Appellate Body and its future - Hear what the experts have to say

For those who missed the webinar on Appellate Body crisis and what the future holds for WTO dispute settlement, here is the video recording of the session. The session had Peter Van den Bossche, Joost Pauwelyn, Simon Lester and Cherise Valles debating on what is in store and how to get there!

The session brought up interesting insights on the standard of appellate review, the impartiality and fairness of judicial review, complexity of WTO cases, alternatives to the Appellate Body and how far they will go, differential deference standard for trade remedy cases and what the future holds for dispute settlement.

One would have to wait and see if the appellate review process gets back on track at the WTO anytime soon. What are the implications of this for multilateral trade rule enforcement, access to a rules based system, reversion to power dynamics in trade relations as well as the efficacy of global rules themselves.

What will it take to get the Appellate Body back on track?

The Appellate Body at the World Trade Organization has been facing a severe existential crisis for a couple of years now. What can be done to revive it? Is it possible at all? What will it take for the adjudication system to be back on track?

Watch this excellent panel I am introducing on 19th November, 2021 at 10 am EST (4 pm Geneva Time, 8.30 pm IST). Here is the IELP blog reference. 

The zoom link is here - https://harvard.zoom.us/webinar/register/WN_u078UN5HQqCiF_IYkaipAw

What next at the WTO Ministerial?

I recently introduced and facilitated a panel discussion on the likely outcomes for XII WTO MC to be held in a few days. Great inputs from Alan Wolff, Harsha Vardhan Singh, J.S.Deepak and Gabrielle Marceau on what the stakes are and what could be realistically achieved. 

Views ranged from optimism on ambitious outcomes to a realism of national interests prevailing. Negotiation at the WTO has always been achieving that balance! Glacial speed negotiations with perennial optimism!

Alan Wolff, former DDG of the WTO, shared the written version of his text here. The video recording of the session is found here.

Watch the panel discussion and await a debrief from a month from now!

What is needed to end vaccine inequity - another trade and investment treaty?

Covid, unhindered trade and vaccine equity have been at the centre of the debate on resolving the world's largest public health crisis. Doing away with export restrictions on critical inputs, creating adequate manufacturing facilities to waiving intellectual property rights on vaccines have been offered as effective solutions to address the crisis.What is the appropriate policy response both international and domestic to get over the epidemic is a question that engages policy makers the world over.

An interesting solution offered by Chad P. Bown (PIIE) and Thomas J. Bollyky (Council on Foreign Relations) in the PIIE is of having a Covid Vaccine Investment and Trade Agreement (CVITA). They outline the 4 main features of the proposed agreement as follows:

1. Production allocation - whatever vaccines are produced by members of this agreement should be allocated between the global Covax initiative and used domestically. No room for vaccine nationalism here.

2. Subsidize vaccine supply chains - Help manufacturers in increasing production by subsidising their inputs

3. Prohibition of export restrictions on both inputs and final vaccines by signatories to the agreement

4. Transparency -  on supply chains, inputs and vaccine production by signatories.

The authors have mooted this as a deliverable at the XII Ministerial Conference at the WTO. Will the major players agree to this formula? Will the objective of vaccine equity be met with this arrangement? What about a waiver? The authors don't necessarily think it will work:

A second proposal, initially made by India and South Africa, was to waive patents for vaccines. Such a waiver by itself is likely to have only a limited immediate impact on increasing production, given that the main technological impediment to vaccine manufacturing is how to affirmatively transfer production knowhow, not the patent. (There are other impediments to scaling up manufacturing, such as insufficient supply of specialized inputs, inadequate regulatory oversight, and an inexperienced workforce, that a patent waiver would also not resolve.) 

One must assess if this agreement is politically feasible at this stage of the crisis wherein major developing economies are still engaged in providing vaccination to their people. 

Another interesting part of this piece was the diverse ways in which supply chains and production arrangements work for different pharma manufacturers. The supply chains of both Pfizer and Astra Zeneca were laid out.

Lawyers and their role!

Should lawyers never propose changes to the law? Are they bound by the"positivist" notion of what the law is?

An interesting blog piece here on why as a lawyer signing a petition on climate change is difficult by Benoit Mayer.

An equally interesting retort on why this shouldn't matter by Srinivas Burra here.

Well, I think more voices are always welcome in debates on climate change, trade and development  - from positivists to anarchists to reformists to status quo-ists. Keep the debate going on!

Sovereign Wealth Funds - the next big thing?

The issue of Sovereign Wealth Funds (SWFs) and its role in fostering investment, trade and globalization has been a topic that come up on and off. I haven't followed the debate as keenly but this news of UAE's SWF investing in the UK caught my attention.

The UAE's SWF Mubadala Investment Co. is committed to invest $14 billion over a time frame in the UK in various industries covering infrastructure, technology, healthcare and energy. There is a bilateral investment partnership between the UK and UAE fostering this investment.

SWFs are state owned holding companies which are created by States for various reasons including to invest in diverse portfolios across economies. They could be also funds from commodity revenues that are invested more safely in treasury bills. 

See this rating of the top 100 SWFs with Norway right on top followed by China. SWF is a state led strategy in a market driven model of investment. A number of issues including interplay of geo-political interests would probably guide investments. It would be interesting to see how a dispute would be resolved in the case of a SWF - through the traditional State to State diplomatic mechanism or a investor state dispute settlement framework.

SWFs are about 10% of global assets under management. What role will they play in the global economy? What questions does it raise about the role fo the State and market in global governance? What international institutional arrangements would be made to foster growth of SWFs?

A scathing critique of the narratives of the ISDS

A scathing piece in the LPE Blog on private lawyers and public interest caught my attention. Provocatively titled "Public Washing the Private Interest in International Interest Law", it explains the nature of private interest protected in ISDS as well as the legal force that propels it.

Besides the issue of public international law lawyers representing in ISDS cases, the blogpost framed the justification of ISDS on three narratives:

1. ISDS promotes development

2. ISDS promotes the rule of law

3. ISDS applies public law doctrines like proportionality that balances public interest with private interest.

I think all three narratives are debatable and can be subjected to intense debate depending on where you are located. Nevertheless, how future international investment treaties will be crafted, with what kind of exceptions will determine how relevant these narratives are. For the moment, the there is an intense debate and dichotomy of opinion on the claims of these narratives - will the narratives continue to hold sway with evidence or is the reality of the the market too determined to ensure the continuance of these narratives? Is the reality somewhere in the middle - the need to counter unbridled state arbitrariness with the recognition of the requirement sustainable investment for development?

Digital Trade and multilateral rules - no easy answers

Can international trade rules improve/restrain domestic regulation in digital trade? 

A recent CATO webinar did throw up some of these questions. 

Some highlights that the speakers brought up were as follows:

1. Internet is flattening and democratising trade. In Covid, digital rules have kept businesses open. There is an increased customer base. Many small MSMEs are using digital rules to expand their businesses.

2.Regulation for any technology is critical. Proper regulation is required in the area of the internet. The way regulation is perceived can undermine trade benefits from digital technologies.

3. Discrimination in closed markets is prevalent - Closing markets to foreign players is happening. Political economy is playing out in many economies.

4. Lack of transparency and due process can hinder progress. Lack of applying the rule of law in the digital space can be counter-productive.

5. Lack of inter-operability is an issue. Governments are making digital policies in a vacuum. Too much regulation in silos.

6. Intersection of digital trade and international rules an area of study. Movement towards to a common high level approach may be required.

7. Trade agreements do not stifle digital regulation. Domestic regulations should be subject to international obligations - non-discrimination, transparency and other basic norms

8. Sector specific commitments - coverage can vary from country to country

9. Exceptions in trade agreements - whether relevant to problems faced in the digital world.

10. Ecommerce chapters in FTAs recognise standards in consumer protection, privacy, AIs - never considered trade policies

11. US focuses on digital aspects. China focuses on trade aspects.

12. US - Firm sovereignty model - Governments dont intervene

      China - State sovereignty model - lot of restrictions on what you can do in the internet

       EU - Individual sovereignty model - privacy protection of personal information. Uses regulatory power ro protect this

13. Why three different approaches

       American and Chinese firms - 6 and 4 firms out of the top 10 big Tech players in the world

       US firms - are mainly pure digital services firm - dont sell physical products.Digital side is more important to them

        Chinese firms - sell physical goods and digital services

14. Digital Trade framework - should be a multilayered framework - multi-stakeholder institutions - like private organisations - network of institutions. Better than binding obligations in trade rules.

15. What structure is best for digital trade agreements?

       Global deal - at the WTO would be good to regulate digital trade.Better record than other international institutions. Regional deals and bilateral agreements have a lot of digital trade provisions. Joint Statement Initiative from Buenus Aires - plurilateral rules. 

16. Architecture of RCEP and CP-TPP quite similar though substantive provisions differ.

17. Digital development dimension not addressed in free trade agreements. The question of digital inclusion.

18. Cultural differences a barrier to agreeing on digital trade rules? Yes, possible.

19. Tiered obligations (TFA model) could be used in digital trade rules. Different modules to be chosen from.

20. Lowest common denominator. Minimum standard - free flow of data and prohibition of data localisation?     

21. Are trade lawyers equipped to deal with digital governance issues?

22. What is the core of these digital trade rules? - Non-discrimination or free flow of data?

      Data flow - foreign websites, data localisation (national treatment)

      Go beyond non-discrimination. Enabling ecommerce, online consumer protection.

       JSI - has more provisions.

These are some of the issues that came up in the talk. An important question - are trade rules required for digital growth within economies? Can digital inclusion be achieved without trade rules? Can trade rules exacerbate or redue digital inequities?   

Of negotiations and problems

How does one describe an intractable problem to work on with a smile and yet having to face the difficulties of negotiating positions? 

Here is a nice way of saying it:

"In fact, if you had to sum up the entire encounter, it was that while leaders and officials luxuriate publicly in a rhetorical hot tub of co-operation and mutual appreciation, they still need to pass through a cold shower of political and legal reality on the way to the changing rooms."

"The links with Tai that Brussels hopes will bind", Financial Times, 17th June 2021

This quote applies to all sticky situations where hard-nosed negotiations are involved to solve decade old problems!

The deal, finally!

The Airbus-Boeing deal, atleast the bare public text, is out here. The longest WTO dispute is temporarily suspended - atleat for 5 years without any retaliation by either side. Latest reports on it are here.

What are the highlights and what does the truce tell us?

Some highlights:

1. A constant engagement at the highest level Working Group to sort out issues and thrash out more details

2. Financing for aricrafts by either side will be on market terms.

3. R & D funding to be continued on an open and transparent basis which is not specific and cause negative effects to the other side. (This requires more understanding!)

4. Application of the deal and its principles to all levels of government - national, provincial and local level. recall that many subsidies are provided by State authorities and local governments.

5. Watching activities of non-market practises of third parties (read China) that may harm their aricraft producers interests

6. Suspending any retaliatory measures for 5 years - no withdrawal of cases at the WTO but in effect calling it truce.

What can we decipher from this deal:

1. Even the most seemingly complex trade dispute with huge financial implication can be resolved with political direction

2. A larger threat makes former foes to come together for survival! The new competitor on the block are the Chinese aircraft manufacturers which can be a potent threat to both Airbus and Boeing. The US and EU allege that support for the Chinese project is largely state based and state subsidies. The need to counter this busniess threat is one of the motivating factors to come together

3. Complex, legal, trade disputes can be resolved by political intervention - a task that requires looking at the bigger picture, inetersts and future.

4. It is okay to have a duopoly situation (created by state subsidy) on market terms to counter future non-market threats!

5. Will we see more collaboration from the largest trading partners US and EU on issues with a similar threat - third party economies acting on non-market terms!

6.Subsidies have been part of the game in the aviation sector for a long time and continues to be. It seems to be ok to use them but is a challenge when others start using them too!

Will the longest WTO dispute come to an end?

One of the longest and most complex WTO disputes - the Airbus-Boeing dispute - seems to be reaching a settlement. Or atleast that is what the Financial Times reported today. I have earlier blogged about it here, here and here.

The Airbus-Boeing dispute is one of the longest running battles in the history of the World Trade Organization — a disagreement both sides have acknowledged they could increasingly ill-afford as they seek to forge closer co-operation in dealing with China’s model of state capitalism. 

The importance of a deal has been emphasied here. Will it be a front runner for a set of principles for subsidies in the aviation sector? Will the deal, if it comes through, be a sign for the next transatlanticco-operation - reform in the multilateral trading system? 

What would the deal entail? What has the role of the WTO dispute settlement been in bringing about this deal? Have the threats and implementation of retaliatory measures been the motivation for a deal or is a threat of being left behing by other economies in the aviation sector been a consideration?

Whatever the motivations, the deal will signal the end of a complex dispute that has engaged governments, the aviation bigwigs as well as many international trade law experts for nearly two decades!

Labour provisions in trade agreements - not really protectionism?

I have blogged about the contentious issue of labour provisions in trade agreements. They can be found here, here, here and here.

Are labour provisions trade friendly as well as labour welfare enhancing? Do they provide an overall benefit to the workers whose rights are protected as well as firms who export? Are they beneficial to both the exporting as well as importing countries? On the other hand, are they protectionist in nature? Do they impede trade as costs would increase as a result of increased labour protection? Is it an indiretc way of challenging the comparative advantage countries have in abundant labour and comparatively less labour enhancing protections or measures?

Labour provisions are increasingly finding their place in trade agreements. Two disputes have found their way to dispute resolution fora.

Céline Carrère & Marcelo Olarreaga & Damian Raess have explored the impact of labour provisions in trade agreements in terms of whether it enhances trde or impedes it. It has extensive econometric models trying to co-relate labour provisions in various FTAs with firm's performance. The interesting finding that the study has come to is that enforcement mechanisms in labour provisions in FTAs have not been use dthat often and have also not led to an increase/decrease in trade. On the other hand, the institutional co-operation mechanisms that exist where joint bodies address issues of labour protection can be far more beneficial to trade since firm level involvenemt is there from both the importinga nd exporting countries. They conclude:

To sum up, the impact of LCs is strong where they are expected to have an impact, and it is mainly driven by institutionalized cooperation provisions in the LCs. Contrary to what is sometimes suggested, low-income countries with weaker labor standards should not fear the introduction of LCs as a protectionist tool in PTAs as they help rather than hinder their market access to high-income countries. Both low and high- income countries should embrace LCs with institutionalized cooperation mechanisms since the greater trade they generate is at the same time associated with improved labor standards in low-income countries (Raess & Sari, 2020b). As such, they meet the concerns of two core constituencies in high-income countries, the fair traders, by improving labor standards abroad, and those who seek protection, by leveling the playing field for workers and businesses at home, and thereby they help to legitimize the policy of free trade. 

One often wonders of labour provisions n FTAs will open the pandora's box to disputes in trade. if not actual disputes, is a threat of a dispute enough to ensure compliance? Would that compliance lead to increased costs and impede trade? Or does it lead to enhanced standards and firm's competitiveness in the global market increases?

The other questions is the heterogeniety in labour provisions in various agreements - from hard law enforcement provisions to soft law co-operation and engagement and capacity building. Is this a possible middle path to engage with labour provisions or should it be a red zone? That would ultimately be a domestic choice - a national negotiating priority in the context of specific negotiations. 

Canada, model investment agreements and the middle road?

Close on models of investment agreements, after the Indian BIT model and the Brazilian CIFA model, it is time for the Canadians to roll out theirs.

Kluwer Arbitration Blog has this detailed analysis of the new Canadian FIPA Model. I am not repeating the overview given there. Predictably, it has provisions relating to ISDS an a possible appellate mechanism.

A few observations:

The right to regulate find a prominent place in Article 3 of the Model Agreement.

The Parties reaffirm the right of each Party to regulate within its territory to achieve legitimate policy objectives, such as with respect to the protection of the environment and addressing climate change; social or consumer protection; or the promotion and protection of health, safety, rights of Indigenous peoples, gender equality, and cultural diversity.

Reference to the rights of indigenous peoples is something not found in standard BITs.

Responsible business conduct finds a place in Article 16. 

Taxation measures are ou of the scope of the agreement. However, there are exceptions to this exclusion which are listed in Article 11.The National Treatment and MFN provisions do apply to taxation measures (except income, capital gains or on the taxable capital of corporations) under certain conditions. All in all there is an exclusion to an exception of non-applicability!

Exhaustion of local/domestic remedies seems to be excluded from th scope of the agreement as seen in Section E.

I was surprised not to find any reference to the role of joint interpretative statements or commissions pursuant to the implementation of the Agreement, considering the NAFTA experience.

On treaty shopping using the MFN clause, as this Lexology report states, this has been prevented for procedures found in other investemnt agreements and substantive obligations unless measures have been enacted by the State.

A middle of the road model or titled towards ISDS still?

ISDS and evidence that it offers

A recent piece in the CCSI blog on FDI and regulatory risk referenced a detailed World Bank Report of 2019 on FDI and political risk and policy responses to FDI retention and withdrawal. What are the factors that result in FDI being withdrawn? Why do disputes reach the stage of ISDS arbitral cases?

The report offers some explanations on why ISDS cases arise in the first place. Why can't they be settled at the governmental level?

Some results:

1. ISDS is often a last resort mechanism - when everything fails, it is taken up to seek compensation

2. 70% of ISDS claims are dealing with measures of sub-national or sectoral agencies instead of the national government

States are intricate and multilayered structures, comprising many internal factions and stakeholders. Given their broad scope of application, the norms and disciplines of IIAs may touch upon a plethora of policy matters that are handled by multiple governmental agencies operating at different jurisdictional levels, and even in multi-state contexts in countries with federal systems of government. Public agencies do not always have the same policy priorities, and not all agencies are aware of the existence of IIAs or prioritize compliance. However, IIAs operate under the premise that the state is a single entity—regardless of its internal administrative complexity—and is a subject under international law. Therefore, governments as whole are considered to be accountable for compliance with their international obligations. 

3. Tertiary sectors have the highest claim of ISDS cases - not main manufacturing sectors

Examining the economic sectors where ISDS occurs most frequently shows that although ISDS has taken place in a wide range of areas, many of the disputes tend to arise in economic sectors characterized by high levels of state intervention. The sectors can be categorized into two baskets that are particularly prone to ISDS.17 The baskets are (i) natural resource industries such as extractives, agriculture, fishing, and forestry; and (ii) the tertiary sector, which many countries consider to be of “public interest” and is thus subject to close state supervision, or where public-private partnerships (PPPs) are typical, such as transport infrastructure and utilities (for example, water and electricity distribution).

4. Only a small proportion of actual FDI investment have used ISDS as a mechanism - 0.4% of total investments. The report has argued that ISDS is actually not very attractive to the investor - high costs, bot economic and political.

The empirical data already show that ISDS proceedings are neither cheap nor fast, and in the majority of the cases, arbitration tribunals tend not to support the arguments or amounts for compensation sought by foreign investors (Echandi 2019). These factors may explain to a great extent why so few ISDS cases are brought against developing countries relative to the potential number of episodes. 

The report suggests that ISDS may not be the ideal mechanism to rsolve disputes. Othe rgrievance redressal mechansms within the State should ensire that the dispute doesnt reach the ISDS stage.

Fifth, host governments should do more when it comes to offering investors domestic tools to mitigate political risk. There is a sharp contrast between the investors’ preference to engage with host governments and their high degree of dissatisfaction with such engagement in practice. Thus, there is a need for governments to establish new or more efficient ways to respond to investors’ grievances. This would avoid the translation of frustration among investors into the high rate of FDI withdrawals and expansion of cancellations as unveiled by this study. 

Some alternative models of state-investor consultation is important to resolve frustration and grievances of foreign investors. The Brazilian model of investment facilitation and resolution of disputes perhaps?

 

Gendering trade agreements

Looking at trade agreements and negotiations from the perspective of gender has been discussed on many platforms. Looking at gender equity, removing barriers to trade as well as enhancing gender access in trade are pivotal. What if these principles are reflected in a trade agreement? In fact, some trade agreements already do.

CSIS has come out with a detailed report on gender and trade - an interesting read on what kind of provisions should be included in trade agreements to address teh gender question - to ensure gender is maintsreamed and pivoted well withim the trade legalese! Titled, "Women and Trade - How Trade Agreements can level the Gender Playing Field", it argues that trade negotiators must be more forceful in pushing the agenda of gender equity and equality in trade agreements. It concludes:

Trade liberalization has increased global market access for women as well as men, but there is more that can be done. Though trade has historically failed to consider how it impacts women and men differently, it is not too late for policymakers and negotiators to take meaningful action. Inserting gender-specific language in trade agreements is an important first step. Negotiators and governments can also work to elevate women’s voices through practical and legal means. Demonstrated commitments to these top-down approaches will be crucial to leveling the gender playing field for women in trade.

Will gender in trade agreements be the next labour chapter in trade agreements? Will the gold standard be set in RTAs or are they already set? What implications for negotiating positions? Is it a "non-trade" issue to be excluded from the ambit of trade agreements? Is it a slippery slope of inclusion of diverse social agenda in trade agreements?

A comprehensive study with textual suggestions too - a must read for trade negotiators of all hues! 

Globalization and it's discontents?

Two interesting pieces on how globalised we really are and what does data localisation actually mean?

Financial Times reports on the nationality of some top executives of global firms and how that can be relevant seems to be jarring in a world where large corporations work across borders- and the reason is political tensions across the world.

There is a risk that foreign-born decision-makers may have a strong allegiance to their country of origin, one that puts them at odds with their company.

Data localitsaion is major issue in ecommerce negotiations. Data should be stored locally, within borders. So while globalisation is important, data localisation would mandate that data of a country's citizens should not cross borders. What this actually means comes out in a NYT's article of Apple and China - a large physical data centre being built in Guiyang, China to store all data of Apple phone users in China.

In China, Apple has ceded legal ownership of its customers’ data to Guizhou-Cloud Big Data, or GCBD, a company owned by the government of Guizhou Province, whose capital is Guiyang. Apple recently required its Chinese customers to accept new iCloud terms and conditions that list GCBD as the service provider and Apple as “an additional party.” Apple told customers the change was to “improve iCloud services in China mainland and comply with Chinese regulations.”

Globalization and its discontents?

A quid pro quo?

Views of the IP waiver resolving the current crisis of vaccines are divided. Some say it is necessary and the first step to bring about vaccine equity. Others contend that it is a blow to innovation and will not solve the more complex problems of technical know how and production capacity.

Alan Wm Wolff writes about the need to resolve this issue on the IP front with a structured discussion and steps to combat various aspects of the problem. What I found instructive in his piece is the reference to other aspects of WTO negotiations other than the waiver of IP:

The US willingness to engage in talks on a TRIPS waiver should be reciprocated by those who are reluctant to give their consent to trade talks and negotiated results on other matters in the WTO of great importance, such as dealing with climate change, making the planet greener, limiting fisheries subsidies, crafting rules for the digital economy, and agreeing to prohibit the use of export restrictions where purchases are being made by the World Food Program.

Interesting. There is nothing a like a free lunch in economics. 

A quid pro quo? What would the contours of the quid pro quo, if any, be?

What drives FDI?

The relationship between strengthening the international legal framework and the flow of Foreign Direct Investment (FDI) has been a contested one. Proponents argue that a strong, pro-investor friendly regime is a pre-requisite for encouraging FDI into an economy while the naysayers argue that other factors are critical to FDI flow and not the international investment regime.

WSJ's piece on FDI flows during the pandemic is revealing. FDI as a percentage of GDP has fallen from 3.39% in 2007 to 1.24% in 2021. And it is expected to fall further.

What are the factors impacting FDI flows - both equity investments as well as greenfield investment. For one, the covid situation across the world would be a factor. An interesting aspect of FDI growth is the ability for investors to travel - fairly straightforward right? You can't travel - how will you decide on investing abroad!

FDI is particularly sensitive to the ability of investors to travel. Buying shares in a manufacturing firm in a foreign country is one thing. Buying a plot of land, building a facility and running the factory yourself is quite another: FDI cannot fully recover until international travel starts approaching previous levels.

Reference to a report by Kearny on FDI global trends was interesting. What are the factors that influence business leaders to invest in economies?

As per this table in the report referred to above, "strength of investor and property rights" stands sixth. Does this refer to strong IIAs with ISDS clauses? What if the other factors are stronger without a IIA in place? Or is it a combination of factors? Also, investment facilitation probably has a role when looking at point 4. But overall, the domestic regulatory framework of taxes and governance efficiency seems to play a major part.

Interestingly, data protection and localisation issues figures pretty high in the confidence boosters:

Local storage requirements mandating that companies must keep a copy of certain types of data within their national territories are also growing more common in other parts of the world and are top of mind for investors (see figure 9). This often applies to specific types of data, such as accounting or bookkeeping. Denmark is one example of a nation that mandates local storage of accounting data through its Book Keeping Act, which dictates that companies must store their accounting data for five years. Under special circumstances, the Danish Commerce and Companies Agency may grant companies permission to preserve accounting records abroad. However, permission is rarely granted. Finland’s Accounting Act (1997) also requires that companies store a copy of their accounting records, though the records can be stored in another EU country if a real-time connection to the data is guaranteed. And Germany’s Commercial Code requires companies to store accounting data and documents locally.

Data localisation does impact costs and it is something businesses have to factor in.

In terms of risk factors that businesses look at, the report suggests the following:

However, lack of strong investor protection or the mode of dispute settlement doesn't seem to be a major factor.

What explains Brazil's position in the ranking then? It is in the top 25 - without BITS and ISDS.

The analysis above indicates that there are a multitude of factors that businesses look at in terms of potential investment destinations. The existence of BITS as well as provisions relating to ISDS may be a small or insignificant part of the overall consideration. On th eother hand, in countries that do have a high confidence rating, these protections do exist.

Scope for further research?

 

Intellectual property and ISDS - an interesting read

An interesting article on the interface of intellectual property rights and ISDS in the latest edition of the Michigan Journal of International Law by Daniel Gervais here caught my attention. 

No it has nothing to do with IP waivers and the present debate on the covid pandemic. Titled "Intellectual Property: A Beacon for Reform of Investor-State Dispute Settlement", it relates to the challenge of state action related to intellectual property in ISDS tribunals and what lessons cases have on treaty negotiation and tribunal interpretation.

The two cases referred to were the Eli Lilly case against Canada and the Philip Morris case against Uruguay. Ofcourse, in both the instances the ISDS tribunals did not find the measure to be incompatible with the State's obligations under the investment treaty. However, in the case of Canada, a judicial decision invalidating a patent on the ground that it did not satisfy the utility test was challenged. Thus, decisions of courts pertaining to patentability were seemingly under the scanner.

The article also brings to light how treaty drafting adapted to this challenge. The future treaty texts of the EU-Canada CETA had specific provisions dealing with exclusion of decisions of domestic courts regarding intellectual property. Annex 8-D of the Canada-EU CETA states:

Mindful that the Tribunal for the resolution of investment disputes between investors and states is meant to enforce the obligations referred to in Article 8.18.1, and is not an appeal mechanism for the decisions of domestic courts, the Parties recall that the domestic courts of each Party are responsible for the determination of the existence and validity of intellectual property rights. The Parties further recognise that each Party shall be free to determine the appropriate method of implementing the provisions of this Agreement regarding intellectual property within their own legal system and practice. The Parties agree to review the relation between intellectual property rights and investment disciplines within three years after entry into force of this Agreement or at the request of a Party. Further to this review and to the extent required, the Parties may issue binding interpretations to ensure the proper interpretation of the scope of investment protection under this Agreement in accordance with the provisions of Article 8.31.3.

The author asks the relevant question - does this mean that earlier treaties that do not have this exclusion allow such claims to be made? Or is the new treaty language just clarificatory and not a new addition to the earlier intent?

Intellectual property cases are not extensively covered in ISDS cases so far. Would tribunals show more consideration to state regulatory discretion or will property rights be more strictly observed?

The article brings out the tensions between regulatory power, treaty obligations, intersection of intellectual property and public policy and the inevitability of legal challenges.

A great read!

Fisheries Subsidies Chair's text out - Fishing in troubled waters?

Negotiations at the WTO, one of the three pillars of the multilateral trading system along with adjudication and monitoring has been stalled for a while.

However, those interested in following negotiations and the process may be interested in the Fisheries Subsidies negotiations that are underway.

The Chair of the Negotiating Group on Rules releasd a detailed Chair's text for further consideration of the membership. The text is found here. The explanatory notes here.

i was curious on the S and DT provisions considering the recent debates on developing country status inside and outside the WTO.

The S and DT provisions in the Chair's text is as follows:

With respect to illegal, unreported and unregulated fishing the S and DT provisions are as follows:

3.8 [The prohibition under Article 3.1 shall not apply to subsidies granted or maintained by developing country Members, including least-developed country (LDC) Members, for low income, resource-poor or livelihood fishing or fishing related activities within 12 nautical miles measured from the baselines for a period of [2] years from the date of entry into force of this [Instrument].]

With respect to  prohibition on subsidies concerning overcapacity and overfishing, the S and DT provisions are here:

[ALT 1 

5.5 (a) The prohibition under Article 5.1 shall not apply to subsidies granted or maintained by LDC Members for fishing or fishing related activities. 

(b) The prohibition under Article 5.1 shall not apply to subsidies granted or maintained by developing country Members for fishing or fishing related activities within their territorial sea. 

(c) The prohibition under Article 5.1 shall apply to subsidies granted or maintained by developing country Members, including LDC Members, for fishing or fishing related activities within their EEZ and the area of competence of RFMO/A if all the following criteria are met: 

i. the Member's GNI per capita exceeds US$5,00012 (based on constant 2010 US dollars) for three consecutive years; 

ii. the Member's share of the annual global marine capture fish production exceeds 2% as per the most recent published FAO data; 

iii. the Member engages in distant water fishing13; and 

iv. the contribution from Agriculture, Forestry and Fishing to the Member's annual national GDP14 is less than 10% for the most recent three consecutive years.]

[ALT 2 

5.5 (a) The prohibition under Article 5.1 shall not apply to subsidies granted or maintained by LDC Members for fishing or fishing related activities. 

(b) The prohibition under Article 5.1 shall not apply to subsidies granted or maintained by developing country Members for low income, resource-poor or livelihood fishing or fishing related activities within 12 nautical miles measured from the baselines [for a period of [7] years from the date of entry into force of this [Instrument]]. 

(c) For subsidies other than those referred to in subparagraph (b), a developing country Member may grant or maintain the subsidies referred to in Article 5.1 for fishing and fishing related activities within its EEZ and the area of competence of a relevant RFMO/A for a maximum of [5] years after the entry into force of this [Instrument]. A developing country Member intending to invoke this provision shall inform the [Committee] in writing before the date of entry into force of this [Instrument]. 

(d) If a developing country Member whose: 

i. share of the annual global volume marine capture fish production does not exceed [0.7%] as per the most recent published FAO data; and

 ii. subsidies to fishing or fishing related activities at sea do not exceed US$[25 million] annually deems it necessary to apply subsidies referred to in subparagraphs (b) and (c) beyond the [7 or 5] years provided for, respectively, in those subparagraphs, it shall not later than one year before the expiry of the applicable period enter into consultation with the [Committee], which will determine whether an extension of this period is justified, after examining all the relevant needs of the developing country Member in question. If the [Committee] determines that the extension is justified, the developing country Member concerned shall hold annual consultations with the [Committee] to determine the necessity of maintaining the subsidies. If no such determination is made by the [Committee], the developing country Member shall phase out the remaining subsidies prohibited under Article 5.1 within two years from the end of the last authorized period.] 

So two alternatives for developing countries to adopt the disciplines. Will this be enough? Is this too much?  Is it the middle path?

IP Waiver dynamics

The IELP blog has highlighted the use of labour provisions in the USMCA in the USTR's Senate Committee testimony hearing here.

What I found also interesting is the questions on the IP waiver policy and USTR's response to them in the Senate hearing. A must watch to understand the dynamics of the IP waiver proposal and the challenges ahead!

Questions of crushing innovation, precedent in IP waivers during the HIV crisis, Congress approval, geo-politics, need for text based negotiations, consensus at the WTO, need to save lives and pharma companies having the chance to be heros as well as addressing the pandemic - watch the whole session.

Two precedents were cited wherein similar "waivers" were put in place - 2001 Agreement and PEPFAR. While one is the Doha Declaration on Public Health, the other is the Presidents program on Emergencies. Not sure how they are TRIPS waiver related. We will have to wait and see how these transalte into negotiating positions.

Another interesting blog - Law and Political Economy Blog

For many us following international economic law and policy issues, mainly trade and investment, the international economic law and policy blog has been a great source of direction and information.

Now, I came across another blog the Law and Political Economy Blog that is quite interesting covering much more than international trade and investment law but asking similar questions - state autonomy, globalization in the era of the nation state, flexibilities, international governance and protectionism.

Found this rather enlightening video on the fragmentation and development of the trade and investmest regimes by leadingscholars in IEL.

Have a good watch.

Heterodox approaches to Big Tech's problems?

Big Tech has been in the global news for a variety of reasons - but for those who follow international economic law, they have been in the news on two critical counts - anti-trust and digital services tax. I have blogged about the digital services tax issue here, here and here.

On the anti-trust/anti-competition front there has been a long battle between the State and the large tech firms across jurisdictions - whether it is the US (traditionally), or the EU and more recently China. 

A set of articles in the Project Syndicate addresses the varyng approaches of the US, EU and China in addressing the issue of the monopolistic or anti-competitive tendensies of the big tech firms like Google, Facebook, Amazon and Apple. Who is setting the rules on this engagement? How different are they? Are they enough to address the issues of privacy, antitrust and taxes?

Anu Bradford argues that the US is losing out to the EU in setting the ruls of the game. The EU is working aggressively on it and two new laws - the Digital Services Act and the Digital Markets Act are intended to make it easier to make these large tech companies accountable for their action in the EU market. Will these two approaches become the gold standard for other countries to follow?

The US approach of anti-trust is analysed by Eric Posner in this piece but he argues that thsi approach may not be enough to challenge monopolistic tendencies. he raisesan important point of consumer benefit. Even though there may be concentration and large monopolistic profits, arent consumers benefitted immensely? Don't we all benefit from gmail, online shopping on Amazon and some great movies on Netflix? Well, the cost is our data being used - but the benefit far outweighs the cost of privacy? he contends:

Back then, monopolists like Standard Oil were widely loathed, depicted by cartoonists as malevolent octopuses. Now, the tech monopolists are among America’s most admired companies. Especially in the context of the pandemic, millions of Americans have depended on Amazon for household goods, and used Facebook to maintain contact with family and friends. Pretty much everyone is now addicted to Netflix, YouTube, and their smartphones.

Some of these people will serve as jurors in antitrust cases, others as judges – and all of them are voters. Legal and regulatory changes are overdue, but the hard work of transforming public opinion remains.

China has been a late entrant to the challenge to big tech - its action against Ant Corp. Angela Huyue Zhang argues that it is just following a larger global trend:

To be sure, the Chinese government has legitimate reasons to be vigilant toward the country’s highly concentrated internet sector. By targeting superstar firms like Alibaba, China is following a global regulatory trend, with US and European Union policymakers similarly vowing to impose tougher sanctions against monopolistic internet giants.

Minxin Pie has a totally different take pn the approach of China on antitrust.  He argues that the anti-trust is actually pro-monoploy in a poltical sense.

It s interesting to see varying approaches to big tech around the world. How significant are the differences in approaches of the US, EU and China in tackling the alleged challenge of big tech? Where is the consumer in this debate? Who will set the agenda on this issue in the coming years? Will there be implications for international economic law in terms of non-discrimination principles? Will there continue to be heteredox approaches to address the anti-trust issue around the world - are the socio-political milieus too divergent for a global standard?

The Waiver

News about the possibility and implications of waiver of intellectual property rights to fight the covid pandemic is found here, here and here today.

The USTR announcement that the US will be willing to consider an IP waiver but form it will take is unclear.It specifically mentions:

We will actively participate in text-based negotiations at the World Trade Organization (WTO) needed to make that happen. Those negotiations will take time given the consensus-based nature of the institution and the complexity of the issues involved.  

The proposal of South Africa and India in the WTO to waive IP rights for Covid related measures which was placed in October 2020 is found here with a draft text. 

"...12. In these exceptional circumstances, we request that the Council for TRIPS recommends, as early as possible, to the General Council a waiver from the implementation, application and enforcement of Sections 1, 4, 5, and 7 of Part II of the TRIPS Agreement in relation to prevention, containment or treatment of COVID-19. 

13. The waiver should continue until widespread vaccination is in place globally, and the majority of the world's population has developed immunity hence we propose an initial duration of [x] years from the date of the adoption of the waiver. 

..."

Al Jazeera has reported that a revisd treaty text and negotiation would be on the cards.

Questions about capacity to produce despite the waiver, quality of vaccines and incentive to innovate in future have been the underlying narratives in this debate. 

An interesting space to watch in these trying times. 

The new DDG team at the WTO

The WTO's new team of  Deputy Directors-General under DG, Ngozi Okonjo-Iwaela.

If you are not on the negotiating table, you will be part of the menu!

With the next Ministerial Conference of the WTO in the pipelines, calls for a clear negotiating agenda for the WTO is coming in.

Inu Manak from CATO suggests in this piece that the negotiating agenda being a key component of one of its functions (including adjudicatory and monitoring), a clear negotiating framework is required:

The next crucial area for reform is in the WTO’s negotiating function. The WTO has not concluded any major negotiating ‘rounds’ since its founding, though it has completed other important negotiations such as the Trade Facilitation Agreement (TFA). These stalled negotiations stem, in part, from disagreements over the level of commitment that developing countries should undertake.

Recent negotiations to eliminate subsidies that contribute to illegal, unreported and unregulated fishing, as well as subsidies that lead to overcapacity and overfishing, are a case in point. China leads the top five providers of subsidies, followed by the European Union, the United States, South Korea and Japan. Together they make up 58 per cent of all global fisheries subsidies. And while nine out of fifteen of the largest marine capture fish producers are developing members, many continue to request special and differential treatment (SDT).

The fisheries talks are important because the subject best illustrates modern challenges to trade. This is not just about subsidies, but environmental sustainability and development as well. How we navigate the intersection of these issues will test the WTO’s ability to adapt to new circumstances.

Karl Sauvant argues that Investment facilitation should be on the agenda and it's importance should not be underestimated. A set of WTO members are pursuing the investment facilitation framework with these Ministerial declarations here and here. If you are not on the negotiating table, you will be part of the menu he warns! he also offers a number of additions to the investment facilitation agenda.

The purpose is to arrive at a binding multilateral agreement to facilitate FDI flows for development. The focus is entirely on concrete, technical investment facilitation measures, leaving aside the controversial issues of market access, investment protection and investor-state dispute settlement. Provisions for special and differential treatment of developing countries are being built in to assist implementation and capacity building, responsible business conduct and anti-corruption efforts.

The negotiations centre on raising the transparency of investment measures, streamlining and speeding up administrative procedures, creating focal points for investors, increasing domestic regulatory coherence and strengthening cross-border cooperation on investment facilitation.

These are measures that will make it easier for investors to establish themselves in host countries and operate within them, helping to increase FDI flows and advancing growth and development.

Any more agenda items? An amendment to the TRIPS Agreement for enabling waivers during a pandemic?

The ideation of currency manipulation

A paper that goes beyond the roles of the WTO, IMF and determination fo what constitutes currency manipualton is Caitlin Conyers "The Ideational Dimension of Currency Manipulation" which charts the boundaries of the roles of the WTO and IMF, the complexity of defining what currency msalignment really is and what are the underlying motivations for the debate to come to the foreground as a trade barrier.

The paper touches upon the jurisdictional limits of the IMF, WTO to address currency manipulation, the attempts so far to address teh issue and what is in store in terms of international norm setting with mega trade deals. 

The paper would need to be revisited in the context of the countervailing steps being taken now, the strengthening of the Treasury Reports on currency manipulation as well as formalisation of legal rules in mega-regionals as a standard for the debate.

Interesting read nevertheless.

Countervailing action and currency manipulation - Has the dice been rolled?

Just when I thought currency manipulation was off the radar, this PIIE opinion by Joseph Gagnon re-emphasizes the danger of currency manipulation and how little the world is doing to address the probelm.The strong view that countries are manipulating currencies to encourage exports and disincentivize imports seems to be derived from foreign exchange interventions.

When countries have more than adequate levels of foreign exchange reserves, the only purpose of acquiring further reserves is to hold down the exchange value of the domestic currency. The reason to do that is to maintain competitive prices for one's exports and prevent a flood of imports. For countries that already have an excessive trade surplus, such behavior constitutes currency manipulation. The US current account deficit widened by $166 billion in 2020; a significant fraction of that widening is likely attributable to the increase in foreign currency manipulation last year.

Fred Bergsten and Gagnon have written an entire book on it titled "Currency Conflict and Trade Policy: A New Strategy for the United States" which argues for more decisive action against currency manipulation. In conclusion, apart from a series of strategies recommended, the authors suggested the countervailing of currency manipulation.

The recent countervailing action against Vietnam on the grounds that it's currency is undervalued and is subsidizing exports has been reported here and here. A more detailed Congressional Reserach Study report on countervailing duties and currency manipulation is found here.

Has the dice been rolled?

Currency manipulation - warning bells ringing?

Currency manipulation and trade law have often crossed paths but have never created a huge storm in terms of being n the agenda either in the ngotiating space or in the judicial fora of a panel proceedings or now defunct Appellate Body.

I have blogged about the issue pretty often over the years - here, here, here and here. My more detailed paper on the issue (has to be updated I admit) is here.

hat caught my attention this time was a piece in the The Mint by Daniel Moss stating that one must not underestimate the threat of currency undervaluation and the impending action against it. However, the piece does admit that the present steps against currency manipulation hardly proves to be a disincentive for currency manipulators.

Why is this? That is because there is still no clarity on what constitutes currency manipulaton for benefiting once exports or to take advantage in trade. A recent Congressional Research Study paper in 2020 on currency manipulation has asked some of the right questions fo rwhich there are no eay answers:

The United States has deep and liquid foreign exchange and capital markets, and trillions of dollars are exchanged for foreign currencies daily. To what extent can other countries successfully lower the value of their currency relative to the dollar? 

Many economic policies can impact exchange rate levels. Is it possible to differentiate currency manipulation from “legitimate” economic policies? 

Even though U.S. producers generally find it harder to compete when other countries have weak currencies, U.S. consumers generally benefit from less expensive imports. What are the net effects of currency manipulation on the U.S. economy? 

In addition to U.S. commitments on currency at the IMF and the G-7/G-20, U.S. laws and regulations contain multiple definitions of currency manipulation. Is the United States sending a clear signal to its trading partners about what constitutes currency manipulation and what the consequences are? 

Does a unilateral approach help the United States gain traction on currency issues? What are the retaliatory risks? Should the IMF play a stronger role in resolving currency disputes? 

 Are trade agreements an effective tool for addressing currency issues? Should currency manipulation be addressed if Congress renews TPA in 2021?

These questions have been at the heart of the debate of the intersection between currency manipulation and international trade law. The issue of currency manipulation and the consequences of it keeps arising due to the semi-annual US Treasury report on macro-economic and foreign exchange policies of its major trading partners. The Report is a detailed analysis of whether a trading partner who satisfies the three conditions (significant bilateral trade surplus, material current account surplus and persistent one-sided intervention in the foreign exchange market) is manipulating currency for trade. Another interesting aspect of the report was the varying degrees countries employ in publishing data on their foreign exchange interventions - some are open about it while for others it is shrouded in secrecy. Some of the recent trade agreements have tried to address this issue with the transparency clause on foreign exchange interventions.

The debate would perhaps continue - but was is evident that there is more scrutiny and discussion on this issue. Though multilaterally we have not seen any appeal for this issue to be taken up as a negotiating agenda, it may be sooner than later when CVD are imposed and the measure challened at the WTO. Who would bite the bait first is the issue.

What next for the negotiating agenda?

The future of the WTO's role in the present trade and investment norm setting has often been a subkect of intense debate amongst trade law aficionados. Will it be relevant n the context of 21st century business realities? Can it match up to the pace of change in global value chains and technology? Can the 160-odd members strike a consensus at all. Will there be more multilateral trade deals in this era of nationalist, populist policies? What would come out of the Appellate Body impasse and the politicozation of the crown jewel of the WTO?

Petros C. Mavroidis seeks to answer some of these challenging questions in an interesting article in the The Journal of World Investment and Trade titled "Who's Minding the Store?" referring to the collapse of the decision making function of the WTO and what needs to be done.

On the need to revitalise the negotiating function in the WTO to ensure rule-making is brought back to track, he states:

One thing is clear: unless the legislative function of the WTO has been revitalized, any improvements in the judiciary risk being of marginal value. We risk rearranging the furniture on the deck of the Titanic, doing nothing to divert the ship from its course and the consequential direct collision with the iceberg.

What is striking is perhaps, there is no longer "two to tango" in the context of the US and EU setting the agenda at the WTO. In a multipolar world, emerging economies have begun seeking a voice tempered by domestic pressures and constituencies.Rule takers are seeking to be rule shapers if not rule makers.

Up to the Uruguay round, the old two-step would do: as long as the European Union and the United States shared a worldview, and were dancing in the same direction, the world trading community would follow. It is not the case anymore. We have now moved to a multi-polar world. Voices are multiplying, and worse diversifying. We are experiencing a cacophony when a single tune is required. This is no cakewalk, but one key piece of the jigsaw puzzle seems to be abandoning its previous centrifugal tendency and moving towards the orbit in a centripetal manner this time...

So what should the agenda for reform at the WTO be? Low-hanging fruit to set negotiations rolling or deep, festering issues that require closure? Who sets the agenda to be taken forward? What coalitions will emerge and what power play will set the agenda? How do members see the WTO in terms of their national interest as well as the global community.

The question is not whether WTO requires a negotiating agenda and rule making back on track - the question rather is what that agenda would be and who would be the one's pushing for it.