International Economic Law and Policy Blog

The Seal Products Appeals

Canada's is here; Norway's is here.

It's hard to predict how these appeals will go.  What issues will the AB focus on?  How much of the panel's findings will the AB revise?  Maybe the oral hearing will give us an indication.

In the meantime, here are two issues -- one from each appeal -- that struck me as interesting.  First, from Canada:

Canada also requests the Appellate Body to find that the Panel acted inconsistently with Article 11 of the DSU in relation to its findings under Article XX(a) by failing to make an objective assessment of the facts by not taking into account evidence relating to animal welfare standards in the European Union, including standards applied to other wild animal hunts and commercial abattoirs.

That was one part of the panel report that surprised me.  I expected a lot more discussion of how the treatment of seals compares to the treatment of other animals. 

Second, from Norway: 

The Panel erred in interpreting and applying sub-paragraph (a) of Article XX because it examined whether the EU Seal Regime as a whole was provisionally justified under that provision, whereas it was required, but failed, to consider whether the specific aspects of the measure that give rise to violations of substantive provisions of the GATT 1994 could fall under, and be provisionally justified by, sub-paragraph (a). ...

At this point, I'm a little uncertain about which aspect of the measure the AB would like to see examined under the Article XX sub-paragraphs.  This appeal may give the AB a chance to clarify.

Later vs. Earlier Treaties Under the VCLT

As all of you international law experts out there know far better than I do, Article 30(3) of the VCLT states: 

3. When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.

So this provision gives priority to a later treaty over an earlier treaty on the same subject.

I'm wondering, though, whether this approach really makes sense when thinking about treaties that operate through an organization that continues on over time.  It may be that some treaties are just signed and applied (or not applied), with no administration or implementation.  But others have a functioning governing structure, and regularly scheduled meetings, processes for decisions and amendments, modifications to rights and obligations, etc.  They are not static.  In the context of such treaties, can we really give them a date that is fixed in time?  Or are they living organisms that are more accurately described as "current treaties"?

Any thoughts from readers?

And yes, I'm thinking here of the WTO being given a date of January 1, 1995, which seems strange to me given all that has happened at the WTO -- over a hundred Appellate Body reports! -- since then.

ISDS in TTIP: Are Specific Scheduled Obligations and/or Direct Effect a Way Forward?

I read Karel de Gucht's Dusseldorf speech this past Wednesday with interest, not only for the question Simon rightly raises.  It is plausible that ISDS, and the proposed substantive obligations, would provide greater protection from abuse, and greater incentives to invest, where the host country has less reliable legal rules and courts.  With Simon, I wonder how often that is the case in the member states of the European Union, or in the United States.  Both the EU and the US have lots of protections against abuse.  So maybe a little investigative work would be appropriate.  Which investment chapter rules are not already reflected in the domestic legal systems of the TTIP parties (including existing European law)?  Then, the substantive obligations might simply be scheduled--either confirming and preserving existing protections or supplementing national rules where they fall below the essential investor protection standards.  The advantage of this process would be to begin a dialog about specific concerns, rather than continue with abstract fears on both sides.  Another advantage would be to allow states to schedule the rules that they have, avoiding uncertainty about the constraining effects of new rules.  Perhaps when we do the homework, we will realize there is actually little to fight about.  

Second, to what extent is ISDS really necessary in this context?  Let's see the evidence of national bias or inadequate national procedures or remedies in the courts of the US and EU and its member states.  I am not saying that investors should not have direct recourse (although I am not certain that they should).  But I think it is worth asking whether direct effect in TTIP member courts would provide the appropriate remedies. 

So, perhaps it is time to move beyond one-size-fits-all investment chapters, and BITs, and to adapt to specific contexts and specific concerns.  

Defending Investor-State: What Are the Government Actions That Are at Issue?

EU Trade Commissioner Karel De Gucht gave a speech on the TTIP today.  In it, he said this about investor-state:

Investment agreements also exist for a reason. Europe's economy – and Germany's in particular – benefits from the investments our companies make in other countries. And it is a sad fact that governments in those countries sometimes use their power to treat foreign companies unfairly, putting those investments – and ultimately European jobs – at risk.

What are some of the government actions he has in mind?  Putting some examples forward would help critics get a better sense of what these agreements are supposed to be about.  What is the government action we should be concerned about?  Most of what I see related to foreign investment and host governments is subsidies to foreign investors.  Every now and then, there is an expropriation, but this is pretty rare these days, and is dwarfed by the extensive efforts to lure foreign investors in.

Coercive Economic Measures

The Faroe Islands' WTO complaint against the EU related to herring is going to be really interesting.  We might finally get some guidance on an issue I find challenging:  How to deal with "coercive economic measures."  Here's how the panel request in the case starts:

1. On 4 November 2013, the Kingdom of Denmark in respect of the Faroe Islands ("the
Faroe Islands") requested consultations with the European Union concerning the use by the
European Union of coercive economic measures in relation to Atlanto-Scandian herring (Clupea
Harengus). ...

4. In response to the Faroe Islands' decision to set a catch limit of 105 230 tonnes for Atlanto-Scandian herring, the European Union has adopted coercive economic measures against the Faroe Islands. It has prohibited the introduction into the territory of the Union of certain products of Atlanto-Scandian herring and Northeast Atlantic mackerel (Scomber scombrus) caught under the control of the Faroe Islands; and it has prohibited from EU ports any vessels flying the flag of the Faroe Islands that fish for Atlanto-Scandian herring or Northeast Atlantic mackerel and any vessels transporting fish or fish products stemming from Atlanto-Scandian herring or Northeast Atlantic mackerel that have been caught either by vessels flying the flag of the Faroe Islands or by other vessels authorized by the Faroe Islands while flying the flag of a third country. 

There are no WTO provisions that are explicitly designed to address the problem of such measures, so the issue becomes how to apply more general provisions to measures that are defined by some as "coercive."  The facts of the Herring case make me think that this could be the clearest case ever on such issues.  Nevertheless, it occurs to me that we could probably use some provisions that have been developed just for this problem.

The European Commission Wants Input on ISDS

From the European Commission:

EU Trade Commissioner Karel De Gucht today announced his decision to consult the public on the investment provisions of a future EU-US trade deal, known as the Transatlantic Trade and Investment Partnership (TTIP). The decision follows unprecedented public interest in the talks. It also reflects the Commissioner's determination to secure the right balance between protecting European investment interests and upholding governments’ right to regulate in the public interest. In early March, he will publish a proposed EU text for the investment part of the talks which will include sections on investment protection and on investor-to-state dispute settlement, or ISDS. This draft text will be accompanied by clear explanations for the non-expert. People across the EU will then have three months to comment.

EU Trade Commissioner Karel De Gucht said: "Governments must always be free to regulate so they can protect people and the environment. But they must also find the right balance and treat investors fairly, so they can attract investment. International investment agreements like TTIP should ensure they do both. But some existing arrangements have caused problems in practice, allowing companies to exploit loopholes where the legal text has been vague. I know some people in Europe have genuine concerns about this part of the EU-US deal. Now I want them to have their say. I have been tasked by the EU Member States to fix the problems that exist in current investment arrangements and I'm determined to make the investment protection system more transparent and impartial, and to close these legal loopholes once and for all. TTIP will firmly uphold EU member states' right to regulate in the public interest."

As a citizen of the UK (to go along with my US citizenship), I will happily provide them my thoughts, although I suspect they already know what I think.

Let me also note that this approach is refreshingly transparent and open! The Commission deserves a lot of praise for doing this.

NSA Spying and Economic Policy

From today's Presidential Policy Directive on Signals Intelligence Activities:

(c) The collection of foreign private commercial information or trade secrets is authorized only to protect the national security of the United States or its partners and allies. It is not an authorized foreign intelligence or counterintelligence purpose to collect such information to afford a competitive advantage⁴ to U.S. companies and U.S. business sectors commercially.

⁴ Certain economic purposes, such as identifying trade or sanctions violations or government influence or direction, shall not constitute competitive advantage.

If I'm reading this correctly, they are saying, we won't spy on you in order to help our companies compete in the market, but we will/may spy on you to look for trade violations or the existence of "government influence or direction" of foreign companies.

Human Health vs. Trade Liberalization

If I had been blogging in 1990, I probably would have commented on this statement by the Thailand - Cigarettes GATT panel: 

73. The Panel then defined the issues which arose under this provision. In agreement with the parties to the dispute and the expert from the WHO, the Panel accepted that smoking constituted a serious risk to human health and that consequently measures designed to reduce the consumption of cigarettes fell within the scope of Article XX(b). The Panel noted that this provision clearly allowed contracting parties to give priority to human health over trade liberalization; however, for a measure to be covered by Article XX(b) it had to be "necessary".

Setting this up as a contrast between human health and trade liberalization, and stating that human health may have "priority," doesn't seem like the right characterization of the issue.  To me, provisions such as GATT Articles III, XI and XX all work together to set the boundaries of the obligations under trade rules.  They determine which measures improperly interfere with trade liberalization and which do not.  It is not about giving priority to some policies over others, but rather establishing the scope of trade rules.

Here, Article XX(b) was raised a defense to an import ban -- in particular, a failure to grant import licenses -- that violated GATT Article XI.  Thus, I see the larger question as the following:  Was the import ban protectionist, or was it about human health?  There weren't two competing policy goals, human health and trade liberalization, that conflicted.  Rather, the task was to identify the true nature of this measure, and on that basis determine whether it was permitted under the GATT.

More About Finding the Middle Ground on Trade

The other day I wondered about whether there was a middle ground to be found on currency issues, trying to balance out the views of certain members of Congress and U.S. trading partners.  As reported by the NY Times, the same issue may arise for the environment:

The Obama administration is retreating from previous demands of strong international environmental protections in order to reach agreement on a sweeping Pacific trade deal that is a pillar of President Obama’s strategic shift to Asia, according to documents obtained by WikiLeaks, environmentalists and people close to the contentious trade talks.

...

Environmentalists said that the draft appears to signal that the United States will retreat on a variety of environmental protections — including legally binding pollution control requirements and logging regulations and a ban on harvesting sharks’ fins — to advance a trade deal that is a top priority for Mr. Obama.

... 

As of now, the draft environmental chapter does not require the nations to follow legally binding environmental provisions or other global environmental treaties. The text notes only, for example, that pollution controls could vary depending on a country’s “domestic circumstances and capabilities.”

In addition, the draft does not contain clear requirements for a ban on shark finning, which is the practice of capturing sharks and cutting off their fins — commonly used in shark-fin soup — and throwing back the sharks to die. The dish is a delicacy in many of the Asian negotiating countries. At this point the draft says that the countries “may include” bans “as appropriate” on such practices.

Earlier pacts like the North American Free Trade Agreement included only appendices, which called for cooperation on environmental issues but not legally binding terms or requirements. Environmentalists derided them as “green window dressing.”

But in May 2007, President George W. Bush struck an environmental deal with Democrats in the Senate and the House as he sought to move a free-trade agreement with Peru through Congress. In what became known as the May 10 Agreement, Democrats got Mr. Bush to agree that all American free-trade deals would include a chapter with environmental provisions, phrased in the same legally binding language as chapters on labor, agriculture and intellectual property. The Democrats also insisted that the chapter require nations to recognize existing global environmental treaties.

On one side of this, you have most Republicans and U.S. trading partners, who want weak rules.  On the other side, there are most Democrats, who want strong rules.  Is there a middle ground here?

More on Regulation and Trade

I posted recently about what "regulatory trade barriers," a term that gets thrown around a lot in the context of the TTIP negotiations, might mean.  Trade lawyer Ted Posner offered up a comment, and I wanted to respond to a couple of his points.  (And by the way, this comment went to a spam folder for some reason. If you notice that your comment does not appear on the site, feel free to get in touch with me, and I'll try to retrieve it.) 

Ted makes three points.  Here is the first: 

First, in discussing the paper on regulatory cooperation in TTIP, you refer to the U.S.-Canada Regulatory Cooperation Council as a model. But the model for the RCC was the U.S.-EU High-Level Regulatory Cooperation Forum, which is one of several intensive dialogues under the umbrella of the Transatlantic Economic Council (TEC). So, if all we achieve in TTIP under the heading of regulatory cooperation is something like the RCC/HLRCF, we really will not have moved that far from the status quo.

My sense is that the RCC has gone further than the HLRCF in terms of both structure and results.  For one thing, there are periodic public meetings in the RCC, in which people and companies can observe, discuss and communicate with regulators.  Thus, the RCC process is more formalized than was the HLRCF.  It is more than just a dialogue.  Also, in our JIEL article on these issues, we talk about specific, concrete results from the RCC.  At the same time, there is still a lack of transparency in these matters, with limited information available through web sites or otherwise on progress made in particular sectors.  You really have to do some digging to find out what's going on.  It seems to me that those in charge should be broadcasting their activities and successes, and also asking for more public input.  So, I'm happy to go further than the RCC, but I do think it can provide a good framework for future progress.  Basically, US-EU regulatory cooperation should be like the RCC, but intensified.

He also says:

Second, with respect to the three categories you identify, I see how the first two could be considered "regulatory trade barriers." But in what sense is "regulatory reform" a regulatory trade barrier? It seems to me that "regulatory reform" describes a category of measures to reduce or eliminate regulatory trade barriers.

This is a tricky one, because I'm not arguing myself that regulatory reform should be characterized as a trade barrier.  Rather, I'm saying that some people seem to identify ineffective, inefficient or otherwise bad regulation as an issue that should be addressed in trade agreements.  In that sense, they appear to think of it as a trade barrier, although it is not always clear how it is one.  To take some examples: (1) in the TPP, the US is pushing trading partners to set up something like the Office of Information and Regulatory Affairs (OIRA); and (2) in the TTIP, the US has suggested that the EU change its regulatory model to allow comments on draft regulations.  How should these demands be characterized?  To me, the existing regulatory systems of US trading partners are not a "regulatory trade barrier" that needs to be dealt with in a trade agreement.  However, by using trade negotiations to request that other countries "reform" their regulatory process, it seems to me the US is, implicitly at least, identifying regulatory deficiencies as trade barriers.  

Finally, Ted talks about what might be done about regulatory divergence:

I see a sliding scale. At the most ambitious extreme, there is true harmonization, whereby an existing gap is bridged by developing a common approach that applies equally in the United States and the EU. At the least ambitious extreme is a "soft" commitment to acquire a better understanding of the other party's approach to regulation in a particular area. ...  Along the spectrum in between the two extremes are lots of different options -- for example, mutual recognition ... ; forebearance (not quite the same as mutual recognition, but a loose commitment to exercise discretion favorably in light of the other party's high standards).

My only comment here is, yes, there are a range of options, and it will be interesting to see where the TTIP goes in this regard.

Debating Bali and the Future of the WTO:Webcast Mon Jan 13

This Monday I will have a free-ranging debate about the Bali result and the future of the WTO with Bernard Hoekman and Petros Mavroidis (David Palmeter will moderate).  The debate will be webcast live 1730-1615 CET (Florence time) from the Global Governance Programme at the European University Institute.  This is the link to go to at the time: http://www.eui.eu/SeminarsAndEvents/live.aspx

To allow for uninterrupted cut-and-thrust between the debaters there is no public audience participation for this event.  We would however welcome in advance questions that you would like to see us address.  Please either email the questions to me or one of the other participants (or all of us) or simply post them as comments.  Also let us know whether you would like the question to be atrributed to you by name.

I'm looking forward to a vigorous and I hope illuminating exchange!!

 

Rob

 

 

 

Currency Language in the TPA Bill

Here's the relevant text:

 (11) CURRENCY.—The principal negotiating objective of the United States with respect to currency practices is that parties to a trade agreement with the United States avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other parties to the agreement, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate.

Finding the right balance between satisfying Congressional currency hawks, on the one hand, and trading partners who don't want any currency provisions in the TPP, on the other hand, is a challenge.  Is there a middle ground out there that will do the trick?

To What Extent Does Plain Packaging "Encumber" Trademarks?

From an article by law profs Susy Frankel and Daniel Gervais:

The Australian plain packaging measures go practically as far as one can go in terms of imposing encumbrances on trademark owners. If, as just mentioned, the rights and interests of trademark owners are best seen as a continuum, then a high degree of encumbrance might logically lead to a higher burden to justify a measure. In any case, the authors of this Article do not believe that it is unreasonable to suggest that, as a result, this measure warrants close scrutiny by the DSB.

Let me suggest an alternative view.  The Australian plain packaging measures offer only a very minor encumbrance on trademark owners, because they carefully target one specific industry.  The measures only apply to tobacco products, and thus for the vast majority of products with trademarks, there is no encumbrance at all.  Most trademark owners won't experience any effects from the measures.

"Sovereignty" in the TPA Bill

This is from the TPA bill introduced in Congress today:

SEC. 8. SOVEREIGNTY. 

(a) UNITED STATES LAW TO PREVAIL IN EVENT OF CONFLICT.—No provision of any trade agreement entered into under section 3(b), nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States, any State of
the United States, or any locality of the United States shall have effect.

I'm a little puzzled by this provision.  Is this an assertion that no provision will be included in a trade agreement if such provision conflicts with U.S. law?  Or does it mean that if there is a provision in a trade agreement that conflicts with U.S. law, that provision has no effect?  Or something else entirely?

A Currency Manipulation "Nuclear Option"

Here is the "remedy" portion of a proposal from the American Automotive Policy Council for currency manipulation provisions in the TPP:

If a TPP member is found to have breached its currency commitments under the agreement, other TPP members shall be entitled to suspend the tariff benefits of the agreement with respect to the violating TPP member at a minimum for one year, and until the TPP member demonstrates that it has remedied the breach. In the event that a tariff on a good has not been eliminated, the period of time before the tariff is eliminated would be extended.

So, if I'm reading this correctly, if there is any violation at all in relation to currency manipulation, regardless of the degree, other parties are able to suspend all tariff concessions under the TPP with respect to the violating party.  That's quite a remedy!

Eli Lilly NAFTA Chapter 11 Policy Forum

As mentioned before the holidays, we will be holding a policy forum at Cato on the Eli Lilly NAFTA Chapter 11 case, on January 16.  You can register to attend here: http://www.cato.org/events/patents-public-health-international-law-eli-lilly-nafta-chapter-11-case

Henning explained the case about a year ago, here.  In a nutshell, the case arises from a series of Canadian court rulings that have narrowed the scope of when pharmaceutical products may be patented. In particular, the courts set a higher standard for determining whether the product at issue is "useful" (one of the three elements required for granting a patent). Patent applicants must now "demonstrate" or "soundly predict" the effectiveness of a drug to establish its usefulness.  As a result of these rulings, demonstrating usefulness requires more, and costly, testing of pharmaceuticals prior to applying for a patent then was needed previously.

Based on this doctrine, two of Eli Lilly's drug patents -- for ADHD and schizophrenia drugs -- have been ruled invalid by Canadian courts in the last couple years.  These patents had been granted in the early to mid 1990s. They have now been taken away.

What this means for consumers of these drugs is that (Canadian) generics companies will start making the drugs.  (That's who challenged Eli Lilly's patents.)  So more of these drugs will be available at lower prices.  But of course, the inventing companies' profits are reduced, and they have less incentive going forward to create new drugs.

In response, Eli Lilly has sued under NAFTA Chapter 11, putting forward expropriation and "minimum standard of treatment" claims.  And it has asked for $500 million in compensation.

This all raises a number of questions for me:

- Are the Canadian court rulings completely outside of international norms for granting patents? And if so, does it matter if Canadian courts go their own way?

- What rationale did the Canadian courts offer? What were they trying to do: help the generics industry so as to promote public health, or help the domestic industry?

-  How should international law deal with this issue? We have the TRIPS agreement at the WTO, and NAFTA has its own IP rules. Is IP specific international law a better forum for this than the NAFTA investment rules?  The investment obligations at issue here are general ones:  fair and equitable treatment, and regulatory expropriation. Can they be made to fit with these very specific IP issues?

- More generally, should international courts review the decisions of domestic courts, on intellectual property issues or otherwise? Are there limits to this?

- How will this case eventually be resolved? Parliament? A new Canadian court ruling?

I don't have the answers to any of these questions, but I'm confident the three experts we have gathered for the panel will have interesting things to say about each of them!

Good News for the Airbus-Boeing Dispute Lawyers?

From the Washington Post:

Members of Boeing’s machinists union on Friday voted by a slim margin to accept the company’s proposal of a long-term contract that will guarantee construction of a new long-range wide-body aircraft in the Puget Sound region, in exchange for significant wage and retirement benefit concessions.

...

The vote, and Boeing’s commitment to continue building the new aircraft in Washington state, means the company will be able to take advantage of the largest corporate tax break in the history of the United States. The Washington state legislature, meeting in special session last fall, passed a series of tax breaks worth up to $8.7 billion through 2040, contingent upon construction of the 777X staying in Washington. Gov. Jay Inslee (D) signed the tax break in November.

So now there are more subsidies, and more billable hours trying to sort out the legal implications.  The big question that occurs to me: Is any of this within the terms of reference of the ongoing Article 21.5 complaint in the Boeing case?

Survival Clauses in Investment Treaties

Recently, I had been wondering about "survival" clauses in investment treaties. These are provisions that allow for investment claims to be brought even after the treaty has been terminated. Here's an example from the US Model BIT, in Article 22, paragraph 3:

For ten years from the date of termination, all other Articles shall continue to apply to covered investments established or acquired prior to the date of termination, except insofar as those Articles extend to the establishment or acquisition of covered investments.  

Such provisions always seemed fascinating and strange to me. How is it possible that governments would agree to limit their powers in this way?  Presumably, if both parties decide at some future date to terminate the treaty, that must mean that they don't like the treaty very much and would not want it to continue to apply. Yet, under this provision, it would continue to apply for ten years.

There must be a way out of this, I thought. Couldn't they just amend the treaty first, to take out the survival clause, and then terminate it?

In addition, as a matter of contract law, about which I don't remember much from law school, I wondered if such a provision really could be included in a treaty. Isn't there something inherent in this kind of provision that would make it inapplicable?

That was as far as I'd gotten with the issue, when I saw this paper by Voon, Mitchell, and Munro. They examine this issue from a public international law perspective and conclude:

Our analysis shows that, as a matter of public international law, neither the notion of ‘acquired rights’ nor the common inclusion of survival clauses in IIAs poses an inherent obstacle to the termination of IIAs by consent. On the contrary, States parties to an IIA may choose to rescind all investors’ past, present and future rights under an IIA (with the exception of exercised rights— that is, claims that are already on foot). However, certain presumptions will generally apply to a termination if not otherwise agreed. In particular, the termination will be presumed: to be governed by the existing treaty terms, including any survival clause; not to affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination; and not to be retroactive. Thus, to the extent that the IIA confers rights on investors, these may persist unless the parties agree to expunge them.

Parties seeking to terminate an IIA by consent should include certain elements in their termination agreement if they intend to modify these presumptions. The agreement should state that: no provisions of the relevant IIA survive the termination or have any operation after the termination; the survival clause and dispute settlement mechanism have no further effect; all past, present and future rights, obligations and responsibilities of the parties and any rights of any investor of any party arising from the IIA are extinguished, including any recourse to domestic or international dispute settlement fora for treaty breaches arising before or after the termination. Any unexercised rights of investors pursuant to a provision of the original IIA or a doctrine of acquired rights would be extremely unlikely to survive a termination agreement that explicitly covers these elements. Of course, the eccentricities of individual IIAs may also need to be accounted for.

Thus, in their view, governments can terminate in a way that removes the effect of the survival clause (that is, the survival clause will not survive).  That sounds like it resolves the issue when both parties want to terminate.  Is the purpose of such clauses, then, just to make sure unilateral terminations don't affect investors' rights immediately?