More WTO disputes in 2014

2014 is going to witness some interesting disputes covering issues regarding anti-dumping duties imposed by EU on biodiesel from Argentina, energy adjustments imposed by EU on Russian energy imports, taxes on car imports by Brazil.

Here are some trailers:

Argentina vs. EU 

Russia vs. EU (Not yet reported in the WTO website)

EU vs. Brazil (Not yet reported on the WTO website)

Bali or no Bali, the dispute settlement process of the WTO is on a roller coaster ride for sure!

The Winner is...

Though not officially announced on the WTO website, reports of the next WTO chief are coming in - It would be Roberto Azevedo from Brazil. Reuters confirmed it here. IELP reiterated it here.

Lot of hopes of reviving Doha, to tackling politically sensitive issues in international trade to a greater involvement of developing countries in the multilateral system are pinned on this new selection of the chief.

An interesting aspect in the Reuters report about the currency undervaluation issue that Brazil has raised at the WTO:

"Azevedo has led an effort to get the WTO to discuss the impact of exchange rates on global trade, which many members do not consider a relevant issue for the trade body and one that should be dealt with at the International Monetary Fund. 

The currency debate is unlikely to gain traction under Azevedo's tenure as head of the WTO because it would need member countries to take it forward."

Whether it will receive any traction at the multilateral trading body is anybody's guess.

Over to the next DG of the WTO in September.

It is Brazil vs. Mexico

It is official. It will be Brazil vs. Mexico for the WTO DG's position. The WTO website announced the last lap here.

"Therefore, we will begin the third and final round of consultations based on a revised slate of two candidates, again in the order in which their nominations were received, as follows: 

— Mr Herminio Blanco (Mexico)
— Mr Roberto Carvalho de Azevêdo (Brazil)"

One is tempted to compare the football record of the two countries - though that may not have any bearing on the result here.

Developing countries and strategizing at the WTO

I have often written about developing countries participation at the WTO both in terms of negotiations and dispute settlement. An example that is often heralded as a beacon of hope for the developing and Least Developed Countries in multilateral trade participation is Brazil. Brazil's successful participation and strategy at the WTO has been a subject of extensive research over the years.

Came across this interesting paper by Gregory Shaffer, Michelle Ratton Sanchez and Barbara Rosenberg that summarizes the strategy that Brazil has adopted in engaging successfully with the multilateral trading system. It summarizes the strategy thus:

First, we argue that international trade law and judicialization have mattered in Brazil, unleashing a competition for expertise and helping to transform the government’s relations with business and civil society regarding trade policy. 

Second, and related to this point, we contend that being a defendant in WTO cases can help catalyze these changes, giving rise to mechanisms of public-private coordination to defend a country’s interests at the international level.  

Third, we find that these developments have not represented a weakening of the state, but rather the strengthening of the state’s ability to engage at the international level through a diffusion of international trade law and policy expertise. 

 Fourth, we observe that these processes reflect a growth of pluralism for trade policymaking within Brazil, as the government has been pressed to become more transparent and open to dialogue. 

Fifth, we maintain that these processes are not automatic, but are a function of domestic as well as international factors. We highlight the roles of Brazil’s professional, merit-based Ministry of Foreign Affairs, the development of Brazilian career paths in the international trade field, Brazil’s private sector that has been able to overcome collective action problems to engage with the government, and a general shift in orientation in Brazil’s development strategies.

 Sixth, we find that although the example of Brazil offers some hope to other developing countries, these countries generally face greater challenges and will need to develop their own strategies in light of their own contexts.  

Seventh, we conclude regarding the need to take into account the reciprocal interaction of the domestic and international spheres to understand the operation of international legal orders."

Are there lessons for other developing countries to develop internal institutional capacities to engage with the multilateral trading system? Another more recent study on the participation of Latin American countries participation in the WTO highlighted the importance of private sector involvement and the need for creative solutions to engage with the rule based system. 

Developing countries must engage proactively in the system be it through negotiation, dispute settlement, participation in the  proceedings of various Committees at the WTO or private sector engagement. The strategy should be to actively engage withthe rules rather tan shy away from it. However each country would have to develop its own creative, need based strategy depending on its own requirements. Though there is no one-size-fits-all strategy, lessons learnt in Brazil's engagement would surely help other developing countries. A BRICS strategy perhaps?

Vera Thorstensen on currency manipulation and world trade

I have written about the growing significance of the currency question in international trade law here, here, here and here. Though there does not seem to be any immediate dispute at the WTO around this critical issue, Vera Thorstensen and others have summarised the issues in this CUTS paper. Titled "Trade and Exchange Rates: Effects of Exchange Rate Misalignments on Tariffs" the paper argues that the WTO must play a more active role in addressing the concerns that a devalued or manipulated currency could adversely impact a country's rights under the international trading system. 

Persistent exchange-rate misalignments cannot but create potentially infinite variations of market-access conditions among WTO members. This situation is directly the opposite of what the multilateral system sought with the establishment of the MFN principle, that aimed to assure that no particular country would have a commercial advantage in its trade with another contracting party, which otherwise could raise tensions and divert trade

The effects of misalignments are also distorting many other rules and instruments negotiated under the WTO, such as antidumping, subsidies, safeguards, rules of origin, GATT articles I, II, III, and XXIV. 

The WTO can no longer ignore what is happening behind its magnificent structure of complex trade rules. The persistence of opposite exchange-rate misalignments, of countries with overvalued currencies and others with undervalued ones, for long periods is eroding the objectives of the rules-based multilateral trading system.

The core principles of WTO construction - transparency, predictability and confidence - are under question. The strengthening of trade rules, with the negotiation of instruments to neutralise the effects of exchange rates, is fundamental to the existence of the WTO. Otherwise, the WTO might become a diplomatic-juridical fiction - void of economic reality. 

Historically currency exchange issues have been dealt with by by the IMF and this jurisdictional barrier has kept the WTO from intervening. Will the WTO members allow this topic to gain centre stage at the multilateral body? Will Brazil's submissions be discussed in more detail at the Committees of the WTO? Will a dispute settlement case be initiated by a WTO member against a persistent manipulator of currency? How will the Panel and Appellate Body react? Will ti get included in future trade negotiation rounds as an addendum? Is the situation as serious as made out to be that the WTO would become void of economic reality if it does not recognize and address the issue of widespread currency manipulation? What impact does this have on domestic policy space, multilateral rules and barriers to international trade?

Dispute settlement and developing countries - How does one engage?

WTO disputes have been a recurring theme of this blog. The dispute settlement mechanism is considered as the crown jewel of the WTO system bringing credibility, predictability and certainty to the system with focus on a rule-based resolution of disputes rather the a power-based system.

A dispute in the WTO can only be brought forth by a member government. The State is the only party before a dispute resolution process even though the interests of private businesses are impacted. For example, in the case of the Airbus and Boeing case at the WTO though the affected parties are large, private aircraft manufacturers, the parties to the dispute are the European Union and the U.S.

Disputes at the WTO require sufficient preparation, competence and thorough groundwork before it is launched. An ICTSD paper titled "Where do WTO cases come from?" highlights the importance of preparation and assessment of cases in the context of the complexity and sensitivity of the issue involved.

"In short, undertaking a WTO dispute requires a significant commitment of nearly full time personnel, which can be a real challenge for WTO Member governments. Some governments, such as the US and EU participate in so many disputes that they can rationally hire a very large staff of in-house WTO litigators, but even these two countries struggle when local industry does not contribute legal support for a case. A comprehensive and detailed assessment of a case done early on in the process somewhat alleviates the work during the very busy litigation proceedings."

The paper notes that loss or impact on market access is one of the primary reasons for WTO litigation by member countries, usually on behalf of their private business interests. WTO litigation is all about preparation and competence involved of experts preparing the case.Many countries engage outside counsel for their cases. Private industry is also expected to contribute to the expenses of the case. Brazil, amongst developing countries, has been at the forefront of engaging with the dispute settlement system to further its national agenda.

"An example of a mechanism in a developing country that is in part similar to USTR’s cooperation with outside counsel but very different with respect to the funding and accessibility of WTO litigation is Brazil. A small office of highly sophisticated WTO experts in the Foreign Ministry, many with experience in Brazil’s mission to the WTO in Geneva, manages the cases. However, cases are usually brought only if the local industry agrees to pay for outside counsel to help.The outside counsel may provide research and submission drafting support but the office in Itamaraty remains in charge. The difference between both models of litigation management became clearly visible in the Brazilian Cotton Case, where unlike the Brazilian counterpart, the US cotton industry did not pay for a large legal support effort. Consequently, USTR was outnumbered by the Brazilian officials as well as US lawyers and US academics all working on the side of Brazil.The US might have lost the case even with more resources, the example underlines the ability of some developing countries to use the WTO dispute settlement process on an equal (or better) footing with larger WTO Members."

The paper discusses the considerations involved in a legal and economic assessment of WTO disputes before they are initiated. It gives a detailed account of the need for expertise, assessment and recommends how disputes must be handled by member countries, especially developing countries, at the dispute settlement process at the WTO. It stresses on pre-litigation legal, economic and strategic assessment of disputes before initiation of a trade dispute at the WTO. The importance of creating in-house WTO expertise is often cited as a pre-requisite to a succesful engagement with the multilateral trading system. The paper, inter alia recommends:

"Create in-house WTO expertise. Most, although not all, developing countries have a mission in Geneva with people assigned to the WTO. Monitoring the daily functioning of the WTO, with its numerous committee meetings, as well as observing litigation as a third party, should be part of the mission’s responsibility. And equally important, delegates who have served in those roles in Geneva should remain involved with WTO issues when they are posted back home. Often, there are bureaucratic obstacles – such as if the mission is part of the foreign ministry – to keeping people on WTO assignments, but a conscious attempt should be made to track people who have served in the mission to the WTO and recapture them from time to time in their career so the expertise is not lost. In addition, many developing countries have students in programs such as the World Trade Institute at the University of Berne or at universities such as Georgetown University Law Center, Columbia Law, National University of Singapore, Cambridge and Geneva and many others. Many of those students would be very valuable as interns in a country’s mission to the WTO in Geneva, or working in related offices in the capitols. Efforts could be made to seek those people out, or at least welcome them when they apply."

How many developing and underdeveloped countries can undertake this exercise of competency building? While facing WTO disputes against developed countries one is confronted with highly qualified legal experts from law firms with years of experience. How does a developing country counter this? Countries increasingly rely on the same set of international law firms to fight their cases. This is one of the dealings with the issue. Another way is to systematically develop internal expertise, engage legal academics within the country and ensure that a local talent pool is nurtured and developed with sufficient expertise to assist the government in WTO cases.This would require long term strategic planning and involvement of a large number of stakeholders. It is, perhaps, the only way to engage with the multilateral legal system.

And finally Brazil joins the party!

Brazil finally decided to join the race for the top post of the WTO with the nomination of Mr Roberto Carvalho de Azevêdo for post of WTO Director-General.A detailed bio of Mr.Roberto is found here.

"Ambassador Roberto Carvalho de Azevêdo, a Brazilian career diplomat, has been the Permanent Representative of Brazil to the WTO and other International Economic Organisations in Geneva since 2008. Besides WTO, Ambassador Azevêdo also represents Brazil before other economic organisations, such as the World Intellectual Property Organisation (WIPO), the United Nations Council for Trade and Development (UNCTAD), and the International Telecommunications Union (ITU). 

Having joined the Brazilian Foreign Service in 1984, he has since then accumulated vast experience in international economic and trade policy matters, including dispute settlement. Ambassador Azevêdo’s last position in Brasilia, from 2006 to 2008 at the Ministry of Foreign Relations, was Vice-Minister for Economic and Technological Affairs. In that capacity, he was Brazil’s chief-negotiator for the Doha Round and supervised MERCOSUR’s trade negotiations with other groupings or countries outside Latin America.

May 2013 will see a finality in the selection process.With majority of candidates from the developing world, would the selection of a developing country candidate change the dynamics of negotiations of the Doha round?

Dumping chicken - South Africa takes on Brazil

The BRICS has been a strong interest group in espousing the developing countries cause at international fora. It signifies a coming together of emerging economies to strengthen economic cooperation. I had blogged about BRICs and their resolve against protectionism here.


(Courtesy:BBC)

Now BBC has reported  a dispute over chicken between two of the member countries threatens the interest group. South Africa has alleged that Brazil is dumping chicken into South Africa which is leading to unfair competition and loss of domestic jobs.

"South Africa proudly joined the Bric nations of major emerging economies last year, hoping it would boost its economy and give it far greater diplomatic clout. 

But the ink has barely dried on the paper and South Africa is already involved in a murky trade row with one of its new-found friends, Brazil. 

South Africa's poultry industry is accusing Brazil of dumping chickens on its market and farmers say they are now forced to cut jobs because they cannot compete with Brazil's "unfairly low" prices. 

Brazil has denied this and has taken the matter to the World Trade Organization (WTO)."

Earlier in June Brazil filed a case in the WTO against the imposition of provisional antidumping duties by South Africa on frozen meat from fowl from Brazil.

This case highlights that while trading bloc or interest groups do have some significance in international economic relations, ultimately a country's national, domestic interests play a dominant role in deciding trade policy. South Africa was threatened by a loss of local jobs by alleged dumping and it took the measure of imposing antidumping duties. Whether the imposition was legitimate will be decided by the dispute settlement mechanism. While countries do constitute trading blocs and espouse causes of the developing world in international fora, it is fortified by a keen protection of national interest. The existence of the BRICS would not deter South Africa to protect its local poultry industry against a fellow BRICS member. Whether the action is legitimate or globalization produces its losers is all together another question.

Alvaro Santos, Robert Howse and Andrew Lang on Domestic Policy space and WTO - Brilliant exchange

I was delighted to see an Online symposium in Opinio Juris on Alvaro Santos' article on domestic policy space and the WTO. The discussion on the article by two leading international trade law luminaries Robert Howse and Andrew Lang was extremely enriching and very engaging. I had written about the article in a blog piece here. In this blog I will reflect on this interesting exchange as well as my thoughts on the issues involved.

In his original article titled "Carving Out Policy Autonomy for Developing Countries in the World Trade organisation : The Examples of Brazil and Mexico" Alvaro essentially argues that there is sufficient policy space within the WTO Agreements for developing countries to pursue their developmental agenda provided they are legally equipped and capacity to engage with the multilateral system is strengthened. Providing a synopsis of this stand Alvaro in the Opinio Juris piece states:

"In “Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil and Mexico”, I argue against the commonly held assumption that WTO legal obligations overly restrict countries’ regulatory autonomy. Despite the presence of restrictions, I claim that there is still flexibility in the system for countries to carve out regulatory space for themselves. That countries can expand their policy autonomy means that governments of developing countries have more agency and responsibility than development scholars typically admit. At the same time, however, the asymmetry of power and resources between countries does affect their experience in the system and thus influences the outcomes to a greater extent than liberal trade scholars usually acknowledge.

         ...

However, to show that countries subjected to similar international obligations can pursue divergent trade and development policies is to make clear that there is policy space and that this space can be put to different uses with divergent outcomes. Developing countries’ governments should bear responsibility — and their citizens should hold them accountable — for the kind of developing strategy they pursue, or refrain from pursuing, within the international trade regime."

The basic thrust of this piece is that, subject to certain limitations, WTO rules do afford sufficient domestic policy space for developing countries to pursue their developmental agendas and as part of the strategic lawyering that is proposed, it is suggested that it should be part of this overall developmental discourse.

Robert Howse while giving the example of compulsory licensing in the TRIPS Agreement as an example of policy autonomy broadly agrees with the view that the WTO rules offer sufficient policy space. He comments on the lack of expertise of WTO law in many countries which perhaps hinder the serious engagement of many countries in the dispute settlement system as well as postulates the need for taking forward the learnings of Brazil and mexico to other countries.

"In some countries, there is no independent expertise about WTO law. The government and the people only hear the views of officials who have been more or less inducted into the global trade policy elite, or those of the WTO Secretariat, or those of interests who are using the notion of WTO illegality to block a policy they oppose for other reasons. Today, however, NGOs are playing an increasingly useful role in entering policy debates and contesting interpretations that are particularly restrictive of policy space (ICTSD’s work on TRIPs is a good example). To be able to do this NGOs had to reposition themselves at least partly from being anti-globalization advocates trying to oppose and delegitimate the system to knowledgeable and shrewd lawyers who see the tensions, flexibilities, and balances in the existing norms that can be a basis for contestation within the legal framework as it stands. I am still struck by how journalists (many, though not all), who can be important in transmitting the meaning of WTO law in a domestic policy debate, will go to the same experts-mostly trade officials, lobbyists, or retired officials, and a few professors who are also consultants or closely connected to the WTO Secretariat-and take their views as the correct ones concerning the meaning of WTO law."

Andrew Lang while agreeing with the broad principle the existence of policy autonomy within the WTO also highlights the need for analysing the receptivity of the dispute settlement mechanism to respond to the development strategies of the developing world. In other words, he states that "the power to shape the interpretation of the law in WTO dispute settlement, in other words, is not just a function of the legal capacities of the parties to a dispute, but also about the structural conditions which make certain legal arguments appear more convincing, persuasive, institutionally appropriate, textually grounded, and so on to legal interpreters." He makes the important point that in the coming decade the importance of the dispute settlement bodies is going to become very crucial and central to global trading and will need to respond to the growing strategic lawyering that Alvaro's article talks about.

"A related thought has to do with the pressures that this project will place on the WTO dispute settlement system. Alvaro, and other writing in this area, are right to say that struggles over the interpretation of WTO law are likely to become an even more central aspect of global trade politics over the next decades, partly as a result of more and more Members building their legal capacity in precisely the way Alvaro describes. Is the dispute settlement system equipped at present to respond to the challenges that this will pose? Does it currently possess a sufficient set of juridical tools and techniques to carve out both a legitimate and effective role for itself as it finds itself ever closer to the centre of trade politics? One of the tasks for the next decade or so it to try to craft a way of ‘doing law’ in international economic governance which bears the weight that strategies such as those described in this article will necessarily place on it."

Andrew Lang ends with a different idea in terms of the absence of the notion of Autonomy itself in a globalised world wherein national policy choices are determined by a host of international factors, WTO law being only one of them. Proposing a radical shift in perception, he proposes that positive experimental domestic autonomy and institutional pluralism should be advocated rather than the "negative" restraint on autonomy by the WTO rules. What this would entail, I assume, is that the international economic order will be based on pluralism of national economic policies rather than an exception of autonomy to globalised rules at present. I am not very sure how that translates into multilateral trade rules, non-discrimination and lack of protectionism? 

"A related thought has to do with the pressures that this project will place on the WTO dispute settlement system. Alvaro, and other writing in this area, are right to say that struggles over the interpretation of WTO law are likely to become an even more central aspect of global trade politics over the next decades, partly as a result of more and more Members building their legal capacity in precisely the way Alvaro describes. Is the dispute settlement system equipped at present to respond to the challenges that this will pose? Does it currently possess a sufficient set of juridical tools and techniques to carve out both a legitimate and effective role for itself as it finds itself ever closer to the centre of trade politics? One of the tasks for the next decade or so it to try to craft a way of ‘doing law’ in international economic governance which bears the weight that strategies such as those described in this article will necessarily place on it."

Finally Alvaro has brilliantly responded to the two responses. Reiterating his stand that developing countries should use the existing legal frameworks to pursue policy autonomy, he states:

" Finally, a word on the character of policy autonomy. Lang calls policy autonomy an illusion because international law –or multiple layers of transnational legal regimes- to some extent already structures countries’ economic policy choices when it comes to trade-related regulations. We can imagine procedural rules about sovereignty, state responsibility, jurisdiction and treaty-making, or overlapping substantive regimes of investment and finance, to name a few. So, a country is never entirely free from constrains. I think that diagnosis is right although once made visible, a country might also be able to influence those background legal regimes that affect its choices on trade measures.

At any rate, it might be that Lang’s understanding of policy autonomy and mine are not so far apart. I see policy autonomy not as some limitless or pre-regulatory status that developing countries should strive to inhabit but as a quest for empowerment within the existing international regulatory regimes that could yield better consequences for them. The call is not for disengagement but for a different kind of engagement. If there were a rallying cry it would not be “leave me alone” but “let me experiment and thrive in the system”."

This interesting exchange throws open many issues in the context of the engagement of developing countries in the WTO? What are the limits to domestic policy choice within the WTO. While it is recognised that WTO rules do provide for domestic autonomy, what are the contours and limits of it? Are there certain fundamental principles that even domestic policy choice cannot question? Can we generalise on these limits or do they depend on the facts of each case that are brought to the dispute settlement body? WTO law and interpretation are becoming increasingly complex quagmire of legalese and requirement of legal expertise is a sine qua non for effectively engaging with the trading system. Engaging and using domestic policy autonomy would perforce require a thorough understanding of the law as well as its nuanced interpretation. How many developing countries are capable of this journey? Is the domestic, political regime prepared for such an engagement? 

Another issue of recognising domestic policy autonomy within the WTO regime is to understand that the developed world too would be using this same policy space for protecting their interests. In today's globalised world as much as developing countries are markets for the developed world, developing countries are increasingly exploring markets in the developed world.  Further, using domestic policy space by another country has serious impact on an exporting countries exports. There will be essential trade offs a country will have to make. While using its domestic policy space in a particular context will serve its domestic developmental agenda, the use by another country will affect its trade interests which also may be part of its developmental agenda. How does one reconcile these interests? While countries want to protect domestic industry within WTO rules and it is a legitimate claim, they want reduced barriers and access to markets when their exports are affected. How does one balance the two policy choices of a developmental agenda and market access? In other words, where should the line between domestic policy space, protectionism and innovative interpretation of WTO rules be drawn? Can there be a legitimate domestic policy choice on the grounds of protecting one's domestic industry as part of a country's developmental agenda? Would it be permissible even if it is discriminatory vis a vis foreign competitors? Is there a danger of increased protectionism by the developed world (or even the developing world) by innovative policy autonomy interpretation that the developing world may not be able to use because of a lack of legal capacity? 

Is the assumption that reduced barriers to trade is not in the interests of developing countries? Is the assumption that international trade is not an ally of a country's developmental agenda? Isn't it possible that domestic policy autonomy is hijacked by "hegemonic" national business interests which may not always be co-terminus with national interests? At times domestic policy choice is not guided by developmental agendas but by vested interests to keep international competition at bay. Is this also a permissible domestic policy choice that a developing country should adopt? Does domestic business interest always constitute national interest?

One of the extremely positive outcomes I see from this exchange is the possibility of Law Schools providing independent, "development friendly" advice to developing countries to engage with the WTO. As Alvaro stated:

"Moreover, beyond the role of developing country governments and NGOs, Howse makes clear that there is also a role for legal scholars to play. I am enthusiastic about his idea of using law school clinics to provide independent and development-friendly legal advice to countries in need of counsel for WTO litigation and to other groups, like NGOs, for domestic policy debates about the meaning of WTO obligations. I am on board and hope that this exchange could be the beginning of a project of that sort."

I would be excited to study the journey of India and other developing countries in their use of the Dispute Settlement mechanism to further developmental agendas.It would be worthwhile to study a few developing countries engagement with the DSM in relation to their developmental paradigms like Alvaro did for Mexico and Brazil. One will have to go into the specific examples of measures taken and whether the domestic measure was part of the larger developmental agenda or a purely "protectionist" measure. I would indeed watch very keenly the progress of this project as it seeks to bring international law from its "rarified" confines as many see it to "grassroot" domestic policy making and the rigours of democratic political compulsions.