tokyo Round, the non-participants in the codes used the fact that the participants needed their consent to allow the GATT Secretariat to administer the codes to extract important concessions, including a commitment (a) that the codes (with the exception of the Government Procurement code) would be applied on an MFN basis, (b) that the Contracting Parties would receive “regular reports” about the operation of the codes, and (c) that non-signatories would be able to follow the proceedings of the Committees overseeing the codes “in an observer capacity”.   

If India and South Africa were to employ their leverage in this way, the WTO as a negotiating forum would benefit twice over: it would show that it can accommodate plurilateral initiatives, and would build a governance framework that ensures that the WTO Membership at large benefits to the maximum extent possible from those initiatives. Admittedly, however, this solution would do little to address what appears to be India’s and South Africa’s main concern – that control of the agenda of the multilateral trade regime appears to be slipping away from developing countries yet again.

The Obama Administration's Attack on Appellate Body Independence Shows The Need for Reforms

By Steve Charnovitz, George Washington University Law School

The Obama Administration has not yet apologized for its unilateral action in May 2016 to unseat Appellate Body Member Seung Wha Chang, a distinguished jurist from South Korea. Although this hostile act by the United States has been roundly criticized by other governments within the World Trade Organization (WTO) and by many outside commentators, the Obama Administration refused to back down from its action to threaten WTO judges with non-reappointment if their judicial opinions rankle the U.S. Trade Representative (USTR). Ironically, although President Obama has rightly criticized the U.S. Senate for refusing, for political reasons, even to consider the President's mid-March Supreme Court nomination of Judge Merrick Garland even though that inaction leaves one Justice seat vacant, the Obama Administration engages in analogous politicization at the WTO that leaves one Appellator seat vacant.

Although the Obama Administration had refused in 2011 to go along with the widely-supported reappointment of Appellate Body Member Jennifer Hillman from the United States, reportedly on the grounds that she had not upheld U.S. protectionist measures being challenged in WTO dispute settlement, this most recent Obama Administration action to blackball another country's judge is a more serious assault on judicial independence in the WTO. Starting next week (26 September 2016), the WTO Dispute Settlement Body (DSB) is scheduled begin a focused discussion on improving the appointment process for Appellate Body Members. Below I offer a proposal to clarify the Dispute Settlement Understanding (DSU) regarding reappointment.

The Obama Administration announced its decision to block the reappointment of Judge Chang at the May 23 DSB meeting. The reason offered was that the Obama Administration disagreed with the jurisprudence articulated in four recent Appellate Body decisions on which Judge Chang was one of the three appellators on the division deciding the case. Two of those cases involved successful challenges by China against countervailing duties imposed by the Obama Administration. At the DSB Meeting, the Administration stated clearly that Appellate Body jurists needed to be "held responsible" and "accountable for the views they have endorsed" (Statement by the United States at the Meeting of the WTO Dispute Settlement Body, 23 May 2016).

The Obama Administration's announcement elicited an outcry of opposition in the world trade community. According to an account of the DSB Meeting published by the WTO, numerous governments, led by South Korea, either objected to the U.S. position or expressed concerns about the damage that could be done to the WTO. The other complaining governments included Brazil, China, Colombia, Egypt, the European Union, Honduras, Iceland, India, Indonesia, Mexico, Nigeria, Oman, Paraguay, Russia, Switzerland, Taiwan, Thailand, Turkey, Uruguay, and Viet Nam. Based on press accounts (as the official WTO minutes remain classified as of 22 September 2016), no government sided with the United States. (See "U.S. Slammed at DSB For Blocking Korean Appellate Body Reappointment", World Trade Online, 23 May 2016).

By conditioning its support for a judicial reappointment on whether or not a WTO judge sides with the United States on the substance or process of WTO law, the Obama Administration strikes at the heart of the concept of judicial independence. In 1994, when the US Executive Branch sought Congressional approval for US membership in the WTO, the US "Statement of Administrative Action" characterized the new Appellate Body as being composed of "seven independent experts" (SAA, p. 345). That Statement of Administrative Action was approved by the US Congress in the Uruguay Round Agreements Act (19 USC §3511). But the WTO appellators can hardly be "independent" when they know that the United States (or any other WTO Member) will veto a reappointment as a way of making WTO judges "accountable for the reviews they have endorsed."

I could not find any position paper on the USTR or White House websites explaining how the Obama Administration decided to target Judge Chang. The Administration did not seek any public comment on its plan to fire Judge Chang, and has not explained why the benefits to the United States from intimidating WTO judges will be greater than the costs to the United States of embarrassing South Korea and undermining the WTO.

The US ouster of Judge Chang was an affront to South Korea. Chang was the first and so far only Korean judge to serve on the Appellate Body. In an article about this sordid episode in the Korea Times (see Choi Sung-jin, "US set to oust Korean judge from WTO appellate body," 1 June 2016), an unnamed Korean government official is quoted as saying "We are explaining the iniquity of the U.S. moves to other member countries." That the Obama Administration singled out South Korea for the harsh judicial treatment should be put in context of the unfair way in which the Obama Administration has treated South Korea in bilateral trade relations. The most egregious conduct involved the Korea-US Free Trade Agreement (KORUS) that had been signed by both countries in 2007. After he took office, however, President Obama refused to send the KORUS to the Congress until Korea agreed to renegotiate the KORUS and accept more US protectionism. In particular, the Obama Administration pressured Korea to allow the 25% US tariff on imported trucks to remain in place for seven additional years rather than to begin to be phased out in the first year of the trade agreement. One wonders why in view of the increasing militarism in North Korea, the Obama Administration sees geopolitical reasons to embarrass the government and people of South Korea.

The US ouster of Judge Chang was also an affront to the WTO. Already suffering a legitimacy crisis for its inability to complete ongoing Doha Round trade negotiations (owing in large part to weak USTR leadership), the WTO has been enjoying a legitimacy boost from its effective dispute settlement system. But when the Obama Administration forces a vacancy in the Appellate Body and politicizes the process of re-appointment, the future effectiveness of WTO dispute settlement is put at risk.

The danger to the WTO dispute system was immediately grasped by the WTO community. The other six appellators sent a joint letter to the DSB Chair on 18 May 2016 observing that "The dispute settlement system depends on WTO Members trusting the independence and impartiality of Appellate Body Members. Linking the reappointment of a Member to specific case could affect that trust." In addition, the corps of retired WTO appellate judges voiced sharp criticism. In a letter dated 31 May 2016, all 13 former Appellate Body members wrote to the DSB chair to criticize the blocked reappointment. The letter observes that "all of the accomplishments of the past generation in establishing the credibility of the WTO dispute system can be put in jeopardy" by "inappropriate pressures by participants in the WTO system." In addition, many WTO scholars have also been critical of the Obama Administration. For example, Professor Gregory Shaffer wrote: "USTR's hubris could be explained if this were Putin's Russia. Or perhaps Trump's America. But the Obama administration? Has this fallen outside the President's radar?" ("Will the US Undermine the World Trade Organization?, 23 May 2016, The World Post).

The Obama Administration's disrespect for the WTO comes at a precarious time in US trade politics when leading candidates in the upcoming elections are calling into question the benefits to the United States from international trade and from WTO Membership. It is not enough for a US President merely to say the right things as President Obama did at the United Nations on 20 September when he declared that "I believe that as imperfect as they are, the principles of open markets and accountable governance, of democracy and human rights and international law that we have forged remain the firmest foundation for human progress in this century." A President must also do the right things. And President Obama failed to do the right thing when he allowed (or ordered) his Administration to undermine judicial independence in international trade law and to unaccountably veto the reappointment of a distinguished Korean jurist supported by most (if not all) other WTO member governments.

The continuing fallout from the US judicial veto calls for a decisive response at the WTO. At the DSB meeting next week, I propose that the Members promulgate new normative guidance on Appellate Body appointments. Happily, a made-to-order statement is available in the excellent letter from the 13 former appellators which states in one pertinent paragraph:

"A decision on the reappointment of a Member of the Appellate Body should not be made on the basis of the decisions in which that Member has participated as a part of the divisions in particular appeals, lest the impartiality, the independence, and the integrity of that one Member, and, by implication, of the entire Appellate Body, be called into question. Nor should either appointment or reappointment to the Appellate Body be determined on the basis of doctrinal preference, lest the Appellate Body become a creature of political favor, and be reduced to a mere political instrument. Rather, as provided in Article 17.3 of the WTO Dispute Settlement Understanding, the standard for both appointment and reappointment should be whether the person in question is 'of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally'."

A decision adopting this policy statement can be taken in the DSB by consensus pursuant to DSB Article 1.4.

Another reform I recommend is that the Appellate Body should adopt an amendment to its Working Procedures for Appellate Body Review (see WT/AB/WP/6, 2010, para. 2 (Duties and Responsibilities)) to make clear that Appellate Body members should not accept invitations to be interviewed by a WTO member regarding a reappointment. It has come to my attention that USTR's Geneva office has on recent occasion called in a sitting Appellate Body member to discuss her reappointment. Since the US government apparently cannot resist the temptation to engage in WTO-illegal ex parte communication with Appellate Body members, the Appellate Body, by its own rules, should forbid such reappointment interviews.

In summary, the Obama Administration should apologize to the WTO for the damage USTR has caused and the Administration should support the enactment of a DSB normative statement to depoliticize reappointments of WTO judges.

 

New AU funding system and the WTO

At its July 2016 summit in Kigali, Rwanda, the AU Assembly held a special retreat to consider new proposals intended to ensure that the AU “is financed in a predictable, sustainable, equitable and accountable manner with the full ownership by its Member States”.

The new funding proposal adopted by the Assembly reads as follows:

“To institute and implement a 0.2 percent Levy on all eligible imported goods into the Continent to finance the African Union Operational, Program and Peace Support Operations Budgets starting from the year 2017”. See here: http://www.au.int/en/sites/default/files/decisions/31274-assembly_au_dec_605-620_xxvii_e.pdf (p. 1.)

That is all there is in the Outcome document on this subject.

The origin of the goods on which the levy is to be imposed is clear: by using the language of “imported goods into the Continent”, it excludes goods imported into an African country from other African countries.

However, by qualifying the products on which the levy will be imposed as “all eligible goods”, the Decision (i) clearly suggests that the levy won’t apply to all goods coming into Africa; and (ii) has left to a future date the determination of which of these goods will be subject to the levy, and therefore “eligible”, and which ones won’t be.

Interestingly, the Decision does not provide any guidance on how this classification is to be done – e.g. will it adopt a positive list approach of goods to be “eligible” for the levy (and whatever is not included in the list to be exempted from it) or the other way round (i.e. a negative list approach in which goods not subject to the levy will be listed while all those not so listed will be subjected to the levy)? etc.

Whatever methodology is used, will it be guided by some general principles – e.g. exclude essential goods from the levy (such as food items, medicines, educational equipment, etc.) – or will it be left to each member state to decide? If the latter, will this be negotiated? etc.

Also, when it says “a 0.2 percent Levy”, 0.2 percent of what? Presumably of the import value of the product (e.g. the value determined according to the WTO customs valuation agreement)? What if a country is not a member of the WTO and follows a different methodology?

Then, will this proposal pass the test of WTO compatibility?

To start with the most obvious: what if the same or “like” product comes from another African country? MFN requires that WTO members may not apply tariffs on a product coming from one WTO member and not apply the same tariff on the same or like product when it originates in another WTO member. The only exception to this would be if the whole of Africa forms a free trade area (as the CFTA aims to become) or a customs union or some form of regional economic entity that can be justified as a south-south agreement as per the 1971 GATT Enabling Clause. At this moment, only the CFTA route looks viable; the fact that both the levy and the CFTA are meant to enter into force in 2017 might not be mere coincidence either, but of course I don’t know if this is indeed the case.

Beyond the MFN issue, what if an African country has already undertaken a zero tariff commitment at the WTO – i.e. the bound tariff level for the particular product is set at 0%? Any increase, even to 0.2%, would be in breach of GATT Art. II on schedules of commitments. Countries such as Mauritius that have gone in the Hong Kong direction of establishing a duty-free import regime may have a point here (and this might explain, at least in part, why Mauritius registered its reservations to the above AU Assembly Decision).

Finally, what if an African country has already concluded a bilateral/regional trading arrangement with a non-African country/ies in which it has undertaken to eliminate tariffs on “substantially all trade” as is required by WTO law? Will the introduction of a 0.2 % levy not put that country in breach of its bilateral/regional treaty obligations and, indirectly, of its WTO obligations (because chances are that such a bilateral/regional treaty has been reported to the WTO and justified under one or another of the exceptions mentioned above – GATT XXIV, Enabling Clause, GATS Art. V)? The Euro-Med agreements signed between AU member states in North Africa and the EU or the EPAs signed by some of the other African countries with the EU might easily encounter these challenges.

I suspect there will be many more issues to come here.

The question then is how to overcome any challenges that may come from other WTO members.

I doubt any country would take Africa to court (and, in any case, no case can be brought against Africa yet; it can only be brought against individual AU member states that are also members of the WTO because the AU does not have legal standing before the WTO).

But, if the proposed formula is really good enough for Africa to want to fight for it at the WTO, I think it can do so successfully through a politico-diplomatic route. I am thinking here of a waiver under Art. IX of the Marrakech Agreement as perhaps the most obvious route.

Thoughts welcome.

The WTO congratulates itself on panel diversity - unfortunately its math is wrong

In this news release, https://www.wto.org/english/news_e/news16_e/disp_21jun16_e.htm, the WTO announces that it has just appointed its 100th female dispute settlement panelist and compares itself favorably with other international tribunals, stating "[t]he WTO's dispute settlement system has fared somewhat better. Of the 209 WTO panels composed since 1995, 90 have included women panelists, representing about 43 per cent of the total panelists."  Unfortunately, that math is clearly incorrect.  The WTO data instead reflects that 43 percent of the panels have included at least one woman.  However, with the 100th female panelist just appointed, there have been 100 female panelists and 527 male panelists (assuming all panels have had three members), which works out to women representing about 16 percent of the total, not 43 percent.  The data is a bit worse when one takes into account the fact that some panelists have served more than once.  The WTO's own data, accessible by clicking "here" at the end of the press release, indicates that "[o]f the 277 individuals selected to serve as panelists since 1995, 39, or approximately 14 per cent of them, were women."  Worldtradelaw.net tracks this data as well: http://www.worldtradelaw.net/databases/panelistgender1.php.  Their charts reflect that in 2009 there were no female panelists at all, and in 2015 only 2 out of 24 panelists were women.  So while it is true the WTO does a bit better than some other international tribunals, I'm not convinced this self-congratulatory announcement was warranted.

 

 

Mission Creep at the WTO

On Saturday, the WTO joined three other international organizations in issuing a Statement about the H1NI virus. The other three IGOs were the FAO, the OIE, and the WHO.

The Statement can be found at http://www.wto.org/english/news_e/news09_e/jt_stat_02may09_e.htm.

According to the Statement: "To date there is no evidence that the virus is transmitted by food. There is currently therefore no justification in the OIE Terrestrial Animal Health Standards Code for the imposition of trade measures on the importation of pigs or their products."

The Statement, which is obviously intended to be normative, led me to reflect on a number of interconnected issues.

First, is this Statement international trade law? Could it be used in a WTO dispute to preclude a defense to a trade measure on pigs if one were challenged in the WTO?

Second, if the Statement is law, is it within the competence of the WTO to state? Previously, I was not aware that the WTO had any competence for public health. I would also doubt that the WTO has any expertise on the OIE Standards Code.  

Third, if the Statement is law, what authority did the WTO use to join it? Did the WTO enact it under WTO Agreement Article V:1 authority? If so, does that make the Statement a covered agreement?

If the Statement is not hard law, but rather only soft law, then there is still a question of what authority the WTO used to join it. Was it Article III:2 authority?

Fourth, whatever level of normativity the Statement has, what internal procedures were used within the WTO to agree to it? I see that there was a General Council meeting on April 30 so perhaps the General Council approved the Statement under Article IX:1 authority. Unfortunately, the WTO remains (to use Pascal Lamy's word) "medieval" in its transparency practices, and there are not minutes available for the General Council meeting. Indeed, there is not even an agenda posted as of May 4. I also looked on the WTO website to see if there was any advance notice of the proposal to enact the Statement and I didn't see any. There was also not any request for public comment. So it seems that once again, the WTO does not use the best practices for administrative procedure that it demands of its Members under the covered agreements.

Fifth, would be the implications if the WTO Secretariat did not receive permission from the General Council before signing this Statement in the name of the WTO? I would hope that the SPS Committee at least signed off on the action by the WTO to the Statement. Did it? It would seem very troubling if someone in the Secretariat can join agreements with other international organizations in the name of the WTO without Member approval. Given this episode as a precedent, could the WTO join an ILO Statement about the need for fundamental worker rights or a UNFCCC Statement about the need for emissions reduction?  

Finally, what liability does the WTO have if the Statement proves to be wrong. Suppose we do learn that pigs or pig products transmit the virus and a state held off on measures upon the advice of the WTO. Would the WTO have responsibility for the harm caused to that state? What the State be able to bring a lawsuit against the WTO in its municipal courts? Ordinarily, one would think the WTO would have immunity under Article VIII:4. But does that apply if the WTO action lacks any legal justification under its own rules?

Carolyn Deere on the WTO DG Non-Race

It is being reported that Pascal Lamy is the only candidate for DG.  Carolyn Deere comments:

This year, with only one nominee at hand, WTO Members must nonetheless ensure that there is vigorous debate on the challenges facing the organization and the changes that the Director-General should pursue. They must then provide a clear mandate to the Director-General. Here, even in the absence of contenders, Lamy himself needs to demonstrate that he can be an agent for change by catalysing debate. He should seize the opportunity to explicitly and publicly present a forward-looking vision for the multilateral trading system, the WTO system and its Secretariat, and propose a comprehensive action plan for his second term for Members to consider.

More at the link.

Where is the link between financial markets and WTO?

This last week just witnessed the largest government intervention in the financial market - the U.S. government took control of the two mortgage giants, Fannie Mae and Freddie Mac, and will acquire $1 billion of preferred shares in each and provide as much as $200 billion to the two companies on a need basis. As the current financial crisis unfolds and spreads, the fate of more financial companies is hanging in the balance: Lehman, AIG, Merrill ... The perceived threat for a melt-down of the financial system may trigger further government rescue efforts.

In terms of its magnitude and scale, the U.S. government intervention probably dwarfs many of the government interventions targeted by WTO disciplines. You see headlines like this: "U.S. is 'more communist than China'", here, and "Is America now more socialist than France?" here. And you wonder what is the significance of an event like this for the multilateral trading system? The hazard of financial crisis may have much bigger and more immediate impact on world trade and welfare of the trading nations than, say, climate change. But where is the link between the financial markets and trade? Is it mostly in the foreign exchange system or much broader and deeper than that?

With these questions in mind, I was glad to spot Pascal Lamy's introduction to the WTO Public Forum this year, which says:

This year's Forum, which takes place against a background of financial instability, high oil and food prices, will ask: “how can the trading system be taken into the future?” In doing so, we expect to trigger a frank and open debate on the role and responsibility of the multilateral trading system on complex issues such as the food crisis, financial markets, climate change, human rights, and electronic commerce, to mention but a few topics.

But to my disappointment, the program of the Forum does not show any reference to the financial markets, let alone discussion of such issues. I understand that trade and finance are traditionally segregated both in government practice and in academic discourse. But how long can we afford to ignore the close and deep connection between the two? I would be grateful for any recommendation of scholarly writings addressing this problem.

Judging RTAs in WTO Dispute Settlement

Among the many difficulties with reconciling bilateral/regional trade agreements and the WTO Agreement is which "branch" of the WTO, the Dispute Settlement Body or the Committee on Regional Trade Agreements, should judge the overall consistency of these agreements with WTO rules.  A recent article by Youri Devust and Asja Serdarevic argues that it should be the CRTA, and that the Appellate Body erred when it stated otherwise:

Following the logic of the Panel Report in the Turkey-Textiles case, this article proposes that, during the enforcement exercise, a distinction should be made between, on the one hand, the legality of the regional arrangement as such and, on the other hand, the legality of concrete trade policy measures adopted by the RTA. The latter should be subject of strict surveillance and sanctioning, notably via WTO dispute settlement. In contrast to the line taken by the WTO’s Appellate Body, it would, however, not be advisable for the WTO dispute settlement system to get into questions of the overall legality of specific regional arrangements. The overall compatibility of regional arrangements with WTO rules is better suited for diplomatic transparency and peer review exercises in the CRTA on the basis of the clarified benchmarks, ...

See http://www.worldtradelaw.net/articles/devuystwtorta.pdf

For reference, in the Turkey - Textiles case mentioned, the Appellate Body had said the following:

58. Accordingly, on the basis of this analysis of the text and the context of the chapeau of paragraph 5 of Article XXIV, we are of the view that Article XXIV may justify a measure which is inconsistent with certain other GATT provisions. However, in a case involving the formation of a customs union, this "defence" is available only when two conditions are fulfilled. First, the party claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV. And, second, that party must demonstrate that the formation of that customs union would be prevented if it were not allowed to introduce the measure at issue. Again, both these conditions must be met to have the benefit of the defence under Article XXIV.

(emphasis added)

An Olympic Boycott and the WTO

All the recent talk about a boycott of the Olympics, or the opening ceremonies at least, has me wondering:  Is there a WTO violation here? My guess is no, but I have more questions than definite answers.  Some questions:

-- First, services seems like the most promising place to look, but what is the service to be considered here?  Given that the athletes would be boycotting, is the proper UN CPC category "Services of athletes"?

-- What mode of service supply is involved?  My first thought was that it would be the movement of natural persons, with non-Chinese athletes providing their services in China, to the Olympic games themselves.  But maybe the services are really being provided to the fans, Chinese and non-Chinese, in China and elsewhere.  In that case, the mode could be consumption abroad or cross-border trade.

-- Would these services benefit from the exception for "services supplied in the exercise of governmental authority"?  Governments do have a fairly important role here, after all.

-- And, of course, the most important question:  Have the potential boycotting governments made any commitments in their GATS Schedules that would be relevant here?  I'm having a hard time with this part, in particular relating the actual services supplied to possible commitments that might have been made.

That's as far as I got with the analysis before my head started to spin.  Anyone with clearer thoughts on this should feel free to set me straight. 

Postscript on the Appellate Body Appointments

What Chinese Appellate Body appointee Zhang Yuejiao had to say:

"I will do my best with unwavering impartiality," Zhang said Thursday. She will take her seat in June in the seven-member Appellate Body, which issues final rulings in trade disputes.

"You can rest assured that I will do justice to the post," she said.