A GATS dispute after a long time

News of a WTO dispute concerning General Agreement on Trade in Services (GATS) after a very long time trickled in with Russia seeking consultation with EU on the "Third Energy Package".  More on that here.

"The measures concern the production, supply and transmission of natural gas or electricity, the alleged discriminatory certification requirements in relation to third countries in this sector and the requirement in respect of granting access to natural gas and electricity network capacity by transmission service operators. 

According to the Russian Federation, these measures are inconsistent with a number of obligations and specific commitments of the European Union and constitute an infringement of these obligations and commitments.

The inconsistencies alleged by Russia refer to the GATS (General Agreement on Trade in Services), the Agreement on Subsidies and Countervailing Measures and the Agreement Establishing the WTO."

Russia, being a new member of the WTO, seems to be initiating its forays into dispute settlement. The dispute being one relating to EU's commitments under GATS caught my attention. There are very few GATS disputes as compared to the other WTO Agreements.

Some chance of GATS jurisprudence evolving?

More Appeals in the WTO

As per the annual report of the Appellate Body of the WTO, there is more work in store for the Appellate Body in 2014. 

And this is why...

"According to the Legal Affairs Division and the Rules Division, a large number of panels will continue to be active for the foreseeable future. Twenty-seven requests for consultations were received in 2012, the highest number since 2002. This led to the establishment of 11 panels in 2012, the highest number in five years. There are currently seven panels in composition, and six more panel requests are pending before the DSB.Third party participation continues to be high.Four new requests for consultations have been received in 2013, and four panels have already been established this year covering five disputes. Significantly, the compliance proceedings in the aircraft subsidy disputes between the United States and the European Union are also presently under way. Thus, a large number of panel proceedings are currently in progress or about to begin. Assuming: (1) that panel proceedings take, on average, one year from the time of 

establishment of the panel; (2) that the compliance panel proceedings in the aircraft subsidy disputes will take 1.5-2 years; and (3) that, based on the consistent practice of WTO Members involved in disputes since 1996, roughly two-thirds of all panel reports circulated will be appealed the Appellate Body can expect to receive up to a dozen appeals towards the end of 2013 and in 2014. Such an increase in the number of appeals, on top of the increased complexity and size of the average appeal, is likely to exacerbate the challenges confronting the WTO dispute settlement system in the near future."

More disputes at the WTO, more appeals, more international rule making, more predictability and more compliance? 

Dispute settlement - Contrasting yet similar experiences

A recent blogpost in the IELP blog got me thinking - Two contrasting yet similarly placed experiences with dispute settlement in the WTO

- Switzerland's role in dispute settlement 

- African countries role in dispute settlement

While the motivations and reasons for non-participation may be varied, it is interesting to see contrasting profiles having a similar engagement with the WTO's crown jewel.

Taking disputes to their logical end - Seeking retaliation in WTO disputes

This piece on "retaliation" in trade disputes in the WTO is found in the VoxEU. The piece talks about a pattern of how countries have sought compliance of WTO decisions. It also indicates the various types, strategies and means of seeking retaliation which includes cross retaliation to more commonly used retaliation methods.

"The purpose of this investigation was to identify key trends in the WTO dispute settlement system, in particular in the design of retaliation requests. Practice has demonstrated that additional effort is also put into the implementation of these measures once they are authorised. Nonetheless, the original retaliation request – the first opportunity for an offended member country to induce compensation or compliance – is an important tool, and analysing it helps understand countries’ behaviour and goals when pursuing WTO disputes."

It only shows that at times merely initiating a dispute and getting a decision is not the end of the game in WTO disputes. I had earlier blogged about cross retaliation here. Compliance and seeking retaliation is the next big battle.

Whither multilateralism?

Agreements	Number of countries	% of World Population	% of GDP	% of World Trade
Trans Pacific Partnership (TPP)	12	40	60	50
Trans Atlantic Trade and Investment Partnership (TTIP)	2	17	40	34
Regional Comprehensive Economic Partnership (RCEP)	16	49	30	29
Trade in Services Agreement (TISA)	23	25	-	68 (% of Services Trade)

With these kind of mega deals being negotiated, whither multilateralism in trade rule making?

Now, that is a large team

Russia is one of the new members at the WTO. I have blogged about it here, here and here.

And now it has a large team at the WTO Mission - 32 members proposed for the Russian Mission, as highlighted in this piece in the Moscow Times.

"Having a mission on the ground in Geneva is considered essential for a member country to be able to defend its interests within the WTO. Since joining the organization in 2012, Russia has been embroiled in a number of trade disputes, for example over its attempts to shelter its domestic car industry by forcing foreign manufacturers to pay tariffs not applied to local firms."

Time to cope with the multilateral trade body's membership. As on date Russia was already a complainant in one case, respondent in 2 cases and third party in 8 cases at the dsipute settlement proceeding of the WTO.

India and dispute settlement

A regular follower of Trade Law and Development Journal, here is the latest issue on India and the international economic system. 

A piece on India's engagement with the WTO dispute settlement system by James Nedumpara caught my attention. Highlighting India's experience with the dispute settlement system so far, its engagement with challenges faced thereof, the author does conclude that India would have to sustain the capacity already built:

"India’s challenge in the future will be to sustain the capacity already built. Trade disputes are cyclical and it may require positive intervention on the part of the government to foster and nourish trade-related capacity. This article has highlighted the need to establish better channels of communication between the government and industry. Furthermore, a bottom-up approach to stakeholder participation will be feasible only if the government encourages private sector and educational institutions to take greater interest in international trade issues. A large number of trade-related governmental institutions and adjudicatory bodies in India are yet to achieve a desired level of sophistication in WTO matters. Equipping these agencies with the necessary understanding of WTO matters will be crucial for India’s chances of playing a leading role in WTO dispute settlement." 

The WTO dispute process involves the State as the primary actor. However, the interests are largely those of private businesses and sectors, both small and large. To find that partnership model of India's State capacity, legal brilliance and private sector participation will decide the success of India at the WTO dispute settlement process.

Currency manipulation issues in trade agreements - To be or not to be?

Fred Bergsten's latest Peterson Institute's Policy Brief titled "Addressing Currency Manipulation through Trade Agreements" arguing for currency issues to be taken up in regional trade agreements is found here.

For a contrarian view, that currency manipulation issues should not find place in trade agreements, read this piece in Mireya Solis in the Brookings Institution blog.

"For the many reasons highlighted above, TPP countries are unlikely to agree that the current proposals in the United States on currency manipulation are a faithful interpretation of the IMF principles to which they already subscribe. Demanding that American trade negotiators introduce such a chapter at this critical stage in the negotiation process is akin to throwing a wrench in the works of the single most important trade initiative under way: one that will determine whether the United States is a key actor in shaping an Asian regional economic architecture or not, and one that will also affect the fate of negotiations with Europe. It would also mean that the United States is prepared to forego the possibility of a future Chinese entry into the TPP and give up the sizable benefits of promoting greater market reform, regulatory transparency, and compliance with intellectual property rules, to name just a few. All of this, for the sake of an unworkable proposal on currency manipulation."

Currency manipulation provisions in trade agreements - Imminently feasible or unreasonably optimistic?

WIll Iran be the next WTO member?

After Russia will it be Iran to be the next WTO member? The report here suggests it is inching towards membership. 

The status of accession of Iran to the WTO officially on the WTO website indicates a number of steps still to be concluded.

WIll Iran be WTO's 160th member?

More litigation practise

Talking about litigation practice, it seems Indonesia has filed another case. This time it is against Pakistan over anti-dumping measures taken by it against writing and printing paper from Indonesia. The case (DS470) is reported here.

Talking about WTO disputes, the big one this week was the Seals dispute between Norway and EU that I have  blogged about here earlier. 

The panel concluded that the IC exception under the EU Seal Regime violates Article I:1 of the GATT 1994 because an advantage granted by the European Union to seal products originating in Greenland (specifically, its Inuit population) is not accorded immediately and unconditionally to the like products originating in Norway. With respect to the MRM exception, the panel found that it violates Article III:4 of the GATT 1994 because it accords imported seal products treatment less favourable than that accorded to like domestic seal products. The panel also found that the IC exception and the MRM exception are not justified under Article XX(a) of the GATT 1994 (“necessary to protect public morals”) because they fail to meet the requirements under the chapeau of Article XX (“not applied in a manner that would constitute arbitrary or unjustified discrimination where the same conditions prevail or a disguised restriction on international trade”). The panel additionally found that the European Union failed to make a prima facie case that the EU Seal Regime is justified under Article XX(b) of the GATT 1994 (“necessary to protect … animal … life or health”).

Need to get down to reading the Panel report and commenting on it soon.

It's LIVE, well almost!

The WTO website announced the viewing of the compliance proceedings of the much talked about Boeing Subsidies case about which I have blogged here, here and here.

"At the request of the parties in the dispute “United States — Measures Affecting Trade in Large Civil Aircraft (Second Complaint) — Recourse to Article 21.5 of the DSU by the European Union” (DS353), the panel has agreed to show to the public a video recording of the non-confidential portions of its hearing. The screening is scheduled for 31 October 2013 at the WTO."

Though it is not live, it is a recording of some parts of the hearing.

What lies next - a webcast perhaps?

WTO disputes, trade and strategic litigation?

An interesting link between WTO disputes and the growth of trade is analysed in a paper titled "Do WTO disputes actually increase trade?". The paper finds:

"We find that WTO disputes do not, on average, increase a country’s imports of the products at issue. We find only very specific effects of disputes based on the dispute outcome and issue-area. We find significant variation across countries in their responsiveness to disputes, yet that most common explanations cannot account for this variation. This article highlights and begins to fill a significant gap in our understanding of the purpose of the WTO and its effects on trade."

The paper concludes:

"This paper presents an important finding: the effect of WTO disputes on imports at issue is, at best, inconsistent. In the aggregate, disputes are not associated with a statistically significant increase in imports. Looking at particular dispute outcomes and issue areas, only certain types of disputes have been associated with increased trade, and many have resulted in decreases. More- over, certain respondents are more “responsive” to disputes than others. Disputes against some countries have resulted in increased imports, while disputes against others have failed to do so. We do not find strong evidence of a systematic explanation for this variation."

While the relationship between a dispute and the impact it has on trade is far more complex, I found two reasons noted in the paper as to why countries probably file WTO cases interesting - rule clarifying and setting precedence for one's advantage.

"It may be, for instance, that the benefit of dispute settlement rests entirely on its rule-clarifying function. In such a telling, a dispute’s resolution leads to a convergence of expectations over country behavior. If we are to believe that most noncompliance amounts to a misunderstanding of the meaning of rules (Chayes and Chayes, 1993), the main benefit of a dispute may be to clarify the meaning of the underlying law. This benefit would be felt throughout the institution, as countries adjust their behavior to take into account that, e.g. the use of safeguards is now known to require the demonstration of “unforeseen developments”.If this is the case, however, our null finding over the effect on trade of mutually agreed solutions is of special concern. Indeed, settlements have no clarifying effect, since their content is usually kept largely private. When taken together with the finding that settlements have no average effect on trade, there remains little to recommend settlements. This is especially striking given the literature’s contention that MAS are where most of the action occurs in dispute settlement. 

Related to the idea of rule-clarification, it could be that dispute settlement is mostly an exercise in changing the meaning of the rules to one’s advantage. Perhaps countries file to set favorable precedents about matters of concern to them. Although the WTO features no formally binding precedent, or stare decisis, scholars largely agree that something akin to de facto stare decisis actually takes place (Bhala, 1998), where rulings do constrain the rulings of judges in subsequent cases. .."

Strategic litigation? 

Fossil fuels, renewable energy and WTO rules

An ASIL insight into subsidies, renewable energy and fossil fuels throws open larger issues of trade, environment protection and world trade rules.

Timothy Meyer questions the dichotomy between the differential treatment between subsidies given to fossil fuels vis a vis those provided to renewable energy.

"The existence of domestic content requirements in renewable energy programs is likely a political condition for passage by governments that wish to show that they are not subsidizing foreign investors. But this political necessity has rendered government support for environmentally-helpful renewable energy programs vulnerable to challenge before the WTO in a way that environmentally-harmful fossil-fuel subsidies are not, creating tension once again between trade and climate objectives."

Who will bell the cat? 

Currency issues in regional trade deals?

For those following the currency manipulation debate in international trade, a recent WSJ piece may seem interesting where the issue of provisions seeking to address the issue of currency manipulation in trade agreements was discussed.

I have blogged about it here, here and here. 

A possible entry of provisions relating to currency manipulation in regional deals?

The Speech

WTO DG Roberto Azevedo's inaugural vision speech is here.

"We must be committed to deliver a deal before we get on the plane to Bali. It is vital that we succeed. All of us need the WTO. Ordinary people need it too even though they don't know it. Ultimately we should judge our performance on the difference we make to people’s lives. I believe that the multilateral trading system can be the preeminent force supporting growth and development in the world — lifting people out of poverty, improving living standards and helping to put the global economy back on track. We have a unique opportunity to restore the WTO to its proper place at the heart of this system, and to realise the mission of this organisation. 

The intermission is over: it’s time the WTO was back at the centre of the world stage. The stakes couldn’t be higher. We have to deliver. And, if we work together, I know that we will."

Over to Bali... 

More on global value chains

Global value chains is the new buzzword now in international trade. I have blogged about some aspects of it here and here though I am no expert on it.

A new joint OECD-UNCTAD-WTO Report on Global Value Chains reiterates the growing importance of it in today's global economic scenario. the report is titled "Implications of Global Value Chains for Trade, Investment, Development and Jobs".

Some of the highlights of the report are:

 "The growth of global value chains (GVCs) has increased our interdependence: between 30% and 60% of G20    countries’ exports are comprised of imported inputs or are used as inputs by others.

Trade facilitating measures are vital to successful participation in GVCs; trade cost reductions from practical and relatively inexpensive actions could be as high as 16% for some developing countries. 

The role of efficient and competitive services sectors is also crucial: services account for 42% of exports (in value added terms) from G20 economies and more than 50% for some countries. 

 GVCs strengthen the case for multilateral market opening, as barriers between third countries, including various non-tariff measures, upstream or downstream can matter as much as barriers put in place by direct trade partners. 

 Open, transparent and predictable trade and investment policies need a range of flanking policies to ensure benefits from GVCs are inclusive and widespread. In some less developed economies there remains much work to be done to address specific obstacles to effective participation in GVCs.  

Overcoming obstacles to GVC participation can pay big dividends; developing economies with the fastest growing GVC participation have GDP per capita growth rates 2% above average.  

 Multinational Enterprise (MNE) coordinated GVCs account for 80% of global trade. But it is also estimated that the contribution of local firms is very significant (in the range of 40-50% of export value added).  

 GVCs can be an important avenue for developing countries to build productive capacity where local firms can capture a significant share of the value added: but technology dissemination, skill building and upgrading are not automatic and require significant investment.  

Individual countries will want to carefully weigh the costs and benefits of proactive policies, carefully tailored to the country’s specific situation and coherent with its overall development strategy. 

 A structured approach would include embedding GVCs in industrial development policies, in particular creating an environment conducive to trade and investment and building productive capacities in local firms and skills in the local workforce.  

Multilateral co-operation can contribute much to ensuring an overall trade and investment policy climate conducive to sustainable GVC growth, avoiding “beggar thy neighbour” policies, and addressing specific development policy concerns in today’s more interconnected world."

Some food for thought for those working on global value chains, the chalenges of integration and their  relevance to developing countries.

New team, new hopes?

The new WTO chief, Roberto Azevedo took over yesterday. 

The WTO announcement is here. And the welcome address concluded thus:

"Governments do have regional or bilateral trade negotiating options. But I have never heard a trade negotiator from any country say that these options were preferable to a global deal through the WTO. A global deal encompasses more countries and more segments of economic activity than any regional accord could possibly deliver. But if we are to help build a multilateral path forward, all 159 members must work together to deliver in Bali. 

I believe that a deal can be struck despite the short time we have between now and Bali. I shall do everything I can to see that agreement is reached. But there is no such thing as a sure thing, and a great deal of work and commitment are required in the coming weeks if we are to succeed. 

I look forward to your continued interest and engagement in the WTO."

Bali and post Bali developments awaited. 

To comply or not to comply is the question

An interesting debate in the comments section  in the IELP blog on next steps in the Cloves Cigarette case (DS406 ) got me thinking. It brings us to the question of what constitutes "compliance" in WTO law and what do countries do when they feel WTO decisions in their favour are not being complied with? It also raises issues about the effectiveness of the dispute settlement process and how "hard" WTO law actually is.

The issue in question here was whether Indonesia has taken the right step in seeking authorisation  for retaliation against the US under Article 22.2 DSU for non-compliance without taking recourse to Article 21.5 DSU which essentially states:

"Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it.  When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report."

While we await further legal clarity on the point of the right legal recourse of seeking suspension of concessions via vis establishment of another panel to decide whether there was compliance, my attention was drawn to Article 22.6, 22.7 and 22.8 of the DSU.

"6.The DSB shall keep under surveillance the implementation of adopted recommendations or rulings.  The issue of implementation of the recommendations or rulings may be raised at the DSB by any Member at any time following their adoption.  Unless the DSB decides otherwise, the issue of implementation of the recommendations or rulings shall be placed on the agenda of the DSB meeting after six months following the date of establishment of the reasonable period of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue is resolved.  At least 10 days prior to each such DSB meeting, the Member concerned shall provide the DSB with a status report in writing of its progress in the implementation of the recommendations or rulings.

7.         If the matter is one which has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances.

8.         If the case is one brought by a developing country Member, in considering what appropriate action might be taken, the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Members concerned." 

Another avenue is to raise the issue at the DSB "at any time following their adoption"(adoption of the ruling). Developing countries have been given some special rights. Has this avenue been significantly used by the developing world? Has it borne fruit and served its intended purpose of assisting developing countries in getting rulings complied with. Any studies or analysis on the use of this provision? Or is it just on paper?

Compliance of WTO rulings is a very critical issue in legitmizing the role of the multilateral institution as well as the dispute settlement process. While legalese and complexity will prevail when one goes into the details of cases, non-compliance overall undoubtedly impacts credibility of the predictability of multilateral rules. Ofcourse, what constitutes non-compliance is again a matter of incessant debate!

Team Azevedo

Roberto Azevedo, the WTO DG designate has announced his new team of Deputy Director Generals to take over in October. 

They are:

 - Yi Xiaozhun of China (Mr. Yi is a senior trade official in China’s Ministry of Commerce who has worked on international trade issues since the 1980s. He has served as China’s Ambassador to the WTO since 2011.)

 - Karl-Ernst Brauner of Germany (Dr. Brauner is a senior officer in the Federal Department of Economics and Technology who has been Germany’s representative to the Trade Policy Committee in Brussels for the last 12 years.  He has been involved with the WTO since the start of the Doha Development Agenda.)

 - Yonov Frederick Agah of Nigeria (Mr. Agah has been involved with international trade issues in the Ministry of Industry, Trade and Investment since the early 1990s, including as Nigeria’s Ambassador to the WTO since 2005.  He was Chair of the WTO General Council in 2011.)

 -  David Shark of the United States ( Mr. Shark has been serving as the US’s Deputy Permanent Representative to the WTO since 2000 and has a long experience with GATT and WTO issues going back to the 1970s in the Office of the US Trade Representative)

The WTO website stated:

"The Deputies have been selected because of their outstanding commitment to the multilateral trading system and their extensive experience on WTO issues over many years.  They will be working directly with the Director-General to advance the interests of the Organization, including the preparations for the 9th Ministerial Conference in Bali.  “Their specific skills and experience of these deputies will be immensely valuable to advancing the effective and efficient functioning of the WTO,” Azevêdo said.  

DG-Elect Azevêdo consulted extensively with WTO members in the selection of the DDGs.  This has enabled him to make sure that the qualities each of the Deputies will bring to their new positions will benefit the WTO and its future work.  While they come from different regions that symbolize the geographical diversity of the WTO membership, from 1 October they will be serving the multilateral trading system working with the Director-General as a team along with all WTO members."

The new team takes over in October 2013.

Currency misalignment, world trade and the World Trade Report

The World Trade Report 2013 has a large section devoted to currency misalignment and world trade. It goes (p.261)...

The debate on the trade impact of exchange rates has surged again recently in the WTO,56 and is likely to do so each time that it is felt, rightly or wrongly, that the present state of international monetary cooperation does not allow for orderly exchange rate adjustment reflecting balance of payments positions and does allow a particular member, or several members, to enjoy competitive advantages as a result of such a lack of cooperation. While the influence of macroeconomic and structural policies in determining exchange rates is acknowledged (Eichengreen, 2007), the world trading system must regularly “deflect” tensions associated with the perceived trade impact of exchange rates. This has become more frequent in recent years, as growing international inflows and outflows of foreign exchange have the potential to destabilize domestic economic policies and reduce the efficacy of traditional controls (notably restrictions on capital movements).

The question for the WTO is also systemic because exchange rate shifts increase or weaken the desired or perceived level of protection of domestic operators – and thus seem to have a role in the definition of trade policy. At the multilateral level, the erratic movement of exchange rates is frustrating the desired levels of protection that are negotiated by WTO members through long-term commitments – precisely because policies are aimed at setting predictable conditions of access for producers and traders. In turn, members may seek a way to address cyclical development or exchange rate changes in the trade policy toolkit.   

... 

The need for greater coherence for trade and exchange rate policies was included in the GATT rule book at the outset (see Section E.3(c)). The IMF and GATT were created in response to a lack of coordination of economic policies during the Great Economic Depression – these new institutions aimed at dealing with trade and exchange rate policies as a matter of common interest, with the introduction of disciplines to avoid competitive devaluations, to maintain exchange rate stability, to reduce balance of payments crises and to fight protectionism. From the outset, the international monetary and trading systems were linked by a coherent set of rules aimed at the progressive opening of trade and payments. GATT provisions on coherence reflected two things: the attachment of the trade community to exchange rate stability; and the need for that community to ensure that the trading system was not frustrated by the undisciplined use of exchange restrictions or multiple exchange rates. The institutional set-up remains very much one of coherence – and not of conflict – between the two systems." 

Well, no mention of a possibility of a WTO dispute here. Has that died down? Coherence is the buzzword here.