And a tax, too. Reuters reports:
I'm curious as to how this kind of service would be classified and what commitments the U.S. has made.
Hawaii is going to ban "the sale, possession and distribution of" shark fins:
I haven't seen anything to indicate that there are foreign "shark finners" who are upset by this, as was the case with the EU ban on seal products. Perhaps the Hawaiian market is too small to worry about. Or perhaps the shark finners are not that well organized.
Australia has just done a report on its anti-dumping and countervailing duty system. Some snippets:
• The price raising effects of anti-dumping measures give rise to a range of benefits and costs for applicant industries and their suppliers, importers, downstream user industries and, in some cases, consumers; with ensuing effects on employment, activity and investment across the economy.
• Most of these impacts represent transfers between different domestic stakeholders. But there will be some adverse consequences for Australia’s overall economic performance and community well-being.
– Resources attracted to, or retained in, industries by virtue of anti-dumping protection will provide a lesser return to the community than if used elsewhere.
– Longstanding anti-dumping measures that become akin to tariffs are likely to lessen the imperative for recipient industries to respond to import competition through innovation and other forms of productivity improvement.
– There are costs for government in administering the system and for local (and overseas) suppliers in complying with its requirements.
– An effect of the undertaking and duty refund provisions is that some duty revenue that would otherwise accrue to the Australian Government flows overseas.
• However, as the industry and product coverage of the anti-dumping system is narrow and diminishing, the aggregate cost is likely to be very small.
• Also, the ability for local industries, like those in most other countries, to use the system to address what are perceived to be ‘unfair’ trading practices and outcomes may have lessened resistance to more significant tariff reforms. Thus removal of an anti-dumping ‘safety valve’ could make it more difficult to address remaining tariff and related reform issues.
• Accordingly, and with practical and other considerations militating against using competition law as a generalised substitute for a dedicated anti-dumping system, there is a case for retaining a system.
• But the current arrangements have a number of significant deficiencies including:
– a lack of consideration of the economy-wide impacts of imposing measures
– inadequate mechanisms for updating the magnitude of measures
– scope for repeated extensions of measures based on less demanding tests
– insufficient transparency in the investigation process and its outcomes.
• Addressing these deficiencies would reduce the direct detriment of the system, and thereby strengthen the political economy arguments for its retention.
The full report is here.
• A possible alternative to a dedicated anti-dumping regime is to deal with dumping matters through competition law.
– The approach already applies to trade between Australia and New Zealand (though either country can still take countervailing action), and within some other free trade areas and customs unions overseas.
• The approach has some in-principle attractions.
– It would limit the imposition of anti-dumping measures to circumstances where dumping was most likely to be directly detrimental to efficiency.
– Bringing dumping matters within the remit of the Trade Practices Act could increase the scope to take account of inter-relationships with some other competition issues.
• But notwithstanding its use in a trans-Tasman context, the feasibility of using competition law as a general substitute for Australia’s anti-dumping system is highly questionable.
– It would require the cooperation of other countries, which could not be guaranteed.
– It would also require better developed competition institutions in some of Australia’s major trading partners.
– As a court-based approach, it would be much more time consuming and costly.
– The punitive nature of the remedies provided for under competition law would be problematic, especially in countervailing cases.
– It is unclear that there could be adequate recognition of the ‘system preserving’
arguments for taking action against injurious dumping or subsidisation.
Via Luke Peterson, I see that ICSID is webcasting a hearing in the Pac Rim CAFTA-DR investment arbitration:
A hearing on preliminary objections in the above case will be transmitted live via internet feed on Monday, May 31, 2010 and Tuesday, June 1, 2010, starting at 9:30 a.m. EST (U.S. Eastern Time) each day. The live streaming is being made available pursuant to Article 10.21.2 of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA).
Accessing the Live Stream
To access the live stream you will need Windows Media Player, which is available free for download here:
The stream will be transmitted in both English and Spanish, and will be available in high speed (256 kbps) and low speed (56 kbps) to accommodate different bandwidth capabilities.
For the hearing in English, click here: mms://wbmswebcast1.worldbank.org/live1
For the hearing in Spanish, click here: mms://wbmswebcast1.worldbank.org/live2
I don't know if this is the first time they've done this, but it's the first I've heard of it. It's a great development, and I hope the WTO follows suit.
If you want to follow along, relevant documents are here: http://www.minec.gob.sv/index.php?option=com_phocadownload&view=category&id=26:otros-documentos&Itemid=63
2. Domestic Regulation
(a) Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement.
Global Trade Watch puts its specific concern this way:
As the second sentence makes clear, prudential measures are only allowed under GATS rules if they don’t violate any of the GATS rules, which are very expansive.
I'm not sure that's quite right. Let me run through this provision briefly.
The first sentence suggests that Members can take measures for "prudential reasons," even if these measures would otherwise violate other GATS provisions. So, let's say you have a measure that violates GATS Article XVI (Market Access). If that measure is taken "for prudential reasons," including the ones listed, it is permitted despite the Article XVI violation. (Presumably there must be some objective determination as to whether the measure is actually "for prudential reasons," such as a means-ends test applied to the measure and the stated policy goal, rather than just accepting the Member's declaration of the purpose without further scrutiny.) This part looks like a pretty typical WTO "exception."
The second sentence narrows the scope of this "exception" to some extent. (In a sense, the debate here is over how much it has been narrowed). In this regard, the second sentence states that if the measures at issue do violate other GATS provisions, they are not completely off the hook when they are found to be "for prudential reasons" under the carve out, as there is a legal obligation that still applies: "[the measures] shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement." This language seems a bit like the GATT Article XX chapeau trying to root out "disguised restrictions." In particular, the requirement that such measures not be used as a "means of avoiding ... commitments or obligations" has a similar feel. "Avoiding" is not quite as strong as "disguised," but it's along the same lines. Basically, both the second sentence here and the Article XX chapeau indicate that the non-protectionist purposes offered to justify the measure must be authentic.
The problem is, the second sentence of the prudential carve out is worded a little more confusingly than the chapeau. The sentence starts with "[w]here such measures do not conform with the provisions of the Agreement." This language is somewhat duplicative of the "[n]otwithstanding any other provisions of the Agreement" language from the first sentence. Implicit in the "notwithstanding" language is that there was a violation of the other provisions. Restating this point in the second sentence as "[w]here such measures do not conform" makes it seem like this is an additional obligation not to violate the GATS which applies subsequent to the application of the first sentence. I think that's why Global Trade Watch takes such a broad view of the meaning of the second sentence: "prudential measures are only allowed under GATS rules if they don’t violate any of the GATS rules." I see how they get to that conclusion by focusing on the first clause of the second sentence, but I'm not sure that's right. Rather, as noted above, I think the better interpretation is that the second sentence corresponds to the chapeau, emphasizing that any measures taken for the stated policy reasons not be disguised trade restrictions (or here, measures taken to avoid commitments or obligations). The "[w]here such measures do not conform with the provisions of the Agreement" language just recalls the violation implicit in the "notwithstanding" language in the first sentence. To be more clear about it, the first part of the second sentence could have been written as "[w]here prudential measures that do not conform with other provisions of the Agreement have been used," or something along those lines. That's what the "such measures" refers to, in my view. It just doesn't do it very clearly.
Having offered that interpretation, I must admit that I do think the language is a bit vague and hard to pin down, and could be construed otherwise than I've suggested. It would be nice to have it stated more clearly. Along these lines, here's what Global Trade Watch suggests as a replacement provision:
2. Domestic Regulation
(a) Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from adopting or maintaining measures relating to financial services it employs for prudential reasons, including for the protection of consumers, investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial services supplier, or to ensure the integrity and stability of the financial system. For greater certainty, if a Party invokes this provision in the context of consultations or an arbitral proceeding initiated under the Dispute Settlement Understanding, the exception shall apply unless the Party initiating a dispute can demonstrate that the measure is not intended to protect consumers, investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial services supplier, or is not intended to ensure the integrity and stability of the financial system.
As I see it, this is the same basic idea, just stated a little more clearly, and also the burden is placed on the complainant to demonstrate that the measure is not being used for the policy purposes the respondent says it is about.
One of the profound insight of the political economy of the world trade system is the understanding of the role played by the multilateral system for helping governments to resist the pressure of domestic lobbies. Everybody knows for example that most governments would be unable to cut even partially agricultural subsidies if they could not invoke vis-a-vis their lobbies their international obligations.
This kind of mechanism is completely missing in the context of the security of oil platforms. Most international maritime conventions apply primarily or exclusively to accidents involving vessels such as tankers. They do not apply to accidents involving oil platforms, like the Deepwater Horizon spill. In other words, there is no global convention governing this issue.
Therefore, one is not surprised to hear president Obama talking about the “cozy relationship” between the oil industry and the federal institutions in charge of supervising the security of oil platforms. One technology that could have been useful in the Deepwater case is an acoustic valve to shut off the well by remote control in an emergency. Such devices are required by Brazil and Norway, but not by the United States, where the oil industry successfully resisted a proposal years ago to require its use.
A global convention such as the WTO agreement imposing precise and uniform security obligations on oil platforms in most coastal states, is perhaps the best mechanism to put an end to this “cozy relationship.” Moreover, this is once again an opportunity to remember the sometimes hidden benefits of a multilateral system. In the case of subsidies for example, it is almost impossible to obtain meaningful control only through regional agreements involving a few countries.
Last week I talked about National Treatment in the context of the hearing in the Grand River Enterprises NAFTA Chapter 11 case. Stimulated by re-reading an article by Nicholas DiMascio & Joost Pauwelyn, "Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?" (available from HeinOnline here), I've been thinking a bit more about National Treatment in the area of investment treaty law. In particular, I've been trying to flesh out the possible standards for "less favorable treatment." In this post, I try to articulate as clearly as I can my view of things. (Of course, others might have a completely different perspective on how to approach this issue, which can make a discussion difficult, but there's only so much you can do in a blog post!)
First off, let me note that I'm focusing here on issues of de facto discrimination, not de jure. With de jure, where government actions explicitly discriminate on the basis of foreign nationality (e.g., an official statement by a government agency says that a permit was denied "because the company is foreign"), no one questions that a violation of National Treatment exists. The theory behind why that is so can be more complicated than it appears at first glance, and there are some views of de jure violations that are not what you might expect, but overall it's not too controversial and thus I'm going to focus on de facto cases.
Also worth noting is that my emphasis here is on the "less favorable treatment" aspect of National Treatment, rather than "in like circumstances." (A little more on that later, though).
In my view, the two key elements in thinking about less favorable treatment are: (1) individual vs. group comparisons; and (2) the role of discriminatory effect and intent. (There are many other factors that have been suggested -- people are free to point them out in the comments -- but as a general matter I would characterize these other factors as falling within effect or intent, e.g., if a measure does not reasonably relate to its purported non-protectionist goals, that could be evidence that the true intent is protectionist.) Taking into account both elements, here's how I see the breakdown of the possible approaches to less favorable treatment:
1. Individual comparison and effect
Under this view, less favorable treatment exists where an individual foreign investor is treated worse than an individual domestic investor (in like circumstances, of course -- this applies to all the examples). The effect of discriminating between these two investors leads to a violation. For practical purposes, this standard is a "best treatment" standard, as a violation exists whenever a foreign investor does not get the "best treatment" offered to any domestic investor.
2. Individual comparison and intent
Under this view, less favorable treatment exists where there is evidence of intent to treat an individual foreign investor worse than an individual domestic investor, on the basis of the foreign investor's nationality. (In the alternative, this situation could be characterized as intending the result that the foreign investor is treated less favorably, without any reference to nationality, but I'm not sure this differs much from the effect standard in example 1).
3. Group comparison and effect
Under this view, less favorable treatment exists where, on balance, the group of foreign investors is treated worse than the group of domestic investors. The effect of discriminating between these two groups leads to a violation.
4. Group comparison and intent
Under this view, less favorable treatment exists where there is evidence of intent to treat the group of foreign investors worse than the group of domestic investors, on the basis of the foreign investors' nationality.
In addition, you could require that both intent and effect be demonstrated for the two types of comparisons.
Note that situations 2 and 4 may not be all that different. If there is evidence of intent that an individual foreign investor is to get worse treatment due to its nationality, it's hard to imagine that the group test for intent would not be satisfied as well. That's because if you are discriminating against one investor based on its foreign nationality, it stands to reason that you would do the same to other investors from that country. If you are not discriminating against the other foreign investors, perhaps foreign nationality was not the reason for discriminating against the first investor after all. So it may be that once intent to discriminate due to nationality is proved, individual vs. group distinctions do not matter that much.
The key issue, in my view, is how to deal with example 1, involving individual comparisons and effect. Finding that less favorable treatment exists on this basis is going to lead to a lot of violations and does not always look like what many people intuitively think about as discrimination. Almost any regulatory distinction between investors is at risk under this approach, as long as there is one foreign investor who is adversely affected.
Let me say a little bit now about "like circumstances," which can play an important role here. At various times in GATT/WTO and investment law, some of the concepts from less favorable treatment noted above, such as the intent (policy goal) of the measure, seem to have been brought into the "like circumstances"/"like products" standards. That may be the situation in investment law right now, at least if I read the DiMascio and Pauwelyn article (at p. 73) correctly:
The tribunal in the Pope & Talbot lumber products dispute subsequently refined the analysis from S.D. Myers into a coherent "like circumstances" test. 142 Based upon reasoning similar to that used in the "like circumstances" analysis of S.D. Myers, the tribunal initially presumed that any regulatory treatment of Pope & Talbot that was less favorable than the treatment received by Canadian softwood lumber producers was attributable to the company's nationality. This presumption, which shifts the burden of proof from the complainant to the regulating defendant, obviously makes the NAFTA national treatment test more intrusive. The tribunal then stated, however, that the presumption could be rebutted by showing that the measure has "a reasonable nexus to rational government policies that (1) do not distinguish, on their face or de facto, between foreign-owned and domestic companies, and (2) do not otherwise... undermine the investment liberalizing objectives of NAFTA."143 If the measure distinguished between Pope & Talbot and the Canadian investments based upon such a legitimate policy, those companies could not be said to be in "like circumstances," and the tribunal would conclude that no nationality-based discrimination had taken place even if Pope & Talbot was competitively disadvantaged by Canada's regulation.144
Thus, stated somewhat loosely, the individual comparison effect test creates a presumption of less favorable treatment. But this presumption can be rebutted under the like circumstances language. When determining whether investors are in "like circumstances," a relevant factor is the existence of policies that are not protectionist, in the sense of "a reasonable nexus to rational government policies that (1) do not distinguish, on their face or de facto, between foreign-owned and domestic companies, and (2) do not otherwise... undermine the investment liberalizing objectives of NAFTA." Where such policies form the basis of the measure, the circumstances are not "like."
Arguably, a similar approach was used under the GATT in some of the early 1990s cases, such as U.S. - Malt Beverages and U.S. - Auto Taxes. Here's a quote from from Malt Beverages:
5.74 The Panel then turned to a consideration of the policy goals and legislative background of the laws regulating the alcohol content of beer. In this regard, the Panel recalled the United States argument that states encouraged the consumption of low alcohol beer over beer with a higher alcohol content specifically for the purposes of protecting human life and health and upholding public morals. The Panel also recalled the Canadian position that the legislative background of laws regulating the alcohol content of beer showed that the federal and state legislatures were more concerned with raising tax revenue than with protecting human health and public morals. On the basis of the evidence submitted, the Panel noted that the relevant laws were passed against the background of the Temperance movement in the United States. It noted further that prior to the repeal of the Eighteenth Amendment of the United States Constitution authorizing Prohibition, amendments to the federal Volstead Act -- the Act which implemented the Eighteenth Amendment -- authorized the sale of low alcohol beer, and that the primary focus of the drafters of these amendments may have been the establishment of a brewing industry which could serve as a new source of tax revenue. However, irrespective of whether the policy background to the laws distinguishing alcohol content of beer was the protection of human health and public morals or the promotion of a new source of government revenue, both the statements of the parties and the legislative history suggest that the alcohol content of beer has not been singled out as a means of favouring domestic producers over foreign producers. The Panel recognized that the level at which the state measures distinguished between low and high alcohol content could arguably have been other than 3.2 per cent by weight. Indeed, as the Panel previously noted, Alabama and Oregon make the distinction at slightly different levels. However, there was no evidence submitted to the Panel that the choice of the particular level has the purpose or effect of affording protection to domestic production.
5.75 Thus, for the purposes of its examination under Article III, and in the context of the state legislation at issue in Alabama, Colorado, Florida, Kansas, Minnesota, Missouri, Oklahoma, Oregon and Utah, the Panel considered that low alcohol content beer and high alcohol content beer need not be considered as like products in terms of Article III:4. ...
(emphasis added) So, the consideration of the non-protectionist policy purposes (and effects) led to a conclusion that the products were not "like." (See also paras. 5.11-15 of Luxury Taxes)
Personally, I prefer to keep the two standards clearly separated, with the "likeness" issues a bit more narrow. I fear that blurring the lines can make the issues more complicated than they need to be. But I think that's a subject for another post.
This all leads me back to a question I asked the other day in the context of Grand River Enterprises. The U.S. has argued that NAFTA Article 1102 National Treatment is about "nationality" based discrimination. So what exactly is "nationality" based discrimination? I assume they have in mind something along the lines of 3 or 4, but which of these is it? Or are there other options I have left out?
People may have noticed a lull in WTO dispute decisions recently. Since the Cotton Subsidies arbitration decisions last August, we have had a grand total of 3 decisions. And two of those were fairly minor: An Article 21.3(c) arbitration and a decision on zeroing where the U.S. basically conceded the issue. Not to worry, though, things are about to pick up.
First, here are the ongoing cases for which the panel has announced a projected date for issuing the report (note that most of these dates are NOT the public circulation dates; circulation does not occur until the reports have been translated into all the official WTO languages, which can take a couple months or so):
|Dispute Name||Agreements at Issue||Status|
|EC - Aircraft
|GATT, SCM||Final report issued to parties on March 23, 2010; news reports indicate that circulation to the public will be in June.|
|U.S. - Aircraft
|GATT, SCM||Panel "expects to issue its interim report to the parties in June 2010"|
|Australia - Apples
Complainant: New Zealand
|SPS||News reports indicate that the interim report was issued at the end of March 2010; Panel ""|
|EC - IT Products
Chinese Taipei, Japan, U.S.
|Thailand - Customs and Fiscal Measures on Cigarettes
|U.S. - AD/CVD on Certain Products
|AD, GATT, China's Protocol of Accession, SCM||Panel "|
|U.S. - Poultry Imports from China
|Agriculture, GATT, SPS||Panel "|
|EC - AD Measures on Fasteners
|AD, GATT, China's Protocol of Accession, WTO||Panel "(WT/DS397/5)|
And here are some where no date has been announced yet:
|Dispute Name||Panel Composed||Agreements at Issue|
|Korea - Bovine Meat and Meat Products
|November 13, 2009||GATT, SPS|
|U.S. - Tuna
|December 14, 2009||GATT, TBT|
|U.S. - Measures Affecting Tyres
|March 12, 2010||GATT, Safeguards, China's Protocol of Accession|
|China - Exportation of Raw Materials:
Panel Request by U.S.
Panel Request by EU
Panel Request by Mexico
|March 29, 2010||GATT, China's Protocol of Accession|
U.S. - Country of Origin Labeling:
Panel Request by Canada
Panel Request by Mexico
|May 10, 2010||GATT, Origin, SPS, TBT|
|U.S. - AD Measures on Orange Juice
|May 10, 2010||AD, GATT, WTO|
And then there are some cases where the panel was established recently, but has not yet been composed:
|Dispute Name||Panel Established||Agreements at Issue|
|EC - Poultry Meat
|November 19, 2009||Agriculture, GATT, SPS, TBT|
|Philippines - Taxes on Distilled Spirits
Panel Request by EC
Panel Request by U.S.
|January 19, 2010: EC panel
April 20, 2010:
|EU - AD Measures on Footwear from China
|May 18, 2010||AD, GATT, WTO, China's Protocol of Accession,|
Working Party Report on Accession
|U.S. - AD Measures on Shrimp (Viet Nam)
Complainant: Viet Nam
|May 18, 2010||AD, GATT, WTO, Viet Nam's Protocol of Accession,|
Working Party Report on Accession
|U.S. - Zeroing on Products from Korea
|May 18, 2010||AD|
And finally, there are two DSU Article 22.6 arbitrations related to zeroing:
|U.S. - Zeroing (EC)
|EC||February 12, 2010: Referred to Arbitration|
March 9, 2010: Arbitrator Constituted
|U.S. - Zeroing (Japan) I
U.S. - Zeroing (Japan) II
|Japan||January 21, 2008: Referred to Arbitration|
May 28, 2008: Arbitrator Constituted
June 9, 2008: Arbitration Suspended
April 23, 2010: Japan Requests that Arbitration be Resumed
Aside from DS382 and DS402, which may be carried out as abbreviated zeroing disputes, many of these decisions are likely to be long and interesting. The Aircraft decisions will be so long that they should really count as 4-5 decisions!
So, this should keep everyone busy for a while.
Simon: What is the likelihood that an investor-state dispute settlement mechanism will be included in the TPP? Is USTR pushing for it to be included?
USTR: We are consulting very closely with Congress and other stakeholders to ensure that we have the broadest possible input as we determine our negotiating objectives. In our prior free trade agreement negotiations, the inclusion of an investor-State dispute settlement mechanism has been a priority, consistent with the negotiating objectives in the Bipartisan Trade Promotion Authority Act of 2002. This mechanism provides a critical protection for U.S. investors abroad by establishing a neutral, international forum to challenge arbitrary, unfair, or corrupt foreign government actions. It also provides for transparency and public participation, including participation by non-governmental organizations.
So does their response give us any insight on whether investor-state will be included in the TPP? Let me parse the words of their answer and engage in some unjustified speculation.
Things that suggest inclusion:
-- it was a "priority" in prior FTAs-- it provides "critical protection" for U.S. investors abroad
Things that suggest it won't be included:
-- its inclusion in prior FTAs was related to trade negotiating objectives from 2002, which have since been modified, and apparently have not yet been determined for the TPP
-- they are still looking for input, which suggests that the status quo (inclusion of investor-state) is not set in stone
-- there is no mention of the impact of investor-state on domestic regulations, which many people view as a negative aspect of investor-state (or does not mentioning this point suggest they want to downplay it in order to justify the inclusion of investor-state?)
On balance, the conclusion I draw from all this is: We're going to have wait for some actual evidence.
Finally, let me just say that I think this was a great initiative by USTR, and I was pleased to see this statement: "As the negotiations proceed, we plan to hold additional webchats ..." So start preparing your questions now!
As was widely reported last week, Brazil and India have requested WTO consultations on the generic drug seizures issue. From Ravi Kanth of the Business Standard:
India and Brazil raised a trade dispute against the European Union (EU) before the World Trade Organization on Tuesday over seizure of generic drugs by EU member countries on high seas.
In two separate trade dispute complaints, India and Brazil have asked the EU and one of its member countries — the Netherlands — to enter into dispute settlement consultations over Brussels’ alleged violation of global rules by illegally confiscating generic drugs exported by Indian pharmaceutical companies to Brazil and other developing countries.
“These seizures have wide-ranging implications for developing countries and they undermine the principle of universal access to medicines in poor countries and impose TRIPS+ obligations,” India’s trade envoy Ambassador Ujal Singh Bhatia told reporters.
“Despite raising our concern repeatedly over the European Union’s deeply flawed directive 1383 of 2003, Brussels has failed to bring its rules in compliance with global trade rules,” said Bhatia.
Brazil's request is here. India's request does not seem to be up on the WTO web site yet; I'll add it when they post it. [UPDATE: India's request is here.] For background, SpicyIP has a number of posts on the issue here; and on this blog, Bryan has a much commented on post here.
I'm not going to go through every aspect, but here are some key parts, from Brazil's request.
First, some details on the specific actions:
(A) A shipment of the generic drug Losartan Potassium, produced in India and destined to Brazil, was seized when in transit at Schipol Airport, in the Netherlands, in December 2008, and later returned to the country of origin. The Dutch authorities seized the shipment pursuant to the European Communities Council Regulation No 1383/2003 (EC Regulation No 1383/2003). Based on complaints of suspected infringement by alleged owners of patents (or supplementary protection certificates), over the last two years, customs authorities in the Netherlands have seized a substantial number of consignments of generic medicines from India in transit through the Netherlands, including the aforementioned shipment of Losartan Potassium destined to Brazil.
Then there's the underlying law itself:
(B) EC Regulation No 1383/2003 sets out rules for "customs actions against goods suspected of infringing intellectual property rights and the measures to be taken against goods found to have infringed such rights", including goods in transit through the territory of the European Union, and provides, among other actions, for the seizure of goods. The applicability of EC Regulation No 1383/2003 encompasses medicines in transit through the territory of the European Union that are suspected of infringing patent rights or are found to have infringed patent rights constituted according to the laws of the EC transit country, regardless of the patent status of such medicines in the countries of origin and destination.
The main legal provisions at issue are:
-- GATT Article V:1, V:2, V:3, V:4; V:5, V:7;
-- GATT Article X:3;
-- TRIPS Agreement Articles 1.1, 2, 28, 31, 41.1, 41.2, 42, 49, 50.3, 50.7, 50.8, 51, 52, 53.1, 53.2, 54, 55,
58(b), and 59, and Article 4bis of the Paris Convention of 1967.
Here's a recent journal article (not free, unfortunately) about the case:
Shashank P. Kumar, 'International Trade, Public Health, and Intellectual Property Maximalism: The Case of European Border Enforcement and Trade in Generic Pharmaceuticals' (2010) 5 Global Trade and Customs Journal pp. 155–169
Even as the world witnesses another pandemic, industrialized nations and their industries continue their efforts to ‘rachet-up’ levels of intellectual property (IP) protection. Such a maximalist agenda drives another paradigm shift in the international IP regime today. While maximalists employ several methods to promote their agenda, this work seeks to study the case of European border enforcement law (Council Regulation (EC) No. 1383/2003 of 22 Jul. 2003, Concerning Customs Action Against Goods Suspected of Infringing Certain Intellectual Property Rights and the Measures to be Taken Against Goods Found to Have Infringed Such Rights [hereinafter ‘EC Regulation 1383’]) and its effects on international trade in generic drugs. Triggered by several incidents involving ‘seizure’ of in transit generic drugs by European customs, the issue continues to be ‘hotly debated’ on at the international level and is of immense contemporary relevance to larger issue of global justice. After a discussion on the evolution of European border enforcement law and its interpretation by European courts to determine its scope, this work seeks to study the effect of EC Regulation 1383 on international trade in generic pharmaceuticals by studying several instances of ‘seizure’ of generic pharmaceuticals in transit between developing nations and the international debate it has generated at the World Trade Organization (WTO). The discussion highlights the maximalist (and ‘TRIPS-Plus- Plus’) nature of the European law and raises important issues concerning the interpretation of Agreement on Trade-Related Aspect of IP Rights (TRIPS), public health, World Trade Organization, Ministerial Declaration of 14 Nov. 2001 (hereinafter ‘Doha Declaration’), and the possibility of a future WTO dispute. The discussion concludes with some comments on broader issues of global justice and the WTO that are raised by the European law and its enforcement affecting access to medicines in developing countries.
And here's a free one, from Fred Abbott.
ADDED: Here's another free one:
Freedom of Transit and Trade in Generic Pharmaceuticals: An Analysis of EU Border Enforcement Law and Implications for the International Intellectual Property Regime
National Law University, Jodhpur
European Intellectual Property Review, Forthcoming
A recent dispute involving the suspension of release of a consignment of generic drug in transit from India to Brazil by Dutch Customs raises some important issues for the future of the international intellectual property regime. The dispute is only too timely as some countries resort to bilateralism and Free Trade Agreements for extending intellectual property protection beyond the minimum contained in TRIPS. It provides a classic stage for studying the conflict of interests between developing and developed countries on the issues of access to medicine and standard of protection, and thus deserves closer and independent scrutiny of facts and law. On a cursory glance EC Regulation 1383, which provides for border enforcement of rights in cases of patent infringement, seems to be in consistence with the TRIPS Agreement. A closer analysis, however, reveals that the law, in providing for a TRIPS-Plus standard of protection, may run afoul of Part III, Section IV of the TRIPS Agreement. This conclusion, however, rests on a contextual interpretation, which as this work argues, is provided by the Doha Declaration on Public Health and TRIPS and the subsequent Decision to implement paragraph 6 of the Declaration.
The analysis deals with the interpretation of Articles 51 and 52 of the TRIPS Agreement besides addressing the possibility of using the language of the Agreement itself as providing "ceilings" for maximum protection. The work offers some policy and symptomatic recommendations, but, and perhaps more importantly, shows how the incident serves as another litmus test for testing the efficacy of the intellectual property regime under the TRIPS and the promise of a "balance" the Doha Declaration had promised.
And a short piece from the South Centre: http://www.southcentre.org/index.php?option=com_content&task=view&id=1073&Itemid=279
Following up on some previous posts about the NAFTA Chapter 11 Grand River Enterprises dispute, the hearing in the case, held in early February, offered some interesting discussion of the National Treatment issue.
Let me first turn to Luke Peterson of the Investment Arbitration Reporter for some background:
The individual claimants, Jerry Montour, Jerry Hill, and Arthur Montour Jr., profess to be members of Native American (indigenous) tribes and seek at least $175 Million (US) for losses alleged to have been sustained by themselves and their Canadian enterprise, Grand River Enterprises Six Nations, LTD.
The claimants signaled their intent to pursue a NAFTA arbitration in 2003, alleging that a so-called Master Settlement Agreement (MSA) consummated between forty-six US states and four major tobacco companies impacted negatively upon the smaller-scale tobacco business of the claimants (who were themselves not party to the MSA).
The MSA was the culmination of a bid by US states to sue the major tobacco companies for tobacco-related medical costs borne by state health care budgets. Under the terms of the MSA, the four major tobacco companies were obliged to make payments in perpetuity into a central account which would then be disbursed to individual states where the companies’ cigarettes are sold.
As part of this settlement arrangement, the major tobacco companies sought concrete guarantees that smaller tobacco firms would not capitalize on the fact that only the largest tobacco companies were targeted by the US states.
Accordingly, a parallel system of escrow payments was imposed upon non-parties to the MSA, so as to ensure that they did not gain market share compared with the major tobacco companies operating under the financial strictures of the MSA.
It is this system of escrow payments – as well subsequent legislative efforts by US states to close what the US Government characterize as regulatory “loopholes” - which drew the ire of the claimants in the NAFTA arbitration. ...
It's a complicated set of facts. Although that excerpt leaves out some important details, hopefully it was enough to make sense of the legal discussion here. I'm not trying to apply the law to the facts, but rather just talking about the legal standard in the abstract. For more, the various submissions are here.
Let me turn now to the hearing transcript. For those of you scoring at home, the lawyers quoted below are Mark Feldman and Alicia Cate of the U.S. State Department's NAFTA/CAFTA-DR Arbitration Division, and Todd Weiler on behalf of the claimaints. Also, I should note that I'm not sure I've mentioned every relevant National Treatment passage here, but I think got the main ones.
On to the substance. I'll first note a brief discussion of intent, at p. 55 of the day 2 transcript. There was a distinction drawn between "intending to discriminate" and "intending the result," which I'm not quite sure I followed. If the "result" is "discrimination," I don't know if I see a real difference here. (There's a bit more on intent at p. 20 of the day 3 transcript.)
But the main issue I want to focus on is the nature of the NAFTA Chapter 11 National Treatment obligations, in relation to concepts such as "nationality based" discrimination, "best treatment," treatment of "groups" versus treatment of "indviduals," "proportionality," and "rule of reason." I'll quote some key passages and then talk about them.
From Day 5, pp. 74-75:
7 I would like to focus on the most
8 glaring flaw of Claimants' Article 1102 claim,
9 which is their failure to even attempt to show
15:00:27 10 less favorable treatment, and in particular less
11 favorable treatment by virtue of their
13 The parties to this dispute agree that
14 discriminatory intent is not a requisite condition
15 here. Where the parties to this dispute disagree
16 is with respect to whether the test includes less
17 favorable treatment accorded on the basis of
18 nationality. However, the three NAFTA parties as
19 well as Tribunal's interpreting Article 1102 of
15:00:54 20 NAFTA have come to the same conclusion. What is
21 required is that less favorable element includes a
22 showing by the Claimant of discrimination whether
1 de jure or de facto on the basis of nationality.
14 The NAFTA parties often file
15 interpretive submissions under NAFTA Article 1128
16 and have done so in a uniform and consistent
17 manner demonstrating both subsequent agreement and
18 subsequent practice on the issue whether Article
19 1102 requires showing by the Claimant of
15:02:00 20 discrimination on the basis of nationality.
2 MS. CATE: Claimants must therefore
3 demonstrate that a measure, either on its face or
4 as applied favors nationals over non-nationals.
5 Based on legal argument made on day two
6 of this hearing, it is clear that Claimants and
7 the United States agree on the following: You
8 don't need to look for specific intent, that the
9 result is manifest in the facts.
15:05:24 10 Claimants have not even attempted to
11 make this showing of less favorable treatment on
12 the basis of nationality, nor could they on the
13 facts of this case.
So for the U.S., the discrimination to be shown under a NAFTA Chapter 11 National Treatment claim is based on "nationality": "Claimants must therefore demonstrate that a measure, either on its face or as applied favors nationals over non-nationals."
By contrast, here's the view of the claimants. From Day 7, pp. 15-16
4 MR. WEILER: One question that did come
5 up yesterday which I thought would be important to
6 cover is the question of treatment for whom.
7 The Respondent takes the position that
8 it's about a de facto class of investors,
9 Canadians, that its treatment to Canadians as
08:53:16 10 opposed to treatment to the investor, and I would
11 refer you to the Pope & Talbot Tribunal's very
12 lengthy consideration, very detailed
13 consideration, 37 paragraphs, thinking about this
14 particular issue, and I think its conclusions are
15 very powerful. The NAFTA plainly contemplates a
16 single investors invoking the national treatment
17 requirements to obtain damages from a party where
18 particular governmental measures have accorded its
19 investment less favorable treatment.
08:53:50 20 The Canadian Government took a position
21 in that case very similar to the Respondent in
22 this case. That position is, again, that it's
SHEET 15 PAGE 2473
1 somehow a weighing of groups of investors, that it
2 is all Canadian investors or it's all foreign
3 investors. We would submit that that's not the
4 test, and we would submit that there's good reason
5 for that.
6 We think that Paragraph 72 of the Pope
7 & Talbot Tribunal is right on spot, simply to
8 state this approach is to show how unwieldy it
9 would be and how it would hamstring foreign-owned
08:54:26 10 investments seeking to vindicate their 1102
Thus, the claimants don't like the "group" test, that is, "a weighing of groups of investors, that it is all Canadian investors or it's all foreign investors." Instead, they argue, it's about the "best treatment," in the sense that individual foreign investors should get the "best treatment" available to any other investor:
3 MR. WEILER: The national treatment
4 test, the 1102 test, is essentially an equal
5 opportunity test. The question is whether or not
6 an individual who qualifies by nature of
7 nationality to be able to ask for the test, to ask
8 for the treatment, that national says, I deserve
9 the best treatment that someone else is getting.
This part will likely be familiar to people who have come across the individual versus group approach to national treatment at the WTO. Basically, the question is whether you compare (1) the treatment given to foreign investors as a whole to that given to domestic investors as a whole (the group test), or (2) the treatment of an individual foreign investor to that given to another investor (possibly a domestic investor, possibly any investor).
The claimants also add some additional elements:
12 MR. WEILER: The next step after that
13 is, since we know that they're getting better
14 treatment -- the test ends up becoming a balancing
15 requirement -- or you can call it balancing
16 proportionality, you can call it a rule of reason,
17 whatever language you want to use -- we see it in
18 constitutional law and we see it in trade law, we
19 see it in many places.
So, for the claimants, there is also "proportionality" and "rule of reason" as well.
I'm not sure how all of these standards -- best treatment, proportionality, rule of reason -- fit together precisely. Are they alternative approaches? Different versions of the same test? All apply together? I've always thought that standards such as proportionality and rule of reason could be used as elements to prove intent (e.g., if the measure does not accomplish what it is purported to, this is evidence of protectionist intent), but I don't think that is what is meant here.
And finally, one more quote, from p. 41 of the same day:
4 MR. FELDMAN: This is from Corn
5 Products versus Mexico. The Tribunal in that case
6 found while the existence of an intention to
7 discriminate is not a requirement for breach of
8 Article 1102 and both parties seem to accept it's
9 not a requirement, where such intention is shown
10:58:50 10 that's sufficient to satisfy the third
11 requirement, that being nationality based
12 discrimination, but the Tribunal would add even if
13 intention to discriminate had not been shown, the
14 fact that the adverse effects of the tax were felt
15 exclusively by the HFCS producers and suppliers,
16 all of them foreign owned to the benefit of the
17 sugar producers, the majority of which were
18 Mexican owned, would be sufficient to establish
19 that the third requirement of less favorable
10:59:20 20 treatment was satisfied.
21 So through an analysis of the facts on
22 the ground, if it becomes clear there is, in fact,
SHEET 41 PAGE 2577
1 a nexus of the treatment at issue and the
2 nationality of the Claimant, then the Claimant can
3 show, in fact, there has been nationality based
4 discrimination, but Claimants make no attempt to
5 argue that in this case and with the facts on the
6 ground, they cannot because as we've heard in
7 written submissions and oral testimony in this
8 hearing, these measures do not discriminate on the
9 basis of nationality.
Again, the U.S. focus is on "nationality." As they put it here: "So through an analysis of the facts on the ground, if it becomes clear there is, in fact, a nexus of the treatment at issue and the nationality of the Claimant, then the Claimant can show, in fact, there has been nationality based discrimination."
Now for a few brief comments.
First, it would be great if this issue could get resolved one way or the other. In my view, it's a bad thing to have so much confusion surrounding a core legal standard such as National Treatment. Too much uncertainty regarding the scope of international trade and investment rules is bad for the system.
Second, I'm going to quote what I said in an earlier post:
I think I understand the claimants' argument here, but I just want to be sure, so let me take an extreme situation to illustrate the impact of this approach. Let's say you have 10 foreign investors and 10 domestic investors (all in "like circumstances"). Country A adopts a measure that is non-discriminatory on its face. However, as it turns out, certain investors do worse than others under the measure. In particular, 9 domestic investors and 1 foreign investor receive less favorable treatment than the other 9 foreign investors and the other 1 domestic investor. Thus, most foreign investors do better under the law than most domestic investors. But that 1 foreign investor who did badly brings a NAFTA Chapter 11 claim alleging a violation of national treatment. As I understand it, the argument here would be that this 1 foreign investor should succeed on its national treatment claim because it is worse off than at least one competitor.
Let me just add that if an individual comparison forms the basis for the National Treatment standard, it's a pretty broad one (that is, there will be a lot of violations found). The same probably goes for a standard based on "proportionality" or "rule of reason."
Finally, what is "nationality" based discrimination? It seems to me you could have "nationality" based discrimination on the basis of one or both of "intent" and "effect." Along these lines, on day 3, there was a bit of discussion about whether the NAFTA text supports a view of National Treatment as "nationality" based. The following quote is on p. 20, and is from Todd Weiler:
1 And that is something that the Tribunal
2 will have to weigh based on all the evidence they
3 have. So the one thing that's pretty -- that is
4 clear though from the case law, to the extent that
5 you feel they want to be guided by it, is that
6 intent to discriminate on the basis of nationality
7 is not in the text and it's not in the case law.
8 It's probably because it's not in the
9 text. Though my friends, and my friends from the
10 other NAFTA parties in the cases that I've been
11 involved in, will continue to say that it is
12 discrimination on the basis of nationality. Thus
13 far, it appears that the vast majority of
14 Tribunals don't agree with them. And I would
15 submit you shouldn't agree with them either
16 because it's not on the face of the text. The
17 text doesn't require it.
It's not clear to me exactly what the argument is here. Is it that "intent to discriminate on the basis of nationality" is not in the text? Or is it that "discrimination on the basis of nationality" is not in the text? While you might find that either intent or effect is not required by the text, I'm not sure how you get around "nationality," in some sense, being required, given that the title of Article 1102 is "National Treatment. But what exactly "nationality" based discrimination means is open for debate.
From a recent interview:
I think they ought to look at a progressive value-added tax, just because--and I think it's important the American people understand this--most of our competitors have tax systems like this. If you have a value-added tax, you put a little revenue to the collector, you lower the income taxes, corporate and personal, and you put a little revenue collector on every stage of sales in a product or service, but if it is exported, you don't pay the last price. It's exempt from the value-added tax. And when a foreign good comes into this country, they do pay the last stage of the value-added tax. So when we export American products to countries with VAT taxes, our products pay that even though our corporations have already paid an income tax, already paid whatever other burdens. So if we could figure out how to do that, it would make us much more competitive with our exports. And since I believe this cleansing process, this awful process we've just been through gives a great chance to bring manufacturing back in America, I'd like to see that looked at.
As mentioned a little while back, in the conference report accompanying the 2010 Consolidated Appropriations Act, Public Law: 111-117, the conferees "directed the Secretary of Commerce to work with the Secretaries of the Departments of Homeland Security and the Treasury to conduct an analysis of the relative advantages and disadvantages of prospective and retrospective antidumping and countervailing duty systems." In particular, the conferees "requested that the Department of Commerce (the Department) address the extent to which each type of system would likely achieve the goals of: (1) Remedying injurious dumping or subsidized exports to the United States; (2) minimizing uncollected duties; (3) reducing incentives and opportunities for importers to evade antidumping and countervailing duties; (4) effectively targeting high-risk importers; (5) addressing the impact of retrospective rate increases on U.S. importers and their employees; and (6) creating minimal administrative burden." The report is scheduled to be transmitted to Congress on June 14, 2010.
The Department of Commerce's Import Administration has now posted the public comments received and the transcript of the hearing it held. I've skimmed through this a bit, and from what I could tell all the domestic industry representatives wanted to keep the retrospective system, whereas all the importer/foreign producer representatives wanted to swith to a prospective system. The obvious conclusion to draw from this is that retrospective systems are more effective at burdening imports. On the other hand, perhaps prospective systems could be equally burdensome, but it's just that the domestic interests figure that they should stick with what's working for them, rather than risk a change.
On SSRN, "Strategic Delaying and Concessions Extraction in Accession Negotiations to the World Trade Organization," by Eric Neumayer:
Accession to the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), is like no accession to any other international organization. It is extremely demanding on applicant countries and time consuming. This article argues that existing GATT/WTO members select themselves into the Working Party of applicant countries, the body whose members can stall accession and engage in bilateral trade negotiations with the applicant, in order to strategically delay membership by the applicant country and/or extract concessions from it. Existing members will select themselves into a specific Working Party if they fear that they might lose out after the new member enters the exclusive club and benefits from its trading privileges, which will be the case if they are relatively dependent on bilateral trade with the applicant country and if they compete strongly with the applicant in terms of export product or export market structure. An empirical analysis of Working Party membership over the period 1978 to 2005 shows that the theoretically derived determinants of membership are in fact substantively important drivers of the composition of Working Parties in accession processes to the GATT/WTO.
In a nutshell, WTO Members are more likely to join an accession Working Party if the acceding party is an important trade partner and competitor, with the goal of influencing the process. Logically, this makes sense, but it's always nice to see empirical confirmation for the logic.
And in the JIEL, "Collective Intelligence and the Possibility of Dissent: Anonymous Individual Opinions in WTO Jurisprudence," by James Flett:
Anonymous individual opinions in World Trade Organisation (WTO) jurisprudence are occurring more frequently. This article describes and critiques the 14 individual opinions expressed to-date; discusses related legal issues; and compares the position in other international courts. It argues that the WTO strikes a balance by permitting individual opinions, if in the report and anonymous; but that 10 of the 14 were incorrect or unnecessary, and the others avoidable. It further argues that different views are adequately recorded in the summary of the parties' arguments or the Dispute Settlement Body (DSB) minutes; and that if the Dispute Settlement Understanding (DSU) (Understanding on Rules and Procedures Governing the Settlement of Disputes) is functioning correctly, the collective intelligence of reasonable judges should lead them to common ground. Considering some of the particular characteristics of the WTO compared to other international courts, the article concludes that it is in the long-term interests of the WTO that individual opinions remain exceptional.
2. The EU considers that Article 56 of the Regulations of the People's Republic of China on Anti-Dumping [FN1] is inconsistent, among others, with China's obligations under the following provisions of the Anti-Dumping Agreement, the DSU and the GATT 1994.
FN 1 As specified in WTO document G/ADP/N1/CHN/2, Article 56 provides, in the translation made by China for reference by WTO Members, that "[w]here a country (region) discriminatorily imposes anti-dumping measures on the exports from the People's Republic of China, China may, on the basis of actual situations, take corresponding measures against that country (region)".
According to the EU, China's law says that it may "take corresponding measures" where another country "discriminatorily imposes" anti-dumping measures on it.
Here are the EC claims on the issue:
(1) The EU considers that Article 56 of the Regulations of the People's Republic of China on Anti-Dumping is inconsistent with Article 18.1 of the Anti-Dumping Agreement, because China fails to meet its obligation that no specific action against dumping of exports from another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by the Anti-Dumping Agreement.
(2) The EU considers that Article 56 of the Regulations of the People's Republic of China on Anti-Dumping is inconsistent with Article 23 of the DSU, in particular Article 23.1 thereof, because China fails to meet its obligation to have recourse to, and abide by, the rules and procedures of the DSU when seeking the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements.
(3) The EU considers that Article 56 of the Regulations of the People's Republic of China on Anti-Dumping is inconsistent with Article I:1 of the GATT 1994, since China fails to meet its obligation to accord immediately and unconditionally any advantage, favour, privilege or immunity granted to any product originating in or destined for any other country to the like product originating in or destined for the territories of all other WTO Members, with respect to customs duties and charges of any kind imposed on or in connection with importation or exportation, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III of the GATT 1994.
(4) The EU considers that Article 56 of the Regulations of the People's Republic of China on Anti-Dumping is inconsistent with Article X:3(a) of the GATT since China fails to meet its obligation to administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions und rulings described in paragraph 1 of Article X of the GATT 1994.
Finally, it's not just the law itself, but also the application to the provisional duties at issue here:
The European Union considers that the Provisional Imposition also has to be seen in the light
of Article 56 of the Regulations of the People's Republic of China on Anti-Dumping and that the Provisional Imposition is a further incidence of these inconsistencies described above.
If this claim goes forward, it will be interesting to see how these "systemic" issues are addressed. It's worth noting that there's a "may" in the law, suggesting some "discretion" in the measure.
Trade lawyers Bob LaFrankie and Alicia Winston write (registration required) about a recent DOC decision related to zeroing in the "targeted dumping" context:
Foreign exporters and U.S. importers should take note of a recent antidumping decision that represents a significant change in the U.S. Government's antidumping duty calculations. The decision, which involved imports of certain retail carrier plastic bags from Taiwan, expands the use of a controversial practice known as "zeroing" through the use of a "targeted dumping" analysis. Polyethylene Retail Carrier Bags from Taiwan: Final Determination of Sales at Less than Fair Value, 75 Fed. Reg. 14569 (Mar. 26, 2010) ("Taiwan Bags"). We discuss this below.
... if Commerce uses its targeted dumping methodology, it calculates dumping rates with zeroing; this calculation typically increases the dumping margins. Commerce used its targeted dumping methodology in Taiwan Bags, thereby enabling it to use zeroing to increase the exporter's amount of dumping. In Taiwan Bags, however, Commerce went a step further. In that decision, Commerce revised its targeted dumping methodology to use zeroing on virtually every sale, regardless of the extent of any actual targeted dumping. This is in contrast to its past practice of zeroing only the identified targeted sales. Through its expanded zeroing practices, Commerce appears to have essentially resumed its use of zeroing in dumping calculations without regard to WTO decisions declaring the practice unlawful.
While Commerce has used targeted dumping previously, it has never used it as broadly as was done in Taiwan Bags. This is a sharp departure from Commerce's past practice and it remains to be seen whether this new targeted dumping methodology survives any legal challenges.
Here's the Federal Register Notice for the decision: http://ia.ita.doc.gov/frn/2010/1003frn/2010-6807.txt And here's the Issues and Decision Memorandum (targeted dumping is discussed on pages 2-6): http://ia.ita.doc.gov/frn/summary/TAIWAN/2010-6807-1.pdf
(For the sake of full disclosure, I worked with Bob in my law firm days many years ago. I have not talked to him about this issue, though.)
In WTO terms, this is all about the second sentence of Article 2.4.2 of the AD Agreement, which states:
A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.
How would this kind of zeroing be considered under Article 2.4.2, second sentence? There has been no direct WTO claim related to the issue, but it has come up as context as part of WTO zeroing litigation. In terms of the obligations of the second sentence itself, here's what the Appellate Body said in one of the Lumber cases:
The permissibility of zeroing under the weighted average-to-transaction comparison methodology provided in the second sentence of Article 2.4.2 is not before us in this appeal, nor have we examined it in previous cases.
That's from para. 98. And similarly, from para. 127 of U.S. - Stainless Steel (Mexico):
The Appellate Body has so far not ruled on the question of whether or not zeroing is permissible under the comparison methodology in the second sentence of Article 2.4.2. Nor is it an issue before us in this appeal.
Thus, it appears that the Appellate Body has been careful to leave open its options for the consideration of zeroing under this provision. With decisions like the Taiwan Bags one, though, its hand may soon be forced.
A while back, I wrote about the Chinese consultations request in the U.S. - Tires Safeguards (DS399) case. I was intrigued by how China presented its claim. Here's what I said then: " I wondered what the impact of this approach would be, in particular on the burden of proof. (The panel request later expanded the scope of the complaint to cover GATT Article II as well.)
Now we are on to the submissions stage of the dispute. China's submissions are not publicly available as far as I know, but the U.S. first written submission is here. Thus, while we don't know exactly how China argued the point, we can see the U.S. response. Here's what the U.S. had to say about Article I and Article II:
E. The Additional Duties Imposed by the United States on Subject Tires from China Are Not Inconsistent with Article I:1 of the GATT 1994
358. China’s claim that the additional duties imposed by the United States on subject tires from China are inconsistent with U.S. obligations under Article I:1 of the GATT 1994 are dependent on a finding of inconsistency with U.S. obligations under the transitional mechanism.
359. China has failed to demonstrate that the United States has acted inconsistently with its obligations under the transitional mechanism of the Protocol of Accession. The transitional mechanism provides for the application of measures only against imports from China. Therefore this claim must be rejected.
F. The Additional Duties Imposed by the United States on Subject Tires from China Are Not Inconsistent with Article II:1(b) of the GATT 1994
360. China’s claim that the additional duties imposed by the United States on subject tires from China are inconsistent with U.S. obligations under Article II:1(b) of the GATT 1994 are dependent on a finding of inconsistency with U.S. obligations under the transitional mechanism.
361. China has failed to demonstrate that the United States has acted inconsistently with its obligations under the transitional mechanism of the Protocol of Accession. The transitional mechanism provides for the application of measures, including the limitation of imports through the imposition of additional duties on imports from China. Therefore this claim too must be rejected.
In the U.S. view, then, the GATT claims are "dependent" on the claims under the special safeguard provisions in the Protocol.
It will be interesting to see if the panel asks questions on this point. That could give some indication of whether the issue will have any impact.
I wanted to follow-up on my postabout a NAFTA Chapter 19 panel's consideration of zeroing under U.S. law. I realize that I put a lot of emphasis on DSU Article 3.2 as the basis for arguing that WTO panel and Appellate Body clarifications of WTO provisions constitute "international obligations." (I've made this same argument before.) The basic point is that if the DSU is an international obligation, which everyone seems to accept, then the provision in the DSU which gives panels and the Appellate Body the authority to "clarify" WTO provisions means that such clarifications are also international obligations. It occurred to me that if I'm going to rely on DSU Article 3.2 in this way, I should make sure it means what I think it does. So, in this post, I talk a little about what the provision means and where it comes from. (Unfortunately, there is more on the former than the latter. I looked various places for answers as to where it came from, but did not come up with much. Those of you who may know something, feel free to add it in the comments.)
Let's start with the text. DSU Article 3.2 provides:
The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.
The key part is in the second sentence, where it is stated that the WTO dispute settlement system "serves ... to clarify the existing provisions of [the covered] agreements in accordance with customary rules of interpretation of public international law." That's not exactly the same as saying that panels and the Appellate Body have the function of clarifying WTO provisions, but it's close, I think. Panels and the Appellate Body are the main part of the dispute settlement system, and they are the ones doing the actual clarifying. Yes, there is the DSB, but practically speaking the DSB is not actively providing guidance on the meaning of the legal texts in individual cases. So, looking at the second sentence alone, I'm comfortable with a view that Article 3.2 envisions panels and the Appellate Body providing a formal clarification of the provisions of the WTO agreements (subject to the WTO Members overruling them with an "interpretation" under WTO Agreement Article IX:2).
Making things more difficult, there's the third sentence, which perhaps undermines, to some extent, the conclusion about the second sentence. This sentence says that DSB recommendations and rulings "cannot add to or diminish the rights and obligations provided in the covered agreements." Note that it does not refer directly to panel or Appellate Body rulings, but rather talks about the "DSB recommendations and rulings." Of course, it's panel and Appellate Body reports that provide the basis for the DSB recommendations and rulings, so I think we can safely overlook this distinction and conclude that, in effect, it's the panel and Appellate Body rulings that must not "add to or diminish the rights and obligations" in the agreements.
So how do we reconcile the second and third sentences? One sentence requires that panels and the Appellate Body clarify WTO provisions, while the next sentence says that clarifications cannot "add to or diminish the rights and obligations" as written in those provisions. Is it really possible to fulfill both tasks? It seems to me that by its nature, clarification means that a judicial body takes the underlying text further than its existing language, providing some additional meaning. Inevitably, I would argue, this additional meaning will, in some instances, be something that was not anticipated by at least some of the drafters (or, arguably, on occasion, not even readily discernible from the text). It's difficult to imagine how such additional meaning can be provided without ever "adding to or diminishing" the rights and obligations, at least from the perspective of one or more Members or others with an interest in the system. That is to say, clarifications will almost certainly diverge from someone's view of the rights and obligations as they appear in the text. The result is that there is an inherent tension in these two sentences.
Now, the Appellate Body has implied that as long as you are engaging in a proper interpretation, you are not adding to or diminishing the rights and obligations:
we have difficulty in envisaging circumstances in which a panel could add to the rights and obligations of a Member of the WTO if its conclusions reflected a correct interpretation and application of provisions of the covered agreements.
Chile - Alcohol, para. 79. Thus, in the Appellate Body's view, the clarifications will provide additional meaning, but as long as they are done properly, they will almost never "add to or diminish" rights and obligations. It seems to me, though, that under this approach, the "add to or diminish" requirement has almost no impact.
Summing up, this provision could be thought of as recognizing the role of GATT/WTO "courts" in providing clarifications of the provisions, but at the same time trying to keep excesses by these courts in check by indicating that the clarifications cannot take things too far. It's a provision that recognizes the inevitability of the powerful role of the judiciary in "making law," and tries to rein it in. The job of courts is to explain what legal provisions mean, but they should not stray too far from what the drafters intended or the text itself objectively means. In essence, the provision is an attempt to establish a particular role for courts. It's just hard to figure out what, precisely, that role was intended to be. (That's how it all reads to me anyway, although I'm not sure that's what the drafters meant.)
Speaking of the drafters' intent, what did the drafters of this provision have in mind? My attempts at researching this have come up mostly empty. I don't see much negotiating history to explain things. Clearly, some of the language is drawn from the 1989 Decision on Improvements to GATT Dispute Settlement Rules and Procedures, which states the following in para. 1:
Contracting parties recognize that the dispute settlement system of GATT serves to preserve the rights and obligations of contracting parties under the General Agreement and to clarify the existing provisions of the General Agreement. It is a central element in providing security and predictability to the multilateral trading system.
It's mostly the same as DSU Article 3.2, but without the "add to or diminish" qualification. (Arguably, the addition of this qualification in the DSU is intended to make sure the role of panels and the Appellate Body is properly bounded.) Aside from the 1989 Decision, though, I can't find any negotiating history on this issue in the GATT/WTO context. If anyone knows of any discussion of this, feel free to post it in the comments.
For what it's worth, with regard to non-WTO trade agreements, while I didn't do comprehensive research on this, a quick look at a few agreements shows a variety of approaches. Some use "interpret":
EC - Chile Interim Agreement, Art. 187, para. 3
Arbitration panels shall interpret the provisions of this Agreement in accordance with customary rules of interpretation of public international law, due account being taken of the fact that the Parties must perform this Agreement in good faith and avoid circumvention of their obligations.
Some use "clarify":
Australia-Singapore, Chapter 16, Article 1.5
Arbitral tribunals shall clarify the provisions of this Agreement in accordance with customary rules of interpretation of public international law.
Some have instructions that are more general:
Australia - U.S., Article 21.9, para. 2
The panel shall consider this Agreement in accordance with applicable rules of interpretation under international law as reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (1969). It shall base its report on the relevant provisions of the Agreement and the submissions and arguments of the Parties. ...
A few of these agreements have the "add to or diminish" language.
Finally, I'm not sure whether non-trade agreements, or even domestic law, have similar provisions. I've never heard of anything like this in other contexts, but there may be something.
ADDED: Tomer points me to BISD 29S/13 as the source for "add to or diminish." Here's that document: http://www.wto.org/gatt_docs/English/SULPDF/91000208.pdf And here's a reference to it from the second Tuna/Dolphin case:
The 1982 Ministerial Declaration on dispute settlement explicitly provides that panel decisions "cannot add to or diminish the rights and obligations provided for under the General Agreement." (BISD 29S/13).
Having thought to look at GATT cases, I also see this from Canned Fruit (from 1985):
The Panel was also of the view that its conclusions could not add to or diminish existing rights and obligations of contracting parties under Article XXIV:6 of the General Agreement.
It's interesting that the language did not show up in the 1989 Improvements, but did make it into the DSU.
The selection of WTO panelists is one of the least transparent parts of the WTO dispute process, and is rarely discussed publicly. So, I thought these statements by a trade official might be of interest to readers who would like some insights into the process:
A proposal by a Canadian politician:I don't know enough about Canada to have a sense of how this suggestion would play out there. But I suspect the reaction in the U.S. would be somewhat negative. What would Americans think of having a new international organization issuing reports on human rights practices in the U.S.? I'm guessing there would be a vocal few who would not like it very much. On the other hand, a report is just a report, not a binding ruling or anything, so perhaps people could live with it.
The issue addressed by the panel majority was: "Whether Commerce’s Application of Zeroing is Not Supported by Substantial Evidence and/or is Not in Accordance with Law."
The foreign company requesting a review of the the DOC decision argued as follows:
Mexinox argues that Commerce’s (hereinafter also referred to as “DOC”) application of zeroing is not in accordance with American law. Its position is grounded on two assertions. Initially it maintains that no provision of US law directs the DOC to apply zeroing in calculating dumping margins. Furthermore, Mexinox argues that if the law were to be interpreted that there was a question on zeroing, the Charming Betsy doctrine compels an interpretation of the relevant statute, which is consistent with international obligations, where it is possible to do so.
The panel then explained its task this way:
In reviewing the DOC’s interpretation of the statute, this Panel is mindful of its duties pursuant to the NAFTA. Article 1904(2) obliges this Panel “to determine whether such determination was in accordance with the antidumping or countervailing duty law of the importing Party”. As such, this Panel is tasked with determining whether the DOC's interpretation of 19 U.S.C. § 1677(35) is permissible under American antidumping duty law.
In its analysis, the panel began by examining zeroing in relation to the U.S. statute. It first explained:
The zeroing methodology is not mandated by, included in, or referred to by the statute. Rather, the DOC has applied a purported zeroing methodology based on its construction of the statute. Under this construction, the DOC determines a dumping margin for sales to the United States of a product by obtaining the percentage transaction prices of the entire shipment. It then determines the monthly weighted average or normal value of the product. The DOC then aggregates the dumping margin for below normal value sales, ignoring reference to positive value sales.
It then said:
the question is whether the weighted dumping margin called for in 19 U.S.C. § 1677 (35) has been reached. A plain reading of the statute directs that all sales should be included in the analysis. Notwithstanding, this ostensibly clear direction, the DOC has interpreted this provision so as to choose to ignore, or zero, certain sales, which are not dumped. In so doing, it ignores its obligation to determine the total aggregated values of the subject merchandise. The justification claimed by the DOC’s interpretation of the word “exceeds” to exclude non-dumped sales, is best understood in the context of the statute as a whole.
A plain reading of the statute requires that all sales be analyzed in the dumping analysis as dumping refers to an aggregate concept. In directing the DOC to analyze aggregate amounts and compare average sales, the statute does not countenance a methodology, which permits the DOC to select some sales over others in the calculation of dumping margins. The wording of the statute requires that the DOC employ a methodology which analyzes all sales. Simply stated, the exclusion of positive value sales cannot be supported by the definition of aggregated amounts.
In a nutshell, the panel majority took the view that the statute requires that all sales be considered, and thus zeroing is not permitted.
The panel then got into the role of Chevron and Charming Betsy. In this regard, it said:
Several WTO decisions have now held that the use of zeroing is inconsistent with US obligations under the WTO Agreement. While not binding on American courts, these decisions serve as authoritative interpretations available to clarify the obligations of members under the Agreement. As such, they serve as useful tools in fashioning interpretations of domestic statutes which would not contravene the international obligations.
It further noted:
The DOC has raised other arguments, which go directly to this Panel’s jurisdiction to decide the issue. These arguments are premised on the inapplicability of the Charming Betsy canon of statutory construction. As such, this Panel shall, as preliminary matters, address the DOC’s assertions that Chevron usurps the Charming Betsy doctrine, that the Uruguay Round Agreements Act precludes reliance on WTO Appellate Body Reports and that the Federal Circuit has spoken to the issue of zeroing in a way that binds this Panel from remanding to the DOC.
In response to these DOC arguments, the panel majority made the following points:
"Chevron and Charming Betsy are not mutually exclusive" (pp. 11-15) ("Established jurisprudence reads Chevron and Charming Betsy in a complementary fashion. This jurisprudence not only requires that the DOC’s interpretation be permissible under the standard of deference articulated in Chevron, but it also requires that the interpretation be sustainable under the Charming Betsy canon of statutory construction.")
"US legislation does not prevent the application of Charming Betsy" (pp. 16-19)
"Timken And Corus Do Not Preclude A Remand" (pp. 20-24) On this point, it stated:
The issue regarding the relevance of international decisions on American judicial review is not novel. In fact, it appears to be at the heart of two competing lines of cases at the Court of International Trade and at the Federal Circuit. In one line of cases, the Court of International Trade recognized the relevance of WTO jurisprudence to judicial review.
A competing line of cases, at the Court of International Trade and the Federal Circuit, have also evolved. These cases appear to have signaled a retrenchment on the part of these courts to rely on the reasoning of international tribunals in the process of judicial review.
It is open to this Panel to follow either of the competing line of authorities. Having reviewed these cases, this Panel finds that the broader question of whether international jurisprudence is relevant, in American judicial review, is not presently reconciled at the Federal Circuit. As this Panel is, therefore, not precluded from looking to international jurisprudence for guidance, this Panel will look at WTO determinations and consider any reasoning, which it may find persuasive.
Based on the above reasoning, it concluded:
Having reviewed the wording of the statute, applied Chevron and the Charming Betsy in a complementary fashion, finding that sections 123 and 129 are inapplicable in the circumstances and finding that the jurisprudence does not preclude a remand, this Panel remands this matter back to the DOC to recalculate Mexinox’s dumping margins without zeroing.
The dissent is a bit harder to summarize, as a good deal of it is responses to the panel majority. So, I don't think I can go through it in the same way. One part that I thought worth mentioning, though, was a reference to the Supreme Court's Medellin decision:
Following the Medellin reasoning, which is binding upon this Panel because by definition, the Anti-Dumping Agreement and the other Uruguay Round agreements are non-self-executing treaties, dispute resolution reports under the DSU interpreting the treaties do not have domestic legal effect and do not constitute international obligations subject to the Charming Betsy canon. While such reports do indeed set out what the international obligations of the United States are in respect of the particular case before the WTO Panel or Appellate Body, the reports are not only not binding on U.S. courts, they can in domestic law be no more than interpretative guides to uphold the decisions of the agency charged under the “executing” statutes with applying and interpreting those statutes.
So that's the summary. Now one quick point from me. Whenever U.S. courts (and NAFTA Chapter 19 panels applying U.S. law) address Charming Betsy in the context of WTO law, the issue I want to hear them talk about is the following. It is generally acepted by these courts that the WTO agreements, including the AD Agreement, are "international obligations" of the United States. By contrast, decisions of panels and the Appellate Body are often found by these courts not to constitute such obligations. But the DSU is a WTO agreement, and thus constitutes an "international obligation" under this approach, and the DSU provides for panel and Appellate Body reports to "clarify" (that is, interpret) the WTO agreements. As a result, shouldn't the "clarifications" by panels and the Appellate Body constitute "international obligations," by virtue of the DSU having explicitly giving them this interpretive role? Isn't it also an "international obligation" to accept the clarifications offered by panels and the Appellate Body?
It's possible this is the point the panel had in mind when it said this:
Several WTO decisions have now held that the use of zeroing is inconsistent with US obligations under the WTO Agreement. While not binding on American courts, these decisions serve as authoritative interpretations available to clarify the obligations of members under the Agreement. As such, they serve as useful tools in fashioning interpretations of domestic statutes which would not contravene the international obligations.
(p. 11) A footnote after the second sentence of this quote cites to DSU Article 3.2, which contains the reference to the DSU "clarify[ing] the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." Does the panel have in mind here that WTO panel/Appellate Body clarifications constitute "international obligations"? I think maybe it did, but I'm not absolutely sure.
I can see why this is a sensitive issue. Domestic courts looking to international law is pretty controversial these days. Thus, it is not surprising that U.S. courts tend to find that WTO panel and Appellate Body clarifications are not "international obligations." I'm just not sure how the court decisions that do so get around the point about DSU Article 3.2.
Let me add a caveat here, which is that deeming panel and Appellate Body clarifications to be "international obligations" may not necessarily mean all that much in terms of interpreting U.S. law. It all depends on how Charming Betsy is applied, and it seems to me there is room under Charming Betsy to avoid having international obligations (of whatever sort) have a big impact. Here's the relevant quote from Charming Betsy: "An act of Congress ought never to be construed to violate the law of nations if any other possible construction remains, and consequently can never be construed to violate neutral rights or to affect neutral commerce further than is warranted by the law of nations as understood in this country." (Another formulation uses the following language: “[w]here fairly possible, a United States statute is to be construed as not to conflict with international law or with an international agreement with the U.S.”) There are a number of ways a U.S. court could avoid an unwanted impact from Charming Betsy. For example, it could say that based on the language of the statute, it simply was not possible to avoid the confict with international law, so it couldn't help but adopt the constuction that violates the international obligation. As a result, even if WTO panel and Appellate Body reports are considered to be "international obligations," their impact in U.S. domestic law through Charming Betsy might not be all that great.
Following up on the "plain packaging of tobacco products under TRIPS" post, which generated a good deal of discussion, there's a related issue in a BIT challenge to Uruguayan measures that affect the use of trademarks. As Luke Peterson of the Investment Arbitration Reporter explained a few weeks ago:
One of the world’s largest tobacco companies, Philip Morris International, has filed an arbitration claim against the Republic of Uruguay challenging tobacco industry restrictions introduced by Uruguayan health authorities.
The firm contends that a series of measures taken by Uruguay to dampen tobacco use in that country have given rise to breaches of the Switzerland-Uruguay bilateral investment treaty.
Here's a bit more from the details furnished to Luke by the claimant:
The three measures challenged under the request for arbitration are extreme pieces of regulation that have seriously harmed the companies’ investments in Uruguay and deprived the companies of their ability to use their legally registered brands. Under Ordinance 514 (3) the Ministry of Public Health took the drastic step to prohibit any brand variations. Until the enactment of the Ordinance, Abal Hermanos sold multiple product varieties under each of its brands such as “Marlboro Red,” “Marlboro Gold,” “Marlboro Blue” and “Marlboro Green”. Article 3 has forced the company to cease selling all but one of those product varieties under each brand that it owns or licenses, leading to a withdrawal of 7 out of the 12 product varieties that were previously sold in Uruguay. The companies believe that arbitrarily removing brands has simply led to consumers changing to local brands or contraband and counterfeit cigarettes, when they can no longer find their preferred products legally for sale in Uruguay. Illegal cigarettes are an increasingly serious problem in Uruguay, according to the Tobacco Atlas of 2009 - one in four products consumed are counterfeit or contraband - among one of the highest levels in the world.
A second measure, Decree 287/09, expands the size of the mandatory warning labels on cigarette packaging from 50% to 80% of the front and back of the package. No other country in the world imposes such a high requirement, which makes it virtually impossible for the companies to use their brands and trademarks to promote their own products or even distinguish them from other brands. The companies consider that the previously mandated 50% health warning is more than a sufficient amount of space to clearly communicate the well-established health effects of smoking.
It's not exactly like the plain packaging measure, but it does have similarities.
As for the legal claims:
The companies’ claims are based on a 1991 treaty between Switzerland and Uruguay, in which each country guaranteed certain minimum standards of treatment for the other country’s investors, and agreed to go to international arbitration over any alleged failure to live up to those commitments. The companies contend that, as a result of Uruguay’s measures, they have been deprived of fair and equitable treatment, that the value of their investments has been taken without compensation, and that the use of their investments has been unreasonably impaired—all of which are violations of the Switzerland-Uruguay treaty.
So it sounds like the fair and equitable treatment and expropriation provisions will be at issue. Evaluating the measures under these provisions will likely be more difficult than the TRIPS analysis. The TRIPS provisions are very specific, whereas these provisions are a bit vague.
Another recent article by Luke cites to some further interesting references on the "plain packaging" issue. First, there's a 1994 memo by fomer USTR Carla Hill's law firm, which argued that plain packaging could violate the Paris Convention, the NAFTA (both the IP provisions and the expropriation of investment provisions) and the TRIPS Agreement (Articles 16 and 20).
Responses to these arguments were then offered by the Canadian law firm Fasken and Canadian law professor