American Society of International Law "Insights"

The American Society of International Law (ASIL) website has an interesting "insight" section which brings to the fore certain issues in international law that have grabbed the headlines in recent times. I found 3 pieces here relevant to the WTO:

1. Cigarettes and Public Health at the WTO: The Appeals of the TBT Labeling Disputes Begin by Tania Voon

2. The Tuna-Dolphin Encore - WTO Rules on Environmental Labeling  by Elizabeth Trujillo 

3. No More Zeroing?: The United States Changes its Antidumping Policy to Comply with the WTO by Sungjoon Cho

While the first two were a detailed analysis of the panel reports covering the Technical Barriers to Trade Agreement, the third was on the traditional anti-dumping rules. Found the insights detailed, lucid and clear.

China's rare earth minerals - Let the markets work?

News of U.S. along with the E.U and Japan requesting for formal consultations under the Dispute Settlement mechanism of the W.T.O on export restrictions on rare earth minerals from China hogged the headlines here, here and here. The WTO website reported about it here. Rare Earth minerals are a group of 17 elements and are crucial ingredients used in the production of flat-screen televisions, smart phones, hybrid automobile batteries, and other high technology products. China maintains export restrictions on such materials.

 

The President of the U.S. made this statement:

"We’re bringing a new trade case against China -- and we’re being joined by Japan and some of our European allies.  This case involves something called rare earth materials, which are used by American manufacturers to make high-tech products like advanced batteries that power everything from hybrid cars to cell phones. 

We want our companies building those products right here in America.  But to do that, American manufacturers need to have access to rare earth materials -- which China supplies.  Now, if China would simply let the market work on its own, we’d have no objections.  But their policies currently are preventing that from happening.  And they go against the very rules that China agreed to follow. 

Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing.  We've got to take control of our energy future, and we can’t let that energy industry take root in some other country because they were allowed to break the rules.  So our administration will bring this case against China today, and we will keep working every single day to give American workers and American businesses a fair shot in the global economy."

Several thoughts on this measure:

1. "Now, if China would simply let the market work on its own, we’d have no objections." - Let the market work? Do all countries let the market work in the context of international trade? With rising "protectionism" all around and "subsidies" being provided, is China the only country that does not let the market work? Are providing subsidies to Airbus and Boeing "letting" the market work?

2. Would the restriction on exports of rare earth minerals be consistent with WTO obligations? What seems to be an essentially domestic policy choice of protecting and deciding on one's national, mineral resources by restricting exports has international trade ramifications. Article XI of GATT provides :

"1.       No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party."

 However, Article XX of the GATT provides for this exception that China will most probably use:

"(g)      relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;"

Hence, if China's measure of export restrictions on rare earth minerals are in conjunction with restrictions on domestic production or consumption it looks like a defensible measure under WTO rules. Non-discrimination between domestic and international use is the determinant factor here. This commentary in a Chinese daily seemed to suggest that this was the case.

3. The U.S is well within its rights to seek for consultations under the WTO. Countries would be expected to protect their domestic interests in the multilateral fora when they perceive a measure to be discriminatory or going against international trade rules. Viewing the consultation as a "trade war" may not be appropriate. After all, this is the mechanism to settle disputes in international trade disputes. Whether the U.S's stand is legally sustainable is different from the right to invoke the dispute settlement mechanism in the WTO. China should view it as a normal trade dispute that will inevitable lead to the WTO deciding on the issue. It is the same mechanism that China would rely on to challenge discriminatory U.S. trade practices.

4. CATO makes an interesting analysis of the issue here. While supporting the U.S. measure it highlights the restrictions that the U.S. imposes which are violative of international obligations.

"USTR’s argument against Chinese export restrictions in the raw materials and Rare Earths cases are just as applicable to U.S. import restrictions. Removing restrictions—whether the export variety imposed by foreign governments or the import variety imposed by our own—reduces input prices, lowers domestic production costs, enables more competitive final-goods pricing and, thus, greater profits for U.S.-based producers.

Yet the U.S. government imposes its own restrictions on imports of some of the very same raw materials. It maintains antidumping duties on magnesium, silicon metal, and coke (all raw materials subject to Chinese export restrictions).  In fact, over 80 percent of the nearly 350 U.S. antidumping and countervailing duty measures in place restrict imports of raw materials and industrial inputs—ingredients required by U.S. producers in their own production processes. But those companies—those producers and workers for whom Ambassador Kirk professes to be going to bat in the WTO case on rare earths (and the previous raw materials case)—don’t have a seat at the table when it comes to deciding whether to impose AD or CVD duties. (Full story here.)"

Would it not be unreasonable to say "Let the markets work here" too?

5. The present case raises issues of domestic policy space int he context of an increasingly interconnected world. One would have perceived control over one's national resources to be exclusively within a country's domain. Export restrictions was the manifestation of this control. However, this control is not unbridled. While there is still domestic policy space to restrict exports, it cannot be done in a discriminatory manner favouring local industry over foreign competition. In other words, export restrictions that as a policy tool favour local industry will be violative of WTO rules. 

EU ETS, China and retaliation - Boeing the beneficiary?

An interesting report from Al Jazeera points to the political economy of trade.The EU ETS has generated a lot of criticism also prompting a joint declaration from 26 countries in Moscow recently. I had blogged about it here and here. The report said,

"The chief executive of the Airbus parent company, EADS, has accused European Union officials of starting a fight with China over aircraft emissions that threatens to cost the jet manufacturer $12bn in orders.

Louis Gallois said on Thursday that EADS is a "hostage" to the dispute between Beijing and Brussels, which has put the fate of 45 unbuilt large aircraft in question.

"China is putting on hold orders already agreed with airlines but not approved. ... We are worried that this conflict is becoming a commercial war," he said.

As Airbus could lose $12bn in orders, Gallois announced EADS reported a 72 per cent increase in profits for the fourth quarter to $810 million.

With some analysts warning of a brewing trade war, Stefan Schaffrath, Airbus spokesman, said they were seeing "retaliation threats" from 26 countries, "in particular from China".

Speaking to the Associated Press news agency, he said 35 orders by Chinese airlines for A330 aircraft are on hold because China's government is refusing to approve them.

He said orders for another 10 A380 superjumbos are also under threat, and that the combined list prices of the aircraft is $12bn."

China has been one of the prominent opponents of this scheme. What is highlighted here is that China is leveraging its international "purchasing power" to have an impact on Airbus in a bid to influence EU officials to reconsider the scheme. Will China reconsider it's decision and purchase from Boeing? This possibility was brought out in International Political Economy Zone Blog in this piece. This "trade retaliation", it seems, does not need any WTO sanction and depicts the realities of the political economy of trade.

Subsidies, Boeing and WTO - It goes on

The Appellate Body (AB) of the WTO made public its report on subsidies given to Boeing by the United States. While the 576 page judgement of the three member AB will require detailed analysis, the key finding of the AB is here:

"1351. We realize that, after more than five years of panel proceedings and eleven months of appellate review, a number of issues remain unresolved in this dispute.  Some may consider that this is not an entirely satisfactory outcome.  Our mandate under Article 17 of the DSU does not permit us to engage in fact-finding.  However, wherever we have found that there are sufficient factual findings by the Panel or undisputed facts to complete the analysis, we have done so with a view to fostering the prompt settlement of this dispute in accordance with Article 3.3 of the DSU. 

1352. The Appellate Body recommends that the DSB request the United States to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the  SCM Agreement, into conformity with its obligations under that Agreement.  More specifically, having regard to the recommendation made by the Panel in paragraph 8.9 of its Report and the provisions of Article 7.8 of the  SCM Agreement, the Appellate Body recommends that the United States take appropriate steps to remove the adverse effects found to have been caused by its use of subsidies, or to withdraw those subsidies."

With both sides claiming victory as blogged here, this promises to be a long fight regarding the violation of the SCM Agreement. Just as the Airbus case saw the EU submit compliance and the U.S. disputing it, there is no doubt that this dispute will go that way. The U.S will submit to the WTO the appropriate steps it has taken to remove the subsidies, while the EU will dispute its effectiveness. Is the solution a political compromise or will the threat of a third competitor (China) end this largest trade dispute?

Law, Economics and WTO dispute settlement

I came across this piece (also a book) titled "The Law, Economics and Politics of Retaliation in WTO Dispute Settlement" by Joost Pauwelyn which brilliantly captures the complexities involved with the principle and practice of "retaliation" in trade disputes under the WTO regime.

"When a country violates WTO rules, the remedy of last resort is bilateral, state-to-state trade sanctions. Such trade sanctions are imposed against the violating country by one or more other WTO members that took the initiative to challenge the breach. WTO retaliation must, however, be multilaterally authorized by the WTO following, first, an elaborate procedure establishing (continued) breach in the first place and, second, an arbitration on whether the retaliation is 'equivalent' or 'appropriate' in light of the harm caused by the original violation. This is where the law comes in: Arbitrators must apply legal criteria to assess the harm caused by a WTO violation, select benchmarks and counterfactuals to do so, as well as decide, where requested, on whether the conditions for so-called cross-retaliation are met (that is, retaliation in the form of, for example, suspending intellectual property rights in response to a WTO-inconsistent import restriction)."

The paper brings to the fore, inter alia, the following aspects:

1. The close interplay of law and economics in understanding and determination of trade disputes, especially retaliation is evident in dispute settlement proceedings. Normally articles on international trade law are either focussing on the "economic" aspect of trade to the detriment of the legal principles or vice versa. This book recognises the close interplay and interconnectedness bringing out the "economist-lawyer" perspective on trade retaliation.

2. The effectiveness of WTO remedies in the context of realities of trade is also discussed. Does a developing country or LDC benefit from a trade retaliation remedy against a strong trading partner or is the Panel report just on paper? Does not the reality of trading power overshadow the legal principle of retaliation? In other words, a country may succeed in imposing retaliatory measures under the WTO system, but how effective or relevant this would be in the context of its trading power with the "violating" developed country needs to be critically analysed.

3. The importance of data, information, economic models and calculations in disputes is brought to the fore in the narrative. This re-emphasizes the inevitable coalition of economists, trade experts, data specialists, lawyers  and public policy makers to be part of a team that either fights a case or that needs to be consulted by the panelists to come to a conclusion. Multi-disclipinary appraoches are the key.

Oil from Canada's tar sands - Of Business interests and national positions

The seal trade and oil from tar sands seem to be two international issues that Canada is facing. The issue of oil from tar sands being more polluting and being declared as such by an EU regulation has been a matter of debate within international trade law community for sometime now. I had blogged about this issue here and here .

Recently the Reuters reported that an EU technical group had failed to reach a consensus about declaring oil from tar sands as more polluting than conventional crude oil. The Guardian covered a detailed piece on the controversy here while another piece here  reported on the latest stand-off.

Canada has taken a strident stand to protect it's local tar sands oil industry claiming that the measure is discriminatory and treats tar sands on a different footing than conventional oil. "National interest" here seems to be defined in terms of the business interests of the domestic oil production companies vis a vis environmental standards and climate protection. Canada has even threatened WTO action against the EU if the measure is not dropped.

An interesting debate between Robert Howse and Simon lester on this is found here and here in the IELP blog with the issue of "like products" in international trade law jurisprudence and whether the measure is discriminatory in violation of certain provisions of the GATT and TBT being discussed in the context of a WTO dispute.

I found another interesting aspect of this dispute in the recent reporting of the stand-off - What position a country takes in the international fora on an issue is guided not only by a "transcient" national interest based on principles of law and justice but on real business interests. This is evident in this:

Reuters in the above piece reported thus:

"I think some (EU nations) were clearly worried about the impact of this directive on their own costs and on their own companies, who are invested in a variety of countries, including Canada, with a number of them having invested tens of billions of dollars in the oil sands," said Oliver.

Big European firms with stakes in the oil sands include Royal Dutch Shell and Total of France."

The belief that certain members opposed the EU measure on the grounds of legal jurisprudence and WTO obligations may be naive. The argument that a country takes is guided by interests of corporations operating there rather than an independent assessment of the international obligations relating to the issue. Interestingly a US Congressional Research Service Report alluded to Chinese business interest in Canada's tar sands industry. Do business interests of large multinational corporations have an impact on decisions of individual member countries? Is this legitimate "national interest"? Am I just being alarmist or is this a non-issue since the reality of international trade and business mandates a close interplay of domestic policy and business interests?

EU ETS again and again - Trade war or international consensus?

The controversy over the EU ETS refuses to die down. I have blogged about it here, here,   here and here. In a defiant tone in an interview, the EU Climate Chief Connie Hedegaard defended the EU ETS by saying that the lack of a global scheme to address the issue of airline emissions led to the unilateral EU measure.

" We're not surprised by the hostility, but it's clear that some countries don't like it. They say they would prefer a global scheme. But the European Union has been fighting for a global scheme since 1997. It was only after we saw that there was no global agreement that we made our own, regional scheme. If we could reach global consensus at the level of the International Civil Aviation Organization (ICAO), it would be a very happy ending.

... 

The official EU line is that once a global system is enforced, the EU system will no longer be relevant. But we are not changing our scheme just because some countries say they would like to discuss a global system. That is why I am challenging these countries that can unite against the European system to come up with an alternative within ICAO. We'll see what happens. 

I am absolutely sure that most passengers flying with me from Munich to Brasilia would say that paying a couple of euros for the pollution caused by this long-distance flight was fair. The amount we are talking about is less than what a cup of coffee at the Munich airport would cost."

In another interview to Reuters she reportedly said,

 "Nobody has an interest in a trade war and everybody knows that," she added. "It's not that you can threaten us to change the law."

While domestic legislation can definitely be challenged on the ground that it violates international treaty obligations, whether the EU ETS does infact go contrary to EUs WTO obligations is a debatable issue. With the Moscow declaration against the EU ETS, commentators are predicting a long drawn trade war over the issue which includes a possible WTO dispute. The EU Climate Chief seems to be suggesting that a lack of an international agreement has forced the EU to enact the scheme and could withdraw if a more constructive alternative is forwarded. The legality of the measure in the context of WTO obligations has not yet been tested but the DSM would then need to address the issue of a whether the measure is a legitimate use of domestic policy space in the context of reduction of barriers to trade. Would the EU ETS stand the test of the General Exceptions in Article XX of the GATT or be considered a technical regulation applied with a view to create unnecessary obstacles to international trade as per Article 2.1 of the Agreement on Technical Barriers to Trade. Further, is a non-conclusion of an international understanding on any issue ipso facto sufficient for member countries to go ahead with a unilateral measure in the anticipation of a better global alternative. This approach may raise contentious issues in the context of the Doha round of negotiations wherein international agreement on a number of issues has failed. Would this then justify to certain countries to go ahead with individual measures as per their positions, leaving the multilateral system to accept them or come up with alternatives? A new way of proceeding with international trade rule making n the context of conflict?