My friend and former colleague Dan Ikenson informs me of the sad news of the passing of his father, Frederick Ikenson, who was a long-time Washington, DC-based trade and customs lawyer. Fred practiced in this field for over five decades, so many of this blog's readers probably got to know him at some point.
An obituary is here. There will be a service on Wednesday, July 10 at 10 a.m. in Olney, Maryland. Details are at the link.
Posted by Simon Lester on July 09, 2024 at 09:42 AM | Permalink | Comments (0)
Here's an excerpt from the majority opinion in the recent Loper Bright U.S. Supreme Court decision that puts an end to Chevron deference, in which the majority says that it does not make sense to talk about "permissible" interpretations because there is always a "single, best" interpretation:
Courts, after all, routinely confront statutory ambiguities in cases having nothing to do with Chevron—cases that do not involve agency interpretations or delegations of authority. Of course, when faced with a statutory ambiguity in such a case, the ambiguity is not a delegation to anybody, and a court is not somehow relieved of its obligation to independently interpret the statute. Courts in that situation do not throw up their hands because “Congress’s instructions have” supposedly “run out,” leaving a statutory “gap.” Post, at 2 (opinion of KAGAN, J.). Courts instead understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning. That is the whole point of having written statutes; “every statute’s meaning is fixed at the time of enactment.” Wisconsin Central Ltd. v. United States, 585 U. S. 274, 284 (2018) (emphasis deleted). So instead of declaring a particular party’s reading “permissible” in such a case, courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.
In an agency case as in any other, though, even if some judges might (or might not) consider the statute ambiguous, there is a best reading all the same—“the reading the court would have reached” if no agency were involved. Chevron, 467 U. S., at 843, n. 11. It therefore makes no sense to speak of a “permissible” interpretation that is not the one the court, after applying all relevant interpretive tools, concludes is best. In the business of statutory interpretation, if it is not the best, it is not permissible.
In the WTO law context, we are all familiar with the idea of permissible interpretations as set out in AD Agreement Article 17.6(ii):
In examining the matter referred to in paragraph 5:
...
(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.
In Colombia - Frozen Fries, the MPIA arbitrators, when discussing Article 17.6(ii), emphasized the possibility of there being multiple permissible interpretations, rather than having to reach a single "final" or "correct" interpretation in every case:
4.13. Reading these provisions together, we aim to integrate the elements of interpretation under Article 17.6(ii). As a result, we will begin by asking ourselves whether Colombia's proposed interpretation of the phrase "where appropriate" in Article 5.2(iii) – reflected in MINCIT's decision to initiate its investigation, in part, on the basis of third-country sales prices – is a "permissible" one. As a yardstick for "permissibility", the first sentence of Article 17.6(ii) refers us to the customary rules of treaty interpretation. However, we will not engage in our own, de novo interpretation of the terms "where appropriate" so as to arrive at what we consider to be the "final" or "correct" application of Articles 31 and 32 of the Vienna Convention. Instead, we will ask whether a treaty interpreter, using the method for treaty interpretation set out in the Vienna Convention – that is, an interpretation "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose" and, where appropriate, "supplementary means of interpretation" – could have reached Colombia's interpretation. And this even though we, as de novo treaty interpreters, might have reached a different conclusion.
4.14. Our approach assumes, as the second sentence does, that different treaty interpreters applying the same tools of the Vienna Convention may, in good faith and with solid arguments in support, reach different conclusions on the "correct" interpretation of a treaty provision.43 This may be particularly true for the Anti-Dumping Agreement, which was drafted with the understanding that investigating authorities employ different methodologies and approaches. Treaty interpretation is not an exact science and applying the Vienna Convention's method does not magically and inevitably lead to a single result. In most cases, treaty interpretation involves weighing, balancing, and choice.
4.15. Thus, the ultimate question for us when testing a proposed interpretation is to draw a line beyond which an interpretation is no longer "permissible" under the Vienna Convention method for treaty interpretation. Dictionary meanings support the idea that the search for "permissible" interpretations differs from an attempt to find one's own – "final" and "correct" – interpretation.44 Rather, the question is whether someone else's interpretation is "permitted", "allowable", "acceptable", or "admissible" as an outcome resulting from a proper application of the interpretative process called for under the Vienna Convention. Obviously, not just any interpretation put forward by an authority can be accepted as "permissible". The interpretative process under the Vienna Convention sets out an outer range beyond which meanings cannot be accepted. Just as permissible interpretations cannot be limited to a single "final" and "correct" answer as determined by a given tribunal, not all interpretations have the required degree of solidness or analytical support for them to be given deference as "permissible" within the bounds of the Vienna Convention method for treaty interpretation.
The approach set out by the MPIA above can be distinguished from earlier WTO decisions that seemed wary of a standard that was open to multiple permissible interpretations.
(Jackson and Croley laid out the connection between Chevron and the Article 17.6(ii) standard here).
I'm not sure I understand the reluctance to accept that statutes or treaties may be vague or ambiguous enough that there are multiple permissible interpretations. In some instances, the choice between one interpretation or another is a very close call. If a court is considering multiple interpretations, and one is slightly better than another (say, 55% to 45%, to put concrete figures on this), I'm not convinced that declaring the 55% interpretation to be the "best" one, which therefore must be followed, is always the right approach. At some degree of uncertainty about which interpretation is best, I would have no problem saying, in the circumstance where an agency is crafting an implementing regulation based on its interpretation of the statute, that there are multiple permissible interpretations.
Of course, if you do adopt a "best" interpretation approach, the statute or treaty drafters can step in to correct the interpretation if they don't like how the court came out. But in practice, that's often difficult for practical political reasons, and the court's interpretation is likely to govern. It's worth noting in this context that there are policy implications from these interpretive choices, and we should think about which government actors are best placed to take responsibility for these policy decisions.
I suspect that many people will consider this suggestion to be a bit off the wall, but to deal with the political and policy-making concerns, I would be interested in thinking about a process through which courts could say to the legislators/treaty drafters something to the effect of: "We're not sure what you meant with regard to how this ambiguous provision should be interpreted in the context at hand. Could you please clarify?" I haven't given any deep thought to how this might work in practice, but perhaps something along the lines of this, this, this, or this in the U.S. domestic context.
Posted by Simon Lester on July 07, 2024 at 07:00 AM in Standards of Review | Permalink | Comments (6)
Farah Stockman of the New York Times recently had a piece about former Biden administration official Jennifer Harris. If I understand their views correctly, Stockman and Harris are part of a group of people who are skeptical of past "neoliberal" policies, whereas I -- as I mention here from time to time -- am in the group that is skeptical that "neoliberal" is a useful term in the U.S. politics and policy debate (at least until people who use it can get on the same page about what exactly they mean by it). But beyond those general disagreements, I want to focus here on U.S.-China economic relations. Stockman says the following about how Harris's views changed during a previous government stint with the Bush administration in the 2000s:
... After she joined a student delegation to a NATO summit in Prague in 2002, a faculty adviser on that trip offered her a job in Washington working at the National Intelligence Council. In those early years, she believed what everyone else in Washington believed about the economy — that governments ought not meddle with it.
Her outlook changed in 2007, after she joined the policy planning staff at the State Department. It was her job to track China’s use of subsidies, industrial espionage and currency manipulation to fuel its rise as a manufacturing powerhouse. Ms. Harris argued that tariffs on China were a necessary defense. Nobody agreed. “I was kind of just banging my head against this wall,” she told me. “The wall was a foreign policy establishment that saw markets as sacrosanct.”
In reaction, let me first note that in this period of U.S. policymaking (like at all other times!), I think it's an exaggeration to say the U.S. foreign policy establishment, or any other part of the establishment, saw markets as "sacrosanct"; and along the same lines, I don't think it's the case that everyone in Washington believed that governments "ought not to meddle with" the economy. Of course, I'm sure you can find a few people in government who believed that, but in practice those people generally got outvoted. U.S. economic policy at that time involved a wide range of government intervention in the economy (in trade policy, that meant ordinary tariffs, trade remedy tariffs, farm subsidies, Buy America provisions, etc.). Were people in Washington more in favor of markets in the 2000s than, say, during the 1960s and 1970s? Probably. But I can assure you that the free market folks (like me!) were pretty frustrated with all the government intervention in the economy during this period. (To illustrate this, you can see what my former Cato colleague Dan Ikenson was complaining about at the time here.)
At the same time, while that characterization of U.S. economic policy may be an exaggeration, I can imagine that Harris got pushback from free market advocates within the Bush administration on issues such as the possibility of imposing tariffs on Chinese imports under Section 421. There were six petitions filed under Section 421 during the Bush administration, four of which resulted in affirmative determinations of market disruption, but the Bush administration rejected the use of tariffs in each of these. In terms of the pure economic considerations, these tariffs would have helped specific companies but harmed the overall economy, and that probably led many of the economics folks in the Bush administration to argue against them (AD/CVDs were widely used though, so it's not as though all Chinese imports were coming in duty-free). In addition, the foreign policy establishment had their own non-economic objectives during this period of the War on Terror, and challenging China on trade would have interfered with their goals. In this regard, the U.S. needed China's non-objection on various foreign policy initiatives, so I can imagine it was the view of this group that it was best to avoid trade confrontation with China.
Turning now -- finally! -- to the main point of this post, an important consideration that I think gets overlooked in the context of how to address concerns with China's trade practices is what would actually be effective. There seems to be an assumption from the critics of neoliberalism that taking measures such as the Section 421 tariffs would have been the tough approach to China's trade practices, but I'm not sure that's right. Which measures are actually toughest may depend on the objectives. If your objective is to change China's trade practices, I don't think Section 421 tariffs are likely to get you there. (Indeed, tariffs were imposed on Chinese tires under this provision during the Obama administration, and I don't think anyone would suggest this changed China's trade practices). Instead, WTO complaints would likely have been -- and in many instances actually were -- more effective for inducing policy change.
All of that leads to me some questions for the people, on both the left and the right, who seem to be believe that the U.S. was not tough enough on China's trade practices during this period:
Posted by Simon Lester on June 26, 2024 at 06:56 AM in US-China Trade Relations | Permalink | Comments (1)
In case you hadn't heard, there is a U.S. presidential debate coming up this week. I'm not expecting an in-depth and wonky policy discussion in general, and trade policy sometimes doesn't even get a mention at these things. Nevertheless, I've been gathering statements Trump has made on tariffs over the past few months, and this debate seems like as good an excuse as any to post them. I'm not sure what to say about all of the quotes that follow, except maybe ... read 'em and weep? Anyway, here are some things from Trump, and then at the end of the post are a couple brief points on how some of it might actually be implemented.
First, last year Trump laid out his trade agenda here: Agenda47: Cementing Fair and Reciprocal Trade with the Trump Reciprocal Trade Act. The core of his "reciprocity" plan is the following:
- Under the landmark legislation, if any foreign country imposes a tariff on American-made goods that is higher than the tariff imposed by the U.S., President Trump will have the authority to impose a reciprocal tariff on that country’s goods.
- To ensure fairness, the Act will empower President Trump to negotiate the reduction of tariffs on foreign goods if foreign countries agree to reduce their tariffs on American goods.
The first item is the key one: Where foreign tariffs are higher than U.S. tariffs, the Trump administration would raise tariffs to the foreign levels. As to the second item, I would be shocked if the Trump administration negotiated tariff reductions, but it would be fun if a foreign government made a public proposal that it would lower its tariffs on U.S. products to zero if the Trump administration did the same.
Next up, Jeff Stein of the Washington Post, in an article entitled "Donald Trump is preparing for a massive new trade war with China," reported on Trump discussing a 60 percent tariff on Chinese imports:
"Privately, Trump has discussed with advisers the possibility of imposing a flat 60 percent tariff on all Chinese imports, according to three people familiar with the matter who spoke on the condition of anonymity to relay private conversations."
"Despite tariffs’ destabilizing impact on the global and U.S. economies, Trump has promised to dramatically expand their use in a second term. He has floated enacting a “universal baseline tariff” on virtually all imports, or roughly $3 trillion worth of goods, which would amount to more than a ninefold increase in the amount of goods subject to tariffs compared with his first term. He has also talked about pushing legislation to have the United States automatically impose “reciprocal” tariffs matching those of all countries on U.S. exports, which would almost certainly lead to a sharp rise of trade hostilities."
Trump's conversation about a general 10% tariff (the “universal baseline tariff”) is here.
And here is a Trump interview with Maria Bartiromo of Fox News that discusses tariffs:
Bartiromo: Is it possible to decouple, or is it just tariffs, the way you dealt with it? You used tariffs and sanctions against China.
Trump: I did, and I did very well with it. As you know, we took in hundreds of billions of dollars in taxes with the tariffs, taxes and tariffs ...
Bartiromo: Is that what you want to do again?
Trump: We have to do it. I mean, look, their stock market almost crashed when it was announced that I won the Iowa primary in a record, and then when I won New Hampshire, their stock market went down like crazy. So you know, obviously, I'm not looking to hurt China. I want to get along with China, I think it's great. But they've really taken advantage of our country, and we turned it around. We put big tariffs on steel. I saved the steel companies, and now Japan is buying US Steel. US Steel. You know what a name that is? That's the most important name, 50 years ago there was no company like US Steel. Now Japan is buying it. I don't think I'd let that deal go through by the way.
Bartiromo: Well, your critics are saying that you're gonna start another trade war.
Trump: It's not a trade war, I did great with China, with everything. Look, China came in, they were going to destroy our steel industry, and I put tariffs, big tariffs. 50%, 100%, but 50% for the most part. It stopped it. I have steel people that every time they see me, they start to cry. They hug me. They say, you saved our industry. But now we're letting it go
Bartiromo: Now the Washington Post is saying that you're talking about 60% tariffs on Chinese goods. Is that in the cards?
Trump: No, I would say maybe it's gonna be more than that. Because we're going to have ... look, I want China to do great. I do. And I like President Xi a lot. He was a very good friend of mine during my term ...
...
Look, it's not sustainable for this country to lose $500 billion a year every year like, like, like the sun rises. We lose $500 billion a year. No country can sustain that. And we're not going to do it because the people that ran our country allowed it to happen.
And then there's a Bloomberg article that starts off this way: "Donald Trump is targeting the European Union for a potential slew of punitive trade measures designed to address long-standing grievances should he retake office, according to people familiar with his team’s nascent economic-platform discussions. ... If Trump wins in November, the EU undoubtedly will be one of his chief targets on trade, according to conversations with several Trump advisers." Targeted how? Like this:
A likely starting point in a second Trump administration would be the EU’s inclusion in a broad minimum 10% tariff, which would also be applied to China, his allies said. He might also assemble counter-measures against European digital services taxes that implicitly go after US technology champions, using Section 301 of the US trade law, the allies added.
And here's Trump speaking at a campaign rally and identifying India and Brazil as targets too:
I will pass the Trump reciprocal trade act. If China or any country makes us pay a 100 or 200% tariff, we will make them pay a reciprocal tariff of 100 or 200% right back. In other words, if you screw us, we will then screw you. It's very easy, very simple, a very simple plan. Very simple plan. China charges us 100% and 200%. And others do. India's very, very, a very big abuser. Brazil. They charge us, we don't charge them. We were charging them a lot. We took in billions of dollars. We took hundreds of billions from China, we never took in anything. And as the tariffs on foreign countries go up, taxes on American workers and families will come down dramatically. Because we will be taking in a lot of money. You know, we have this tremendous deficit. We're not going to have much of a deficit, we'll do the reciprocal trade act, that's gonna get rid of a big chunk of our deficit, and you won't have to pay a damn thing. You won't have to pay a thing. Don't let the fake news tell you that it costs you, no, it doesn't cost you.
And here was Trump on CNBC:
SORKIN: Mr. President, I just wanted to ask you, though, you’ve also talked about proposing a 10% tariff, ... . I wanted to ask you about that because the center right American Action Forum, which is a think tank, said that they thought the plan would "distort global trade discourage economic activity and have broad negative consequences for the U.S. economy."
PRESIDENT TRUMP: Well, they’re wrong. It would distort international trade. It would bring it back to the United States. We have companies, if you look at India, you look at China, you look at so many different countries, they’re smart, much smarter than our country. We were getting ready to do this and I had it just about set –
SORKIN: But you don’t think it would result in higher prices for American families? By some estimates, it could be the equivalent of $2,000 a family according to the economist.
PRESIDENT TRUMP: No, I think taxes could be cut, I think other things could happen to more than just that. But I’m a big believer in tariffs for two reasons. Number one, I fully believe in them economically when you’re being taken advantage of by other countries. For instance, China was taking advantage of us on the steel, they were destroying our entire steel industry, which was never doing very well over the last 25 years anyway, but you know, because it’s been eaten alive by foreign competition, and they were dumping steel. I put a 50% tax on China’s steel coming in and every person in the steel industry when they see me they started crying. They were to hug me, they would kiss me, sir you saved our industry. I put a very strong 50% tariff on dumping steel, on their dumped steel. And by the way, it, nothing was perfect. Frankly, the tariffs should have been higher. I was getting ready to do that by the way but the tariffs should have been higher. This saved a whole industry but one thing, let me just say beyond the economics, it gives you power in dealing with other countries because China would come in and said no, no, no more tax. They were absolutely fine for me to deal with because they were so petrified of me putting on additional tariffs. And we don’t use that, China is right now our boss. They are the boss of the United States, almost like we’re a subsidiary of China and that’s because the Biden administration has been so weak.
MELISSA LEE: Mr. President is there no concern that China could impose retaliatory tariffs or retaliatory actions that would make doing business in China difficult for American companies, which are dependent on China for growth?
PRESIDENT TRUMP: That’s ok, yeah sure they might do that.
LEE: So tell Starbucks, tell McDonalds that is going to be all of a sudden maybe more difficult to do business there.
PRESIDENT TRUMP: Sure but they didn’t do it with me. You know, we went through years and they didn’t do it with me. And they never pulled that trigger. That’s a big trigger for them to pull. But even if they do, let American companies come back to America. If you want to sell a car in China, you can’t okay, you pay a massive tax or massive tariff. If we make our cars, we can’t sell in China, they charge tremendous tariffs. Well, they’re very smart. They’re saying, come over to this country. Look at Apple. I’ve had a great relationship with Apple and everybody over there was fine. But I said you got to build your plants here. They built a big plant in Texas. I was working on that very, very hard with various companies that they build in China because if they build in China, they have no tax on it so they make it in China. I said we want you to make it here. They were coming back, they did. They came back with a very big plant here said I’m not doing this unless you – the whole topic of tariffs to me is so simple. Number one, it’s great economically for us and it brings our companies back because if you charge tariffs to China, they’re going to build their car plants here and they’re going to employ our people. They’re right now building big plants because of Biden. They’re building big plants in Mexico. So they build a big giant of plants in Mexico then they sell it across the border with very little tax. It’s ridiculous. We want them to build their plants in the United States. We don’t want to get cars from China. We want to get cars made by China in the United States using our workers but it also gives us a big political power. Tariffs are tremendously powerful in terms of stopping wars, because they don’t want tariffs. And frankly, I made them sing, I made other countries sing with the threat of tariffs. And if you don’t have tariffs, we have nothing whatsoever on them. We have lost such an opportunity when I’ve seen if you want to build a Harley Davidson as an example. I said, How are you doing in India? They were in the White House. How are you doing in India? No good. Why? They have a 100% tariff, but more than that even and therefore we basically get it because you have to double and triple the price in India. It’s just so, what are you going to do? Well, they want us to build a plant in India that way we don’t have so they go, they go and they build a big plant in India. We started, under me we started doing the same thing here. And we have the pot of gold. We have the best pot of gold, but eventually we won’t have that because our country is going down and we’re not going to have it. We’re losing our economic power.
China building car factories in the U.S. is kind of interesting! I'm not sure how many politicians would support this right now, but I'd love to see them asked about it. Trump repeated this at a subsequent campaign rally:
Mexico has taken, over a period of 30 years, 34% of the automobile manufacturing business in our country, think of it, went to Mexico. China now is building a couple of massive plants where they're going to build the cars in Mexico and think they think that they're going to sell those cars into the United States with no tax at the border. Let me tell you something to China. If you're listening, President Xi, and you and I are friends, but he understands the way I deal, those big monster car manufacturing plants that you're building in Mexico right now, and you think you're going to get that, you're going to not hire Americans and you're going to sell the cars to us now, we're going to put a 100% tariff on every single car that comes across the line, and you're not going to be able to sell those cars. ... And I'll tell them if they want to build a plant in Michigan, in Ohio, in South Carolina, they can, using American workers. They can't send Chinese workers out there, which they sometimes do. But if they want to do that, we're welcome. Right? But they're not going to build them in Mexico and they're not going to do that. We're going to tariff them at 100%.
Then here's Trump in an interview with Time magazine:
Let’s shift to the economy, sir. You have floated a 10% tariff on all imports, and a more than 60% tariff on Chinese imports. Can I just ask you now: Is that your plan?
Trump: It may be more than that. It may be a derivative of that. A derivative of that. But it will be somebody—look when they come in and they steal our jobs, and they steal our wealth, they steal our country.
When you say more than that, though: You mean maybe more than 10% on all imports?
Trump: More than 10%, yeah. I call it a ring around the country. We have a ring around the country. A reciprocal tax also, in addition to what we said. And if we do that, the numbers are staggering. I don't believe it will have much of an effect because they're making so much money off of us. I also don't believe that the costs will go up that much. And a lot of people say, “Oh, that's gonna be a tax on us.” I don't believe that. I think it's a tax on the country that's doing it. And I know. Look, I took in billions of dollars from China. Nobody else ever did anything on China. I also let people know what the threat of China was. China was going along making $500 to $600 billion a year and nobody was ever even mentioning it until I came along. What's happening in Detroit is very sad because electric cars with this EV mandate, which is ridiculous, because they don't go far. They cost too much and they're going to be made in China. They're all going to be made in China.
Mr. President, most economists—and I know not all, there isn't unanimity on this—but most economists say that tariffs increase prices.
Trump: Yeah.
Are you comfortable with additional inflation?
Trump: No, I've seen. I've seen—I don't believe it'll be inflation. I think it'll be lack of loss for our country. Because what will happen and what other countries do very successfully, China being a leader of it. India is very difficult to deal with. India—I get along great with Modi, but they're very difficult to deal with on trade. France is frankly very difficult on trade. Brazil is very difficult on trade. What they do is they charge you so much to go in. They say, we don't want you to send cars into Brazil or we don't want you to send cars into China or India. But if you want to build a plant inside of our country, that's okay and employ our people. And that's basically what I'm doing. And that’s—I was doing and I was doing it strongly, but it was ready to really start and then we got hit with COVID. We had to fix that problem. And we ended up handing over a higher stock market substantially than when COVID first came in. But if you look at the first few years of what we did, the numbers we had were breathtaking. There's never been an economy—
Sir, the economy was certainly humming during your first term. There's no question about it. But, you know, Moody's did say that your trade war with China cost the U.S. economy $316 billion and 300,000 jobs. [Editor’s note: The estimate of $316 billion was made by Bloomberg Economics, not Moody’s.]
Trump: Yeah. Moody’s doesn’t know what they’re talking about. We had the greatest economy in history. And Moody's acknowledges that. So how did it cost us if we had such a good economy? Everybody admits it. If we didn't do that, we would have no steel industry right now. They were dumping steel all over this country. And I put a 50% tariff on steel. It was gonna go higher. And the people that love me most are businesses, but in particular, the steel industry. They love me because I saved their industry. I've had owners of steel companies and executives of steel companies come up and start crying when they see me. They say, nobody, nobody helped us until you came along. China was dumping massive amounts of steel into our country. And we saved the steel industry.
Do you think that businesses pass along the cost of a tax to the consumer?
Trump: No, I don’t believe so. I believe that it cost the country that—I think they make less. I actually think that the country that is being taxed makes less. I don't believe—
You don't believe that businesses pass on the cost?
Trump: No, I think what happens is you build. What happens to get out of the whole situation is you end up building, instead of having your product brought in from China, because of that additional cost, you end up making the product in the United States. And that's been traditionally what happened. If you look at what goes on. If you look at China, they don't want our cars. They charge them tremendous numbers. You look at India. India is a very good example. I get along very well with the people, representatives of India. Modi is a great guy, and he's doing what he has to do. But we had a case with Harley Davidson, I had Harley Davidson on the White House. I said, “How are you doing? How's business? Very good? Everything's good?” I said, “Just out of curiosity, how do you deal with India?” “Not Well.” Now you’ve got to remember, this is five years ago, four years ago, they said, “Not well. We can't do business with India, because they charged us such a big tariff, it was over 100%.” And at that price, you know, there's a point at which the consumer breaks and can't buy. They said, “But they will do anything for us to build a Harley Davidson plant in India. They don't want us to give motorcycles to India, but they do want us to build a plant.” I said, “Well, I'm not going to be very happy with that.” But that's ultimately what happened. They built a plant in India. And now there's no tax, and I'm saying we're doing the same thing. We're gonna build plants here. Now something that's taking place that nobody's talking about, maybe don’t know, but I have a friend who builds auto plants. That's what he does. If you ask him to build a simple apartment someplace, he wouldn't know how to do it. But he can build the plant, millions of feet, the biggest plants in the world. He's incredible. And I said to him, “I want to see one of your plants.” And he said to me, “Well, are you ready to go to Mexico? Are you ready to go to China?” I said, “No, I want to see it here.” He said, “We're not really building them here, not the big ones, the big ones are being built right now in Mexico or China.” China now is building plants in Mexico to make cars to sell into the United States. And these are the biggest plants anywhere in the world. And that's not going to happen when I'm President, because I will tariff them at 100%. Because I'm not going to allow them to steal the rest of our business. You know, Mexico has taken 31% of our auto manufacturing, auto business. And China has taken a much bigger piece than that. We have a very small percentage of that business left and then you have a poor fool like the gentleman is at the United Auto Workers who is okay with the fact that we're going to do all electric cars and it's so sad to see because the all electric cars are just not what the consumer wants.
...
Just to clarify something you said a moment ago: You're considering a 100% tariff on Chinese and Mexican imports?
Trump: I didn't say that. They charge us 100%. But they charge us much more than that. India charges us more than that. Brazil charges us what—Brazil's a very big, very big tariff country. I ask people, Who are the worst to deal with? I'm not going to give that to you because I don't want to insult the countries because I actually get along with them. But you'd be surprised. The E.U. is very tough with us. They don't take our foreign products. They don't take our cars. We take Mercedes Benz and Volkswagen and BMW. They don't take our cars. If we want to sell a Chevrolet, even if we want to sell a Cadillac, a beautiful Cadillac Escalade, if we want to sell our cars into Germany, as an example, they won't take them.
Let's come back to Europe later.
Trump: I said to Angela Merkel, “Angela, how many Chevrolets are in the middle of Berlin?” She said none. I said, “You're right about that. But we take your cars, including cars that aren't that expensive, like Volkswagen, relatively speaking.” I said, “Do you think that's fair?” She said, “Probably not, but until you came along, nobody ever mentioned it.”
And here's Trump at a New Jersey rally talking again about tariffs on cars made by Chinese factories in Mexico (42:35 of video):
China is building massive automobile plants. I'm sure you gonna be thrilled to hear this. A friend of mine builds automobile plants. ... I said, I want to see one of the plants. He said, Well, you'll have to go to Mexico. I said why? He said the big ones are being built in Mexico. I said what about the United States? No, the big ones are being built in Mexico. Biden has taken so much incentive away and they're moving into Mexico. And what's happening is the really big ones are being built by China in Mexico to make cars in Mexico, by China, to sell into the United States, to come across the border with no tax. I said wait a minute, you mean, the big automobile plants under construction now being built in Mexico? That's right. ... I said, so they're being built in Mexico, and they're owned by China. And China's running them right now. And they're doing that to avoid tax and labor expensive, more expensive labor and they're gonna sell all those cars into the United States. Yeah, they're built so that he makes the cars in Mexico, China, and they sell them here. I said that won't happen. I said, I will put a 200% tax on every car that comes in from those plants, and they're not going to do that because they'll destroy our automobile business, and Biden doesn't want to get involved. And those aren't electric vehicles necessarily. Those are gas powered vehicles, which he's not doing anything about. Do you notice he's trying to save the electrical vehicle but not the gas powered, which is the vehicle that everybody wants? So you don't have to worry about those plants, if I'm elected. If I'm not elected, those plants are going to close up every automobile job in America, you won't be making one automobile in the United States of America.
And then most recently, there have been reports that Trump "floated the concept of eliminating the income tax and replacing it with tariffs." The math doesn't work at all on this, but regardless, given everything else that was said above, it's not too surprising to hear this sort of thing. In addition, Trump appears to think the McKinley tariffs were some sort of great success, something he made reference to years ago as well.
So how would the executive branch accomplish all of this under a Trump presidency? A Washington Post article tells us that "[a]llies of the former president are searching for legal justifications for charging duties on all imports." For more specifics, we turn to former U.S. Trade Rep. Robert Lighthizer, who said this last December:
... Mr. Lighthizer said that given the size of the U.S. trade deficit and its impact on the American economy, a president would have “clear authority” under two laws — the International Emergency Economic Powers Act and Section 338 of the Tariff Act of 1930 — to impose tariffs unilaterally.
IEEPA has probably become familiar to people at this point. Section 338 was explained by John Veroneau and Catherine Gibson of Covington & Burling here. In a nutshell:
Section 338 permits the president to impose “new or additional duties” on countries that have discriminated against commerce of the United States. Section 338 authority is triggered when the president finds that a foreign
country has either (1) imposed an “unreasonable charge, exaction, regulation, or limitation” on U.S. products which is “not equally enforced upon the like articles of every foreign country”; or (2) “[d]iscriminate[d] in fact” against U.S. commerce “in respect to customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition” so as to “disadvantage” U.S. commerce as compared to the commerce of any foreign country.
There was also this from Politico: "One legal tool that’s been floated is Section 122 of the Trade Act of 1974, which authorizes tariffs of up to 15 percent against countries that have “large and serious” trade surpluses with the U.S."
I thought it might be difficult to match the intensity of trade policy during Trump's first term, but it seems like they plan to give it a shot!
Posted by Simon Lester on June 23, 2024 at 07:06 AM in 2024 Presidential Campaign | Permalink | Comments (0)
This is the second of two posts that take a look at the submissions and recount some of what was said at the hearing in the first USMCA Rapid Response Labor Mechanism (RRM) dispute between the United States and Mexico. If you’re new to the discussion, check out the prior post here. Since my last post, however, the panel’s 119-page determination (including a separate view by one panelist and three annexes) was made public so I will comment briefly also on its findings where applicable.
In this post, I concentrate on two interrelated issues. One is the parties’ discussion about the meaning of “Covered Facility,” and the other is the parties’ dialogue with the panel about the panel’s purpose and the purpose of the RRM. If you're short on time, here are the two bottom-line points that came through from the panel proceedings: (1) the intersection of trade and labor and the issue of how the latter fits into the former are far from settled, and, (2) despite the extensive customs data that governments now collect, specific details about goods crossing borders remain challenging to prove – a point that is relevant also to other sustainability and due diligence laws beyond the RRM.
To be sure, the panel’s decision did not turn on either of these issues. Rather, the panel’s determination that it did not have “jurisdiction” over the dispute rested on its conclusion that, under the USMCA, a denial of rights finding “can only be applied to events . . . that are subject to [Mexico’s] 2019” Federal Labor Law and that the events alleged by the United States in this instance did not meet that criterion. I take up that analysis in a forthcoming case note; in the meantime, colleagues have summarized the panel’s discussion on their law firm websites in case of interest.
Covered facilities and their sales profiles
To remind us again, the Agreement defines “Covered Facility” as a facility in Mexico or the United States that “(i) produces a good or supplies a service traded between” Mexico and the United States; “or (ii) produces a good or supplies a service that competes in the territory of a Party with a good or a service of the other Party.” I will confess that, among all the topics that one could find legally or institutionally interesting (and, I suppose, controversial) in the RRM when the RRM was first announced, the definition of Covered Facility was relatively low on my list. It was on the list, sure, but I did not expect the extended discussion that played out among the parties and the panel, and perhaps I was not alone among stakeholders.
Throughout the hearing, the panel asked several questions about the meaning of “Covered Facility.” The issue was contentious as an evidentiary matter because the United States did not provide evidence to show that substances being mined at the San Martín facility were entering the United States. Rather, the United States took the position that it was sufficient to rely on the operating company’s U.S. Securities and Exchange Commission Form 10-K demonstrating that the company, which also operates other facilities, had recorded sales in the United States. Mexico later called out the United States on this point, saying that if the United States had wished to show that minerals from the mine were exported to the United States, it could have and should have submitted documents from U.S. Customs and Border Protection, but it did not. The panel subsequently had no difficulty dismissing the U.S. arguments with respect to the first possible definition, (i), of Covered Facility.
More challenging was the question of whether the facility produces something that competes in Mexico with a U.S. good or service under definition (ii). Let’s look back at the parties’ arguments.
The United States argued that the panel’s interpretation should “reach as many facilities as possible” to ensure that employers do not evade coverage under the RRM. Consequently, the U.S. position was that the good produced at a covered facility does not have to be exported or be put on the market to be considered a good that is traded between the parties or that competes in the territory of a party with a good of the other party. Rather, the United States maintained that where a good is a traded good, the circumstances of production of that good in any particular facility will affect the market for that good more generally. When questioned, the United States argued that “whether or not goods from the San Martín facility themselves are exported does not change the fact that if the labor rights of the workers producing those goods are not protected, costs are likely to fall,” affecting both the labor market and the economic market in which the facility operates.
Now this assertion sounds a lot like some of the arguments that arose in the U.S.-Guatemala dispute concerning the phrase “manner affecting trade” – a phrase that comprises part of an obligation on the parties to the CAFTA-DR. In the context of that dispute, there was some discussion as to whether a government’s failure to effectively enforce its labor laws would give firms in that country an economic advantage. It came to light that some economic studies have suggested that the opposite is true: firms -- and their host countries -- benefit financially where higher labor standards are enforced, not the other way around. Surely there are various layers of generality and nuance to such studies, and likely there is countervailing research. The point remains that these really complex interacting factors have contributed to the creative and still evolving experimentation in trade agreement drafting. For its part in the present dispute, Mexico offered that the United States failed to identify any U.S.-origin merchandise competing with the products from the mine.
Spoiler alert: The panel agreed with Mexico that the United States did not meet its burden in this regard. However, the panel nevertheless concluded that the mine was a Covered Facility on the basis of a statement made by the mine itself in its written submission. The mine argued, like Mexico, that the United States did not show that minerals produced at the mine competed against U.S.-origin goods, and that it could not do so, because the mine “has not sold any copper ore or concentrates to unaffiliated facilities in Mexico. It is all captively consumed.” This statement – that something is captively consumed – was sufficient for the panel to find that “production from the San Martín mine was in fact captured internally . . . presumably in Mexico”. The panel concluded that this statement “shows that the San Martín mine does indeed sell in Mexico and prima facie competes with other suppliers in the Mexican market.”
The place of “trade” in “trade & labor” disputes
The issues surrounding the RRM’s scope and the participants’ corresponding arguments are reflective of a broader conversation about the relationship between trade and labor and why we have labor chapters in trade agreements. Obviously, that is a question that many scholars and practitioners have addressed in the last 30 years. But it came to a clear point when the panel chair asked the following question on the second day of the hearing:
“As I sit here listening to the parties talk about USMCA as a trade agreement, I’m forced to wonder why I’m sitting in this chair. I was selected . . . because I have experience in labor matters. . . . Your repetition, both of you, that this is a trade agreement makes me wonder how you see the labor relations lens superimposing itself on a trade agreement.”
This debate about the panel’s role came up in several moments during the hearing. Mexico repeated more than once that “USMCA is not a labor treaty. It is a trade treaty.” A panel member at one point asked both sides whether the purpose of the Mechanism was to provide protection to the most workers possible. And, on another occasion, a panel member questioned the United States on the “ultimate purpose” of the RRM and whether it was to support a “notion that violations of freedom of association and collectively bargaining are a form of unfair competition.” As per the arguments I recounted above, the United States replied that the purpose was to prevent companies from producing in Mexico with an unfair advantage, which led the panelist to ask whether the panel ought to take into account in this dispute whether the actions complained of were giving Mexico an economic advantage. The conversation continued to the point where the panelist suggested that it would likely be to the advantage of the United States not to intervene on behalf of the striking workers as it would potentially eliminate a competitor for U.S. exporters.
These exchanges again showed the complications of the trade-labor relationship and the multiple functions of labor chapters in trade agreements: leveling the playing field and protecting human rights to name two common, but not obviously complementary, narratives. A footnote in the panel’s determination revealed just how many U.S. and Mexican companies are part of the corporate structure of this one mine. And some customs practitioners strongly believe that the RRM as presently structured inflicts more pain on U.S. companies (importers) than it does on the “misbehaving” facilities in Mexico.
In this context, these questions also intersect with issues of complementarity – is the RRM about strengthening Mexican institutions and what place for them in the story? At the hearing, Mexico raised concern that the United States was trying to broaden the Mechanism by creating “universal jurisdiction” over violations of Mexican labor law whereas, in Mexico’s view, the only law of relevance is the 2019 Federal Labor Law. Mexico argued that the panel could not act in this instance because to do otherwise would make it an appellate body over Mexican courts, which it is not.
Similarly, the panel did not get much into the standard for a “denial of rights,” but the parties did discuss it during the hearing. The United States argued that a denial of rights could be shown through a demonstration of a violation of Mexican law. Mexico replied a denial of rights is a term that is defined by the international agreement, not by domestic law, and must involve something more than just an ordinary violation of Mexican law. These questions about the relationship between Mexican law and treaty interpretation will have to wait for another day.
Looking ahead
As the next RRM panel gets underway, it will face its own set of interpretive challenges. What is clear thus far is that the language of the instrument has made it hard to square some of the parties’ intended review processes with traditional dispute settlement proceedings. The parties and the panel all appear to have struggled with reconciling these expectations and the text.
In the meantime, we will see if the United States carries on with accepting more RRM petitions in the months leading up to the election and, perhaps more importantly, in the period leading up to the USMCA review where both the United States and Mexico seem poised to want to make some changes to the current RRM arrangement.
Posted by Kathleen Claussen on June 20, 2024 at 03:14 PM in CAFTA, FTA Disputes, FTAs - General, Labor, Trade and Labor, USMCA Dispute Settlement | Permalink | Comments (0)
While the election of Lopez-Obrador's anointed candidate, Claudia Sheinbaum, in the elections June 2 was no surprise in itself, her margin of more than 30 points over the principal opposition candidate Xochitl Galvez (and over 58% of the total vote) was a surprise to many observers. Similarly, few were shocked when Morena achieved a supermajority in the Chamber of Deputies (372 out of 500). However, most pollsters and observers did not predict that Morena would come within a few votes of a supermajority in the Mexican senate (83 out of 128), so that AMLO would only have to persuade three opposition deputies to cross over to achieve the necessary 86 votes in the senate.[1]
Proposed Legislative and Constitutional Changes
Why is this important? Because AMLO and his supporters have promised that at the beginning of September, when the new congress is installed, but before Sheinbaum takes office on October 1, AMLO will seek to take full advantage of Morena’s congressional super-majorities. AMLO reiterated his intent in mid-June to enact legislation which will permit the firing of the current (more or less independent) Supreme Court as well as other federal courts with elected judges—approximately 1600 judges in total—to be replaced by judges effectively chosen by AMLO and Morena. [2] He and Morena would also enact other major changes that would threaten the rule of law and further weaken Mexico's negative investment climate, plagued by turbulence in the government and administrative agencies.
This conclusion assumes that the loose Morena coalition will hold together after October 1, when AMLO is no longer president. If even a few of the legislators who are currently part of the Morena coalition—perhaps if any do not want Mexico to return to pre-2000 single party government in the Hungary/India/Iran mold—any major legislative changes that are not made prior to October 1 could be deferred or abandoned. Whether that possibility is a realistic one or pie in the sky remains to be seen.
In February 2024, President Lopez Obrador submitted to the Chamber of Deputies a package of 18 constitutional amendments and two legal reform initiatives that aim, among other aspects, to modify the functioning of the Legislative and Executive and judicial branches and the electoral system. If all the legal and constitutional reforms were to be enacted, they would, inter alia, eliminate various autonomous constitutional bodies and regulatory organisms, as well as simplify the structure of the federal public administration sector. Significantly, the changes would further strengthen the Federal Electricity Commission ("CFE") near monopoly and further modify the power sector, in part by establishing constitutional prohibitions on various matters such as fracking, open-pit mining, and the use of vaping systems and fentanyl.[3] Many of these proposals were originally made earlier in AMLO’s term but failed either because of adverse Mexican court decisions or because Morena lacked a supermajority in the upper house. At that time, the opposition parties united to defeat the measures.[4]
Mexico’s Adverse Investment Climate
In a country where foreign direct investment has been discouraged inter alia by nearly six years of AMLO's efforts to roll-back the 2013 energy sector reforms to re-establish the virtually complete Pemex and CFE state monopolies by curtailing private investment in the power sectors, the result has been investor uncertainty and looming electric power shortages.[5] Such uncertainty would be further exacerbated, and most aspects of the rule of law eroded, if the judicial reforms noted above are implemented. Added to serious water shortages in some parts of the country, uncertain access to natural gas, continued rampant corruption, strengthened drug cartels, reduced personal security, generally low productivity, and expanded government military control in customs, transportation and other sectors, FDI is likely to remain stagnant or decline from its current levels. FDI has been essentially unchanged since 2018 at around $33 billion annually, despite enormous nearshoring investment opportunities resulting from US attempts to de-link production and supply chains from China. For the first half of 2023, one bank estimates that of the $29 billion dollars of direct investment that had occurred, 78% corresponded to the reinvestment of profits, 15% to transactions between companies, and only 7% to new investments.[6]
Addressing the Electric Power Crisis
Although it is reasonable to hope that Ms. Sheinbaum becomes her own person after she becomes president on October 1, such independence is likely be very difficult for her to achieve, particularly in the short to medium-term. She has the advantage of being a PhD in environmental science, and a reputation that suggests a level of interest in green energy which has escaped AMLO and most Morena members of congress, who remain totally enamored with Pemex and oil.[7] Yet she lacks AMLO's charisma and his overwhelming influence over Morena party officials, not only in the congress but also in state and local offices. For example, Morena now will control 23 of 32 governorships, and those governors effectively owe their positions to AMLO.[8]
Mexico faces an energy crisis in large part because of AMLO's dislike of FDI in the green power sector, which has resulted in the effective expropriation of a series of US, Spanish and Italian-owned windmill and solar panel projects in order to strengthen the CFE's near-monopoly. The government under AMLO also pressured one of Mexico’s largest foreign investors in clean energy, Iberdola, to give up on the Mexican market and sell its assets to CFE.[9] The lack of CFE's funds or technology to expand Mexico's electricity production, or power transmission capabilities, has resulted in a series of short-term brownouts in some parts of the country, and continued dependence on fossil fuels including natural gas (around 55%), coal (about 6%) and dirty Pemex fuel oil (about 14%). Less than 10% is solar and wind generated. [10] Mexican authorities, such as the energy regulator CRE, have also largely ceased authorizing independent power projects (IPPs), whereby a large factory could arrange for its own energy supplier, independent of CFE.[11] While "distributive generative" projects are allowed without CRE authorization, the paltry 0.5 megawatt limitation (contrasted with the US cap of 5.1 MW) means their use is limited, “presenting a significant hurdle for companies whose energy consumption often exceeds this limit,” with some experts calling for an increase in the 0.5 MW cap.[12] The Mexican Supreme Court ruled in January 2024 that an electricity law favoring state-owned utilities over private firms violates constitutional guarantees of free competition in the power sector,[13] but with Morena’s supermajorities in the congress and likely soon in the Supreme Court, whether this decision will survive remains unclear.
In my view any new investor in Mexico that believes they will have a 24/7 dependable, reasonably priced supply of even partially clean electric power for the medium or long term, or access to a functioning judiciary, is naive. Any multinational enterprise that has made commitments toward achieving carbon neutrality in 2040 or 2050 should understand that establishing facilities in Mexico will challenge their global commitments, perhaps for several decades.
Dependance on US Natural Gas
To some extent it has been feasible for manufacturing enterprises in the Mexican border states to purchase electricity in small quantities from the United Stares, principally Texas but also Sonora. [14] Enterprises in the border states and CFE are heavily dependent on natural gas imported from the US, primarily from Texas, in part because Pemex’s production of natural gas has declined by 30% between 2009 and 2023.[15] In 2022, Mexico imported about 5.7 billion cubic feet of US natural gas per day per day, about 69% of Mexico's natural gas consumption by some estimates.[16] Fortunately, the US for the foreseeable future is likely to have excess natural gas to sell to buyers in Mexico. However, much of Mexico beyond the northern border states does not have natural gas pipelines available to transport imported gas.
Other Disincentive to FDI
In addition to energy, other AMLO reforms are expected to further increase the arbitrariness and unpredictability of investing in Mexico. AMLO's administrative initiative, if approved, would allow the executive branch to act arbitrarily, revoke and modify administrative licenses or certifications at any time, including after they are issued, only subject to the interpretation the government will make of vague concepts, such as "public interest", "national security" or "to protect individuals’ fundamental rights".[17] Such vagueness is also in my view tailor-made for increased corruption. Moreover, court review could become useless under the new system of elected judges..
At a time when the likelihood of arbitrary government action is increasing, the protection for foreign investors is less comprehensive under the USMCA than it was under NAFTA, meaning that in many cases a US or Canadian investor's only recourse is to the Mexican courts or administrative tribunals--which are less likely to be independent of the government than before the planned reforms leading to the election of judges (undoubtedly chosen by AMLO or Sheinbaum or other Morena politicians). Canadian investors no longer have any recourse to independent third-party investor-state dispute settlement (ISDS). US investors in government contracts relating to petroleum, electric power, transportation, telecommunications and certain infrastructure projects enjoy NAFTA-like protections. All others must exhaust local court or administrative remedies before becoming eligible for ISDS. The scope of challenging regulatory actions is significantly decreased, as an international arbitral tribunal appointed under USMCA authority has no jurisdiction to review arbitrary actions ("fair and equitable treatment") or indirect or creeping expropriation.[18]
Probable Return to Single-Party Government
No one really knows in mid-2024 whether AMLO and Morena, with at least tacit concurrence by Sheinbaum, will be able in September to make the major changes in Mexico's laws and constitution that if enacted would make Mexico's investment climate even weaker than it is today. But there is also a strong possibility that whatever is not accomplished in September will take place under Sheinbaum soon thereafter, if she feels obligated to do so and the Morena coalition holds. AMLO, Sheinbaum and Morena appear to have sufficient power to return Mexico to single-party government, as was the situation in Mexico for more than 70 years prior to 2000, where the Institutional Revolutionary Party (PRI) exercised during most of that period near complete control over the presidency, the congress, the judiciary and the administrative agencies, once termed the “perfect dictatorship.”[19] One might have hoped that fewer Mexican voters wished to risk return to autocratic government, but that was not evidenced on June 2.
A key post-election question is the extent to which if any President Sheinbaum will be able to act independently of AMLO in the future on such vital issues as increasing Mexico's supply of electric power, clean or otherwise. Many potential investors may take a wait and see attitude, at least until the end of 2024 to judge whether the Sheinbaum presidency is likely to become more, less (with the attempted AMLO September "reforms"), or similarly neglectful of Mexico's investment climate. Sheinbaum's background as a climate scientist may give hope to some. For others, the knowledge that AMLO will effectively control the Congress long after October 1, retain his charismatic hold on public opinion, and may find it difficult to refrain from looking over Sheinbaum's shoulder well into her "sestenio” may well cause a high level of skepticism that will be translated into less new investment in 2024 and the future.
Conclusion
As noted earlier, no one will really know until after October 1 whether the rollback of many elements of Mexico’s current mostly democratic system by the legal and constitutional changes backed by AMLO and the congress will become effective. It is clear, however, that virtually none of them will repair Mexico’s poor investment climate. Even initial action on energy, such as increasing the current limit on distributive generative projects from 0.5 megawatts to 5, 10 or even 25 megawatts, would be helpful, but in itself such improvements would not convince many potential investors to make long term investment commitments given the high risk of arbitrary government interference.
[1] Michael Oboyle and Maya Averbuch, “ Mexico Ruling Party Coalition Just Shy of Supermajority,” June 9, 2024, Bloomberg, https://www.bloomberg.com/news/articles/2024-06-09/morena-party-just-shy-of-supermajority-in-senate-delgado-says.
[2] See Christine Murray, “Mexico’s outgoing president pushes ahead with plan to fire 1,600 judges,” June 13, 2024, Financial Times, https://www.ft.com/content/3319d056-7522-4e36-8210-f908346c9f41?shareType=nongift (confirming plans to make such changes in September).
[3] See Francisco de Rosenzweig et al, “Constitutional and Legal Reform Initiatives proposed by President Andrés Manuel López Obrador,” February 12, 2024, White and Case, https://www.whitecase.com/insight-alert/constitutional-and-legal-reform-initiatives-proposed-president-andres-manuel-lopez (providing a detailed and comprehensive summary of AMLO’s proposed reforms).
[4] See, e.g., Juan Montes, “Mexico’s Congress Defeats President’s Bill to Overhaul Election Agency,” December 6, 2022, Wall Street Journal, https://www.wsj.com/articles/mexicos-congress-defeats-presidents-bill-to-overhaul-election-agency-11670376590.
[5] See, e.g., David A. Gantz, “AMLO’s Energy and Investment Policies Will Make Mexico Poor Again,” August 4, 2022, Baker Institute for Public Policy, https://www.bakerinstitute.org/research/amlos-energy-and-investment-policies-will-make-mexico-poor-again.
[6] “Mexico | Foreign Direct Investment: positive performance,” September 4, 2023, BBVA Research, https://www.bbvaresearch.com/en/publicaciones/mexico-foreign-direct-investment-positive-performance/ .
[7] See Gavin Maguire, “Mexico's energy transition hits reverse in 2023, February 13, 2023, Reuters, https://www.reuters.com/markets/commodities/mexicos-energy-transition-hits-reverse-2023-2024-02-13/ ; Cassandra Garrison, “Can Mexico's Sheinbaum, a climate scientist, shake Lopez Obrador's oil legacy?,” June 6, 2024, Reuters, https://www.reuters.com/world/americas/can-mexicos-sheinbaum-climate-scientist-shake-lopez-obradors-oil-legacy-2024-06-04/.
[8] Carin Ziss and Chase Harrison, “Mexico Elects: Ongoing Coverage of the 2024 Race—The Results Are in,” June 3, 2024, AS/COA, https://www.as-coa.org/articles/mexico-elects-ongoing-coverage-2024-vote.
[9] Belén Carreño and Adriana Barrera, “Mexico Snares Iberdrola Power Plants for $6 biln in ‘New Nationalization,’” April 4, 2023, Reuters, https://www.reuters.com/markets/deals/mexico-buy-13-power-plants-spains-iberdrola-6-billion-2023-04-04/.
[10] “Distribution of electricity generation in Mexico in 2022, by source,” May 14, 2024, Statista, https://www.statista.com/statistics/1237496/mexico-distribution-of-electricity-production-by-source/.
[11] “Mexico's 'door is still closed' to private energy investment,” August 30, 2023, Bnamericas, https://www.bnamericas.com/en/features/mexicos-door-is-still-closed-to-private-energy-investment.
[12] Ian de la Garza, “A Brief Study of Distributed Generation: Mexico vs. the World,” June 16, 2023, Mexico Business News, https://mexicobusiness.news/energy/news/brief-study-distributed-generation-mexico-vs-world.
[13] “Mexico’s Supreme Court rules against electricity law favoring state-owned utility over private firms,” January 31, 2024, Associated Press, https://apnews.com/article/mexico-power-sales-unconstitutional-060ab7b4918d6af511a610088f167655#.
[14] In the past, Arizona Public Service, based in Phoenix exported electricity from Yuma, southwest of Phoenix, across the international border to two large industrial users (Bose and Daewoo Electronics) located in San Luis del Rio Colorado. At the time CFE did not have the generating capacity to supply the plants, which employed more than 4,000 workers at their peak. (Based on the author’s personal recollections as counsel for one of the firms.)
[15] “Pemex’s Natural Gas Production from 2008to 2023,” May 22, 2024, Statista Research Department, https://www.statista.com/statistics/543608/natural-gas-production-of-pemex/.
[16] “Energy trade between Mexico and the United States reached a record $81.9 billion in 2022,” June 28, 2023, U.S. Energy Information Administration, https://www.eia.gov/todayinenergy/detail.php?id=56960; Ira Joseph and Diego Rivera Rivota, “Lucrative Reward or Mounting Risk? Mexico’s Growing Reliance on US Gas,” October 24, 2023, Columbia SIPA, https://www.energypolicy.columbia.edu/publications/lucrative-reward-or-mounting-risk-mexicos-growing-reliance-on-us-gas/.
[17] See Alejandro Lopez Ortiz et al, “Proposed Mexican Legislative Reform Threatens Private Sector Interests,” April 3, 2023, Mayer Brown, https://www.mayerbrown.com/en/insights/publications/2023/04/proposed-mexican-legislative-reform-threatens-private-sector-interests.
[18] USMCA, Chapter 14.
[19] See, Jo Tuckman, “Mexican Democracy’s Lost Years,” June 23, 2012, New York Times, https://www.nytimes.com/2012/06/24/opinion/sunday/mexican-democracys-lost-years.html?pagewanted=all (quoting Peruvian novelist Mario Vargas Llosa because of the PRI’s “tight control of public life without resort to military juntas and their everyday brutalities”).
David A. Gantz
Will Clayton Fellow, Baker Institute for Public Policy, Mexico Center
Posted by David A. Gantz on June 18, 2024 at 10:28 AM in Expropriation, Foreign Investment, Globalization, Trade Law and International Law | Permalink | Comments (0)
Tags: foreign direct investment, Mexico
This is from the South Asia International Economic Law Network:
SAIELN’s 4th Biennial Conference will take place on 16th - 18th December 2024 in Colombo, Sri Lanka, in collaboration with the Open University of Sri Lanka.
An abstract of 500 words should be submitted no later than 30th July 2024. Authors of selected abstracts will then be required to submit a working draft of their contribution of at least 3,000 words by 1st October 2024.
Non-exhaustive list of themes and topics of the conference:
- Civil society perspectives on IEL
- Local communities and IEL
- Impact of IPR on public health
- Interaction of ISDS with indigenous people
- Impact of IEL on climate justice
- Localising the International - IEL experiences
- Re-evaluating trade and investment policy for grassroots-level actors
- Democratic participation and inclusivity in IEL
- Impact of international-standard setting on local actors
- Inclusive participation of consumers in international standard-setting
- The interplay between international human rights law and IEL
- Role of trade agreements in enhancing inclusivity and sustainable development
- Leveraging IEL for benefiting local actors
- Interdisciplinary analysis of IEL
We welcome critical and interdisciplinary perspectives, South Asian and global case studies and approaches.
Please make submissions and enquiries to [email protected]
Posted by Simon Lester on June 18, 2024 at 05:24 AM | Permalink | Comments (0)
I noticed that the Canadians had started their preparation for the six year USMCA review and extension decision under Article 34.7, so I wrote a short piece for the Baker Institute about all this. This is the conclusion:
The USMCA review and extension process is new and untested, and its impact could range from modest adjustments to full-scale renegotiation. Every stakeholder with an interest in the review — businesses, NGOs, unions, academics, and others — should start preparing their views now so as to communicate them clearly to the government officials who will be in charge of the negotiations.
Canada has begun that process, and Mexico and the United States should follow suit quickly. In Mexico, controversies over party control of the Mexican legislature, along with laws and constitutional amendments proposed by the Morena party, may be distracting government officials at the moment. And in the United States, the upcoming presidential election is the primary focus of political attention. Nonetheless, both governments would be well advised to begin efforts similar to Canada’s.
I have been a skeptic about this provision from the start. Doing a review of a trade agreement is fine, but I thought the original proposal for an automatic termination after five years unless everyone agrees to extend was a bad idea, and the modified version we ended up with is complex and convoluted. But it's very hard to say how this will turn out in practice, and I guess we'll find out soon enough whether I was right to worry.
What I might do instead of the current Article 34.7 process -- which perhaps could be tweaked as part of the 2026 review -- is have reviews more frequently than every six years. That may not be worth doing for every trade agreement out there, but North American economic integration is important enough that it's worth taking a close look at periodically. Additional reviews might be of particular value for transparency. The three governments have USMCA meetings regularly, but the general public only gets little snippets of information about was said. A review process could, at least in theory, provide more details on what the governments are talking about under the agreement.
Then in terms of the extension provisions, given that withdrawal is already possible under Article 34.6, I'm not sure a provision requiring an affirmative decision on extension adds much value. However, if there is going to be such a provision, what I think would be useful on the U.S. side is a clarification that Congress gets a formal say in this decision. For example, there could be legislation requiring that in order for the U.S. government to decide not to extend (or, for that matter, to withdraw pursuant to Article 34.7), the House and Senate must both vote in favor. It's not clear to me if Congress meant to delegate away its power here, but now that people are aware of the issue, they should reassert their authority.
When I was writing the piece, all I had was the first session of the Canadian parliamentary committee's meetings, but since then there have been a few more. You can see all of them here.
Posted by Simon Lester on June 16, 2024 at 07:00 AM in USMCA Sunset/Review Clause | Permalink | Comments (0)
Law prof Stratos Pahis sends this along:
The Dennis J. Block Center for the Study of International Business Law at Brooklyn Law School is organizing a Roundtable in International Business Law. The Roundtable will take place on September 27, and proposals are due by June 28. The call is here.
Posted by Simon Lester on June 13, 2024 at 05:02 PM | Permalink | Comments (0)
The Journal of International Economic Law (JIEL) is pleased to announce its fourth annual Junior Faculty Forum (JFF) to be held virtually September 20-21, 2024. The JIEL JFF brings together early career scholars (including junior faculty, visiting assistant professors, PhD candidates, post-doctoral fellows, etc.) working in the field of international economic law. The purpose is to allow scholars to present their work before an audience of peers and experts and receive feedback from senior scholars. In addition, at least one piece will receive an offer of publication to appear in the 28th volume of JIEL.
Junior scholars are encouraged to submit their abstracts for consideration by no later than July 1, 2024.
For more information on eligibility and how to submit, go here.
Posted by Kathleen Claussen on June 11, 2024 at 11:23 AM | Permalink | Comments (0)
Comments on the Biden Administration's Proposed New Tariffs on Imports from China
Steve Charnovitz
Docket USTR-2024-0007
USTR-2024-0007-00106921
6 June 2024
The proposed United States (US) tariffs modifications noted in the Federal Register on 28 May 2024 undermine both international law and United States-China relations. Therefore, the counterproductive existing tariffs on China (Lists 1-4) should be modified by terminating them.
On 15 September 2020, a World Trade Organization (WTO) panel ruled that the Section 301 tariffs violate the fundamental law of the General Agreement on Tariffs and Trade (GATT), in particular Articles I and II. The United States should uphold and respect international law, not be a casual violator of it. When the US violates conventional international law, it signals a green light to other scofflaw countries that they do not need to take their international law obligations seriously.
As of June 2024, the well-reasoned WTO panel decision has not yet been adopted by the WTO judiciary. That's because the US has engaged in a bad faith appeal to an Appellate Body that was out of service at that time, and has remained out of service since January 2021 due to resistance by the Biden Administration to reconstituting the WTO appellate court.
Yet in the second decade of the 21st century, the importance of international courts and tribunals to managing conflict is manifest. The need for the rule of law is especially vital in the multilateral trading system when large economies like the US partake in persistent protectionism in violation of WTO rules.
In using Section 301 against China, the US is engaging in discriminatory trade policies. Before the WTO court, the US sought to justify this discrimination by claiming that its discrimination against China protected US public morals. The panel rightly dismissed this fatuous argument on legal grounds. A fuller analysis of the effects of the tariffs would show that federal discriminatory actions against the Chinese people in China undermine US morals. From the time of the 1882 Chinese Exclusion Act to the present, the US government has too often treated the Chinese people unfairly. The continuing legacy of US racism demoralizes the American public.
Employing WTO-illegal trade sanctions against China is especially counterproductive now when achieving cooperation from China is so important in dealing with aggression by the Russian Federation, nuclear threats by several totalitarian countries, worsening climate change, and unstable relations between WTO members China and Taiwan. Rather than poke China in the eye again with aggressive US unilateralism, the US should be looking for ways to improve relations with China. Modifying the Section 301 tariffs downward — or better yet withdrawing them entirely — would be a good first step toward US foreign policy sanity.
The Request for Comments asks whether higher tariffs on China will be effective in counteracting the actions China that China is alleged to be undertaking regarding technology transfer, intellectual property, and innovation. As I pointed out years ago (see "Grading Trump's China Strategy," 2019 European Yearbook of International Economic Law, 217-256), tariffs will be poor substitutes for efficient direct responses to domestic or foreign policies by China that the US finds objectionable. For example, if it is true that "China has ... become more aggressive, particularly through cyber intrusions and cybertheft, in its attempts to acquire and absorb foreign technology," the solution to that to better enforce US law against those individuals doing such practices.
The Request for Comments asks about the effect of higher US tariffs on the US economy and consumers. Obviously, tariffs create economic distortions that cannot possibly be welfare enhancing. Moreover, as Ambrose Bierce pointed out in 1911, tariffs are "taxes on imports designed to protect the domestic producer against the greed of his consumer." US consumers will continue to suffer from higher prices directly caused by the Trump-Biden tariffs on China.
The Request for Comments asks whether US tariffs should be higher on facemasks, medical gloves, syringes and needles. The answer is no they should not because these public health products should be available at as low a cost as possible. It is troubling that USTR would even ask this question at a time when the US is still recovering from its worst pandemic since 1918 and may be facing a new bird flu pandemic for which the US remains woefully underprepared.
Posted by Charnovitz on June 06, 2024 at 08:10 AM | Permalink | Comments (0)
In April, I mentioned an exchange between Senator Sheldon Whitehouse (D-RI) and U.S. Trade Rep. Katherine Tai on getting rid of ISDS in existing investment treaties/trade agreements. There was a bit of uncertainty about what exactly Tai meant, but now we have some additional context thanks to a FOIA request filed by the U.S. Chamber of Commerce for communications between USTR officials and the office of Senator Elizabeth Warren (D-MA). The Chamber was focused on digital trade policies, but the USTR FOIA reply also included some exchanges on ISDS.
The first ISDS communication from the Biden administration came in response to a letter sent by Warren, Rep. Lloyd Doggett (D-TX) and others to Tai and Secretary of State Antony Blinken in May 2023 (which I blogged about at the time), in which the members of Congress call for removing the consent to arbitrate and removing ISDS provisions from existing trade agreements and investment treaties. Tai's response (p. 83 of the FOIA reply) states the following:
President Biden does not believe corporations should receive special tribunals in trade agreements that are not available to other organizations, and he opposes the ability of private corporations to attack labor, health, and environmental policies through ISDS. I share these views, and the United States is not currently pursuing any trade or investment agreements that would establish ISDS.
Then in October 2023, there was an email from someone in Senator Warren's office to people at the State Department, who later brought in a USTR person and therefore the whole exchange was included in this set of communications (p. 175 of the FOIA reply), discussing the use of APEP as a forum to deal with ISDS removal:
I'd like to specifically discuss the [State] Department's role in ISDS and its thinking about pathways to removing ISDS from the US's existing FTAs, BITs, etc. and the potential use of APEP as a forum for that. We of course appreciate the Department's commitment to opposing the inclusion of ISDS in future agreements, but existing ISDS obligations continue to pose a problem for us and our trading partners.
And then finally, in response to a letter from Warren, Rep. Steve Cohen (D-TN) and others, Tai said the following in December 2023 (p. 209 of the FOIA reply):
Your letter further raised the idea of removing ISDS provisions from the United States' existing trade and investment agreements, including through the Americas Partnership for Economic Prosperity (APEP). I look forward to working with you and other Members of Congress to identify the best path forward, recognizing the role of Congress in amending existing agreements.
I'm not sure any of this tells us where we are going on ISDS, but it will at least help us explain how we got there!
Posted by Simon Lester on June 05, 2024 at 07:25 AM in Investor-State Arbitration | Permalink | Comments (0)
At an Atlantic Council event yesterday, U.S. Trade Rep. Katherine Tai talked about the ITO charter and some policy issues that did not make it into the international economic system at that time:
Tai: The original vision for trade in the Bretton Woods institutions went above and beyond the General Agreement on Tariffs and Trade, the GATT, which is what ended up making it across the finish line. The original vision to pair with the World Bank and the IMF was an international trade organization, the ITO charter, that had tariff pieces that were coupled with enforceable and meaningful worker standards based on a goal of full employment for all members, environmental equities, and also anti-monopoly provisions, to address the fact that it's not just the private sector companies that can behave as monopolies and distort economic opportunity, but entire countries. ...
...
Question: ... Talk about what role trade plays in this contest of democracy and autocracy.
Tai: Here's where I'll get into a bit of diagnosis in terms of where our successes have come up short. And I think that what I would do is go back to that original vision for the ITO charter, understand that it was more than just the GATT. And imagine what would have happened if the ITO charter had made it across the finish line. Now, one historical note, the ITO charter in full didn't succeed, and it was one Senator Taft, who really put the spoke in the wheel, and it was the same Senator Taft who had rolled back a lot of the New Deal worker protections that FDR had put into place. Now what was left on the cutting room floor, the enforceable, meaningful labor standards, the environmental standards, and then also the anti-monopoly rules. So instead what you ended up with was a tariff program and a program of trade liberalization standing on its own without the safeguards addressing the interests of working people, of the planet, and of ensuring a healthy and vital amount of economic opportunity that could happen within economies and between economies.
I'm not sure what she has in mind for environmental provisions that were in the ITO charter but not the GATT, but putting that aside, it's interesting how broad a view of global governance this is. Having binding and enforceable international rules on labor, the environment, and antitrust that apply to the U.S. would be a big deal. We have some rules in these areas to a limited extent today, but they don't have much impact on U.S. policy (e.g. right to work laws), and that's by design. I have serious doubts that the U.S. government would ever agree to a set of international rules that intruded into its sovereignty/policy space in a significant way on these issues. The U.S. did agree to such rules on trade issues that focus on protectionism, but doing something similar on labor, the environment, and antitrust would be asking a lot more.
A related issue is that the U.S. government changes its view on issues such as these over time as governance shifts back and forth between the parties. As we alternate between Democrats and Republicans running things, which we will continue to do, I'm not sure it is possible to find a set of international rules on these issues that both parties could support.
Posted by Simon Lester on June 04, 2024 at 10:18 AM in Katherine Tai | Permalink | Comments (0)
Here's something U.S. Trade Rep. Katherine Tai said, at an Atlantic Council event yesterday, about pulling back on the formulation of international digital trade rules:
Isn't it time for us to hit pause on this, come back, reconnect with all of the other policy silos, break them down, talk to our Congress, talk to our industry, the bigs and also the littles, the companies and also the workers, the platforms and also the creative content producers, and try to get our arms around what is actually happening here and what is in the public interest, because that is not the question that has informed the proposals that we've developed over time. So what I would say is, for all of those who are yearning for a leadership from the executive branch and USTR to tell everybody else what the answer is, my argument is the real leadership is in stepping back and saying, this is not an answer that is going to come from USTR alone. And that if that's what you're looking for, a USTR-led answer to how we should be regulating tech and data, that is not going to be the right answer. This is, again, a project for our collective wisdom, and it's only once we've achieved that wisdom, first here in the United States, and then with our trading partners, are we actually going to be assured of any kind of success that the world order we're creating that has rules for digital trade and technology is going to support economic opportunity for working people and democracy.
Let me offer two thoughts on this.
First, I do think the Biden administration needs to come up with a position on digital trade policies, including data flows obligations and exceptions, that can be put forward in international discussions. Most other governments have a position; it should be possible for the U.S. to have one too. There is lots of scope for playing around with language to develop a balance that everyone can live with, so maybe all the agencies with an interest in this should put forward their proposal, argue it out, talk it over with people in Congress, and then have someone in the White House make the final call.
Second, in terms of who exactly should take the lead on this, I think I agree with Tai, if I understand her correctly, that USTR may not be the best positioned to lead on this policy. In this regard, I have been wondering recently if we need a dedicated tech agency or office to lead on matters like this. I don't have strong feelings about where exactly in the federal government this tech expertise should be located, but it seems like it might be a good idea to have this sort of thing somewhere.
Posted by Simon Lester on June 04, 2024 at 07:10 AM in Digital Trade, Katherine Tai | Permalink | Comments (1)
This is from an exchange with U.S. Trade Representative Katherine Tai at an Atlantic Council event today (starts around 48:30):
Q: Ambassador, I wondered if you could tell us where your views overlap with those of Bob Lighthizer and where your views differ.
Tai: ... Where our views are similar, and where I find an alliance with Bob, is a commitment to the fact that we have to change our approach to trade, that the world is significantly different, and that the benefits here in the United States are not inclusive enough. Those are my words, and that's in my very much ... Democratic vocabulary. But I think that one of the really important and not foregone conclusions in the trade community internationally is that we do need to change. From my perspective, it's that we need to evolve the way we do trade. And you can't do that by yourself. You have to build that collective and that community to do it together. And I think that basing that community on a community of democracies is really important. In terms of where our views are different, I hope that that's obvious, and if it's not, I would definitely take some feedback on how I can make that more obvious.
Q: You want to throw out one example where it's different? Maybe deal with China, where do you think you're the same or different on China?
Tai: On China, I think we share a lot of the same diagnoses. I think one of the ways where Bob and I are most obviously different, again, is in rhetoric. Although, you know, Bob inside the room versus Bob outside the room can be different, just like for all of us. But you know, I think that one aspect of the Biden administration's approach, and this very much reflects President Biden's just innate internationalism, is this point of view that you have to build partnerships.
Normally I have some commentary on things Katherine Tai said (and I will have comments on other things she said at the event!), but here I just wanted to highlight the exchange because I thought people might find it interesting.
Posted by Simon Lester on June 03, 2024 at 01:35 PM in Katherine Tai, Robert Lighthizer | Permalink | Comments (1)
Weihuan Zhou and Victor Crochet have a new working paper called "Attribution to the State: A Critique of Cross-Border Subsidies," which combines two of my favorite issues: Cross-border subsidies and non-violation complaints. Here's the abstract:
While industrial policy and subsidies proliferate worldwide, the emergence of cross-border subsidies is intensifying legal and policy debate on how the rules of the World Trade Organization (WTO) can be applied to address the spillover effects of such subsidies. Amid this debate, this paper tackles a relatively more fundamental, yet under-explored, issue relating to attribution of state responsibility. We argue that the European Commission’s approach to attributing subsidies provided by one government to another government has overstretched the attribution rules under public international law and the WTO subsidy rules, setting a harmful precedent for similar abuses beyond subsidies. We propose non-violation claims as a viable and more balanced response to the challenges posed by cross-border subsidies. We call upon governments to retreat from unilateralism and resolve these challenges via cooperation.
After arguing that the EU approach to cross-border subsidies is not permitted, they say that non-violation claims can be useful here:
2. Developing non-violation claims
A more, and perhaps the only, sensible option is to bring non-violation claims (NVCs) pursuant to Article XXIII:1(b) of the GATT. This provision came out of the original GATT negotiations in the 1940s. It was applied and clarified by several GATT panels and was further negotiated in the Uruguay Round before it was also codified in Article 26.1 of the WTO’s Dispute Settlement Understanding (DSU).72 Article XXIII:1(b) and Article 26.1 maintain the avenue for governments to challenge measures which are not in breach of any WTO rules but which nullify or impair benefits under, or impede the attainment of objectives of the relevant covered agreement(s). It is clear from the historical development of these provisions that governments saw the importance of NVCs in addressing the issue of an incomplete GATT/WTO contract where the outcomes of tariff negotiations may be undermined by acts which were not foreseen at the time of the negotiations and hence were not captured by the GATT/WTO rulebook.73 At the same time, however, governments have resorted to NVCs with caution and generally accepted the interpretative approach taken by GATT/WTO panels to confine the application of NVCs to limited circumstances. Thus, governments brought and won NVCs only in a few disputes throughout the life of the GATT/WTO. These disputes were predominantly concerned about action taken by an importing Member subsequent to the negotiation of its tariff concessions with an exporting Member leading to the nullification or impairment of benefits (i.e. market access opportunities) derived from the concessions for the latter. 74 In Japan – Films (1998), the WTO panel summarised the legal conditions for an NVC: (1) the existence of a governmental measure, (2) a benefit accruing to the complaining Member from the relevant tariff concession or agreement, and (3) the benefit is nullified or impaired as the result of the application of the measure. 75 The panel also iterated that “the non-violation remedy should be approached with caution and should remain an exceptional remedy.”76
While GATT/WTO panels have developed restrictive interpretation of NVCs,77 we argue that their interpretation still provides room for establishing an NVC against cross-border subsidies. At a general level, there are at least three reasons for that optimistic observation. First, the legal conditions for NVCs remain unsettled. In the Uruguay Round negotiations, governments deliberately left out the conditions developed by GATT panels from the text of Article 26.1 of the DSU,78 arguably leaving the flexibility for WTO tribunals to further develop or refine these conditions. In a handful of disputes where NVCs were raised, WTO panels seem to have maintained GATT panels’ restrictive approach. 79 However, WTO panels also recognised that NVCs must be assessed on a case-by-case basis and can be applied to benefits unrelated to a tariff concession but stemmed from a WTO agreement.80 Second, a majority of the past NVCs, including the few successful ones, involved subsidy schemes, hence providing a solid precedent for applying NVCs to cross-border subsidies which as shown in Section III, are typical forms of financial contributions contemplated in the ASCM. Third, in adjudicating NVCs, GATT/WTO panels have focused on assessing whether a measure frustrated the competitive opportunities generated by tariff concessions rather than the impact on actual trade flows.81 This means that an NVC may be brought even before cross-border subsidies have caused an increase of subsidised imports into adversely affected countries.
Thus, more specifically, affected Members like the EU can argue that the cross-border subsidies provided by the Chinese government to its investors overseas have the effect of upsetting the competitive opportunity that EU producers should have enjoyed in their home market. The benefit, which must be interpreted broadly,82 comes out of the EU’s right to seek multilateral remedies or impose countervailing measures pursuant to GATT Article VI, as elaborated by the ASCM. Two complications can arise in this claim of “benefit”. One pertains to the fact that the benefit is related to the EU’s own tariff concessions. This presents an atypical situation compared to past NVCs, which consistently involved a tariff concession of a responding Member that created more favourable market access for the relevant exports of a complaining Member.83 The other complication involves the EU’s evidentiary burden to show that the Chinese subsidies were not reasonably anticipated at the time when the concessions were made,84 essentially during China’s WTO accession negotiations.
These hurdles, however, are not so difficult to overcome. A plausible argument would be that when the EU offered reciprocal tariff concessions, there was a legitimate expectation that it would have access to WTO-permissible remedies to offset the impact of subsidised imports to maintain certain degree of market opportunities for domestic industries. That China now provides harmful subsidies not captured by GATT Article VI or the ASCM nullifies or impairs the benefit that the EU should have enjoyed via these remedies. Here, it should be noted that the “adverse effects” claims under Article 5 of the ASCM would not apply as it requires the existence of a subsidy within the meaning of the ASCM in the first place.85
On the question of whether the subsidies could have been reasonably anticipated during China’s accession negotiations, the Working Party Report on the Accession of China (WPR) suggests that Members were unaware of issues related to cross-border subsidies. The discussions recorded in the WPR focussed on how the relevant economic policies, regulations, conduct of state entities, industrial subsidies may affect imports or investments into China, or how subsidised exports from China may impact trading partners.86 It follows that Chinese cross-border subsidies, which only became prominent after the launch of the BRI twelve years after China’s WTO accession, were not reasonably foreseeable by WTO Members.
Normally, I'm a non-violation skeptic, often on the basis that whatever measures were taken could have been anticipated. But here, as the authors point out, cross-border subsidies were not well known at the time of the Chinese accession negotiations, so it is plausible for a WTO Member to argue that it did not anticipate the Chinese government taking such measures in the way it did. Fleshing out the history of cross-border subsidies, in China and elsewhere, would be of great important to this claim.
Zhou and Crochet also make two other points that I want to highlight:
Not only is an NVC against cross-border subsidies viable, but it also provides a more balanced approach to tackle such subsidies for three reasons. First, a successful NVC does not require the removal of the contested measure but merely requires the disputing parties to reach a mutually satisfactory adjustment (Article 26.1(b) of the DSU). This provides the flexibility for the subsidising government to maintain the subsidies in pursuit of its policy goals and for the affected government to take action to rebalance the relevant rights and obligations under the WTO framework. Such action may involve withdrawal of tariff concessions (which would lead to an outcome similar to what a countervailing measure can achieve), compensation, or even cooperation between the parties in other areas of trade and investment. NVCs therefore provide a better avenue for the subsidising and aggrieved governments to negotiate a compromise that would work for both without causing a decision on whether the subsidies are WTO-unlawful.
... Third, compared to a violation claim, an NVC can be adjudicated more efficiently. As some have proposed in the context of using NVCs to address security-based measures, a “shortened and simplified dispute settlement procedure” can be developed to determine “nullification or impairment of benefits”, and the actual level of benefits can be agreed upon by the parties or decided by an arbitrator under Article 21.3(c) of the DSU.87 An NVC therefore can facilitate the settlement of disputes and the provision of remedies for the affected Member in a more timely fashion.
As to the resolution of successful non-violation complaints, we may not all agree on how DSU Article 26.1 is likely to work in practice, but I suspect that the first such complaint is going to lead to a good deal of confusion and controversy over how exactly things are supposed to proceed after a finding of nullification or impairment.
Relatedly, on their efficiency of adjudication point, maybe I am still scarred from my experience on the Japan - Film case, but I have doubts about whether non-violation complaints can be made significantly shorter and simpler than violation complaints. Among other factors here is that the responding party is unlikely to agree to something shorter and simpler. For obvious reasons, responding parties tend to try to drag the proceedings out, and I'm not sure why this would be any different in the non-violation context.
Posted by Simon Lester on June 02, 2024 at 08:50 AM in Non-Violation Nullification or Impairment, Subsidies | Permalink | Comments (0)
Former Biden administration official Peter Harrell recently argued that with regard to reform of China's economic practices (and political system), the original plan was to hope that economic ties would be enough, but when that didn't work the Trump administration imposed tariffs for this purpose:
For many years, the strategic paradigm of U.S. trade policy toward China was defined by the hope that economic ties would persuade China to continue on a course of gradual economic and political liberalization. By the mid-2010s, it was clear that this paradigm had failed, prompting Trump to impose sweeping tariffs in a bid to generate negotiating leverage to compel China to change its economic model. China responded to the tariffs, initially with retaliatory tariffs on U.S. exports like agricultural products, and ultimately Trump offered tens of billions of dollars in assistance to U.S. farmers to offset the impacts of Chinese tariffs. Later, China offered a handful of concessions as part of a “Phase 1” trade deal, largely to avoid a threatened future tariff escalation. However, China steadfastly refused to make more fundamental changes to its economy and market, and there is no evidence that China’s willingness to reform has increased in the years since.
People hoping for China to evolve on its own in terms of economic and political liberalization may have been looking at South Korea and Taiwan as models. That wasn't totally unreasonable, but the parallels between South Korea/Taiwan and China are limited, so a similar path for China may not have been likely.
With regard to economic liberalization specifically, rather than wait for China to change on its own, a more active strategy of pushing for economic reform was probably necessary in the years after China joined the WTO. That would have been a good foreign policy priority for the U.S. at that time.
Actually, it would still be a good priority for the U.S., as I'm not sure Chinese economic liberalization is a U.S. priority even now. As I recently wrote in a short piece for the Baker Institute, it seems clear that the Section 301 tariffs have not accomplished much on these issues. Perhaps they were intended for this purpose, but unilateralism of this sort has not had much success in the past, and the evidence is accumulating that it still does not work very well. Section 301 tariffs might be a way to protect U.S. producers from Chinese competition, but they aren't doing much to induce policy change in China.
As an alternative, I think WTO complaints would be more effective, although of course it does not seem likely that USTR will bring such complaints any time soon. Australia, the EU, and Japan have had a few recent complaints against China, but the big systemic issues related to non-market practices have not not addressed. It's hard to figure out what everyone's strategy is here, but as I see it, China made some broad commitments when it joined the WTO, and it seems like it could be useful to try to hold China to them. Here's how I concluded the Baker piece:
Sometimes “toughness” is judged by attitude, but results are what matter most. It is increasingly clear that U.S. unilateralism is coming up short on effectiveness. China committed to obligations tougher than any unilateral measures, and yet successive U.S. administrations have underutilized WTO enforcement — with the Biden administration totally abandoning it.
This is a mistake. If we are serious about pushing China to play an appropriate role in the world trading system — one commensurate with its status as an “upper-middle-income country” — we should make this a priority and hold China to the obligations it agreed to.
Posted by Simon Lester on May 31, 2024 at 07:02 AM | Permalink | Comments (2)
This is from SIEL:
The Ninth Biennial Global Conference of the Society of International Economic Law (SIEL) will take place on 9-11 July 2025 in Taipei (Taiwan), in collaboration with National Taiwan University (NTU). SIEL’s Ninth Biennial Global Conference will be in person and address the pressures of escalating geopolitical tensions, environmental challenges, unbridled economic nationalism, profound digital transformations, and growing inequalities are reshaping not just economies, but societies globally.
More information, including how to submit a paper, panel or poster is available at https://sielnet.org/siel-2025-announcement-of-date-and-venue/.
Posted by Simon Lester on May 31, 2024 at 06:40 AM | Permalink | Comments (0)
There seems to be a lot of experimentation going on these days with exceptions for the protection of personal data/privacy in digital trade agreements/chapters. I've talked about the some of these exceptions in prior posts, but to be honest I think I missed some nuances as I was looking at the bigger picture of data flows obligations and exceptions. In this post, I'm going to focus on several examples of exception provisions that refer to concerns around privacy, and then one additional example of exceptions that could cover privacy without mentioning it explicitly.
First up is the EU-Japan Economic Partnership Agreement. A recently added Annex to that agreement establishes obligations related to data flows in paragraphs 1 and 2, and then right after these obligations it sets out the following public policy exceptions:
...
3. Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with paragraphs 1 and 2 to achieve a legitimate public policy objective2, provided that the measure:
(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade; and
(b) does not impose restrictions on transfers of information that are greater than necessary to achieve the objective.34. Nothing in this Article shall prevent a Party from adopting or maintaining measures on the protection of personal data and privacy, including with respect to cross-border transfers of information, provided that the law of the Party provides for instruments enabling transfers under conditions of general application4 for the protection of the information transferred.
...-----------------
2 For the purpose of this Article, "legitimate public policy objective" shall be interpreted in an objective manner and shall enable the pursuit of objectives such as the protection of public security, public morals, or human, animal or plant life or health, or the maintenance of public order or other similar objectives of public interest, taking into account the evolving nature of digital technologies.
3 For greater certainty, this provision does not affect the interpretation of other exceptions in this Agreement and their application to this Article and the right of a Party to invoke any of them.
4 For greater certainty, in line with the horizontal nature of the protection of personal data and privacy, "conditions of general application" refer to conditions formulated in objective terms that apply horizontally to an unidentified number of economic operators and thus cover a range of situations and cases.
What's confusing here is that paragraph 3 looks like a fairly typical public policy exception, but then right after it is paragraph 4, which covers one specific public policy (personal data and privacy) and works differently than paragraph 3.
One key difference is that paragraph 3 makes explicit reference to inconsistencies with paragraphs 1 and 2, whereas paragraph 4 does not. That omission has to mean something, but what exactly? Does it limit the application of paragraph 4 as an exception to the data flows obligations of paragraphs 1 and 2 in some way?
Another difference is that paragraph 4 doesn't have typical qualifiers such as a necessity test or a requirement that it not be administered in a manner that constitutes arbitrary or unjustifiable discrimination. It does, however, have one that says: "provided that the law of the Party provides for instruments enabling transfers under conditions of general application for the protection of the information transferred." This seems narrower than a general non-discrimination obligation. Does this suggest that a government has more discretion under paragraph 4 than under paragraph 3? If so, how much discretion? Is it a simple means-ends test that considers objectively whether the measures at issue are "on the protection of personal data and privacy," and then turns to the proviso for "enabling transfers under conditions of general application"?
Next up is the EU-NZ FTA digital chapter, which I discussed here (and which is what got me thinking about privacy exceptions). The data flows obligations are in Article 12.4, and then Article 12.5 on protection of personal data and privacy states:
Protection of personal data and privacy
1. Each Party recognises that the protection of personal data and privacy is a fundamental right and that high standards in this regard contribute to enhancing consumer confidence and trust in digital trade.
2. Each Party may adopt or maintain measures it deems appropriate to ensure the protection of personal data and privacy, including through the adoption and application of rules for the cross-border transfer of personal data. Nothing in this Agreement shall affect the protection of personal data and privacy afforded by the Parties' respective measures.3. Each Party shall inform the other Party about any measures referred to in paragraph 2 that it adopts or maintains.
4. Each Party shall publish information on the protection of personal data and privacy that it provides to users of digital trade, including:
(a) how individuals can pursue a remedy for a breach of protection of personal data or privacy arising from digital trade; and
(b) guidance and other information regarding compliance of businesses with applicable legal requirements protecting personal data and privacy.
As I said as an addition to the earlier post on the EU-NZ FTA, while an exception doesn't have to be labeled as an exception, if it is not labeled as such, then it would be useful to tie it to the obligation for which it provides an exception in a clear way. For example, the exception could be in the same article as the obligation, and then be tied textually with wording such as "nothing in this article shall prevent a party from taking a measure to ... ". While this is not strictly necessary, it would still be helpful to have a tie between the supposed exception and the obligation. Here, paragraph 2 says "[e]ach Party may adopt or maintain measures it deems appropriate to ensure the protection of personal data and privacy, including through the adoption and application of rules for the cross-border transfer of personal data." That language does have a tie to the cross-border data flows obligations of Article 12.4, so that is an element in favor of Article 12.5 being treated as an exception.
On the other hand, instead of using "nothing in this agreement shall prevent" language, Article 12.5, paragraph 2, sentence 1 talks about what a party "may" do. That seems a bit softer to me, and more like a "right to regulate" provision, which tend not to have much impact. In addition, sentence 2 reads more like a traditional exception, albeit with some different wording: "Nothing in this Agreement shall affect the protection of personal data and privacy afforded by the Parties' respective measures." That's a variation on the traditional "nothing in this agreement shall prevent"-style language, and also seems a bit softer to me. What does it mean to say the agreement shall not "affect" these things? Does this involve some kind of "means-ends" test as well? Would the adjudicator have to determine whether the measures protect personal data and privacy, and then ensure that the agreement does not "affect" (undermine?) this protection?
Third, we have the March 2024 Draft Chair's Text of the WTO E-Commerce JSI, which uses a version of the EU-NZ text but relies on the more traditional "nothing shall prevent" language and labels the provision as an "exception":
Article 7: Personal Data Protection Exception
Nothing in this Agreement shall prevent a Party from adopting or maintaining measures on the protection of personal data and privacy, including with respect to cross-border data transfers, provided that the law of the Party provides for instruments enabling transfers under conditions of general application1 for the protection of the data transferred.
1 For greater certainty, "conditions of general application" refer to conditions formulated in objective terms that apply horizontally to an unidentified number of economic operators and thus cover a range of situations and cases.
Of course, there are no data flows obligation in the JSI text at the moment, so that changes the role and impact of this exception.
Finally, let's look at the RCEP. First, in the e-commerce chapter, the RCEP offers the following instruction to adopt personal information/privacy protections:
Article 12.8: Online Personal Information Protection
1. Each Party shall adopt or maintain a legal framework which ensures the protection of personal information of the users of electronic commerce.7, 8
8 For greater certainty, a Party may comply with the obligation under this paragraph by adopting or maintaining measures such as comprehensive privacy or personal information protection laws and regulations, sector-specific laws and regulations covering the protection of personal information, or laws and regulations that provide for the enforcement of contractual obligations assumed by juridical persons relating to the protection of personal information.
But this kind of provision is different from ones that contain data flows obligations and personal data/privacy exceptions.
In addition, there are a number of exception provisions of relevance here, although they don't mention privacy explicitly, and I'm including these provisions in order to illustrate that privacy could be covered by broader public policy/security exceptions provisions. In the e-commerce chapter, we have the following obligations and exceptions:
Article 12.14: Location of Computing Facilities
...
2. No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that Party’s territory.11
3. Nothing in this Article shall prevent a Party from adopting or maintaining:
(a) any measure inconsistent with paragraph 2 that it considers necessary to achieve a legitimate public policy objective,12 provided that the measure is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; or
(b) any measure that it considers necessary for the protection of its essential security interests. Such measures shall not be disputed by other Parties.
-----
12 For the purposes of this subparagraph, the Parties affirm that the necessity behind the implementation of such legitimate public policy shall be decided by the implementing Party
...
Article 12.15: Cross-border Transfer of Information by Electronic Means
...
2. A Party shall not prevent cross-border transfer of information by electronic means where such activity is for the conduct of the business of a covered person.13
3. Nothing in this Article shall prevent a Party from adopting or maintaining:
(a) any measure inconsistent with paragraph 2 that it considers necessary to achieve a legitimate public policy objective,14 provided that the measure is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; or
(b) any measure that it considers necessary for the protection of its essential security interests. Such measures shall not be disputed by other Parties.
---
14 For the purposes of this subparagraph, the Parties affirm that the necessity behind the implementation of such legitimate public policy shall be decided by the implementing Party.
And then there is this in the exceptions chapter:
Article 17.13: Security Exceptions
Nothing in this Agreement shall be construed:
...
(b) to prevent any Party from taking any action which it considers necessary for the protection of its essential security interests:
...
(iii) taken so as to protect critical public infrastructures7 including communications, power, and water infrastructures;
------
7 For greater certainty, this includes critical public infrastructures whether publicly or privately owned.
The RCEP public policy and security exceptions could be used to cover privacy issues, and provide discretion along the same lines as what the GATT exceptions do. But perhaps of more importance here is that dispute settlement does not apply to the RCEP e-commerce chapter: "No Party shall have recourse to dispute settlement under Chapter 19 (Dispute Settlement) for any matter arising under this Chapter."
So what's the big takeaway from all this? I guess one thing is that if litigation on these issues ever comes, adjudicators are going to have some challenges in defining the scope of these privacy exceptions. The wording differs from traditional trade agreement exceptions in a number of ways, and adjudicators will have to decide what those differences mean. I would imagine they will end up at a place with a good deal of deference to domestic regulators, while stopping short of saying the exceptions are totally self-judging. But where specifically they end up and how they get there will be interesting.
Posted by Simon Lester on May 28, 2024 at 08:21 AM in Digital Trade | Permalink | Comments (1)
This is a guest post from Goran Dominioni, Assistant Professor, School of Law and Government, Dublin City University
International maritime transport is the lifeblood of the global economy, accounting for about 80 percent of international trade (by volume). In July 2023, the International Maritime Organization (IMO)—the UN agency that regulates international maritime transport—reached an agreement to reduce greenhouse gases (GHGs) from the sector. The resulting 2023 IMO GHG Strategy envisions making the sector climate-neutral by or around 2050 and includes relatively stringent GHG interim checkpoints for 2030 and 2040.
The IMO is now working on adopting a basket of measures to reduce GHGs in alignment with the new target. The basket of measures is scheduled for adoption in Spring 2025 and is expected to include a GHG pricing mechanism (e.g., a GHG levy or a feebate scheme). If adopted, this could be the first global GHG pricing mechanism that is not simply an offsetting scheme.
In a previous round of negotiations, India and Saudi Arabia made a submission to the IMO outlining possible incompatibilities of an IMO GHG pricing mechanism with WTO law. Responding to a request by the IMO Secretariat, the WTO Secretariat then identified WTO law provisions that could be relevant in implementing an IMO GHG pricing instrument. To date, however, the WTO Secretariat has not provided a conclusive answer on the matter (perhaps not surprisingly).
In a recent article, I analyzed the risk of WTO member states challenging national or EU measures to implement or enforce an IMO GHG pricing mechanism on the grounds that they violate GATT and GATS provisions.
Currently, several proposals are tabled for discussion at the IMO. Although the precise character of a IMO GHG pricing mechanism is yet to be determined, it is possible to make a preliminary assessment on the basis of these proposals. Below, I focus on three key questions:
Overall, the analysis indicates that the risks of a successful challenge are low as only a few countries would be in a position to bring a challenge, and the grounds for challenging the EU/national measures would be very limited. However, these degree of risk will depend on how the instrument is designed and on the procedure used to adopt the IMO GHG pricing mechanism. I discuss some of the details below.
Who could challenge national or EU measures to implement or enforce an IMO GHG pricing mechanism?
At the last round of IMO negotiations at the Marine Environmental Protection Committee (MEPC), IMO member states indicated a preference for adopting the IMO GHG pricing mechanism via an amendment of Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL Annex VI). If this path is followed, only countries that have not ratified MARPOL Annex VI would be in a good position to bring a challenge, as normally countries can not challenge measures adopted to implement or enforce a convention they have ratified. As of January 2024, 71 countries have not ratified MARPOL Annex VI. Of these, very few have a history of bringing disputes to the WTO.
Note that vessels and goods of countries from non-MARPOL Annex VI countries would (most likely) still be subject to the IMO GHG price because the IMO tends to operate based on the ‘no more favourable treatment’ (IMO NMFT) clause, according to which port states under an IMO convention will apply the convention also to vessels registered in countries not part of that convention.
Usually, the IMO tries to operate on a consensus basis. However, when consensus can not be reached, IMO member states can decide through a voting procedure. In previous negotiations, GHG measures were adopted despite China, Chile, Brazil, Kuwait, and Saudi Arabia voting against them. If the GHG pricing mechanism is adopted through a voting procedure, the countries that oppose its adoption may try to bring a WTO challenge. However, their position would be weak, as they have accepted to be bound by the procedural rules for amending MARPOL Annex VI.
If the IMO GHG pricing mechanism is adopted through a new convention (which looks unlikely at this point), the number of countries that could bring a challenge is difficult to predict, as it depends on the number of countries that ratify the convention.
What GATT and GATS provisions could be violated by national or EU measures adopted to implement or enforce an IMO GHG pricing mechanism?
Based on the current proposals tabled for discussion at the IMO, there are a few potential ways in which EU/national measures could violate GATS or GATT provisions. A key reason for this is that all these proposals envision that the GHG price will be paid by vessels directly into an international fund without being levied by the port or flag state. Because of this feature, many of the provisions identified by the WTO Secretariat as potentially relevant for developing an IMO GHG pricing mechanism are unlikely to apply. These include GATT Art I:1, GATT Art III:2, GATT Art VIII.
Research indicates that a GHG pricing mechanism could reduce the profitability of shipping companies. One of the critical points of contention in IMO negotiations on a GHG pricing mechanism is whether the price should apply universally (i.e., to all emissions from vessels of a specific size or larger) or only to ships that do not meet a preestablished GHG fuel intensity target. The GHG fuel intensity of the fleet of different countries may vary systematically, depending on the type of vessels and routes covered (on some routes, zero and near-zero GHG bunker fuels may be less available than on others). Potential negative impacts of the GHG pricing mechanism on the fleet of different countries may vary depending on how the GHG fuel intensity target is set. Countries could question how such a target was chosen and bring a challenge for violation of MFN under the GATS. Measures that implement or enforce a universal GHG pricing mechanism are less contestable as they apply the same price per tonne of GHG.
In IMO, the GHG pricing mechanism will also increase the price of goods traded by sea. While potentially low on average, impacts will likely be uneven, with high-weight, low-value goods and countries less well-connected with their export markets likely to be negatively impacted more. Work is ongoing at the IMO to quantify such impacts. To the extent that some countries are impacted more than others, they may argue that measures that implement or enforce the GHG pricing mechanism violate Article XI:1 GATT (quantitative restrictions on imports/exports).
Any potential violation of MFN under the GATS and Article XI:1 GATT could be justified under Articles XIV GATS and Article XX GATT. In this respect, the GHG pricing mechanism should be, inter alia, designed to be climate-effective and have the lowest possible trade restrictiveness. To this end, a share of the significant revenues that could be raised through the GHG pricing mechanism (up to 40-60 billion US dollars a year until 2050) could be used to reduce disproportionately negative impacts on states.
If exemptions are included in the design of the GHG pricing mechanism, would national or EU measures adopted to implement or enforce it become easier to challenge?
Some IMO member states—including China, Brazil, and Argentina—proposed a GHG pricing instrument that is less stringent for vessels that call at ports of certain developing countries. This adjustment would result in lower or no payment made by vessels that serve the selected ports. This feature of the proposal is meant to help address equity-related concerns in the energy transition of shipping, such as avoiding disproportionately negative impacts on developing countries.
Including a partial exemption of this type in the GHG pricing instrument will likely make EU/national measures that implement or enforce it more susceptible to a successful challenge under the GATT and the GATS for two reasons. On the one hand, such exemptions could be infringing the MFN principle under the GATS. On the other hand, exemptions (even partial ones) risk undermining the climate effectiveness of the GHG pricing instrument. Besides lowering the climate stringency of the instrument overall, they also risk enabling avoidance opportunities for vessels. The GHG effectiveness of the instrument is one of the criteria for the applicability of the justifications under Article XIV GATS and Article XX GATT. Furthermore, despite calls to change this approach, WTO jurisprudence tends to equate differentiation with discrimination under Article XX GATT.
In the IMO context, the LDC waiver is unlikely to be helpful in implementing exemptions for LDCs. There are various reasons for this, including the fact that the waiver would likely apply only to a share of the fleet registered in LDCs. In addition, such a waiver would contravene the IMO NMFT clause. Similarly, the enabling clause is unlikely to help implement exemptions for LDCs. If vessels pay the GHG price directly into a fund periodically, Article I GATT is unlikely to apply.
In this context, equity-related considerations might be better addressed via the use of revenues from the GHG pricing mechanism, as argued in IMO negotiations by various countries—including Belize and many Pacific SIDS—and the World Bank. As mentioned above, these revenues can be substantial and could provide a new and additional source of climate finance. In a recent World Bank report, my co-authors and I have proposed a framework to use revenues to enable an effective and equitable transition.
Posted by Simon Lester on May 23, 2024 at 06:05 AM | Permalink | Comments (3)
Stanford law prof Alan Sykes has posted a new paper entitled "The Utility of Appellate Review at the WTO and Its Optimal Structure." One part of the paper that I found particularly interesting was his call for any appeals body to have discretion over what appeals to hear:
C. Establishing a Discretionary (Certiorari-Like) Process
... But what about a possible alternative involving discretionary review – an appellate entity with the power to accept or reject appeals based on their perceived merit and importance? Such a system would mirror the jurisdiction of the U.S. Supreme Court, which selectively accepts appeals viewed as especially important through writs of certiorari, often reflecting significant legal conflicts in the decisions of lower courts. The great virtue of such a system, as I will elaborate below, is that it allows appellate review to be deferred until such time as issues are fully “ripe” for resolution, both jurisprudentially and politically.
...
2. The Advantages of Discretionary Appellate Jurisdiction
In contrast to the guaranteed right of immediate appeal in the existing DSU, the analysis to this point hints at some clear advantages to a system of discretionary appeals. First, it reduces the case load of the appellate tribunal. The tribunal can devote more attention to the hard cases, and ideally may allow it to hear cases en banc (like the U.S. Supreme Court), bringing to bear the broader perspective of a more diverse group of judges and the benefits of a larger deliberative body.
Second, the appellate tribunal can wait until issues have been confronted by multiple panels. Again with reference to the U.S. Supreme Court, certiorari is often denied until several lower courts have addressed a systemically important issue. And if all of them resolve the issue the same way, appellate review may ultimately prove unnecessary. Where conflicting decisions arise, the divergent opinions of adjudicators in the lower tribunals often aid in assessing the strength of the parties’ positions as a legal matter. Removing the time pressure from the appellate process and waiting for a broader collection of “inputs” from lower tribunals can reduce the risk of an appellate decision that clashes with the best interpretation of the treaty framework.
Finally, and perhaps most importantly, a discretionary system of appeals allows the Appellate Body time to gauge carefully the reaction of the membership to dispute panel decisions on difficult issues. Decisions are discussed at DSB meetings, and those debates can highlight issues that are politically destabilizing and may require artful compromise. Likewise, the flow of information from national capitals can sensitize the appellate tribunal to conflicts that may elicit systemically dangerous responses. Hard issues can be left unsettled until opinions among members coalesce on the best approach.
In short, a discretionary system of appeals enables the appellate tribunal to become more aware of, and sensitive to, institutional political pressures. Its interpretations of treaty text can then become savvier politically, and it can better avoid decisions that key players cannot accept, subject to the constraint that decisions must still be textually plausible. Where the membership seems hopelessly at odds, the appellate tribunal can simply duck the issues and allow disparate panel decisions to stand.
This approach, of course, is much like the approach to hard constitutional and statutory issues in the U.S. Supreme Court. The relevant legal texts are often hopelessly vague or incomplete (“due process,” “unreasonable search and seizure,” “equal protection,” “restraint of trade”…). Like the Appellate Body, the Supreme Court often pretends that correct answers can be found in text or prior precedent, but in reality, decisions take account of evolving politics on challenging issues.
Of course, under a discretionary appellate process, some challenging issues will remain unsettled for a long time. Panel decisions that are not accepted for appeal will become binding between the disputants, but the same issue may be relitigated several times before different panels with different results. This prospect is a virtue and not a vice in my view, however, as it enables disputants who believe deeply in their positions additional chances to vindicate them and makes it possible for rulings with systemically problematic political consequences to be revisited.
As far as I know, the issue of discretion on whether to hear appeals has not come up in the WTO dispute settlement reform discussions, but maybe it should, and maybe this call by Alan Sykes will get the negotiators thinking about it.
I was thinking along these lines myself when I suggested a while back that the Appellate Body does not have to weigh in on every appealed issue, but rather can just uphold panel rulings without further comment. Arguably, they could do that under existing rules, but if people aren't convinced the rules allow for that, the DSU could be amended to make it clear that the Appellate Body has this power.
In addition, and I'll have more to say about this at some point soon, having looked into the archives a bit, it's worth noting that discretion over which appeals would be heard was something that the Uruguay Round DSU negotiators talked about in some detail. Thus, having the current dispute settlement reform discussions delve into this would not be unprecedented.
If the dispute settlement reform negotiators do end up thinking about this, here are a couple issues they might want to consider:
Posted by Simon Lester on May 20, 2024 at 07:02 AM in Appellate Body | Permalink | Comments (2)
This is a guest post from Luca Rubini, Senior Research Fellow in International Law, University of Turin
This brief post has been triggered by yesterday’s delivery of the Opinion of Advocate General Capeta in the Fiberglass case currently pending before the European Court of Justice.
The key legal issue is whether EU anti-subsidy law (and WTO subsidy law) allow countervailing so-called cross-border subsidies, i.e. subsidies granted by Country A to companies in Country B and exporting their goods to Country C.
The EU Commission has started doing so recently, opining that the notion of subsidy in EU CVD laws (and WTO subsidy laws) can be construed to include such support measures. The Commission’s practice has been provisionally green-lighted by the General Court of the European Union last year (Case T-480/20). The issue is currently subject to dispute settlement in the WTO (DS 616) where Indonesia challenged the EU.
Last summer I wrote a little think piece where I was criticising the decision of the General Court.
The possibility to countervail cross-border subsidies is not a new claim. Seasoned US lawyers will remember that similar attempts had been made in the early 1980s and rejected by the US DOC (see the very illuminating account of Gary Horlick on this). Anecdotal evidence suggests that the issue was not touched in the Uruguay Round negotiations that led to the current WTO subsidy disciplines (I recently interviewed a key negotiator who, to my query about whether they did consider to include cross-border subsidies in the notion of subsidy, replied: "Who would have even thought about suggesting this? They would have said: this guy is crazy! Subsidizing a company out of your jurisdiction!").
I guess the main key take-away from trade law is that subsidy laws are one of the most hard-fought and controversial areas. And right at the centre of all these controversies you have always had the definition of subsidy. The definition that we have in the WTO ASCM is the best that could have been agreed. It has its nuances and deficiencies. Perhaps a better definition could be negotiated and drafted today, in the light of the current challenges including cross-border subsidies. But it is difficult to reconstruct WTO rules now – and the Appellate Body knows it!
It would be very dangerous for any WTO Member to start reconstructing this definition in fundamentally new ways, certainly not contemplated by the negotiators and drafters of the rules – and, most importantly, not necessarily agreed by other WTO Members.
This would be an additional example of dangerous unilateralism which cannot bade well in the current difficult times. Hypothetically, it would be even better to introduce a completely new tool to tackle cross-border subsidies (see the EU Foreign Subsidy Regulation) rather than pretending that the subsidy rules that have been agreed multilaterally can be unilaterally re-interpreted and stretched to include completely new forms of subsidies. Such reinterpretation would be a much worse injury to the rule of law than introducing normative innovations.
The Opinion of the Advocate General is an interesting read (see in particular paras. 27-64). Let’s immediately go to the two key questions.
First, does EU law cover cross-border subsidies? The answer, according to the AG, is yes!
"46. In conclusion, the Basic Anti-Subsidy Regulation is not limited to subsidies granted by the government of a State in its ‘own’ territory.”
Secondly, and perhaps more importantly, is this interpretation in line with WTO law?
"62. Consequently, I consider that Article 1.1(1)(a) of the SCM Agreement does not preclude treating as a subsidy an arrangement whereby one WTO member provides a financial contribution to a product manufactured in the territory of another WTO member."
Yes, you read well. The WTO subsidy definition does NOT preclude to include cross-border subsidies.
It is now likely that the ECJ will follow the AG and firmly conclude that the EU Commission can countervail cross-border subsidies. My understanding is that a similar approach has been aired across the Atlantic in the US (but, perhaps crucially, by suggesting a change in the law rather than reconstructing it judicially).
Realistically, the ball is in the WTO dispute settlement court now. Once again, lacking the Members’ initiative, the pressure is put on a WTO Panel. My guess on what the Panel will decide? Considering the debacle of the Appellate Body, it may do well in adopting a self-restrained approach – which may incidentally pave the way to a clash between ECJ and WTO dispute settlement (and it is clearly the former that has to give way to the latter).
My two cents (but usually I get it wrong!)
Posted by Simon Lester on May 17, 2024 at 06:28 AM | Permalink | Comments (4)
At a press briefing with Ambassador Tai on the announcement that the Biden administration would maintain the Section 301 tariffs on China and add tariffs on a few additional products, a reporter asked the following question regarding U.S. vs. Chinese electric vehicle subsidies:
The U.S. government is subsidizing the EV industry here pretty significantly. How is that different from what the Chinese government is doing?
Tai responded as follows:
So, if you take a look at the Chinese economic model, what you see is a system of state support that is built to dominate and take over entire industries. So, this is what I mean by, “We’ve seen the pattern” — steel and aluminum, solar panels, batteries, EVs.
Today, China’s production capacity in steel is 55 percent of world capacity — that’s in one country; aluminum, 60 percent; EVs, 60 percent; solar, 80 percent; and in certain critical minerals, 85 to 95 percent. So, those are subsidies with an aim to cornering the world market and achieving dominance and creating dependency.
The types of support that we’re talking about here are defensive in nature. They’re about creating the space to compete, the space to thrive, the space to survive the kind of onslaught that we are seeing across the board.
A lot of people have been trying to figure out how to distinguish good subsidies from bad subsidies. Is there something in what Tai said that can help provide the basis for doing so? Here are a couple possibilities:
Because prohibited subsidies have both a clearer and faster remedy than merely actionable subsidies, expanding their list could add teeth to the ASCM. Currently, ASCM Article 3 limits prohibited subsidies to export subsidies or subsidies contingent on the use of domestic products over imports. If certain subsidies that are considered more trade distortive, such as those leading to substantial global overcapacity, could be defined and added to Article 3, it would strengthen the ASCM.
Could these factors be used in evaluating whether subsidies are good or bad? I've also heard people suggest that the real problem is "pervasive" subsides, so maybe the amount of subsidies should be considered as well. It would be interesting to see WTO Members discuss all this.
At the same time, I would note that the existing SCM Agreement "adverse effects" rules -- along with the narrower prohibited subsidies rules of course -- might also be a good way to distinguish between good and bad subsidies. These rules provide a remedy based on the effect that subsidies have on foreign competitors. In a sense, the rules give Members a way to play defense when they are harmed by another government's subsidies.
If the goal here is to discipline subsidies, maybe it's worth using the WTO's adverse effects rules more. We can then see if there are still gaps that need to be filled in with additional rules.
It may take a while, but ultimately I think we will need to settle on some international rules in this area that everyone can live with. Otherwise the negative economic impact of unilateral trade retaliation and subsidy races is going to keep growing and become a serious problem.
Posted by Simon Lester on May 16, 2024 at 07:00 AM in Katherine Tai, Subsidies, US-China Trade Relations | Permalink | Comments (5)
If you are a trade remedies expert contemplating a career change, here's a great opportunity:
The Secretariat of the WTO is seeking to fill a position of Director to lead the Rules Division.
The Rules Division is responsible for all aspects of WTO work, legal and technical, in the areas of trade remedies (anti-dumping, countervailing, and safeguard measures), subsidies, trade-related investment measures (TRIMS), civil aircraft, and state trading enterprises. The Rules Division facilitates and actively assists in negotiations, consultations, and monitoring of implementation; provides legal and other assistance to dispute settlement panels considering disputes; and provides implementation assistance, counselling, and expert advice to WTO Members, in each of these areas.
General Functions
1. Leading the Division, including defining the strategic objectives of the Division; setting the objectives for, and motivating, a multidisciplinary staff of lawyers, economists, trade specialists, and support staff to meet those objectives; providing guidance to staff in carrying out their duties; reviewing the output and performance of the staff; supporting the development of the knowledge and skills of staff; and ensuring appropriate staff training plans are in place and executed;
...
More at the link. But the deadline is May 12, so hurry if you are interested!
Posted by Simon Lester on May 11, 2024 at 07:27 AM | Permalink | Comments (0)
By now, many will have heard that the first panel constituted under the USMCA Rapid Response Labor Mechanism (RRM) recently completed its determination as to whether there has been a Denial of Rights at the San Martín mine. At the moment, we are waiting for the public release of the panel’s findings.
While we wait, this post, and at least one more that will follow it, will flag some of the issues that arose in the proceedings – both on procedure and substance for those who may not be readily tracking.
As readers will recall, this panel was constituted last August, following an exchange of views between the United States and Mexico concerning the situation at the mine in Zacatecas. The United States, having received a petition in May 2023 from the AFL-CIO, the United Steelworkers, and a Mexican union, concluded that there was a Denial of Rights occurring at the mine. Mexico, however, found no Denial of Rights because, in Mexico’s view: (1) there had been a denial but it occurred prior to entry into force of the USMCA so fell outside the scope of the RRM; (2) the denial alleged by the United States did not implicate legislation that complies with Annex 23-A of the USMCA as required by the Agreement; and, (3) the San Martín mine is not a “Covered Facility” within the meaning of the Agreement.
Procedural Innovations and Difficulties
Let’s start with a procedural overview. In my last post about the panel, I noted some challenging questions that arose – given that this was the first RRM panel – in the early application of the rules and in the panel’s “confirmation” of the petition before it. After that early stage, throughout last fall, the two governments filed their written submissions.
The panel also sought “written briefs” from “non-governmental entities that are directly involved in the dispute”. It further stated that the Secretariat could “inform selected entities” of this opportunity. It appears the panel accepted submissions from the company owning the mine (IMMSA), from the AFL-CIO, from Los Mineros (the aggrieved union), and from the other group of workers in question (Los Trabajadores Coaligados). These participants line up unsurprisingly where you would expect them: IMMSA and Los Trabajadores Coaligados supporting Mexico’s position and Los Mineros and AFL-CIO supporting the United States.
(I will note here that one of the biggest challenges in following the panel’s work is the lack of available documents. For what is likely a variety of reasons, the documents on the Secretariat website for this dispute are limited to a partial selection. I will be sure to correct this post if we learn more.)
We know that the panel carried out a “verification” involving the mine in late February 2024 and held a hearing, which was livestreamed, in Mexico City on February 28-29.
Some details about the verification came out during the hearing. The panel chair stated at the hearing that the parties had told the panel that the panel had broad investigative powers for purposes of the verification. The panel members understood that they could “go out and seek information to verify what was really happening”. Comments at the hearing suggested that the panel at least interviewed several persons associated with the mine. Perhaps we will learn more about the details of the verification in the panel’s determination.
Throughout these steps, some entities have voiced concerns with the panel process. For instance, members of the legal team for IMMSA protested that they were not permitted to be present when the panel carried out its verification and spoke with their client.
Finally, the panel did not quite complete its work within the very short timeline set out in the Agreement (30 days to determination after the verification), but the panel appears to have given the parties its decision within a few weeks of that date – an extension to which the parties likely agreed.
A Multi-Layered Dispute
There are a few points that are worth making up front for clarity. This is a state-to-state dispute settlement mechanism concerning activities at a particular worksite. The panel was not asked to evaluate acts by the Mexican state or whether Mexico breached the Agreement. Rather, the panel is asked to “determine whether there has been a Denial of Rights”. A “Denial of Rights” occurs when “workers at a Covered Facility are being denied the right of free association and collective bargaining” under certain Mexican laws (leave which laws to one side for a moment). This distinction seemed to get a bit muddled in the pleadings. And this distinction has an impact on the panel’s work, especially with respect to what principles of international law may or may not apply.
I think the easiest way to understand the U.S. argument is to think of it as having two principal claims: (1) that the mine is operating during a strike and such operation denies workers the right of free association and collective bargaining under Mexican law; and (2) that the mine is bargaining with a different group of workers from the legitimately elected union and that denies workers the right of free association and collective bargaining under Mexican law.
Again, the panel’s task under the Agreement is to determine whether there has been a Denial of Rights at the mine. It could find that the United States has substantiated the facts of claim 1 and that that is a Denial under the Agreement, and the same of claim 2. The panel does not need to determine who is responsible for any Denial (unless that’s part of the legal test under Mexican law). Under the USMCA, either there has been or there has not been a Denial of Rights, or the panel cannot reach that question because of some preliminary flaw in its constitution or jurisdiction.
According to the short statement offered by Mexico, the panel found that the conduct in question fell outside the scope of its review as prescribed by the USMCA because the conduct must be after the entry into force of the Agreement and the conduct must be subject to the laws that were part of the 2019 Mexican labor reform.
This brings me to highlight now three issues that led to some interesting arguments at the February hearing. Of course, these also came up in the submissions, including in the IMMSA submission. I’ll refer to those on occasion but concentrate on what was said at the hearing.
The first interesting issue has to do with disaggregating questions of timing from other matters in the U.S. claims. We do not yet know, from Mexico’s short statement, on precisely what grounds the panel reached its decision. Was it what the parties characterized as the panel’s jurisdiction ratione temporis? That is, did the acts by the mine that the United States claimed to constitute a Denial of Rights fall within the jurisdiction of the panel given when they occurred? Or was it a question of the relevant Mexican law in place in 2023, and if so, how should one characterize such a question as a matter of international law under the Agreement? These questions in turn can be broken down into various sub-questions, but I’m reluctant to get into all their iterations if we are just days away from seeing how the panel reached its outcome. Of course, it could have been both reasons or neither.
The second interesting issue that arose was about whether the mine is a Covered Facility under the Agreement. As a reminder, the Agreement provides that Covered Facility is one that is “in a sector that produces manufactured goods, supplies services, or involves mining, and that (a) produces a good or supplies a service traded between the United States and Mexico or (b) produces a good or supplies a service that competes in the territory of a Party with a good or service of the other Party.” Much more to be said on this in a future post. It seems like maybe the panel did not reach the question based on what little we know about the determination, but as Jesse Kreier already flagged on X at the time of the hearing, the discussion among many participants in the submissions and in the hearing went down a road very similar to that traversed in the Guatemala—Labor dispute involving the “manner affecting trade” language in the CAFTA-DR.
The third interesting composite issue that got considerable attention at the hearing was about (a) the purpose of the panel, (b) the purpose of the RRM (and labor issues in a trade treaty), and (c) the relationship between the USMCA and the Mexican court system. At times, each of these three points arose separately, and at other moments, they were intertwined. A future post will elaborate on the importance of these points to the broader literature on trade agreements and labor provisions.
Questions for Future Panels?
Even before we have the panel’s decision in hand, we can anticipate some questions that its decision may precipitate. For one, given that the panel determined that there has not been a Denial of Rights, there will be no test of the remedies provision of the Agreement. Perhaps the outcome of the second RRM panel's review will create that test. As the former head of USTR’s Labor Office already noted, that question is a big one given the nature of the facility under review: a call center. What penalties would the United States seek to impose there and with what implications? And what remedy if the call center provides its services only outside the United States? We may not reach answers to those matters there either if the United States and Mexico reach a settlement in that dispute; some media have suggested they might be seeking to settle. (No information has been made available yet by the Secretariat as to the establishment of a panel [EDIT: In the hours between the completion of this post and its upload to the site, the Secretariat has now posted the names of the members of the panel] or its confirmation of the petition following the United States’ request that one be established on April 16). Note also that that second situation has a slightly different posture: Mexico found a Denial of Rights had occurred at the Atento Servicios facility in Hidalgo but it also found the facility had taken the necessary measures to remediate the Denial.
More important is what this San Martín panel’s determination means for RRM-watchers. Of course, the RRM system is not a precedential system. Still, many observers – including U.S. trading partners contemplating their own RRMs – are anxious to consider the panel’s reasoning.
Posted by Kathleen Claussen on May 09, 2024 at 12:03 PM | Permalink | Comments (0)
Here is an excerpt from the U.S. statement at the last DSB meeting, in which it discusses the EU - Palm Oil panel's interpretation of non-discrimination in TBT Agreement Article 2.1:
- The United States is disappointed that the Panel in this dispute at times simply adopted the Appellate Body’s previous erroneous interpretations of the TBT Agreement.
- For instance, with respect to Article 2.1 of the TBT Agreement, the Panel adopted the interpretation of recent Appellate Body reports that any detrimental impact on like imports will constitute a breach unless the detrimental impact “stems exclusively from a legitimate regulatory distinction.” Under this erroneous approach, any detrimental impact could constitute a breach – not because the impact is related to the foreign origin of the product, but because the measure was not constructed so as to eliminate any detrimental impact not exclusively related to the regulatory distinction.
- This test – first introduced by the Appellate Body and followed here by the Panel – lacks any basis in the text of Article 2.1 of the TBT Agreement. Article 2.1 is directed at controlling origin-based discrimination. Under a proper understanding of the provision based on its text, in its context, the focus is on whether the alleged different and detrimental treatment is explained by factors unrelated to the foreign origin of the product, such as whether the measure and distinction at issue bears a rational relationship to the regulatory purpose invoked.
- Yet, as a consequence of the Appellate Body’s test, adjudicators are placed in the inappropriate position of balancing the detrimental impact of a measure against its contribution to the objective at issue – a responsibility that should rest properly with policymakers.
(footnote omitted)
I am very interested in USTR's position on non-discrimination, and if I understand them correctly, I am sympathetic to their general concerns here. But I have some thoughts and questions.
To me, it's important to do both an impact/effect analysis and an intent/purpose/aims analysis under TBT Agreement Article 2.1, and it sounds like USTR agrees with that. (Let's not get into how GATT non-discrimination obligations and exceptions should divide up these two sets of analysis, because opening that can of worms will distract us.)
The issue then becomes how to carry out each part of the analysis.
On the impact part, what I would look at here is the degree of detrimental impact (or disparate impact or detrimental effect if you prefer) on imported products that results from a measure which contains a regulatory distinction that treats particular categories of similar but not identical products differently (e.g., liquor products with different levels of alcohol content). Let's say you have a measure which has that kind of impact on imported products on a de facto basis (i.e., worse treatment of imported products is not set out explicitly in the law, but the result of the measure when it is applied is that more imported products than domestic products fall into the product category that gets the worse regulatory treatment). In these circumstances, I would calculate the percentage of imported products that receive the worse treatment and the percentage of like domestic products that receive the worse treatment. If the difference in impact on imported and domestic products is appreciable (say, 60% of imported products get the worse treatment but only 40% of domestic products do), that would lend support to a finding of discrimination. And the higher the percentage difference, the more weight you would give to this factor in the overall consideration.
Turning to intent, in my view, the best way to characterize the intent inquiry is something along the lines of a design, structure etc. analysis, where you dig in to the wording of the measure and assess how it will operate in the market in question based on that wording (the GATT Article III:2, second sentence "so as to afford protection" analysis in the Appellate Body report in Chile - Alcohol offers a good example of what I have in mind). In my view, this gives the adjudicator the right amount of flexibility in examining, on an objective basis, the intent of the measure. (I don't mind looking at subjective intent too, but again, that's a big can of worms, so forget I said that!)
After determining the degree of detrimental impact and the degree of discriminatory intent, you would then come to an overall conclusion on whether the measure violates Article 2.1.
Now let's get to the U.S. statement. At the DSB meeting, USTR was critical of the "stems exclusively from a legitimate regulatory distinction" language used by the Appellate Body in formulating the TBT Agreement Article 2.1 standard. I was always a bit uncomfortable with that language myself, partly because it seemed like it might be applied very strictly and therefore it would be hard for Members to defend their non-protectionist measures. I feel like USTR was expressing similar concerns.
As an alternative, USTR puts forward a "rational relationship to the regulatory purpose invoked" standard. Here I would want to know more about how such a standard would be applied. How would the existence of a "rational relationship" be assessed? Is it the design, structure etc. test? Something else? USTR says "the focus [should be] on whether the alleged different and detrimental treatment is explained by factors unrelated to the foreign origin of the product." This is similar to the language used by the Appellate Body in Dominican Republic - Cigarettes when interpreting GATT Article III:4 ("the existence of a detrimental effect on a given imported product resulting from a measure does not necessarily imply that this measure accords less favourable treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product"), but people found that standard confusing and the Appellate Body abandoned it. I'd like to hear more about what USTR thinks it means and how it would be applied. USTR suggests that the "rational relationship" standard is an example ("such as") of the "unrelated to the foreign origin of the product" approach. Are there other examples?
Also, USTR says the following about the "stems exclusively" standard: "adjudicators are placed in the inappropriate position of balancing the detrimental impact of a measure against its contribution to the objective at issue – a responsibility that should rest properly with policymakers." I'm not sure what they mean here. In particular, I'm not sure how you can evaluate the impact and intent factors without the measure's contribution to its stated objective coming up at some point.
Overall, I think these are good discussions to have because this is a core principle of the trading system and we really need to get it right. But I'd want to hear more about how exactly USTR would like to see its standard applied (maybe by having them take some real world examples and walking everyone through it). And I'm curious to see how other governments would react to the U.S. view.
Posted by Simon Lester on May 07, 2024 at 07:01 AM in Non-Discrimination Standards | Permalink | Comments (8)
In its rebuttal submission in the Mexico - GE Corn USMCA dispute, the U.S. has set out a non-violation nullification or impairment claim as an alternative to its violation claims (the U.S. did not elucidate the non-violation claim in its initial written submission, but it did indicate in fn. 136 of that submission that the claim was within the terms of reference, and it mentioned the claim in footnotes in the panel request).
As background, the USMCA provides for the following types of claims:
Article 31.2: Scope
Unless otherwise provided for in this Agreement, the dispute settlement provisions of this Chapter apply:
(a) with respect to the avoidance or settlement of disputes between the Parties regarding the interpretation or application of this Agreement;
(b) when a Party considers that an actual or proposed measure of another Party is or would be inconsistent with an obligation of this Agreement or that another Party has otherwise failed to carry out an obligation of this Agreement; or
(c) when a Party considers that a benefit it could reasonably have expected to accrue to it under Chapter 2 (National Treatment and Market Access for Goods), Chapter 3 (Agriculture), Chapter 4 (Rules of Origin), Chapter 5 (Origin Procedures), Chapter 6 (Textile and Apparel Goods), Chapter 7 (Customs Administration and Trade Facilitation), Chapter 9 (Sanitary and Phytosanitary Measures), Chapter 11 (Technical Barriers to Trade), Chapter 13 (Government Procurement), Chapter 15 (Cross-Border Trade in Services), or Chapter 20 (Intellectual Property Rights), is being nullified or impaired as a result of the application of a measure of another Party that is not inconsistent with this Agreement.
Here we are talking about a claim under Article 31.2(c) that "a benefit [the U.S] could reasonably have expected to accrue to it under Chapter 2 (National Treatment and Market Access for Goods), ... [or] Chapter 9 (Sanitary and Phytosanitary Measures) ... is being nullified or impaired as a result of the application of a measure of another Party that is not inconsistent with this Agreement."
Here's an excerpt from the U.S. submission with the "reasonably could have expected" element of the claim, to give people a flavor of the overall argument:
A. The United States Reasonably Could Have Expected to Accrue Benefits Under Chapter 2 and Chapter 9.
254. The ordinary meaning of the terms in the phrase “a benefit that [a Party] could reasonably have expected to accrue” is broad. Dictionary definitions of “benefit” include “[a]dvantage, profit, good”, as well as “[a] natural advantage or ‘gift,’” while “reasonably” may be defined as “[a]ccording to reason; with good reason, legitimately; justly, properly, fairly.” Thus, a “benefit” the United States “could reasonably have expected to accrue” could be understood as an advantage (including a natural advantage) or good that the United States legitimately or fairly could have expected.
255. U.S. exports of corn have long moved freely to Mexico, and—until recently—Mexico facilitated this access, including for GE corn. While the North American Free Trade Agreement (“NAFTA”) permitted Mexico to regulate U.S. access to its corn market via a tariff-rate quota until 2007, Mexico opted to open its markets to U.S. corn more than the NAFTA required, particularly during the latter years of this transition. Beginning in 2008, the NAFTA lifted all formal restrictions, allowing U.S. corn to enter Mexico free of all tariffs and quotas. Thereafter, U.S. exports to Mexico of corn and corn-based products blossomed, and according to USDA, U.S. exports of white corn and yellow corn rose from less than 190 million dollars in 1994 to more than $3 billion dollars in 2018. The USMCA continued this tariff-free and quota-free trade in corn, and in 2022—when GE products accounted for over 93 percent of corn planted in the United States—the United States exported more than $4 billion in corn to Mexico.
256. As this prior trade suggests, Mexico permitted the importation and sale of GE corn for decades, and has been one of the countries with the most authorizations for importing and selling GE crops for use in human food and animal feed. As discussed in Section II.D of the U.S. Initial Submission, Mexico’s principal legal instruments governing the importation and sale of agricultural biotechnology products in Mexico date from 2005, and in the years following the promulgation of these instruments Mexico regularly reviewed and approved authorization applications for GE events for food and feed use in Mexico. During this time Mexico issued over 200 event authorizations across 11 different GE crops—and the number of authorizations for corn alone nearly equals the number of authorizations for the other ten GE crops combined. In fact, prior to its sudden, recent reversal of policy, Mexico repeatedly touted the benefits of biotechnology, for example, noting that biotechnology can solve agricultural problems quickly and with minimal risk, meet critical food and healthcare needs, and contribute to sustainable development.
257. In negotiating what became the USMCA, the United States, Mexico, and Canada sought an ambitious outcome that would update the NAFTA and generate important economic opportunities for all three countries. After the USMCA entered into force, Mexico called the USMCA one of the most ambitious instruments it had negotiated on SPS matters, and noted that the USMCA SPS provisions improved disciplines provided for in the WTO SPS Agreement. Notably, Mexico also described the USMCA SPS Chapter as ensuring the protection of life and health and with the aim to advance decision-making with a scientific basis and to avoid unnecessary obstacles to trade. With respect to the National Treatment and Market Access Chapter, Mexico noted that its purpose was to provide greater certainty and transparency to the commercial exchange of goods between the USMCA parties, in order to facilitate and promote trade in North America.
258. The history of Mexico’s actions in the period leading to the successful renegotiation of the NAFTA supports the reasonableness of the U.S. expectation. Mexico permitted the importation and sale of corn, including GE corn, for decades before the USMCA entered into force. Mexico itself touted the benefits of GE corn as well as its safety, authorizing numerous GE events. Mexico also encouraged the tariff-free and quota-free entry of that GE corn. Mexico further lauded the ambition of the USMCA outcomes on SPS and market access. Accordingly, it was reasonable for the United States to expect that Mexico would not completely reverse itself by banning the use of GE corn in dough and tortillas and instructing Mexican government agencies to gradually substitute the use of GE corn in all products for human consumption and for animal feed. Instead, the United States could—and did—reasonably expect that the volume and value of U.S. exports to Mexico of corn, including GE corn, would continue under Chapter 2 and Chapter 9 after USMCA entered into force.
(footnotes omitted)
Let me start with a few thoughts on non-violation claims in general, and then I'll get to the claim in this case.
Back when the GATT -- with its broad principles but gaps when it came to specific subjects (such as subsidies) -- was the main source of international trade governance, the non-violation nullification or impairment remedy had a clearer role. If a particular subject wasn't covered by the rules, and thus there was no clear way to address the trade impact of a measure in that subject area which was unexpectedly put in place, a non-violation complaint could provide a remedy.
But as the GATT (and then the WTO) expanded in scope, there were fewer things not covered, and therefore fewer measures that could be characterized as unexpected. If a particular subject, such as SPS measures, had a set of detailed rules, then it could be argued that any measure that is consistent with the rules should have been expected. The logic here is that if there is a governing regime in place, and if a government was complying with that regime when it adopted the measure, shouldn't the measure be expected? For this reason, I've been skeptical of the continuing utility of the non-violation remedy in the GATT/WTO after the establishment of the WTO and its expansive set of rules.
On the other hand, it could be argued that the non-violation remedy was preserved in the text, so it must have some purpose, and the expanded substantive coverage should not totally eliminate the possibility of using it. Nevertheless, I still have questions about the scope of the non-violation remedy in the WTO context. And the limited number of claims over the years, and the absence of any recent successful claims, suggests others have these questions too.
That brings us to the USMCA. In this context, as set out above, the non-violation nullification or impairment provision explicitly applies to the subject matter chapters, including the SPS chapter at issue here, so the things I said about the GATT non-violation remedy and whether specific subjects are covered don't seem to apply. But that leaves me with some questions: What did the USMCA drafters -- borrowing a bit from the CUSFTA and NAFTA drafters -- have in mind when they explicitly created a non-violation remedy that applies to the SPS chapter (among other chapters)? In what circumstances did they think the non-violation remedy should be used, either in SPS cases or in general? I had a whole theory about how this remedy emerged during the League of Nations talks, but that doesn't apply very well here because of the broad coverage of the USMCA.
With all that in mind, how should the non-violation remedy be applied in a situation like the one here, in which a domestic regulation is the measure that is affecting trade flows? Should the U.S. have anticipated that Mexico might change its mind at some point on approving genetically engineered food products and adopt measures -- which are USMCA-compliant or else we wouldn't even get to the non-violation claim -- such as the ones at issue here? Does the well-known and long-standing controversy over these products affect the analysis of what is reasonable to expect?
I wish the GE Corn panel luck in sorting this all out if they decide there is no violation and thus have to deal with the non-violation claim.
Posted by Simon Lester on May 05, 2024 at 07:20 AM in Non-Violation Nullification or Impairment, USMCA Dispute Settlement | Permalink | Comments (3)
In a recent Foreign Policy piece, economist Joe Stiglitz makes several references to WTO rules "forbidding" industrial subsidies:
The current moment is a good illustration. It is the product of longstanding beliefs and power relations. Under this system, industrial subsidies were a no-no, forbidden (so it was thought) not just by World Trade Organization rules, but also by the dictates of what was considered sound economics.
...
... there is no global government to ensure that the powerful countries obey an agreement, as we are seeing today in the case of U.S. industrial subsidies. The World Trade Organization (WTO) generally forbids such subsidies and especially disapproves of some of the provisions—such as requiring domestic manufacturing (“Made in America”)—in legislation passed recently by the U.S. Congress, including the CHIPS and Science Act.
...
The neoliberal rules forbidding subsidies effectively meant that developing countries couldn’t catch up to the advanced countries; the rules condemned them to being commodity producers, reserving the higher value-added production for the advanced countries.
These statements leave me with some questions about how those who criticize "neoliberalism" (as Stiglitz regularly does) want to change international rules on subsidies.
As this blog's readers will know, Stiglitz's explanation of WTO rules on subsidies is a bit off. Yes, those rules "especially disapprove of" the domestic content requirements that were included in some recent U.S. subsidies legislation (and similarly disapprove of export subsidies). But no, the WTO doesn't "generally forbid" industrial subsidies. Instead, these subsidies can be subject to a WTO complaint in specific circumstances (if they cause "adverse effects" to other WTO Members). There haven't been very many of these adverse effects complaints, and the ones that have been brought haven't had much impact (I would say this is because of the particular cases that were chosen, rather than a fundamental flaw in the rules). Thus, in practice, industrial subsidies haven't been constrained much by the WTO's adverse effects rules, and there have been plenty of these subsidies over the past few decades by governments who could afford to provide them (which gave their industries an advantage over the poorer countries who couldn't afford them).
The other big thing the WTO does on subsidies is allow governments to impose countervailing duties when they find that subsidized imports from other countries have injured their domestic industry. However, the WTO also imposes certain constraints on the use of these countervailing duties. It's not clear to me what critics such as Stiglitz, who seem to want more leeway for governments to provide subsidies, think of either countervailing duties or the WTO rules that constrain them.
With all that in mind, my questions for Stiglitz, or anyone else with similar views who wants to respond, are:
Posted by Simon Lester on April 30, 2024 at 07:05 AM in Subsidies | Permalink | Comments (2)
Here's an exchange between Rep. Don Beyer (D-VA) and U.S. Trade Rep. Katherine Tai at a House Ways and Means Committee hearing in mid-April:
Beyer: I, with a number of my colleagues here, visited the WTO a couple of years ago, in the midst of all the ongoing multi-decade fights over the Appellate Body. You mentioned that you made more progress in the last year than in the previous 20 years. And I was fascinated by noting that it was a shift in emphasis from leading negotiations based on positions to being asked to identify and share the interest that they want served. Could you explain what that means in English?
Tai: Thank you so much, Mr. Beyer, for tracking this very closely because this is one of the areas that is so important to us. Myself personally, having litigated at the WTO, appreciate how many challenges we have with the dispute settlement system, but also, I remain very, very committed to a vision for having a dispute settlement system that's effective, that can be accessed by everyone at the WTO, and not just a small handful of the WTO Members.
The interest based approach to negotiations at the WTO: We really endorsed this idea from the beginning because we know we have very, very deep extensive concerns with how the Appellate Body was operating before and other aspects of the dispute settlement system. And that if we were to approach these negotiations on dispute settlement reform in the traditional Geneva-based way, where you have to think through what your ideal outcome is, and kind of what you can live with, and then from there, because it's a paper based exercise, you're incentivized then to dial up every single one of your proposals to 150 or 200 just to be able to survive a negotiation process that involves almost 200 other participants. That for us looked like it was going to be a very, very long, tortured and unsuccessful road to move forward. Because we are genuinely in good faith interested in a reform project.
What we really endorsed and got behind was an approach at the WTO to identify not what your position is, which creates that dynamic of dialing up 150 this way, dialing back 150 this way, and then fighting your way to the middle, but to encourage a conversation that was inclusive, that started not with the question of what's your position, but starts with the question of what is the interest that you want as a WTO Member served by a dispute settlement system. And as a result of that approach to the negotiations, we were collectively able to make more progress in one year than in the 20 years before of dispute settlement understanding reform that was run along a positional basis. So I think the most critical question in terms of dispute settlement reform going forward is how do we continue this work? My negotiators and my legal advisors in Geneva have told me that this is the one negotiation area in an institution that is showing a lot of age and brittleness, that is dynamic, where negotiators come and they're actually talking to each other and listening to each other rather than just reading points at each other. So it's tremendously consequential. We're very invested in this process.
I know this is going to sound naive and a bit off the wall, and will demonstrate to the world that I've never been a trade negotiator, but what if instead of dialing things up to 150, governments just proposed sensible things that they believed in, and put forwarded strong defenses of those things? Maybe this is just crazy enough to work!
In terms of how the interest based negotiations on WTO dispute settlement have gone, I feel like this situation is a bit unique, because there is an underlying disagreement about the Appellate Body that brought everyone to the table. These circumstances have made governments willing to talk constructively about a lot of dispute settlement related issues. But have they made progress on the big issue here, which is dealing with the Appellate Body crisis so as to eliminate appeals into the void? It is not clear to me whether they have, so I'm going to reserve judgement on whether this new approach works until we see how things play out with fixing that.
Posted by Simon Lester on April 28, 2024 at 06:45 AM in Katherine Tai | Permalink | Comments (2)
In a recent Washington Post op-ed, Brian Deese, the former director of the National Economic Council in the Biden administration, calls for a coordinated use of AD/CVDs as a way to "discourage" China's "anti-market behavior":
Responding to China’s anti-market behavior strongly enough to discourage it — and yet not so strongly as to inadvertently replicate it — is challenging but essential to the well-being of our economy and that of our peers.
The right approach is for the United States to build an international coalition to send a clear message to China that its current policy choices are neither acceptable nor sustainable. Other countries are moving in this direction. In recent months, Brazil has launched several investigations into the alleged dumping of Chinese industrial products. Vietnam, Thailand, South Africa and Mexico have each taken steps to protect domestic industries from Chinese exports. The European Union has undertaken an anti-dumping investigation into Chinese EVs. And India already has more anti-dumping orders than any other country.
A global coalition could start with harmonized tariffs targeting Chinese exports.
These tariffs should focus on areas such as steel, where manufacturing capacity is already projected to meet global demand, and clean energy components, where China’s strategy to dominate the market is evident and the economic and planetary costs of concentration are especially acute. ...
I have previously expressed skepticism about the use of CVDs to induce changes to other countries' subsidy policies. My sense is that, generally speaking, when countries are the target of CVDs (or AD measures), they see these measures as biased and protectionist, and are unlikely to change their behavior in response. I suppose you could argue that Deese's proposed coordination among a number of countries could change how targeted governments see things, but I still have doubts. Governments don't like to be bullied (and China particularly doesn't like it), so this will probably not induce the changes people are hoping for.
It's worth noting here that there have been extensive AD/CV duties in place on Chinese steel and other products for a long time, and they don't seem to have had much impact on Chinese policies. As the Commerce Department described it a few years ago in relation to steel, "[a]s of April 19, 2017, Commerce has 152 antidumping (AD) and countervailing duty (CVD) orders in place on steel from 32 countries," and "[t]wenty-eight of the 152 orders (18%) are on steel products from China – 16 AD and 12 CVD." Importantly for Deese's international coalition argument, this long-standing use of AD/CVD against China is not unique to the United States. Deese highlights Brazil's new investigations, but Brazil's most recent report to the WTO on its anti-dumping practices shows that it has been using anti-dumping measures against China for a while now (see the Annex at the end).
Fortunately, there is an alternative to AD/CVD: complaints filed at the WTO, against either subsidies or broader non-market practices. What you get with WTO complaints is an objective international ruling that often leads to some degree of compliance by the responding party. It's not perfect, but it seems like the best option that exists for discouraging Chinese subsidies and protectionist/non-market practices.
(Just to state the obvious, WTO dispute settlement is not an option for the U.S. right now because it has blocked Appellate Body appointments, but (1) the U.S. could change course here and (2) other countries have signed on to the MPIA and could therefore use WTO dispute settlement to file complaints of this sort against China).
Posted by Simon Lester on April 26, 2024 at 03:16 PM in US-China Trade Relations | Permalink | Comments (0)
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