International Economic Law and Policy Blog

CIT Hearing on the Constitutionality of Section 232

Last Wednesday, the U.S. Court of International Trade held a hearing on the constitutional challenge to Section 232 (background on the complaint is here). The full transcript is here. There were lots of interesting exchanges. Here are a few snippets:

HON. GARY S. KATZMANN: Can I -- Mr. Morrison,
6 understand that this is a facial challenge to the statute.
7 It is interesting, of course, to go and dip into the record
8 and read Exhibit 8, the letter from the Secretary of
9 Defense.
10 MR. MORRISON: Yes, Your Honor.
11 HON. GARY S. KATZMANN: And there, the Secretary
12 of Defense says, "As noted in both Section 232 reports, the
13 U.S. Military requirements for steel and aluminum each only
14 represent about three percent of U.S. production.
15 Therefore, the Department of Defense does not believe that
16 the findings in the reports impact the ability of Department
17 of Defense programs to require the steel or aluminum
18 necessary to meet national defense requirements."
19 What relevance is this document? Which is
20 intriguing because basically, the department of defense is
21 saying that the tariffs are not necessary for national
22 defense on national defense grounds?
23 MR. MORRISON: I think it shows... First is the
24 President is not bound by that determination. If there were
25 an APA challenge, he would have to explain that away. He

1 doesn't have to do that here.
2 But second, I think the fact that the President
3 can impose, consistent with this statute because of its
4 breadth, the sanctions, the tariffs that he's imposed here,
5 demonstrates that this is not about national security.
6 The Defense Department says it's not about
7 national security. The statute says it's not about national
8 security. When we look at what the President did with
9 respect to specific steel products, you know, steel is not
10 simply one product.
11 There are, according to the Commerce Department,
12 177 different categories of steel products, some of which
13 have no defense needs at all, many of which the United
14 States is capable of providing all the needs. Some of them
15 are products that come from outside. All of this shows that
16 this is an economic protection statute, that this is not
17 about national security in the sense that which we
18 understand it.

...

17 HON. CLAIRE R. KELLY: Mr. Morrison, as you
18 pointed -- as you correctly pointed out, the challenge
19 before us is not so much about what the President did in
20 this case, but rather whether Congress can, in this statute,
21 give to a president the power to basically regulate imports
22 because of national security.
23 MR. MORRISON: For anything he wants to do with
24 them. That is there's no --
25 HON. JENNIFER CHOE-GROVES: Doesn't the

1 legislative history talk about giving the President latitude
2 for national security interests --
3 MR. MORRISON: Yes, it does.
4 HON. JENNIFER CHOE-GROVES: -- and for foreign
5 affairs?
6 MR. MORRISON: There's no question that Congress
7 intended to give the President the latitude. I don't know
8 whether Congress ever intended to give the President this
9 kind of latitude. But that doesn't really matter.
10 The question is not legislative history. The
11 question is whether what Congress did can essentially turn
12 over to the President the power to regulate Commerce by
13 tariffs, quotas, in any amount and any way he wants.
14 HON. CLAIRE R. KELLY: So, that kind of gets to
15 what I think was Judge Katzmann's Whitman question, which
16 is, so, what's our intelligible principle here? It's
17 national security. And I guess this is why you're focusing
18 on the remedies, because the national security part would
19 seem like an intelligible principle, right? It has to be to
20 threaten to impair national security. That means something,
21 right?
22 MR. MORRISON: Well, it might mean something if we
23 didn't have 232(d), which is the economic growth --
24 HON. CLAIRE R. KELLY: Well, that's why I asked
25 you about 232(d)?

1 MR. MORRISON: Yes.
2 HON. CLAIRE R. KELLY: Which kind of gives you an
3 argument which says because they said more.
4 MR. MORRISON: Not more, much more.
5 HON. CLAIRE R. KELLY: There's -- much more.
6 Okay, so they said much more?
7 MR. MORRISON: And indeed, in this case, which we
8 say is illustrative of the power of the President. We are
9 clear that all of the examples that we give in our briefs
10 and in our complaint are to show the breadth of the power of
11 the President under this provision. We're not arguing that
12 he did anything improper --
13 HON. CLAIRE R. KELLY: But even that second
14 sentence of 232(d), where it says the President shall be
15 concerned about economics, basically. It does still tie it
16 to national security. It talks about looking at particular
17 industries -- might as well look at the actual language
18 here, right? Recognized the close relation of economic
19 welfare of the nation to our national security, take into
20 consideration the impact or foreign competition on economic
21 welfare of individual domestic industries.
22 MR. MORRISON: That's what it did here.
23 HON. CLAIRE R. KELLY: Right.
24 MR. MORRISON: An individual domestic industry.
25 HON. CLAIRE R. KELLY: But so, there's still,

1 though, a tie to national security. So, I suspect, and I
2 guess the Government will make some argument like this, that
3 well, you're talking about the steel industry, the steel
4 industry's important, we want to preserve that for our
5 national security. And there's a line of reasoning you can
6 follow there, no?
7 MR. MORRISON: Well, I suppose if that were the
8 only defect in the statute.
9 HON. CLAIRE R. KELLY: Mm hmm.
10 MR. MORRISON: If it said that the President can
11 do, for example, what the statute said in Hampton, that he
12 can raise it by no more than 50 percent, tariff by no more
13 than 50 percent, then maybe we would have a different
14 situation.
15 As we tried to point out, Your Honor, the breadth
16 is on the front end, the trigger. A trigger, by the way,
17 it's a word that's in Algonquin and also in the Amalgamated
18 Meat Cutters case, the case which I commend the Court's
19 attention because of the breadth of Judge Leventhal's
20 thoughtful -- very thoughtful opinion about the separation
21 of powers concerns there.
22 If we had a broad trigger and a narrow remedy, or
23 a narrow trigger and a somewhat broader remedy, we might
24 have a different. But in this situation, we have
25 essentially the President can do anything he wants with

1 regard to the economy.
2 Suppose we had a statute that said the President
3 can adjust any rates, deductions and interest income with
4 respect to the foreign tax provisions of the United States
5 Tax Code? That would be an intelligible principle, I
6 suppose. We know exactly what Congress meant. But what we
7 think that that's a proper authority to give to the
8 President? I suggest to you not. But this is about seeing
9 that the separation of powers is enforced.

...

15 HON. CLAIRE R. KELLY: So, let me ask you two
16 questions. I see the yellow light's on and I want to make
17 sure I get to these. One is, if you could speak to the
18 argument that the President has certain inherent powers in
19 this area.
20 And the other is regarding the point that you just
21 made -- and I'm sorry, it's going to be a little bit of a
22 long question. You know, I was looking at the statute and
23 thinking, okay, what can the President do here, right? You
24 know, what could be kind of shocking that you think that
25 that would go too far, right? Could the President say, you

1 know, make some argument that some industry -- and I'll just
2 pick peanut butter, right? Just -- I'm not picking on the
3 peanut butter industry, just some other industry, right?
4 So peanut butter, you know, decides the President
5 wants to, you know, worry about jobs in the peanut butter
6 industry and that somehow, he can make a national security
7 connection and have some sort of embargo on peanut butter,
8 right, and that he could do that. That would be able to be
9 challenged as a clear misconstruction of the statute,
10 wouldn't it?
11 MR. MORRISON: I do not believe so, and I think
12 you'll ask the Government, they will agree with my answer.

...

16 HON. GARY S. KATZMANN: Now, just returning to
17 first principles, so you -- you know, you whip out the
18 Constitution, you go to Article I, Section 1. All
19 legislative powers herein granted shall be vested in the
20 Congress of the United States.
21 Then you go to Section 8. The Congress shall have
22 the power to lay and collect taxes, duties, imposts and
23 excises, et cetera, also to regulate commerce with foreign
24 nations.
25 Then you go to the Hampton case. And it's

1 interesting, as you know, a lot of these nondelegation cases
2 have really arisen in the context of trade, you know,
3 historically, dating back to the 1800s.
4 So, Chief Justice Taft in Hampton says, well, this
5 is a delegation which is limited by intelligible principle.
6 Essentially, the equalization of domestic and import
7 pricing. And then also in the context of, you know, the 50
8 percent statute.
9 And then you have a series of statutes in the
10 trade area, accountability and duty, and if you're dumping -
11 - you know, go down the list -- which set forth principles
12 for adjudication which can be reviewed. And this is an area
13 of trade -- this is the area of the legislature.
14 Now, how do you respond to the argument that this
15 232 legislation -- it's so broad, it encompasses, really,
16 any kind of, you know, economic interest that it swallows
17 what has been understood to be the role of the Congress,
18 which is to impose and collect taxes, duties, excises, and
19 to govern the tariff area? It swallows the area. And so,
20 is it an unconstitutionally broad delegation of power?
21 MS. HOGAN: So, I have two responses. The first
22 would be that, of course, to go back to what the Supreme
23 Court said in Algonquin, which was that the Section (d)
24 factors do meaningfully constrain the President's
25 discretion. So, I think we have to start there. But even

1 apart from Algonquin, we disagree that it swallows the rule.
2 The statute does set forth factors and does illicitly
3 acknowledge the connection between the health of our
4 internal economy and our national security.
5 So, the suggestion that our national economy is
6 somehow untethered to our national security is not reading
7 what the statute says.

...

14 HON. CLAIRE R. KELLY: Well, I guess my concern is
15 that at some point, even though, you know, you start with
16 what -- it would be hard to argue it's not an intelligible
17 principle, national security, right, furtherance of national
18 security, given the precedent.
19 But then you seem to expand it and say consider
20 this and consider this and consider that. Is there any
21 limit on what kind of power you can give away? Some ways,
22 by making -- by saying more, you created more power problem.
23 And then without judicial review, it seems that you've give
24 away -- or Congress has given away an awful lot. And maybe
25 it should be able to do that.

1 MS. HOGAN: The power -- if we're talking about
2 what the power is, and the power is, one, to make a judgment
3 call, and two, to adjust imports if there is an affirmative
4 finding and if the President concurs.
5 So, there is a limitation to what the President
6 can do. The President can only adjust imports of the
7 article. The fact that there is this broad understanding of
8 national security is Congress's intent.
9 HON. CLAIRE R. KELLY: Right. But that's the
10 problem, right? So, I mean, Congress intended to give all
11 this away. The question is whether Congress can intend to
12 do that. Why can they do that? Have they done too much?
13 MS. HOGAN: Right. And we would say again, if you
14 look at Yoshida, that's a perfect example of what was found
15 to be permissible under the Delegation Doctrine, and at
16 least in my view, seems to be even broader in terms of what
17 the President can do.

Confidentiality and Transparency in the WTO's Party-Centric Dispute Settlement System

This is a new paper from Graham Cook of the WTO:

For those interested here is a new paper called "Confidentiality and Transparency in the WTO's Party-Centric Dispute Settlement System". The abstract:

In the context of WTO dispute settlement proceedings, many of the decisions made by adjudicators are strongly influenced, if not controlled, by the choices of the disputing parties. In this sense, WTO dispute settlement proceedings can be characterized as party-centric. The party-centric nature of WTO dispute settlement proceedings is manifest in the approach taken by adjudicators in respect of a range of procedural matters relating to the conduct of the proceedings, including all of the main issues falling within the ambit of "confidentiality" and "transparency". These issues include: (i) the adoption of additional procedures to ensure that information designated as business confidential information (BCI) is not publicly disclosed; (ii) the publication of submissions by parties and/or third parties; (iii) the opening of hearings to public observation; (iv) the granting of enhanced rights to third parties; (v) the treatment of amicus curiae briefs; (vi) the publication of preliminary rulings by panels; and (vii) the handling of breaches of confidentiality.

Guest Post: Using GATT Security Exception for Brexit-Irish Border Issue: Is it Sensible or Fantasy?

This is a guest post from Bashar H. Malkawi, Dean and Professor of Law, College of Law, University of Sharjah

A key part of Brexit negotiations was about the border that separates Northern Ireland and the Republic of Ireland. The UK and Ireland are currently part of the EU single market and customs union so goods do not need to be inspected for customs and standards. In December 2018, both the UK and EU agreed to a backstop agreement i.e. an arrangement that will apply to the Irish border after Brexit if a wider trade deal is not achieved. The agreement involves a temporary single custom territory effectively keeping the whole of the UK in the EU customs union unless both the EU and UK agree that it is no longer necessary.

Any separate status for Northern Ireland from the rest of the UK is seen as potentially damaging to the EU. On the part of the UK, goods coming into Northern Ireland would have to be checked to make sure they meet EU standards. This threatens the constitutional integrity of the UK. The UK would continue to follow EU rules for an indefinite time without having control over them.

Of course, the backstop agreement must be approved by the UK Commons and is likely to face defeat as it is. Theoretically, the UK could utilize GATT article XXI claiming "essential national security" to permit goods and services passing from the Republic of Ireland tariff-free access and with few restrictions into Northern Ireland. Though it is plausible and can be adopted, this may sound childlike national security argument.  

International law and trade/investment agreements do recognize that states have the inherent right to override their obligations to defend national security interests. The national security exception is found in the WTO agreements which preclude nations from taking actions counter to free and open trade unless the conduct's motivation is to protect national security interests.  Presumably, this is the exception that would empower the UK under international economic law.

n]othing in this Agreement shall be construed (a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; (iii) taken in time of war or other emergency in international relations; or to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

This inherent sovereign right to take economic measures to protect national security is the raison d’etre of the potential move of the UK. However, what is "national security" and is it applicable in this context? National security is the idea that a state must keep its property safe in order to protect its citizens. This is a concept that a government, along with its law-making bodies (e.g., parliament(s), should protect the state and its citizens against all kinds of ‘national’ crises through a variety of power projections. Projections of power may manifest itself in such ways as political power, diplomacy, economic power, military might, and so on.

The national security exception has rarely been invoked or interpreted and the meaning of national security in the context of trade obligations is unclear. The invocation of the national security exception is the subject of broad questioning particularly the subjective self-judging aspect but also to the substantive extent and contours of the exception as well. Since the national security provision is exceptional inasmuch as the invocation is subjective (unlike other exceptions) and is amorphous, some have noted that the exception is subject to abuse. 

The phrase "essential security interest" creates a degree of uncertainty regarding reliance on the exception.  The causes of the uncertainty are that the WTO has not provided any clear definition in clarifying the scope of the term "essential security" and also because different states hold different notions regarding the phrase.

Based on sweeping economic and political transformations, the national security exception needs to be revised. One approach is to presume that the national security exception is subject to certain norms as are other provisions requiring the nation invoking the exception to adhere to concepts of reasonableness. The test should be an objective one, namely, whether a "reasonable" government faced with the same circumstances would invoke Article XXI.

Drawing on investment treaty law, one could comparatively note that arbitration tribunals have consistently interpreted national security concepts such as "exigent circumstances" or "national emergency" as enabling a host state to override a treaty guarantee only if an security essential interest was in severe danger and the state’s action was vital to defending the interest. In addition, good faith cam be an important factor in determining whether national security is a reasonable cause. Furthermore, the good faith argument is also embodied in the international law concept of abus de droit.

Accordingly, in evaluating the UK relying on GATT article XXI in the Irish border issue, the key is balancing the legitimate need of defending UK national security with the global interest in encouraging free trade and preventing annoying the EU. This would militate in favor of evaluating whether the need is compelling (a good faith objectively) and whether the conduct is reasonable in proportion to the threat to national security. The few available GATT precedents are incomplete precedents in this regard and provide no details as to the meaning of the words used and conditions of article XXI.

New EU Consultations Request on (Alleged) Chinese Forced Technology Transfer

The EU has filed a new consultations request in the DS549 dispute. This request includes claims under Section 7(3) of China's Accession Protocol, such as the following one:

(1) The Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures ("JV Regulation") operating separately or together with other listed instruments, notably the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures ("JV Law"), is inconsistent with China's commitments under Paragraph 7.3 of Part I of the Protocol on the Accession of the People's Republic of China ("Accession Protocol") and Paragraph 1.2 of Part I of the Accession Protocol, which incorporates the commitments under Paragraph 49 and Paragraph 203 of the Report of the Working Party on the Accession of the People's Republic of China to the WTO (“Working Party Report”). This is because China conditions the right of a foreign investor to invest in China upon the transfer of certain technology to the joint venture with a Chinese partner. In particular, by imposing requirements on the type of technology to be transferred to the joint venture, China prevents or restricts the possibility for a foreign investor to freely decide or freely agree with the joint venture partner on the type of technology to be transferred to the joint venture. China makes such requirements conditional on obtaining the necessary approvals by the national or sub-national authorities.

...

Pursuant to Paragraph 7.3 of its Accession Protocol, China committed to eliminate and cease to enforce performance requirements made effective through laws, regulations or other measures. Moreover, China committed not to enforce provisions of contracts imposing such requirements. China also committed to ensure that the means of approval by national and sub-national authorities of the right of investment would not be conditioned on performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China. Pursuant to Paragraph 203 of its Working Party Report, China committed that the allocation, permission or rights for importation and investment would not be conditional upon performance requirements set by national or sub-national authorities, or subject to secondary conditions covering, for example, the transfer of technology.

Section 7(3) says:

... China shall ensure that the distribution of import licences, quotas, tariff-rate quotas, or any other means of approval for importation, the right of importation or investment by national and sub-national authorities, is not conditioned on: whether competing domestic suppliers of such products exist; or performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China. 

I hope this dispute goes in one of two directions.

Ideally, China would take this complaint seriously and be open to negotiating some kind of settlement. Sometimes there is domestic political value to litigating a case to the end, but given other things happening in the trade policy world, there is also value in China demonstrating that it can play a positive role in the world trading system. Adopting reforms in the face of a WTO complaint would be a good signal.

If China decides to litigate, though, other countries should support the EU's efforts here. They can do so as third parties, or by filing their own consultations requests. A coordinated effort is the most effective way to push for broader trade reform by China. It would be nice if the U.S. would participate in this way, as it has offered its own criticisms of China's technology transfer policies.

Persuasive Value vs. Precedent in Appellate Body Reasoning

At yesterday's DSB meeting, the U.S. had a 26 page statement (pp. 9-35) on "precedential value of panel or Appellate Body reports." You may need to read the whole thing to fully digest their argument, but here are some key portions:

10. The United States requested this agenda item to draw Members’ attention to an important systemic issue, the concern that the Appellate Body has sought to change the nature of WTO dispute settlement reports from ones that assist in resolving a dispute, and may be considered for persuasive value in the future, to ones that carry precedential weight, as if WTO Members had agreed in the DSU to a common law-like system of precedent.

...

14. Remarkably, the Appellate Body has more recently suggested that a panel must follow a prior Appellate Body interpretation absent undefined “cogent reasons” for departing from that interpretation. ...

51. The Appellate Body report in US – Stainless Steel (Mexico) contains the Appellate Body’s first effort to introduce the concept of “cogent reasons.” The Appellate Body’s articulation of the “cogent reasons” approach comprised several disparate statements; key among them is the contention that “[e]nsuring ‘security and predictability’ in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.”

... 

88. Fourth, in its discussion of cogent reasons, the Appellate Body also misunderstands or misrepresents why parties often cite to adopted panel and Appellate Body reports in dispute settlement proceedings. There is nothing surprising about the fact that parties in WTO disputes cite to reports to the extent they may consider them persuasive. As mentioned, we would expect this, and expect panels to do the same. But there is no support for the proposition that parties cite to reports because they consider them somehow binding on or precedential for subsequent panels and the Appellate Body, which is what the Appellate Body appears to imply. Here again, the Appellate Body ignores that there is a significant difference between citing a report for its persuasive value, on the one hand, and arguing that the report is binding or precedential for future panels, on the other

DSU Article 3.2 says: "The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system," and it "serves to ... clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." Panels and the Appellate Body will be the ones applying the customary rules of interpretation, so I'm not sure how to get around the fact that panels and the Appellate Body are doing some of the "clarifying" (the U.S. may have been implying otherwise in paras. 67-68 of its statement, but I wasn't sure).

The question then becomes, what is the role of these clarifications? Are they of "persuasive value" or part of a "system of precedent"? And what's the difference between these two in terms of the degree of deference given to past panel and Appellate Body reports? Precisely what value for past reports does the U.S. have in mind?

Over on twitter, Rob McDougall said the following:

“Absent cogent reasons” implies “follow it unless there is a reason not to”; “persuasive value” implies “follow it if there is reason to”. This reverse onus could be significant in many ways.

Basically, under the current Appellate Body approach, the default is to follow the reasoning of past cases, and an argument for a departure from past cases faces the burden of offering "cogent reasons." In contrast, if the past reasoning had "persuasive value," panels and the Appellate Body could look to past cases and would follow them where they considered the reasoning and found it convincing.

I'm not sure we would see much difference in outcomes if the approach were changed, but the tone might be different. I suspect there is some variation in tone across domestic and international courts on these issues. (On twitter, Niccolo Ridi points to an example from investment tribunals.) Perhaps an approach with a different tone would alleviate some of the U.S. concerns?

The U.S. is offering criticisms of the Appellate Body, but has not made specific proposals for changes to the rules, so in the interests of perhaps helping things along, let me suggest the following amendment to DSU Article 3.2 that might further the U.S. cause (new language in bold):

2. The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Clarifications provided by panels and the Appellate Body can have persuasive value, but are of less authority than the interpretations adopted under Article IX:2 of the WTO Agreement. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

I don't know if this will satisfy the U.S., but we have to start somewhere. I also don't know if it will be acceptable to other Members, who had the following to say on the issue in response to the U.S. statement at the DSB meeting:

Colombia, Chile, Canada, Brazil, Australia, Japan, Singapore, the Philippines, Mexico, China, New Zealand and the European Union took the floor to comment. Many of these members agreed with the US that there was no power under the DSU or the WTO Agreement giving the Appellate Body authority to issue rulings that set binding precedent, but several members questioned whether the Appellate Body was asserting such an authority.

Several said the "cogent reasons" pronouncement which the US claimed the Appellate Body was asserting in "Stainless Steel" was not correct and that in fact the Appellate Body said in the same ruling that it "is well settled that Appellate Body reports are not binding, except with respect to resolving the particular dispute between the parties". There is a difference between previous rulings setting binding precedence and previous rulings serving as guidance for the Appellate Body and panels to refer to; WTO members themselves, including the US, often refer to previous rulings when making their arguments before a panel or Appellate Body. In fact, they noted, Article 3.2 of the DSU specifically cites the role of the dispute settlement system in providing security and predictability to the multilateral trading system, and reference to these previous rulings, as appropriate, helps fulfill that role. Several other members, such as China and Colombia, said that US concerns on the matter were no reason for the US to continue holding up the appointment of new Appellate Body members.

EU Requests Labor Consultations with Korea

From the European Commission:

The EU today requested formal consultations with the government of the Republic of Korea regarding the implementation of the sustainable development commitments under the EU-Korea trade agreement.

The aim is to open a dedicated channel of communication to find an amicable and mutually satisfactory solution to the EU’s concerns, specifically on labour rights.

...

The EU has two key longstanding concerns with regard to Korea’s implementation of the commitments on trade and sustainable development:

• the respect for the International Labour Organisation (ILO) fundamental principles of freedom of association and the right to collective bargaining
• the outstanding ratification by Korea of four fundamental ILO Conventions: two concerning freedom of association and the right to collective bargaining and two concerning forced labour.

Both issues are closely interrelated and require a number of labour reforms in Korea.

The consultations request is here. Based on Articles 13.15 and 13.16 of the EU-Korea FTA, the remedies in this case look weaker than what is available for trade complaints.

This is the third labor-related consultations request by a government under a trade agreement that I'm aware of. The other two are: U.S. v. Guatemala and U.S. v. Bahrain. Is anyone aware of others?

New From the WTO: GATT Disputes: 1948-1995

From the WTO:

GATT Disputes: 1948-1995 looks into the evolution of dispute settlement under the General Agreement on Tariffs and Trade (GATT) 1947, which served as the foundation for the Dispute Settlement Understanding created by the Marrakesh Agreement Establishing the WTO. The two volumes represent the first comprehensive effort to compile and consolidate verified and factual information on all disputes during the entire GATT 1947 period (1948-1995).

Volume 1 provides a comprehensive overview of dispute settlement activities under the GATT 1947 and a one-page case summary for each of the 316 GATT disputes brought by contracting parties during this period, as well as annexes listing disputes by contracting party, and by the agreements and provisions at issue.

Volume 2 compiles documents containing GATT dispute settlement rules and procedures, and other selected documents of interest.

An online dedicated database is currently under development. It will provide user-friendly access to all data compiled in the research for this publication.

You can download the volumes here: Volume 1 and Volume 2

Petersmann on "How should WTO members respond to the WTO Appellate Body crisis?"

This is a guest post from professor and long-time GATT/WTO Secretariat lawyer Ernst-Ullrich Petersmann :

ERNST-ULRICH PETERSMANN *

European University Institute, Florence (Italy) 

1. The US blocking of the filling of WTO Appellate Body (AB) vacancies, since spring 2017, on grounds not related to the personal qualifications of proposed AB candidates violates the WTO legal obligations to comply with Dispute Settlement Understanding (DSU) rules in good faith (cf. Articles 3.10, 23 DSU) and protect the AB as legally prescribed in Article 17 DSU (e.g. as being ‘composed of seven persons’, with vacancies being ‘filled as they arise’ so that AB membership remains ‘representative of membership in the WTO’). The US continues to justify its ‘blocking strategy’ by 'US concerns with WTO dispute settlement' and with ‘the approach by the AB’, as summarized in the President's 2018 Trade Policy Agenda, by focusing on the following six cross-cutting issues:

• AB disregard for the 90-day deadline for appeals as set out in Article 17.5 of the DSU.
• Continued service by AB members beyond their limited terms, as authorized by the AB based on 'Rule 15' of the AB Working Procedures, to complete a pending dispute.
• AB issuing advisory opinions on issues not necessary to resolve a dispute.
• Appellate Body review of facts and review of a member’s domestic law de novo.
• Appellate Body claims its reports are entitled to be treated as precedent.
• Adding or diminishing of rights and obligations by the AB in various disputes.[1]

All these US concerns relate to long-standing AB legal interpretations[2] and judicial practices[3] that had been justified on the basis of (1) the customary rules of treaty interpretation and (2) the quasi-judicial mandates given by the DSU to WTO panels, the AB and to WTO arbitrators, and (3) had been accepted in the legal practices of the WTO Dispute Settlement Body, albeit subject to occasional expressions of concerns by the US. The continuing DSU reform negotiations since 1998 have, so far, not led to politically agreed ‘corrections’ of this jurisprudence, for instance through ‘authoritative interpretations’ (Article IX.2), amendments (Article X) of the WTO Agreement, or by overruling dispute settlement findings through DSB decisions. Moreover, some of the legal problems (like disregard for the 90 days deadline for appeals) were caused by the USA itself, for instance:

• by insisting on the insertion of such an unreasonably short and - in most pending AB disputes - impossible deadline into the DSU in order to avoid changing the corresponding deadlines for administrative remedies in US trade laws; no other international or domestic court has been constrained by a similar deadline!
• by disregarding the DSU obligations to provide the AB ‘with appropriate administrative and legal support’ (Article 17:7) and fill ‘vacancies … as they arise’ (Article 17:2); and
• by contributing to the increasing number and complexity of appeals (e.g. more than 13 pending AB disputes in November 2018) which – de facto – render compliance with the 90 days deadline impossible without introducing radically new, politically agreed procedures (like ‘summary judgments’ prior to publication of the full AB report, publication of AB reports in the language of the dispute before translation into the other official WTO working languages).

The US has submitted no evidence for its political claims that the judicial AB interpretations have engaged in ‘persistent over-reach’[4], for instance by violating

• the customary rules of treaty interpretation (e.g. by arbitrarily misinterpreting ‘the terms of the treaty’, or by misapplying the duly interpreted treaty terms to the relevant facts established by the panel), or
• the quasi-judicial mandate of WTO dispute settlement bodies (e.g. by not addressing ‘each of the issues raised in accordance with paragraph(s) 6’ and 12 of Article 17 DSU).

International lawyers inside and outside the WTO institutions have persistently celebrated the WTO jurisprudence as the ‘crown-jewel’ of WTO legal practices fulfilling the quasi-judicial mandate for ‘prompt settlement’ of WTO disputes, ‘providing security and predictability to the multilateral trading system’ through impartial, independent third-party adjudication, and clarifying ‘the existing provisions of those (WTO) agreements in accordance with customary rules of interpretation of international law’ (Article 3.2 DSU). These customary rules require application also of general rules and principles of international law ‘applicable in the relations between the parties’[5], including ‘due process of law’, ‘judicial administration of justice’ in third-party adjudication of WTO disputes, and good-faith-compliance by all WTO members with DSU rules (cf. Article 3.10 DSU) and with dispute settlement rulings adopted by the DSB (cf. Article 23 DSU). The DSU avoids describing WTO dispute settlement panels, the AB and WTO arbitration as ‘courts of justice’ and WTO adjudicators as ‘justices’. Yet, the DSU rules, WTO working procedures for panels and the AB, and WTO ‘rules of conduct’ prescribing impartiality and independence of WTO panelists, AB members and arbitrators have been persistently interpreted by WTO adjudicators and WTO members as providing for quasi-judicial mandates.[6] The US claims of ‘judicial overreach’ are opportunistic in view of the many WTO disputes in which the US itself suggested and welcomed ‘creative interpretations’ of indeterminate procedural WTO rules (e.g. on admission of amicus curiae briefs, making panel and AB meetings open to the public) as well as of substantive WTO rules (e.g. on recognizing living organisms as ‘exhaustible natural resources’ in terms of Article XX(g) GATT, interpreting a GATS prohibition of ‘anti-competitive practices’ as prohibiting price-fixing cartel agreements). As US trade diplomats have made no effort at demonstrating that the AB jurisprudence has disregarded its quasi-judicial mandate for ‘prompt settlement’ of WTO disputes by clarifying the disputed meaning of WTO provisions through use of the customary rules of treaty interpretation, no other DSB member has so far supported the politically motivated US blocking of the filling of AB vacancies. 

 

2. At the WTO General Council meeting on 12 December 2018, Australia, Canada, China, the EU, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore, Switzerland and other WTO members presented joint proposals for overcoming the current deadlock in the WTO AB by amending the DSU in order to accommodate the concerns expressed by the US, notably by

• negotiating new DSU rules for outgoing AB members which make clear on which cases they can stay on to complete the appeal proceedings they are working on;
• ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in Article 17 DSU, unless the parties in the dispute agree otherwise;
• clarifying that the legal issues subject to appeal by the AB do not include the meaning of domestic legislation;
• specifying that the AB should only address issues necessary to resolve the dispute; and
• introducing annual meetings between WTO members and the AB to discuss in an open way systemic issues or trends in jurisprudence.[7]

Three features of these DSU amendment proposals are characteristic:

• They respond to the concerns raised by the US Trump administration so as to strengthen member-control over the AB.
• They were coordinated and initiated without inclusion of the US delegation so as to avoid US obstruction.
• As US trade diplomats fail to indicate under which conditions they are willing to stop their illegal blocking of the filling of AB vacancies, the proposal includes a footnote that, ‘(i)f the amendment of the DSU proves to be impracticable to achieve this objective swiftly, we will consider other legal instruments appropriate for that purpose’.

In an additional ‘Communication from the EU, China and India to the General Council’[8], these three largest WTO members propose additional DSU amendments to reinforce the AB’s independence and impartiality and to improve its efficiency, for instance by

• providing for a single, longer term of AB members of 6 to 8 years;
• increasing the number of members from 7 to 9 working full-time, to support the AB’s capacity to deliver; and
• ensuring that the selection process of AB members starts automatically when a post is vacant, and that there is an orderly transition with outgoing members.

Again, also this communication was initiated and elaborated without US trade diplomats, as they no longer seem to support this objective of reinforcing the AB’s independence, impartiality and efficiency. 

 

3. As both proposals were rejected by the US delegation at the General Council meeting on 12 December 2018 and the US Trump administration seems to be unwilling to engage in good faith negotiations on DSU amendments, the above-mentioned footnote in the first communication of 26 November 2018 – and its reference to ‘other legal instruments’ available under WTO law for protecting the WTO legal and dispute settlement system – needs to be clarified. These ‘other legal instruments’ include, inter alia:

• Initiating and completing 'by a majority of the votes cast' (Article IX.1 WTO Agreement) the traditional WTO procedures for selection and timely appointment of vacant AB positions, justifying the legally prescribed majority voting by the lack of any legally coherent justification of the US disregard for the collective WTO duties to maintain the AB as prescribed in Article 17 DSU.[9] The text of Article IX:1 (‘where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting’) confirms that WTO members are legally required (‘shall’) to overcome illegal ‘blocking’ of the filling of AB vacancies by such majority decisions in order to meet their collective legal duties to maintain the AB as prescribed in Article 17 DSU, similar to the existing WTO procedures for appointing the WTO Director-General through a majority decision ‘where a decision cannot be arrived at by consensus’.[10]
• In order to pre-empt objections (e.g. by the US) to such a majority decision as mandated by Article IX.1 WTO, the WTO Ministerial Conference or General Council could also adopt an 'authoritative interpretation' based on 'a three-fourths majority of the Members' (Article IX:2 WTO) confirming (a) their collective legal duties and existing WTO powers to fill 'vacancies . . . as they arise' (Article 17 DSU) through majority decisions, for instance in view of Article XVI.3 WTO Agreement[11]; and (b) the exceptional nature of such majority decisions, which do not set any precedent for WTO decisions on discretionary, political issues.
• As such majority decisions of WTO bodies require diplomatic preparation in order to overcome resistance by US trade diplomats, WTO members might also confirm, and temporarily resort to, the availability of ‘arbitration within the WTO as an alternative means of dispute settlement’ (Article 25.1 DSU) - also for agreed appellate review of WTO panel reports. Yet, such mutually agreed use of arbitration under Article 25 DSU to ensure the availability of appeals entails numerous problems[12] that risk further undermining the WTO dispute settlement system.

 

4. Just as US withdrawal from the 2015 Paris Agreement has been no reason for other UN member states to abandon their climate change prevention policies, President Trump’s disdain for the WTO legal and dispute settlement system offers no reason for other WTO members to no longer comply with their WTO legal obligations, as democratically prescribed by parliaments when they approved the WTO Agreement. Hence, US proposals for rewarding the US provocation of the ‘AB crisis’ by exempting trade remedies from the AB jurisdiction[13], or by establishing a special AB division and AB secretariat for reviewing WTO panel reports on trade remedies[14], reflect US power politics without any coherent justification of why AB jurisprudence limiting abuses of trade remedy laws, and defending compliance with WTO rules in conformity with the customary rules of treaty interpretation, should be disregarded contrary to the interests of most WTO members in maintaining non-discriminatory conditions of competition and rule of law.

 

Email: [email protected]. Emeritus professor of International and European Law and former head of the Law Department at the European University Institute (EUI), Florence, Italy. Former legal advisor in the German Ministry of Economic Affairs, GATT and the WTO. This text is based on a much longer EUI Working Paper RSCAS 2018/71 on HOW SHOULD WTO MEMBERS REACT TO THEIR WTO GOVERNANCE AND WTO APPELLATE BODY CRISES?, EUI Robert Schuman Centre, Florence (Italy).

[1] For details of the US claims see: https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf at pp. 22-28.

[2] E.g. of Article 3:2 DSU regarding treatment of AB case-law as precedent absent ‘cogent reasons’; Article 17:5 DSU regarding the 90 days deadline; Article 17:6 regarding ‘issues of law’ and legal qualifications of facts; Article 17:12 DSU regarding obiter dicta.  

[3] E.g. elaboration of AB Working Procedures as prescribed in Article 17:9 DSU; judicial ‘administration of justice’ in applying the incomplete DSU rules to disputes over political disagreements on WTO rules.   

[4] DSB meeting of 21 November 2018. US Ambassador Shea’s claim (e.g. during the WTO Public Forum session 111 on 4 October 2018) that the US does not recognize a ‘judicial function’ of the AB, illustrates that the US claim of ‘AB over-reach’ rests on very subjective, political DSU interpretations, which are not shared by most AB and DSB members, just as the related US claim that one WTO member’s rights or obligations may be clarified by a Panel without regard to the AB’s clarification (‘precedent’) of the same rights or obligations in previous WTO disputes. The US arguments seem to ignore the categorical differences between ‘political interpretations’ (e.g. pursuing ‘national interests’) and ‘judicial interpretations’ (e.g. pursuing independent, impartial rule-clarifications and ‘prompt settlement’ of WTO disputes). The DSU’s quasi-judicial mandate for third-party adjudication entails ‘institutional choices’ that affect the ‘cognitive dimension’ of legal interpretations – a fact, which is often overlooked in the criticism of WTO dispute settlement findings by diplomats and economists.  

[5] Cf. Article 31.3(c) of the Vienna Convention on the Law of Treaties (VCLT), which is widely recognized as codifying customary rules of international treaty interpretation, and the specification of applicable, universally recognized ‘principles of justice’ in the Preamble of the VCLT; cf. G.Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (CUP 2015).    

[6] WTO AB members have persistently characterized the AB as a judicial institution, for instance in their contributions (e.g. by WTO AB members J.Bacchus, C.D.Ehlermann, J.Hillman, M.Matsushita, D.Unterhalter) to: G.Marceau (ed), A History of Law and Lawyers in the GATT/WTO. The Development of the Rule of Law in the Multilateral Trading System (CUP 2015). See also P. van den Bossche, The Appellate Body of the WTO, in: G.De Beere/J.Wouters (eds), The Contribution of International and Supranational Courts to the Rule of Law (Elgar, 2015), 176-202. The Handbook on the WTO Dispute Settlement System prepared by the WTO legal services (CUP, 2004) likewise describes WTO panels and the AB as ‘quasi-judicial bodies, in a way tribunals, in charge of adjudicating disputes’ (e.g. p. 21).     

[7] See document WT/GC/W/752 of 26 November 2018 as subsequently revised.    

[8] Cf. WT/GC/W/753 of 26 November 2018.  

[9] Note 3 to Article IX:1 WTO ('Decisions by the General Council when convened as the Dispute Settlement Body shall be taken only in  accordance with the provisions of paragraph 4 of the Dispute Settlement Understanding') is no legal obstacle to such decisions by the WTO Ministerial Conference or by the General Council deliberately not convening as DSB in order to meet the collective duties of WTO members to comply with Article 17 DSU. Such convening of the WTO General Council in order to overcome disagreements in the DSB has been practiced already in the past, for instance when WTO Members wanted to censure the AB for its handling of amicus curiae briefs (cf. WTO doc. WT/GC/M/60).

[10] Cf. the WTO General Council Decision adopted 10 December 2002 on ‘Procedures for the Appointment of Directors-General’ (WT/L/509 dated 20 January 2003), which provides in para. 20: ‘Recourse to a vote for the appointment of a Director-General shall be understood to be an exceptional departure from the customary practice of decision-making by consensus, and shall not establish any precedent for such recourse in respect of any future decisions in the WTO.’ The text of Article IX:1 confirms that the same ‘exception’ must be applied to illegal blocking of the appointment of AB members.

[11] Article XVI.3 provides : ‘In the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provisions of this Agreement shall prevail to the extent of the conflict.’ If the US should claim that Article 2.4 DSU (‘Where the rules and procedures of this Understanding provide for the DSB to take a decision, it shall do so by consensus’) protects a veto-power of the US for indefinitely blocking the filling of AB vacancies, the ‘authoritative interpretation’ could clarify that – according to its Article XVI.3 – the legal duties under Article IX.1 of the WTO Agreement must prevail and require overcoming any ‘conflicting interpretations’ of WTO rules so as to prevent illegal abuses of veto-powers and protect the collective WTO obligations of maintaining the AB as legally prescribed in Article 17 DSU.      

[12] On the problems of using Article 25 DSU as a bilaterally agreed substitute for AB review of WTO panel reports (such as non-adoption of the panel and arbitration reports by the DSB) see the analysis by former US congressman and former AB chairman J.Bacchus, How to Solve the WTO Judicial Crisis, in: CATO Institute 6 August 2018; S.Anderson et alii, Using Arbitration under Article 25 of the DSU to Ensure the Availability of Appeals (Graduate Institute Geneva: CTEI Working Paper 2017-17).     

[13] Cf. J. Hillman, Three Approaches to Fixing the WTO’s Appellate Body: The Good, the Bad and the Ugly? in: Institute of International Economic Law, Georgetown University Law Center, December 2018, at 7f.

[14] Hillman (note 13), at 6.

 

Three (Or More) Narratives about Globalization's Winners and Losers

Nicolas Lamp has a new paper out called, "How Should We Think about the Winners and Losers from Globalization? Three Narratives and their Implications for the Redesign of International Economic Agreements." This is from the intro:

In the wake of Brexit and the widespread public opposition to new international economic agreements that contributed to the election of Donald Trump to the US presidency, the “losers” from globalization – often stereotyped as low-skilled, white, working class men – have received unprecedented attention. While few would contest that manufacturing workers in developed countries have lost out over the past decades, the remedy proposed by President Trump and his advisers – to tear up, or at least renegotiate the international economic agreements concluded by the United States (US) – has been met with a mixture of concern and ridicule by the trade establishment. And yet, it seems clear that the success of Trump’s campaign has hit a nerve. Trump’s election conclusively demonstrates that, at least in the United States, politicians and trade officials are no longer able to convince voters that international economic agreements will “lift all boats”, if they ever were. Instead, those engaged in debates about trade policy will need to be open about the fact that international economic agreements create both winners and losers. The present paper suggests that there are at least three narratives about who those winners and losers are, and that our choice among those narratives has profound implications for the redesign of international economic agreements in the current era of increasing scepticism of and resistance to globalization.

A first narrative, which I call the “Trump narrative”, pits US workers against workers in developing countries, such as China and Mexico, as well as workers in developed countries with which the US has a trade deficit, such as Germany and Japan. On this view, workers are engaged in a zero-sum competition over jobs; trade agreements, including the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Agreement, have allowed the developing countries to “steal” jobs with the aid of unfair trade practices such as export subsidies, currency manipulation and disregard for product safety and environmental standards, and have failed US workers by enshrining rules that disadvantage the US (such as uneven tariff levels).

A second narrative, which is mainly advanced by institutions engaged in the governance of global trade (hence I call it the “establishment narrative”), rejects this zero-sum view of the benefits of trade and instead holds that all countries gain from trade. However, the narrative admits that, while trade may be beneficial in the aggregate, it creates winners and losers within each economy. For example, highly skilled workers in developed countries will gain, as they can specialize in high-value added activities and become more productive, whereas relatively low-skilled workers see demand for their labour decrease, as companies gain access to a large pool of low-skilled workers in developing countries through the liberalization of trade and capital flows.

A third narrative, which I call the “critical narrative”, looks beyond the confines of national economies and focuses on the distributive effects of international economic agreements on different factors of production on a global scale. On this view, the protections for the owners of capital embodied in international economic agreements, such as intellectual property rights and far-reaching investment protections, curtail the ability of states to extract value from an investment and thereby shift the balance of benefits from an investment towards the investor. Moreover, the mobility of capital facilitated by international economic agreements not only increases the bargaining power of the owners of capital vis-à-vis relatively immobile factors of production, but also makes it harder for states to tax capital, resulting in an increased burden of taxation on labour.

(Nicolas posted a short, accessible summary of the paper on Twitter here.)

When I talk about the benefits of trade liberalization, I try to clearly acknowledge both the winners and losers, but Nicolas is right that some proponents (mostly politicians, but others as well) gloss over the negative impact on particular individuals. We hear things like, "NAFTA will create a million jobs," but we don't hear much about the jobs that will be lost. (Of course, opponents of liberalization are just as misleading about the impact.)

Nicolas asked me about his paper a while back, but I think I was swamped with many things at the time, and the best I could do was mumble something about how I thought there was some overlap between his three narratives, and I felt like I was a mix of the second and third narratives. But with more time to think about his paper, I had some additional comments, and I will offer them up here.

It seems to me that there are a number of sub-narratives under these three narratives, and it may help to flesh them out (or, it may just confuse things!). I tried to map them out very roughly in this graph:

Please keep in mind these are rough and general approximations, and I had a bit of trouble manipulating the exact positions. If you don't like where I put you on this graph, I apologize, and I would be happy to move you around to a more suitable spot!

Nicolas is focused on how each narrative views winners and losers from globalization, so let me go through that for some of these sub-narratives.

I'll start with me (up in the top left area of the graph). As I see it, open trade creates lots of winners and a few losers in each country. The total winning will outweigh the total losing pretty substantially, which is why I support trade liberalization. In contrast, closing off trade will create a few winners and a lot of losers, and the losing will outweigh the winning. In theory, trade restrictions could be used strategically as part of an effective industrial policy. In practice, however, they will mostly be used to benefit established, well-connected, and often sunset industries. Powerful interest groups benefit, while everyone else loses. Trade restrictions are about as useful as, say, ethanol subsidies. As for the losers from trade, they are not some special category of people who deserve special protection. There are always people losing out in the economy for one reason or another. Instead of special policies to help the losers from trade, we should have general policies to help people who lose a job for any reason. Of course, we won't agree on what those policies should be, but that's what we fight about in domestic politics.

In no particular order, let me say a few things about some of the other people/groups I've identified.

Ron Paul-type sovereigntists agree with me on the economics and the winners and losers, but they don't trust international agreements/institutions, and think free trade should be carried out exclusively through domestic policy. I would say they are establishment on the policies, but critical on the institutions. With regard to the Trump narrative, even if the foreigners are trying to steal our jobs, this group doesn't care.

Donald Trump-sovereigntists also hate international agreements/institutions, but unlike the Ron Paul crowd, the Trump folks think domestic policy should keep out most trade. They also don't trust foreigners generally. As for winners and losers, they think trade restrictions create more winners than losers, perhaps because they can see the winners with a quick glance, and thinking through who might be the losers takes a little effort. They also mis-read (or don't read) U.S. trade policy history. Doug Irwin's latest book would be helpful to them. Also, their fear of foreigners makes them concerned about the impact of globalization, because they see that some foreigners have won, which, in their view, means that American must have lost.

Global Trade Watch/AFL-CIO/Sierra Club are functionally similar to Trump on trade policy. They are not necessarily sovereigntists on non-trade issues, as they support international agreements in other areas. But on trade, they are pretty strong economic nationalists. This surprised me, because I didn't realize people on the left were so nationalist, but in my interactions them with they have always been pretty clear that they favor substantially closing the domestic market to trade (e.g., through Buy America policies or tariffs). They might try to tell you otherwise now and then, and explain that they just want conditions on trade liberalization. But the conditions they put out there are so difficult to meet that trade is effectively closed off. From what I can tell, they share Trump's basic view that by favoring domestic industries over foreign competitors, protectionism creates more winners than losers. Or perhaps it is not so much more winners than losers, but rather they think the particular winners are more important than the particular losers (e.g., labor union members win, others lose, so the trade restrictions are worth it). In terms of Nicolas' three narratives, they are a mix of the Trump narrative and the critical narrative. (With the AFL-CIO, my sense is they are mostly just the Trump narrative, with slightly less provocative language.)

Other critics are very different. The folks at the Electronic Frontier Foundation are not economic nationalists. They simply object to excessive IP protection and ISDS/investment protection. They see these provisions as giving wins to powerful special interests and leaving lots of losers to pay for it. They are solidly in Nicolas' critical narrative, although on tariffs and protectionism they are more like the establishment (but those issues are not their focus, and they come across as objecting to the system as a whole because they feel so strongly about the IP issues).

The left wing, pro-trade agreement redistributionists in the center are interesting (I won't name names, but you can probably guess some of the folks I have in mind here, and I hope some of them show up in the comments to this post). While generally supporting liberalization, they seem to favor tariffs and other forms of protectionism in some instances, and want trade agreements to take on far more social policy than they do now. They think we need to do a lot more for the losers from trade. In their view, it is the failure to do more for the losers that has led to a backlash. They worry about the inequality that they think has resulted from trade liberalization. (As for me, I don't think there is much of a backlash, except from protectionist industries, nativists, and certain NGO critics who worry about ISDS and excessive IP protection. I think the NGO critics are right and we should listen to them, but we should ignore the others. And I think that if inequality is your worry, protectionism should be the bigger concern.)

As for the more establishment types, the WTO can't do much except for defending the system. The U.S. Chamber of Commerce also defends the system, but just pushes for what's in the interests of business, figuring that this will create more winners than losers. The governments are more interesting, because they have the ability to push the system in one direction or another. The EU and USTR (pre-Trump) were probably a bit of the WTO view, combined with a mix of lobbying pressure from the pro-business and social critic views. USTR in the Trump era has moved closer to the AFL-CIO. I have no idea how China views the winners and losers from trade liberalization, but they probably see the system as a check on unilateralism.

With all that in mind, what can we learn from all this to help with the redesign of trade agreements? My guess is, the lessons we will all draw fit closely with the vision we already held for what should be in trade agreements. People who want stronger labor/environment provisions will still want those. People who want stronger IP provisions will still want those. And I will still want a trading system that focuses on trade liberalization, and leaves issues such as IP, labor, and the environment to separate international agreements/institutions. 

Jennifer Hillman: Three Approaches to Fixing the Appellate Body

Jennifer Hillman has a new IIEL Issues Brief called "Three Approaches to Fixing the World Trade Organization’s Appellate Body: The Good, the Bad and the Ugly?" Her three approaches are:

1. The Good — A Separate System for Trade Remedies (with two possibilities: "Special Appellate Body for Trade Remedies" and "Moratorium on Appeals from Trade Remedy Panel Decisions")

2. The Bad: Arbitration under Article 25 of the DSU Instead of Appeals to the Appellate Body

3. The Ugly: Fix the Procedural Matters Readily Fixable, Run the Selection Process and then Appoint New Members by Vote

I can see the value of a separate appellate process for trade remedies. Special expertise, especially through working on domestic trade remedy proceedings, is tremendously helpful for understanding the WTO obligations in this area, in terms of both substance and procedure. I'm not sure which direction a trade remedy appellate body would go in terms of deference to domestic authorities, though. Depends on who these appellate body members are.

I wonder about the politics, though. Would this be enough to satisfy the U.S.? Would it be too much for others to accept?

Call for Papers: E-commerce and its Linkages with Services and Investment

The Centre for WTO Studies, CRIT, Indian Institute of Foreign Trade will be hosting a conference from March 07-08, 2019 in New Delhi.

The conference is aimed at discussing theoretical and empirical research on emerging areas in e-commerce and its linkages with services trade and investment. It intends to invite research papers investigating new opportunities, issues and challenges on these subjects. The paper may examine growth and trend in e-commerce in India and globally, FDI in e-commerce, regulation of e-commerce activities, e-commerce and trade agreements including WTO and FTAs, e-commerce and logistics, payments systems, Fintech and Block Chain Technology, Cryptocurrencies etc. Papers on any other issue pertaining to the theme of the conference are also welcome.

Please see the call for papers, and full submission guidelines here

Yale Journal of International Law Online Symposium on "International Trade in the Trump Era"

The Yale Journal of International Law is hosting an online symposium on "International Trade in the Trump Era," featuring an introduction by Kathleen Claussen (University of Miami School of Law) and David Singh Grewal (Yale Law School) and essays by Rachel Brewster, Tim Meyer, Joel Trachtman, Greg Shaffer, and Andrew Lang already posted. Forthcoming are essays by David Singh Grewal, Padideh Ala'i, Chantal Thomas, and Kathleen Claussen, and an epilogue by Harold Koh.

This is how they describe it:

The international trade order is in crisis. Since the election of President Donald J. Trump, the United States has initiated—and escalated—a trade war with China, forced the renegotiation of the North American Free Trade Agreement (NAFTA), and threatened to upend the World Trade Organization (WTO) by blocking appointments (and re-appointments) to its Appellate Body. Protectionism is on the rise: reversing a longstanding political consensus, tariffs have once again emerged as a central issue in U.S. international trade policy.

What does this all mean? Where does it lead? Is the established order of international trade—underpinned by the WTO and multilateral trade agreements—on the verge of collapse? Or is it, as John Gerard Ruggie said of the “new protectionism” that arose in the 1970s, simply an indication that the existing order is adapting to new circumstances?

The authors in this Features Symposium grapple with these difficult, and consequential, questions. Since the Symposium essays are extremely timely, YJIL Online will be publishing them on a staggered schedule. We will continue to make new pieces available as they are completed in the coming weeks.

Check out all the papers available so far here: http://www.yjil.yale.edu/features-symposium-international-trade-in-the-trump-era/

For what it's worth, I'm in the "adapting to new circumstances" camp.

Book Launch on GATT Disputes

This is a great project from the WTO:

Book launch: GATT disputes: 1948-1995

The publication GATT Disputes: 1948-1995, published by the Secretariat of the World Trade Organization (WTO), will be launched at the WTO Headquarters at 11:30 on Friday, 14 December 2018.

 Geneva, WTO Headquarters - Room D

14 DECEMBER 2018

In celebration of the 70th anniversary of the GATT 1947, this publication was prepared to disseminate factual information concerning all GATT disputes and to offer insights into the evolution of dispute settlement under the GATT 1947, which served as the foundation for the WTO's Dispute Settlement Understanding. It represents the first comprehensive effort to consolidate information on all disputes during the entire GATT 1947 period (1948-1995). It relies on information from multiple sources including public and internal records held by the GATT/WTO Secretariats.

The systematic analysis of these primary sources has led to some significant discoveries. It has uncovered, for instance, a number of disputes that had not been listed in previous compilations, including one brought by a least-developed country, as well as a secret dispute in which the parties chose not to disclose the details of their proceedings.

This publication consists of two volumes. The first volume, Overview and One-Page Case Summaries,  contains a one‑page summary for each identified GATT dispute, recording all relevant steps and documents, and indexes the information by relevant parties, agreements and provisions. The second volume, Dispute Settlement Procedures compiles for the first time all GATT dispute settlement procedures, as well as a selection of other key documents of historical interest.

Programme

The publication will be launched by Suja Rishikesh Mavroidis (Director of the WTO Market Access Division) and John Adank (Director of the WTO Legal Affairs Division), in the presence of DDG Karl Brauner and DDG Xiaozhun Yi.

11.30-12.00

Welcome address and launch of the publication

• Suja Rishikesh Mavroidis, Director of the WTO Market Access Division
• John Adank, Director of the WTO Legal Affairs Division

12.00-12.15

Question and answer session

Moderated by:

• Keith Rockwell, WTO Spokesperson

You will need to register by Tuesday, December 11:

If you do not already have WTO accreditation, you need to register for this event by sending an email, stating your full name and affiliation, to [email protected] by close of business of Tuesday, 11 December. In addition to registration, an official photo ID, e.g. a passport, will be required to access WTO premises.

The Sunset Clause and Written Confirmation by the "Head of Government"

Recall that para. 3 of the new NAFTA's sunset clause says: "each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period." Over on Twitter, Joel points to another Congressional/Executive balance of power issue related to the Sunset Clause: Because "34.7(3) requires head of state concurrence for extension," he notes, "Unless notice is sent, no renewal. If President does not send, no renewal." 

With this and all my other sunset clause posts in mind, let me offer a couple suggestions for amending/implementing Article 34.7.

The best solution would be keep para. 2 only, which says:

2. On the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a “joint review” of the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions. Each Party may provide recommendations for the Commission to take action at least one month before the Commission’s joint review meeting takes place.

This is all fine, although the reviews should probably take place more frequently than every six years.

In the alternative, if the "sunset" parts of Article 34.7 stay, it would be good to shift the burden, so that the agreement's term gets extended unless all three parties affirmatively decide to terminate. 

But if the "sunset" part of the provision has to keep the current automatic termination unless all three parties decide to extend, one important change would be to amend paras. 3 and 4 so they don't refer to the "head of government." Thus, para. 3 quoted above could simply say "each Party shall confirm, in writing, if it wishes to extend the term of this Agreement for another 16-year period." Then it would be up to each government how it wanted to provide notification.

The rest of the Congressional/Executive power balance fixes would have to come through domestic law, for example as described here. If the "head of government" provision stays in, it would take additional statutory language to ensure that the President doesn't refuse to send the written confirmation.

The Sunset Clause and the Congressional/Executive Balance of Power

Recall that the sunset clause in the new NAFTA says, "each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period." While the written confirmation comes from the "head of government," the clause doesn't say anything about how each Party should make the decision about this extension under its internal domestic process.

Over on Twitter, Jennifer Hillman said this in the context of a discussion about the sunset clause:

Agree--but this is why Congress should include a specific Congressional process for the "automatic" termination provision. The USMCA does not specify the domestic process that can be used to implement it. Congress should make sure of its involvement + set up specific procedures.

In terms of Congressional involvement, how about this. For the determination of whether the United States "wishes to extend the term" of the agreement, both Congress and the President will have a role, in the following way: The agreement will be extended unless both Congress and the President affirmatively decide not to extend. The President can make the decision on his/her own, with an interagency process to provide guidance; for Congress, an affirmative determination not to extend will be based on a majority vote in each chamber (that is, both the Senate and House have to vote for termination in order for there to be an affirmative determination not to extend).

How Exactly Will the New NAFTA's Sunset Clause Work?

The final version of the sunset clause in the new NAFTA (USMCA) reads as follows:

Article 34.7: Review and Term Extension

1. This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term, in accordance with the procedures set forth in paragraphs 2 through 6.

2. On the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a “joint review” of the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions. Each Party may provide recommendations for the Commission to take action at least one month before the Commission’s joint review meeting takes place.

3. As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and consider extension of this Agreement term no later than at the end of the next six-year
period.

4. If, as part of a six-year review, a Party does not confirm its wish to extend the term of this Agreement for another 16-year period, the Commission shall meet to conduct a joint review every year for the remainder of the term of this Agreement. If one or more Parties did not confirm their desire to extend this Agreement for another 16-year term at the conclusion of a given joint review, at any time between the conclusion of that review and expiry of this Agreement, the Parties may automatically extend the term of this Agreement for another 16 years by confirming in writing, through their respective head of government, their wish to extend this Agreement for another 16-year period.

5. At any point when the Parties decide to extend the term of this Agreement for another 16-year period, the Commission shall conduct joint reviews every six years thereafter, and the Parties shall have the ability to extend this Agreement after each joint review pursuant to the procedures set forth in paragraphs 3 and 4.

6. At any point in which the Parties do not all confirm their wish to extend the term of this Agreement, paragraph 4 shall apply.

I'm a little puzzled by how this is supposed to work. Let's assume that the new NAFTA is implemented into U.S. domestic law in 2019. It would then terminate in 2035 unless the initial 16 year term is extended. The first joint review would take place in 2025.

Here's where it gets tricky. I think I read the provisions to say that if the term is extended through the joint review held in 2025, there will be a new 16 year term added on that runs from 2035 to 2051.

But then it seems like the parties are supposed to do subsequent joint reviews every six years. Would the subsequent reviews keep tacking on 16 year periods after 2051? So a review in 2031 (i.e., 6 years after 2025) would add a period from 2051 to 2067? And a review in 2037 would add a period from 2067 to 2083?

Now let's say that in the 2043 review, the parties do not agree to extend. The 2083 end date would still be in place, right? So then every year from 2043 to 2083 the parties would meet to do a joint review and reconsider extending? Or would this annual meeting just be required through the end of the current term, and things start fresh in the next term?

Does anyone else have a different reading or other thoughts on how this is supposed to work?

Guest Post: RIP NAALC: North American Agreement on Labor Cooperation

This is a guest post from University of Miami law prof Kathleen Claussen:

The legal scrub of the labor chapter of the USMCA did not yield many changes since the publication of the draft text two months ago – a few “any”s became “a”s and a few “agree”s became “decide”s, among similarly small edits.  Simon has already noted what is perhaps the most substantive modification – the addition of a footnote and re-wording of the sex-based discrimination provision.  But it is again outside the labor chapter where we find a significant labor-related change.  That change is the termination of the labor side agreement to the NAFTA 1994, the North American Agreement on Labor Cooperation (the NAALC), announced in the one-page Protocol to which the USMCA is attached. 

The end of the NAALC should come as no surprise.  Most elements of the NAALC are incorporated in the USMCA labor chapter and updated according to the bipartisan May 10, 2007 deal.  An important contribution of the NAALC had been its creation of an independent secretariat to study and report on labor issues among the three countries.  The secretariat stopped functioning and eventually closed in 2010.  Labor organizations have continued to submit public communications raising labor concerns under the NAALC to the various country contact points, even if those communications are not always made public.  In short, the NAALC has languished in recent years.  It was time for it to be brought in line with current practice at a minimum.

By contrast, the environment side agreement to the NAFTA 1994, the North American Agreement on Environmental Cooperation (the NAAEC), will be rejuvenated.  Although the NAAEC itself will disappear, it has been updated to comprise both a standardized chapter in the main text and a new side agreement.  Article 24.25 of the USMCA announces the signing of the side agreement called the Agreement on Environmental Cooperation.  The Article gives it the acronym of ECA, as has been done in the past such as in the side environmental cooperation agreement to the CAFTA-DR.  The ECA is not on the USMCA page on the USTR website, however.  Instead, to locate the text, head over to the State Department website or to the EPA website.  (In both instances, although seemingly a technical glitch, the PDF file name for the ECA text suggests some linkage with TPP.)  You can also find a press release on the website for the Commission for Environmental Cooperation (CEC), the still-standing institution created under the original NAAEC that the ECA preserves.

The ECA indicates that it replaces the NAAEC and enters into force with the entry into force of the USMCA.  This should provide some continuity to the rather busy work of the CEC.  The ECA maintains the CEC’s institutional structure including a secretariat, despite that the United States had previously proposed rolling back funding for the CEC and its secretariat (and neither other party has been particularly supportive). 

So it would appear that environmental advocates did well at least with shaping the institutional future for environmental cooperation under the USMCA framework.  Addressing labor grievances looks notably harder by comparison.

Guest Post: International Commerce and World Wars: Vital Signs of the Current Malaise

This is a guest post by Joao Otavio Benevides Demasi, a Ph.D student at Maastricht University:

This brief and incomplete essay is written in the broad intersection of WTO Law, World Diplomacy, Economic Policy, Analysis of the International Relations, Political Sciences, and History of International Economic Relations. For the author, a Ph.D candidate at Law scrutinizing the WTO Appellate Body Reports, to verify if there is a wrongdoing, the use of these analytical tools are fundamental to understand the background clash between China and the United States that undermines the conventional multilateral trading system, under the aegis of the WTO, as it is actually known.

There is an intrinsic relationship between Commerce and War, or to make use of a fruitful term of Raymond Aron "generalized wars". Specifically speaking about International Commerce, the liberal journalist Frederick Bastiat wrote "when goods do not cross borders, soldiers will". To quote the view of a theorist of War as a Political Phenomenon, Carl von Clausewitz wrote that "the war is the continuation of politics by other means". As History tends to repeat itself, the current New Mercantile Era can obtain some lessons from the New Imperialist Era of the XVIII and XIX Century. In this vein, a marxist historian, whose ideology this author rejects, would reasonably argue that World War I and, its continuation, World War II, were wars to obtain access to raw materials and markets of the industrialized products of the European metropolis, that is, a war for the control of consumption markets. The early Gordian knot was that the Reich, as a late nation in the industrial race to unify and industrialize itself as a State (1871), together with Italy (1871), were deprived of market access to relevant foreign markets by the 1884-1885 Berlin Conference on the splitting of Africa. In that time, the most part of Africa fell into the hands of Great Britain and France, Portugal kept its colonial possessions, Belgium the Congo, and Prussia, basically, the Nambia and Tanzania. In the New Imperialism, in the Extreme East, Great Britain made war with China to keep the Chinese opium market open by two Opium Wars (1839-1842 and 1856-1860). In 1853-1854, the USA under its Gunboat diplomacy stationed part of its maritime war fleet in the Basin of Edo (Tokyo) as a "diplomatic invitation" to Japan to open its domestic market, and the Meinjin Era started. It is an early application of the 1904 Roosevelt Corollary's emblematic 1900 complete phrase: "Speak softly, carry a big stick; you will go far".

Based on this broad backdrop of this historical perspective one could reasonably foresee that the actual diplomatic-legal issue of "market access" is one that systematically trespasses many different aspects of the life of a State and has posed complicated axiological-ethical questions: in the immigration field, Europe is facing a different immigratory culture - the Muslim immigration, which led to nationalistic parties taking the power; on this side of the Atlantic, President Trump's promise to build a Wall in front of the Rio Grande (Mexico) to stop the illegal economic immigration of the Latinos; in the commercial field, the ongoing US$ 360 billion trade war between the United States of America and China. The malaise of a Trade War is the first relevant step to a diplomatic upsurge of bitterness between countries. Therefore, one can foresee that a flood of litigation on the correct application of the WTO law will come. The second symptom that the multilateral body of laws is ill, as protectionism spreads, will be when countries refuse to implement the Findings and Conclusions of a WTO Report.

Some Prophets of Doom could accurately say that the current world reality, like a New Age of Nationalism (1850-1914), is eroding the triple bases of the liberal view that set the world after the collapse of the Soviet Union: the Francis Fukuiama's "End of the History", the Consensus of Washington - open markets, transnationalize the economy, liberalize the flows of international investments, negotiate commercial treaties; and, finally, the legal efficacy of the WTO's World Trade Court, as a tercium inter partes, to peacefully settle the economics of "market access" and negotiated "market preferences" disputes Among the Nations. These readers of the international reality could arguably say that dialectics have come back as a shape cutting boomerang with people unsatisfied with the so called "gains of the globalization" (to the Transnational Corporations?), electing governments with nationalist agendas mixed with a tonic of religious sentiment.

The ascension of these conservative right governments is, in the mind of this author, an answer to the early XX Century globalization wave. They have popped up almost simultaneously in many countries, and, consequently, under the flag of protection to the domestic market and cultural values from "foreign" products and people. For instance, inter alios, the USA, Brazil, Italy, Poland, Austria, Hungary, Israel, Argentina have elected conservative governments. We have seen the Italian Minister of Interior, Matteo Salvini, holding the Holy Rosary in one of the last electoral campaign speeches. In Brazil the nominee Foreign Affairs Minister, H.E. Ambassador Ernesto Araujo, is of the opinion of that globalism is "piloted by cultural Marxism". He also wrote that "the faith in Christ means, today, to fight against the globalism, whose ultimate goal is to break the connection between God and man, making man a slave and God irrelevant." Therefore, the premises of the current World Trade Organization is in check in the great diplomatic chess game, or as Mr. Roberto Azevedo told to the BBC on November 30th, 2018, "This is the moment when some very basic principles of the organization, principles of cooperation, principles of non-discrimination are being challenged and put into question. And I think that it is very serious". Actually one could conclude that an age of nationalism has surged, with protection of the domestic industry and a repeal of the values of the liberal international world order.

As a rule-based system, Trade Legalists see the World Trade Organization (WTO) like the last resource, the lifeline to avoid an increase of the degree of incertitude in a conflictual world. But some have added to the mathematical equation that, to provide stability to the International System as a whole, the WTO Members have to consent to observe the WTO contracted obligations, and, in the case of litigation, to ultimately bring its measures into conformity with its WTO obligations. Although the right to retaliate is an option, the continuous use of this right, instead of consenting with the WTO Reports systematically undermines the effectiveness of the WTO. Over the years, the WTO has faced a struggle between its inoperant institutional face and the hyperactivity of its Judicial Branch. Except for Mr. Azevedo's miracles on the Trade Facilitation Agreement, the WTO is almost inoperant as a trade negotiation fora. It has, however, produced excellent results provided by the WTO-Appellate Body (AB). The hyper-activity of the AB here does not strictly mean judicial activism but an answer to the 136 appeals brought to the AB. In other words, it means that the appeal of almost 66% of the Panel Report became a quasis-negotiation through adjudication, and posed unforeseeable legal questions on the Dispute Settlement Mechanism (DSM). Who in 1995 would think of the amicus curiae controversy? In the long run the "hyper-activity" of this "Afterthought Court" will not work, as the current crises demonstrates.

In a broad sense, the crucial issue of the functioning of the DSM has reverberated on the stability of the World Order. Precisely, just a handful of WTO Members have really used the Dispute Settlement System (USA, Europe, China, Japan, Canada, Brazil, and India). These main users, especially the US, have more than once been unsatisfied with the results of an AB Report. Depending on the case, during the Meetings of the Dispute Settlement these concerns as extravasated, whether reasonable or a "Diplomat's mise-en-scène", (as this author added to the title of his Doctorate Project). One of the façades of the WTO's ongoing problem is that this diplomatic mise-en-scène became a serious play for the USA after the US - Zeroing case. It is why The USA is Zeroing the Appellate Body (the title of a future publication), the US is not so displeased with procedural issues such as the amicus curiae saga, the non-strict observance by the AB of the 90 days rule to issue a Report, the opening of the Hearings, or even the mechanism of appointment of Appellate Body Members, but with substantial and other issues such as the so called "judicial activism", and the so called increasing and/or diminishing the WTO Membership rights. These issues are important together with "systemic issues" raised from certain passages of Panel and Appellate Body Reports (who totally agrees with an AB/R? Nobody.), but in this author's vision they could be held as "secondary" for the purpose of this article.

This author is sure and is open to being highly criticized for sustaining the point that some of these (and other) issues are "secondary" (the number of the AB Members, the years in the position etc.), but in my modest view, the real issue is the implications for the USA of the US - Zeroing Report to itself. Not that other issues are not relevant, but all these reiterated criticisms against the AB, some true, others Diplomatic mise-en-scène, have accrued to the point of triggering, in part, the current crises. This author thinks that, in a scale of values, the US - Zeroing report has a special relevance. In the US - Zeroing case, the zeroing methodology was correctly outlawed as a valid anti-dumping tool to impose levies on imported goods. Anti-Dumping measures are one of the very important protectionism resources to the countries. The United States was deprived of one of its most important tools of international commerce. Therefore, to fight back the US is Zeroing the Appellate Body as a means to extract unilateral "additional gains", notably under the rubric of the "judicial activism" to frame the AB. Accordingly, as Mr. Azevedo said in the same mentioned interview to BBC: "I would say this is the worst crisis not for the WTO but for the whole multilateral trading system since the GATT [General Agreement on Tariffs and Trade, that preceded the WTO] in 1947". It is a side symptom of a free-rider trying to benefit from the International System at the cost of trade gains of other countries, all based on a nationalistic biased speech. Indeed Americans feel that they, and their houses truly are, full of Chinese stuff. To blame the other ("foreign powers") is a well described strategy by the diplomat Machiavelli in the book "Il Principe". Hyperbolically speaking, the average American thinks that all products that they have are from China, "it is all from China". This feeling (or reality?) is based on a considerable trade deficit with the "Communist" China and is felt in other countries too due to the so called Chinese anticompetitive practices. It is why The US is zeroing the Appellate Body, to obtain a reversal, in my very, very strict view, on the US - Zeroing Report. With this reversal anti-dumping measures can be proliferated indiscriminatorally.

Beyond the conflicts of interest that can paralyze the AB functioning right now, if the current path is not changed before 10 December 2019, the Appellate Body will be reduced to two Members and will stop to work. Consequently, without the "jewel of the crown" the diplomatic-legal nature of the WTO will change. Until then, contradictorily, the WTO Members (including the US) keep filing appeals. In the context of the WTO crises, the US already publicized its line of diplomatic trade conduct on the WTO. On September 18, 2017, the USTR Ambassador Lighthzer said, "before the WTO, under the GATT, and there was a system where you would bring panels and then you would have a negotiation. And, you know, trade grew and we resolved issues eventually. And, you know, it’s a system that, you know, was successful for a long period of time." Likely, the US wants to negotiate the result of the Report, turning the system into a power-ruled system again. If the US wants to prolong the agony, in a gesture of grace, the USA can diplomatically just agree with the appointment one new Appellate Body Member for a limited period of time, thus keeping the erosion of the Multilateral Trade System to a slow death, while it seeks to obtain concessions. Inter alios, it would depend on the US electoral calendar, but if the Trump Administration wants the word of the USTR Lighthzer implemented right now, it is achieving its political goal.

In 2014, Pope Francis declared that a 'piecemeal' World War III has begun (War in Syria as a proxy war between US and Russia as well as Saudi Arabia and Iran). We have seen all these clashes take shape in the WTO which is accruing one more ingredient to the already conflicting and acrimonious diplomatic agenda between the USA and China. Inter alios, there are problems of commerce, of a military race (in certain fashion similar to the pre-World War I), of the domain of the "Sea of China", of the control of the petrol routes. We hope that "goods, and not soldiers, cross borders" in a foreseeable rule-based manner. In July 26 1941, when the US embargoed the supply of oil to Japan (which represented 80% of Japanese importation) and seized all it assets in the US, Japan opened hostilities against the US by bombing Pearl Habor in December 1941, what, in military history, turned to be an ill-fated preventive strike. If there is not a tercium inter partes, what just remains is the ultima ratio regis, God or the cannons. Let us see if the agreement negotiated in the G-20 Meeting in Argentina for a 90 days deterrence in the escalation of trade tariffs will really cool down the sino-american trade war, or it is just diplomatic mise-en-scène in a broad (irreversible?) framework

The Truce in Buenos Aires: Is This the Beginning of the End or the End of the Beginning of the United States – China Trade Wars?

It might be fair to say that the worst did not happen.  This weekend, both leaders of the United States and China agreed to put a “temporary truce” in the ever-escalating bilateral trade conflicts.  In a nut shell, the current level (10%) of the U.S. retaliatory tariffs against Chinese imports will not increase to a higher (25%) level next year; China will soon import a “very substantial” amount of the U.S. products, such as energy and agricultural products.  In particular, China will resume importing the U.S. agricultural products “immediately,” which is an apparent move to ease the political pressure that has recently built up in major agricultural states in the United States.  Both parties will immediately begin negotiations over those contentious issues, including the alleged forced technology transfer and cyber intrusions.  If no “transaction” is completed within the next 90 days, the U.S. government will execute its tariff increase (up to 25%). 

While both leaders responded mainly to “domestic audiences” that have been hit hard by trade wars, this is “not a suspension of the trade war but a suspension of the escalation of the trade war.”  Could all those difficult, and structural, issues be resolved within the next three months?  After all, tensions deeper and more fundamental than just trade seem to run beneath the surface of tariff wars.  Interestingly, here is one reaction from the Chinese media, which seems to be directed to both domestic and foreign audiences.

“The Chinese public needs to keep in mind that China-US trade negotiations fluctuate. China's reform and opening-up's broad perspective recognizes that the rest of the world does things differently. As that picture is getting bigger, we can accept those differences while acknowledging them peacefully, and be more active and open-minded in solving problems through interaction.”

 So, back to Sir Winston Churchill, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” 

Guest Post: Critical analysis of the EU DSU Reform Proposal

This is a guest post by Prakhar Bhardwaj, Senior Research Fellow, Centre for Trade and Investment Law, New Delhi. All views expressed here are personal.

The joint communication from the European Union and 11 other nations to be tabled in the General Council meeting scheduled for 12-13 December 2018 (“EU DSU Proposal”) is of monumental importance.[1] It seeks to address one of the greatest crises that the “crown jewel” of the WTO has ever faced i.e. the stalemate in appointments to the Appellate Body. The proposal sets out  specific amendments which have been endorsed by members who are active users of the WTO dispute settlement mechanism.[2] Interestingly, it also represents one of the rare instances where the EU, India and China have managed to find common ground. The EU DSU Proposal largely addresses the concerns of the United States with respect to: (i) the issue regarding “municipal law as fact”; (ii) transitional rules for outgoing AB members; (iii) compliance with the 90-days timeline in Article 17.5; (iv) the issue of precedent; and (v) the AB’s practice of arriving at findings unnecessary for the resolution of the dispute. This blog post seeks to discuss certain interpretative and operational issues in relation to proposals pertaining to (i) and (ii) above and highlight instances where the concerns of the United States have not been adequately addressed.

1. “Municipal Law as Fact”: Proposed Footnote 7bis to Article 17.6

The United States has stated in many WTO DSB meetings that the “Appellate Body’s decision to undertake a review of panel’s findings of fact has no basis in the DSU”.[3] The rationale being that determination of the “meaning and operation” of municipal law falls within the mandate of the Panel as a finder of fact[4] and such factual findings should “simply taken as a given” by the AB. The EU DSU Proposal seeks to address this by adding a footnote to Article 17.6 which states the following:

“For greater certainty, the “issues of law covered in the panel report and legal interpretations developed by the panel” do not include the panel findings with regard to the meaning of the municipal measures of a party but do include the panel findings with regard to their legal characterisation under the covered agreements”.

The proposed text falls short on two counts. First, if the intent was to ensure that factual determinations by the Panel of the “meaning and operation of the municipal law” be excluded from the scope of Article 17.6, why does proposed text limit itself to the meaning? It is established practice for Panels to see the design, structure and expected operation of domestic measures to characterise the measures. If the Panel undertakes an evaluation of contextual materials such as market surveys and statistics to see operation of the measure, accompanying press notifications or other supporting material, it will be difficult to argue that all of these characterisations fall within the term of “meaning” of municipal measures. Ideally, the term “meaning” should have been replaced by “meaning, structure and operation”. However, it is also possible that this is an intentional omission which seeks to preserve the scope of appellate review. Note the proposed text would effectively overturn the confusing dictum in para 225 of the AB Report in China -Auto Parts, where the AB stated that it would not “lightly interfere with panel’s assessment of municipal measures which go beyond the text of an instrument”. If the factual determination goes beyond the “meaning” and considers operation of the measure, it will be a factual element which will not be covered by footnote 7bis and hence be included as an “issue of law” amenable to appellate review. In effect, the AB will have discretion to interfere with such factual determinations.

Secondly, the impact of Footnote 7bis on the expansive judicial standard of “objective assessment of facts” under Article 11 is not clear. What if a Panel makes a fundamental error in interpreting the “meaning of the municipal measure”? Under the status quo, whether a Panel has conducted an objective assessment of facts is itself a legal question under Article 17.6[5] regardless of whether the alleged failure to conduct such an assessment was in relation to factual or legal elements. A respondent would be able to appeal this finding as an “issue of law”. However, as per the proposed text, it may be argued that even egregious errors in evaluating the “meaning of the municipal measures” are no longer “issues of law” under Article 17.6. Avid readers of WTO law would recall that the AB overturned factual determinations by the Panel in Korea – Beef, as the Panel misinterpreted the information in Korea’s schedule. Rare as such errors may be, their occurrence cannot be ruled out. It is important to note that there is no text which specifically sets out a hierarchy between Article 11 and the proposed footnote to Article 17.6. In this context, a claimant may state that the later amendment to Article 17.6 limits the expansive judicial standard under Article 11. A technical way to address this would be to start the footnote with text such as “without prejudice to the duty of the Panel under Article 11” to preserve the substantive content of the “objective assessment” standard. It is hoped that such a modification will be proposed pursuant to the discussion in the upcoming General Council meeting. 

2. Transitional rules for outgoing AB members: Amendment to Article 17.2

Rule 4(3) of the Working Procedure for Appellate Review provides that “… the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the appellate report for circulation to the WTO Members” (emphasis supplied). The current practice in relation to Rule 15, as explained by the AB, is that “outgoing members do not participate in general decision-making on general AB matters and the functioning of the AB after their term has expired.”[6] However, as per the proposed amendment in Article 17.2, an AB member “shall complete the disposition of an appeal in which the oral hearing has been held” and “shall continue to discharge his or her duties until he or she has been replaced”. The ordinary meaning of this text is that a person is still a member of the AB even if her term has expired. However, in light of the dictates of collegiality in Rule 4(3), will such a member also participate in discussions by other divisions on the disputes those divisions are engaged in? It is unlikely that this was the intent of the EU DSU Proposal. If the intent is that the outgoing member not engage in “general AB matters”, this can be clarified by adding a footnote to Rule 4(3) which states that “The division responsible for deciding each appeal shall exchange views only with Members whose term has not expired”. In the short term, this would address the US’s concerns that the function of the AB member whose term has expired is limited solely to “disposition of the appeal in which oral hearing has been held”.  

Since the modified Article 17.2 and Rule 15 of the Working Procedure for Appellate Review cover common ground, Rule 15 should be deleted if the EU DSU Proposal is accepted. This will provide legitimacy to extension of the AB member’s term and be aligned with the objection of the United States.  In its statement in the DSB meeting dated November 22, 2017, the US contended that Rule 15 of the Working Procedure for Appellate Review (which empowers the AB to authorise extension of terms of outgoing AB Members) was contrary to Article 17.2 of the WTO DSU. According to the United States, if Article 17.2 of the WTO DSU recognized the authority of the DSB to appoint AB Members, then it stands to reason that the DSB has responsibility to decide whether a person should continue serving beyond that term. Deletion of Rule 15 would place the authority of extension directly with the DSB and extract it from the domain of the AB thereby adequately addressing the concern of the United States.

In conclusion, even with a proposal which attempts to cover all grounds, the United States might still argue that its concerns haven’t been adequately addressed. Needless to say, such an objection will not lead to a resolution of the stalemate in AB appointments.  

[1] Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico, WTO Doc. No. WT/GC/W/752 and WT/GC/W/753 (Nov. 26, 2018).

[2] As per the claimants and respondent in the WTO disputes DS401 – DS500, EU and China were the largest and third largest users of the WTO DSU. India and Australia were also prominent users. Indonesia, Russia and Argentina are also large users of the WTO DSU but have not sponsored this proposal. See Geraldo Vidigal, WTO: The First 500 Disputes and the Last 100 Disputes, EJIL:Talk! (Nov. 11, 2015) as available at https://www.ejiltalk.org/wto-the-first-500-disputes-and-the-last-100-disputes/

[3] Statements made by the United States at the Meeting of the Dispute Settlement Body, Geneva, August 27 2018, 28 as available at https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug27.DSB_.Stmt_.as-delivered.fin_.public.pdf.  

[4] Id. at P. 26 where the United States cites its statements made at the DSB Meeting dated March 4 2002.

[5] Appellate Body Report, Korea - Various Measures on Beef, ¶¶97-105.

[6] Background Note on Rule 15 of the Working Procedure for Appellate Review, Annex 2 to Appellate Body Annual Report for 2017 (February 2018) https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/AB/28.pdf (last accessed Nov. 2, 2018).