Of seals, cigarettes and domestic policy space

Simon Lester in this post in the Cato blog discusses two disputes - the Canadian Seal dispute and the Australian Tobacco Plain packaging dispute in the context of the impact of multilateral trade rules on domestic policy making.  In both these cases, domestic policy measures have been challenged at the international fora. They are also measures that are equally applicable to domestic products as well as imported products. Thus, seemingly non-discriminatory policies that are an exposition of domestic policy/will have been challenged at the WTO dispute settlement as being discriminatory and too trade restrictive. Moreover, intellectual property rights (trademarks) also come into play the Tobacco case. Simon has brought out an important issue of what impact this has on domestic policy space without going into the merits of the measures at hand.

"I thought it was worth mentioning these cases here for the following reason.  If international trade rules can be used to challenge any government law or regulation that affects trade, even if the measure is facially non-discriminatory, these international rules are going to be quite broad, and could have an impact on much, if not all, domestic governing.  It may be worth thinking about these issues to make sure we properly balance international governance and domestic policymaking, and these cases provide a good opportunity to do so.  (I wrote more about this in an op-ed for The Jurist on the plain packaging case.)  The cases are at an early stage, and it’s not clear how they will turn out.  But the mere fact that they are being tried in an international court is noteworthy."

These cases are at an early stage of the dispute settlement process and will take their course. There will be Panel decisions and appeals. Amicus curiae briefs will be filed. There may well be a continuation of the dispute on what constitutes compliance. Ultimately it may lead to non-compliance resulting in retaliation. Whatever may be the result, it will bring to the fore the limits of domestic policy regulation space. I have often argued on this blog that domestic policy space is seriously questioned in the context of multilateral trade rules. This is not to imply that they need for multilateral rules is invasive of national sovereignty. The only issue is where the line is to be drawn and who draws the line. Where is the middle path? what kinds of domestic policy are blatantly in violation of international trade rules? Is there a danger of being "judicially active" and be overtly intrusive in domestic policy space? I don't have the answers - but it is a fascinating area of the interplay of international economic regulation, democratic, domestic will and interpretation of international law.

Globalization, judiciary and the middle path

I had written a post a few months back about the debate of constitutional sovereignty and globalization here in the context of the U.S. Constitution. Does globalization, epitomized by world trade rules, have a devastating impact on constitutional values and the power of the people or is it an expression of people's will through State consent?

I have often thought about the attitude of the national judiciary towards globalization and international trade rules. How are they viewed and how are the challenges of globalization, free trade, protectionism construed in the context of the Constitution and domestic legal regime. I found an interesting piece by a former Chief Justice of the Supreme Court of India wherein the issue of globalization and the way the judicial system should react is touched upon. The article dealt mainly with the way globalization impacted legal systems, but it had some important points for international trade law. Commenting on "protectionism" by both developed and developing worlds its said:

"On account of such complex social realities, it becomes very difficult to gauge the substantive benefits of foreign trade and investment. In such a scenario the onus is on the government and the legal system to devise strategies for ensuring a more equitable distribution of the pie. It is the concern with the prospects for our agricultural exports in foreign markets, which has prompted India􏰁s vehement stand against the policy of export-subsidies given to farmers in some Western countries. There is no foundational opposition to the reduction of tariffs and other trade barriers which will enable more foreign firms to trade in goods and services in India. However, Western governments should also be willing to reciprocate by removing the unfair advantages given to their respective agricultural sectors. If the same is done, Indian farmers will be able to improve their earnings from exports and the same will translate into meaningful development for our rural communities. Even though the negotiations at the WTO seem to have been stalled at the moment, there is no ambiguity about the merits of free trade. The only condition is that both the developed and developing nations should be equally committed to the reduction of trade barriers."

Stressing on following the "middle path" it continued:

"The lesson that all of us can conclusively learn from the tumultuous events of the past year is that while the belief in free markets may be well placed, there is an equally important role for governmental intervention in our respective economies. Extreme viewpoints favouring market-fundamentalism on one hand and governmental control on the other hand, will not help us in arriving at constructive solutions. In these uncertain times, it is incumbent upon Courts and regulatory agencies to embody the voice of reason, accommodation and compromise."

While there is no dispute that one must tread the middle path most of the time the issue is to find this middle path. What constitutes the middle path? Who decides what it is? Does the WTO law provide for a country to follow a middle path? Is it flexible enough to allow a judicious mix of policies to achieve national growth amidst reduced barriers? How should the judiciary in a country react to the challenges of globalization? Would holding international economic policy subject to constitutional values inherit the danger of international non-compliance? How should the friction between constitutional vaues and international obligations be reconciled? Are they irreconcilable at all?

Domestic challenge to the WTO in the U.S.

The IELP blog has referred to a domestic challenge to the COOL decision of the WTO in a local U.S. Court here. News of it is found here.The complaint has called into question, inter alia, WTO's authority to override U.S. law. The sovereignty debate is back again. Domestic policy making is continuously challenged under the multilateral trading system. Is every decision of the WTO (panel or Appellate Body) which goes against a country's law a setback to a country's sovereignty? the complaint, inter alia, sought for a declaration that the WTO has no authority to override U.S. law and that its decision concerning the Country of Origin Labeling Act is void in the United States and throughout the world.

An interesting point about "conflict of interest" of the Appellate Body members is also raised in the complaint. It reads:

"22. The WTO Appellate Panel Members were Ujal Singh Bhatia, Ricardo Ramírez- Hernández and Peter Van den Bossche. 

23. Mr. Bhatia was formerly India’s Representative to the WTO. Mr. Bhatia is not a lawyer.

24. Although Ricardo Ramírez-Hernández is a lawyer, he is a Mexican national who has represented Mexico in trade matters. He has an obvious conflict of interest since Mexico was a party to the case, and he should have been disqualified as an appellate jurist. 

 25. Panel member Peter Van den Bossche is from Belgium. Mr. Van de Bossche is a lawyer." 

The conflict of interest pertained specifically to the Mexican member on the Appellate Body. This was echoed by a comment to the post in the IELP blog.

The DSU provisions relating to the Appellate Body are laid out in Article 17. Article 17(3) of the DSU referrers to the composition and states:

"3.The Appellate Body shall comprise persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally.  They shall be unaffiliated with any government.  The Appellate Body membership shall be broadly representative of membership in the WTO.  All persons serving on the Appellate Body shall be available at all times and on short notice, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO.  They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest."

A distinction between Panel members and Appellate Body members, in terms of composition, needs to be highlighted. This has a bearing not he conflict of interest argument. In the case of Panel members, there is a bar for citizens from countries that are parties to the dispute from being a part of the Panel, unless agreed to by the disputing parties (which is very unlikely). This is found in Article 8(3) of the DSU which states:

"3.Citizens of Members whose governments are parties to the dispute or third parties as defined in paragraph 2 of Article 10 shall not serve on a panel concerned with that dispute, unless the parties to the dispute agree otherwise."

This specific bar is not provided for in the Appellate Body composition since there is a difference between the nature of the panel and Appellate body composition. This would also imply, by implication, that the bar of citizens of disputing parties is not applicable to Appellate Bodies. Thus, there could be a situation where a U.S. citizen is sitting as a member of an Appellate Body in a dispute pertaining to the united States. After all, the Appellate Body members are unaffiliated to any government. The conflict of interest provision in Article 17(3) would pertain more specifically to issues that the judge has dealt with in his or her previous assignments that are related to the case at hand rather than the nationality.

Anyway, for now let us assume that Simon Lester's proposition that the complaint may be just not be too serious.

Joel Trachtman on development policy space and the WTO

The debate of development policy space within WTO rules has often been a constant subject of this blog. I have blogged about it here, here and here. How much regulatory space do countries, especially LDCs and developing countries, have in terms of crafting and implementing development policies which are not WTO inconsistent? Can countries, even after the advent of the multilateral trading system, pursue independent development policies? Is there scope within the WTO rules to pursue one's own economic and political developmental agenda? 

Joel Trachtman offers some analysis and answers to some of these questions in his 2006 paper titled "The WTO and Development Policy in China and India" wherein he analyses the policy choices that developing economies like China and India have within the WTO system. Obligations arising out of different WTO Agreements are analysed and policy space within each of the categories is suggested. He has listed out 5 categories of broad obligations that a country would have to follow in the rule based multilateral system:

1. Category 1: goods and services liberalization - embodied in the GATT Agreements

2. Category 2: standards liberalization in the TBT and SPS Agreements

3. Category 3: intellectual property rights under the TRIPS

4. Category 4: investment measures under the TRIMs

5. Category 5: export subsidies and import substitution subsidies categorised under the Agreement on Subsidies and Countervailing Measures

After a detailed analysis of these categories and the options developing countries have in terms of pursuing their development agenda, the author concludes:

"This paper has shown ambivalence regarding restrictions on the “right to regulate” for industrial policy under WTO law. Some restrictions may be desirable, and may be favorable, as Hudec suggested, and as Indian and Chinese policy confirm. Other restrictions may be undesirable. As Amsden and Hikino have argued, “[a]t close examination . . . the new rules of the World Trade Organization, a symbol of neoliberalism, are flexible and allow countries to continue to promote their industries under the banner of promoting science and technology. The success formula of late industrialization—allocating subsidies in exchange for monitorable, result-oriented performance standards—is still condoned." It would seem useful to institute a development policy review mechanism that could provide exceptions to developing countries for appropriate development-motivated policies."

The issue of development policy space within the WTO is a complex question. A blanket rejection of WTO rules as infringement of policy space is a naive and unreasonable stand to take. It is counterproductive and deprives a country of the advantages that a multilateral system has to offer. The challenge is to judiciously manouevre within the WTO rules to further one's national interest. To what extent WTO rules permit such manoeuvering is debatable. There are many exceptions within the WTO rules that permit individual policy choices. However, they need to be exercised in a non-discriminatory and justifiable manner. Exceptions, contingencies and interpretation of rules does allow a little leeway for developing countries to pursue their domestic development agenda. Further, an approach in industrial policy might be strategically very different from the agricultural sector while engaging with multilateral rules. A countries strengths and weaknesses would have to be analysed sectorally to effectively use the rule based system.

This would require a painstaking analysis of what is the right development policy and its analysis with respect to different obligations. It would require a specific, sector wise analysis, weighing of different options and making a comparison of its WTO consistency. At times, WTO inconsistency may have to be implicitly allowed if the cost of compliance is not too high. This takes us back to the fundamental issue - enhancing domestic capacity to engage with the multilateral system. Developing countries must enhance their capacity, not only legal capacity, in a multi-stakeholder mode (involving trade policy experts, economists, legal experts, industrial policy experts, agricultural economists, political leadership, special interest groups as well as the bureaucracy) to address this issue. It is too complex an issue to be left to the domain of a single stakeholder.

Is the WTO Transparent?

Transparency in functioning of democratic institutions has often been the subject of intense discussion and debate. Transparent decision making enhances accountability and ensure that public policy decisions are not arbitrary and capricious. It is considered as a hallmark of a well functioning democracy.Is the principle of transparency equally applicable to international institutions? Are international institutions as transparent as national institutions?

The WTO as an international institution has often been accused of being non-transparent in its dealings. Be it the negotiations during the earlier years, functioning of the Secretariat or the conduct of the dispute settlement proceedings, critics often emphasis that decisions of the body are taken without taking into account the interests of public transparency. This often leads to public criticism and a suspicion that decisions are taken under a cloud of secrecy against larger public interest. While various WTO Agreements require that countries should follow transparency in terms of notification of their measures in accordance with WTO rules, the functioning of the WTO itself in terms of a transparency record is a subject matter of debate. The questions therefore is: Is the WTO transparent in its functioning?

Gabrielle Marceau and Mikella Hurley have comprehensively addressed this issue in "Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms" in the Trade, Law and Development Journal. The article analyses three broad themes: Transparency in the context of information available to the public, the status of amicus curiae (friend of the Court) briefs in the dispute settlement proceedings as well as public participation in the WTO of non-State actors. The articles lauds the efforts of the WTO in terms of the innovation it has made in bringing about transparency in dissemination of information through the WTO website. Further, the increasing trend of acceptance of amicus curiae briefs is seen as a sign of opening up of the functioning of the WTO. Increasing participation of NGOs in various fora of the WTO is also cited as proof of the willingness of the WTO to engage with the outer world and not act as a closed door entity.

Preparing a "report card" of WTO's efforts to enhance transparency, they have suggested specific measures to enhance the "transparency" of the WTO, especially in the area of dispute resolution:

"In the area of dispute settlement, some have pressed for the following: 

1. WTO Members should take the initiative to make their submissions available 

to the public, sanitizing any confidential or proprietary information. The United States is already taking this initiative as a matter of policy. Increased Member willingness to do so is thus encouraged so as to help prospective amici provide more useful information to panels and the Appellate body. Such initiative would also do a great deal to dispel the remaining public concerns about the WTO dispute settlement process.  

2. There is a need to negotiate clear rules regarding the acceptance of amicus curiae briefs. Members have not done so, despite repeated calls for such guidelines, leaving prospective amici and litigants alike in a state of continuing uncertainty.

          ...

3. Panels and the Appellate Body should take a predictable and uniform approach in the treatment and discussion of amicus briefs, both in terms of why they are accepted for consideration (or not), and how they are used. In order to ensure maximum transparency, reports should address the main arguments put forward in  amicus briefs, which will allow Members and the public to understand how they may influence the outcome of a case.    

4. All open hearings should now be made available to the public by webcast. This technology is now established, and  is already in use in other fora.  In addition to furthering the WTO's reputation as a transparent organization, this practice would also ensure that developing country interests are not left out. 

 For the working committees of the WTO: 

5. WTO Members should consider additional, systematic avenues for the participation of and consultation with NGOs. If the membership is not prepared to open committee and working group meetings to NGO participation at this time, the WTO should make certain that the agendas of other meetings – particularly the Public Forum – reflect the important issues under consideration in Member-only discussions."  

Some observations:

1. The WTO website is exceptionally well organised and "transparent". I had blogged about it here a few months back. The ease with which one can find information based on one's need itself signifies that a lot of thought and energy has gone into the design and construct of the website. Agreements, interpretations, updated proceedings as well as status of dispute settlement proceedings all find their place. It definitely promoted transparency. It definitely outshone several other Government and International organisation websites. The design, layout, ease of access and most importantly content and "uptodate" nature of subjects uploaded is very impressive. The Agreements, Dispute settlement cases as well as plethora of documents make very interesting reading. The use of this tool of public transparency will go a long way in enhancing WTO's record of transparency. It is one of the most well organised website for a public institution, especially an international organisation. However, Steve Charnovitz in the IELP blog was rather critical of WTO's transparency in putting accession protocol details on the website.

2. The WTO can be transparent largely to the extent its members want it to be. The WTO, as is often referred to, is a member driven organisation. Though the Secretariat does exist as an independent entity and does play a critical role, decisions at the WTO are largely that of the members. The need and contours of transparency must be thus defined by the members after due deliberation. Is increased transparency detrimental to developing country interests or interests of weaker countries? Why does the notion prevail that enhanced transparency can jeopardise developing country interests? Is transparency in the interests of only powerful trading partners? Can transparency be used as a tool against the less equipped world? This notion has to effectively combated. Transparency in decision making, whether national or international, should be valued as a universal value which enhances the public interest. 

3. Is transparency necessarily increased participation of non State actors? While increased participation of various interests like NGOs, citizen groups enhance the diversity  of the WTO and democratises the working of international institutions, several countries feel that it is an encroachment of its sovereign right to represent its people. they accuse "civil society" of representing elite interests within their countries as well as at times representing other countries interests. How representational are non State actors? How transparent are they in their functioning? While this may be an alarmist and inward looking view, the fear that non State actors can be non-representational, elitist and the concealed flagbearers of vested interests needs to be adequately addressed.

4. Lastly, on the dispute resolution mechanism. The DSM is the jewel crown of the WTO system. The idea of increased public access to proceedings is a welcome step. Public broadcast of proceedings can open the doors to public interest in the WTO. Today, WTO and dispute settlement at the WTO is absent in the national discourse except when a country's interests are adversely affected. WTO is commonly seen as an institution that invades national sovereignty and domestic policy space. This is largely due to the perceived "opaqueness" of the international institution's functioning as well as the "closed door" aura of the dispute settlement mechanism. Can opening proceedings to the public change this perception? Will it bring about a positive change in public perception? Can it lead to increased interest in the functioning of the dispute settlement mechanism as a "rule based system" having its  grounding in transparent rules and procedures rather than being a power based decision making body? In most national judicial proceedings, Court proceedings are open to the public except when in-camera proceedings are specifically ordered. Can this be made the rule at the WTO? This would not only increase transparency but also make the country accountable to its domestic constituents of the positions it takes in international disputes. Is it too radical for implementation?

The debate of transparency at the WTO needs to be one of the foremost agendas at the negotiating forum. While many steps can be undertaken by the Appellate Body itself many measures will require concrete, bold steps from member countries. Achievable or highly unlikely in the context of the Doha impasse?

Globalisation and Sovereignty - Incompatible or Complementary?

The Library of Law and Liberty website referred to in an Opinio Juris piece had an interesting debate on the interplay of sovereignty, globalisation and international law. It is often argued that globalisation characterised by increasing inter-connectedness and international trade rules has a devastating impact on nation states and domestic, national sovereignty. The WTO and other international institutions are often accused of trampling on national autonomy and domestic regulatory space.

John Yoo in his "Debating Sovereignty: Globalisation, International Law and the United States COnstitution" argues that globalisation and the rise of international economic orders characterised by the WTO and other institutions has a devastating impact on sovereignty and national autonomy. He states:

"These efforts aim at nothing less than the erosion of American national sovereignty. Anne-Marie Slaughter, a former Princeton dean and Obama State Department Official, argues that networks of foreign and international officials and institutions will develop independent, common legal standards that will be imposed on nations.  According to her, “where the defining features of the international system are connection rather than separation, interaction rather than isolation, and institutions rather than free space, sovereignty as autonomy makes no sense.” Or, as Harvard scholars Abram and Antonia Chayes have written a “new sovereignty” has emerged where the international order is governed not by independent nation-states but by a “tightly woven fabric of international agreements, organizations, and institutions that shape their relations with one another and penetrate deeply into their internal economics and politics.”

These responses to globalization pose the most direct challenges to the fundamental principle underlying the system of government in the United States: popular sovereignty. Unlike other nations, which locate ultimate power in a nation, in a monarch, or in a government, the U.S. Constitution locates sovereignty in the People of the United States.  The various institutions of the U.S. government are merely agents of the People, whose powers are delegated exclusively through the U.S. Constitution. The American people hardwired two principles into the U.S. Constitution’s structure: the separation of powers and federalism."

Arguing for the balance of globalisation with the traditional constitutional scheme in the US of separation of powers and federalism,  he concludes:

" America’s decentralized government, both between the national and state governments and between the executive, legislative, and judicial branches, discourages a rush into radical reforms or sweeping alterations of the basic rules of the political system. The American Constitution may allow grievous injustices—such as slavery and segregation—to persist for long periods of time, but it also creates a risk-averse political system that prevents the United States from swinging wildly in one direction or another. Altering federalism and the separation of powers to allow for greater international cooperation may seem desirable now, but the long-term benefits may not exceed the costs, if those costs are likely to weaken the Constitution’s governing principles in domestic affairs. The American system can accommodate the demands of globalization within existing doctrines of the separation of powers and federalism, but with some difficulty. That is worth the price to preserve the constitutional principles that have served the nation so well, for so long."

Roger Alford in response in his piece titled "Bolstering American Sovereignty with Treaties" provides a divergent view stating that international law, globalisation and international treaties are not a threat to national sovereignty. In fact they epitomise the effectuation of national will.

"While there are legitimate concerns about a nascent global administrative state, one should recognize that treaties are rarely a threat to national sovereignty.  Indeed, treaties should be seen as an expression of sovereign will to protect and advance our national interests.

Treaties are optional commitments, freely entered into by political actors in order to achieve mutually-beneficial results.  Like contracts, the first principle of treaties is party autonomy.

Sovereign nations negotiate the terms of a treaty and ultimately decide whether or not to join a treaty.  The United States, for example, was intimately involved in the drafting of the treaty establishing the International Criminal Court, but ultimately decided not to become a member because the final text included unacceptable terms.  The same could be said of dozens of other treaties"

Referring to the WTO and sufficient domestic space to protect national interests and sovereignty, he continues:

"The WTO and many bilateral investment treaties have incorporated self-judging national security exceptions, essentially rendering key questions of national sovereignty non-justiciable political questions beyond the purview of international courts.  The WTO also designed the dispute settlement process in a manner that anticipates the possibility that member states will rationally decide to engage in an efficient breach of their obligations."

Strongly supporting international treaties and their minimal influence on national sovereignty, he concludes:

" In conclusion, we have little to fear from treaties.  Treaties are hardwired to protect national sovereignty.  The process of formation, performance and termination of treaties was designed to advance sovereign interests.  Occasionally there are unanticipated consequences that flow from adherence to treaties, but these risks to sovereignty are manageable.  Widespread adherence to treaties reflects a political calculus that the benefits of membership outweigh the costs."

Finally, John Cerone in his piece titled "Facilitating and not Hindering American Compliance with International Law" sees no contradiction between international law and national constitutional order.

"Today’s international legal system is a strongly positivist, consent-based system.  In general, states are not bound by any rules of international law that they have not themselves created or otherwise consented to.  While states have chosen to greatly expand the scope and substance of international law, most of its rules remain in the form of broadly formulated obligations that leave the manner of their implementation in the broad discretion of states."

It would be interesting to study the impact of international law, especially international trade law in the context of constitutional systems and federal structures. Federalism and democratic decentralisation bring in multiple levels of decision making and autonomy. How are international treaty obligations to be viewed in this context? In the Indian context, the Constitution of India is the supreme law of the land. How are international trade rules and their impact on domestic legislation to be viewed in context of the supremacy of the Indian Constitution? Can the domestic courts interpret international trade law in the context of a challenge to a domestic law? What rules of interpretation would they have to adopt? What if it goes contrary to the decisions of the WTO dispute resolution bodies? The interplay of constitutional law, federalism, national sovereignty and international law is definitely an interesting mix open to myriad interpretative journeys!