Animal welfare, WTO and domestic policy space

Simon Lester has raised the issue of the proposed Californian ban on Foie Gras and its WTO compatibility. Foie Gras is a food product made of the liver of a duck or a goose after specially fattening it. The methods of fattening differ.The ban has been widely reported here, here and here.

Is the ban consistent with U.S.'s WTO obligations? The French exporters of this product definitely do not think so. There are a number of stakeholders involved here: Hotel industry, exporters of the product, the Government, consumers,animal welfare activists, and the animals themselves. Does it violate the TBT Agreement? Since the ban applies to both imported as well as domestic food products, Article 2.1 of the TBT Agreement may not be violated. However, does it create an unnecessary obstacle to trade under Article 2.2 of the TBT Agreement? Is it necessary to "fulfill a necessary objective" of protecting animal life or health and thus justifiable under Article 2.2 of the TBT? Does Article XX of GATT provide the justification for this measure?

The larger issue is to what extent moral, non-trade values can restrict trade? The Californian legislature, in its wisdom and choice, views foie gras as violating animal welfare as well as against its values of animal welfare. Is that sufficient ground for banning the food product? Can individual countries' (or their constituent's) values be a justifiable reason for a restriction on trade? Do the WTO rules allow this?

Opinio Juris has an interesting debate on the use of public morals to justify animal welfare measures with Robert Howse and Joanna Langille's article being the discussion point. I had briefly touched on this topic in by earlier blog post titled "WTO, pluralism and domestic policy space - Some questions" here. Will get back to this fascinating debate in forthcoming posts.

Transparency, China and the WTO - What next?

A lot is written about the rise of China in the multilateral trading system. It is heralded as an example of how a developing country utilised the international trade rules to further its national agenda. Critics argue that China has not done much in terms of reforming its own systems as per WTO rules. So while it benefits from the advantages the multilateral system offers, it does not abide, to the extent necessary, by it WTO and WTO plus (due to the Accession protocol) obligations. I have blogged extensively about China's role in the WTO here, here, here, here and here.

How much of the above criticism about China's reluctance to abide by WTO obligations is true? The recent Trade Policy review of China brought to the fore these issues with both the US and EU reacting strongly. I have blogged about the US response here. The EU reacted similarly here:

"In his statement at the WTO, the Ambassador pointed out the following areas of concern:

- The EU's main concern is related to a lack of transparency, which makes China's trade and investment policies – in the words of the WTO's report - "opaque and complex". More needs to be done to make key WTO principles like transparency and non-discrimination the norm in China's legislative system. The EU also calls on China to honour its WTO notification commitments in particular in the area of subsidies.

- State interference in the economy leading to distortion of competition: The EU shares the remark in the Secretariat's report that "despite all the reforms, state-owned enterprises still tend to benefit from lower cost of and better access to capital than non-public-sector enterprises". We therefore urge China to increase its efforts to ensure a level playing field amongst market operators, regardless of their ownership structure or origin.

- Excessive regulatory and technical obstacles to trade in goods, services, investment and public procurement and other non-tariff barriers: according to the WTO, only 46% of the more than 20 000 national standards in force in China are adopted from international or advanced foreign standards. In some areas, the participation of foreign and foreign-invested companies to standard-setting work is still restricted.

- Intellectual Property Rights (IPRs) protection and enforcement: despite China's efforts, serious problems remain and need to be tackled, notably in terms of violations of copyrights, trademarks, patents, and trade secrets.

- Raw materials: since all countries are interdependent and rely on the free supply of raw materials, the EU calls on China to remove all its export restrictions."

Are these reactions mere accusations in the context of a rising trading power or do they have some substance? China's State capitalism too doesn't help matters and obsfuscates the line between permissible State support and actionable subsidies in the context of the WTO.

Leila Choukroune has summarised the issues about China's adherence to the WTO in this special article titled "The Compromised Rule of Law by Internationalisation" in China Perspectives. Has WTO membership help "internationalise" the rule of law in China? Has it helped reform the Chinese legal system? Are the WTO plus obligations in the Chinese Accession Protocol being complied with? The author has noted that significant progress has been made by China in amending its domestic legal regime in consonance with international obligations. Primary among them is in the arena of transparency. Nevertheless, the author concludes that substantial effort still needs to be made in terms of fully complying with the WTO mandate:

"The syncretic nature of China’s legal system no longer evokes surprise. Although drawn from foreign rules and practices, China has sinicised these norms to better integrate them. China’s accession to and participation in the WTO is a fascinating illustration of this ability to adapt and perpetuate a given system without fundamentally challenging its basis. While Chinese legal reform has clearly benefited from the WTO engine, the changes in leadership witnessed since the mid-2000s have not led to the “rule of law via internationalisation” some Chinese rulers were themselves calling for. As discussed above, this incomplete transformation originates in the limits of Chinese law itself, from law-making to law implementation, and creates tensions between WTO Members as evidenced by an increasing number of disputes directly pinpointing the lack of transparency of the Chinese legal regime.

A diligent student of international trade law, which plays with international norms and seemingly abides by them, China has not been able to overcome the serious contradictions that have not only hindered a genuine political evolution, but have also taken legal reform backward, by favouring stability over change. It is to be hoped a different political elite may soon be able to approach legal and political reform in a less fragmented and hence more coherent way that could bring about the long-awaited transformations."

This is an interesting debate about how WTO rules influence domestic law making mandating changes in the national legal regimes. While this does not limit policy space in terms of adopting a "particular" developmental paradigm within the WTO rules, the primacy of transparency, need for a strong judicial review system of administrative acts as well as inviolability of the national treatment and non-discrimination principles severly influences domestic policy making. While no one can argue with the need for increased transparency in rule making and notifications to the WTO, the problem arises in interpretation and action. China, in its responses, has constantly argued that it is on the path of reform and is complying with all WTO obligations. It also argues that State led capitalism is not per se against WTO principles and is a justifiable exercise of national sovereignty within WTO rules. The Chinese examples portrays how a country has made its engagement in the multilateral system a centre piece of its developmental strategy. To what extent the former has influenced the latter is a matter of continuing debate!

A Dispute Tribunal for the WTO - Feasible?

The Dispute Settlement Mechanism in the WTO is often referred to as the crown jewel due too its effective mechanisms of dispute resolution and compliance. A judicial rule based system in an institution which has a history of political negotiation is indeed viewed as one of the positives of the WTO. While the failure of the Doha round of negotiations is viewed as a serious blow to the "negotiating" and "rule making" power of the WTO, the DSM has stood strong in contrast over the past decade. Some argue that the failure of the negotiation causes a serious strain on the judicial branch since disputes that are essentially political and require new rules are tried to be settled within existing legal frameworks leading to tensions.

A brief paper titled "Establishment of a Dispute Tribunal in the WTO" by Debra P Steger highlights another challenge to the DSM - the inadequacy of the Dispute Panels to address the increasing complexity and quantity of disputes at the WTO. Advocating for setting up a Dispute Tribunal which would be a permanent body consisting of international trade law experts to replace the ad hoc Panel system, the author seeks an overhaul of the DSM for ensuring that the legitimacy and credibility of the system is maintained. Highlighting the inadequacy of the Panel system as it exists today, the author states that the increasing complexity of the cases involving interpretation of many agreements as well as the inability to complete the cases within the stipulated time frame has aggravated the need for reform within the system. Increased competence and expertise in international trade law matters is the need of the hour.

Favouring the permanent Tribunal system with a set of part-time members, many advantages are seen in terms of timeliness and efficiency of disposal of cases, experience and expertise, independence and impartiality, collegiality and consistency in decision making, greater geographic diversity in members as well as a strong two-tier system along with the Appellate Body.

"There are compelling reasons to create a dispute tribunal at this point in the history of the WTO. As the WTO adjusts to the rapidly changing global economy, disputes are becoming more complex and challenging, both on their facts and in the novelty of the legal issues presented. Moreover, higher quality decisions would be produced by a tribunal whose members are available at all times and on short notice to serve on cases. This would allow the two-tier system in the WTO to function as it was designed, and enable the Appellate Body to focus on its mandate which is to review issues of law and legal interpretation in panel reports.

Finally, a dispute tribunal would result in significant time savings and efficiencies as compared with the present ad hoc panel system. Time would be saved in panel composition, and other procedural and organizational efficiencies would ensue from having members available at all times and on short notice to serve on cases and from the experience, knowledge and collegiality that would develop over time in the dispute tribunal as an institution.

There is currently a gap between the goals of the DSU and actual experience with respect to the timeliness of the dispute resolution system. While the number of disputes has been declining in recent years, panels have not generally completed their cases within the DSU timeframes and the Appellate Body has also recently begun to request the DSB to extend its timeframes. These delays could ultimately be problematic for the reputation of the WTO both with Members and stakeholders. If these delays continue and become accepted practice, they could undermine respect for the DSU as well as the credibility and legitimacy of the WTO."

The legitimacy of the multilateral system is under serious stress due to the failure of the Doha round. The judicial wing of the WTO has continued to perform an important role to implement a rule based system of mutlilateral trade devoid of "power-based" influences. Will the WTO members be ready for this reform? Though the Panel members are mandated to act independently without any affiliation, doubts have often been raised about the effectiveness of this mandate.   Is the present Panel system more favourable to members? Would the creation of the Tribunal be viewed as "over-judicialisation" of the WTO? Will the Tribunal system be an answer to this? Will the Tribunal be able to overcome the lack of progress in rule making with its judicial interpretation? Is there a danger of "judicial activism" wherein unintended interpretations may go beyond the original mandate? This possibility is true of the present panel system too but the likelihood of it happening more in a body of trade law experts seems more likely. While strengthening the DSM is pivotal to the continued credibility of the WTO, is the creation of the Tribunal system the answer?

Joel Trachtman on the WTO, Legitimacy and Development

The WTO has often been criticised in terms of its legitimacy and democratic deficit - legitimacy in terms of it being equitable and representational of diverse interests. Critics argue that the multilateral system favours the developed world as well as powerful trading countries and is to the detriment of the least developed countries. They also argue that the WTO structure that permits only formal participation of the States is not entirely representational and thus suffers from a "democratic deficit". Further, it is said that decision making on vital policies affecting a country is transferred from "democratically" elected national representatives to "non-elected", international technocrats.

Joel Trachtman has provided a brilliant understanding of this debate in a Special editorial titled "The WTO, Legitimacy and Development" in the Trade, Law and Development Journal where he has argued that the criticism must move beyond the "generic" legitimacy debate into specifics of what the actual problems are. Arguing that criticism should be backed by strong empirical tools of data analysis, he avers:

"There is no doubt that the WTO has many faults. The problem is that different observers claim different faults, and one observer’s fault is another’s merit. So, instead of claiming illegitimacy, we should explain with greater precision what the problem is. In this context, actionable problems must be of one of two main related types, known in the literature as output legitimacy and input legitimacy, but I believe that calling them legitimacy only clouds the issue. Let’s call them instead “inadequate welfare” and “inadequate accountability”.   

Public policy, including rules of the WTO, can be attacked for failing to maximize welfare. It is easy to see that the claim of inadequate welfare requires a great deal more analysis than a claim  of illegitimacy. It will often require a comparison, using theoretical and/or empirical tools, of the effects of different proposed legal rules or institutions. Professional grade knowledge about what increases welfare and what does not, will  increasingly be viewed as essential to public policy discourse. Those who criticize professionalism and expertise as fundamentally illegitimate have selected ignorance as their guide to public policy formulation."

It is also often argued that the role of multiple interests, especially of civil society and non-State actors must be increased in decision making at the WTO, both at the time of negotiations and dispute resolution. The States "legitimacy" to represent all its citizens is the common refrain. How representative is the Government is the provocative question. Representational democracy is often dismissed as an adequate response.

Questioning the "representational character" of non-State actors, Joel Trachtman is cautious about the argument that non-State actors increase accountability and transparency and hence is more legitimate.

"Given this framework, it cannot simply be assumed that WTO dispute settlement should be more transparent than it is, or should allow greater participation by NGOs or other private actors. From a welfare standpoint, there are costs and benefits to transparency, and there may be circumstances in which the costs outweigh the benefits. We might establish a presumption that transparency in the strict sense – greater knowledge of governmental processes – is often welfare-enhancing, simply because it allows those interested to know, about decision-making and to express their preferences.   

But can we presume that allowing greater participation by NGOs promotes either welfare or accountability? Indeed, arguments for transparency that include NGO voice or control often pit representative democracy in the form of the state against a proposed discursive democracy, empowering organizations that may pejoratively be referred to as “special interests”. The argument for special NGO voice or control, like the argument for legitimacy, attacks agreed methods of doing procedural justice, assuming that there  is something deficient in representational terms about our agreed governmental processes. It would take a good deal of very specific analysis in order to determine whether the special interests add to the welfare analysis or to the quality of participation.  Presumably, they would add to the welfare analysis through expertise. At the WTO, developing countries have often argued that greater roles for NGOs may impair welfare from their standpoint."

Commenting on the efficacy of the "Special and Differential Treatment" (S&DT) provisions in the WTO, he concludes by proposing that though it is difficult to provide redistributive justice in a consent based multilateral system, international trade could provide some answers:

" If there were more consensus regarding the problem of what to do, it would be politically easier to do it. The problem of how to do it is, in part, dependent on the problem of what to do. But the problem of how to do it – politically – is crucial. As suggested above, it is difficult to find in a consent-based international legal system the possibility for strong redistributive action. However, in a consent based legal system, it is possible to find ways to share in the benefits of liberalization in such a way as to promote liberalization in favour of exports of goods, services and labour of the poor. This liberalization is a way to allow the poor to compete side-by-side with the wealthy, and is the key to wage convergence.  

Not every action urged in the name of development is beneficial to poor people, just as not every action urged in the name of legitimacy promotes either welfare or participatory values. On the other hand, measures that increase welfare, that enhance participation in a way that increases welfare, and that narrow distributive differences, will be attractive. Critics of the WTO, and others interested in public policy, would do well to focus on these parameters, and to develop analytical skills that will allow  them to frame their arguments in these terms, rather than in terms of legitimacy, or in terms of unverified assumptions about development or poverty reduction, like many of those involved with S&DT." 

A thought provoking editorial indeed! Throws open myriad questions about the criticism of the WTO, the high moral ground that "developmental" theorists take regarding their theories of poverty alleviation and role of international institutions, role of the WTO in an inequitable world order, globalisation and equitable growth as well as looking at addressing inequity in a refreshingly innovative way. When stereotypes are questioned and cliches are broken, there is always a lot of food for thought.

Globalisation and traditional hierarchies - Some thoughts

The Becker-Posner Blog has a brilliant piece on capitalism, globalisation and its impact on social structures like class, gender and race. Titled "Profits, Competition, and Social Welfare" it argues that capitalism does help in reducing the the barriers of social inequality.

"My second example deals with the interaction between capitalism and discrimination against groups based on their race, gender, religion, or other characteristics. Capitalism and the profit motive help to erode discrimination because companies in their quest for greater profits try to hire minority group members who are getting paid less than their productivity. In addition, the successful growth in incomes and productivity induced by private enterprise raises the standard of living of minorities even when they continue to suffer from substantial discrimination.

A prime example is South Africa under apartheid that was maintained by government laws but was opposed by many private companies. South African blacks suffered immensely under apartheid, and its overthrow is one of the great events of the past several decades. Nevertheless, one main problem during the apartheid period was not to prevent many blacks from leaving South Africa, but rather to control the in migration of blacks from other parts of Africa. The explanation is obviously not that the incoming blacks liked apartheid, but rather that the private enterprise system in South Africa had raised substantially the incomes of blacks there -despite the widespread government-orchestrated discrimination against them-and blacks from other countries in Africa wanted to benefit from the higher incomes available to them in South Africa.

Something similar happened in the United States. African-Americans suffered greatly from discrimination until recent decades. Nevertheless, black incomes continued to grow along with white incomes as the US experienced sizeable and continuing economic growth after the end of the Civil War in 1865 (see my book The Economics of Discrimination, 1971)."

Does globalisation and capitalism have an impact on eroding traditional structures of inequality? Does it help in reducing gender, race and caste discrimination? Is the market "neutral" to these prejudices? Are traditional hierarchies severely challenged by the "efficiency" driven, anonymous market? I have often thought about this issue in the context of caste hierarchy in India. Is globalisation and open market more beneficial to the marginalised communities in terms of anonymizing their identity? Does it give them more opportunity to participate and rise the social and economic ladder than in a State led model of development? Will international trade provide more opportunities to members of these communities to participate and have a stake in development? Will it help reduce barriers, not of trade and tariff, but of social stigma and intolerance? Does it offer more opportunities for participation in an unhierarchical relationship thus acting as a leveller?

Chandra Bhan Prasad suggests that capitalism is more favourable to the eradication of social inequality. In his paper titled "Markets and Manu : Economic Reforms and its impact on Caste in India" he argues that capitalism does help in being emancipatory but it needs to be more egalitarian and participatory.

Can the rules of a market economy of efficiency, competition, entrepreneurship and innovation combat traditional hierarchies of caste inequality? Is it easier for people from the disadvantaged communities to rise up the social ladder in a capitalist led model as compared to a state led model? This report titled "The rise of Dalit Entrepreneurship" explains how Dalit entrepreneurs have risen in a market led economy.

"Explaining that economic standing is the only way Dalits can redefine themselves, RGICS’ Babu likens the trend to the wave of Black Capitalism in the US in the 1970s and 1980s. “There are strong similarities. Like the black capitalists of America, most of the Dalit entrepreneurs are first-generation entrepreneurs, people who were never into businesses but mostly relying on agricultural labour. To get into serious business from agriculture is a paradigm shift. And, in both cases, here as in the United States, even though there have been state interventions to promote entrepreneurship, individual motivation and community help have come first,” Babu says."

A study titled 'Caste and Entrepreneurship in India" by Harvard Business School, to the contrary, posits that representation of dalits in capitalist led entrepreneurship is still low. Explaining that the lack of  "network effects" could be one of the reasons, it concludes:

"The evidence we have presented shows that the OBCs have made progress in entrepreneurship , but SCs and STs are considerably under-represented in the entrepreneurial sphere.  That is, for SCs and STs, political gains have not manifested themselves in greater entrepreneurial prowess.   The rise of Dalit millionaires, driven in part by newer economic freedoms, does not appear representative of the broader swathes of the SC/ST population, at least until 2005.  Such under-representation appears to persist even in states with very progressive policies towards SCs and STs, in states where OBCs have made considerable progress in enterprise ownership, and in urban areas where outright discrimination is lower than in rural India."

Thus, questions remain as to to what extent globalisation and capitalism help addressing traditional hierarchies. Are these forms of development also appropriated by powerful communities? Also, is representational participation  good enough? For example, if a few entrepreneurs from a particular community do well and integrate, does it signify that the whole community has benefitted? Will small entrepreneurs and business men have more likelihood of upward mobility in a globalised world? Are markets, globalisation and international trade immune from traditional prejudices of gender, caste and race or  will it be subsumed in these traditional structures? This is an area that definitely requires more research since as developing countries integrate and questions are raised about the benefit it would have on large populations comprising of hitherto disadvantaged sections, the answers to the question of the relationship between traditional discrimination and new markets will have to be addressed.

21st Century trade and WTO

The failure of the Doha negotiations has raised many issues about the future of the WTO. Will the WTO continue to remain as an effective multilateral institution playing a relevant role in 21st century trade? I have blogged here about the view that the future of the WTO is bright inspite of the current negotiation impasse. While many believe that the WTO continues to perform many functions like trade monitoring and dispute resolution which remain unaffected by the failure of the negotiations, others acknowledge that there is a dent in the the institution's credibility due to the impasse. To what extent has the failure of the Doha round affected multilateralism?

The WTO website has a public forum inviting comments on this issue titled "Is Multilateralism in Crisis?". Richard Baldwin has a well written piece titled "21st century trade and global trade governance: The WTO’s future" wherein he brings to the fore the emerging trends of 21st century trade comprising of international supply chains. Arguing that the failureof the negotiations does not reflect anti-liberalisation sentiment,  WTO's unpopularity or it's irrelevance, he attributes the failure of the WTO to address issues of 21st century trade that is the main issue.

 He characterises 21st Century trade thus:

"This essay argues that the WTO’s woes stem rather from the emergence of a new type of trade — call it 21st century trade. This new trade is intimately tied to the unbundling of production (global value chains). It has reshaped the geography of global production. And — since joining a supply chain is the fast route to industrialisation — unbundling is also at the heart of emerging market growth, which has in turned reshaped the geography of global demand.

21st century trade requires disciplines that go far beyond those in the WTO’s rulebook. To date, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral ‘pro-business’ policy reforms by developing nations. The real threat, therefore, is not failure of the WTO, but rather the erosion of its centricity in the world trade system."

He paints two scenarios for the WTO - one which addresses only 20th century trade and ignores the reality of 21st century trade and the other where the WTO plays a crucial part in shaping and engaging with new trade realities.21st Century trade is characterised by the demands for new rules and disciplines governing the nexus of trade, investment, services, intellectual property, and business mobility which are being formulated outside the WTO in Regional Trade Agreements.

"This line of reasoning suggests the WTO’s future will take one of two forms.

1) The WTO remains relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade; all ‘next generation’ issues are addressed elsewhere.

In the optimistic version of this scenario, which seems to be where the current trajectory is leading us, the WTO remains one of several pillars of world trade governance. This sort of outcome is familiar from the EU’s three-pillar structure, where the first pillar (basically the disciplines agreed in treaties up the 1992 Maastricht Treaty) was supplemented by two new pillars to cover new areas of cooperation.¹ In the pessimistic version of this first scenario, the lack of progress undermines political support and the WTO disciplines start to be widely flouted; the bicycle, so to speak, falls over when forward motion halts.

The second scenario involves a reinvigoration of the WTO’s centricity.

2) The WTO engages in 21st century trade issues both by crafting new multilateral disciplines — or at least general guidelines — on matters such as investment assurances and by multilateralising some of the new disciplines that have arisen in regional trade agreements. 

There are many variants of this future outlook. The engagement could take the form of plurilaterals — following the lead of agreements like the Information Technology Agreement, the Government Procurement Agreement and the like (where only a subset of WTO members sign up to the disciplines). It could also take the form of an expansion of the Doha Round agenda to include some of the new issues that are now routinely considered in regional trade agreements."

Which way will the WTO go? Will it remain an institution of the 21st century addressing trade needs of the 20th century or will it play a more pivotal role in guiding and shaping 21st century trade rules? The pressures on the dispute settlement system with the first approach would be telling. When the rule making does not reflect the new realities of trade, it is left to judicial bodies to interpret and re-interpret existing rules to reflect reality. Will this not lead to new tensions? To what extent can the judicial function reflect realities? What essentially is a political question of negotiation, concession and rule making will fall on the rule based dispute resolution system. The coming years will see the WTO either addressing this dichotomy or facing the dilemma of this dichotomy.

Tuna report, compliance and jurisdiction - Some questions

The Appellate Body of the WTO had recently delivered the Tuna Report about which I have blogged here and here. The Report was adopted by the Dispute Settlement Body. One would assume, in the context of dispute settlement proceedings, that an Appellate Body decision brings to closure issues raised in the dispute and the next stage of compliance would be the focus. However, increasingly in WTO disputes (whether it is the Airbus  Boeing dispute, Cloves Cigarette dispute and now the Tuna dispute), the Appellate Body decision is not resulting in a finality to the proceedings. Parties to the dispute continue to canvas their their original positions and do not perceive the need to change their domestic policy in consonance with the Appellate Body decision. Complex issues of what would constitute compliance to the decision or whether the measures undertaken are in fact "compliance" have taken centre stage.

The recent contentions of Mexico and the U.S. at the adoption of the Tuna Report that reflected similar sentiments of "non-finality" was interesting:

Mexico maintained, inter alia:

"In Mexico’s opinion, the reports had also correctly considered that the “dolphin safe” labelling was a technical regulation as per the TBT Agreement.  With regard to non-discrimination, Mexico welcomed the Appellate Body’s reversal of the panel’s finding that the US measures were not inconsistent with Article 2.1 of the TBT Agreement.  The Appellate Body found that the US measures were inconsistent with Article 2.1 as they granted Mexican tuna products less favourable treatment to that granted to like products originating in the US and other countries.  With regard to Article 2.2 of the TBT Agreement, Mexico was disappointed with the Appellate Body’s reversal of the panel’s finding that the US dolphin safe labelling provisions were more trade restrictive than necessary to fulfil the US legitimate objectives. ... 

 Mexico hoped that the US would implement the DSB’s recommendations."

The U.S. response in the DSB was:

"With regard to Article 2.1, the US agreed that to determine whether imported products were accorded less favourable treatment would require an analysis of whether the measure at issue modified the conditions of competition to the detriment of imported products.  However, the US was of the view that the Appellate Body had misapplied this concept and had ignored the fact that the Mexican and US tuna product producers were in the same situation and the adverse effects resulted from the private choices made by the individual producers.  The US was also concerned about the Appellate Body’s finding that WTO committee decisions can be subsequent agreements that must be read into the covered agreements."

Hence, would this also be a protracted "compliance" issue that looks likely in the Cloves Cigarettes case or will the U.S. comply with the modification of their prohibition. Another contentious issues in the context of Mexico's claim in the WTO was whether it was right in doing so in the context of the avenues available under NAFTA. Did the NAFTA preclude Mexico from pursuing a WTO remedy?


Robert Howse commenting on this blog earlier with reference to the dispute and the NAFTA rule said:

"Dear Srikar, on the NAFTA issue take a look at Article 2005, paragraphs 1 and 4. It makes clear that any dispute " (a) concerning a measure adopted or maintained by a Party to protect its human, animal or plant life or health, or to protect its environment, and (b) that raises factual issues concerning the environment, health, safety or conservation, including directly related scientific matters," must be taken to NAFTA not the WTO, where it arises under both Agreements, at the request of the responding party (and the US so requested).

I don't see why some group of states can't agree among themselves to choose a particular method to solve a dispute, which is different from that specified in a multilateral treaty to which they are parties, provided that they do not affect the rights of third states under the multilateral treaty, who are not privy to this special arrangement."

The US seems to have reiterated this position in the proceedings:

" The US regretted Mexico’s decision to continue with the WTO dispute settlement given that NAFTA parties had agreed that certain disputes involving both the WTO Agreement and the standards-related provisions of NAFTA would be heard solely under NAFTA’s dispute settlement procedures.  With respect to procedure, the US noted and expressed its disappointment that the Appellate Body had issued its report outside the 90-day period as stipulated in Article 17.5 of the DSU. The US reiterated its commitment to fulfilling the legitimate objectives of the Dolphin Protection Consumer Information Act."

What was interesting was Mexico's response to the NAFTA bar:

"In response to the US statement regarding NAFTA’s dispute settlement procedures, Mexico said that the US had refused to have panellists sit in disputes and this was a technically complex dispute requiring a detailed analysis.  Mexico noted that the US itself had brought a previous dispute (Mexico-Corn Syrup) to the WTO and thus found the US behaviour contradictory. "

Do two wrongs make a right? Is a particular act of a country (in this case the US step of going to the WTO) sufficient precedent even if it was not permitted? Can Mexico justify its act of approaching the WTO because the U.S. had done so in an earlier case? Or does the U.S. have the right to question Mexico's step to approach the WTO when it has itself done so earlier? Were the circumstances different then? Which forum decides this? Could the Panel or Appellate Body of the WTO have gone into the issue of their jurisdiction and have not maintained Mexico's complaint? What does the Vienna Convention on the Law of Treaties have to say about this? This would be a discussion for another day.

Protectionism - Fact or Fiction?

In yesterday's post I had depicted the level of protectionist measures in G 20 countries. The focus of the G-20 Summit which recently concluded in Mexico was on a plethora of pressing issues  concerning the global economy I found the declarations on trade, protectionism and WTO, not entirely surprising, but interesting.

The Los Cabos Growth and Jobs Action Plan reaffirmed its resolve against protectionism in a brief reference:

We reaffirm our commitment to resist protectionism in all forms and promote open trade, and will take active measures to reduce the number of WTO inconsistent trade restrictive measures and resist financial protectionism.

The more detailed analysis of the issue of trade, protectionism and multilateral trade was found in G 20 Leaders Declaration after the Summit:

"Trade

26. We are firmly committed to open trade and investment, expanding markets and resisting protectionism in all its forms, which are necessary conditions for sustained global economic recovery, jobs and development. We underline the importance of an open, predictable, rules based, transparent multilateral trading system and are committed to ensure the centrality of the World Trade Organization (WTO).

...

28. We are deeply concerned about rising instances of protectionism around the world. Following up our commitment made in Cannes, we reaffirm our standstill commitment until the end of  2014 with regard to measures affecting trade and investment, and our pledge to roll back any new protectionist measure that may have arisen, including new export restrictions and WTO inconsistent measures to stimulate exports. We also undertake to notify in a timely manner trade and investment restrictive measures....

...

30. In line with the Cannes Communiqué, we stand by the Doha Development Agenda mandate and reaffirm our commitment to pursue fresh, credible approaches to furthering trade negotiations across the board. We will continue to work towards concluding the Doha Round negotiations, including outcomes in specific areas where progress is possible, such as trade facilitation, and other issues of concern for least developed countries. We urge progress  in streamlining WTO accession procedures for the world’s poorest countries.

31. We support strengthening the WTO through improving the way it conducts its regular business, and its dispute settlement system. We also direct our representatives to further discussions on challenges and opportunities for the multilateral trading system in a globalized economy."

The many "positives" from this Declaration:

1. The recognition that rising protectionism is an issue and it needs to be tackled within the multilateral trading system.

2. The reaffirmation of the principles of multilateralism and a rule based, open transparent system which promotes growth and jobs. The fear of reversion to "trade wars" and "tariff wars" seem to be allayed if the declaration is any indication. The severe economic crisis being faced by the major economies has not led to a formal recognition to raise protectionist walls and this was reflected in the tenor of this declaration.

3. A glimmer of hope for the Doha Round and an indication that the "single undertaking" approach may be replaced by a more pragmatic, outcome based approach in areas where progress is possible. The views on the WTO website of Joost Pauwelyn on a five point formula to revive multilateralism which included reconsidering the "single package rule" echoes similar views.

4. Recognition of the importance of transparency and notifications in the WTO. This would enhance the detection of WTO inconsistent measures considerably. Today, there are countries that are extremely transparent in depicting their laws, rules and notification even in terms of access on the internet while others are not so open. A standard of transparency that enhances compliance has to be brought in.

5. The resolve of strengthening of the WTO in the midst of protectionism is encouraging. The G 20 does not see the WTO as a threat to domestic, sovereign decision making even in the face of increasing pressures to turn protectionist. They see the WTO as an ally in an open, multilateral system.The mandate here seems to be to find ways to strengthen the  WTO including the way it would meet challenges of a globalised economy.

However, there are a few concerns in this context. Are these declarations translated into action? We heard similar proclamations after the 8th Ministerial Conference of the WTO but protectionist tendencies did not subside thereafter. Is it easier to proclaim one's allegiance to free trade, reduction of barriers and multilateralism but in actuality practice protectionism? Is it just "politically" correct to stand by multilateral trade rules, reduction in barriers and transparency but extremely difficult to implement? This is compounded by the fact that the interpretation of what constitutes protectionism is highly contested. Countries justify their measures as being non-protectionist and in conformity with WTO rules. It enters into the quagmire of complex judicial interpretation of the labyrinth of WTO rules and dispute settlement. This is often time consuming and ineffective. As disputes proceed, countries continue to have these measures in force. Then, there is the issue of compliance and what constitutes compliance to a decision of the Appellate Body which has decided against a measure. Hence, at times, countries do get away with protectionist measures which are antithetical to WTO obligations.

One would have to wait to see if the spirit of this Declaration translates into credible action.

G-20 and Protectionism - A graphic

The G-20 Summit just concluded in Mexico. The graphics below indicate the level of protectionism in G-20 countries upto 2011. Recent disputes at the WTO have indicated the increasing trend of "protectionist" measures. Can the G-20 address this issue?

China, WTO and dispute settlement

BloombergBusinessweek has a piece on China's engagement in the WTO's Dispute Settlement mechanism. These interesting graphics depict, according to the author, China's tit for tat policy of reverting to the dispute resolution process when taken to it.

The issue of the Chinese practice of engaging foreign lawyers seemed interesting in the above piece:

"U.S. lawyers in particular have helped China learn the ropes. Three Washington law firms—Sidley Austin, Steptoe & Johnson, and Hogan Lovells US—that have offices in Beijing are among the Chinese government’s favorites for helping it litigate at the WTO. “If it’s a really important or technical trade issue and they’re a first party, I’m not aware of a case where they didn’t hire a foreign lawyer and encourage or require them to team up with a local or Chinese lawyer,” says Daniel Crosby, a partner at King & Spalding in Geneva."

While China has engaged Foreign expertise,  do all developing countries have the werewithal to do this? It is often suggested that developing countries must develop their legal capacity to engage with the WTO dispute settlement. WTO legal rules are often complex  and engaging. They involve intricate questions of law and fact, often dragging on for years. Nevertheless, as suggested here WTO dispute resolution process in the context of international trade is a positive factor.

"For all its flaws, the WTO process works more quickly than many countries’ court systems. And, supporters say, it’s a big improvement on what existed before the WTO’s 1994 establishment. Before that, “there were two ways to settle trade disputes—a war, or power politics, where the bigger economy or the bigger power just did whatever it wanted,” says Fredrik Erixon, director of the European Center for International Political Economy, a Brussels-based think tank. The WTO, he says, “has had a profound impact.”

Thus, a country must develop national legal capabilities which consist of interdisciplinary teams to engage, in consonance with national developmental agendas, with the dispute settlement mechanism. The question whether China's "tit for tat" policy is worrisome or a justifiable use of the dispute resolution process is another issue.

Syria, EU and export ban - Security Exception?

(Courtesy: Los Angeles Times)


Came across this piece in Reuters about a ban of exports of luxury goods to Syria by the European Union.

"The European Union on Friday banned exports to Syria of luxury shoes, caviar and boats, as well as goods with possible military applications, in an effort to step up the pressure on President Bashar al-Assad's government and family.

The decision came as violence surges in Syria, despite an April 12 ceasefire negotiated by international mediator Kofi Annan and a range of sanctions by the European Union, United States and others against Damascus.

"In the current situation, the EU must keep up the pressure on the Syrian regime," EU foreign policy chief Catherine Ashton said in a statement."

This has been reported in the LA Times too. While the report stated that luxury goods exports were banned, exports of non-luxury items was not banned. Is this ban permitted under WTO law?


Article XXI of GATT that covers Security Exceptions states:

" Nothing in this Agreement shall be construed

(a)      to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or 

(b)      to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests

 (i)       relating to fissionable materials or the materials from which they are derived;

 (ii)      relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; 

(iii)     taken in time of war or other emergency in international relations; or

(c)      to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security."

Does the export ban of luxury goods to Syria fall under an "action" under Article XXI (b)? Is the ban necessary for the protection of its essential security interests as "considered" by the EU? If so, what justifies the luxury non-luxury distinction? While the ban on military related goods clearly fall under categories (i) and (ii) of Article XXI (2) (b), can it be extended to consumer goods too? Further, does Article XXI allow a country to take a unilateral decision based on its own consideration of security interests? Is it subject to judicial review? While I am not commenting on the violence in Syria (since I have no competence or knowledge about it), is the measure in consonance with Article XXI? Is there a possibility that the Article XXI exception can be used as a tool in non-trade related crisis, especially deeply political ones with security implications? While this is not a protectionist measure, does it have a possibility of being misused in cases where political establishments are at ideological wars? Am I treading into sensitive territory?

Is Protectionism rising?

The fears of rising protectionism (of rising barriers, both tariff and non-tariff barriers) loom large across the world. The failure of the Doha Development Agenda has created an impasse to further liberalise trade rules. The trend of a drift towards protectionism is often reported. This is despite public commitments of opening up of trade and resisting protectionism. The 8th Ministerial Conference of the WTO had unequivocally advocated the commitment to multilateral rules in its statement of political guidance:

"1. Ministers emphasize the value of the rules-based multilateral trading system and agree to strengthen it and make it more responsive to the needs of Members, especially in the current challenging global economic environment, in order to stimulate economic growth, employment and development.

2. Ministers underscore that the WTO’s role in keeping markets open is particularly critical in light of the challenging global economic environment. The WTO has a vital role to play in the fight against all forms of protectionism and in promoting economic growth and development. Ministers also acknowledge that experience has shown that protectionism tends to deepen global economic downturns. Ministers fully recognize WTO rights and obligations of Members and affirm their commitment to firmly resist protectionism in all its forms."

Perhaps statements of political guidance often do not translate into sovereign, national actions of countries across the developmental divide. Moreover, countries often justify their measures as being consistent with multilateral obligations and not being protectionist in letter and spirit.

Pascal Lamy, Director General of WTO recently addressed this issue:

"For the first time since the beginning of the crisis in 2008, this report is alarming.  The implementation of new measures restricting or potentially restricting trade has remained unabated over the past seven months, which is aggravated by the slow pace of rollback of existing measures. 

The accumulation of these trade restrictions is now a matter of serious concern.  Trade coverage of the restrictive measures put in place since October 2008, excluding those that were terminated, is estimated to be almost 3% of world merchandise trade, and almost 4% of G-20 trade. The discrepancy between the commitments taken and the actions on the ground add to credibility concerns.

This situation is adding to the downside risks to the global economy and what is now a volatile global context.

In such a situation, it is important that we collectively and urgently redouble our efforts to strengthen multilateral co-operation to find global solutions to the current economic difficulties and risks and avoid situations that would cause further trade and investment tensions."

What ultimately causes countries to adopt protectionist measures? Does an economic depression or the need to protect a local industry fuel it? Do democratic, political compulsions promote it? Do domestic business interests play a dominant role in policy making to ensure that barriers are raised? Is it politically more expedient to justify a protectionist measure to one's constituency? Does it signify a nation's control over it's own sovereign destiny? Is it a reaffirmation of one's national sovereignty? Are the reasons economic, political or both?

A study titled "Protectionism isn't countercyclical (anymore)" by Andrew K Rose in Vox analyses the relationship between economic depression, unemployment, growth and protectionism in terms of tariff barriers. He comes to the conclusion that protectionism is anything but cyclical - that is a wave of depression does not necessarily lead to the rise in protectionist measures.

"The goal of my recent work has been to show that, at least since World War II, protectionism has not been countercyclic. While this runs counter to conventional wisdom, the evidence is reasonably strong; no obvious measure of protectionism seems to be consistently or strongly countercyclic."

Taking the example of initiation of disputes at the WTO as a sign of protectionist measures, he has analysed the disputes initiated with growth patterns.

"Accordingly, Figure 3 provides a time-series plot of annual global GDP growth and the number of commercial disputes initiated under the GATT/WTO dispute settlement system. This is by no means a perfect measure of protectionism. Complaints are not formally initiated against all protectionism, are not equally important, and are not randomly initiated across countries. The inadequacies of the GATT system led to considerable reform under the WTO in 1995. Still, this measure covers both the world and NTBs.¹ The message from Figure 3 is that, for the world as a whole, global growth is essentially uncorrelated with the initiation of disputes under the multilateral mechanism set up precisely to handle protectionism.

This paper is an interesting economic analysis of protectionism. However, as the author himself indicates, all disputes initiated at the WTO may not signify issues of protectionism. May be a better analysis would be to plot the disputes in which the Appellate Body declared a measure contrary to WTO rules instead of the initiation per se. Another issue is of what constitutes protectionism? Is raising tariffs, even if it is within the bound rates of a country, per se a protectionist measure? Certain measures that raise the barriers of free trade are permitted by the WTO rules. Do they constitute protectionism? Is there a difference between economic protectionism and legal protectionism whereby the former is a much broader concept than the latter? In other words, a measure may be protectionist in the economic sense of restricting competition and not taking advantage of optimum allocation of resources but might be perfectly legal as per international trade law since the exceptions in the WTO rules allow for such a legitimate use of policy space. When we speak of protectionism rising, what form of protectionism are we talking about? Further, a whole host of non tariff barriers like technical barriers and standards are in play now denoting new forms and classes of protectionism. Is protectionism a relative term?