International Economic Law and Policy Blog

Panama Appeals the Argentina - Financial Services Panel Report

The notice of appeal is here. Panama, the complainant, "won" the case, but ended up with a finding that did not achieve its goals, so it appealed.

This is potentially one of the most interesting GATS cases I've seen.  It is sort of like the counterpart to many of the recent TBT cases, with a non-protectionist purpose having been offered, a de facto discrimination analysis carried out, and a finding of violation on narrow grounds that suggests the respondent could make the measure more restrictive and come into compliance.

More Tit for Tat WTO Disputes

I know that at least two of you readers out there have been keeping an eye on tit for tat WTO disputes.  Here's another.

On May 7 of this year, Russia requested consultations with Ukraine in Ukraine - Anti-Dumping Measures on Ammonium Nitrate.

And now on October 21, Ukraine requested consultations with Russia in Russia - Measures Affecting the Importation of Railway Equipment and Parts Thereof.

Obviously, there are some other issues between Ukraine and Russia that are part of the mix as well.

Counterclaims in TPP ISDS

This is from the explanation of TPP ISDS by the New Zealand Ministry of Foreign Affairs and Trade:

The safeguards in TPP, which protect the New Zealand Government’s right to regulate and which seek to prevent unwarranted ISDS claims, include:

...

The Government is expressly permitted to make a counterclaim and obtain damages when the investor is in the wrong under a covered investment agreement.

I haven't paid attention to counterclaims under ISDS, so I have several questions here:

-- Is this something new for the U.S., or do the Model BIT and past U.S. treaties/investment chapters have such a provision?

-- What does it mean for an investor to be "in the wrong"?

-- What is a "covered investment agreement"?

Hopefully the release of the TPP text will clarify the latter two.

I'm having trouble figuring out whether this will be anything meaningful.  If there is a real chance investors could subject themselves to counterclaims, it could be a deterrent to bringing cases, but I don't know if there is a real chance.

Can Protectionism Promote a Cleaner Environment?

Here's the abstract of an article by law professor Timothy Meyer:

International negotiations struggle to keep pace with global problems like climate change. To fill this gap, local governments increasingly take matters into their own hands. For example, to promote the benefits of clean energy, a local government might give subsidies to renewable energy companies. Since 2001, California has given $2 billion in such subsidies, while states ranging from Minnesota to Kansas and Mississippi have doled out hundreds of millions of dollars each. Cities, such as Austin and Los Angeles, have also gotten into the act, contributing millions to renewable energy firms. To build support for these measures, the local government might condition the subsidy on the recipient’s use of components manufactured in the locality.

In 2013, the World Trade Organization (WTO) said these kinds of subsidies are unlawful because they discriminate against foreign products. This Article argues that the decision fails to account for the public goods generated by such programs, and suggests a new way for the WTO to review local subsidy programs that would balance the WTO’s impulse to protect international trade with the valuable global public goods such programs promise. 

To make the case, I report on the results of an original 50-state survey. I identify 44 state renewable energy programs in 23 states within the United States that violate the WTO’s 2013 decision. I argue that these programs can increase global welfare in the aggregate, notwithstanding their discriminatory nature. They can do so by creating political support at the local level for renewable energy programs that might not otherwise pass. Local governments internalize few of the benefits from providing global public goods, such as reducing greenhouse gas emissions through costly investments in renewable energy technology. Local efforts to address global public goods problems thus have to be linked to a concentrated benefit within the enacting jurisdiction. Protectionist measures that discriminate against foreign products provide this link, mobilizing local economic interests to pass global public goods programs that create benefits in other jurisdictions. Reforming international trade law to allow these linkages is imperative if local governments are to continue to play a role in solving global problems.

No one will be surprised to hear that my answer to the question posed in the title is "no." But I'll have to read the article in order to give a full rebuttal to his arguments.

One quick reaction, however, is that if you can't get political support for your environmental measures purely on the merits, and you need protectionism to get people on board, there may be some flaws in the measures.

ADDED: Another quick thought is that local content requirements in renewable energy programs probably undermine the global public good of a clean environment, by producing these goods inefficiently, making them more expensive, and triggering trade conflict.

But that's enough until I read the article!

The Right to Regulate under CETA

Sweden's National Board of Trade has a new report called "The Right to Regulate in the Trade Agreement between the EU and Canada - and its implications for the Agreement with the USA." There are lots of interesting parts, but I'm going to focus on something they said about fair and equitable treatment:

The article on “fair and equitable treatment” is intended to make the Parties to the agreement ensure that the exercise of public authority and court proceedings maintain a certain quality and that the state does not subject investors to manifestly arbitrary treatment or targeted discrimination. The analysis shows that in CETA, this article contains nothing beyond what is already included in Swedish law and, in several cases, in Swedish constitutional law. Examples include the right to a fair trial, protection against discrimination and protection against arbitrary treatment. As long as these provisions exist, and provided that the state upholds them, the article thus does not limit the Swedish state's “right to regulate”. Since the rules that are relevant to the article hold a unique position within Swedish legislation, it is unlikely that they will change in a way that would limit the state's “right to regulate”. The conclusion is therefore that the article on “fair and equitable treatment” in CETA will not impact on Sweden's “right to regulate”. For foreign investors in Sweden, the article does not provide any additional protection compared to Swedish law, other than guaranteeing a minimum standard of treatment from the state.

The wording of the articles on “fair and equitable treatment” differ in CETA and the US Model BIT. In the latter agreement, there is an illustrative list where the article applies, while CETA contains an exhaustive list. The fact that the list is exhaustive provides a greater level of control over the article's scope, and the article limits the state's “right to regulate” to a lesser extent than the corresponding article in the US Model BIT.

The ground for protection stipulated in the article on “fair and equitable treatment”, also referred to as “legitimate expectations”, has traditionally constituted a factor of uncertainty, as there has been some level of arbitrariness in terms of what arbitration tribunals have deemed to be included in this ground. In CETA, the stipulation regarding “legitimate expectations” has been so greatly limited that, in reality, it offers very little protection for investors.

That's from page 5; see also pages 13-25.

Overall, their take on FET in CETA is that its protections are no different than what is already in Swedish law.  By contrast, they seem to imply that the U.S. FET standards might be broader.

One difficulty with these comparisons between domestic law and international investment law protections is that the legal texts are vague, and the actual application under both could vary.  Ideally, we would have the exact same fact pattern examined under similar domestic law and international law standards, so that we could compare the result.  That's unlikely to happen, but I what I think might be interesting is for the National Board of Trade (or someone else) to examine a controversial case, such as the recent Bilcon NAFTA Chapter 11 decision, and think about how Swedish law (or some other domestic law) would apply to those facts.

In addition, while we are looking at domestic law protections, it would be interesting to see which countries do not have these protections. The Swedes think they do.  ("In Sweden, investors are protected from arbitrary conduct by Swedish authorities through the Instrument of Government, which guarantees freedom of trade. Furthermore, the principle of legality outlined in the Instrument of Government requires that all public authorities have legal grounds for their decisions, and the objectivity principle ensures the public authorities' obligation to consider everyone's equality before the law.")  What is the situation elsewhere?  Who are the countries that do not offer such protections?  To me, the treatment of investors under domestic law is the best starting point for a debate about the need for additional protections.

Marketing the TPP

This is from Greg Ip of the WSJ:

... “behind the border” barriers are politically more sensitive than tariffs because they affect domestic policies, from human rights to how much public health systems pay for drugs. Classical arguments for free trade are also less relevant: a country that grants foreign drug companies longer patent protection is raising prices for its own consumers, and more restrictive labor laws erode its competitive advantage of cheap labor. Yet these sorts of rules are the conditions the U.S. and other advanced countries insist on if developing countries are to have access to their markets.

This is why TPP’s significance lies not in its economic impact—modest for most signatories—but how it restricts its members’ domestic sovereignty. Vietnam’s only labor union is an organ of the ruling communist party. Under TPP, it will have to allow independent unions. Malaysia has long favored ethnic Malays in its government procurement policies; it will have to relax those rules for foreign suppliers. Brunei, which has no minimum wage, will have to institute one.

...

By contrast, TPP asks relatively little of the U.S.  ...

...

The pact is, at its core, an effort to shape globalization according to American standards of economic conduct. ... 

...

In the end, whether TPP passes or fails will matter far more for American economic leadership than the modest costs and benefits it poses to American companies and workers.

I'm intrigued by this as a sales pitch for the TPP. The TPP will have only a modest economic impact, he says, and the main benefit is that it will interfere with the domestic sovereignty of TPP countries other than the United States.  Is this an argument along the same lines as the one that the TPP spreads American "values", but tailored to a conservative audience (WSJ readers) with words such as "leadership"?  

And the more practical question for selling the TPP is, will this argument work?  Are there people who will support trade agreements because of the restrictions they impose on other countries' sovereignty?  (Obviously, all trade agreements impose limits on sovereignty, but there is a difference in degree between agreeing to lower your tariffs and agreeing to offer stronger labor or patent protections.)

SIEL Call for Papers

From the SIEL:

Call for Papers: Society of International Economic Law and University of Luxembourg, Fifth PEPA/SIEL Conference. 

SIEL’s Postgraduate and Early Professionals/Academics Network (PEPA/SIEL) and the Research Unit in Law of the University of Luxembourg are pleased to announce that the fifth PEPA/SIEL Conference will take place on 14-15 April 2016 in Luxembourg. We invite graduate students (enrolled in Master or PhD programmes) and early professionals/academics (generally within five years of graduating) to submit papers on any IEL topic. One or more senior practitioners and academics will comment on each paper after its presentation, followed by a general discussion. More information, including the process for submissions by 16 November 2015, can be found here. 

Mediation Instead of Dispute Settlement?

From the WTO:

Nigeria announced its intention to request a mediation process regarding Mexico’s import measures on hibiscus flowers.

According to Nigeria, Mexico requires verification of plant health certificates for consignments of hibiscus flowers, a plant commonly used in beverages, resulting in delays of up to six weeks. Mexico, in response, says that the validation requirement is due to its detection of false certification by Nigeria, and it expects to work closely with the Nigerian authorities to find a solution. Nigeria intends to request the "good offices" of the chairperson of the committee, Mr Felipe Hees of Brazil, to assist in resolving the issue.

WTO members agreed a new procedure (document G/SPS/61) in July 2014 to help members settle their differences on food safety and animal and plant health measures. The mediation process provides a new tool for resolving differences on specific trade concerns, while avoiding a more complicated legal challenge under the WTO’s dispute settlement system. As required by the new procedure, Nigeria needs to submit a written request for mediation, which Mexico can accept or reject within 30 days.

Will this mediation process work? Can it help alleviate the overload in WTO dispute settlement going on right now?

Trudeaumania!

Back when I lived in Geneva, a Canadian friend was explaining Trudeaumania to me.  Pierre Trudeau was this charismatic political leader, apparently, who was kind of like a rock star in Canada.  Just for fun, I said something along the lines of, "so he was like the Canadian version of Ronald Reagan"?  That got me what can best be described as an icy stare of death (which was what I was shooting for!).

Now we have this:

The nine-year reign of Prime Minister Stephen Harper and his Conservative Party came to a sudden and stunning end on Monday night at the hands of Justin Trudeau, the young leader of the Liberal Party.

Trade plays only a minor role in most national elections, and this one was no different, but nevertheless here is Trudeau's recent statement on the TPP:

“The Liberal Party of Canada strongly supports free trade, as this is how we open markets to Canadian goods and services, grow Canadian businesses, create good-paying jobs, and provide choice and lower prices to Canadian consumers.

“The Trans-Pacific Partnership stands to remove trade barriers, widely expand free trade for Canada, and increase opportunities for our middle class and those working hard to join it. Liberals will take a responsible approach to thoroughly examining the Trans-Pacific Partnership. The Harper Conservatives have failed to be transparent through the entirety of the negotiations – especially in regards to what Canada is conceding in order to be accepted into this partnership.

“The government has an obligation to be open and honest about the negotiation process, and immediately share all the details of any agreement. Canadians deserve to know what impacts this agreement will have on different industries across our country. The federal government must keep its word and defend Canadian interests during the TPP’s ratification process – which includes defending supply management, our auto sector, and Canadian manufacturers across the country.

“If the Liberal Party of Canada earns the honour of forming a government after October 19^th, we will hold a full and open public debate in Parliament to ensure Canadians are consulted on this historic trade agreement.”

Based on this, it is hard to imagine Trudeau doing anything radical on TPP, like demanding enforceable currency manipulation provisions (à la Hillary Clinton).  His focus seems to be on transparency, which is a safe criticism, because as soon as the text becomes public, it mostly goes away.  Nevertheless, I'm looking forward to the full and open (and polite!) TPP debate in the Canadian parliament!

The Tobacco Non-Carve-out (Carve-in?)

When the TPP text is made public, no doubt lots of people will explore in excruciating detail each and every word of the "carve-out" of tobacco from the investment provisions.  Until then, we can talk about the reductions in tariffs on tobacco products, set out here by USDA:

Under the TPP agreement, Japan will eliminate all tariffs on tobacco, currently as high as 29.8 percent, in 11 years.

...

Malaysia will eliminate all tariffs on tobacco in 16 years.

...

New Zealand will immediately eliminate all tariffs on tobacco.

...

Vietnam will eliminate all tariffs on tobacco, which are currently as high as 135 percent. For manufactured tobacco products, Vietnam will eliminate tariffs in 16 years. For unmanufactured tobacco, Vietnam will create a 500-ton transitional tariff rate quota (TRQ) that will grow by five percent each year, with in-quota tariff rates eliminated in 11 years and out-of-quota tariff rates eliminated in 21 years.

...

Brunei will immediately eliminate all tariffs on tobacco.

...

The United States will eliminate all tariffs on tobacco, currently as high as 350 percent, in 10 years.

No word on the situation in other TPP countries, but I suppose if they are not mentioned, it means they are not reducing any tariffs.

We've talked before about the implications of eliminating tobacco tariffs.  For me, the main impact is that it removes protection of the domestic tobacco industry, and it would be a stretch to say that such protection helps with public health.

The counter-argument is that removing tariffs will lead to lower prices and higher consumption.  Well, here's a great test case (assuming the TPP comes into force).  What happens to tobacco sales now in these countries?  Will governments who lowered tariffs now increase domestic taxes?  Will tough new regulations be imposed?

A Surprise Choice for an Article 21.3(c) Arbitrator

If you look at the list of Article 21.3(c) arbitration awards, you will see that in all 32 awards, the arbitrator was a current or former Appellate Body Member. Nothing in the DSU requires this, but it developed as a practice, and that's the way it always worked.

But that trend has finally been broken, with the appointment of Australian government official Simon Farbenbloom as the arbitrator in U.S. Shrimp II (Viet Nam) (DS429).  I'm not sure if this is the start of a new trend, or just an aberration.

(As a sidenote, this post serves as a test. If you found this information interesting, you are a true WTO dispute settlement nerd!)

Is TPP "Dead Until the Lame Duck"?

This is from Politico:

President Barack Obama's signature trade deal - the Trans-Pacific Partnership - may not get taken up by the GOP-run Congress until after the 2016 elections, senior Republican and Democratic aides said Wednesday.

Mike Sommers, chief of staff for Speaker John Boehner (R-Ohio), said at a Ripon Society meeting that Congress was unlikely to move on the massive trade package until a lame-duck session more than a year from now. Hazen Marshall, policy director for Senate Majority Leader Mitch McConnell (R-Ky.), who was also at the session, agreed that a TPP vote was more likely to happen in a lame-duck session, and added that the White House was trying to work with congressional leaders on timing.

One attendee said the senior GOP staffers' message was "TPP is dead until the lame duck."

 

(A Little) More from Hillary on TPP

From Bloomberg:

Hillary Clinton says Trans-Pacific Partnership trade pact doesn’t meet her criteria for dealing with currency manipulation, “one of the main reasons for job loss going back several decades.”

• NOTE: Democratic presidential candidate makes comments in Henderson, Nev., after event where she was endorsed by International Union of Painters and Allied Trades
• Clinton tells reporters TPP doesn’t include “enforceable provisions about currency manipulation”
  • “I think that’s a big deal”
  • “I just don’t think that when you add it all up, it meets the standard” for support
• Clinton says she hasn’t yet read text of deal, but has conferred with others who have

Whenever people talk about the need for enforceable currency provisions, I like to point out that we already have them in Article XV of the GATT.  I know those provisions are kind of vague, and no one has tried to use them, but they do exist nonetheless.

Useless Debate Questioning on Trade

In my last post, I worried that any trade and TPP questions for Hillary Clinton in the Democratic debate would not be very productive.  And voila:

ANDERSON COOPER: You were against same-sex marriage. Now you're for it. You defended President Obama's immigration policies. Now you say they're too harsh. You supported his trade deal dozen of times. You even called it the "gold standard". Now, suddenly, last week, you're against it.

Will you say anything to get elected?

CLINTON: Well, actually, I have been very consistent. Over the course of my entire life, I have always fought for the same values and principles, but, like most human beings -- including those of us who run for office -- I do absorb new information. I do look at what's happening in the world.

You know, take the trade deal. I did say, when I was secretary of state, three years ago, that I hoped it would be the gold standard. It was just finally negotiated last week, and in looking at it, it didn't meet my standards. My standards for more new, good jobs for Americans, for raising wages for Americans.

And no follow-up question on this.  Sheesh. 

Hillary Clinton, the TPP, and the Democratic Debate

Last Wednesday, we all heard Hillary Clinton announce her opposition to -- or at least her deep skepticism about -- the TPP.  That triggered many accusations of flip-flopping, as she had previously supported it.  Now this Tuesday, CNN will be hosting the first Democratic debate, where she will no doubt be asked about her change of views.

You might ask, what was she thinking when she changed her position in this way, opening herself up to criticism and difficult questions during the debate?

But perhaps the debate was the reason she did what she did.  She knew that debate questions on TPP were coming, as the deal had just been announced, and she believed this was the best approach to take. Imagine that, at the debate, she said she would take no stance until the text was out, or she expressed support for the TPP.  That would put her up on a stage with Bernie Sanders and others who strongly oppose the TPP, and maybe she didn't think TPP support or deferring a position would look very good to the voters she wants to attract in the Democratic primary.

In addition, and this might even be more important, she is well aware of the opposition to trade pacts coming from the right.  Donald Trump is making a big deal out of trade, and Donald Trump is getting a lot of support in the polls.  Maybe Clinton thought that opposition to the TPP could help pull some votes from Trump supporters in the general election, when he inevitably disappears and a pro-TPP candidate such as Bush, Rubio, or Kasich becomes the nominee.  

I'm not totally sure any of that is right, but it it sounds plausible to me.  

But back to the debate. Obviously, her decision raises lots of questions.  Here are a few that I would love to see Anderson Cooper ask her:

-- If you are elected, and the TPP has not yet been passed by Congress, what actions would you take on TPP?  Would you push forward with trying to improve it, by reopening negotiations with our trading partners?  Or would you abandon it completely? Are there any trade agreements you would pursue if elected?

-- You said that: "I’m worried that the pharmaceutical companies may have gotten more benefits and patients and consumers — fewer." But liberal commentator Paul Krugman notes that pharmaceutical companies are unhappy with the results of the TPP negotiations, and he seems more positive about the TPP than ever before.  What specific problems do you have with the TPP provisions on pharmaceuticals, and how would you improve them?

-- You expressed concern about the absence of currency manipulation rules in the TPP.  A number of proposals have been offered in this regard.  Have you seen any that, if included, would convince you to support the TPP?

The last two are kind of technical for a mass audience, but maybe they would ask the first one.

Unfortunately, the questions they will probably ask her will be along the lines of, "Why did you flip-flop on the TPP?", which will give her an easy opportunity to repeat her earlier statements and avoid any substantive discussion of the issues.

The 10th Annual Academy of WTO Law & Policy

The 10th Annual Academy of WTO Law & Policy will be held at Georgetown Law Center, November 16-20, 2015. Here's an overview:

The Academy is an intensive professional development program on the law and policy of the World Trade Organization (WTO).  It examines the legal obligations and policy underpinnings of the WTO and its agreements, in the context of how the WTO operates and how it relates to national governments.  It strengthens participants’ critical thinking about the role of the WTO in solving commercial problems and addressing fundamental policy challenges. 

This non-degree program is designed to build capacity to take advantage of the multilateral trading system, by training legal professionals, trade policy officials, members of the international business, IGO and NGO communities, academics, and others – including those from developing countries and transition economies.  A law or economics degree is not necessary to attend the Academy.  Academy presenters are international trade law experts, many of whom negotiated the WTO Agreements at issue.

More information, and registration details, are here.

Hillary Clinton Is Against TPP

At least based on what she has heard about it so far.  From Vox:

In a major blow to President Obama's trade agenda, Democratic presidential frontrunner Hillary Clinton has come out against the Trans-Pacific Partnership. In an interview with PBS's Judy Woodruff, Clinton stressed that she hadn't seen the full agreement. However, she said, "As of today, I am not in favor of what I have learned about it. I don’t believe it’s going to meet the high bar I have set."

Clinton explained her skepticism by mentioning two of the most common objections to the deal among left-leaning critics: that it's too favorable to pharmaceutical companies, and that it doesn't include language prohibiting other countries from manipulating their currencies to gain a trade advantage.

Recall that she was for the TPP before she was against it.

If you listen to her full explanation, she does leave a tiny bit of wiggle room, but it would look pretty bad to reverse her position after everything she said.

If I were going to guess the reasons she would oppose TPP, those would not have been the ones. There was never any real chance of having binding obligations on currency; and most liberals seem to be celebrating the biologics outcome.

I'm not sure how much impact this will have on the Congressional TPP vote (I'd worry more about the Republicans), but it's certainly not what the Obama administration was hoping for.

More on the Tobacco Carveout

When it became clear there would be a tobacco carveout from TPP ISDS, I rushed out this critique:

I'd be happy to carve ISDS out of trade agreements (or just apply the tobacco carveout proposal to all measures!), but I can't understand why tobacco would be carved out of ISDS.  Carving tobacco out looks like an acknowledgement that ISDS undermines domestic regulation, but then the solution is to mostly ignore the problem, while trying to address it for just one part (tobacco control) of one category of regulation (public health).  There are only two ISDS cases out there on tobacco measures.  The bulk of any problem with ISDS lies elsewhere.  Tobacco companies are minor users of the system, and are not abusing it.  They are using it exactly as it was designed, and their use of the system is just like that of the hundreds of other companies that are using it.  Any issue with the tobacco related ISDS cases is not about the behavior of the tobacco companies.  It's about the design of the system.  (And that design could be improved in a number of ways, including a carefully drafted general exceptions provision, which would effectively mean that all of the tobacco company claims would fail).

With more time to reflect, James Surowiecki says the same thing more eloquently in the New Yorker:

... creating a carve-out only for tobacco underscores the basic problem with I.S.D.S.

The tobacco carve-out is an acknowledgement, after all, that companies don’t just use I.S.D.S. lawsuits to fight unjust expropriation; they use these lawsuits to fight reasonable state regulation. If that weren’t the case, then no exception for tobacco would have to be made. The carve-out says, in effect, that this is a problem—but it’s only a problem with tobacco. That’s hardly the case. Cigarettes may be a distinctly bad consumer product, and tobacco companies have been aggressive in pursuing litigation under I.S.D.S. provisions in other trade treaties. But tobacco is hardly the only industry that raises serious public-health and environmental concerns, and hardly the only industry that’s the object of meaningful state regulations. And it’s far from obvious why we should trust other companies to use these provisions wisely, when they were apparently too risky to trust tobacco with.

My only quibble is with his reference to "reasonable state regulation."  It's more complicated than that, which he probably knows, but in fairness he didn't have space to explore the nuances of what measures can be challenged.

The Tobacco Carveout and NAFTA Chapter 11

The tobacco carveout for TPP ISDS leads me to another question that has been bothering me: What happens to NAFTA Chapter 11 after TPP?  (Same question applies to other U.S. FTAs that have investment chapters with ISDS.)  Does TPP ISDS supersede NAFTA Chapter 11 entirely, so that any future investment disputes involving Canadian, Mexican, and U.S. investors and those governments would be handled under TPP?  Or would NAFTA Chapter 11 still apply?

And if NAFTA Chapter 11 still applies, is the tobacco carveout available?

The simplest solution would be that TPP ISDS now controls, but I haven't heard anything, and perhaps this will require a complicated legal resolution.

Are E-Cigarettes a Tobacco Product?

In the last post, I wondered why the TPP tobacco carveout from ISDS would let e-cigarettes off the hook.  But maybe it won't.  Somebody pointed out to me that nicotine is usually extracted from tobacco, and that the language of the carveout may actually be broad enough to cover all products derived from tobacco.  This would mean that, arguably, e-cigarettes -- at least those with nicotine -- would qualify for the carveout, and thus a future plain packaging law for e-cigarettes would be covered.

But of course, all of this is open to interpretation.  A key question might therefore be, who does this interpretation?  Is the tobacco carveout self-judging?  Or, alternatively, when a foreign investor makes a claim against a particular regulation, would the tribunal have to rule on whether the measure falls under the tobacco carveout?

The Tobacco Carveout: What About E-Cigarettes?

Here's another paragraph from the Inside US Trade article on the tobacco ISDS carveout that I mentioned the other day:

The U.S. has proposed to define a tobacco control measure as one relating to the production or consumption of manufactured tobacco products, their distribution, labeling, packaging, wrapping, advertising, marketing, promotion, sale, purchase, or use, as well as enforcement measures, such as inspection, record keeping, and reporting requirements, sources said.

Again, with the caveat that I haven't see the actual legal text, this language suggests that e-cigarette products would not be covered by the carveout.  There must have been internal discussions about whether to include them.  I'm curious to hear what any public health folks have to say about the decision to stop at tobacco.

The TPP Is Done! Almost!

From the NY Times:

The United States and 11 other Pacific Rim nations on Monday agreed to the largest regional trade accord in history, a potentially precedent-setting model for global commerce and worker standards that would tie together 40 percent of the world’s economy, from Canada and Chile to Japan and Australia.

TPA was tough; concluding TPP sounds like it was tougher.  Now for the really hard part: Getting TPP through Congress. Here's what Senator Hatch said today: "While the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short."

So now that the TPP is done, can we see the text?  Not just yet apparently:

Its full 30-chapter text will not be available for perhaps a month

Very soon, promoters of the agreement will start promoting it, and critics will start criticizing it. As soon as the text is available, I'm going to take my usual approach of focusing on very obscure provisions and thinking about what they might mean in the light of Articles 31 and 32 of the Vienna Convention on the Law of Treaties.  I'll also try to weigh in on the U.S. politics aspect, although recent polling for the 2016 Presidential race has made clear to me how little I know about U.S. politics.

Stiglitz on TPP--Does He Have any Economic Arguments?

At Project Syndicate, Joseph Stiglitz and Adam Hersh have a critique of TPP.  I suppose it was optimistic of me to expect to see concerns about lost jobs or trade diversion--topics that could be illuminated by someone with Stiglitz' enormous skill.  But the critiques were more in the realm of negotiations and law, and I found them weak indeed.  First, almost nonsensically, the piece argues that because negotiations are having trouble persuading some governments to reduce their management of trade, that the agreement is "an agreement to manage its members trade".  In what way does the failure to liberalize all trade make this agreement an agreement that is, in the authors' words "not about 'free' trade?"  Second, neither the authors nor I seem to know whether the increments to IP protection proposed will be welfare-enhancing or not.  They say the arguments that these rights promote research are weak.  OK, but this seems a tepid critique.  Third, the authors argue that the TPP represents "managed trade" for tobacco companies.  This is an incorrect use of the term "managed trade."  But more importantly, it actually looks like there are serious proposals to curtail the availability of ISDS to tobacco companies.  The authors repeat the canard that the TPP ISDS will provide rights to sue for "diminished expected profitability."  These are feeble critiques indeed, and aside from the comments on the state of our ignorance regarding the welfare effects of enhanced IP rights, have little to do with economics. 

Here's Why Trade Law Interpretation Is So Hard and "Gap-Filling" Is Inevitable

From Inside US Trade:

The United States and Australia have jointly developed a text proposal on the exclusivity term for biologics medicines and overnight began showing it to other Trans-Pacific Partnership (TPP) countries in an effort to build support, in a move that is raising optimism that negotiators can reach a broader agreement by the end of the day Sunday (Oct. 4), according to informed sources.

...

The U.S.-Australia proposal would contain at least two options, one of which would be an obligation to provide eight years of exclusivity for biologics, sources said.

The other would be to provide five years of exclusivity, plus an obligation vague enough that it could be interpreted as requiring additional years of protection, or not. This appears to be an effort by both sides to craft language that would allow both of them to claim victory. (emphasis added)

If this proposal -- which I haven't seen -- becomes law, I really hope there is no complaining if and when a TPP panel has to interpret it and decide whether or not it requires those additional years of protection.

WTO Panel Report on Argentine “Sanctions” Against Panama Tax Haven

Now here is an interesting panel report that came out Wednesday, Sept. 30.

Can a WTO member (here, Argentina) impose “defensive measures” against countries not sharing tax information (here, Panama)?

The “defensive measures” had to do with capital gains, income tax, transfer pricing rules and rules on capital and re-insurance markets, all of which “sanctioned” non-cooperative countries.

When Panama requested the panel, Panama was on Argentina's list of non-cooperative countries. However, during the proceeding, in 2014, Argentina took Panama off that list, and this even though Panama had not agreed to share tax information …

In the end, the only WTO violation the panel found had to do with how Argentina lists countries. The panel basically faulted Argentina for INCLUDING Panama in the COOPERATIVE country list even though Panama was not actually cooperating (GATS Art. II MFN violation, not justified by GATS Art. XIV or the prudential carve-out, since the listing was not done rationally).

So the small victory scored by Panama is actually grounded in the fact that Argentina “wrongly” put Panama on the “good guys” list. How strange is this?

More systemically: this report says it is ok under WTO rules to take certain “sanctions” against tax havens …

Both the measures and the report are long and complex. But here are some highlights:

1. The panel makes it very easy to bring complaints under GATS, also for tax measures, as soon as they “affect” trade in services, MFN and national treatment claims (Arts. II and XVII) are possible. There is no need to show actual trade flows. (paras. 7.88 & 92)

2. Indeed, the panel found a GATS MFN violation even though it was actually Panama (the complainant itself!) that was (unjustifiably) treated MORE favorably than other WTO members, such as Hong Kong. So basically, any WTO member can complain about any GATS MFN violation by another WTO member, even if the complainant itself is not the one discriminated (indeed, here, it was the complainant, Panama, that was favored!). (para. 7.196).

3. The panel found that in a GATS “likeness” determination (MFN or national treatment (NT)), “other factors” than origin may make products “unlike”. Here, the panel was open to look at differences in “regulatory framework”, namely: does Argentina have access to tax information on certain foreign suppliers and not others? This “regulatory difference” can make services “unlike” (not sure what the AB would think of this …) (paras. 7.166, 173 & 179).

4. Also for “less favorable treatment” (under both MFN and NT), the panel did not stop at a mere finding of detrimental impact on imports (the way the AB did recently in EC – Seal). In the footsteps of TBT case law, the panel was willing to look at “regulatory differences” e.g. is a country sharing tax information with Argentina? These “regulatory differences”, other than origin as such, can avoid a finding of “less favorable treatment” (again, not sure what the AB would think of this …) (paras. 7.235 & 290; 505, 521)

5. The panel gave a broad reading of the “deceptive and fraudulent practices” exception in GATS Art. XIV(c)(i) as well as the prudential carve-out in para. 2(a) of the Annex on Financial Services, the first case ever on those provisions (it maintained an MFN violation finding for all 8 measures at issue but only because Argentina’s listing practice was not rational under the chapeau of XIV and hence not “for” prudential reasons under para. 2(a)).

6. The panel did provide a narrower reading of GATS Art. XVI, market access, finding that for something to be an Art. XVI(2)(a) market access restriction, the measure must regulate the supplier as such, and not merely have an indirect effect of limiting services/suppliers; this puts a brake on further expanding the US – Gambling effects approach. (paras. 7.421, 424, 428)

7. The panel also put brakes on applying GATT Arts. I, III and XI to what remain essentially income tax measures: in its view, Art. XI does not apply to fiscal rules (para. 7.1067); the tax measures here also did not sufficiently relate to importation or exportation for MFN to apply (para. 7.999), nor do transfer pricing rules for direct taxation purposes, for example, sufficiently affect products for III:4 to apply (para. 7.1028).

As I am working on a tax-trade-investment paper in the context of the OECD BEPS project (with a real tax expert colleague at Georgetown law), comments on this case would be much appreciated.

BTW: at para. 2.61, the panel states, matter of factly, that the OECD “FATF Recommendations are recognized as the international standard against money laundering and the financing of terrorism” (the footnote in support, however, is a reference to the FATF recommendations themselves … no discussion of the TBT criteria for something to be an international standard; throughout the panel refers approvingly to the OECD's tax work).

The Policy and Politics of an ISDS Tobacco Carveout

Inside US Trade reports from the TPP negotiations:

The U.S. proposal on tobacco tabled here would give countries the option to prevent tobacco companies from challenging tobacco control measures under investor-state dispute settlement (ISDS), using a concept that already exists under the U.S. investment model called "denial of benefits," according to informed sources.

This concept, contained in Article 17 of the U.S. model bilateral investment treaty (BIT), states that a party "may deny the benefits" of the investment chapter to a company that is owned by an investor from a non-party to the agreement in certain circumstances.

But the U.S. tobacco proposal, which contains three elements, would allow a TPP country to deny the benefit of ISDS to a company that sought to challenge a tobacco control measure, sources said. This denial could be done at any time, including after a company had initiated an ISDS claim regarding a tobacco control measure.

This is made clear from the first element of the U.S. proposal, according to sources familiar with the language. It states that a claim challenging a tobacco control measure shall not be subject to arbitration under ISDS if a party has elected to deny the benefit to that claimant or to all potential claimants with respect to such claims.

If a party has not elected to deny benefits to the claimant or all potential claimants, when there is a submission of a claim to arbitration, they may elect to deny benefits at an appropriate time during the proceedings, the language states.

I haven't seen the actual text, but from this description, this looks like some kind of consent requirement for ISDS cases related to tobacco control measures.  ISDS still exists for such measures, but litigation can only be undertaken if the government allows it.

I've said before that this approach to tobacco issues in ISDS, and trade agreements generally, seems odd to me.  I'd be happy to carve ISDS out of trade agreements (or just apply the tobacco carveout proposal to all measures!), but I can't understand why tobacco would be carved out of ISDS.  Carving tobacco out looks like an acknowledgement that ISDS undermines domestic regulation, but then the solution is to mostly ignore the problem, while trying to address it for just one part (tobacco control) of one category of regulation (public health).  There are only two ISDS cases out there on tobacco measures.  The bulk of any problem with ISDS lies elsewhere.  Tobacco companies are minor users of the system, and are not abusing it.  They are using it exactly as it was designed, and their use of the system is just like that of the hundreds of other companies that are using it.  Any issue with the tobacco related ISDS cases is not about the behavior of the tobacco companies.  It's about the design of the system.  (And that design could be improved in a number of ways, including a carefully drafted general exceptions provision, which would effectively mean that all of the tobacco company claims would fail).

Shifting to the domestic politics of tobacco, in terms of its lobbying strategy, I suppose the public health community probably would prefer to have ISDS out completely.  However, they figure it is unlikely they could get that, so they are instead focusing on something they think they could plausibly get, which is a narrow tobacco carveout. 

I see the logic there, but I'm not sure they are right.  In response to the carveout proposal, there was this:

Tillis & Burr Respond To Administration’s Partisan TPP Tobacco Carve-Out

The Obama Administration has formally proposed tobacco carve-out language in the Trans-Pacific Partnership (TPP), a provision that would single out a specific agricultural product and strip it of rights afforded to all other agricultural products in the trade agreement.
 
“By carving out tobacco from the TPP, the Obama Administration is discriminating against an entire agricultural commodity, setting a dangerous precedent for future trade agreements,” said Senator Tillis. “Congress granted the President trade promotion authority with the mutual understanding his Administration would negotiate trade deals in good faith. It did not vote to give the Administration the freedom to indiscriminately choose when fairness should be applied and when it should be ignored. Trade agreements should not be laboratories for setting partisan policies and picking winners and losers. If any carve-out is ultimately included in the TPP, I will work hard to help defeat its ratification.”
 
“Over the last seven years, this Administration has consistently picked winners and losers by rigging the rules in favor of the organizations and industries they like best,” said Senator Burr. “Agricultural trade is critical to our nation’s economy and every sector of that industry creates jobs across the board.  It is imperative that all of U.S. agriculture is treated fairly.”

It's possible that a tobacco carveout can be worked out among the TPP negotiators. But can it get through Congress?  

Now, if it can't, maybe this is also a win for tobacco control groups -- no TPP is a result they would be happy with.  However, it may only be no TPP for the time being.  What we could end up with is a future TPP negotiated under a different President with no tobacco carveout.  

There are a lot of difficult political calculations to make, with insufficient information about how things will actually play out under each approach.  For me, a broader critique of ISDS seems like a more logical and coherent way to address any problems that exist here. But I admit that I don't know whether it will ever be successful.  I'll keep trying anyway, though.

WTO Complaints About Discrimination Against Other Countries

Todd Tucker has been blogging about the recently circulated Argentina - Financial Services (DS453) panel report (see here, here, and here), based on a claim by Panama against Argentina, and he has some good general background and some exploration of the nuances.  

There's lots to talk about in this case.  I'm going to start with this from the Panel's examination of Panama's GATS MFN claim:

7.189. One of Argentina's principal arguments regarding the "treatment no less favourable" element of Article II:1 of the GATS concerns the status of the complainant as a cooperative country. Argentina argues that Panama has not established a prima facie case that services and service suppliers of non-cooperative countries receive less favourable treatment since Panama enjoys cooperative country status. According to Argentina, this status as a cooperative country means that Panama receives the most favourable treatment.

In other words, with regard to the two categories of treatment (cooperative and non-cooperative countries), Panama is a cooperative country and thus gets the more favorable treatment.  Therefore, Argentina says, Panama's MFN claim should be rejected.

The Panel responded as follows:

7.192. In our view, determining the existence of less favourable treatment does not necessarily imply comparing the treatment given to services and service suppliers of the complaining Member. Although it is true that in most disputes the complaining Member is the Member affected by the allegedly less favourable treatment accorded by the respondent, we recall that in EC – Bananas III the Appellate Body determined that no provision of the DSU contains any requirement on the need for the complainant to have a "legal interest or right", as shown below:

We agree with the Panel that "neither Article 3.3 nor 3.7 of the DSU nor any other provision of the DSU contain any explicit requirement that a Member must have a 'legal interest' as a prerequisite for requesting a panel". We do not accept that the need for a "legal interest" is implied in the DSU or in any other provision of the WTO Agreement. It is true that under Article 4.11 of the DSU, a Member wishing to join in multiple consultations must have "a substantial trade interest", and that under Article 10.2 of the DSU, a third party must have "a substantial interest" in the matter before a panel. But neither of these provisions in the DSU, nor anything else in the WTO Agreement, provides a basis for asserting that parties to the dispute have to meet any similar standard.370

7.193. The Appellate Body also indicated that Members have broad discretion in deciding whether to bring a case against another Member under the DSU and they have to judge whether such action would be fruitful.371

7.194. The Appellate Body's statement in Canada – Autos also appears relevant to us in respect of the comparison required under Article II:1 of the GATS. The Appellate Body held that "[t]he text of Article II:1 requires, in essence, that treatment by one Member of 'services and services suppliers' of any other Member be compared with treatment of 'like' services and service suppliers of 'any other country'".372

However, it's worth noting that things were not quite that simple in this case:

7.195. In the dispute before us, we note that Panama currently has cooperative status. Panama nonetheless indicates that when it requested the establishment of a panel it had the status of a non-cooperative country373 and it was only after the establishment of this Panel that Argentina changed its status to that of a cooperative jurisdiction.374 Taking into account the Appellate Body's case law in EC – Bananas III, we do not consider that that change in Panama's status affects its right to bring a complaint under the DSU. At the same time, we do not consider that we should interfere in the broad discretion enjoyed by Panama to decide whether to bring a complaint against another Member under the DSU and whether such complaint would be fruitful for it.

So Panama currently gets the most favorable treatment, but at the time of the panel request, it was getting the less favorable treatment.

Here's how the Panel concluded:

7.196. Bearing in mind the foregoing, we conclude that the submission of claims under Article II:1 of the GATS does not require that the allegedly less favourable treatment that is the subject of the complaint must refer to the complaining party in this dispute, i.e. Panama.

You wouldn't think there would be too many complaints brought by one country regarding discrimination against other countries, but when they do come up, panels seem unlikely to reject the complaint on the basis that only other countries suffered the harm.