Tuesday, July 31, 2012

Trade restrictions and public morals - How far can one go?

The issue of restricting trade on the grounds of "public morals" or other exceptions is always a slippery slope. Are there any limits to the use of these exceptions (Article XX of GATT covers General Exception)? Can it be used as a "protectionist" tool in a discriminatory manner to achieve political objectives?

Recently, Opinio Juris carried a piece about the issue of the EU ban on trade in products from Israeli settlements in the West Bank. The debate revolved an opinion given by James Crawford that banning imports of goods from settlement territory would be in consonance with both EU as well as global trade law. In the context of the WTO, would it violate GATT obligations of MFN and quantitative restrictions or would the measure be in consonance with the general exceptions provided under Article XX of the GATT? Can a country ban import of these goods on the ground that being from a territory "occupied" by a country it affects their public morals? To what extent can political leanings and political disputes determine trading decisions?

The opinion, which was a detailed exposition of the international law on the point, alluded to the WTO obligations and stated:
"133. For the sake of completeness, it might also be mentioned that in extending a ban on settlement trade, the EC would not be in breach of its obligations under the General Agreement on Tariffs and Trade (GATT), now subsumed within the covered agreements of the World Trade Organization (WTO). Although  GATT Article I requires that most favoured nation treatment be extended to Israel as a WTO Member, and GATT Article XI forbids the use of quantitative restrictions such as a ban on imports, both these provisions are phrased in terms of products originating in the ‘territory’ of another WTO Member. As a matter of international law, the West Bank and Gaza cannot be considered to be Israel’s territory; thus the EC is not prevented by its  GATT/WTO obligations from banning settlement trade."
Thus, the violation of GATT/WTO obligations has been viewed in terms of a technicality that the settlement does not constitute the territory of Israel. Would the analysis have been different if international law held that it could be considered Israel's territory? Would the general exceptions provision of GATT have come to EU's rescue? Would it have been argued that settlement goods cannot be imported because it effects the public morals of the consumers in EU? What are the dangers of this interpretation? Can it be used as a tool to fight international, political conflicts? Positions can be taken depending on one's political standing and trade restrictions can be used as a ground to pressurise and intimidate trading partners. A deeper analysis of the use of the general exceptions in the context of political disputes in the international arena must be made so that international trade does not become a victim of international politics.

Monday, July 30, 2012

To comply or not to comply - Dolphin safe labeling in the U.S.

The Dolphin Safe Tuna case at the WTO has generated considerable debate and discussion in terms of the interpretation of the TBT Agreement as well as the next steps related to compliance for the U.S. The WTO Appellate Body had ruled against the labeling scheme as being inconsistent wit Article 2.1 of the TBT Agreement since it treated Mexican tuna products less favorably than U.S. tuna products. The case also raises the issue of the right forum for the dispute since NAFTA mandates the disputes of such a nature to be brought before it's adjudicatory process.  I have blogged about the case here, here and here.

ASIL Insights has a piece recently that highlights the importance of the case for WTO jurisprudence. Elizabeth Trujillo in her piece titled "The WTO Appellate Body Knocks Down U.S. “Dolphin-Safe” Tuna Labels But Leaves a Crack for PPMs" explains in great detail the interpretation of various provisions of the TBT Agreement and its impact on non-product related process and production measures (PPMs).
"US—Tuna II is a landmark case for the trade and environment relationship and, more specifically, for the future adjudication of technical regulations under the TBT Agreement. In finding the U.S. labeling scheme inconsistent with TBT Article 2.1, the Appellate Body effectively characterized a measure based on non–product–related PPMs as a discriminatory technical regulation. However, the case leaves open the applicability of the TBT Agreement to PPM-based regulations in general—a controversial issue especially for developing nations because of the effect such regulations may have on market access of their products."
I am not going into the details of the AB report here as this has already been done. the focus of this post is an interesting reference to views in the U.S. not to comply with this decision. Eyes on Trade has referred to them here. A letter from a few U.S. Senators has urged the U.S. Administration not to abandon the labeling scheme:
"We are deeply disappointed by the WTO's final ruling, but we stand firmly committed to the Dolphin-Safe label. Let us be clear - Congress has no intention of repaying or weakening the current law applying to this label. Therefore, we request your assistance in developing a solution of complying with the ruling that maintains the current level of protection for dolphins."
Can the U.S. "develop a solution" that both complies with the WTO ruling as well as does not change the labeling scheme? Would extending the same certification standards and regulatory strictness to non-Eastern Tropical Pacific (ETP) regions be sufficient to ensure compliance?

The issue of compliance in WTO law is a complex one. What constitutes compliance in the present case. Striking down the labeling scheme would be one way to comply with the ruling. But would it be the only way? Are there other innovative ways to comply with the ruling, yet maintaining the same labeling scheme? This once again brings out the fact that a country can creatively engage with the WTO system to protect one's perceived national interest. How the U.S. would comply in this case is a matter of conjecture at this stage. Domestic interests and compulsions would probably shape the nature and form of U.S. compliance in this case.

The more important point is that even after a WTO ruling has been given there is debate internally in the country as to whether there should be compliance. In other words, the options before a member in a WTO dispute does not end with the WTO ruling. With strategic lawyering and creative interpretations, one may still continue with the old measure but remain in compliance. This, however, also raises issues about the efficacy of the WTO DSM which is based on a rule based system and an adjudicatory process hat ensures compliance or retaliation. It is one thing not to comply and face retaliation as per the DSU, but quite an other thing to continue with the measure that was held to be violative but to claim compliance.

Interesting times for WTO jurisprudence.

Sunday, July 29, 2012

"Falsified Drugs", India, EU and the WTO - The next battle?

Mint carried a piece recently on the issue of EU's Directive on falsified drugs and its probable impact on the Indian Pharmaceutical Industry. The EU Directive which was enacted in June 2011 essentially amended an earlier Directive on the Community code relating to medicinal products for human use, as regards the prevention of the entry into the legal supply chain of falsified medicinal products.

The new Directive is found here which amended an earlier Directive. The EU Directive is an elaborate piece of legal rules which mandates the following a particular standard of manufacturing of medicinal drugs which would apply to drugs imported into the EU.

Explaining the rationale of the Directive, the preamble, inter alia, states:
(2)There is an alarming increase of medicinal products detected in the Union which are falsified in relation to their identity, history or source. Those products usually contain sub-standard or falsified ingredients, or no ingredients or ingredients, including active substances, in the wrong dosage thus posing an important threat to public health.

(3) Past experience shows that such falsified medicinal products do not reach patients only through illegal means, but via the legal supply chain as well. This poses a particular threat to human health and may lead to a lack of trust of the patient also in the legal supply chain. Directive 2001/83/EC should be amended in order to respond to this increasing threat."
What is a "falsified medicinal product" as per the EU Directive? The Directive defines a falsified medicinal product as follows:
"Any medicinal product with a false representation of:
(a) its identity, including its packaging and labelling, its name or its composition as regards any of the ingredients including excipients and the strength of those ingredients;
(b) its source, including its manufacturer, its country of manufacturing, its country of origin or its marketing authorisation holder; or
(c) its history, including the records and documents relating to the distribution channels used.
This definition does not include unintentional quality defects and is without prejudice to infringements of intellectual property rights.’"
The Directive lays down that drugs can be imported only if certain good manufacturing practices are followed and the products are accompanied by a written confirmation of a competent authority of the same. These "good manufacturing practices" are mandated in Article 47 of the Directive. Alternatively a country must obtain a declaration as per Article 111b of the Directive from the EU whether that country’s regulatory framework applicable to active substances exported to the Union and the respective control and enforcement activities ensure a level of protection of public health equivalent to that of the Union. In other words, a country intending to export its medicinal products to the EU, must establish that its regulatory framework with respect to good manufacturing practices are in conformity with that of the EU.

A number of points on this issue:

1. Is there a case for challenging the EU Directive as violating the TBT Agreement? Is it an unnecessary obstacle to international trade? Is article 2.2 of the TBT Agreement violated?

Article 2.2 of the TBT Agreement states:
"2.2        Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.  For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.  Such legitimate objectives are, inter alia:  national security requirements;  the prevention of deceptive practices;  protection of human health or safety, animal or plant life or health, or the environment.  In assessing such risks, relevant elements of consideration are, inter alia:  available scientific and technical information, related processing technology or intended end-uses of products."
Are the restrictions more trade restrictive than necessary to fulfill the objective of protection of human health. Is the certification procedure and standard unduly burdensome? Is the possibility of potential misuse for protectionist purposes be a ground for a claim that it is more trade-restrictive than necessary?
2. What should India's strategy be? Is not India's national interest in consonance with the interests of the Indian drug manufacturers? Should not there be a strategic agenda to pursue one's interests to protect one's industry? Should there not be a coalition of stakeholders set up to identify "national interest" and chalk out a strategy for pursuing it legitimately at the WTO?

3.Claiming that a particular measure is "protectionist" is quite different from establishing a contravention of WTO obligations of the EU. While the former can have a rhetorical and political pitch, the latter must have sound grounding in the interpretation of the Agreements as well as impact on local industry.

4. Would "protection of human health" be an acceptable exception for the EU to justify this measure? Can India take a stand that the standards prescribed are unduly burdensome and treat developing countries unfavorably since complying with this would make their products, in effect, uncompetitive? Is there de facto violation of national treatment even though on the face of the measure there is no discrimination between imported and local products.

I am not an expert in this field, but I guess this issue would throw open complex questions of the interpretation of TRIPs, TBT as well as the General Exceptions under Article XX GATT.Are we going to see an India EU WTO dispute?

Saturday, July 28, 2012

Is the Australian Plain Packaging legislation violating national treatment?

The Dominican Republic was the latest complainant to the Tobacco Plain Packaging dispute at the WTO against Australia. I had blogged about it here. The request for consultations of the Dominican Republic touched on aspects of alleged violations of the TRIPS, TBT and GATT Agreements. 

The gist of the request for consultation is found here:
"These measures regulating the plain packaging and appearance of tobacco products for retail sale appear to be inconsistent with Australia's obligations under the following provisions of the TRIPS Agreement, the TBT Agreement and the GATT 1994: 
 Article 2.1 of the  TRIPS Agreement, which incorporates the provisions of the  Paris Convention for the Protection of Industrial Property, as amended by the Stockholm Act of 1967 ("Paris Convention"), in particular, (i) Article 6quinquies of the  Paris Convention,because trademarks registered in a country of origin outside Australia are not protected  "as is"; and, (ii) Article 10bisof the  Paris Convention, because Australia does not provide effective protection against unfair competition, for example, creating confusion between the goods of competitors;
 Article 3.1 of the TRIPS Agreement, because Australia accords to nationals of other Members 
treatment less favourable than it accords to its own nationals with respect to the protection of 
intellectual property;
 Article 15.4 of the TRIPS Agreement, because the nature of the goods to which a trademark is 
to be applied forms an obstacle to the registration of the trademark;
Article 16.1 of the  TRIPS  Agreement, because the measures prevent owners of registered 
trademarks from enjoying the rights conferred by a trademark;
 Article 20 of the  TRIPS Agreement, because the use of trademarks in relation to tobacco products is unjustifiably encumbered by special requirements, such as (i) use in a special form,for example, the uniform typeface, font, size, colour, and placement of the brand name, and, (ii) use in a manner detrimental to the trademark's capability to distinguish tobacco products of one undertaking from tobacco products of other undertakings;   
 Article 22.2(b) of the  TRIPS Agreement, because Australia does not provide effective protection against acts of unfair competition with respect to geographical indications, for example, creating confusion  among consumers with respect to the origin of goods;
 Article 24.3 of the TRIPS Agreement, because Australia is diminishing the level of protection it affords to geographical indications as compared with the level of protection that existed prior to 1 January 1995;  
 Article 2.1 of the  TBT Agreement, because the technical regulations at issue accord to imported tobacco products treatment less favourable than accorded like products of national origin; 
 Article 2.2 of the  TBT Agreement, because the technical  regulations at issue create unnecessary obstacles to trade because they are more trade-restrictive than necessary to fulfill a legitimate objective; and, 
 Article III:4 of the GATT 1994, because the measures at issue accord to imported tobacco products treatment less favourable than accorded like products of national origin."
While the TRIPS and TBT violations require analysis, the Article III:4 GATT violation surprised me. The Plain Packaging Legislation is equally applicable to imported as well as domestically made products. Thus, locally made Australian cigarettes too must follow the same conditions. There is no de jure discrimination on this account. As far as defacto discrimination is concerned, does the imposition of plain packaging requirements on imported tobacco products have an impact on the competitive conditions in favour of local products? Does it accord less favourable treatment to imported products or are local products advantaged? To me, both imported and local products are treated in the same manner. It seems that the national treatment violation contention is not on very strong grounds. Am I missing something here? The rest of the contentions is set for a whole lot of jurisprudential interpretation by the Panel and Appellate Body. 

Friday, July 27, 2012

Doha negotiations - Need to change gears?

The Doha round of multilateral negotiations has been going on for a decade now. When will it come to an end? Will the impasses continue for a few more years? A study by Christoph Moser and Andrew Rose titled "Why do trade negotiations take so long?" have articulated the view that it takes longer to conclude multilateral talks when more countries are involved. This is not good news for the Doha round. Comparing the time taken for different GATT rounds, it is interesting to note that the first three GATT rounds which had 19, 20 and 33 members in total took only 8 months to complete. Contrast that with the Uruguay Round that took 91 months with 125 members involved in the negotiations. While one third of countries in the first three rounds were developing countries, now about two third of the countries belong to the developing world.

The above study provides a graphical depiction of the survival rate of Regional Trade Agreements compared to the days of negotiation indicating that it is also inversely proportional to the time taken for their completion as indicated in this figure below:

The reasons for the delay in conclusion of the Doha Round can be attributed to a number of factors:

1. With more than 150 countries participating in the negotiations, there are bound to be divergent interests and hard positions.
2. The developing world is far more active in these negotiations as compared to the earlier rounds leading to increased possibilities of an impasse.
3. The issues themselves are becoming more complex and contentious. While the earlier rounds were more about tariff liberalisation, the present rounds touch on more complex issues of trade, development and access. 

One would have to wait and see if the Doha round of negotiations can break the direct co relation between the length of a negotiation and its poor survival rate.

Pascal Lamy recently highlighted the need to move forward in this regard:
"Those of you who believe that, as time passes, inexorably, the Round might lose all its remaining steam may be right, whether we like it or not. What is clear, in my view, is that not engaging seriously in trying to find solutions to the present impasse will increase the probability of such a disappointing outcome. Credibility lies in the capacity to produce results, not statements. We should all face up to this reality and accept that there is no individual clever escape from this collective responsibility. As we break for the summer, I would urge each of you to reflect on your individual contribution towards collectively breaking the deadlock and allowing for forward movement in our work to fully operationalize the guidance we received at MC8 from our Ministers."
Only time will tell if the gears will be changed in this regard. 

Thursday, July 26, 2012

State led economies and WTO - Incompatible?

Can a country embrace "state capitalism" and still abide by the WTO? Does the WTO impose any particular model of economic development? Does a country necessarily follow the liberal, market economy with minimalist State intervention to be an adherent of WTO rules? Does the WTO provide the "domestic policy space" to follow one's own ideological framework consistent with multilateral trade rules? Are they irreconcilable or is there a middle path? Or is ideology irrelevant in the context of multilateral trade rules as long as one conforms to its mandate?

Leila Choukroune has in a special editorial in Chinese Perspectives dwelt on the aspects of China and it's role in the WTO especially with its "state-led" growth model.
She avers in this editorial:
"The China miracle is also that of an unparalleled country that has been able to abide by the rules while playing with them. The apparent conformity of the Chinese model with international rules hides a much more complex situation in which the state is ambiguously engaged in the economy. This may not be completely new, as many other countries, including the EU and the US, have by no means embraced a pure liberal capitalist model, but the China paradigm nevertheless remains unique in its reach and implications. Indeed, over the past 30 years, China’s GDP has grown at an average rate of 9.5 percent a year and its international trade by 18 percent in volume. (11) From holding shares in the biggest companies to SOEs’ foreign direct investment in strategic resources

and specific loans and currency policies, the Chinese state is present in every sector and at every level of the economy. So why is this rise coinciding with a certain liberal capitalism crisis, and what does it tell China’s competitors? It may be that the current policies of the US and the EU and, for instance, their industrial policies have to be revised in a critical manner against the free market dogma of the 1980s and 1990s. The world will have to count China in, and so will it have to reconsider the role of the state in the economy in order to better balance different actors’ interests and create a level playing field for Beijing and other emerging economies. In doing so, the WTO will matter, but so will the many Foreign Trade Agreements (FTA) (12) that countries are now adopting on a bilateral and regional basis. The complexity of the trade scenario will only strengthen the need for political vigilance and clarification of the state’s objectives for economic development. As long as China’s trade growth will not benefit all equally, and the Chinese population to start with, this transformation will demand not only admiration, but also legitimate concern."
While Chinese State does play an active role in its development agenda, is this in itself prohibited by the WTO or international trade rules? If principles of transparency, national treatment, most favoured nation treatment and providing of subsidies is as per WTO rules, does it matter that the State plays a dominant role in the economy? On the contrary, do capitalist countries not support private sector at all? The examples of Boeing and Airbus definitely do not point to this conclusion. Further, though a State may not be directly involved in the economy in terms of ownership and control, it may indirectly be playing a pivotal role which is  unrelated to it being captialist or socialist. Hence, should not the analysis of China in the multilateral trade context be whether it is following the terms of its Accession Protocol in terms of transparency, predictability and rule of law instead of an analysis of the extent of state involvement in the economy. Countries may play an active role in industrial policy in terms of the involvement of State enterprises. However, whether this ipso facto is a violation of WTO law is debatable. Does the Chinese Accession protocol have any provisions that forbid or limit State involvement?  Do any provisions of the various WTO Agreements limit State involvement? In the US response to the Trade Policy Review of China, the US had raised the issue of "state capitalism.
"Since China’s 2010 TPR, it appears the trend toward state intervention in the Chinese economy has intensified.  China’s tighter embrace of state capitalism now runs directly counter to the economic reform goals that originally drove its pursuit of WTO membership, goals that had offered real leadership and real promise for China’s future economic growth.  The United States continues to urge the Chinese government to reconsider its divergence from the path of reform."
China responded strongly as reported in the Reuters here that the WTO did not bar it from practicing State Capitalism.
"U.S. Ambassador to the WTO Michael Punke levelled a wide-ranging salvo of criticisms during the two-day Trade Policy Review (TPR), which every WTO member has to undergo on a periodic basis, and said China was falling back into a "tighter embrace of state capitalism".
But China swatted aside many of the criticisms, which included complaints about its failure to disclose subsidies and a lack of transparency and intellectual property enforcement.
China's Assistant Minister of Commerce Yu Jianhua said he regretted that during the TPR process some WTO members had deemed China was practising state capitalism.
"The term cannot be found in ... WTO documents. It has nothing to do with the TPR or WTO rules. We strongly believe TPR should not be abused for the purpose of domestic politics," he said."
Nevertheless, the need for ensuring transparency of measures adopted is fundamental to the WTO system. It provides a level playing field as well as provides the basis for objective scrutiny of trade policy. Neither a state led economy nor a capitalist liberal economy can afford to ignore the principles of transparency in application of trade rules and national laws.

Wednesday, July 25, 2012

Protectionism - Any end in sight?

Protectionism has been a recurring theme on this blog. In recent times, calls for reducing protectionism have become louder. We saw that at the 8th WTO Ministerial, at the G-20 Meeting in Mexico, BRICS Conference in Delhi recently. While declarations against protectionism have been easy to come by, actual non-protectionist measures on the ground seem to be lacking. Countries declare their resolve against protectionism and renewed faith in a fair, transparent, rule based multilateral trading system but we continue to see disputes centred around "protectionist" and trade restrictive measures. Further, what complicates the matter is what constitutes "protectionism" and the lack of transparency in many measures of countries in terms of the form and intent of their national level programs. The global economic downturn, it is argued, constitutes one of the main causes of protectionist tendencies.

Deputy Director General of the WTO Valentine Rugwabiza recently reiterated the dangers of protectionism here:
"National economic concerns inevitably gain visibility during times of recession and economic uncertainty, and the political will to open markets to foreign goods and services wanes with the escalation of fears regarding job losses and the livelihood of domestic industries.  In such times, the temptation to resort to protectionist measures becomes stronger....

Consider that 3% of world merchandise trade has been lost to trade-restricting measures introduced since 2008.  This is equivalent to the trade of the entire African continent.  It means that despite their repeated pledges to hold back from protectionism, some G-20 nations have continued to introduce new trade-restricting measures and have been slow to remove measures introduced earlier, even though past experience has shown that protectionist measures only make us all worse off by deepening the economic downturn."

Action speaks louder than words? A reading of various proceedings and declarations does give the impression that countries are resolved to fight trade restrictive measures. But are domestic compulsions so high that one doesn't see honest compliance? I had blogged about the gap between words and deeds here.

Another interesting point raised by Valentine Rugwabiza was of "green protectionism". She said:
"In recent years, we have seen a wide range of measures adopted under the green economy banner by both developing and developed countries.  These measures may in some instances impact international trade.  Through its system of rules and transparency mechanisms, the multilateral trading system of the WTO is a uniquely powerful instrument to help minimize the risks of protectionism and trade tensions.
WTO rules seek to achieve a crucial balance:  on the one hand, they support the right of members to take measures to advance legitimate goals such as protection of the environment;  on the other hand, they ensure that such measures are not applied arbitrarily and are not disguised protectionism."
Was this an indirect reference to the EU ETS on aviation as well as the various green subsidies implemented across the world? 

Global Trade Alert in its latest annual report reiterates the general concern on increased protectionism. It has a country comparison of protectionist analysis of measures since 2008 about which Business Beyond the Reef brought my attention to here. Asserting that G-20 is responsible for the bulk of protectionist measures it states:
"What is more, the evidence presented in this report casts doubts on the strength of international restraints on the resort to protectionism by governments, in particular by G20 governments. There are two pieces of compelling evidence here. First, the share of the worldwide totals of protectionism implemented by the G20 countries has risen year-in and year-out. In 2009 sixty per cent of protectionism was implemented by G20 governments—that percentage has risen in the year to date in 2012 to 79%. Findings such as these cast the repeated 

G20 commitments to eschew protectionism in a particularly bad light. Some observers of the G20 have noted that these commitments have been demoted in the respective summit declarations and the GTA’s evidence reveals just how little priority the G20 countries have actually given to maintaining an open world trading system. 
Second, while there has been a sustained increase in the use of trade defence measures since the last G20 summit, resort to the traditional forms of protectionism that are relatively-speaking better regulated by the WTO account never exceeded 42% of measures implemented in any recent year. During the crisis era, then, governments have circumvented tougher WTO rules and used beggarthy-neighbour policies subject to less demanding or no binding multilateral trade rules. Much of that discrimination is pretty non-transparent—that is, it is murky protectionism."
Ways to get over this impasse have been suggested by various proponents to include the completion of a multilateral Trade Facilitation Agreement that helps developing and less developed countries' businesses to take part in a global economy by reducing procedural hindrances and integrating into the world trading system easier. Whether this would reduce protectionism is debatable but the benefits of a Trade Facilitation Agreement are nevertheless undoubtedly welcome.

Tuesday, July 24, 2012

EU, Japan and U.S. vs. China - Rare Earth Panel established

Labourers work at a site of a rare earth metals mine at Nancheng county, Jiangxi province March 14, 2012. REUTERS/Stringer
(Labourers work at a site of a rare earth metals mine at Nancheng county, Jiangxi province March 14, 2012.
Credit: Reuters/Stringer)

I had blogged about China "blocking" the establishment of a Panel to examine complaints into the restrictions on export of rare earths imposed by China. As rightly pointed by two comments on the post, the "blocking" was permitted in the first meeting where the request was placed. The WTO website has reported setting up of  Panel in the subsequent meeting of the DSB. The establishment of the panel was widely reported here, here, here and here. With China producing 90% of the world's rare earth output, this decision of the WTO would have significant impact on the trade in rare earth minerals like tungsten and molybdenum. The NYT and Reuters had earlier reported on the genesis of the dispute.

The European Union's main contention in the DSB meeting was:
"The European Union said that export restrictions in this dispute constitute a violation of China’s WTO commitments undertaken under the General Agreement on Tariffs and Trade (GATT) as well as commitments undertaken in China’s Accession Protocol specifically aimed at these types of restrictions. According to the EU, the export restrictions significantly distort the market and create competitive advantages in favour of China’s manufacturing industry to the detriment of foreign competition."
This dispute would be interesting in terms of the contours of permissible export restrictions under GATT, domestic policy space under Article XX GATT available to China as well as the special obligations China has under its special Accession Protocol (WTO plus obligations).With the U.S., EU and Japan being the complainants, and a host of other countries (11 to be precise) signing up as third parties, it promises to be a keenly fought battle.

Monday, July 23, 2012

Russia - Joins WTO and has a locally made national Olympic dress

Russia has formally joined the WTO with the Russian President signing on the legislation that ratified Russia's accession to the WTO. This ended an almost two decade old accession process and brings Russia into the multilateral trading system eleven years after China entered it. The reports of Russia finally joining the WTO are found here, here and here. I had earlier blogged about Russia joining the WTO here, here, here and here.

Russian President Vladimir Putin

Apart from the signing of the WTO ratification, President Putin also called on his Russian Olympic Team to "Let London hear the Russian Anthem" in the official Presidential send-off exhorting them to excel in London.

 On a lighter note, I was curious to know about who manufactured the national Olympic dress of the Russian team in the light of the controversy about the U.S. Olympic Team's "Made in China" dress, that I had blogged about here. The Russian national dress is manufactured in Russia by a Russian company, Bosco Sport based in Moscow. Thus, no controversy over outsourcing of Russia's Olympic dress to China though a murmur about a U.S. company American Apparel being offered the deal was doing the rounds here and here.
Russian Olympic teams get equipped at Bosco CenterUniform of Russian Olympic teams

Just to add colour to the debate, I researched further on China's official national dress for the Olympics - it was perhaps made in China but sponsored by a U.S. company - Nike. Truly globalized world indeed.

As one commentator rightly put it:
"Oddly enough, the Olympics exist as a place where nations can compete — and compete furiously — in place of real world disputes. One sentiment yet to be expressed, that the two nations just settle it in the field/court/pool/track."

Who would have imagined that the Olympics would be the next stage for globalisation and its tensions to take over? 

Sunday, July 22, 2012

Strategic Litigation at the WTO

A recent paper by Tilman Kruger on "The Judicialization of Governance in the WTO: Strategic Litigation as an Explanatory Factor?" throws up very interesting issues about the role of the Appellate Body of the WTO, a rule based system vis a vis a power based system, "judicial activism" of the adjudicatory bodies, the impact of the failure of political negotiations on judicial decision making, interpretation of Agreements in the light of global realities when political deadlock fails to suitably legislate to reflect business realities. 

The political and judicial organs have been the two sides of the multilateral organisation. However, with the Doha Development Agenda facing an impasse and consensus looking bleak atleast till the economic downturn subsides, observers believe that the judicial organ has played a decisive part in laying down the "law" for countries to follow. While a majority of decisions are based on a safe "textual" interpretation of the provisions, it is inevitable that instances of creative interpretations and "judicial activism" find their way in Appellate Body decisions. Also when there is ambiguity in the trade agreements and the ambiguity does not get resolved by political consensus and amended rules, the judicial organs have to perforce play the role of interpreting the rules in the light of their understanding of reality and law. It is akin to national judicial bodies "judicial activism" when the legislative or executive branch fails to deliver. However, there are dangers of this judicial activism from political resistance to non-compliance.

Another important point that is made by Tilman is the concept of "strategic litigation" in promoting judicialization of the WTO. Alvaro Santos too in his brilliant piece had alluded to strategic lawyering by Brazil to further its domestic agenda at the WTO. 

Tilman compares the U.S. and EU attitudes towards engaging the WTO to strategically litigate to further their long term interests. the ability to "strategically litigate" at the WTO depends on a variety of factors, especially domestic ones. The paper argues that the Eurpoean Commission's Director General of Trade is far more independent to initiate disputes at the WTO level thatn the USTR which is constrained by domestic political compulsions. This would be true of many other countries. Explaining the importance of "strategic litigation" (using the WTO judicial process to pursue long term interests), the author notes:
"Viewed through the lens of strategic litigation, important shifts in the evolution of WTO governance and its judicialization did not result from a conspiracy of some sorts, blatant judicial activism or an unfettered influence of powerful WTO members. At the same time, they are more than just the results of one or another form of judicial interpretation. In the incidents discussed, the strategic behavior of litigants brought the Appellate Body in a position in which it modified and developed aspects of WTO law and governance. WTO dispute settlement proceedings thus served as an effective forum for the shaping of WTO governance – in the court room, not in the green room."
A few important points that this paper highlights:

1. The importance of judicialization of the WTO in light of the complex political deadlock of the Doha round needs no emphasis.

2. Judicialization can range from over active engagement of member states to an Appellate Body engaging in creative interpretation of Agreements.

3. Developing countries may have a few points to take from the strategy EU or Brazil undertakes in this regard. While there is a constant domestic criticism that WTO is leading to an erosion of sovereignty, can developing countries explore the possibility of engaging in strategic litigation at the WTO to further their domestic development agenda. Trachtman has argued that the WTO offers sufficient policy space for countries to implement their domestic policy space. Can this be channelized to engage the WTO, in the judcial body, with strategic litigation to achieve long term, development goals? What would it entail domestically for developing countries to achieve this?

4. The tension over judicialization underlines the dichotomy between a rule based and power based system. While both are important constituents of the system, a tilt in either favour may be disastrous for the multilateral system. It would be the responsibility of member countries to engage in continuous dialogue to ensure that the balance is not breached. More decisions should be the result of the court room rather than the green room, but to gain wider consensus and implementability the role of negotiation and political consensus is equally important, perhaps not of the green room variety.

5. The ability to engage in "Strategic litigation" is also dependent on a variety of domestic factors. Primary amongst them is what importance WTO litigation is given in the political and bureaucratic circles in the context of a country's development agenda as well as economic strategy. How is it perceived domestically as well as what level of engagement exists in understanding and comprehending the potential it has to achieve its purpose. Further, the level of independence the agency representing the country at the WTO has in terms of taking decisions to strategically litigate is also important. Is it taken at the political level (legislative or executive) or at the bureaucratic level. This would decide to a large extent the degree of strategic litigation as well as the shift from an adhoc based system to a more long term view of the possibilities. 

Saturday, July 21, 2012

Motivations to join a dispute - Dominican Republic joins consultations in Australia Tobacco Plain Packaging dispute

(cigar factory worker in Santiago, Dominican Republic)

The challenge to the Australian Plain Packaging legislation seems to be spreading with the Dominican Republic, a major exporter of cigars, joining the consultation as a party at the WTO. I have blogged about the issue here and here.

Business beyond the Reef and Trade, Investment and Health Blog had interesting pieces yesterday about this. 

The WTO website announced that the Dominican Republic had notified the WTO of a request for consultation. The grounds of the earlier challenge were centred wround the provisions of the TRIPs, GATT and TBT Agreements. Unlike Honduras and Ukraine which have no or negligible tobacco exports to Australia, Dominican Republic has a significant tobacco export trade to Australia. As per the Observatory of Economic Complexity, the Dominican Republic has 4.9% of exports as cigar exports and 7.15% of its exports to Australia were cigars.

Interestingly, many countries have joined the consultations in the two cases that have been filed at the WTO. Guatemala, Norway, Uruguay, Brazil, Canada, the European Union, New Zealand, Canada and El Salvador,Brazil, Canada, El Salvador, Indonesia, New Zealand, the Philippines, Uruguay, Zimbabwe  and Nicaragua requested to join the consultations and have joined the consultations as per Article 4 (11) of the DSU which states:
Whenever a Member other than the consulting Members considers that it has a substantial trade interest in consultations being held pursuant to paragraph 1 of Article XXII of GATT 1994, paragraph 1 of Article XXII of GATS, or the corresponding provisions in other covered agreements(4), such Member may notify the consulting Members and the DSB, within 10 days after the date of the circulation of the request for consultations under said Article, of its desire to be joined in the consultations.  Such Member shall be joined in the consultations, provided that the Member to which the request for consultations was addressed agrees that the claim of substantial interest is well-founded.  In that event they shall so inform the DSB.  If the request to be joined in the consultations is not accepted, the applicant Member shall be free to request consultations under paragraph 1 of Article XXII or paragraph 1 of Article XXIII of GATT 1994, paragraph 1 of Article XXII or paragraph 1 of Article XXIII of GATS, or the corresponding provisions in other covered agreements."
What are the motivations of countries to join a dispute? Canberra Times has an interesting piece on the dispute and states:

"The case before the WTO is still in the preliminary stage of consultations. Australia has refused to give ground, so the original complainants now have the option of requesting a disputes panel. That can take up to a year, and the loser then appeals, which can take another few months before there is a final ruling. Compliance with the ruling can take longer still.

The 12 countries that have joined the WTO consultations have a range of motives: three are neighbours of Honduras. Some, such as Indonesia, are significant tobacco producers; Indonesia's biggest tobacco maker Sampoerna, now part of the Philip Morris empire, withdrew its clove-flavoured Kretek cigarettes from Australia in 2009 rather than display the ghoulish warnings required by existing packaging laws.

But New Zealand has joined the case because it is considering similar legislation to Australia, and the European Union, which has interests on both sides, also signed up to the case as a neutral observer."

So, what can the motivations be for countries to join consultations or request for consultations:

1. If the domestic producers are impacted by the measures, and their exports would be affected, this would be a natural reason to engage in consultations.

2. The country joining for consultation may also be intending to impose similar measures as those challenged in the consultation. Thus, this consultation would serve as a good testing ground for analysing their measures.

3. In international trade politics, initiating a dispute sometimes is for strategic reasons to offset another dispute that the two countries face or are likely to face. It can be used as a bargaining chip in times of negotiation.

4. Even though a country may not have significant trade interests with the country that it seeks consultations with, it may have substantial interests with other countries on the same issue or measure at hand. 

5. Business interests may also play a role in persuading countries to challenge a measure though a country has no trade interest with the other country.

6. Some countries may perceive disputes as "training grounds" for their teams to get familiarised with the DSU and its functioning. It could be art of a strategic litigation strategy to get involved in WTO proceedings.

Any other motivations?