International Economic Law and Policy Blog

NAFTA Nevermind?

Following-up on my earlier post about NAFTA, now there's this from White House spokesman Sean Spicer (from Inside US Trade):

Asked at the White House about a Wall Street Journal report on the draft notice, which was published Wednesday night by Inside U.S. Trade, Spicer noted that U.S. Trade Representative nominee Robert Lighthizer isn't yet confirmed – and added that “There’s nothing in those documents that we’re confirming, or in that report rather, that we’re confirming.”

...

“That is not a statement of administration policy,” he said, adding: “That is not an accurate assessment of where we are at this time. And I think our goal is to get Robert Lighthizer appointed as the next ambassador and U.S. trade representative and then when we have that we will have plenty of updates on where we go with respect to NAFTA and the rest of our trade agreements.”

ADDED:

This is the full Spicer exchange:

Q    Thank you, Sean.  The Wall Street Journal reported this morning that the Trump administration is proposing more modest changes to NAFTA.  Like, for example, they’re leaving the arbitration panel that deals with trade disputes in place, et cetera, et cetera.  Is the White House backing away from some of the more sweeping changes to NAFTA that the President proposed during the campaign?

MR. SPICER:  I would just argue that Robert Lighthizer isn’t even nominated yet.  That is not a statement of administration policy at this point.  There is nothing in those documents that we are confirming -- or in that report, rather, that we are confirming.  That is not a statement of administration policy. That is not an accurate assessment of where we are at this time.

And I think our goal is to get Robert Lighthizer appointed as the next ambassador and U.S. Trade Representative, and then when we have that we will have plenty of updates on where we go with respect to NAFTA and the rest of our trade agreement.

If Trump doesn't withdraw US consent to be sued in international investment tribunals,expect the new protectionism to generate claims for billions from foreign interests

WTO scholar Chad Bown, with the Peterson Institute, has been out in front in raising the specter that some of the policies on the Trump Administration/Republican agenda, in particular the current corporate tax reform plan, could lead to immense trade retaliation under WTO rules.  I'm somewhat less alarmist than they, partly because I take a rather different view of some of the WTO case law, particularly that related to taxes and subsidies. Also, retaliation at too large a scale might harm the very countries undertaking it, if their own prosperity depends on imports from the US such as inputs in manufacturing. Finally,some of the most troubling features of the current plan might be tweaked to respond to concerns of WTO panels and the Appellate Body. 

This said, Bown, from whose scholarship I always learn a great deal, is to be lauded for getting the issue on the table at this early stage. By contrast, I have not seen any analysis of the potential liability of the United States for damages under its many investment treaties with foreign states.  Typically these treaties would allow any firm with a corporate structure or asset in the US that can characterize itself as a foreign investor there to sue for damages if certain norms, such as National Treatment, Fair and Equitable Treatment, or compensation for expropriation are violated. There is no Appellate Body in investor-state dispute settlement, just floating ad hoc international tribunals, disproportionately staffed by arbitrators from Western Europe.  The case law is highly inconsistent, and precedent doesn't apply.  Some of these tribunals have found that there were violations of Fair and Equitable Treatment merely because some policy change in the host country upset a foreign investor's "legitimate" expectations; similarly, tribunals can have a very expansive view of "expropriation", holding (e.g. the Metalclad NAFTA case) that any policy change that has an economic impact on the investment equivalent to a direct taking must be fully compensated. Damages sometimes go in the billions and are enforceable through domestic courts around the world.

President Obama didn't worry about the vulnerability of the United States to suit in these international bodies; he liked to point out to critics that the US had never lost a case.

In that respect, however, the current trade and investment agenda in Washington may be a game-changer.  In a case where I was a consultant to the investor claimant against the United States some years ago (Canfor/Terminal), the investor persuaded an arbitral tribunal that it had jurisdiction under the investor-state provisions of NAFTA to adjudicate on protectionist US measures (the Byrd Amendment) that were impacting negatively the Canadian company's supply chain.    The case didn't go to the merits because there was a new political settlement between Canada and the United States about softwood lumber. 

But the basic point is that where new policies disrupt supply chains of multinational firms operating in the United States in ways that have a negative economic impact on those firms it is not just governments that can take action at the WTO. The investors themselves can sue for damages under investment agreements. ((some foreign investors might benefit from the changes but that doesn't prevent others from suing). In a recent decision I've blogged about here, a tribunal under the NAFTA seemed  to suggest, for instance, that if a change in policy were 'dramatic" or radical or fundamental, there could be liability, either under Fair and Equitable Treatment, or on a regulatory takings theory.  I doubt it would be too difficult to convince two of three arbitrators that the kind of plans being now contemplated, including the tax overhaul, would count as "dramatic" or fundamental.

But if it acts before any such claims are brought, the Trump Administration has a good get out of jail card, and it doesn't involve any withdrawal from an international agreement.  As I've explained in a different context on this blog:  

The inclusion of investor-state arbitration in the treaty as a forum agreed by the states parties [to an investment agreement] does not itself suffice for the forum (say ICSID) requirement of consent, which is an indispensable basis of the tribunal's jurisdiction. Investment agreements such as BITs initially had state-to-state, not investor-state, dispute settlement.  The latter really got going with ICSID, but ICSID was originally designed with investment contracts in mind, where there is a pre-existing agreement between the investor themselves and the state.  So how, on the basis of a treaty between states, to establish the the requisite agreement to arbitrate between the state and any particular investor? The theory is that the specification in the treaty of investor-state arbitration as the forum constitutes, in addition to an obligation between states, a general offer to investors to arbitrate.  That offer is accepted when a particular investor initiates proceedings in the specified arbitral forum.  The offer to arbitrate is a legal effect created by the treaty but separate from the treaty obligations themselves, which are between states.... Since there is no agreement to arbitrate until a particular investor accepts the offer as it were by filing a claim, a declaration withdrawing the offer to arbitrate is perfectly adequate as a unilateral act.  

It is true that other states that are parties to these treaties might claim that a continuing offer to arbitrate is a state-to-state obligation under the agreements.  So the US might have international responsibility to other states if it withdraws its offer to arbitrate.  But that would have to be settled through a state-to-state process that would take years to complete. 

In sum, if it acts before claims are brought, the White House could simply issue an Executive Order requiring the State Department to make a declaration of withdrawal of consent to arbitrate under the agreements in question, and at least one headache in policy reform would go away.  The WTO is quite another matter.

 

Making NAFTA More Like the TPP

Inside US Trade has a copy of the Trump administration's draft notice to Congress "that the President intends to initiate negotiations related to the North American Free Trade Agreement (NAFTA) and its architecture," in which they set out "specific objectives for negotiation."  Not surprisingly, the administration wants to eliminate NAFTA Chapter 19:

Eliminate Chapter 19 dispute settlement of antidumping and countervailing duty determinations in light of U.S. experiences where panels have ignored the appropriate standard of review and applicable law, and where aberrant panel decisions have not been effectively reviewed and corrected. 

More broadly, they seem to want to make NAFTA more like the TPP.  Here are some examples:

Seek to have the NAFTA countries improve upon their WTO TBT commitments and eliminate any unjustified TBT measures.

...

Maintain and seek to improve procedures to resolve disputes between U.S. investors and the NAFTA countries through, among other things, mechanisms to deter the filing of and eliminate frivolous claims; procedures to ensure the efficient selection of arbitrators and the expeditious disposition of claims; and procedures to ensure transparency and public participation in dispute settlement proceedings. 

...

Seek commitments from the NAFTA countries not to impose customs duties on digital products or unjustifiably discriminate among products delivered electronically. 

...

Consistent with U.S. priorities and objectives, seek a commitment by the NAFTA countries to adopt and maintain measures implementing internationally recognized labor rights and effectively enforce their respective labor laws concerning those rights. 

Note the second item there:  Sounds like ISDS is staying in.

There are also some new, potentially big, items in there, relating to U.S. complaints about border adjustment taxes imposed by other countries, Buy America procurement, rules of origin, and "snapback" tariffs:

Seek to level the playing field on tax treatment. 

...

Seek to establish rules that require government procurement to be conducted in a manner that is consistent with U.S. law and the Administration's policy on domestic procurement preferences. 

...

Seek rules of origin that ensure that the Agreement supports production and jobs in the United States, procedures for applying these rules, and provisions to address circumvention that ensure that preferential duty rates under the agreement apply only to goods eligible to receive such treatment, without creating unnecessary obstacles to trade. 

...

Seek a safeguard mechanism to allow a temporary revocation of tariff preferences, if increased imports from NAFTA countries are a substantial cause of serious injury or threat of serious injury to the domestic industry. 

It's very unclear where the NAFTA renegotiation will end up, but at first glance I would say this is more than a tweak, but far from blowing up the system.

The Fourth Man: An Intriguing Sub-Plot in the Yukos Arbitration

The Yukos case is among the most flamboyant investor-state arbitrations (Chevron v. Ecuador a close competitor).  Yukos reads like a paperback thriller-settling of scores between rogue oligarchs and the Putin regime with billions at stake.  Definitely worth a mini-series on HBO or Showtime. Last night at the ISDS answer to the Oscars-the Global Arbitration Review annual awards-a Dutch court snatched the prize for most important decision 2017, a highlight of the black-tie event in a Milan hotel.

The Hague district court judges had set aside the UNCITRAL/Energy Charter Treaty award against Russia. That decision is on appeal in Holland.  And there are proceedings elsewhere.  For instance, the DC Circuit stayed litigation on the arbitral award pending a final outcome in the Netherlands.

Because it invalidated the award on other grounds, the Hague court did not reach an issue of systemic importance; can arbitrators outsource some of their basic functions to juniors or assistants? The Russian Federation claimed that Yves Fortier's assistant turned into a Fourth Man, a covert extra arbitrator who conceived and drafted a large part of the award.  Fortier is one of a handful of so-called Super-Arbitrators who take on a large number of cases and seem to run a kind of arbitration "brand".  The assertions regarding Fortier and his assistant provide a rare window into some of the most debatable aspects of investor-state arbitration as it is currently practiced.

In argument before the Hague court, Jan van den Berg, himself a member of the Super-Arbitrator elite but counsel for the Russian Federation in this particular dispute, pointed to "a dramatic discrepancy in the hours of the Assistant and the hours of the Arbitrators." Van den Berg alleged that Fortier's assistant Valasek "in fact spent his “additional time” of approximately 50% compared to the "average" on tasks that by law are exclusively and personally assigned to the arbitrators, such as deliberating and (re)formulating the decisions and the grounds for it. The unauthorised delegation also becomes clear from the Tribunal's refusal,based on the confidentiality of the Tribunal’s deliberations, to provide a specification of the hours spent by Mr Valasek."

The plot thickens when the plagiarism detective comes on the scene-top linguist Dr. Carole Chaski evaluates the text of the award and comes to the conclusion that "with over 95% certainty, Mr Valasek himself wrote approximately 70% of the three most important chapters."  

So is Mr. Valasek really the Fourth Man and did Fortier betray (as Russia counsel van den Berg would have it) the expectations of the parties about the professional responsibilities he would personally perform?   Van den Berg pointed out astutely there were other individuals who were compensated for providing normal administrative support to the tribunal. So that was not Mr. Valasek's more-than-million-dollar role.

One could pick methodological bones with Dr. Chaski's report (as did an opposing expert). And it's true that judicial clerks have (limited) drafting functions in many legal systems. But hey let's get real: the million dollar bill plus for Valasek cannot but raise serious questions.  Yukos is only one case (admittedly a complex one) and Valesek's invoice is about 10 times the annual salary of a judicial clerk for a US Supreme Court Justice.  Those of us in the US law school world appreciate just what kind of top legal talent the clerks represent.   

In the DC Circuit proceeding, a long-standing friend and colleague of mine, Columbia law professor George Bermann, offered an expert opinion on the issue of Fortier's alleged outsourcing to Valasek. Professor Bermann opined: "It is generally viewed as impermissible for arbitral secretaries to produce even a preliminary draft of substantive portions of an award. This is so, irrespective of the degree of care a tribunal brings to its subsequent review of the draft:"

I would only nuance Professor Bermann's statement in noting that Valasek, as van den Berg indicated, was not even declared or proposed to the parties as the arbitral secretary, but merely as Fortier's assistant who could help out with logistics if he himself were unavailable.  

According to Professor Bermann, "There...exists in international arbitration a powerful consensus that for arbitral secretaries to draft substantive portions of the awards is off limits. The consensus in this respect is especially clear and overwhelming. According to a 20 15 survey of international arbitrators and practitioners conducted by Queen Mary University of London (in conjunction with White & Case LLP) and based on 763 questionnaire responses and 105 in-person interviews, over 87% of survey respondents opposed having arbitral secretaries prepare drafts of substantive parts of the awards or even discuss the merits of the dispute with the arbitrators.[footnote omitted] Similar surveys of international arbitrators decidedly reflect that same consensus."

I'm not entirely persuaded by this kind of evidence because survey responders may have their reasons for not being entirely candid. These kinds of questionnaires don't prove fully that Fortier's practice was that far off the industry norm.  But that isn't to say the industry norm is acceptable from a legitimacy point of view.  

In a different proceeding, where Venezuela sought to disqualify him as an arbitrator (mostly for grave conflict of interest reasons not connected to the Yukos behavior), the issue nevertheless again came up of Fortier's alleged outsourcing in Yukos.  One of the pathologies of investor-state arbitration is that conflict of interest issues are at least in the first instance decided by the challenged arbitrator's professional buddies,the fellow arbitrators.  In the Venezuela case, the other two arbitrators gave Fortier a clean bill of health, and pointed to his response regarding the allegations of van den Berg in Yukos: "Mr. Valasek did not write the tribunal’s reasoning and conclusions of the Yukos awards”.  

An examination of the more than 600-page award reveals that it is impossible to identify any discrete parts or sections of that tome labelled or indicated either as "reasoning" or "conclusions" (although on more than a handful of occasions the tribunal does refer to its "conclusions" in passing). The inevitable inference is that Arbitrator Fortier's statement avoided a precise answer to the question posed to him,or its substance. Arbitrator Fortier used terminology that would not permit one to determine which pages or paragraphs of the award were drafted by him or which by Mr. Valasek (or others).

Will the "who wrote it"  mystery be resolved in the further proceedings?  Hard to say. But the million dollar plus bill for Valasek and some of the concerns raised by van den Berg might ultimately get aired in a different legal context.  Not so long ago, a Spanish court found civil liability for arbitrator misconduct.  Depending on the credibility of the allegations and the legal rules of that jurisdiction, it is possible that Fortier might be subject to a professional misconduct lawsuit in a domestic jurisdiction.        

     

       

It's Brexit Day

BBC has the Article 50 withdrawal notification letter here.  Not surprisingly, it does not tell us much about how the withdrawal talks will go (the UK would like a "deep and special partnership" with the EU).

The substance of the negotiations will become more clear as we move along.  The folks at ECIPE are kicking things off with a seminar that looks at whether CETA offers a model for the EU-UK agreement: 

Is CETA a good model for a future EU-UK trade agreement after Brexit?

Today is the day Theresa May triggers Article 50. This day marks the beginning of a divorce process without precedence in the history of the EU. Contrary to other policy areas trade policy is an area where the EU has a longstanding negotiating experience and different model agreements to revert to. One agreement which could serve as a model agreement for a post-Brexit trade agreement between the EU-27 and the UK is CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada. CETA is the latest and most comprehensive trade agreement signed between the EU and a large, highly-developed economy.

But is CETA really a good model for a future EU-UK trade agreement? Would a CETA-type agreement be suitable for the interests and priorities of the EU-27 and UK? Is CETA an agreement which is deep enough to minimize negative economic impacts on the EU-27 and UK economies? What are lessons learned from the negotiation and conclusion of CETA?

In response to their main question, I would say no.  CETA may offer a few things here and there to help guide the UK-EU talks, but by and large it is not a good model for the UK and EU to follow.  For one thing, it leaves quite a few tariffs in place.  For another, it has a lot of provisions that are completely unnecessary for the UK-EU trade relationship (investment protection, or labor and environment rules).

If I were involved in the UK-EU talks, I wouldn't focus on any single existing trade agreement as a general model.  Rather, I would think about what issues should be covered and in what way, and then look around to see how various other agreements have dealt with them.

Clues About Trump's ISDS Policy

Lots of people are asking about what the Trump administration will do with investment treaties and investment chapters of FTAs.  Will their sovereignty concerns mean they reject ISDS?  Or will their pro-business views mean they support ISDS? This from the LA Times is one of the first reports of White House discussions that I've come across (although don't get too excited because it doesn't answer the question):

Soon after President Trump took office, an executive order was quietly drafted to suspend talks with China on an obscure but potentially far-reaching treaty about bilateral investment.

After eight years and two dozen rounds of negotiations, the treaty terms were almost in final form. Pulling out after so much time and effort would send a clear message that the Trump administration meant to take a new and tougher approach.

But the executive order never even got to the president’s desk. It was quietly shelved, according to sources inside and outside the White House, at the behest of former Goldman Sachs President Gary Cohn, now Trump’s top economic advisor.

Keep in mind, of course, that China is special, and rejecting a U.S.-China BIT would not necessarily mean rejecting ISDS completely.

DS461 is Confusing

Compliance review in the DS461 dispute, Colombia - Textiles, is proceeding in the strangest order I can remember seeing.  Keep in mind that Panama was the complainant and Colombia was the respondent in the underlying dispute. Here's the timeline of the compliance part: 

February 9, 2017: Panama proposes suspension of concessions or other obligations under DSU Article 22.2

February 9, 2017: Colombia requests an Article 21.5 panel

February 20, 2017: Panama blocks the establishment of the Article 21.5 panel and Colombia requests that the proposed suspension be referred to arbitration

February 27, 2017: Colombia requests Article 21.5 consultations (to be held 1, 2 or 3 March -- I assume they were held one of those days)

March 6, 2017: An Article 21.5 panel is established

March 9, 2017: Panama requests its own Article 21.5 consultations.

Keystone XL Part 2: Nebraska

As I mentioned here last week, TransCanada's NAFTA Chapter 11 claim is now over, after the State Department issued a Presidential permit for building the Keystone XL pipeline.  The transcript of President Trump talking about this with TransCanada's CEO is here, and the ICSID web site "notes the discontinuance of the proceeding."

But wait, is it really over?  This is from the transcript: 

THE PRESIDENT:  Well, thank you, Russ.  And I know the voters appreciate this.  Some of them expressed it very, very strongly.  The workers definitely appreciate it.  The building trades’ heads didn’t, but now maybe they’re going to start to.  Where are my building trades guys?  I think they’re going to start to, because other people were not going to be signing this bill.  That I can tell you.  And if it ever did get done, it would be years.  But I don’t think it would have ever gotten done.  

So we put a lot of people to work, a lot of great workers to work, and they did appreciate it.  And they appreciated it, Russ, very much at the polls, as you probably noticed.  And so we’re very happy about it.

So the bottom line -- Keystone finished.  They’re going to start construction when?

MR. GIRLING:  Well, we’ve got some work to do in Nebraska to get our permits there --

THE PRESIDENT:  Nebraska.

MR. GIRLING:  -- so we’re looking forward to working through that local --

THE PRESIDENT:  I’ll call Nebraska.  (Laughter.)  You know why?  Nebraska has a great governor.  They have a great governor.

MR. GIRLING:  We’ve been working there for some time, and I do believe that we’ll get through that process.  But obviously have to engage with local landowners, communities.  So we’ll be reaching out to those over the coming months to get the other necessary permits that we need, and then we’d look forward to start construction.

THE PRESIDENT:  Okay.  I’m sure Nebraska will be good.  Peter is a fantastic governor who’s done a great job, and I’ll call him today.

I assume TransCanada will file a new lawsuit if Nebraska does not grant the necessary permits.  It will be interesting to see how Trump reacts if the federal government is sued based on the actions of Nebraska.

Eli Lilly v Canada: A Pyrrhic Victory Against Big Pharma

It is a well-known story that Big Pharma aggressively uses trade negotiations, political lobbying, and domestic and international litigation (and the threat thereof) to expand the monopoly rents it gains from patent protection, and defeat the effort of states to limit intellectual property rights in the public interest, whether through compulsory licensing, or other means.  There was understandable cheering at the recent news that Eli Lilly's lost its ISDS case against Canada, challenging  the Canadian courts' reading of Canada's own patent laws as an "expropriation" (among other violations of NAFTA).

A close reading of the case, however, shows that the ruling is in fact extremely dangerous for the public interest; Eli Lilly lost it main claim for only one reason, it was not able to establish facts that (on the company's own admission) would be necessary in order to for the claim to be successful.  Rather than closing the door to an interpretation of the law that would allow Big Pharma to sue for "expropriation" where intellectual property norms are altered or reformed for legitimate legal and policy reasons, the tribunal, as will be explained, opened the door even wider. 

Eli Lilly challenged a doctrine that developed in the Canadian courts and in Canadian patent office practice, as an interpretation of Canadian intellectual property law.  Under this doctrine, the assessment of whether the invention has the requisite "utility" to be afforded patent protection is made in reference to the actual claims, implicit or explicit, in the patent applicant's disclosures as to what good the invention is supposed to do; there must be a basis for these claims at the time of filing.  The doctrine in question appears to be little more than a common-sense application of the general requirement of utility to a situation of severe information asymmetries between the applicant and the government decision maker.   The former holds generally speaking the information necessary to evaluate whether the invention for which a patent is requested has utility.  Given these information asymmetries, unless patent applicants were held to their representations of utility and required to provide a basis for them, patent applicants would have a strong incentive to make unsubstantiated or even baseless claims to utility in order to obtain the monopoly rents from a patent.

Now let's look at what the tribunal did (it included Gary Born, who seems to be the arbitrator of convenience for Big Tobacco as well as Big Pharma).  

First of all, in one fell swoop and hardly with any legal reasoning or consideration of international legal authority at all (paragraph 223), the tribunal rejected the important protection for state sovereignty provided in the principle that a state is only responsible internationally for decisions of its courts applying that state's own laws, where a denial of justice has occurred, i.e. a serious miscarriage of justice in the domestic legal system, such as bias, corruption, discrimination, or abject failure of due process or access to justice.   The basic notion here is that it is inappropriate for an international tribunal to be used to appeal beyond a decision of the state's highest court, which should normally be expected to be final.  Thus, a further important protection of state sovereignty in the doctrine of denial of justice is that  a claim for denial of justice itself is not ripe unless the investor has taken its case to the final judicial decision-maker in the state in question.  

But the Eli Lilly tribunal had no qualms about saying that an investor can attack decisions of a country's judiciary about the meaning of its own law even in the absence of denial of justice-thus allowing the investor to do an end run around the requirement of finality (having to seek recourse in the domestic judicial system to the final level of appeal or other relief) by framing the claim as one of a violation of fair and equitable treatment or (even more shocking) one of expropriation.  The sole authority the Eli Lilly tribunal invokes for this proposition is another NAFTA ruling, Mondev.  But if we turn to Mondev, we see that in that case, in fact, the conduct of the host state was characterized as a denial of justice (para.  126) and the tribunal made it clear also (para. 1) that there was no further recourse available to the investor in the US domestic legal system.  Hence, the requirement of finality for denial of justice was met.
Now it is true that in Mondev, the investor's claim was not entirely decided on the basis of denial of justice.  To one part of the claim, concerning immunity of public authorities to suit in Massachusetts, the Mondev tribunal applied the general standard in 1105 of NAFTA (fair and equitable treatment and full protection and security).  But, of course, that part of the claim did not involve sitting in judgment on a US judicial decision; rather, it entailed reviewing a legislated grant of immunity to certain public authorities from certain kinds of litigation.  Using Mondev to open up the door to investors doing an end run around the finality requirement for denial of justice is, at the very minimum, highly tendentious.

But didn't Canada win, after all?  Incredibly, the Eli Lilly tribunal managed to decide the case without articulating any legal standard at all for the meaning of "expropriation" under NAFTA.   The tribunal left the door open for "regulatory takings" arguments that, even where entirely legitimate and publicly interested, changes to regulation nevertheless have to be compensated by the host state merely because they have an economic effect equivalent to a direct taking (Metalclad).  This is a prescription for regulatory chill, obviously. 

Here is how the tribunal magically accomplished this.  Somehow the investor's counsel admitted that, as a factual matter, Eli Lilly's claim depended on establishing that the change to patent regulation allegedly effected by Canada's courts, was "dramatic" or fundamental.  Instead of articulating a legal standard for "expropriation" under NAFTA and then applying that standard to the facts, the Eli Lilly tribunal determined that Eli Lilly had failed in its burden of proof to establish that the change to Canadian patent regulation was dramatic, fundamental or radical, and therefore its claim must be denied.  The tribunal failed to apply whatsoever the law in 1110 of NAFTA (expropriation) in denying the claim of the investor (and hardly did better with respect to the 1105 fair and equitable treatment aspect of the claim).    Even under the very deferential standard applied by the DC Circuit in judicial review of arbitral awards under the New York Convention and related US law, manifest disregard of law or failure to apply the terms of the contract or treaty at all may be a basis for setting aside the award (the seat of this arbitration is DC, so that's what makes the DC Circuit the relevant court; there is a Circuit split of some significance on the manifest disregard of law grounds for challenging an award).

So what is the real message of the Eli Lilly tribunal? They are not coming out and saying it, but they encourage future regulatory takings claims by implication that the concept of "expropriation" under NAFTA might well apply to require a host state compensate an investor even for jurisprudential shifts in the approach of a country's highest courts to that country's law (including its constitution), if that shift can be characterized as dramatic, radical, or fundamental.  It is a matter of the Eli Lilly legal team simply not doing a good enough job proving that the jurisprudential developments in question were dramatic.

On those exceptional but usually very important occasions when high courts reconsider well-established judicial doctrines in the face of social, economic, environmental or other forms of rapid change we experience in the world today they must now beware that any basic or fundamental reorientation of their jurisprudence could force that state's government to pay out millions or even billions to foreign corporations in the guise of an "expropriation" having occurred. Regulatory chill from ISDS is bad enough; but when it comes in a form that makes a nation's highest court choose between its duty as a guardian of the state's legal system (including the revision or reversal of important rulings for compelling reasons) and incurring the state's liability to foreign corporations, the attack is not only on domestic policy space as such but also on the judiciary as the guardian of the law. 

What ICSID Does When a Human Rights Victim Tries to Get Justice There: Victor Pey Casado and the Allende Foundation v Chile

Given my concerns about ISDS and its effects on the policy space of states, sometimes people are surprised to learn that I have consulted to the investor's counsel in a number of these disputes.  The fact is, though, that sometimes the investor happens to be the good guy, and has really suffered treatment at the hands of the state that is grossly abusive and unfair.  But are good guys likely to get justice in ISDS? Sometimes they win-but...   I'm now working on a longer piece on a case that is a remarkable tale of how the insider arbitrator/counsel elite has frustrated for decades the attempt of a victim of the military coup of General Pinochet in Chile to obtain redress for the seizure of his newspaper, which was associated with the prior democratically-elected Allende regime.

 Casado brought his case to an ICSID tribunal first in 1999.Each attempt at recovery for this pretty egregiously illegal expropriation was rebuffed at one stage or another, with some device or other.  At one point the outstanding human rights barrister and now best-selling author Philippe Sands appears to have had his arm twisted to resign from the tribunal.  There was an annulment, with the President of the Annulment Committee being Yves Fortier (the same arbitrator who later in Yukos, expert evidence showed, had his opinion largely ghost-written by a research assistant; Fortier apparently billed the parties $1.7 million for the assistant; the award was set aside by a Dutch court, though on other grounds).   In 2016, finally, after starting a new claim subsequent to the annulment, Casado was granted a Pyrrhic victory.  The tribunal found Chile liable but through tortured and unprincipled reasoning entirely denied Casado's claim for reparations. Naturally, Casado is seeking further remedies under the ICSID Convention.  The claimant also discovered that the law chambers of 2 of the 3 arbitrators in the case (Frank Berman and V.V. Veeder) had been receiving significant business from the Chilean government.  Understandably. Casado requested to ICSID that Berman and Veeder be disqualified from the tribunal for purposes of the rectification proceedings.  

On February 21, 2017, ICSID denied the request for disqualification.  The sole grounds was that the claimant should have known from reading the news media that Essex Chambers was representing Chile in other matters, and that the request of disqualification was not timely.

End of story?  Not exactly. Two days later, the claimant filed a further submission to ICSID, presenting evidence that Veeder had lied during the disqualification proceedings.   The claimant had deposed Veeder regarding his behavior in a previous case where he had failed to disclose a conflict of interest. Veeder replied that he only became aware of the conflict once the case was at the hearing phase, at which point he promptly resigned.  (The conflict was this: one of the counsel for the claimant was also Veeder's co-counsel in another case at the same time-you get it, what an incestuous little world!).  According to documents cited in Casado's submission, the Tribunal was, however, informed and aware of the conflict  around 2 weeks before the hearing  and it had already become a concern for Veeder's fellow arbitrators.  

Will ICSID eventually give Casado justice, assuming that documentary evidence has indeed now exposed Veeder as a liar? I'm skeptical (and we don't yet know what Veeder's reply is to these allegations). But a positive development in another case suggests a different avenue may be possible for holding arbitrators accountable for unethical conduct.  In the Puma decision, which happened coincidentally almost the same day as this last episode in the Casado claim, the Spanish Supreme Court awarded damages to the plaintiff in a tort suit against two of the arbitrators; these arbitrators had apparently excluded their colleague, the third arbitrator, from key deliberations (the arbitration in question was a commercial arbitration not investor-state).   Often domestic jurisdictions provide arbitrators with immunity from tort liability with respect to their decision-making, but the immunity provisions in question also may make exceptions in cases of bad faith or grossly negligent or irresponsible conduct.  Casado, who hails from Spain, may yet get justice in some forum, and perhaps the high court of his native country has paved the way.       

President Trump on ISDS (Sort Of)

OK, not really on ISDS, but touching on ISDS to a very slight degree. Here's what he said a couple days ago:

I’ve cleared the way for the Dakota Access and Keystone XL pipelines -- and added a requirement that American pipelines be constructed with American steel.  That was the last minute.  I said, where are we getting the steel?  I won't tell you where, but you can guess.  I said, from now on we have to go -- we have to build them here.  You want to put pipelines under our land you're going to make the pipe in this country.  (Applause.)  

And one other thing happened.  I have to tell you, it's sort of interesting.  So I get a call from the ex-president of Goldman Sachs who now works for -- Gary Cohn.  I said to him, Gary, let me ask you -- I heard there was a lawsuit.  I hear the pipeline company is suing us.  I said, how much?  $14 billion.  I said, wait a minute.  I'm approving the pipeline and they’re suing us for $14 billion, and I've already approved it, right?  I said, I just heard it.  Go back to them and tell them if they don't drop the suit immediately we are going to terminate the deal.  You have great -- you know, being President gives you great power, right?  (Laughter.)  So I just saw him this morning -- I said, by the way, how did you do?  He said, sir, they dropped the suit.  Good.

First off, last I heard, Keystone would not be required to use American steel.  (Although who knows where this will end up.)  The press report at the link seems to be from March 2.

Second, press reports (and the ICSID web site) suggest the lawsuit was suspended, not dropped. The press reports are from February 28, and the ICSID site talks about an agreement to suspend dated February 27.

But anyway, the suggestion here is that the Trump administration called TransCanada and told them to drop the case or the pipeline would not get approval.  However, looking at the dates mentioned above, I wonder if it is possible that TransCanada agreed to suspend the lawsuit in exchange for an exemption from any domestic steel requirement.  That's all just speculation, of course. I'll leave the investigative journalism to those who know how to do that sort of thing.

UPDATE: This is from the Financial Times:  "The company said in a statement on Friday that the US State Department had signed and issued a presidential permit authorising the pipeline’s construction, which TransCanada said was an important piece of its US growth portfolio.

TransCanada said that it would continue to work with stakeholders in several individual states — Nebraska, Montana and South Dakota — to get the required permits and approvals to advance the pipeline’s construction. As a result of getting the presidential permit, the company said it would drop two legal challenges stemming from the prior administration’s rejection of the project."

This is from TransCanada:

TransCanada Corporation (TSX:TRP) (NYSE:TRP) (TransCanada) today announced that the U.S. Department of State has signed and issued a Presidential Permit to construct the Keystone XL Pipeline.

...

In conjunction, TransCanada has discontinued its claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) and will end its U.S. Constitutional challenge.

And this is from the State Department:

The Under Secretary of State for Political Affairs has issued a Presidential permit to TransCanada Keystone Pipeline, L.P. (“TransCanada”) authorizing TransCanada to construct, connect, operate, and maintain pipeline facilities at the U.S.-Canadian border in Phillips County, Montana for the importation of crude oil.

Event on Socio-Legal Methodologies at the University of Warwick

From the Centre for Law, Regulation and Governance of the Global Economy (GLOBE) at the University of Warwick:

On Tuesday, 16 May 2017, the Centre for Law, Regulation and Governance of the Global Economy (GLOBE) at the University of Warwick, as part of the International Economic Law in Context Seminar Series, will host a public event on Socio-Legal Methodologies. The event will consist of a panel discussion followed by a workshop for early career researchers to discuss their own research ideas with the panelists.

For more details, visit the event page here. 

 

Description:

A prominent feature in international legal scholarship over the past two decades has been the transformation of international economic law (IEL) from a subset of public international law into a multi-layered, highly specialised field of academic study and legal practice. Traditional, formalist legal methodologies have been challenged by the expansion and growing complexity of international economic law as a field of study. This event aims to explore how different methodological and conceptual approaches to the study of international economic law can enhance understanding of IEL’s increasingly complex landscape. Drawing on their own research experiences in the fields of international investment law, trade law and financial law, our speakers will reflect on how socio-legal and contextual approaches are contributing towards framing and understanding their domains of study. They will go on to explore how such approaches can provide vital methodological frameworks for the future development of scholarship on international economic law and its relationship to broader debates about globalisation.

Should the U.S. Have a Model Trade Agreement?

This is from Secretary of Commerce Wilbur Ross at his confirmation hearing (sorry about the all caps -- that's how it was at the link and I don't feel like retyping it):

BUT I WOULD HOPE THAT IF CONFIRMED I CAN CONTRIBUTE TOWARD DESIGNING KIND OF A MODEL TRADE AGREEMENT WHERE WE WOULD INTRODUCE INTO IT CERTAIN PRINCIPLES THAT WOULD HAVE TO BE IN ANY AGREEMENT. I THINK IT'S A HUGE MISTAKE TO START OUT EACH TIME WITH KIND OF A BLANK PAGE FROM GROUND ZERO. MAKES IT TAKE LONGER. MAKES IT HARDER TO NEGOTIATE. THE BEST NEGOTIATING TOOL IS TO BE ABLE TO TELL SOMEONE I CAN'T CHANGE THIS, THIS IS OFFICIAL POLICY, YOU KNOW IT IS, WE GOT IT IN TEN OTHER DEALS, WE'RE NOT GOING TO GIVE YOU ANYTHING DIFFERENT. THAT'S A MUCH BETTER POSITION IN MY OPINION THAN STARTING OUT WITH A BLANK SLATE.

Obviously, the U.S. does not negotiate its trade deals from a blank slate, but nevertheless I'm curious about the idea of putting together a model trade agreement.  Is it worth the effort?  Or do our past trade agreements already serve as a model?  Is the Trump administration really going to spend time on this?

Lighthizer's Responses to Senate Questions

Here are a few answers from USTR nominee Robert Lighthizer to written questions from Senators (via Inside US Trade):

The European Union is the top export markets for the United States. At the same time, U.S. businesses and farmers face significant barriers to the EU market. The Obama Administration had launched TTIP negotiations with the EU to those barriers our exporters - where I believe we could be even more successful. Do you support continuing those negotiations? What alternative would you suggest to address trade barriers in the EU?

Answer: I agree with you about the importance of the EU as an export market for the United States. I understand that the T-TIP negotiations sought to reduce or eliminate barriers to U.S. exports in the EU, and that, while the United States made progress toward that goal, a number of difficult issues could not be resolved. I would look forward, if I am confirmed, to consulting with you and with other members of the Committee on whether, when, and how to proceed with a trade agreement with Europe. It is our impression, though, that upcoming elections in France, Germany, and other EU member states will, in any case, make it difficult for the EU to resume comprehensive trade negotiations until at least the end of this year. In the meantime, we would be open to exploring ways to address barriers to U.S. exports and to expand trade with the EU and its member states. As I said during my confirmation hearing, we also want to look for opportunities to strengthen cooperation with the European Commission and with EU member state governments on global trade issues of common concern, including the noneconomic expansion of production capacity around the world in critical sectors such as steel, aluminum and solar panels.

...

When Secretary Mnuchin was before this Committee for his confirmation hearing, he indicated that the outcomes in TPP would be a starting point for a NAFTA renegotiation. Do you share that view? Are the benefits in TPP a floor for what the Administration should seek to achieve in the new negotiations it contemplates with Canada and Mexico? What specific improvements over TPP do you think the Administration seek in any NAFTA renegotiation discussions?

Answer: I believe that in negotiating a new trade agreement we should learn from, and build on, earlier negotiated trade agreements. In the case of NAFTA and TPP, there is much in TPP that goes well beyond NAFTA. So, in a renegotiation of NAFTA, we should consider incorporating those provisions as well as improving areas where we may be able to go beyond TPP. In determining what those areas are and what to prioritize, I look forward to working with you, other Members of Congress, and stakeholders.

...

Canadian subsidies to softwood lumber have been a top concern for me for years and are the subject of new trade cases before Commerce and the International Trade Commission. Canada has in the past used special procedures included in Chapter 19 of NAFTA to force U.S. trade agencies to weaken trade remedies decisions on softwood lumber. The Trump Administration seems to want to renegotiate NAFTA, but have also suggested that they merely intend to “tweak” the agreement as to Canada. What are your views on NAFTA Chapter 19? If confirmed, and if the Administration initiates negotiations with Canada with respect to NAFTA, will you commit to working to address longstanding concerns with Chapter 19?

Answer: The review of disputes pursuant to trade remedy laws contained in Chapter 19 of NAFTA is an area that has raised concerns among Members of Congress and U.S. industry. Should I be confirmed, I certainly would want to work with you and U.S. industry regarding your concerns on Chapter 19.

...

The President has stated it is a priority to negotiate bilateral free trade agreements. One of America’s greatest allies is the United Kingdom, and the UK is also one of North Carolina’s top trading partners. There are many benefits to be had for North Carolina farmers, businesses, and workers by further increasing trade with the UK. As soon as possible, will you make negotiating a free trade agreement with the UK a priority?

Answer: I appreciate your highlighting that North Carolina, like many other states, enjoys a substantial trade relationship with the UK. As you know, until the UK leaves the EU it cannot sign a comprehensive trade agreement and may be limited in the extent to which it can formally conduct trade negotiations. When UK Prime Minister May visited in January, however, she and President Trump expressed an interest in pursuing discussions on how to deepen bilateral trade. If confirmed, I look forward to working with Congress and other stakeholders on our future trade relation with the UK after it withdraws from the EU.

As far as I can tell, just about everything related to the direction of Trump's trade policy is still an open question.

What To Make of the G20?

This is from the FT:

Finance ministers from the world’s biggest economies have dropped pledges to renounce protectionism in a meeting marked by tension over trade between the US and others including China.

G20 finance ministers meeting in the German resort town of Baden-Baden noted the importance of trade to the global economy, but dropped tougher language from last year that vowed to “resist all forms of protectionism”.

The new communique said: “We are working to strengthen the contribution of trade to our economies. We will strive to reduce excessive global imbalances, promote greater inclusiveness and fairness and reduce inequality in our pursuit of economic growth.”

The watered-down commitments on free trade reflected the anti-globalisation mood that Donald Trump has brought to Washington and came in the first G20 meetings between Steven Mnuchin, the new US Treasury secretary, and his foreign counterparts.

Is this a sign of the economic nationalist policies that will be coming from the Trump administration?  Or is it a harmless way for the administration to express economic nationalist sentiments, without actually doing economic nationalist things? 

I don't remember being all that reassured by the past language, and therefore my instinct is that I shouldn't worry too much about the new language.

Trade Deficits vs. Imports

This is also from Todd Tucker's report:

... The U.S. trade deficits with Mexico and China went up after trade deals were finalized with both countries. Summarizing the research that uses such deficit-based measures (and attempting to control for trade displacement he believes would have happened anyway as Mexico and China industrialized), economist Brad DeLong has estimated that NAFTA cost about 116,400 jobs, and China's WTO accession cost around 300,000 jobs. ...

I am genuinely confused about this: For those of you who argue that trade causes job losses, are you saying that imports cause job losses, or are you saying that trade deficits (bilateral or overall) cause job losses?

I've argued about this with people on twitter, and I still don't understand what they are saying.

Are Tariffs Low?

This is from the Todd Tucker progressive trade policy vision that I mentioned in the last post:

... The benefits of international cooperation on fighting tax evasion, monopoly power, unstable financial markets, climate change, and macroeconomic imbalances from misaligned currencies far outstrip even the most optimistic projections for agreements like the TPP. In a policy environment where tariffs are low, the gains from further tariff liberalization are limited. ...

...

Since World War II, governments around the world have worked to construct frameworks for international cooperation around trade—with mixed success. This agenda started off with a focus on tariff reduction, which has been enormously successful. According to the World Trade Organization (WTO), average tariffs were between 20 and 30 percent at the end of the war, and down to 4 percent by 2009. ...

I think this description of tariffs is misleading.  For a full picture of current tariff levels, check out the World Tariff Profiles annual report.  Scroll through by sector (agriculture is always fun) and country, and you will see that there are lots of really high tariffs out there, and there are substantial gains to be realized from reducing them.

So, I question Todd's argument that "the gains from further tariff liberalization are limited."  I understand that tariffs can be a boring issue for both lawyers and economists.  There aren't many interesting theoretical issues there.  But good policy doesn't always have to be exciting.

What Is the Progressive Vision for Trade Policy?

Progressives might disagree among themselves on what they want out of trade policy, but the vision of one particular progressive, long-time friend of this blog Todd Tucker, is here.

First, let me say that I love the title of his report: "The Sustainable Equitable Trade Doctrine: Building Progressive International Cooperation to Counter Right-Wing Economic Authoritarianism." That is some beautiful framing of the issue for people on the left!  The positive words are "sustainable," "equitable," "build," "progressive," "international," and "cooperation," and can be contrasted with the negative words "right-wing" and "authoritarianism," which needs to be "countered." Masterful spin!

In terms of the content, it may take me a few days to read the whole thing, but for now I'll just quote the recommendations of the report, which I disagree almost completely with:

1. Cooperate internationally on bigger-ticket items than tariff reductions. The benefits of international cooperation on fighting tax evasion, monopoly power, unstable financial markets, climate change, and macroeconomic imbalances from misaligned currencies far outstrip even the most optimistic projections for agreements like the TPP. In a policy environment where tariffs are low, the gains from further tariff liberalization are limited. This report makes detailed recommendations on changes to international trade agreements and domestic law that will focus foreign policy on the highest-value targets, not the meager and divisive.

2. Launch an Equitable Investment Act, Equitable Investment Convention, and Equitable Recognition Act to open up trade agreements and international litigation to broader societal interests. Currently, investors have litigation rights in trade deals that other groups (such as unions, environmentalists, and domestic investors) don't have. By putting all groups on a level playing field—and fixing how pact violations are remedied so as to ward off rent-seeking and speculation—global economic governance will gain legitimacy and defenders.

3. Appoint a Special Advisor for Equitable Trade and Globalization to reorganize government and treatymaking. The next generation of global economic governance needs to be much more inclusive. A new trade policymaking agency should be tasked with a much broader mission than simply signing new trade deals. Government statistical agencies must radically upgrade data collection to better understand the impact of trade on working people. And rather than engage in costly country-by-country negotiations, upgrades to treaties should be pursued on a unilateral or multilateral level to maximize the diffusion of progressive rules and rulemaking. Renegotiation of particular deals like the three-country NAFTA is only worth the time if the new deals can be joined easily by large numbers of countries committed to a refashioned agenda.

4. Enact a Sustainable Jobs Industrial Policy. While the new administration has pushed "Buy American, Hire American" rhetoric, it has done nothing to ensure that whatever rents are generated by this approach “trickle down” to workers. A smart industrial policy would focus benefits on firms that have the best labor practices, utilize production processes that require close collaboration between line-workers and designers, and make products that will be of ongoing importance to a green economy.

5. Establish a Trade Reparations Commission. For decades, policymakers have subjected U.S. workers to grinding competition with low-wage workers with no adjustment assistance anywhere near scale. However, 30 years in, unwinding supply chains and cancelling trade agreements is likely to do more harm than good. Instead, policymakers should admit their approach was flawed, but focus on building prosperity for the future by making financial reparations for the harm caused.

At first glance, this seems like an attempt to move trade policy away from liberalization and open markets, and towards a variety of government interventions.  As you might guess, I have a number of objections.

First, there are plenty of tariffs left, and there would be great economic value in getting rid of them. Tariffs primarily benefit the wealthy and special interests at the expense of the poor and middle class, so it surprises me when people who call themselves progressives say they want to ignore tariffs and move on to other things.

Second, I doubt that international cooperation will accomplish much in the areas where he wants to use it (and, it seems to me, international initiatives can be used as a way to avoid taking domestic action), but beyond that it seems like Todd is mostly trying to make trade policy into a vehicle for issues other than what we normally think of as trade policy.

Finally, with regard to reparations, how about some reparations for the extra costs everyone has been paying all these years to the special interests that lobby for protection from competition with foreigners?

Having said all that, I will try to read the whole thing at some point, and see if I can come up with comments that are more constructive and less snarky.

UK Trade Options Beyond 2019

The UK Parliament International Trade Committee has issued a report on "UK Trade Options Beyond 2019."  There are lots of interesting items in there. Here is the section on dispute rules in a UK-EU FTA:

Dispute resolution

95.A key consideration regarding the terms of a UK-EU FTA is the form of dispute-resolution procedure that will apply. In respect of financial services, Mr Browne told us:

It is completely normal in trade agreements to have dispute resolution mechanisms […] [Y]ou can start off with the current regime, but in order to be dynamic and future-proofed against changes on either side you need some sort of dispute resolution mechanism that both sides accept.130

96.The UKTPO told us in written evidence that:

an EU-UK agreement might have its own dispute settlement or mutual recognition body that eased the continuation of existing standard setting procedures for food and other products.131

97.As we have noted, a key “red line” of the Government in negotiating Brexit is for the UK no longer to be within the jurisdiction of the ECJ. The Prime Minister’s Lancaster House speech clearly ruled out the form of dispute resolution that applies to non-EU EEA members (involving another supranational court which has a collateral relationship with the ECJ).132 This, she said: “would mean accepting a role for the European Court of Justice that would see it still having direct legal authority in our country”.133

98.As we have also noted, the Prime Minister said in her Conservative Party conference speech that Brexit will mean Britain no longer has laws made in Brussels and interpreted by judges in Luxembourg.134 However, as we heard in evidence, entering into any form of international dispute-resolution mechanism inevitably entails relinquishing an element of sovereignty. Dr Ortino of King’s College London told us “in theory, there is no difference” between the ECJ and any other dispute-resolution body: “Whether it is a panel decision or an appellate body decision or any other decision of an international tribunal, it may have the effect of telling a country that that certain behaviour is not complying with a specific international obligation”.135

99.The Brexit White Paper states that:

The UK already has a number of dispute resolution mechanisms in its international arrangements. The same is true for the EU. Unlike decisions made by the [ECJ], dispute resolution in these agreements does not have direct effect in UK law.

As with any wide-ranging agreement between states, the UK will seek to agree a new approach to interpretation and dispute resolution with the EU.

[…]

The actual form of dispute resolution in a future relationship with the EU will be a matter for negotiations between the UK and the EU, and we should not be constrained by precedent. Different dispute resolution mechanisms could apply to different agreements, depending on how the new relationship with the EU is structured.136

100.Dr Fox told us in evidence that:

All the EU FTAs have dispute resolution mechanisms that lie outside the ECJ. All the current EU FTAs tend to have bespoke agreements, depending on the agreement they […] and I think that that would be a good model going forward for a potential EU FTA […]137

101.This leaves open a wide range of possibilities. Notably, it remains unclear whether any possible dispute-resolution mechanism could involve provision for foreign investment protection, such that companies could sue states in an international tribunal for alleged discriminatory practices. As we heard in evidence, the inclusion of such investment protection arrangements (in the form of the Investor-State Dispute Settlement system and the Investment Court System) in FTAs has proved highly controversial.138

I would be surprised if a UK-EU FTA had anything other than the typical state-state dispute process used in most FTAs. It seems to me that this kind of process has the balance between economic integration and national sovereignty that most Brexiteers are looking for.  (The only reason I can think of to include ISDS would be as a poison pill to undermine the negotiations.)

Call for Papers-- Rethinking Free Trade: Liberal International Economic Order in the Wake of Brexit and Trump

The Institute of European and American Studies (IEAS), Academia Sinica intends to organize an international conference on 15-16 (Wed-Thu) November, 2017 in Taipei, Taiwan. The potential topics include, but are not limited to, the following issues:

• The shift from embedded liberalism to neoliberalism and its critique
• The future of mega-FTAs in the wake of Trump and Brexit: Free and Freer Trade and the role of China
• Trump’s trade policy and the end of the WTO?
• Populism and economic integration and trade liberalization
• Social impact/consequences of economic integration and trade liberalization

The organizer welcomes lawyers, political scientists, and sociologists submit an abstract of less than 500 words outlining the main arguments, supported with a short CV of two pages or less indicating the author’s affiliation, contact, and relevant publications before May 1, 2017 Interdisciplinary works are particularly encouraged.

For more details see the full call for papers here.

Celebrating Venezuela's Annulment Victory Over Exxon as a "Progressive" ruling? Hold The Champagne and Read This First

An ICSID Annulment Committee's decision to reduce the damages to be paid to Exxon (Mobil) by $1.4 billion seems like a cause for celebration-a victory of economic sovereignty over Big Oil.  But as gifts to economic justice go, this one is a Trojan horse indeed.  

Now there can be no doubt that the original decision annulled was utterly outrageous.  There was a negotiated cap on liability in an agreement between the investors and  the Venezuela state entity in question.  The tribunal of first instance allowed the investor to circumvent a proper contractual settlement of the dispute through some of the typical techniques that arbitrators use to enrich themselves through hearing cases that are, fundamentally, an abuse of process.  In this instance, the tribunal held that customary international law principles of just compensation overrode the contractual cap.

It was sufficient to annul the decision to find that the contract defined and circumscribed the protected value of the investment and that in fact it was thus crucial for determining what would be just compensation under custom, i.e. what was the value to be compensated; by not applying the law of contract in conjunction with custom, the tribunal failed to apply the applicable law, an annulable error.  Now the Annulment Committee did seem to accept this pivotal and ironclad argument, made by Venezuela.

However, the tribunal went on to make a finding not required to annul based on the reasoning just discussed. The additional finding is summarized by the tribunal as follows:  "The Tribunal manifestly exceeded its powers to the extent that it held that general international law, and specifically customary international law, regulated the determination and assessment of the compensation due to the Mobil Parties for the expropriation of their investment in the Cerro Negro Project, in place of the application of the provisions of the BIT".

The treaty itself in this case referred to the applicability of general international law principles.  The Annulment Committee assumed that this was a reference to "general principles of law of civilized nations" in the ICJ Statute.(Paragraph 159)  That is a completely strained and unreasonable reading of the phrase "general international law principles".  The principles referred to in the treaty are principles of international law, which may be derived from any source in the ICJ statute; in the case of the ICJ Statute, "general principles of civilized nations " are principles of municipal law that are one of several sources of international law.

So why would the tribunal have made an unnecessary and illogical jurisprudential move to suggest that the tribunal below had no jurisdiction to apply custom at all, having already come to the correct result from its understanding of the tribunal's annulable error in not applying the liability cap in the contract to determine what is required by custom? 

The answer to this question may lie in another recent award of an ICSID tribunal, Urbaser v. Argentina. In that decision, which is indeed an unusually progressive one, and owes much I reckon to the presence on the tribunal of the superb international legal scholar Campbell McLachlan, a counter-claim by Argentina on human rights grounds was allowed;ultimately the claim failed due to the the tribunal's (problematic-a subject for a future post) interpretation of the human rights obligations in question.  But in allowing in principle the human rights counter claim, the  Urbaser v. Argentina tribunal relied on a provision in the treaty that makes general international law principles part of the applicable law, as was the case with the treaty in the Exxon (Mobil) v. Venezuela case just discussed.  The Urbaser tribunal found: "As far as recourse to the “general principles of international law” is concerned, such reference would be meaningless if the position would be retained that the BIT is to be construed as an isolated set of rules of international law for the sole purpose of protecting investments through rights exclusively granted to investors." (paragraph 1189) Unlike the Exxon (Mobil) Annulment Committee, the Urbaser tribunal understood correctly the meaning of "general principles of international law"; there was no mangling of the wording here to reduce the notion to principles from municipal law systems. General principles included, for sure, even conventional human rights obligations.

So the Exxon tribunal, while doing the right thing as far as the result, went out of its way to put a poison pill for human rights in its award.  If other tribunals followed the utterly unwarranted meaning attributed to "general principles of international law" by the Exxon tribunal, claims, counter-claims or even defenses based on international human rights or environmental or labor law, could be easily thrown out. Assuming Urbaser created any progressive momentum in a system without real stare decisis and dominated by the arbitrator/counsel clique, this momentum could be stopped dead in its tracks.

The chair of the Annulment Committee, I note, was Frank Berman of Essex Chambers; the role of the Chambers in working for Chile to frustrate the effort in England to bring General Pinochet to justice for crimes against humanity/gross human rights violations is sketched in this litigation document.   Berman and his Essex buddy V.V. Veeder are arbitrators who are (understandably) being challenged for conflict of interest/bias in another ICSID case I've blogged about here: Casado and Allende Foundation v. Chile, which has serious human rights implications. In that case, the investor claimant owned a newspaper that was seized by the junta in the military coup that brought Colonel Pinochet to power-the very same Pinochet whom Berman's and Veeder's Essex Chambers had sought to protect from human rights accountability. Small world!       

China to lead the TPP?

On Friday, the Chinese Ministry of Foreign Affairs announced that China will be joining the meeting of the TPP countries next week. Since then, the Chinese internet has been filled with speculations that China will replace the US as the leader of the TPP. I do not think this is likely for two reasons: 1, China has reservations on many of the rules in the TPP; 2, several of the existing TPP members might not be very keen to bring China in. The more likely scenario, I think, is that China try to expand through the RCEP. Nonethless, it would be interesting to watch how things develop next week. 

A Short Cut To Pulling Out of Investor-State Arbitration Under Treaties:Just Say No

Spring break is upon us at NYU and I'm making a big push to finish an essay on the design of a multilateral investment court along the lines of the initiative that Canada and the EU are now undertaking.  One of the big transitional issues is this:  since investor-state arbitration is likely to be indicated in many of a state's existing investment agreements, how to switch to the multilateral court as the exclusive forum for disputes under these treaties without the cumbersome exercise of modifying each one?   A possible answer to this is that the multilateral instrument establishing the court would be a treaty later in time and thus, under the conflicts rules of the Vienna Convention on the Law of Treaties, would prevail over the prior investment agreements.  

While this is surely logical, I am not certain that it is a fully adequate solution.  To explain why involves delving into some rather dense international legal theory, at least for a paragraph or two.  Bear with me.  

There are treaty regimes to which a dispute settlement process is internal, such as the WTO legal system.  In such regimes, the consent of the parties to the treaty to submit themselves to the tribunal is established by treaty regime and is an intrinsic element of their overall agreement. Investment agreements are not really like that as far as arbitration goes. Arbitration takes place in a forum outside the treaty regime and, fundamentally, must be based on agreement between the parties to the arbitration-the state and the investor. The treaty is an agreement between states; it does not constitute an agreement between states and investors.  As this UNCTAD manual explains, The inclusion of investor-state arbitration in the treaty as a forum agreed by the states parties does not itself suffice for the forum (say ICSID) requirement of consent, which is an indispensable basis of the tribunal's jurisdiction.

Investment agreements such as BITs initially had state-to-state, not investor-state, dispute settlement.  The latter really got going with ICSID, but ICSID was originally designed with investment contracts in mind, where there is a pre-existing agreement between the investor themselves and the state.  So how, on the basis of a treaty between states, to establish the the requisite agreement to arbitrate between the state and any particular investor? The theory is that the specification in the treaty of investor-state arbitration as the forum constitutes, in addition to an obligation between states, a general offer to investors to arbitrate.  That offer is accepted when a particular investor initiates proceedings in the specified arbitral forum.  The offer to arbitrate is a legal effect created by the treaty but separate from the treaty obligations themselves, which are between states.  

Now let's circle back to my opening question.  It is less than entirely certain that the status of the instrument creating a multilateral court as a treaty later in time, within the meaning of the Vienna Convention, would per se cancel the legal effect of the prior treaty in terms of the offer to the the investor to arbitrate. This is an offer to investors, not an obligation between states.  Thus the theory of conflict of obligations under different treaties doesn't necessarily apply to it.  

But there is a rather straightforward solution.  In transitioning to the multilateral investment court, in addition (obviously) to acceding to the treaty instrument that establishes the court, states also should issue declarations withdrawing their offer to arbitrate under existing investment agreements.  Since there is no agreement to arbitrate until a particular investor accepts the offer as it were by filing a claim, a declaration withdrawing the offer to arbitrate is perfectly adequate as a unilateral act (though obviously in all instances where an investor had already filed, one could only transfer the case to the multilateral court with the investor's consent).

Now let's take the following situation.  State A and State B have an existing investment agreement, which stipulates the forum of investor-state arbitration.  But only state A wishes to replace investor-state arbitration with the multilateral court as the exclusive forum.  While State A's declaration withdrawing the offer to arbitrate suffices to block any further claims by investors of state B in arbitration fora such as ICSID, State B may argue that state A is under an obligation to B in the treaty to continue to offer arbitration to State B's investors. In other words the provisions of the treaty on dispute settlement constitute not only an offer to investors to arbitrate but a state-to-state obligation to make the offer. Thus, in this situation, we might be back to the need for State A to negotiate with State B an amendment to the treaty, on the threat that if that amendment is not agreed to, then State A will denounce the treaty with B.   In practical terms, there is likely to be some pressure on State B to go along, if it wishes to continue in treaty relations with State A.  Also, as noted, State B's investors have no recourse against the withdrawal of an offer, because an offer can always be withdrawn before it is accepted.  So if State B thinks that the withdrawal of the offer to arbitrate breaches the treaty, well, it can always try and pursue that claim in state-to-state dispute settlement.  

But there is good news in all this complexity, even if it makes getting to multilateralism a little trickier than what at first sight appears to be the case.  And the good news is that a state that is party to an investment agreement always has a sure means of shutting down future claims by investors if it needs to do that quickly, without renegotiating the treaty.  Just withdraw consent to arbitrate, and no future claims are possible.  Then worry about state-to-state dispute settlement concerning a breach of the treaty.  That is likely to take years, with what remedy highly uncertain, leaving plenty of time to renegotiate, or if need be, denounce the treaty.          

Negotiating Trade with China

This is from CTV:

The [Canadian] federal government is launching consultations on a potential free trade agreement with China.

Prime Minister Justin Trudeau and Chinese Premier Li Keqiang announced the beginning of exploratory discussions in September.

Now the government says it is seeking input from individuals, businesses, civil society organizations, labour unions, academics, indigenous groups and provincial and territorial governments.

A Canada Gazette notice has more:

On September 22, 2016, Prime Minister Justin Trudeau and Chinese Premier Li Keqiang announced that Canada and China had launched exploratory discussions for a possible Canada–China Free Trade Agreement ...

Parallel to the exploratory discussions, the Government of Canada is seeking the views of Canadians on how to best proceed regarding a possible Free Trade Agreement (FTA). This would include how to best improve market access and legal certainty and transparency for Canadian business, but also to understand any other related issues and concerns that are relevant when considering a possible FTA.

The Government is soliciting views from businesses, civil society organizations, labour unions, academia, individual Canadians, Indigenous groups, and provincial and territorial governments on objectives, key interests and potential concerns, which will help outline the parameters of a potential initiative.

If Canada can negotiate a trade agreement with China, could the U.S. negotiate one as well?  Before you tell me all the reasons this can't be done, give me a few weeks to finish a paper I'm working on with a colleague explaining why it should be done.

John Bolton on the DSU

Here is former UN Ambassador John Bolton writing about the DSU in the WSJ:

Agreed to during the Uruguay Round of world trade talks in 1994, the DSU has had some successes. But it is often criticized for failing to deter violations of the WTO’s substantive trade provisions and for too often exceeding its mandate by imposing new obligations on one or more parties, particularly against American interests.

This alarming trend extends beyond trade. A rising number of international agreements create “judicial” or “legislative” bodies that interpret and expand obligations well beyond what is laid out in underlying treaties, placing them beyond the effective control of domestic democratic institutions. This trend raises legitimate fears among states that they will lose sovereign authority. ...

...

The burden properly lies with the White House to specify how it will confront the DSU’s failings, many of which seem embedded in its design. Whatever steps President Trump recommends should be understood and measured against the larger dangers of global governance. The shadows cast by other flawed multilateral “authorities” make clear that U.S. sovereignty is at stake.

I have a few questions and comments:

1. Does he really care about the WTO and the DSU, or was this just an excuse to complain about global governance generally?

2. Is it possible he is angling for an appointment as U.S. Ambassador to the WTO in the Trump administration?

3. How could the DSU at the same time be ineffective ("failing to deter violations") and infringe on national sovereignty through judicial overreach?  If it cannot deter violations, than expansive interpretations are kind of meaningless.

4. How can the DSU deter violations of the substantive trade provisions without having some entity interpret those provisions? How else would you know whether there is a violation?

5. The DSU works pretty well, and at most needs a few tweaks. I'm more interested in what Bolton thinks of ISDS. Maybe I should ask him on twitter.

6. I can imagine that the Trump administration will propose changes to the DSU, and I am genuinely curious about what they have in mind.

The (Partial) Dissent in Philip Morris:Gary Born vs. the Constitution of Uruguay

Many of us heaved a sigh of relief when Philip Morris lost its challenge to Uruguay's tobacco plain packaging regulations. In the euphoria of the moment, it was easy to ignore the unpleasant fact of a dissent.  Yet much of the value to Philip Morris in attacking, both in investment tribunals and through surrogates at the WTO, plain packaging in the countries where it already exists, is to intimidate other countries, causing them to hold off their own initiatives to protect the lives and health of their citizens.  A dissent sends the message: beware, if one other arbitrator had gone the way that Born did, we would have won.

Under Uruguay's constitution. a specialized administrative court, the TCA, is the final court of appeal for certain matters-not the Supreme Court.  In the plain packaging matter, the TCA and Uruguay's Supreme Court gave contradictory rulings on matters related to plain packaging public health measures, each acting correctly within its jurisdictional authority.   There was no evidence of impropriety, lack of jurisdictional authority, or failure of due process in either of the proceedings in question.  Nevertheless, Born, in his dissent, finds a denial of justice because Philip Morris was impacted by two inconsistent rulings of different Uruguayan courts, and was unable to make a final appeal to the Uruguay Supreme Court against the TCA ruling.  Indeed, without citing any authority except a European Court of Human Rights decision that Born twists because in fact it went the other way, Born maintains: "The rendering of contradictory decisions, by co-equal courts within a single legal system is in tension with ...basic objectives of transparency, stability, and predictability."

Now of course, this statement is not entirely correct, because the fact was that the courts, in the matters in question, were not exactly co-equal; the hierarchy was clear-the ruling of the TCA was final. But let's shift from Uruguay to the United States. As readers of this blog are likely to know, the US federal court system gives rise to the possibility of inconsistent precedents (legal interpretations) by different Federal Circuit appeals courts.  While resolving Circuit splits is an often-mentioned reason for the US Supreme Court to grant certiorari, there is no appeal as of right in the US system to the Supreme Court in these circumstances and the Supreme Court will not take a case at a particular time just because some private economic interest wants the Circuit split solved.  If Born's approach were ever adopted by an investment tribunal, it would render the United States and any other country where there is not an entitlement to have conflicts between co-equal lower courts resolved with finality vulnerable to suit by investors for denial of justice, where the uncertainty produced by the split between these courts affects their economic interests.  

An irony:  though I don't know Born's own personal views on the issue, the investment arbitrator/counsel clique to which he belongs tend overall to resist the idea that their many contradictory decisions be resolved through any real appeals mechanism. 
   

How does China intend to reconcile its “Made in China 2025" program with its SCM obligations?

According to some sources, China has charted out a $300 billion plan to become nearly self-sufficient by 2025 in a range of important industries, from planes to computer chips to electric cars as it looks to kick-start its next stage of economic development.

This so-called “Made in China 2025” program would provide large, low-interest loans from state-owned investment funds and development banks; assistance in buying foreign competitors; and extensive research subsidies, all with the goal of making China largely self-sufficient in the targeted industries.

This reminds me of the “industrial policy” used by South Korea and Japan four or five decades ago where there were no WTO nor SCM Agreements. I wonder how China intends to reconcile all the tools it intends to use in its implementation of the “Made in China 2025” program with its  SCM obligations, especially that it now claims that it is a market economy. 

Let us recall that Under Section 15 of its WTO Accession Protocol, China agreed to notify to the WTO any subsidy within the meaning of Article 1 of the SCM Agreement, granted or maintained in its territory, organised by specific product, including prohibited subsidies defined in Article 3 of the SCM Agreement. 

Does China intend only to avoid granting flagrant prohibited subsidies, namely export and import substitution subsidies?Then hoping to buy time for actionable subsidies until they produce their adverse effects?

ICSID Arbitrators Turn Investment Treaty into Insurance Policy Against Terrorism

An investor operates a facility in what has become one of the most dangerous places in the Middle East; despite the efforts of the host state's army, terrorist attacks on the facility continue.  According to a recent ICSID decision, the failure of Egypt to stop terrorist attacks on a pipeline running through the Sinai area is a violation of the investment treaty obligation to provide "full protection and security."  Even against the low standards of investor-state arbitration, the decision is sparse in legal reasoning, and citations to the prior case law are almost non-existent. But the policy question raised by converting a rather typical treaty provision that gives the investor a right to normal police protection into absolute liability for terrorist attacks is an important one.  In a contradictory if not tendentious and disingenuous finding, the arbitral tribunal held that Egypt had not exercised "due diligence" while the facts presented to the tribunal indicated that what happened was in fact that in response to the situations Egypt's army had indeed reacted, but proved ineffective in stopping further attacks. It is true that in the case of some of attacks the security services didn't come running; but the notion that a sovereign state with limited resources and extreme security challenges must prioritize a foreign investor, reacting in real time, is close to absurd. In an act of unbelievable historical and political blindness, the tribunal largely ignored the context of the Arab Spring, and the complex political transition in Egypt through the period in question (while paying lip service to it occasionally). Making the host state pay in that situation is not about "due diligence" but rather, in truth, absolute liability-effectively, an insurance policy-for terrorism. Unless the tribunal is so confused that it does not understand the distinction.  I would note that the President of the tribunal was Yves Fortier who, in another case (Yukos), according to expert evidence, had his assistant ghost-write almost his entire reasons.  

There may be a need to operate essential infrastructure and provide essential services in conflict zones where foreign investors may be unlikely to invest unless they have some kind of cover for extreme risks such as terrorism and insurrection. This challenge has been recognized by the World Bank's political risk insurer, MIGA and it may provide some forms of risk insurance in such situations. Failed or fragile states can scarce afford to indemnify investors, often in the 100s of millions of dollars for risks they can far from fully control. Had the tribunal bothered to analyse the case law on, the origins of, and academic commentary concerning, the meaning of the general obligation of full protection and security, it could not possibly have come to the conclusion that it requires indemnification for terrorism.  In effect, the consequence of this decision is that investors would likely be put above all other victims of terrorism and related political violence in conflict areas.  That is shocking from the perspective of international justice.      

Korea's WTO Case Against China Over THAAD Retaliations?

It has been reported that Korea is considering bringing a WTO case against China over the trade retaliations China has taken in the wake of Korea's decision to install the Terminal High Altitude Area Defense (THAAD) system. However, I think this is unlikely to happen as the Korean government itself is in a major crisis with President Park's impeachment. Moreover, even if Korea does proceed with the case, its likelihood of success would be rather slim as most of the Chinese retaliation measures focus on services and investment, areas where China has made few commitments. Also, China might wish to invoke the security exception to justify its measures. Finally, even if Korea does win the case, implementation will also be a major problem. But, of course, this episode will provide fresh evidence to the theory that trade is related to everything!

The Trump Administration, WTO Dispute Settlement Decisions, and Trade Remedies

If you are looking for indications as to how the Trump administration trade policy team might approach changes to WTO dispute settlement, this new report by Terry Stewart and Elizabeth Drake, entitled "How the WTO Undermines U.S. Trade Remedy Enforcement," might be a good place to start.  This is from the recommendations section:

Policy makers should make it a priority to counteract these trends and protect domestic trade remedy laws from further erosion. Possible steps to consider, including both new efforts and the strengthening and expanding of existing efforts, include:

■ Vigorously defending U.S. trade remedy decisions at the WTO and seriously considering whether and how to implement any adverse decisions depending on the weakening effect they may have on enforcement;

■ Forming a coalition with other WTO members concerned about trends in the dispute settlement system’s trade remedy decisions to mount a coordinated campaign to critique and reform the decision-making of panels and the Appellate Body;

■ Investing in efforts to educate other WTO members, particularly developing countries, about the importance of trade remedies in the international system and the economic contribution they make by reducing market distortions and enabling balanced economic growth;

■ Refusing to agree to the nomination or re-nomination of Appellate Body members who have failed to adhere to the standard of review and shown a willingness to overreach and “interpret” WTO agreements rather than merely apply them as negotiated by the members;

■ Protest any statements by the WTO Director General and other WTO officials that paint all trade remedy measures with a broad brush as protectionist without acknowledging the historical recognition that such measures play a key role in facilitating legitimate trade;

■ Impressing on other WTO members that further expansion of WTO agreements and routine implementation of adverse decisions is at risk if the dispute settlement system is not effectively reformed to reduce overreach by panels and Appellate Body members;

■ Establishing an independent Commission of legal experts to determine whether a WTO panel or the Appellate Body has exceeded its authority or deviated from the applicable standard of review in making a decision adverse to the United States, and creating procedures for Congress to respond to Commission determinations with appropriate action regarding U.S. negotiating positions and membership in the WTO; and

■ Working with Members of Congress, the media, and academia to build strong public support for effective trade remedy enforcement that strengthens the hand of U.S. negotiators in Geneva to underscore the political importance of real reform in the WTO dispute settlement system.

I have a couple thoughts on all this.

First, at some point I think the critics of WTO dispute settlement decisions on trade remedies will need to get specific.  For example, if they object to how the standard of review, in AD Agreement Article 17.6(ii) or elsewhere, is being applied, they should put forward an alternative approach (either new text, or a new interpretation of how the existing text should be applied).  Or they could offer alternative interpretations of some of the substantive legal standards for which they object to what WTO panels and the Appellate Body have done. If they come up with specific proposed changes, we can then have a discussion of the merits. To me, this seems like the most effective way to have proceed on these issues.  

Second, the larger issue here is the role of trade remedies in the world trading system.  This conversation is long overdue.  I have a different view than the authors of this report, but nevertheless I think WTO Members should have a wide ranging discussion about this.  I'll kick it off with the following.

We can all agree that every safeguard measure is protectionist, right?  There is no evidence of "unfair" trade before imposing such measures.  These measures are purely about protecting domestic producers from import competition.

Moving to anti-dumping, there is a theoretical basis for saying that some pricing practices are unfair, and should be penalized in some way.  The problem is, the anti-dumping laws do not evaluate pricing behavior on this basis.  There is no examination of whether any practices (e.g., predatory pricing) that might be considered unfair are taking place. The practices looked at in an anti-dumping investigation -- below cost sales or international price discrimination -- are not in and of themselves enough to say that pricing is unfair.  As a result, anti-dumping laws are an extremely blunt and overbroad instrument.  They could, in theory, incidentally address some actual unfair practices, but they are not designed to focus on such practices, and in reality they are mostly used for protectionist purposes. It would be an interesting idea to reform anti-dumping laws so that they tried to identify specific unfair trade practices.  Perhaps some government would be willing to get behind this.

On subsidies and countervailing duties, the WTO has pretty good disciplines that can be used to challenge subsidies directly through WTO dispute settlement.  An analysis of how these rules are functioning and whether they could take the place of countervailing duties would be useful.  Which approach, WTO subsidy claims or countervailing duties, is more effective at addressing market distortions?

The broader problem I have with trade remedies is that they have contributed to the widespread notion that everyone else is cheating.  My sense is that, in every country around the world, there is a somewhat widely held view that other countries are cheating on trade.  This belief comes in part from the constant trade remedy legal claims that are reported in the press as another country cheating.  My concern is that, as currently practiced, the use of trade remedies leads to an atmosphere where everyone believes they cannot trust their trading partners, which makes it difficult to negotiate any new trade liberalizing agreements.  Thus, rather than pave the way for trade liberalization, trade remedies undermine it.